Capital Gains Tax Capital

Tax Facts - Saudi Arabia

Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.

It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.

This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.

We cannot accept responsibility for its interpretation or any future changes to law.

Introduction

Like most of the Middle East states, the Saudi Government receives most of its revenues from the oil industry. Taxes are collected by the Department of Zakat and Income Tax (DZIT).

Tax Year

Usually 1st January – 31st December, although taxpayers can adopt the Hijra calendar as their tax year. Once a tax year has been adopted, any change will require the DZIT approval and certain transitional rules apply.

Assessment Basis

Taxation is imposed only on business income sourced in Saudi Arabia. Saudi citizens and Gulf Cooperation Council (GCC) nationals resident in Saudi are exempt from employment income tax, but are subject to Zakat (see Wealth Taxes below). Foreign companies and citizens are liable to tax on Saudi-source income subject to certain exemptions.

Income Tax

Remuneration from employment in Saudi Arabia is free from income tax regardless of a person’s residential status. However, business and professional income is taxed at 20%. Taxable persons in Saudi include residents doing business in Saudi, non-residents doing business through a permanent establishment, and non-residents with income subject to tax from sources within the Kingdom.

Withholding taxes are due on payments made to non-resident parties against services rendered in Saudi Arabia. Fees relating to certain services such as technical and consulting services are subject to withholding tax even if they are rendered outside Saudi Arabia. Withholding tax rates are 5% or 15% and vary according to the type of service performed and according to whether the beneficiary is a related party or not. Withholding tax is due within the first 10 days of the month

following the month the payments were made to a non-resident party.

Taxation of Investment Income

Dividends are subject to withholding tax at the rate of 5% when they are paid or deemed to be paid to a non-resident party.

Tax on Property Rental Income

There is no taxation of rental income in Saudi Arabia if the income is derived from outside the country.

Wealth Taxes

Zakat is a religious wealth tax levied on Saudi and GCC nationals at a rate of 2.5% on the higher of net income or net worth.

Capital Gains Tax

Capital gains tax is charged only on the sale/transfer of shares in a Saudi company or partnership, and is assessed as part of the business income of the seller. The DZIT should be informed about the sale within 60 days from the sale date and the income tax and capital gains tax should be settled within this period.

Other gains/losses on disposals of certain fixed assets are accounted for in the income tax return through a depreciation system as defined by the DZIT.

Inheritance and Gift Tax

There are no inheritance or gift taxes in Saudi Arabia.

Regional and Municipal Taxes

There are no municipal taxes in Saudi Arabia.

Property Taxes

There are no property taxes in Saudi Arabia.

Stamp Duty/Transfer Tax

There is no stamp duty in Saudi Arabia.

Sales Tax

There is no sales tax in Saudi Arabia.

Social Security Contributions

Employers pay social security contributions equal to 9% of the earnings of Saudi employees, also pay accident insurance equal to 2% for both Saudi and non-Saudi employees. Saudi national employees are required to pay 9% of their earnings, whilst other employees are exempt. Saudi social insurance contributions are payable monthly before the 15th of each month.

The basis for taxation in Saudi Arabia is based on the source of income rather than residency. All employees, regardless of their nationality, working in Saudi Arabia under employment contracts are exempt from the Saudi tax regime. The only exception is for those self-employed individuals who generate income from their own professional and business activities.

Saudi Arabia has concluded a limited number of tax treaties; so far 13 are in force. Some countries, including Britain, Germany, Japan, and the United States, allow taxpayers to take a credit against their taxable income in such countries for any Saudi Arabian income tax paid.

Tax Facts - Sweden

Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.

It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.

This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.

We cannot accept responsibility for its interpretation or any future changes to law.

Introduction

Taxation in Sweden occurs at both a national level and a municipal level. The Ministry of Finance is responsible for tax legislation and the regime is administered by the Swedish Tax Administration.

Tax Year

1st January – 31st December.

Assessment Basis

Swedish residents are taxed on their worldwide income. Married persons are independently liable to Swedish tax. A tax return must be filed each year. The individual receives a pre-printed form that can be amended by the individual. Filing of a tax return may also be completed via internet, e-mail, telephone or SMS, provided that an individual does not have complicated tax affairs.

Income Tax

Swedish residents are liable to tax on their worldwide earned income, which will include all income from employment, whether salary or benefits in kind, together with, for example, directors fees, bonuses, commissions, pensions and annuities plus any type of allowance.

Various general deductions for expenses may subsequently be made and these include travelling expenses to and from work, cost of living allowances in respect of business trips and pension premiums. However, in many cases the deductible amounts are restricted or regulated.

Taxable income is also reduced by the Basic Income Tax Deduction (Personal Allowance) which depends upon the total size of the individual’s taxable income and municipal tax rate, and varies between SEK12,500 and 32,700 (2010). Individuals pay two forms of tax on their taxable income, namely national income tax and municipal income tax. Taxable income less than SEK372,100 is subject to municipal tax only. The municipal income tax rate levied depends upon the municipality in which the individual is resident, and averages at 31.56%. Taxable income in excess of SEK372,100 is subject to additional national income tax calculated at a flat rate of 20%, and taxable income exceeding SEK532,700 is taxed at 25%, giving a marginal tax rate of around 57% if the average municipal tax rate is applied.

Taxation of Investment Income

Investment income, or capital income as it is termed in Sweden, is not subject to a municipal tax, but is liable to flat rate tax of 30% with few allowances or deductions. Capital income includes interest income and dividends received, as well as capital gains arising from the sale of shares and property, for example.

Premium Taxes

Life insurance in Sweden is exempt from premium taxes.

Tax on Property Rental Income

Worldwide rental income from the letting of private property normally forms part of capital income. The tax is assessed based upon annual rental and other income received from the property after a deduction of related expenses. For private real property, the related expenses are deemed to be a standard amount of SEK12,000 and 20% of the annual rental income. For rented flats the actual costs are deductible instead of the standard amount.

Wealth Taxes

Wealth taxes were abolished in Sweden on 1 January 2007.

Capital Gains Tax

Capital gains form part of capital income and are taxed accordingly. This includes the sale of shares, property and other assets. Profits on gains from the sale of personal assets are only taxable if profits exceed SEK50,000 per annum. Capital losses, as well as interest paid in respect of loans, are deductible from capital gains and income. If there is a net loss or deficit a tax credit of 30% of the deficit is granted against employment income or real estate tax. Any deficit in excess of SEK100,000 will, though, only receive a credit of 21%. Deficits may not be carried forward to later tax years. As a rule only 70% of capital losses from the sale of securities and only 50% of the capital losses from the sale of private real property are deductible. For quoted shares 100% of a loss may be deducted against gains on such quoted shares.

Inheritance and Gift Tax

Inheritance and gift tax were abolished for both private individuals and companies on 1 January 2005.

Regional and Municipal Taxes

See income tax.

Property Taxes

Real estate tax levied on all immoveable property used as dwellings was abolished in January 2008, replaced by a Municipal Property Fee. The tax on foreign private property was abolished at the same time. The fee is based on the assessed value of the property with a maximum of SEK6,387 or 0.75% of the assessed value for single family houses. The same levy was applied to apartments with effect from 1 May 2009.

Stamp Duty/Transfer Tax

Stamp duty is levied on real estate and site leasehold rights (1.5% for individuals) and grant or suspension of mortgages (2%).

Sales Tax

Sales tax of 25% is generally levied with some goods being exempt and others enjoying lower rates of 12% and 6%.

Social Security Contributions

A wide ranging, compulsory social security system exists in Sweden, which provides benefits such as basic and complimentary pensions as well as social welfare benefits that include sickness pay and maternity allowance. Social security contributions are paid partly by the employer and partly by the employee. An employer's compulsory contribution is 31.42% (for 2010) of monthly gross remuneration (including both salary and benefits). For employees between the ages of 18-25 and over 65 these fees are reduced in some circumstances. An employer may also enter into a collective agreement to pay employees’ additional pension premiums of between 6% and 15%.

An employee is liable to pay a compulsory contribution, or Basic Pension Contribution, of 7% of annual taxable income. However, no contributions are paid on taxable income in excess of SEK412,377, which makes a maximum employee pension fee of SEK28,900 for 2010. 100% of the employee’s contribution is entitled to a tax reduction.

Taxation of Expatriates Living in Sweden

The basis for taxation in Sweden is determined by an individual’s residential status. Swedish residents are taxed on their worldwide income and non-residents only on income arising from sources in Sweden.

Expatriates are considered resident in Sweden if they meet the following conditions:

·         they are domiciled in Sweden, i.e. have a permanent home in Sweden, or

·         they stay permanently in Sweden, i.e. stay continuously for more than 183 days in the country, or

·         they are considered to have an essential connection with Sweden after leaving the country/moving abroad.

When determining whether an individual has an essential connection with Sweden, all important ties with Sweden, both economic and social, are taken into consideration by the tax authorities. Individuals who are Swedish nationals, or foreign nationals who have been resident in Sweden for a total of ten years, are deemed to be resident in Sweden until five years have elapsed from the date of moving out of Sweden, unless the person can prove that their essential connections with Sweden have been broken. After five years the burden of proof is reversed and the tax authorities have to prove that essential ties still exist between the individual and Sweden.

An individual who is considered resident in Sweden may, at the same time, be considered resident in another country under that country's domestic legislation (dual residence). If there is a tax treaty between that country and Sweden there are normally provisions in the treaty to determine in which country a person shall be considered resident in case of dual residence, or how double taxation is to be eliminated. Sweden has negotiated double taxation treaties with over 80 countries including all countries in the Nordic region.

Special rules on taxation apply to foreign experts and key personnel. According to these regulations, only 75% of the income earned is subject to income tax and social security charges during the first three years in Sweden. Some benefits, such as school fees and allowances for moving residence, are tax exempt. These regulations apply to foreign personnel employed by a Swedish company, or a foreign company with a permanent establishment in Sweden. The employment and residence in Sweden must be limited in time, not exceeding five years, and the employee should not have been a resident in Sweden prior to the employment.

To qualify for this exemption it is necessary to obtain a ruling from the National Tax Board, which is part of the Swedish Tax Administration. The application must be filed within three months upon arrival.

Taxation of ‘Non-Residents’ Living in Sweden

A Swedish non-resident individual is subject to Swedish income tax only on income arising from sources in Sweden. Therefore, expatriates regarded as non-resident individuals will only have a limited Swedish tax liability.

Non-residents will be subject to income taxes on remuneration arising from employment undertaken in Sweden and paid by a Swedish employer. Directors' fees paid by a Swedish company are always considered to have been earned in Sweden, regardless of whether the activities are carried on in Sweden. There is a specific concession available for non-resident expatriates working in Sweden. Non-residents may be taxed at a flat rate of 25% with no deductions applying. The 25% tax is withheld by the employer and is the final tax due on income. In order to benefit from the 25% flat rate (known as SINK) an application must be filed with the Local Tax Authority in advance, normally by the Swedish employer. There is normally no obligation to file an annual income tax return if you only have income from Sweden that is subject to a “SINK-ruling”. Non-residents working in Sweden and receiving the main part of their employment income from Sweden may choose between being taxed according to the resident or non-resident rules, implying that certain deductions are available.

Non-resident individuals are generally not liable to pay capital gains tax, though dividends received from a Swedish company are taxable unless tax exempt under a double taxation treaty. Non-residents are not generally liable to tax on gains of shares or on capital gains from the sale of personal assets. They will only be liable to tax on the gain resulting from the sale of real estate situated in Sweden and, where applicable, rental income from letting a home in Sweden (real property or flat).

Tax Facts - Portugal

Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.

It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.

This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.

We cannot accept responsibility for its interpretation or any future changes to law.

Introduction

The Portuguese tax system is made up of a series of state and local taxes levied principally on income, property ownership and expenditure. The Directorate General for Taxation (DGCI) controls the tax regime in Portugal.

Tax Year

1st January to 31st December.

Assessment Basis

Portuguese residents are taxed through IRS (Personal Income Tax) on their worldwide income on a self assessment basis. The income of married taxpayers is that of the entire family unit and, as a consequence, 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 6 categories: employment income, business and professional income, investment income (including interest and royalties), rental income, capital gains and pensions. Defined tax deductible expenses are subtracted from gross income for each category to arrive at the net taxable income for the category. The net incomes for each category are then added together in order to arrive at a total net income. An apportionment/splitting procedure applies to married couples by dividing the family income by two before the applicable marginal tax rate is determined.

Total taxable income is taxed at progressive rates varying from 11.08% to 45.88% (2010) in order to determine a final tax liability, multiplied by two in respect of married couples. For the years 2011-2013 the rates will increase to 11.5% and 46.5%. Deductions are available for donations to charity (within limits) and alimony that has been determined by a court decision.

Tax credits are also available, depending upon family structure, for health expenses, school fees, life and health insurance premiums and mortgage interest (where applicable) and subject to certain conditions and limits. There are other credits available, for example for retirement contributions, acquisition of new equipment for utilisation of renewable energy, and donations.

Income Tax

Employment income is deemed to be category A income and Portuguese employers withhold tax at source at progressive rates depending on income amount and family status. 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 70% 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.

Taxation of Investment Income

Investment income is classed as category E income. Dividends are liable to a final tax of 21.5%. Alternatively, the tax resident individual may elect to include such income as part of their taxable income and be taxed at marginal rates. In this case the taxable amount is reduced by the amount of tax withheld. Income from bonds, debt certificates and interest from bank deposits in Portugal are taxed at 21.5% or an individual can elect to include such income as part of taxable income and be taxed at their highest marginal rate. Other forms of income may be subject to withholding tax at 16.55%, but are ultimately taxed at the highest marginal rate and any tax withheld is treated as a payment on account of the final income tax due.

From 2010 all foreign bank account holdings are required to be disclosed on income tax returns. An anomaly in Portuguese tax law now means that the proceeds of insurance investment contracts written by non-resident companies are now taxed at a lower rate of 20% compared to 21.5% for domestic companies. This anomaly is likely to be rectified in the near future and the tax rates equalised.

Premium Taxes

For life insurance contracts with an underwritten risk a parafiscal tax of 2% is deducted by the insurer and paid to the National Institute of Medical Emergency (INEM). For other forms of investment-linked life insurance, the premium tax does not apply.

Tax on Property Rental Income

Income from renting properties is subject to income tax as category F and is added to other categories of income after deducting all maintenance and repair expenses, as well as the Municipal Property Tax paid for the year, provided these are properly supported by documentation. Tax may be withheld at source depending upon the tax status of the rent payer and is treated as a payment on account of the final income tax due. Rental income earned by non-residents for tax purposes in Portugal is taxed at a final rate of 16.5%.

Stamp Duty/Property Transfer Tax

Since Inheritance and Gift tax was abolished in 2004, Stamp Duty at a general rate of 10% has applied to transfers for non-consideration by gift or by death. However, this tax is not applicable on transfers to spouses, descendents and ascendants. Stamp Duty also exists for the transfer of documents over several applicable transactions and rates vary according to the transaction

Inheritance and Gift Tax

Inheritance and gift tax was abolished in 2004.

Wealth Taxes

There are no wealth taxes in Portugal.

Capital Gains Tax

Capital gains are classed as category G income and, in July 2010 a new law made all capital gains subject to a flat rate tax of 20%. Tax residents are granted a €500 per annum tax free limit. Tax is charged on 50% of the amount of capital gains from the sale by tax resident individuals of immovable property located in Portugal, or of intellectual or industrial property. Rates vary from 11.08% and 45.88%. The gain may be wholly or partially exempt if the property being sold is the taxpayer’s primary residence and the sale proceeds, reduced by any associated loans, are reinvested in the acquisition of further residential property in Portugal or another EEA country.

Regional and Municipal Taxes

The ‘Imposto Municipal sobre Imóveis’ (IMI) is a municipal property tax charged on the registered value of real estate. The rates are 0.8% for rural property, range from 0.2% to 0.4% for urban property and 0.4% to 0.7% for property not updated in accordance with the new property tax rules.

Property Taxes

There are no Property Taxes in Portugal, other than the municipal IMI tax described above.

Transfer Tax

The ‘Imposto Municipal sobre Transmissões onerosas de Imóveis’ (IMT) is the tax payable on the transfer of property. For purchases by individuals of urban buildings intended exclusively for permanent residential use, IMT is levied at progressive rates up to 6%, depending on the value of the property. A rate of 8% is levied if the purchaser is located in a country with a tax regime that is more favorable than the Portuguese regime. The tax is payable by the purchaser. The rate applicable to transfer of nonresidential urban properties is 6.5%. The tax applicable to rural properties is 5%. The duty to pay IMT falls on the party acquiring the property.

Sales Tax

Sales tax is generally added to the sale price of goods at a standard rate of 20%. Some sales are exempt and other goods are subject to lower rates of 12% and 5%.

Social Security Contributions

Social security contributions are paid by all individuals who work in Portugal, unless a certificate of coverage is obtained confirming mandatory contributions in another country. The contribution rate varies according to an individual’s employment status. The current rate for general employees is 11% of gross salary, with members of statutory boards of companies paying 10%. Self employed individuals are liable to 25.4% or 32% on income varying from one and a half times the higher national minimum salary and twelve times that salary, depending upon the contribution scheme they choose. Rates are applied to an individual’s actual monthly salary with the above mentioned exception.

Significant changes to the social security system will in principle be introduced in 2011 with the entrance into force of the new Social Security Code.

Taxation of expatriates living in Portugal

The basis of taxation in Portugal depends on an individual’s residence status, with Portuguese residents being taxed on their worldwide income and non-residents on their Portuguese sourced income only. An individual is determined to be resident if:

• they remain in Portugal for more than 183 days during a calendar year, or

• regardless of the number of days spent in the country, an individual maintains a residence which pertains to be the individual’s habitual residence as at 31 December.

All members of a family unit are considered resident if either the husband or the wife is resident for tax purposes in Portugal. However, this condition does not apply if one of the spouses remains less than 183 days in Portugal and proves that their main economic activities are not linked with the Portuguese territory, as described above. Should this be the case, this individual is considered non-tax resident in Portugal while the other spouse is considered a Portuguese tax resident. Portugal has negotiated over 50 double taxation treaties.

Taxation of ‘Non-residents’ living in Portugal

The basis for taxation in Portugal is determined by an individual’s residential status. Non-residents are liable to Portuguese tax on Portuguese source income, and non-residents receiving employment income from a Portuguese employer are subject to a withholding tax of 21.5%.

Tax residents of other EU/EEA countries earning employment income, self-employed income and/or pension income from a Portuguese source representing 90% of their worldwide income may elect to be taxed in Portugal under the rules applicable to

resident taxpayers.

A new decree-law has been published approving the Tax Code of Investment where capital gains earned by non-residents are generally fully taxable at a flat rate of 25%, with an exception with respect to capital gains on the disposal of shares, which are exempt in certain cases. Only 50% of the net taxable income is subject to capital gains tax if reinvestment relief applies.

Rental income earned by non-residents is taxed at a flat rate of 16.5% and there are no deductions available.

Non-residents who reside in a country with a low tax regime may be subject to higher rates of tax in respect of property transfers and may be subject to tax on deemed income from property.

Tax Facts - Spain

Introduction

Taxation in Spain occurs at a national level and at a regional (‘Autonomous Community’) or municipal level. The Spanish taxation system was subject to a significant review in 2007 that resulted in the introduction of a new Personal Income Tax Act. The tax regime in Spain is controlled by the Ministry of the Treasury.

Tax year

1st January to 31st December.

Assessment Basis

Spanish residents are taxed on their worldwide income (earned and unearned), capital gains from all sources and on their worldwide assets. Spain operates a self-assessment regime. For personal income tax purposes, married couples may choose to file tax returns jointly or separately.

Income Tax

Spanish residents are subject to Spanish Personal Income Tax (‘IRPF’). Individuals and couples benefit from personal allowances which reduce their liability to tax and which increase in line with the number of dependent children.

A new structure has been created for the taxation of income, which now falls into two categories: the general base and the savings base of income.

The general base includes salary and other benefits from employment, income from economic activities, and property rental income (either actual or deemed). Such income is reduced by applicable deductions and allowances. It is subject to a progressive scale which is applied to successive portions of taxable income with rates ranging from 24% to 43%*.

The savings base is subject to a 19% tax rate on savings income up to €6,000 and to 21% on the excess and includes interest, dividends, and capital gains/losses paid to residents in Spain, together with life and disability insurance proceeds paid to Spanish residents by a Spanish entity (or an EU insurer operating on a Freedom of Services passport into Spain) where any investment element is limited to Spanish tax compliant funds.

*Some Autonomous Communities have considered increasing the local personal income tax rates to help combat the economic crisis in Spain. The following maximum rates for personal income tax have been agreed for the 2011 tax year e.g. Andalucia: 48%; Asturias: 48.5%; Cataluna: 49%.

Taxation of Investment Income

Any investment income received will form part of the taxpayer’s income tax calculation and any withholding tax deducted will be held as a credit against the final calculation of income tax due. Spanish insurers and EU insurers with a Spanish branch or operating on a Freedom of Services passport in Spain are required to withhold 19% tax on gains on payments from tax compliant insurance policies held by Spanish residents. Foreign insurance policies will be subject to income
tax, and can offset losses, on an annual basis. Generally an annual exemption limited to €1,500 is granted to resident individuals in respect of all dividends. Premium Taxes Life insurance in Spain is exempt from premium taxes.

Tax on Property Rental Income

Property income (provided it is not used for economic activity) is taxed as general base income. The amounts received are the gross income and may be reduced by deducting all expenses necessary to service and repair the property. These can include interest on loans used to acquire the property, depreciation expenses of up to 3% of the purchase price or its cadastral value, excluding the value of the land. There are further reductions that can be made where the property
is destined to become the individual’s personal residence.

Wealth Taxes

Wealth tax was technically abolished with effect from 1 January 2008. An allowance equal to 100% of the wealth tax due has been introduced and reporting obligations have been eliminated.

Capital Gains Tax

Capital gains are included in the savings base. There are some capital gains exemptions e.g. the sale of the primary residence of the taxpayer is granted full or partial rollover relief, as are the capital gains for the sale of qualifying collective investments. Capital gains from investment funds are subject to a flat withholding tax of 19%, unless rollover relief applies.
Collective investments from jurisdictions included in the list of tax havens issued by the Spanish tax authorities are deemed to have a minimum net capital gain of 15% of the acquisition value unless otherwise proven.

Inheritance and Gift Tax

Inheritance and Gift Tax (IGT) is payable by the recipient of the assets at rates of between 7.65% and 34%. Residents are taxed on their worldwide assets and non-residents are only taxed on the assets and/or rights located in Spain.
The amount of tax paid depends upon the value of assets received. Tax rates are subject to a further multiplication factor (ranging from 0.5 to 1.4) based on the relationship of the recipient to the donor or deceased, and the existing wealth of the recipient. Different tax rates may apply in each Autonomous Community.

Various reductions to the tax base on inheritance apply and are dependent on the relationship between the recipient and the deceased and the age of the recipient. For example, where a recipient is a dependent child over the age of 13 but under 21 the taxable base is reduced by €15,956.87 and a further €3,990.72 for each year under 21 up to a maximum reduction of
€47,858.

No reduction is available for more distant relatives or unrelated parties. Additional reductions in each Autonomous Community may apply.

The Law also provides reductions to the taxable base for life insurance depending on where the policyholder dies, the inheritance of the habitual dwelling of the deceased and the inheritance and gift of assets and shares of a family business.
Although IGT is controlled by each Autonomous Community, there has been a general trend towards full or almost full exemption in recent years for Spanish resident taxpayers making transfers to descendents and spouses. These improvements may be extended to non-residents under pressure from the EU.

Regional and Municipal Taxes

Inheritance and gift tax, capital and property transfer tax, as well as a proportion of income tax, are raised by the Autonomous Community/Region in which the taxpayer is resident.

Property Taxes

An annual real estate tax is payable to the local municipality. The tax is based upon a percentage of the cadastral value of the property. The value is adjusted every 8 years. The rate varies from 0.4% and 1.1% on urban properties and 0.3% and 0.9% on rural properties. Municipalities may, within certain limits, increase or decrease these rates. If there is a change in land title, a municipal tax (‘land appreciation tax’ or ‘Plus Valia’) is raised based upon the increase in value of the land since it was last sold. The rate is set by the Municipality and varies depending upon the cadastral value and the length of time since the preceding transfer.

Stamp Duty/Transfer Tax

The general rate of Stamp Duty/Transfer Tax is 0.5% rising to 1% in some autonomous regions and can reach up to 6% for property transactions. It is paid by the purchaser or the beneficiary of the transaction. No Stamp Duty applies if the transaction is subject to VAT.

Sales Tax

Sales tax (IVA) of 18% is generally added to the sale price of goods. Some items are exempt from sales tax or are taxable at a reduced rate. ‘New build’ properties capable of being used as dwelling are subject to a sales tax of 8%, which is charged in place of a transfer tax.

Social Security Contributions

An employee is liable to pay social security contributions as a percentage of earnings. The rate is generally 4.7%, but contributions are capped at €3,198 for the year 2010. Compulsory social security contributions made are deductible from taxable income.

Taxation of expatriates living in Spain

Expatriates living in Spain will be classified as either resident or non-resident. An individual is considered resident if:

They spend more than 183 days in Spanish territory in a calendar year or,
Their principal place of business, professional or economic interest is based in Spain or,
Their spouse and/or dependent children are habitually resident in a Spanish territory (unless the individual is separatedfrom their family, or can prove tax residence elsewhere)

In Spain there is no concept of a part tax-year. An individual will be considered to be resident or non-resident for the whole tax year according to the above rules and taxed accordingly.

Income tax is raised in two parts: the majority is raised by the central government, with a smaller percentage being raised at a
regional level by the ‘Autonomous Community’ in which the individual is living. The ‘Autonomous Communities’ also control
inheritance/gift tax rates. If the ‘Autonomous Community’ does not establish its own tax scales then a default tax scale is applied.

Income generated from employment for services rendered in a foreign country is tax exempt up to a limit of €60,100 (2010),
provided that the work is performed for a company or entity non-resident in Spain, or for a permanent establishment located in a foreign country and provided that a tax similar to the Spanish Personal Income Tax is applied in the territory where the work is performed. In addition, the territory must not be considered a ‘tax haven’ by the Spanish tax authorities. At present, the UK Dependent Territories of the Channel Islands and the Isle of Man, as well as Bahrain, Hong Kong and Singapore, are all included on a ‘blacklist’ of tax havens maintained by the Spanish Tax Authorities.

International assignees moving to Spain, may, if certain conditions are met, choose to be taxed under the special taxation regime for expatriates described below.

Taxation of 'Non-Residents' living in Spain

From 1st January 2004 individuals who acquire tax residence in Spain as a result of their transfer to Spain may opt to pay Non-Resident Income Tax in the tax period in which the change of residence takes place and for the following five tax years when the following conditions are met:

• The taxpayer cannot be considered tax resident in Spain in the 10 years prior to their assignment to Spain.

• Their transfer to Spain results from an employment contract. The individual needs to have a local contract with a Spanish
company. In case of a group of companies, an employee can maintain a home country employment contract and be
seconded to work for a Spanish entity.

• The work is effectively carried out in Spain. The work must be performed physically in Spain. This requirement will not be
met if the employee works out of Spain and the income related to the duties performed out of Spain exceeds 15% of their
annual employment income. In case of employees who work for other foreign entities of the group, the above percentage
will be 30%.

• The work is for a company or entity resident in Spain, or for a permanent establishment located in Spain of an entity not
resident in a Spanish territory.

• The earned income derived from the employment contract is not exempt from Non-Resident Income Tax.

Expatriates living in Spain who choose to be taxed under the Non-Resident Income Tax regime are taxed only on income and gains obtained or generated in a Spanish territory, compared to worldwide income and gains for residents. Non-residents may only file individual tax returns, unlike residents who may file joint returns in respect of a married couple.

The tax rates applicable to non-residents were amended with effect from 1st January 2007 in line with those applicable to residents. A non-resident does not normally benefit from tax free allowances/deductions but expenses can be deducted which relate directly to the generation of the taxable income for residents of other EU member states. However, certain exemptions may apply to nonresidents, in particular residents of other EU countries are not normally subject to Spanish tax on Spanish sourced interest income, or capital gains realised on the sale of certain personal property.

Property rental income, after the deduction of certain expenses, forms part of taxable income. Property which is not used for
rental or economic activity and is not the taxpayer’s permanent residence will be taxed on a deemed income basis at 2% based on cadastral value (equivalent to a rateable value in the UK).

With regard to capital gains arising from the transfer of real property from non-residents, the purchaser is required to withhold 3% of the agreed consideration. This amount is paid to the Spanish fiscal authorities on account against the seller’s potential liability to capital gains tax. In addition, dividends and interest are paid to non-residents net of withholding tax.

Dividends paid to nonresidents are exempt up to €1,500 pa, but withholding tax applies and a refund must be requested. The amount of the tax withheld will depend on the terms of any double taxation treaty with the payee’s country of residence. Spain has negotiated over 50 double taxation treaties.

Inheritance tax applies to non-residents only in receipt of assets and/or rights located in Spain, but many IGT exemptions are not applicable to non-residents. This position may alter following the issue of a ‘reasoned opinion’ by the European Commission requesting that Spain makes available the same exemptions to both Spanish residents and non-residents.

Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.

It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.

This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.

We cannot accept responsibility for its interpretation or any future changes to law.

Tax Facts - France

Introduction
Taxation in France is at a national level, although the taxes are calculated and the monies are collected by local tax offices. The tax regime in France is controlled by the Tax Administration.

Tax Year
1st January to 31st December.

Assessment Basis
French resident taxation is based upon worldwide income on a self assessment basis. In France, the family unit is taxed and, as a general rule, married couples cannot submit separate tax returns. The total amount of income tax, local property taxes assessed on the main household, as well as wealth tax and social surtaxes, is limited by the application of the ‘bouclier fiscal’ or tax shield, which prevents more than 50% of income being paid in tax.

Income Tax
The main tax in France is the “impôt sur le revenu” and is payable on assessable income less allowable deductions. Assessable income includes income from employment, namely wages and salaries, as well as property income, industrial or commercial profits, certain directors’ remuneration, pensions and life annuities, non-commercial profits and investment income.

A French resident’s tax liability is determined through the ‘income splitting’ or ‘unit’ system, whereby the total taxable income of a family group is divided into a number of units (dependent on the number of family members). The calculated tax liability applicable to a single unit is then multiplied by the total number of units to arrive at the total amount of tax payable.

Tax is charged at progressive rates up to a maximum of 40% on all net taxable income. Employment income is taxable after deducting mandatory social security contributions and a standard allowance for professional expenses of 10% of taxable employment income or actual documented expenses. Some other expenses are either deducted from taxable income or allow a tax resident in France to reduce the amount of the tax payable. These deductions, tax reductions or tax credits are permitted for items such as pension contributions, alimony, major equipment expenses for sustainable development, charitable donations, child care and schooling expenses and domestic help expenses. Mortgage interest payable on the principal residency of the taxpayer
(loan concluded as of 6 May 2007) can be partially offset against personal income tax resulting
from the application of progressive tax rates.

From 1st January 2009 the reduction of French personal income tax due to tax deductions or credits is globally limited except in specific cases. The ceiling is currently €25,000 plus 10% net taxable income. French resident income tax is not deducted at source by the employer, but is payable in one instalment (first year) or either three or ten instalments over the following fiscal year.

Taxation of Investment Income

Generally, a French resident is liable to French income tax on investment income and is taxed at progressive rates. 60% of dividend income is taxable and resident individuals benefit from a tax free allowance of €1,525 for a single taxpayer and €3,050 for married taxpayers. as well as a credit of €115 or €230 in respect of dividends for single/married taxpayers.

For dividends and certain fixed return investments French tax residents may elect tax to be withheld at source at the time of receipt and not be subject to any further taxation (prélèvement libératoire). The flat tax is 18% plus special social surtaxes (i.e. a total of 30.1%). Income from capitalisation contracts (namely life assurance contracts under which accrued proceeds are compounded) concluded as from September 26, 1997 are subject, upon election, to the prélèvement libératoire at variable rates depending on the date of their conclusion: 35% if
less than four years, 15% between four and eight years and 7.5% if over eight years.

Premium Taxes
Life insurance is exempt from premium taxes in France.

Tax on Property Rental Income

Rental income forms part of taxable income after deductions for various expenses such as repairs, property taxes etc or after a flat deduction. Rental losses are deductible up to a certain level from other forms of income and thereafter from rental gains only. Further tax breaks are available depending on the type of property leased.

Wealth Taxes
A wealth tax applies to households whose net assets exceed €790,000 as at 1 January each year. French residents are taxed on their worldwide assets (unless otherwise provided by a tax treaty), whilst non-residents are taxed only on the value of their assets located in France (however, financial investment located in France are generally not taxable). Business assets, antiques and works of art are all exempt from wealth tax and a deduction of 30% of the value of the principal residence is granted. The rate levied is progressive, from 0.55% to 1.80%. With effect from 6 August 2008, an individual who has become a French resident after having
been a non-resident for at least five immediately preceding years is taxed only on his French-situ
assets for the first five years of residence.

Capital Gains Tax
Capital gains derived from the sale of a principal residence are tax-free and, if it amounts to less than €15,000 or has been owned for more than 15 years, the capital gain realised on the sale of a secondary residence is also tax-free. Gains above this level are subject to tax at a flat rate of 16%, increased to 28.1% by social taxes of 12.1% if French resident (see social security contributions below), after deducting various allowances which depend on the duration of ownership. Properties owned for more than 15 years are exempt from capital gains tax.
A tax free allowance of €25,830 (2010) exists for capital gains derived from the sale of shares and once this is breached the whole of the gain is liable to a fixed rate tax of 18% increased to 30.1% by the 12.1% social surtaxes (see social security contributions). Capital losses on the sale of shares are creditable against capital gains of the same nature. Losses can be carried forward for ten years.

Capital gains derived from the sale of shares in companies resident in France or another EEA country (except Liechtenstein) benefit from a progressive exemption after 5 years: one third of the gain is exempt after 6 years, two thirds after 7 years and the total gains are exempt after 8 years. The gains are still subject to 12.1% social surtaxes however.

Inheritance and Gift Tax
French inheritance or gift tax is payable by the beneficiaries of gifts or inheritances. If the deceased or the donor is a tax resident of France, tax will be due in France on worldwide assets transmitted. If the deceased or donor is not a tax resident of France, tax will be due on worldwide assets transmitted to the beneficiary, if the beneficiary has been a tax resident of France for at least six out of the last ten years. Tax will be due on all personal and real property located in France, regardless of whether the donor or beneficiary is tax resident of France.

Inheritance tax is levied on assets at their fair market value, with allowances taking into account the relationship between the deceased and the beneficiary. Debts existing at the time of death are deductible in full. No inheritance tax is due between spouses (or same sex partners of PACS) and for inheritance between brothers and sisters living together under specific conditions for deaths after 22nd August 2007.

The gift tax regime follows the same principles, but looks favourably on gifts made during the lifetime of the donor. Tax free allowances exist for transfers between parents or grandparents and children. The tax is levied at various rates ranging from 5% to 60%, depending on the relationship between the donor and the beneficiary and certain allowances. Reductions in the tax payable are available if certain conditions are satisfied.

Regional & Municipal Taxes

There are no regional or municipal taxes in France.

Property Taxes
The owner of a property on 1st January pays the taxe fonciere. This is computed by applying certain coefficients determined annually by the local authorities to 50% of the notional rental value of the property as determined by the local land registry. Various exemptions and exclusions exist. A dwelling tax or taxe d'habitation is levied on any individual who occupies a dwelling on 1 January, even if they are not the owner or a French resident. The tax is assessed by multiplying the notional rental value of the dwelling as determined by the local land registry by coefficients determined by the local authorities. Various allowances are granted depending on the family
situation of the taxpayer.

Sales Tax
Sales tax of 19.6% is generally added to the sale price of goods and services, including property less than 5 years old. Some sales are exempt from sales tax, or are taxable at a reduced rate of 5.5% or 2.1%.

Stamp Duty/Transfer Tax
Registration duties are applied on the purchase of properties that are not subject to sales taxes. The duties are charged on the market value of the property, or purchase price if higher, at a rate of 5.09%. Other charges and notaries’ fees bring the cost of purchase to between 7% and 8% if financed by a mortgage.

Other registration duties apply when disposing of capital shares or common stock (3% capped at €5,000 for common stocks and certain capital shares) as well as the transfer duty and some fixed duties. Stamp duty has been abolished, but tax on certain credits has been introduced, ranging from €6 up to €54 depending on the amount of the credit facility.

Social Security Contributions

The French social security system comprises various social taxes providing a wide range of benefits, but the impact of these taxes is substantial. Social security contributions on employment income are shared between employer and employee, with employees on average contributing 15%. Contributions are assessed using various ceilings and the average rate will decrease as the gross salary increases. Social security contributions are fully deductible to determine net taxable employment income.

French tax residents are also liable to a Generalized Social Security tax (‘CSG’) and Contribution to the Reimbursement of the Social Debt (‘CRDS’) which are levied on 97% of employment income. The current rates are 7.5% for CSG (of which 5.1% is deductible) assessed on employment income and 6.6% on pensions and similar income, and 0.5% for CRDS.

Taxation of Expatriates Living in France

An individual is deemed a French resident for tax purposes if:

they have a home in France or, if they have no home in France or abroad, France is their principal place of abode; or
France is the place where they perform principal professional activities; or
France is the centre of their economic interests.
Only one of these criteria needs to be met in order to qualify as a French resident for tax purposes. If an expatriate working in France is considered to be a resident in both France and in their home country, reference will be made to the relevant tax treaty, if any, to determine the country in which the individual will be regarded as resident. France has an extensive network of double taxation treaties, with over 110 negotiated and in place.
Allowances and annual progressive tax rates apply in the same way to part-year and full-year tax residents. However, because of French income-splitting rules, a married taxpayer with children may not reach the maximum marginal tax rate during their first year in France. This means that there may be a significant benefit to an expatriate in shifting income into the first year or last year of residency, depending on the date of arrival/departure. When a French tax resident leaves France during the course of a tax year, they remain liable to French personal income tax on the aggregate of world-wide income earned as a French tax resident and also their sole French-source income earned as a non-French tax resident, subject to the provisions of an applicable
tax treaty.

A new ‘inbound assignee’ regime came into force on 6th August 2008 (Article 155B of the French Tax Code) and is applicable to employees assigned to France by their foreign employer as from 1st January 2008 or to employees directly recruited abroad by a French company as from 1st January 2008. In both cases, the individuals must not have been French tax resident during the five calendar years preceding the year of starting their assignment/employment in France. Under this new regime, individuals assigned to France by their foreign employer can benefit from a French income tax exemption in relation to salary supplements connected with their assignment. For employees directly recruited abroad, the new regime would offer an option with regard to
their tax treatment as follows:

• the exemption of the actual amount of salary supplements received; or

• in the event that there are no such salary supplements, upon election, a flat rate exemption of 30% of the total
remuneration.
However, the new regime provides for a “floor” of reportable compensation (i.e. the taxable compensation cannot be lower than the taxable remuneration paid for a similar job in the same or a similar company established in France). It also provides for an exemption of part of the remuneration based on foreign workdays. However, the total exemption (i.e. on salary supplements – actual or not – and foreign workdays) is limited to 50% of the total remuneration, or the individual can elect for an exemption of French tax connected with foreign workdays limited to 20% of the taxable remuneration. The availability of this new inbound regime is limited to five years as from the year of arrival. Inbound assignees who benefit from the new inbound regime can also exempt 50% of the amount of their foreign interest, dividends, royalties, capital gains and industrial and intellectual property gains, under certain conditions

Taxation of ‘Non-Residents’ Living in France

If an individual is deemed to be a non-resident for tax purposes, they are subject to income tax on their French-sourced income only. However, a basic distinction is made depending on whether or not the non-resident taxpayer has a dwelling at his permanent disposal in France. If not, the general rule is that they are taxed exclusively on French-sourced income using the same income tax rates as residents. However, the rate must not be less than 20% of income, unless it can be proven that the overall rate of French tax on their worldwide income would be lower than 20%, in which case the tax liability is reduced accordingly. If the non-resident taxpayer has one or more dwellings in France, and subject to large exceptions, they are taxed on a deemed
income equal to three times the annual rental value of their residence(s). If their French-sourced income exceeds this deemed income, they are subject to tax on the basis of their French-sourced income. In general, this flat tax does not apply to residents of countries which have concluded a tax treaty with France.
Non-residents who are liable to French personal income tax on employment income are subject to withholding tax. Following deduction of the mandatory French employee social security contributions and the standard 10% salary deduction, employment income is then subject to withholding tax at source by the employer, at the rates of 0%, 12% and 20%. The withholding tax at 0% and 12% frees the corresponding portion of net annual salary from further income tax. The French complementary personal income tax is computed on the part of the remuneration liable in the 20% band. It is computed based on the French normal income tax rates, with a minimum of 20%. If the resulting tax is lower than the withholding tax already paid at a rate of 20%, the total withholding tax is the final tax liability of the employee. If the resulting tax is higher than the 20% withholding tax, the 20% withholding tax levied by the employer is offset but an additional income tax is due by the employee.
In respect of social security contributions, France has entered into agreements with more than 40 countries. Under these agreements, where expatriates are temporarily transferred to France, they may remain under their home country’s social security schemes.