Viewing posts categorised under: Tax advice
Should I make a tax return? If so, why?
By Peter Brooke - Topics: France, Tax, tax advice, tax tips, Yachting
This article is published on: 16th June 2018
By Peter Brooke & Patrick Maflin of Marine Accounts
Understanding tax liability is still a big issue for yacht crew; in fact, the confusion mainly comes from the lack of clarity about being “Resident” or “Non-Resident” somewhere. Many crew members are still putting their heads in the sand and ignoring this issue; in our humble opinion this needs a cross-industry culture change, as the repercussions for continuing to ignore tax are becoming more onerous and punitive.
So why should I bother declaring my income?
• You will avoid massive penalties, fees and interest on the taxes that you ‘might’ owe should you be investigated later.
• Your info is out there: The Automatic Exchange of Information means that all your financial information is already being shared between governments.
• Common Reporting Standards: All financial institutions such as banks, insurance companies, and investment firms are required, by law, to attain, keep and share residency information for all account holders.
• I want a mortgage: Most lenders now require proof of earnings in the form of tax returns.
• I live on a yacht and so am not resident anywhere! Does your home authority agree with your assessment of your situation? Get it in writing!
On this last point, it is a huge misconception that just because you believe that you aren’t resident somewhere, the tax authorities will not be interested in you. The onus is firmly on the individual to prove non-residency, not on the authorities to prove residency. If you can’t present a convincing case, it is highly likely that the tax authority with which you have that link will deem you to be a resident. If you haven’t declared your income to them voluntarily, they will look less favourably at your situation and can apply significant fines and interest.
So where should I declare?
If in doubt look at it in this order:
1. Time spent – if you spend time ashore where are you spending it? Keep a diary/spreadsheet of EVERY day.
2. Assets – where is most of your wealth kept?
3. Family – do you have major links to a certain country (especially important if you have children)?
4. Nationality – if you are not resident in a country due to time spent, assets or family links it is likely you should be declaring your income to your ‘home’ authority – i.e. where you are from originally.
Don’t wait to be called upon by any ‘linked jurisdictions’, be proactive, understand the tax residency rules of all of these ‘linked jurisdictions’ and voluntarily declare to the most strongly linked one. It will help you sleep at night and could save thousands in fees and interest, as well as avoid black marks on your record.
This article is for information only and should not be considered as advice. Marine Accounts assist crew with tax residency in many jurisdictions.
Peter Brooke is a financial adviser to the yachting community with the Spectrum IFA Group. Spectrum has created HORIZONS, a unique financial solution just for yachts and their crew at
www.my-Horizons.com or email@example.com or firstname.lastname@example.org
All this talk of a flat tax
By Gareth Horsfall - Topics: Income Tax, Italy, Retirement, Tax, tax advice, Tax Relief
This article is published on: 8th June 2018
The current political environment in Italy is one which I find very interesting, notably in how it is perceived in foreign media and presented to us through the usual media outlets. In particular, I reference the constant use of the word ‘Populism’ and ‘Populist Government’. I confess that I had to have a quick look at the definition of populism before writing this Ezine and was interested in finding out that the exact defintion, according to Wikipedia, is:
‘Populism is a political philosophy supporting the rights and power of the people in their struggle against a privileged elite’
I have a confession to make that if I can pick and choose only this broad defintion of Populism then I think I can fit myself into a part of the populist ideal. (Clearly it is more complicated than this but I am merely trying to make my point, and as a regular reader of my E-zine’s you will understand my usual approach!)
However, I think it is worth exploring the idea that the Lega and M5S coalition have put together of a flat tax. Although a flat tax for eveyone, no matter how rich or poor is completely obscene in my opinion the ‘flat tax’, proposals, which will launch at 20% for businesses as of July 1st 2018 and 15% – 20% on 1st Jan 2019 for individuals, assuming the Government holds together, actually make a lot of sense to me.
A radical reform of the Italian income tax system is about to take place, and one which is long overdue in my opinion. Not for any populist reasons, but for more practical reasons which I will expand on below.
The proposed flat tax regime
If you want to have a look at the Contratto per il Governo di Cambiamento, then you can do so HERE. It makes interesting reading, if not full of more blurb than actual facts at this stage. However, its a start.
So, going back to the issue of the flat tax. The proposal, soon to be put into force, is to reform the tax regime into 2 flat tax rates, namely 15% and 20%. This sounds very new and certainly will win a lot of those populist votes. But first let’s take a look at how income is currently spread in Italy and the following chart shows just who it would affect:
It’s quite interesting to note from this chart that 80% of the tax paying population of Italy earn up to €29000. The median declared income is €19000pa. Those may sound strange numbers but when you consider the current Italian tax rates (see chart below), you can start to form an idea that there is probably a little bit of fiddling of the figures. After €28000pa in reddito complessivo the tax rate jumps from 27% to 38%. With this in mind, the proposal of a flat tax could potentially bring in alot of, currently, undisclosed (let’s call it what it really is: ‘in nero’) money to the Government coffers.
A QUICK REMINDER OF ITALIAN INCOME TAX RATES
(IRPEF – Imposte sul reddito delle persona)
€0 – €15000 = 23%
€15000- €28000 = 27% (€3450 + 27% on the part over €15000)
€28000 – €55000 = 38% (€6960 + 38% on the part over €28000)
€55000 – €75000 = 41% (€17220 + 41% on the part over €55000)
over €75000 = 43% (€25420 + 43% on the over €75000)
How might it work in practice?
The new proposal is to have a flat tax of 15% on a combined ‘reddito famigliare’ of upto €80,000pa. If your ‘reddito famigliare’ is above €80,000pa then the flat tax rises to 20%.
A proposed maximum tax of €3000 would apply for every member of the family where they have a individual ‘redditto complessivo’ of no more than €35000pa. This would be limited to families where the ‘redditto famigliare’ is between €35,000- €50,000 pa.
In short, the most generous tax deductions are for those who have a ‘redditto famigliare’ between €40000 and €60000pa.
A straniero example……
This all sounds very exciting and some what overly generous for a country which has historically taxed its citizens up to the eyeballs. However, let’s use an average straniero example to see what difference it would make.
Let’s assume that we have a retired couple, with state pensions (€8000pa each) and private pensions of €18000 and €3000 respectively. They also own a property in their home country which generates a UK income of €8000pa (jointly owned). They have investments and savings, but for the purposes of this example they are not relevant as the proposed measures are for income tax only.
Under the current regime the income of each individual would be subject to taxation.
Spouse 1: €8000 + €3000 + €4000= Total €15000pa The tax rate applicable would be 23% therefore the tax would be €3450
For the purposes of this example I am not including any benefits, or credits that might be avaiable to any one individual or another
Spouse 2: €8000 + €18000 + €4000 = €30000pa Spouse 2 exceeds both band 1 and 2 and will enter the higher rate tax bracket creating a taxable liability of €7720
THE TOTAL INCOME TAX BILL WOULD BE: € 11170 per annum
Under the new proposals both spouse 1 and spouse 2 would pay a flat tax of 15% on their combined income , meaning a total tax bill of €6750
A SAVING OF €4420pa
Let’s take a breath and calm down for a moment
So, before we all start getting very excited we all know the Italian Government is not the most coherent at the best of times and we are in an unprecedented era. It may be that this proposal is watered down yet and we get a half way house offer, but I expect that simplification and lower tax rates are on the cards. In the end the country still has to balance the books and attract foreign investment. If they don’t have enough money coming into the Government coffers to keep the system running smoothly (for lack of a better word :0)) then the money will soon dry up and punitive tax rates will have to be imposed to reap that which has been lost.
My soap box moment
And so I move onto my favouritie part of this E-zine. My soap box moment. You see, I have been wanting to write this formally for a long time but never really had the opportunity to do so. I would go on record as saying that I am actually in favour of this radical overhaul of the Italian tax system and whilst I see this proposed flat tax regime as being a little unequally distributed, I do think its necessary and despite what the bankers, economists and bureaucrats tell us, I actually think it would be a good thing for Italy.
The entrepreneurial zone
I have always waxed lyrical that, what I like to call the entrepreneurial zone, in Italy, is completely dead. Any good economics book will tell you that 80% of employment and growth in a society comes from small to medium sized businesses. That is the shop that opens and gets so many customers that they need to employ a young person to manage the business in the mornings, or a new online business which grows rapidly and needs to employ 5 new people to manage operations. It’s worth repeating that 80% of growth in an economy and job growth comes from this area. Not the Vodafone’s of this world or the multitude of other multinational businesses that pop up on the high street. It’s the small businesses and one man bands that grow into medium sized firms that cumulatively turn over billions in revenue each year. This is real growth. And this is what Conte ( the new Prime Minister) talked about in his first address to Parliament when he said that he wanted Italy to grow its way out of debt and not have to impose more austerity. He is absolutely right. The economics speak for themselves.
Which brings me back to the entrepreneurial zone. This is the area which I think is the most important. To take a business from nothing: an idea, a start up, to revenue of €50,000 each year and onto €250,000 each year you need incentive. It is in the Governments’ interest to incentivize you because you are going to employ the people and pay the taxes that will contribute towards 80% of the running of that country. And from there you may have the skills to turn that business in a multi million euro revenue business employing hundreds of people and contributing back even more into the running of the society. The problem with Italy is that after €28000pa in revenue they effectively chop you off at the knees (the tax rates rise astronomically + there is the dreaded social security contributions to pay. INPS) and let you see if you can hobble along and survive whilst they come running after you to chop off your arms, and then take the rest. It’s like being chased by a mad axe man without your legs and seeing if you can hobble faster than he can catch up with you before he hacks the rest off. It just doesn’t work. In my opinion, this is one of the main problems in Italy and why I think both Di Maio and Salvini have got the right idea when it comes to taxation. (The rest of their policies are open to debate, although some of those also have a lot of merit!)).
I am reminded of the conversations I regularly have with clients who recount stories of their children who set up businesses in Italy and either struggle on barely being able to keep the businesses afloat and or eventually closing down. A young business needs all the revenue it can get in that ‘ entrepreneurial zone’, that area between €0 and €100,000 pa. If a business is going well most of that income is going to be re-invested anyway and used to employ people or purchase goods and services. Europe has to support Italy at this time and allow that zone to flourish and provide opportunities to young and old entrepreneurs alike.
So who is responsible for change
There is always a counter argument for every case and clearly in this case, given the cultural back drop to Italy’s tax collection issues there will be economists who will argue that if income tax revenue were to drop drastically by lowering rates so much then how will Italy, ‘The State’, balance its books, after all there is nothing to say that people will suddenly start declaring all their income because the tax rate is more favourable. That is why the proposed tax regime has to be followed by some hardline clampdowns on tax evasion. Otherwise, it just won’t work.
I am going to follow these proposals closely, and feed back to you, to keep you abreast of any legislation changes. (Watch out for the summer months as they like to slip new laws in whilst everyone is on holiday). I am completely in favour of a total overhaul of the Italian tax system and dispute what the media, economists, and supposed experts say (I sound like a Brexiteer). I think drastically cutting tax rates in Italy, whilst having a short term impact on Government revenue would attract foreign investment in droves ( I mean if you had the chance to set up a factory in Huddersfield or one in Umbria, which would you choose?), it could increase investment rapidly, create jobs, create subsidiary businesses servicing the bigger ones, incentivize larger business to relocate because of the tax rates and could create a new economic boom for Italy. That being said, if it isn’t put into place with some heavy Governmental supervision then it could all fall apart and Italy’s days in Europe would be numbered. And therein seems to be the folly of the whole idea. Europe, whilst I love the European project dearly, has not treated countries like Italy favourably and should it continue on its current path without allowing any kind of change and only implementing austerity, then the likelihood is that Italy would eventually decide to Italexit.
Government has to lead
Italy, like any government around the world has to take the lead in forcing through sensible change. The young business people I know who are barely making ends meet are never going to fully declare every euro they earn when they have families to feed, medical treatments to take care of and childrens schooling costs to pay. And given the choice of making a ‘few’ euros ‘in nero’ and being able to look after the family versus paying into a corrupt state which merely extracts the money from you by osmosis for its own nefarious means, the choice is simple. Most families, if not all, will take that risk. They just have to. Or they move abroad!
So I am in favour of Di Maio and Salvini’s tax plans. I hope they manage to find a solution that will help everyone, mainly the poor and the entrepreneurs who want to prosper but don’t have the ability to do so because of draconian tax measures which should have been ditched long ago. It won’t be an easy ride, but I hope it’s a success. And in the end, should it pay off it may just keep Europe together. Can you imagine Di Maio and Salvini going down in the history books as the saviours of Europe!
(You don’t need to write to tell me that my artistic licence has been abused in this article, just enjoy and let’s see what happens. I, for one, am moderately positive about the future if they can bring about positive change in the tax system in the way in which they are proposing to do).
Given the proposed changes in taxes in Italy, it will be an important time to take a look at your own tax and financial planning arrangements and make sure that they are as tax efficient as possible.
Proposed French Tax Changes 2018
By Sue Regan - Topics: France, Income Tax, Inheritance Tax, Tax, tax advice
This article is published on: 25th October 2017
Since my last article the October Tour de Finance event has taken place at the Domaine Gayda in Brugairolles, near Limoux. As always, it was a huge success and very well attended. It was great to see some familiar faces as well as make some new contacts. Over 70 guests in all came along to listen to a number of industry experts speak about highly topical issues such as the proposed changes to the French tax system, pensions, assurance vie, discretionary fund management and, of course, the “B” word!
In this article I will concentrate on our understanding of some of the proposed changes to the French taxation regime, as published in the Projet de Loi de Finances 2018. Of particular interest to many of our clients are the proposed changes to Wealth Tax, the increase in Social Charges and the new 30% Flat Tax on revenue from capital. At the time of writing, these, and other proposed changes have still to be agreed in Parliament and then referred to the Constitutional Council for review before entering into French law. So we won’t know for sure the exact changes that will take place until the end of the year. However, below is a brief summary of the main proposals as we understand it.
WEALTH TAX (Impôt de Solidarité sur la Fortune)
The government proposes to abolish the current wealth tax system and replace this with Impôt sur la Fortune Immobilier (IFI).
IFI would apply only to real estate assets and the principal residence would still be eligible for the 30% abatement against its value. Therefore, taxpayers with net real estate assets of at least €1.3 million would be subject to IFI on taxable assets exceeding €800,000, as follows:
|Fraction of Taxable Assets
|Up to €800,000
|€800,000 to €1,300,000
|€1,300,001 to €2,570,000
|€2,570,001 to €5,000,000
|€5,000,001 to €10,000,000
|Greater than €10,000,000
This is good news for French residents with substantial financial assets, including those held within assurance vie. However, there have already been some protests to the scope of the new form of ‘Wealth Tax’ being levied only on real estate, with luxury items such as yachts and gold bullion being exempt. Thus, I don’t think we have heard the last of this!
SOCIAL CHARGES (Prélèvements Sociaux)
It is proposed to increase the Contribution Sociale Généralisée (CSG) by 1.7%. This will result in investment income and property rental income being liable to total social charges of 17.2% and, where France is responsible for the cost of the taxpayer’s healthcare in France, at a rate of 9.1% on pension income.
FLAT TAX on revenue from capital
It is planned to introduce a Prélèvement Forfaitaire Unique (PFU) at a single ‘flat tax’ rate of 30% on investment income, made up as follows:
➢ a fixed rate of income tax of 12.8%; plus
➢ social charges at the rate of 17.2% (taking into account the proposed increase).
The PFU will apply to interest, dividends and capital gains from the sale of shares.
How does this affect Assurance Vie contracts?
Based on information currently available and, of course, the finer details may change before being passed into law, it is our understanding that for premiums invested totalling €150,000 or less per person (so €300,000 for a joint life policy) the existing system of withholding tax (prélèvement forfaitaire libératoire PFL). Taking into account social charges at the increased rate of 17.2%, this results in gains on amounts withdrawn, continuing to be taxed, as follows:
➢ during the first 4 years at 52.2%
➢ between 4 years and 8 years at 32.2%
➢ post 8 years at 24.7%
The first draft of the bill proposed that the new ‘flat tax’ will replace the existing PFL system but will only apply to gains on premiums invested after 27 September 2017, that exceed the thresholds above. However, the National Assembly has already decided that it is illogical to have different tax rates, depending on how long the premium has been invested, for new investments made from 27 September 2017. Therefore, an amendment to the bill has already been proposed that all new investments made should be subject to the ‘flat tax’.
It is proposed that all taxpayers will have the possibility to opt for taxation at the progressive income tax rates of the barème scale, plus social charges. Therefore, any potential gains on capital, including withdrawals from assurance vie policies, should be assessed on an individual basis to determine in advance as to which method of taxation would be most appropriate.
There is no change to the inheritance tax treatment of assurance vie contracts and the post 8-year abatement of €4,600 for a single taxpayer, or €9,200 for a couple, will be maintained. Thus, despite the proposed tax changes, the assurance vie will continue to be a very useful vehicle for sheltering financial assets from unnecessary taxes. In addition, as assurance vie policies fall outside of your estate for inheritance tax purposes, you can leave your investments to your chosen beneficiaries without being subject to the French Succession Laws of “protected heirs”.
The abolition of taper relief
The reform also proposes the abolition of the taper relief on capital gains from the sale of shares, in respect of gains from disposals from 2018.
So, if you are sitting on a portfolio of shares which are not sheltered in a tax wrapper, then now is the time to have a look at any gains you may have and, possibly make use of the taper relief of up to 65% on the total gain, while it is still available. Don’t delay in speaking to your financial adviser who should be able to identify whether the restructuring of your investments is in your best interests.
Are you thinking of selling your UK property or have you sold one recently?
By Sue Regan - Topics: CGT, France, Income Tax, Residency, tax advice, tax tips, UK property, Uncategorised
This article is published on: 13th January 2017
I decided on the topic for this month’s article after having had a couple of very similar conversations recently with expats relating to the sale of property in the UK. In each case they were badly let down by their UK Solicitors who failed to inform them of a change in UK legislation that was introduced in April 2015. As a result, they received unexpected and not insignificant late payment penalties from HMRC for failure to complete a form following the sale of their UK property which could have been avoided if they had been made aware of this change in the law.
Recap of the new legislation
Prior to 6th April 2015 overseas investors and British expats were not required to pay Capital Gains Tax (CGT) on the sale of residential property in the UK, providing that they had been non-resident for 5 years. New legislation was introduced on 6th April 2015 that removed this tax benefit.
The rate of CGT for non-residents on disposals of residential property is the same as UK residents and depends on the amount of taxable UK income the individual has i.e. 18% for basic rate band and 28% above it, and it is only the gain made since the 6th April 2015 that is subject to CGT for non-UK residents.
Reporting the gain
When you sell your property, you need to fill out a Non-Resident Capital Gains Tax (NRCGT) return online and inform HMRC within 30 days of completing the sale, regardless of whether you’ve made a profit or not. This applies whether or not you currently file UK tax returns. You can find the form and more information on the HMRC website at hmrc.gov.uk
Paying the tax
If you have a requirement to complete a UK tax return then payment of any CGT liability can be made within normal self-assessment deadlines. However those who do not ordinarily file a UK tax return will be required to pay the liability within 30 days of completion. Once you have submitted the form notifying HMRC that the disposal has taken place, a reference number will be issued in order to make payment.
As a French resident you also have to declare any gain to the French tax authority. The Double Taxation Treaty between the UK and France means that you will not be taxed twice on the same gain, as you will be given a tax credit for any UK CGT paid (limited to the amount of French CGT). The French CGT rate is 19% and any taxable gain is reduced by taper-relief over 22 years of ownership. You will also be liable to French Social Charges on the gain, at the rate of 15.5%, and the gain for this purpose is tapered over 30 years (rather than 22 years).
At Spectrum we do not consider ourselves to be Tax Experts and we strongly recommend that you seek professional advice from your Accountant or a Notaire in this regard.
There is little that can be done to mitigate the French tax liability on the sale of property that is not your principal residence. So it is important to shelter the sale proceeds and other financial assets wherever possible to avoid future unnecessary taxes. One easy way to do this is by investing in a life assurance policy, which in France is known as a Contrat d’Assurance Vie, and is the favoured vehicle used by millions of French investors. Whilst funds remain within the policy they grow free of Income Tax and Capital Gains Tax. In addition, this type of investment is highly efficient for Inheritance planning as it is considered to be outside of your standard estate for inheritance purposes, and you are free to name whoever and as many beneficiaries as you wish. There are very generous allowances for beneficiaries of contracts for amounts invested before the age of 70. Spectrum will typically use international Assurance Vie policies that fully comply with French rules and are treated in the same way as French policies by the fiscal authorities.
International Assurance Vie policies are proving highly popular in light of Loi Sapin II, which has now been enacted into law. More details about the possible detrimental effects of the ‘Sapin Law’ on French Assurance Vie contracts, in certain situations, can be found on our website at www.spectrum-ifa.com/fonds-en-euros-assurances-vie-policies/. Thus, when also faced with the prospect of very low investments returns on Fonds en Euros – in which the majority of monies in French Assurance Vie contracts are invested – it is very prudent to consider the alternative of an international Assurance Vie contract, particularly as you would still benefit from all the same personal tax and inheritance advantages that apply to French contracts.
Portugal’s Non-Habitual Resident (NHR) Tax Code & Golden Visa Regime
By Phil Stephens - Topics: golden visa regime, non-habitual resident, Portugal, Residency, Tax, tax advice, Uncategorised
This article is published on: 5th August 2016
It is not an exaggeration to say that Portugal’s NHR and Golden Visa regimes offer two of the most beneficial tax and residence arrangements available in the world.
The NHR Tax Code
- The NHR tax code is designed to attract foreign individuals to Portugal to entice investment and increase employment opportunities in Portugal
- NHRs are Tax Residents of Portugal but they can benefit from preferential tax rates and in many cases, receive income and interest, which is totally exempt from Personal Income Tax (PIT)
- Any person who has not been resident in Portugal in the past 5 years and who subsequently becomes resident of Portugal may be entitled to apply for this status
- The NHR is valid for 10 years – and may well be extended in the future
- Individuals who qualify must apply by 31st March in the year following registering as a resident of Portugal
Tax Treatment of *Foreign Source Income (generated outside Portugal)
||Taxation in Portugal
|Real Estate Rentals
||Exempt-as long as obtained from abroad
* Sources of income from any of the 81 “Black Listed” territories will not qualify under the NHR tax code
Portugal Source Income
Any income generated in Portugal will be taxed at a flat rate of 20% instead of at the normal progressive rates: up to 48%
Certain professions, such as architects, engineers, doctors, university professors, auditors and tax consultants and other esoteric occupations may also obtain a favoured tax status.
In essence then, anyone who qualifies for residence in Portugal and who can meet the NHR criteria can obtain the these tax privileges .
Importantly, as well as taking tax advice in Portugal, candidates for the NHR tax Code should ensure that they have informed their home country’s tax authorities that they are leaving to avoid any risk of double taxation.Please note, however, that other countries may challenge such residency status by arguing that in accordance with their domestic rules the relevant person should be considered resident in such jurisdiction. If that becomes the case, i.e. if there is a conflict of residency where two countries consider the same individual resident in both their respective jurisdictions, the tie-break clause established under the tax treaties will apply.
In the case of the United Kingdom, the new Statutory Residence Test (SRT) “maze” can exclude a claim of non UK residence, or inhibit the number of days one can visit the UK in the first three years of non-UK Residence unless certain steps are taken.
How can we help?
- We can advise and assist in obtaining NHR with suitably qualified Portuguese associates and assist in obtaining applying for the NHR tax code treatment
- We can refer clients to our UK tax advisors who will ensuring that the correct procedures are adopted so that the SRT non-resident status is met. This will ensure, with the agreement of HMRC, no UK tax returns being necessary in the future
- Likewise, our qualified Portuguese associates, will provide the necessary forms under the Portugal Double Tax Agreements to ensure any UK non- Government pension income is paid gross
Who Can Apply for the Golden Visa
Third State citizens involved in an investment activity, either individually or through a company conducting, at least, one of the following operations in national territory for a minimum period of five years:
I) Capital transfer with a value equal to or above 1 million Euros;
II) Creation of, at least, 30 job positions;
III) Acquisition of real estate with a value equal to or above 500 thousand Euros.
It covers shareholders of companies already set up in Portugal, or in another EU State, with a stable residence in Portugal and with tax obligations fulfilled.
- The investment function established for the Golden Visa has to made and maintained for a minimum of 5 years from the date of which the Golden Visa is established
- The Golden Visa is initially valued for 1 year, renewable for each 2 year period required
- Holders of the golden visa may need to evidence that they have stayed on Portuguese territory for at least 7 days in the first year and 14 days in the subsequent 2 year renewal periods
- After the 6th year, the Visa holder is eligible to apply for Portuguese citizenship, if they so desire
How can we help?
In conjunction with our Portugal Legal associates we can guide applicants through all aspects the process of obtaining the Golden Visa permit.
An overview of tax treatment in Portugal 2016
By Robbin Davies - Topics: Portugal, Tax, tax advice, tax tips, Uncategorised
This article is published on: 28th July 2016
The Portuguese tax year runs from 1 January to 31 December and the tax system comprises of state and local taxes which are generally calculated based on income, property ownership and expenditure.
Portuguese residents are taxed through IRS (Personal Income Tax) on their worldwide income and on a self assessment basis. The income of married taxpayers is based on the entire family unit, and married couples must submit a joint tax return. However, spouses of individuals residing in Portugal for fewer than 183 days in the calendar year, and who are able to prove that their main economic activities are not linked to Portugal, may file a tax return in Portugal disclosing the tax resident individual’s income and their part of the couple’s income.
Income is split into the following categories: revenue from employment, business and professional income, investment income (including interest), rental income, capital gains and pension income. Defined tax deductible expenses are deducted from gross income for each separate category – giving a net taxable income for that category.
A splitting procedure applies to married couples by dividing the family income by two prior to the applicable marginal tax rate being determined. Total taxable income is taxed at progressive rates varying from 14.5% on income under €7,000 to 48% for income over €80,000 to arrive at a final tax liability, then multiplied by two in respect of married couples. There has existed a “Solidarity Tax” of 2.5% which is charged on income over €80,000, and progressively up to 5% for income over €250,000, but this will cease at the end of the 2016 tax year.
Investment income (such as capital gains, interest and dividends etc,) is currently taxed at a rate of 28%. Likewise, rental income is also taxed at 28%, but in both cases tax residents in Portugal may elect for the scale rates to be applied, but once this method is chosen, it will be applied to all income sources. Any tax withheld is considered to be a payment on account against the final total tax liability.
Income from self employment is category B income and is taxed either under a ‘simplified regime’ or based on the taxpayer’s actual accounts. If a taxpayer has earnings below a certain ceiling, they are liable to taxation according to the ‘simplified regime’ whereby 20% of income from sales of products or 80% of income arising from other business and professional services is taxed with a minimum taxable amount due. No expenses deductions are permitted under the simplified regime. If the simplified regime is not applicable then net profits or gains made by an individual are assessed in accordance with the same rules that apply to company tax assessment. Earnings from self-employment or independent activities in Portugal are subject to tax, whether or not an individual is tax resident in Portugal, and may be withheld at source. Tax credits are potentially available for medical expenses, school fees, life and health insurance premiums and where appropriate, mortgage interest, but they are subject to certain conditions. There are other credits available, for example for contributions into retirement schemes and the purchase of eco-friendly renewable energy. Deductions are also available for limited donations to charities, and for payments of alimony that has been determined by a court decision.
It should be noted that with effect from 2010, all foreign bank account holdings are required to be disclosed on income tax returns. In addition, Portugal has a list of of jurisdictions that it considers to be “tax havens”. This list includes the Channel Islands and the Isle of Man, and income from these jurisdictions is taxed at the higher rate of 35%. There do exist alternatives to these jurisdictions which are approved by the Portuguese Tax Authority. Likewise, whilst Trust income is considered liable to taxation, this varies depending on whether the payments from such entities arise from distribution by, or dissolution of, the trust. Nevertheless, where estate planning is concerned, this can be of considerable interest.
Non-Habitual Resident scheme
This attractive regime for new residents with substantial assets is still available for those persons who have not been tax resident in Portugal during the previous five years, whether employed or retired. It provides for substantial tax exemptions during the first ten years of residence. Spectrum IFA Group would be pleased to discuss the structure and implications of the scheme.
This is not an exhaustive list of taxable items, and changes may occur during the current tax year, but it is designed to give an overview of the most import and key issues. Taking professional advice from a designated tax-advisor is essential, and Spectrum IFA Group is well positioned to assist in finding the appropriate institution or individual to provide such advice.
Planning for Certainty in an Uncertain World
By Daphne Foulkes - Topics: europe-news, France, tax advice, Uncategorised
This article is published on: 17th June 2016
At the time of writing this article, the UK Referendum on membership of the EU is only a week away. As the polls swing from one side to the other, uncertainty increases, in part driven by sensationalist media reporting. It seems that even football hooliganism might have the potential to affect the outcome of the Referendum, if England is disqualified from Euro 2016.
If the vote is to remain, in theory, life should go on as we know it. In practice, the schism created within the government over the EU question could make things unworkable. The next UK general election is scheduled for May 2020, but could we see this brought forward?
If the vote is to leave, no-one knows at this stage what this will mean in practice, as it will depend on any exit terms negotiated. If nothing is agreed within two years, then the UK will just exit the EU without any special terms at all, unless all the remaining countries agree to extend the deadline. However, will any of the Member States be favourable to granting special ‘club membership terms’ to any country that leaves the club?
For those of us living outside of the UK, how do we plan for our financial future, amidst all this uncertainty? Well the saying, “when in Rome, do as the Romans do”, comes to mind here. As difficult that thought may seem to be now, financial planning is for the long-term and part of that planning is managing through ‘events’ that occur – including the big political and economic ones.
So whether the UK is in or out of the EU, what really should be considered in planning for a secure financial future is what works best for us according to our country of residence. We already have many clients who are non-EU nationals living happily in France (and in the other countries in which we are based). Whilst there may be some different home tax issues to consider, the financial planning that we carry out for these clients is no different to what we do for our British clients.
Last month, I wrote about tax-efficient savings and investments in France and if you did not see this, the article can be found at www.spectrum-ifa.com/tax-efficient-savings-investments-france/. All the savings and investment products mentioned are widely used by people of all nationalities – being an EU national or not, makes no difference.
A very important part of planning for a secure financial future is to have an appropriate investment strategy for financial assets. Your attitude to investment risk and objectives for your capital are major factors to be taken into account when recommendations for any investments are made. For expatriates, it is also important to consider currency and mobility needs. Investment recommendations should only be made following an in-depth review of your personal situation. Everyone’s situation is different and there is no ‘one plan fits all’ facility.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you would like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at email@example.com or by telephone on 04 68 31 14 10. Alternatively, drop-by to our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of the investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter here.
Declaring your tax position in Italy (and post-Voluntary Disclosure program)
By Daniel Shillito - Topics: Income Tax, Italy, Milan, Tax, tax advice, Uncategorised
This article is published on: 2nd February 2016
This article could have been called “Tax Disclosure post Voluntary Disclosure..” but maybe that’s just too many disclosures!
From time to time I receive enquiries regarding the foreign assets and income of expatriates or new immigrants to Italy.
How should these incomes or assets be disclosed to Italian tax authorities? and how will they likely be taxed now and in the future? In some cases questions also arise about assets and income of previous years, and the taxes or penalties that might apply.
The Italian government’s Voluntary Disclosure program that provided reduced penalties for undisclosed foreign income and foreign assets may be over; however we continue to work closely with selected Italian commercialista to help you manage your financial situation and keep you informed of your general tax responsibilities.
We can certainly refer you to competent commercialista who have experience dealing with foreign-held assets and complex tax situations.
The followiing guidelines have been prepared with the help of our commercialista partners, and may help if you are in a situation where you have questions about your foreign assets or income, and you reside in Italy today.
If you are an Italian tax resident, then you are taxable on your worldwide income and assets. This includes not only business or salary income, but also income earned on all assets you own that exist outside Italy, such as interest on bank accounts, rental income on property, private pension income, dividends and capital gains from shares or bonds and other such financial instruments.
Failure to disclose income or assets related to the past will still require payment of calculated taxes outstanding, as well as penalties for non-disclosure and late payment.
In general you are required to disclose all such foreign assets in the annual Quadro RW form – regardless of whether you received cash income from them or if you paid tax in another country already.
A rare few investments benefit from an exclusion to personally disclose (That is, disclose yourself in your own annual tax lodgement), including select Life Insurance Policies, however you need to request advice to be sure in these cases. Be sure to get in contact for more information.
Penalty for non-disclosure of foreign assets
The penalty for not disclosing your controlled foreign assets on your annual RW tax form is 0.75% of the undisclosed amount, for every year it is undisclosed going as far back as the Statute of Limitations time period allows.
Statute of Limitations (Tax)
The Italian tax authority’s Statute of Limitations indicates that you cannot be brought to account and taxed in relation to undisclosed income or assets (relating only to whitelist countries) once 5 full tax years have passed. This law does not apply to assets held in non-whitelist countries.
So, for example, any undisclosed income or assets relating to the 2009 calendar year and whitelist-only countries, will no longer be assessable for tax by the authorities, as from 1 January 2016.
As countries around the world implement the OECD’s Automatic Exchange of Financial Account Information Sharing Agreements, it is ceratinly an important time to consider your overall tax situation and review disclosures where necessary.
Rental Income from properties overseas and how to declare it in Italy
By Gareth Horsfall - Topics: Italy, Property, Residency, tax advice, taxation of rental property, UK property
This article is published on: 25th January 2014
One of the questions I am asked regularly is how income from property held overseas is taxed in Italy. Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian rental income?
I would like to dispel any myth and confirm that you do have to pay Italian tax on the profit from any rental income on properties held overseas as a resident in Italy. (if it was really ever in doubt. Out of interest the arrangement is reciprocal, and any if you were resident in another country with rental property in Italy then it need to be declared as well).
The best way to organise your rental income
The law for Italian tax residents states clearly that the net profit (after expenses) from property overseas, must be declared in the Italian end of year tax return. The net profit is then assessed as income, added to the rest of your income for the year and tax paid at your highest rate of income tax (that could be as high as 43%).
Let’s not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable income (whatever you choose to call it) value of the property.
If tax has been applied in the country of origin, it is the law in Italy to declare the funds here as well and so annual declarations need to be made.
As an aside, it is relevant to note that in 2012 I received a deluge of enquiries from people who had been contacted by the Guardia di Finanza who had obtained information from HMRC (UK tax authorities) about people who have/had rental properties in the UK, were legitimately declaring tax in the UK, but who had failed to then declare that income in Italy. In some cases they were fined substantial amounts for merely this simple mistake.
However, all is not lost because there is a way to limit your Italian tax liabilties. If the property income is declared in the country of origin and all the costs are deducted from the income, still within the country of origin, then ONLY the net profit needs to be declared in Italy. In some cases it might also be necessary to declare the rental income in the country of origin even when that country no longer requires you to, for example the UK. If you have rental income under the basic allowance of approx the first GBP 10500 of income and therefore the UK no longer requires a declaration, it may still be wise to insist on making a declaration because the UK allow for multiple expense offsets for tax purposes. By following this process you are showing the Italian authorities your expense declarations and therefore it is acceptable for Italian tax purposes.
You may in some cases be able to reduce your net profit to zero.
To clarify, any rental income from properties held overseas must be declared in Italy, for Italian tax residents. This is the NET income (after expenses). And this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.
Depending on why you are investing in property overseas the advantages/disadvantages can work in 2 ways: .
- If you have high expenses for the property then it can work in your favour as a capital appreciation investment. (assuming the value of the property goes up). Less income means less tax.
- The downside of this arrangement is that someone with low expenses and high net income (maybe living from the income in retirement) will be assesed at their income tax rates in Italy (IRPEF) which could go as high as 43%
If you are concerned about your tax situation in Italy and would like an initial meeting to assess your liability then we are here to help. In addition, there might be other more tax efficient and less costly ways to produce income and grow your money. If you are interested in exploring these then you can contact me on firstname.lastname@example.org or on cell 333 6492356