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Tax breaks in Italy

By Gareth Horsfall - Topics: Italy, Tax, tax advice, Tax Relief, tax tips
This article is published on: 7th October 2019

07.10.19

I have been writing these articles for 10 years this year, after sending out my first one in 2009. Looking back at the very first one just the other day, I saw how it had developed and how the concepts I discuss have changed dramatically. This got me thinking about the way that the world has changed as well during this time. Last Friday I joined the Global Climate Strike in Rome. There were about 250,000 students, protesters and concerned people; marching to spread our concern for how we treat the world we live in. It certainly got me thinking about how politics is going to have to change significantly in the coming years to meet the needs and desires of these disgruntled voters.

Which leads us nicely to the new coalition government in Italy and their changes in the Legge di Bilancio which were approved on the 30th September. In the Legge there are many new rules that will come into force from 2020, some eco based (but not enough) and a number which may affect you. Below I have selected a few of the changes in the tax law which might interest you.

1. If you are in the market for a new car, then incentives will be given, up to €6000 for purchasing a new electric, hybrid, small gas or small diesel car.

2. BUT, if you buy an SUV or an ‘auto lusso’, then you will taxed up to €3000.

3. Anyone who is working online might be caught in the trap set to try to tackle evasive tax practices by the big tech companies. Italy is following the French lead and introducing a tax of 3% on web based business revenues generated in Italy.

4. The flat tax of 7% for retirees moving to, and getting residency in Italy is fully approved from January 2019. The main caveat is that you must move to a village of no more than 20,000 inhabitants in any of the following regions:

Sardinia, Molise, Abruzzo, Puglia, Basilicata, Calabria, Sicilia

Other terms and conditions apply, so check carefully before assuming you automatically qualify.

5. Income tax deductions will be available for anyone who carries out invoiced home renovation, purchases eco domestic appliances, completes seismic work on their house, purchases sun curtains for balconies or buys mosquito blocks for doors, amongst other property related deductions. The following article (in Italian) provides a nice summary (once again conditions apply, so make sure you check the small print or speak with a commercialista before going ahead).

www.theitaliantimes.it/economia/proroga-bonus-ristrutturazioni-mobili-verde-ecobonus-legge-di-bilancio_011019/

However, please remember that this work must be ‘invoiced’ work and paid for by electronic means. If you pay for it in the black or in cash (even if invoiced), then it is not deductable. Although paying in the black is illegal, it will often mean you can negotiate a discount on the full price. Whilst this might make paying in cash may seem attractive, it won’t afford you any income tax deduction so may turn out to be more disadvantageous.

6. The canone RAI (TV licence fee) has been reconfirmed as €90 per annum. No price increase will be applied, at least for this year.

7. And the pièce de résistance … if you thought that IMU and TASI were hard enough to get your head around, the latest news is that they are going to be unified. No prizes for anyone who can come up with the new acronym. TASIMU???

Tax Advice in Spain for Expats

By Chris Burke - Topics: Barcelona, spain, Tax, tax advice, Tax Relief
This article is published on: 24th September 2019

24.09.19

Whenever someone gets in touch with me, the first, most important thing I suggest they do is to make themselves and their family as tax efficient as possible, i.e. tax planning. There is no point having a ‘leaky bucket’: their money earning interest but more than needs to is pouring through the ‘tax holes’ they haven’t plugged or planned for.

So, apart from the obvious reason of minimising the current tax you pay, why is it important to review your tax situation? It is to make sure you are aware of ‘stealth taxes’. Stealth taxes are those which are not easy to detect and that many people are not aware of.

If you are a government, you want to win as many votes as possible to be elected (or re-elected). You need money to spend, but raising taxes on the upper echelons will damage your votes, raising taxes on the working classes will also damage you votes, and both will be very vocal. Therefore, what has become increasingly popular with governments is to increase taxes that won’t necessarily hurt voters’ pockets on a day to day basis, but which could do in the future.

A good example of this is something called the lifetime allowance. This is the ‘ceiling’ under which the value of your UK private pension will be in the regular tax bands. However, if your pension pot overshoots this limit, you will pay increased tax of up to 55% on anything over that ceiling. Never heard of this tax? Well, I can assure you there are some very normal, everyday, hard-working people who are not in the upper echelons of society and who, due to long pension contributions and having good investment advice, will reach this limit in their lifetime.

To explain this a little more, the lifetime allowance ceiling was introduced in 2006 and was £1,800,000 at its maximum. Over time, it has been reduced and reduced to its present rate of £1,055,000. During that same time inflation has increased, people’s earnings have increased, contributions to pensions have increased; so why should the ceiling go down? Stealth tax.

Moving forward, stealth taxes are likely to be the most popular way for governments to increase their income without the majority of people noticing.

Let’s think about this. What else could the government do along these lines to increase revenue? How about tax those British people living outside of the UK more? They don’t live there, they don’t have the same rights as everyone that does, so are they not an easier target? So, what could they do? Tax UK state pensions (currently they do not tax non-UK residents, although they are taxable in Spain)? Or how about tax those with UK private pensions a ‘non-resident tax’? Or tax those who move their UK pensions outside of the UK and not into a place where the UK government has an agreement with? In fact, the last one they do already!

What can you do? Well its quite simple really; plan now so that should any of the above or anything like this happen, your assets or monies are arranged to be as tax efficient as possible to mitigate these circumstances. If your assets are working just as effectively as they are now, but are much more tax efficient, it could save you and your family a lot of money in taxes in the future.

Perfect preparation prevents P*** P*** performance I believe is the phrase!

Do you know if you are overpaying Spanish tax?

By John Hayward - Topics: Investments, spain, Tax Relief, tax tips
This article is published on: 9th May 2019

09.05.19

Thousands of Spanish residents could be overpaying tax due to their lack of knowledge of the most tax efficient way to hold savings. People overpay income tax, savings tax, capital gains tax, and even inheritance tax, because they are holding their money in inappropriate savings and investment accounts. However, there are often simple solutions to what seem like complex problems. With the correct professional advice from people experienced in Spanish financial matters, savers could see more income and pay less tax.

Often, residents of Spain will turn to their bank to give them advice on what accounts and investment vehicles are best suited to them. The choice in Spanish banks is limited and the risks are often not explained. Many people are stuck in what they thought were deposit accounts, when in fact they are investments, the performance of which could be based on stockmarkets.

There are also those who hold “tax free” savings in the UK, such as ISAs, National Savings Certificates and Premium Bonds. All of these are NOT TAX FREE IN SPAIN. For Premium Bonds especially, there appears to be better returns, when compared to most other options which are paying close to zero interest. However, any interest or gain is taxable in Spain and needs to be declared.

A solution is to have money outside Spain but recognised by Spain for preferential tax treatment.

A COMPLIANT ACCOUNT AND NO WITHDRAWALS MEANS NO TAX DUE
In this example, €200,000 was invested in 2016 and the accountholder had no other savings income.

With a non-compliant account, tax must be paid each year on the growth of the account, totalling €6,260 over the 3 years. With the Spanish compliant account, if no withdrawals are taken, no tax is immediately due on the annual growth of the account.

*Click the image above to enlarge

AND IF WITHDRAWALS ARE MADE?
Again €200,000 is invested and the accountholder has no other savings income. This time the policy grows by €10,000 each year, and the accountholder withdraws this amount. With a non-compliant account tax payable is based on the full growth of the account, whatever amount is withdrawn. For a compliant account, tax is only due on the gain attached to the withdrawal.

*Click the image above to enlarge

That´s a 91% tax saving over 3 years!

To find out more about how you could benefit from quality financial planning advice and years of experience both in Spain and the UK, contact me today on +34 618 204 731 or at john.hayward@spectrum-ifa.com

French Tax Changes 2019

By Sue Regan - Topics: Assurance Vie, France, Income Tax, Tax, tax advice, Tax Relief
This article is published on: 31st January 2019

31.01.19

2019 has brought a number of changes to the French tax system. Below is a summary of the principal changes affecting personal taxation.

INCOME TAX (Impôt sur le Revenu)
There has been no change to the rates of income tax of the barème scale, but the tax bands have been increased as follows:

Income Tax Rate
Up to €9,964 0%
€9,965 to €27,519 14%
€27,520 to €73,779 30%
€73,780 to €156,244 41%
€156,245 and over 45%

PAYE (Prélèvement à la Source)
PAYE has been introduced in France with effect from 1st January 2019.
The types of income subject to PAYE include:

  • Income from employment
  • Retirement income, including UK private and State pensions, but excluding certain pensions where tax is already deducted at source, such as UK Civil Service pensions
  • Rental income, including that from French properties owned by people who are not resident in France.

For French source income, the employer or pension provider will deduct the tax at source.

Clearly, where income is generated from outside of France there can be no deduction at source by the French authorities. This means that many expatriates living in France will be subject to a monthly withholding tax on their income. Therefore, starting in January 2019, the tax authorities will collect a sum equal to 1/12th of the tax paid in 2018 (based on income declared for 2017).

Excluded from PAYE is investment income, such as bank interest, dividends, capital gains and gains from life assurance policies.

New residents of France who have not yet submitted a French tax return, will have the option of paying a sum ‘on account’, or be taxed in May 2020, following submission of their first tax return.

Everyone will still be required to submit a French tax return in the May of the following year. Thereafter, the final assessment of tax liability will be carried out, and you will either receive a tax refund or be required to pay any additional tax due, over a four-month period.

If you do not currently pay any income tax, you will not be required to pay provisional monthly payments. Similarly, if you anticipate a significant change to your income during the course of the year you can request that the tax authority alter your tax code. However, if you do so, and your income is 10% greater than advised, you could face a tax penalty of at least 10%.

REFORM OF SOCIAL CHARGES (Prélèvements Sociaux)
Some changes have been introduced to certain social charges, which is good news for some taxpayers.

The main rates for social charges remain the same as for 2018, i.e.:

Source of income Rate
Pension 9.1%
Investment and property rental 17.2%
Employment 9.7%

 

Social Charges on Pension Income
The exemption from social charges on pension income still applies if you hold the EU S1 Certificate or if France is not responsible for the cost of your healthcare.

However, those pensioners who do not satisfy the exemption conditions above, but whose pension income is less than €2,000 per month (or €3,000 for a couple), will now pay a lower rate of 7.4% on pension income.

Social Charges on Investment Income and Capital Gains
From 1st January 2019, individuals covered under the health care system of another EU or EEA country are no longer subject to the existing rate of 17.2% on investment income or capital gains. Instead they will now pay a new flat rate of 7.5%. This new flat rate is known as the ‘Prélèvement de Solidarité’ and represents a saving of 9.7%. It applies to investment income, such as property rentals, bank interest, dividends and withdrawals from ‘assurance vie’ policies, and capital gains realised by both residents and non-residents of France.

In summary, taxpayers can benefit from the new 7.5% rate on investment income if:

  • They hold the EU S1 Certificate
  • They are a non-resident of France earning French source income (i.e. rental income, capital gains on the sale of a French property, etc) and are covered by the health system of another EU or EEA country

ASSURANCE VIE
There are no changes to ‘assurance vie’ apart from the social charges reform detailed above which will benefit some policyholders.
For policies held for more than eight years, the annual allowance remains at €4,600 for individuals and €9,200 for married/PACS couples.

This outline is provided for information purposes only based on our understanding of current French tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.

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

08.06.18

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.

Tax relief on Spanish charity donations

By Chris Burke - Topics: Barcelona, spain, Tax Relief
This article is published on: 19th March 2018

19.03.18

When you pay Spanish income tax while residing in Spain, you can qualify for tax relief on any charity donations that you make (to certain types of charities such as foundations or NGO’s, i.e. non profit making organisations.

The tax relief you can receive here in Spain, whether you are employed, self employed or have a Spanish S.L. (company) are as follows:

For individuals & self employed (autonomo)

Amount paid in charity donation,
up to per year
Percentage deduction (%)
150euro 75%
Amount paid above 150euro 30% (or 35*)

 

* If the amount paid in each of the two previous years is the same or more than the amount paid the previous year of each of these two years, the percentage increases to 35%.

The amount deductable cannot exceed 10% of the taxable income of the year.

For companies

Tax relief is 35% unless the amount paid in each the two previous years is equal or more than the amount paid the previous year of each of these two years, in which case the percentage increases to 40%.

The amount deductable in a year cannot exceed 10% of the taxable income of that year. If it does, you can apply the excess during the 10 following years.

In each of the above cases, the deduction is taken from the amount of tax to be paid.

People are much more responsive to charitable pleas that feature a single, identifiable beneficiary than they are to statistical information about the scale of the problem being faced. In essence, we are ruled by our hearts, not our heads when donating and showing the proven effectiveness of the charity can actually have the opposite effect to that intended. Take the time to research your chosen charity to make sure your money is going to be doing what you want it to do.

Although many people would like to leave a gift to charity in their will, they often forget about it when they write their will. Research has shown that if the will-writer just asks someone if they would like to donate, the rate of donation roughly doubles. Remember to make a list of any charities you would like to contribute to, before you sit down to write your will.

Giving to charity is contagious, seeing others give makes an individual more likely to give themselves and gentle encouragement from a prominent person in your life can make also make a big difference to your donation decisions. Most people support charities in one way or another, but often struggle to make donations as often as they think they should or would like to.

If you would like to donate to charity more but it slips to the back of your mind, create a habit. For example, every time you receive a bonus or every time you get paid you could make a donation, or if it is the birthday of someone close to you, send them a birthday wish and give a little to charity. Spending money on others actually makes us happier than spending it on ourselves!

Source GM Tax consultancy, Barcelona.