Tax news in Slovakia – October 2014

Below is an outline of tax news in Slovakia, as of October 2014. There are 2 major topics covered in the tax news:

1. The Mini One Stop Shop (MOSS) Scheme
2. Amendment to the Income Tax Act from 1 January 2015 proposed by the government

1. The Mini One Stop Shop (MOSS) – Non-EU Scheme

Even for the taxable persons that are not established within the territory of the European Union (EU), but supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons (legal and natural persons  not engaged in business) the  place of delivery is considered to be the location (the state) where the service recipient (as an end consumer and a non-taxable person), is established, has a permanent address or place where he usually resides. E-services means the provision of websites, hosting the website, intra-maintenance of programs and equipment, supply of software and its update, supply of images, text and information and accessibility of databases, supply of music, films and games, including games of chance to win and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and broadcasts events and distance teaching.

Taxable persons – providers of these services can use MOSS through the simplified procedure of a single contact point via web portal of any Member State, with no necessity to burden each and every individual state where these services will be provided. Thus they can avoid multiple registrations in each Member State of consumption (in a Member State of the customer) and fulfil their obligation to declare and pay tax imposed by a Member State of consumption. Its obligation to declare and pay the tax (which belongs to the Member State of consumption) they fulfil through a single submitted return via the portal of the Member State of identification.

When using MOSS all the communication is processed electronically and there is no signing of papers using electronic signature or conclusion of an agreement with the tax administrator about electronic delivery required.

Registration and deregistration

Providers who are not established within the territory of the EU may choose to register in any Member State. Member States will make the registration available from 1 October 2014 and if the taxable person registers during the 4th quarter of 2014 the registration becomes effective from 1 January2015.

Tax return submission

Provider who uses some of the special scheme is obliged to electronically submit the quarterly MOSS VAT returns  regardless of the fact whether or not he actually provides services, within 20 days of the end of the period to which the tax returns relates and within the same period the provider is also obliged to pay the related tax liability.

The MOSS VAT return includes the information about the services provided to customers in each Member State of consumption. Domestic provider shall include in the tax return all the telecommunications services, radio and television broadcasting and electronic services which he provided to customers within the European Union. The mentioned services provided to the domestic customers shall be included in a regular tax return. The Member State of identification shall divide VAT return according to Member State of consumption and will send the data to the particular Member State of consumption.

Tax liability payment and refund of taxes

Provider pays the due VAT to the Member State of identification. Provider pays the total amount of the submitted return. The Member State of identification shall generate a unique reference number for each MOSS VAT return and notifies this number to the taxpayer.

2. Amendment to the Income Tax Act from 1 January 2015 proposed by the government

Following are the most significant proposed changes in the Income Tax Act that the government plans to have approved by the Parliament with effect from 1 January 2015

A. Depreciation of tangible fixed assets

The government proposes that the tax depreciation classes be extended from the current four to six. The proposed depreciation classes are outlined in the following table:

Depreciation class:  1    Years of tax depreciation:   4
Depreciation class:  2    Years of tax depreciation:   6
Depreciation class:  3    Years of tax depreciation:   8
Depreciation class:  4    Years of tax depreciation:  12
Depreciation class:  5    Years of tax depreciation:  20
Depreciation class:  6    Years of tax depreciation:  40

The most significant changes include the introduction of the new depreciation class 3 with 8 years of tax depreciation, where machinery and production technology such as electrical engines, generators, transformers and their parts will be included; under the current rules, these items are depreciated for tax purposes over 12 years.

Another significant change affecting a major group of businesses is the introduction of the new depreciation class 6 with 40 years of tax depreciation. This depreciation class will be used for buildings used for administrative purposes, accommodation (e.g., hotels), cultural, educational, entertainment and health-care purposes. Under the current rules, these buildings are depreciated for tax purposes over 20 years.

Further, the government proposes that the accelerated method of tax depreciation be limited for depreciation classes 2 and 3 only, where mostly production equipment, machinery and tools are included. For all the other depreciation classes, i.e. 1, 4, 5 and 6, it is proposed that the straight-line method of tax depreciation only be allowed. Under the current rules, enterprises have a freedom of choosing whichever method of depreciation they prefer for all the depreciation classes.

B. Introduction of thin capitalisation rules

The government proposes the introduction of thin capitalisation rules. The new rules limit the maximum amount of interest expenses charged on loans received from related parties. Under the proposed rules the interest expenses may not exceed 25 per cent of profit before depreciation and tax. Under the current rules, there are no such limits in effect.

The changes above are in a form of the government proposal and have not yet been enacted by the parliament. If enacted, the new legislation will be valid in Slovakia as of 1 January 2015.

Author: Rado Dojczak, D.P.F., spol. s r. o., Bratislava

 


Tax fraud reports in Germany

At the moment you can read a lot about the so called “report to the tax authorities of false or incomplete tax declaration“, where there is no penalty to fear in Germany if one fulfills certain requirements. To avoid the penalty in detail one has to:

1.    Lay open the full amount of the evaded tax in the last five years and
2.    Pay the whole tax debt plus penalty loading supplies plus interests.

Altogether this can be expensive enough already.

If the “report to the tax authorities of false or incomplete tax declaration” is incorrect in any way this can lead to a disaster.

Exactly this could be seen in the case of Uli Hoeneß, former Manager and just resigned president of the FC Bayern München. He was afraid that his name was written on a tax-CD from Switzerland. Therefore his consultants quickly prepared such a tax fraud report. Probably too quick, because it finally failed.

The interesting point about the case of Uli Hoeneß was that – in the beginning – the amount of the evaded tax was expected to be about 1 Mio. €. As soon as the process at the regional court Munich began the amount raised up to 3 ½ Mio. €. After 4 days of processing the amount added up to – listen exactly – 28 Mio. €. This was also exactly the day when the court did not want to inquire anything anymore. Uli Hoeneß got imprisonment for 3 ½ years and – who wonders – he accepted this penalty.

Nowadays there is a huge discussion if it’s appropriate to allow such tax fraud reports at all. At the end the financial administration won – because of the amount of tax income the country receives from those reports.

But most probably such tax fraud reports will be much more expensive in the future. It is planned to tax the last 10 years and the penalty surplus will also rise up.

In any way – we expect to get more such cases up to the end of the year.

Author: Claudia Keidies, Partner at Somann & Scheller, Hamburg


USA: Deadline for paying tax for 2012

US-expatriates have to file income tax returns by June 17th. But any US Tax owed to the IRS has to be paid by April 15th. This means that US-expats have to do a tax-calculation by April 15 to make sure that they are not owing any taxes to US tax authorities.

More information will be provided by our co-operation partner Greenback Tax Services.


Setting up business in Ireland

iapa-conference-london-june-2012_150pxThis presentation was given by Tom Kean, BKRM Ireland at the conference of IAPA International Association of Professional Advisers on 26 April 2012 in The Hilton Metropolitan Hotel, London.

  • Use Ireland as your business’ springboard to Europe and the USA
  • Ireland is ranked as the number 1 country for business in Europe (Forbes 2011)
  • Ireland has the youngest workforce in Europe, 30% of the workforce are less than 25 years old
  • EEA employees do not require work permits or a visa to work in Ireland
  • Ireland is an English speaking country within the Euro zone
  • Daily direct flights to the USA & Middle East
  • There is free movement of goods within the EU
  • Ireland has 65 tax treaties and there are an additional 7 treaties under negotiation
  • Ireland has excellent tax treaties with China & Korea
  • A company can usually be incorporated in Ireland within 5 business days

Tax advantages of setting up business in Ireland

Corporation Tax Rate

  • 12.5% corporation tax rate, it’s one of the most favourable rates globally
  • 3rd lowest total tax rate in the EU
  • The low tax rate can maximise high rate of return on investment
  • A potential 3 year exemption from corporation tax for start-up companies incorporated after 14 October 2008

Stamp Duty

  • Stamp Duty rates have been substantially reduced in Ireland, the current stamp duty rates are;
    • o 1% for residential property
    • o 2% for non-residential property

Research & Development (R&D) Incentives

  • R&D expenditure is included in expenses when calculating taxable profits
  • A further 25% tax credit for qualifying R&D expenditure
  • Qualifying R&D expenditure includes expenditure incurred with the EEA, provided the expenditure has qualified for relief elsewhere
  • The higher of 5% or €100,000 of the R&D expenditure can be outsourced to European Universities
  • Furthermore, the higher of 10% or €100,000 R&D expenditure can be sub-contracted to other unconnected parties
  • Buildings used for qualifying R&D purposes are eligible for a building capital allowance
  • It is possible to secure a repayment of the excess R&D tax credit over a 3-year cycle, subject to certain criteria
  • The company can elect to surrender part of the R&D tax credit to key employees

Intellectual Property (IP) Tax Regime

  • Ireland offers various IP structuring opportunities
  • Amortisation of qualifying IP acquisition costs. The capital expenditure can be written off over its expected useful life or the company can elect to write off the capital expenditure over 15 years. If the IP was held for 10 years, there is no balancing charge on disposal
  • The revenue expenditure relating to the IP is allowed as an expense in the profit and loss account however this expenditure may also qualify for an R&D tax credit
  • Deduction allowed for licensed-in IP rights
  • The IP tax regime applies to:
    • Patents
    • Copyright
    • Registered designs
    • Design rights or inventions
    • Trademarks
    • Trade Names
    • Brands
    • Brand Name
    • Service mark or publishing title
    • Know-how
    • Certain software
    • Costs associated with applications for certain legal protection

Attractive to Holding Companies

  • Tax exemption for domestic and foreign gains of qualifying shareholdings (EU & treaty countries)
  • Tax exemption for Irish dividends
  • Similar relief for foreign dividends
  • No withholding tax on dividends paid to treaty countries under domestic law
  • Double taxation relief for tax suffered on foreign branch profits and pooling provisions for unused credits
  • Ireland can be an attractive location for the holding company of IP rights by multinational groups. If the activities constitute a trade, the profits would be taxed at the corporation tax rate of 12.5%. There may also be a possible opportunity to claim IP capital allowances on capital expenditure.

Special Assignment Relief Programme (SARP)

  • Income tax relief may apply to foreign employees coming to work in Ireland
  • The employment income liable to Irish tax is the greater of
    • Total employment earnings and benefits received in, or remitted to Ireland or
    • the first €100,000 plus 50% of earnings and benefits in excess of €100,000
  • Encourages key overseas talent to work in Ireland
  • Employee must become tax resident in Ireland and exercise the employment in Ireland for at least 1 year
  • Employee must continue to be paid by the overseas employer
  • Relief is available by repayment after the end of the tax year

Other advantages of setting up in Ireland

The Start-up Entrepreneur Programme

  • Participants can be given residency in this State for the purposes of developing their business. Immediate family may join the participant providing they can be fully maintained.
  • The residency permit is initially issued for a 2-year period. At the end of the period, each case is reviewed and the progress of the business is evaluated.
  • The entrepreneur programme is aimed at individuals with a good business idea in the innovation economy and funding of €75k.
  • The programme focuses on high potential start-ups.
  • The State agencies will play a key role in evaluating the suitability of proposed business proposals for the programme.

Immigrant investor programme

  • Participants and their immediate family will be granted rights of residence in Ireland
  • The residency permit is initially issued for a 5-year period. At the end of year 2, a review is carried out to ensure that the investor is compliant. After the 5-year period the investor can apply for ongoing residence in 5-year tranches.
  • The intention is that the investor would establish a permanent relationship with Ireland
  • The investment must be:
    • Owned by the investor (not borrowed)
    • Obtained legally by the investor
    • Good for Ireland
    • Good for jobs
    • In the public interest
  • The investor must make an investment of one of the following type:
    • A once off endowment of a minimum of €500,000 to a public project benefiting the arts, sports, health, culture or education.
    • A minimum €1,000,000 aggregate investment into new or existing Irish businesses for a minimum of three years
    • A minimum €2,000,000 investment in a special low interest 5 year immigrant investor bond
    • A minimum €1,000,000 mixed investment consisting of €500k in property and €500k in immigrant investor bonds

Authors: Tom Keane and Deidre Byrne; BKRM Ireland (www.bkrm.ie)


Living and working in Germany: Personal income tax of individuals moving to Germany

Foreigners often have a misconception of their tax situation if moving to Germany and working there.

Here are typical issues often misunderstood:

  1. Very often foreign employees coming to Germany think that their foreign source income is not subject to German income taxation. This is a misjudgement. Foreign source income is either taxable in Germany or it effects the progressive German income tax rate. In both cases the income has to be declared in the German income tax return.
  2. The calculation of foreign source income has to follow German legal requirements. This may require a recalculation of foreign source income. This is especially the case for business and rental income (for example recalculations of depreciations or capital allowances).
  3. Foreign income taxes including withholding taxes can be deducted against German income tax if foreign source income is taxed in Germany.
  4. It is also not correct to believe that being tax resident in Germany is unfavourable compared to a situation where somebody receives German based salaries as non-resident. This is due to the fact that non-residents cannot claim various allowances and personal expenses. A careful tax planning is advisable.
  5. Germany has the reputation of being a high tax jurisdiction. This may be the case for individuals with high income. The tax burden on lower or average income is endurable. And German tax law is less strict concerning the deduction of income related expenses than most neighbouring countries. Additionally it provides a wide range of personal allowances and a liberal acceptance of private expenses. Foreign individuals are often surprised by the relatively low tax burden on average income. The real problem is social security liability if applicable. The social security contributions are one of the highest in Europe. Individuals coming to Germany should always seek advice on whether or not they can avoid German social security contributions.
  6. Foreigners often think that personal payments to foreign organisations or insurance companies cannot be deducted. That again is a wrong impression. Payments to foreign pension schemes, private health insurance, private accident insurance, personal liability insurance etc. may very well be deductible in Germany.
  7. A special problem arises from employment income related to stock options. Respective benefits will be taxed in Germany under certain conditions. Taxed will be the difference between the value at the time of purchasing the stocks and the value at the time when the options have been granted. For the allocation of taxation rights the time between granting the options and the vesting time (vesting period) is applicable. This means that if somebody worked for an employer in the vesting period in different countries he may have to pay taxes in these countries. Example: The vesting period was 2 years. For one year employee worked in the USA and for the other year he worked in Germany. Than half of the benefit will be taxed in the USA and the other half in Germany.

We have developed a checklist “Foreign citizens working in Germany – Required documents and information” to file a German income tax return. The checklist can be ordered free of charge at our German office (www.iapa-online.com/hamburg-germany).


US Citizens: Now is the Time to Catch up on Your US Taxes

As a US citizen or green card holder you are required by the US government to continue to file a US tax return, even if you are living, working and paying taxes abroad. This has been the law since about 1914, but it is only in the past few years that the IRS has started cracking down on Americans living abroad who have not been filing their tax returns.

The US government thinks that there is about $ 700 billion dollars of tax revenue that it is missing out on due to individuals and businesses failing to properly report their US taxes and hiding money in foreign bank accounts. The IRS is actively looking for individuals with over $ 50,000 held outside the US and is finding and prosecuting these individuals. In an effort to encourage US citizens living abroad to “catch up” on their taxes and to properly report their foreign bank accounts the IRS recently announced its Second Voluntary Disclosure Initiative. This is good news for anyone who has not been filing their taxes, reporting their bank accounts or both.

The first Voluntary Disclosure Program ended in 2009 and since then people who did not disclose their overseas bank accounts and other liquid assets were in a state of limbo as there was no official policy for how they would be dealt with (i.e. fines, criminal prosecution or both). The new initiative clearly defines the penalties and the requirements for properly disclosing your foreign accounts and catching up on your tax filings. The 2011 Offshore Voluntary Disclosure Initiative is the best opportunity since 2009 for people to catch up on their taxes and once again become compliant with the IRS. The penalties are higher than in 2009, but the IRS policy is not to reward people for not reporting and the IRS has stated that penalties will only increase in the future. This means that now is the time to catch up on your US taxes and report all of your foreign bank accounts.

In order to take advantage of the Voluntary Disclosure Initiative you will need to completely catch up by August 31st 2011 so you should contact your tax advisor immediately to get started. The terms will require you to file for up to 8 years and to disclose your foreign bank, brokerage and savings accounts and the balances for up to 8 years. You will also need to pay any late taxes, penalties and fines by August 31st 2011.

Finally, some key dates you should be aware of:

Whether you have been filing your taxes each year or iyou have recently moved abroad, you should be aware of the important tax dates for 2011 (the 2010 US tax year). They are:

  • April 18th – US Federal Tax deadline, also the date any taxes need to be paid by in order to avoid penalties
  • Deadline for State Taxes varies state by state (some have also extended to April 18th, some keeping to April 15th deadline)
  • June 15th – Tax deadline for US Expats – expats receive an automatic 2 month extension (please note: if you owe money, interest accrues as of April 18th)
  • June 30th – Deadline for the Foreign Bank Account Report form reporting foreign accounts – there is no extension for this
  • August 31st- Deadline for 2011 Offshore Voluntary Disclosure Initiative
  • Oct 15th – final tax deadline if you have filed for an extension before June 15th

The US tax code can be very confusing and is quite complex so we strongly recommend speaking to a US expat tax expert before getting started. This will greatly improve your chances of avoiding double taxation and getting hit with a large US tax bill.

All information was correct at the time this article was written (February 2011).

 

Author: David McKeegan, Director and Founder of Greenback Expat Tax Services, a US Income Tax provider that specializes in tax preparation for Americans who live abroad


Scientific Co-operation in International Tax Law

Tax law is a field of scientific research. And there are co-operations of universities from different countries. On 4 March 2011 the second Joint Seminar of the following universities will take place in Hamburg :

  • University of Hamburg (Course of studies: Master of International Taxation)
  • Universita die Roma Sapienza (Course of studies: Master in Pianificazione Tributaria Internazionale)
  • Guardia di Finanza – Corso Superiore die Polizia Tributaria

The seminar will cover the following topics:

  • Transparancy and Exchange of Information with “Tax havens”
    • The legal Framework for Exchange of Information
    • Domestic Measures against the improper use of tax havens
  • The Domestic Legislation against Tax Havens
    • Constitutional , EU and International Framework of Mutual Assistance in Tax Matters
    • The Single Instruments (New Rules and Critical Issues)

Co-ordinators are the professors Gerrit Frotscher and Pietro Selicato.

Speakers from the IAPA are involved and will cover the following topic:

Domestic Measures against the improper use of tax havens


Doing business in Poland: Taxation

The system of taxation in Poland is similar to other EU countries.
There are three main taxes: value added tax, corporate income tax, personal income tax.

Value added tax

The basic rate is 22% (an increase to 23% is planned in 2011). The regulations are based on EU directives, so main principles are similar to those existing in other EU countries. Generally the tax shall be transparent for entrepreneurs, but there are some limitations in deduction of VAT paid – personal cars (partial deduction up to 60%, no more than 6,000 PLN is allowed), fuel used to power them, hotels, and restaurants.

Corporate income tax

The basic rate of the tax is 19%. It is the only income tax related to the economic activity. It is payable to the state budget. It is shared with local authorities based on other regulations. Poland implemented regulations that eliminate double taxation in case of dividend payments from one company to the other one – when certain conditions have been fulfilled the revenues from dividends are free from income tax.

Personal income tax

The basic rates are 18/32%. Personal income tax is applicable also for individuals running economic activity as sole entrepreneurs or partners of partnerships. They have got an additional possibility to pay flat 19% rate tax, similarly to bigger companies.

The income tax rate on interests and capital gains is 19%.

Other taxes and charges

There is a number of other taxes that may be applicable depending on the activity of the entrepreneur – the most important are excise duty, real estate tax, transportation means tax, civil law transaction tax as well as social security contribution, charges on using the environment, recycling of electronic and electric products, contribution for the fund of supporting disabled people and others.

It is always worth  considering  consultancy with a tax advisor to review the taxes and charges that may be applicable and how to pay them in the best way.

Author: Tomasz Wikliński, THOMAS sp. z o.o., www.thomas.pl


Living and working in Germany: Trusts of expatriates can cause havoc

After World War II Germany became an immigrant country. Today more than 10 million people of Germany’s population are immigrants or second generation children of immigrants. Immigration has also its tax impacts.

A special tax problem occurs quite often with individuals form the USA or Anglo-Saxon countries when they come to live in Germany. Quite a few of them are beneficiaries of trusts.  The German tax regime of trusts is very unfavourable. This is due to two facts.

Germany’s civil law does not know this legal form. Therefore there exists uncertainty about the legal status of trusts. The second reason for the unfavourable taxation is the fact that German individuals tried to avoid high German tax burdens in the sixties and seventies of the last century by setting up trust in tax havens. This resulted in a punishing anti-avoidance tax legislation. Unfortunately German tax law does not distinguish between Germans who try to avoid taxes and foreigners coming to Germany. Trusts which have been set-up to benefit the latter were often not constructed to avoid taxation. Or if so this was legally accepted by their domestic tax system.

The tax regime of a trust in Germany depends mainly on its legal structure. If the settlor or a beneficiary is the beneficial owner of trust’s funds the trust will be treated as transparent for tax purposes. The high fiscal court of Germany (Bundesfinanzhof / BFH) ruled in a case regarding a Liechtenstein Stiftung as follows. In this case the settlor was able to control the trust. He had the right to appoint or remove trustees and to transfer all funds back to him or to third parties. The BFH classified the Liechtenstein Stiftung as transparent. The same tax treatment shall apply for trusts.

The tax situation of beneficiaries of transparent trusts being resident in Germany is as follows:

  • The beneficiary’s part of trust income will be subject to German income taxation if not denied by a double taxation treaty. Especially dividends, interests and other income from capital funds are subject to German taxation. Business or rental income might be tax free under provisions of the respective double taxation treaty.
  • Transfers of funds of the beneficiary to the trust or repayments to the beneficiary will not be subject to German income or inheritance and gift tax.
  • A serious problem can be the crediting of foreign taxes at source. This can apply for instance if the trust receives dividends from foreign sources and the foreign country imposes a withholding tax on these dividends. German tax regulations or provisions of the respective double taxation may deny the full crediting of the withholding tax on German income tax.

A beneficiary of an in-transparent trust might face far more severe tax implications if being resident in Germany. This especially applies for irrevocable trusts. The following tax implications might follow:

  • The transfer of funds to the trust by the settlor or beneficiary is subject to German gift tax. The very unfavourable tax class III is applicable (low allowances, tax rates between 30% and 50% on transferred funds).
  • Payments of the trust to the beneficiary who is resident in Germany can be subject to German income taxation under certain circumstances. And all payments of the trust will be subject to German gift tax. This extensive tax regime might result in a double taxation if payments are subject to German income and gift tax.
  • And the above mentioned problem of crediting foreign withholding taxes against German income tax is even more severe.
  • There are special provisions for so called family trusts. But in general they are not applicable for beneficiaries coming from abroad.
  • Double taxation treaties might provide a certain support against extensive double taxation. This is especially the case where German double taxation treaties with countries from the Anglo-American world have special provisions regarding the taxation of trust. But there is little support in regards to inheritance and gift tax since Germany’s only double taxation treaty in this respect has been agreed with the USA.
  • Citizens of EU-member states such as Great Britain or Ireland might be able to seek help in front of German courts if they are subject to extensive taxation. The German regulations might not be in line with European freedom rights.

Author: Peter Scheller, Somann & Scheller, www.somannscheller.de


The first post

This is the first post from IAPA. In the future there will be blog-like information in this section. Everything around our claim „Audit, Tax and Accounting in Europe. And worldwide.“

You will find posts from Austria, Belgium, the Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden and Switzerland.

The information comes from dozens of Chartered Accountants and Tax Advisers from numerous European IAPA members. Have fun with their posts. Comments are deactivated but, please, feel free to contact any individual author or other member of IAPA for questions or further assistance.