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

Republic of Poland is a European country located in the center of the continent and borders with Germany, Czech Republic, Slovakia, Ukraine, Belarus, Lithuania and Russia. Its area exceeds 312 thousand square kilometers where lives over 38 million residents.

The Polish currency is PLN (Polish Zloty). The GDP reached in the year 2011 the level of 14 thousand USD per capita (over 20 thousand USD when the purchase power is considered).

One of the most important facts in the history of the country was adoption of the constitution in 1791. It was the second modern constitution in the world (after United States of America) and the first one in Europe.

The economic situation of Poland is one of the best in Europe. This month German press published comparison of the Polish economy and EU-27 countries. In general Poland has got higher GDP growth since 2004, similar unemployment rate and lower much public debt.

Our company, THOMAS sp. z o.o., operates since 1993, i.e. from the beginning of the free economy in Poland. Recently it is a family company owned and managed by Bożena Wiklińska and Tomasz Wikliński. In our practice we use modern tools helping us act according to the ISO 9001:2008 based quality system we developed. Recently we added to the portfolio of our products BAC (Budget Assistant Concept), a system that helps in budgeting and controlling.

Our company provides wide range of services required by entrepreneurs in every day activity - starting from accounting, through staff and payroll service, finance management that slowly becomes our key product, to tax advisory.

During the last year we had an internal discussion how to select people, how to behave in relation to the clients that have got difficult, not to say illegal proposals. We found out that there is something that makes the company either consistent or inconsistent - its values. In the beginning we referred to our strategy developed a couple of years ago and values we formulated that time. We formulated them, but without any deeper meaning, i.e. what it means in practice. One of the values we defined was professionalism. Now we added sample behaviors that show acting according to this value, for example improving professional skills, finding the best way to help the client reach his strategic goals, communicates with him efficiently.

The same operation we made with the other value that were important for us as the company and our clients, and finally visualized them in graphics with the help of a graphic designer we co-operate with.

The entire task required some time and involvement of all people, but now is a great tools that helps us to hire better people, better assess their skills and attitude and what is the most important - even the most difficult decision we need to make, like staff changes, are much better perceived by other people when referred to the core values of the company.

Ruling of ECJ on Inheritance Tax

Inheritance and gift tax systems are less harmonised in the EU then other tax laws. This often leads to double taxation in cross-border cases. The EU commission describes in its recommendation of 15 December 2011 various reasons for double taxation scenarios. National tax systems of foreign relief of inheritance taxes have in general limitations. And there is a very limited network of double taxation treaties or no regulations in EU law.

The only protection against double taxation is provided by EU freedom rights of the EU treaty. Prohibited are discriminating measures by EU-member states. Not allowed is also legislation or other legal measures of a member state to restrict EU-freedom rights. There is a wide range of ruling of the European Court of Justice (ECJ) concerning taxation of cross-border transactions but only a limited number of rulings regarding inheritance and gift tax. The ruling of ECJ on inheritance and gift tax is based predominately on the violation of the Freedom to transfer capital. Other freedom rights such as the Right of establishment or Freedom of employees do not play a major role in the court’s ruling.

The ECJ is verifying a violation of EU law always in three steps:

• Did the transfer of capital take place?
• Was there a restriction of a free transfer of capital?
• Is there a justification for a restriction imposed by a member state?

The ECJ considers inheritances, legacies, gifts and foundations always as a capital transfer in this respect. Excluded are only cases where a transaction does not have a cross-border connection. A restriction requires that a non-resident is treated less favourably than a resident in a comparable situation or vice versa, or a citizen of another state is treated less favourably than an own citizen in a comparable situation or vice versa. Important is that the situation is comparable based on objective criteria. But the court ruled that negative tax effects of activities abroad alone do not necessary result in a restriction of freedom rights. Reasons for restricting measures by member states can be the Consistency of tax systems, Measures against tax fraud and tax evasion or the Efficiency of tax collection. In recent rulings the ECJ developed as a new reason the Principle of balanced allocation of power to tax between member states. But the restricting measures must meet certain criteria set by the court. Restricting legal measures by member states often do not meet these criteria.

In recent years there were a few cases on inheritance a gift tax

• Courts case van Hilden – van der Heijden (ECJ 23/02/2006 – C – 513/03): Dutch inheritance tax on citizens for a period of 10 years after leaving the Netherlands and taking residence in Switzerland is in line with EU law.
• Court case Jäger (ECJ 17/01/2008 – C 256/06): It is not in line with EU law if Germany imposes different regulations on the valuation of domestic and foreign property (real estate).
• Court case Arens-Sikken (ECJ 11/09/2008 – C – 43/07): It is not in line with EU law if the Netherlands do not allow a deduction of compensation payments to other heirs as estate debt if the deduction is disallowed only for non-residents.
• Court case Block (ECJ 12/02/2009 – 67/08): A double taxation is in line with EU law if Spain taxes an estate because cash funds and bonds are deposited at a Spanish bank and Germany taxes the same estate because the descendent was resident in Germany at the time of death. Germany was not obliged to credit the Spanish tax against the German tax.
• Court case Mattner (ECJ 22/04/2010 – C – 510/08): It is not in line with EU law if Germany grants a lower personal threshold for non-residents than for residents.

The court case Block seems curious. The court ruled that the Freedom to transfer capital is not restricted. But obviously the German regulation is meant to restrict a free capital transfer abroad. It seems that this ruling was a political decision. And one can understand the court’s problem. Which member state is breeching EU freedom rights: Germany or Spain or both?

There is no clear outline in the EU which member state has to avoid or minimise double taxation burdens. But the consequence is that one member state alone is not allowed to breech EU law. But two or more member states together can do it without any negative consequences.

Now the problem of double taxation in inheritance and gift tax law has been addressed by the EU commission in its recommendation dated 15 December 2011. The commission states very clearly that double taxation concerning inheritance or gift tax is not supporting the smooth functioning of the internal market. Revenues from inheritance and gift tax especially from trans-border transactions represent a relatively small share of overall tax revenue of member states while double taxation have a major impact in individuals affected. The commission recommends an EU-system which allows avoiding double taxation scenarios. Whether this recommendation has an impact on the ruling of the ECJ remains to been seen.

Another uncertainty is whether cases with connection to non-member states will be protected by EU law. This is due to the fact that the Freedom to transfer capital is not restricted to the EU. In theory also citizens or residents of non-member states are protected by Article 63 EU treaty. And also property outside of the EU might be protected. The ECJ will be able to clarify whether the Freedom to transfer capital will also be applicable in cases with connection to non-member states. The Bundesfinanzof (highest German fiscal court / BFH 15/12/2010, II R 63/09) asked the ECJ whether business property situated in Canada can be valued for inheritance tax reasons at a higher level than property situated in Germany.

Unclear is also whether Swiss citizens can claim the same rights as EU citizens based on the non-discrimination clause of the Agreement of free movement and settlement between Switzerland and the EU.

Author: Peter Scheller Hamburg www.somannscheller.de

• 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)

On the Friday afternoon a visit was arranged to the offices of the host firm, Macilvin Moore Reveres, in Harrow and later on in the evening there was a dinner at Smith’s Bar and Grill in Paddington Central where everyone enjoyed cuisine described as “modern British”.

Saturday morning was the formal IAPA conference and AGM chaired with his usual aplomb by Peter Scheller with the financial report from Hugo Schauli, a very interesting presentation by Tom Keane and various contributions from the other delegates followed by a buffet lunch.

In addition to the usual program of events many of the delegates and their partners managed to find time for some of London’s famous shopping venues and even a round or two of golf ! Having proved to be capable of hosting an IAPA conference London is now declared officially ready to cope with the 2012 Olympic Games!

We now look forward to the 2013 Annual Conference at a venue still to be announced.

Author: David Segall, Macilvin Moore Reveres LLP, London, www.mmrca.co.uk

On 13 January 2012 the Commission accepted a proposal regarding the broadening of the one stop shop for non-established taxable persons (both EU and non-EU) supplying telecommunication, broadcasting and electronic services to non-taxable customers.

As previously reported, from 2015, all telecommunications, broadcasting and electronic services are to be taxed in the Member State in which the non-taxable customer is established, or has his permanent address, or usual residence, regardless of where the supplier of the services is established.

However, as is currently the case for non-EU suppliers providing electronically supplied services to non-business customers in the EU, taxable suppliers would have the option to make use of a special scheme, i.e. the One Stop Shop. This would allow the taxable suppliers to only account for the VAT in the EU Member State in which they are established, without having to register for VAT in various other EU countries where their customers are located.

Austria - Limitation to the application of the reverse charge mechanism for non-established suppliers organizing fairs, exhibitions, conferences or congresses

With effect from 1 January 2012, non-established suppliers that organize a fair, exhibition, conference or congress in Austria and charge attendance fees will no longer be able to avail of the extended domestic reverse charge mechanism in Austria with respect to the event registration / attendance / entry fees.

Events with only selected attendees (events not open to the public) are not affected and therefore, the extended domestic reverse charge mechanism continues to apply on such event registration / attendance / entry fees.

Cyprus - Increase standard VAT rate by 2% from 1 March 2012

The standard VAT rate of Cyprus will increase to 17%, from 15%, and will come into force from 1 March 2012. There will be no change to the reduced VAT rates of 5% and 8%.

France - President Nicolas Sarkozy is to raise the VAT rate to 21.2%

The French President has announced an increase in the standard VAT rate from 19.6% to 21.2%, which will be due to come into force in October 2012, It has been approved by Parliament on 29 February 2012 and now still needs to be validated by the Constitutional Council.

France – Clarification on the application of the new reduced rate of 7%

The new reduced rate of 7% will apply to all goods and services that were previously subject to the 5.5% VAT rate, with the exception of foodstuff, gas and electricity, energy supply networks, and goods and services for disabled persons that will remain at the 5.5% VAT rate.

The increase in the reduced VAT rate is effective from 1 January 2012, except in relation to paper books which has been delayed to 1 April 2012.

The French Government have also clarified that prepared food ready for consumption (sandwiches, pizza) will be subject to the new 7% VAT rate.

Norway - VAT Updates

A significant change has been introduced in Norway in respect to VAT refunds through the refund scheme available to businesses involved in international transport services. Pursuant to a statement issued by the Ministry of Finance, companies without an establishment in Norway that carry out cross- border transport services are liable to register for VAT in Norway, subject to the standard registration thresholds.

In light of the above businesses will no longer be entitled to recover input VAT incurred in Norway via the refund scheme. Instead, Norwegian VAT incurred will only be deductible via local VAT returns by businesses who successfully register for Norwegian VAT purposes.

Despite this statement being announced by the Ministry of Finance only recently, the changes apply retrospectively with effect from 1 January 2010.

With effect from 1 January 2012 the online submission of VAT returns has become mandatory in Norway.  The Norwegian VAT authorities will no longer issue paper based VAT returns but in special cases taxable persons may be allowed to continue submitting paper returns if they can convince the tax authority that they cannot make electronic filings due to practical considerations.

The VAT rate on nutrients/foodstuffs has been increased from 14% to 15% with effect from 1 January 2012.

UK - Registration threshold to become NIL

Effective from 1 December 2012, non-established businesses will be required to register immediately if they make taxable supplies in the UK as the UK VAT registration threshold, currently £73,000, will no longer apply to non-established businesses.

Author: Tamás Bajor, Vienna Consult Kft., www.viennaconsult.hu

Proposal from Czech Finance Minister, Miroslav Kalousek, to bring in a single 19% higher VAT rate from start 2012 has been defeated. The proposal to rush in a higher rate of VAT than under a previously agreed timetable was challenged by junior member of the coalition. Under the existing timetable, two rates of higher VAT at 20 percent and 14 would be introduced next year with a single 17.5 percent rate coming in 2013. Kalousek had been proposing a single 19% higher rate to come in from start of 2012.

France - New 2011 taxation rules for conference and event organisers in France

On the 28 March 2011 the French Tax Authorities published an official guideline on the new VAT place of supply rules for event related services
This guideline is clarifying the impact of the VAT changes that were introduced by the Directive 2008/8/EC dated 12 February 2008 and came into force on the 1st January 2011, and deals in particular with services supplied in connection with conferences, congresses, trade fairs, etc. The information in this administrative guidance can be very useful for taxable persons who are either attending, or organising events in France. It brings some level of response to the uncertainty created by the new EU VAT taxation rules in this area, and also sheds some light on the implementation of those rules in France by featuring specific examples and solutions for various situations.

The information in this guideline is focusing the following items:

• VAT place of supply rules for services in respect of admission to an event
• VAT place of supply rules for event organisation services
• VAT place of supply rules for rental of exhibition space
• VAT place of supply rules for a complex package of services supplied within the frame of an event

However this guideline is also dealing with other questions such as VAT taxation rules for services rendered by Professional Congress Organisers (”PCO”) or the VAT place of supply rules for training services.

Greece - VAT rate on food and drinks supplied for immediate consumption to increase from 1 September 2011

The VAT rate applicable to non-alcoholic beverages and to the supply of food for immediate consumption in restaurants, as well as on some connected services is to increase from 13% to 23% (16% in the Agean Islands) from the 1st of September 2011.

This change will not affect food and beverages supplied in canteens used by medical, educational or social welfare organisations. Also, this change will not affect food intended for mass consumption that are ready to eat and are sold in packages in the restaurant/take-away.

Hungary - Hungary’s VAT regulatory practices not compliant with EU VAT Directive

The European Court of Justice found that Hungary’s practices are incompatible with EU law and need to be modified. The current situation allows taxable persons to deduct the input VAT of their acquisitions from the amount of VAT payable. If the amount that is deductible is greater than the VAT payable the excess can then be reclaimed, except where the taxpayer has not paid the consideration.

This means that for certain taxpayers the opportunity to reclaim VAT is postponed for several tax periods, this was considered by the ECJ in its decision on 28th July 2011 to be  contrary to the EU VAT Directive.

Ireland - Introduction of a new reduced VAT rate of 9%

The Minister for Finance has announced that a second reduced VAT rate of 9% will be introduced in respect of certain goods and services (mainly related to tourism) for the period 1 July 2011 to 31 December 2013 under the “Jobs Initiative 2011”. The new VAT rate is effective from the 1st of July 2011.

Ireland - Update on the deduction rules for Car related expenses

The information used to prepare this update is contained in the VAT Leaflets published on the Irish Revenue website: http://www.revenue.ie/en/tax/vat/index.html

1. Purchase of cars

The purchase of a car in Ireland is subject to Irish VAT. VAT incurred on this purchase is usually not deductible. However, a VAT registered trader may deduct VAT if the car is used 100 % for business and if it belongs to category B or C, i.e. commercial vehicles.

There is an exception to this rule, Motor dealers and driving schools may recover VAT incurred on the purchase of a wider range of vehicles.
From the first January 2009 a trader can also recover some of the VAT incurred in relation to the purchase of category A vehicles, i.e. saloons, estates, hatchbacks, convertibles, etc. However there are conditions;

• Vehicles must have been registered on or after the 1st Jan 2009
• CO2 emissions must be less than 156g / km (Co2 emission bands A, B or C)
• At least 60% of the vehicle’s use must be for business
• The car must be used for business purpose for at least 2 years

Where those conditions are fulfilled it is possible to recover up to 20% of the VAT paid.

2. Hire and leasing of cars

VAT is recoverable on the hire and leasing of cars under the same conditions than above, i.e. full deduction of VAT may be possible if the car is category B or C and 100% used for business purposes and up to 20% deduction is possible for cars belonging to category A where the conditions described above are fulfilled.

3. Repairs and servicing of cars

VAT is recoverable on repair and servicing of cars under the same conditions than above, i.e. full deduction of VAT may be possible if the car is category B or C and 100% used for business purposes and up to 20% deduction is possible for cars belonging to category A where the conditions described above are fulfilled.

4. Petrol and diesel

VAT registered traders are not entitled to recover VAT incurred on the purchase of petrol.

VAT is fully recoverable on diesel by VAT registered traders if the vehicle is used 100% for business.

5. Toll bridges and car parking

VAT registered traders are entitled to deduct VAT incurred on toll bridges and “off-street” car parking. VAT should be fully recoverable by VAT registered traders if the vehicle is used 100% for business. VAT on “on-street” car parking is exempt.

The Irish revenue has created categories of vehicles ; A, B, C, D, M, M1, M2 etc. only commercial vehicles in categories B and C open right to VAT deduction, Category A is for vehicles such as estates, saloons, convertibles, etc., that are not designed as commercial vehicles.

United Kingdom - HMRC will target businesses who have not registered to pay VAT

HMRC has launched a campaign to target businesses that are trading above the VAT registration threshold (73,000 GBP) but are not registered for VAT.

Under the terms of the VAT Initiative, those who have not registered to pay VAT can come forward any time up to 30 September to tell HMRC that they want to take part. If they make a full disclosure, most face a low penalty rate of 10 per cent on VAT that has been paid late. After 30 September, using information pulled together from different sources, HMRC will investigate those who have failed to come forward. Substantial penalties or even criminal prosecution could follow. HMRC uses new technology and legislation to gather and analyse data, from internal and external sources, to identify people who should come forward.

United Kingdom - Businesses call for VAT cut

Fears that the UK economy has flatlined in the nine months since October have led to the Federation of Small Businesses (FSB) to call for yet another VAT rate change urging the government to drop VAT to 5% in certain sectors. While this approach has been adopted in other jurisdictions such as France, Germany and most recently Ireland there is little evidence of a positive impact and in some cases questions over whether these reductions were being passed on to end consumers at all.

United Kingdom - HMRC continue to move VAT on-line - Consultation Document Released

HMRC has just released a consultation document covering the changes to the operation of VAT and moving of more transactions on-line. HMRC proposes that from 1st of April 2012, for businesses with a turnover below £100,000, it will be compulsory to file VAT returns on-line and make electronic payment of any VAT due. On-line filing is currently optional for these smaller businesses, however, all new businesses that registered for VAT since 1 April 2010 and larger businesses, with a turnover of £100,000 or more are obliged to file and make VAT payments on-line.

Author: Tamás Bajor, Vienna Consult Kft., www.viennaconsult.hu

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).

The most important subsidy agency in the Netherlands is AgentschapNL, which is based in The Hague. The latter organization is responsible for the execution of most of the schemes available in the Netherlands. In addition, there are also a number of important regional and provincial schemes available, as well as a number of international schemes offered by the Ministry of Foreign Affairs, the Ministry of Economic Affairs and Brussels.

This section will outline a number of the schemes that are currently available. Obviously this is not an exhaustive list, so we recommend that you contact your consultant for more detailed information.

Innovation subsidies

WBSO (Wet Bevordering Speur & Ontwikkeling)
WSBO stands for the Dutch Research and Development Act. Technological innovation is extremely important. The competitor never rests. The WSBO will help you if you wish to renew your technical processes or develop new technical products or software. The WBSO is a tax incentive scheme that forms part of the compensation of salary and wage expenditures for Research and Development work.

Subsidieregeling Internationaal Innoveren (Subsidy for International Innovation)
This regulation promotes cooperation between Dutch companies and foreign companies in emerging markets, Eureka countries and industrialised countries. By working together with local parties, Dutch companies can gain access to these markets. The maximum contribution per project amounts to € 500,000 for innovation projects in emerging markets and € 750,000 for innovation projects with Eureka or industrialised countries. The following countries are considered emerging markets: Brazil, China, Indonesia, Malaysia, Thailand, South Africa, India and South Korea.

Regional Subsidies

Depending on the location of your place of business, it is also possible to obtain subsidies from various provinces and regional authorities. For example, the Province of Brabant focuses mainly on technological innovation and projects an international profile in that field. The Province of Overijssel is extremely active in the reinforcement of agriculture through innovation, whereby its main concern is to keep the sector viable. Utrecht is oriented to creativity within the ICT sector. Furthermore, a lot of provinces offer subsidies in the area of sustainable development and sustainable energy.

Investments

MIA (Milieu Investerings Aftrek) (Environment Investment Deduction Scheme)
The purpose of the Environment Investment Deduction scheme (MIA) is to stimulate investment in environmentally friendly capital equipment. Companies that invest in the environment are entitled to additional tax deductions at a percentage of the investment cost. The environment investment deduction scheme is only available for capital equipment listed on the Environment List 2010 (Milieulijst 2010), which is updated on an annual basis.

EIA (Energie Investerings Aftrek) (Energy Investment Deduction Scheme)
The purpose of the Energy Investment Deduction scheme (EIA) is to stimulate investment in energy-saving technology and sustainable energy, i.e. so-called energy investments. Companies that invest in the energy industry are entitled to additional tax deductions at a percentage of the investment cost. The energy investment deduction is only available for capital equipment that complies with the specified energy performance requirements. The energy performance requirements and the capital equipment that are subject to the energy investment deduction are available in the Energy List 2010 (Energielijst 2010), which is updated on an annual basis.

BBMKB (Besluit Borgstelling MKB Kredieten) (Credit Guarantee Scheme for SMEs)
The purpose of the Credit Guarantee Scheme for SMEs (BBMKB) is to stimulate credit provision to small and medium-size enterprises (SME or MKB in Dutch). The scheme was designed for companies with a maximum of 100 employees and includes most professional entrepreneurs. If the entrepreneur is unable to provide the bank with sufficient security or collateral to secure a loan, the bank can appeal to the BBMKB for the necessary guarantees. The government will then, under certain conditions, provide the security for part of the credit amount. This reduces the level of the bank’s risk exposure and increases the creditworthiness of the entrepreneur.

KleinschaligheidsInvesteringsAftrek (Small-scale Investment Deduction)
The Small-scale Investment Deduction entitles the entrepreneur to deductions from investments in capital equipment between € 2,200 and € 300,000 in 2010. You invest in capital equipment in the year in which you buy it and therefore incur a payment obligation. The investment deduction can be applied in the year in question. If you do not intend to use the capital equipment in the year in which the investment is made, then part of the investment deduction is sometimes carried forward to the next year.

Environment and Energy

Energie Onderzoek Subsidie (EOS) (Energy Research Subsidy)
The purpose of the Energy Research Subsidy (EOS) is to increase the quality level of research and knowledge in the Netherlands by stimulating the development of new technology with the ultimate aim of realizing sustainable energy supply. The aim of the EOS programme is to broaden the knowledge base for energy efficiency and sustainable energy across the Netherlands. The knowledge forms the foundation for affordable, reliable and cleaner energy supply in the future. The EOS covers the full process from idea to market introduction.

Milieu & Technologie (Environment & Technology Subsidy)
Netherlands-based industrial small and medium-size enterprises (SME) qualify for subsidies for projects that contribute to the development and application of innovative environmentally oriented processes, products and services that are new to the Netherlands. The subsidy is known as the ‘Environment and Technology Subsidy’. The projects must focus on the analysis and exploration of market opportunities (TeMa component: ‘Technology in the Market’), or the project must be focused on the research, development, testing and first application of environmentally oriented innovations (ToeP component: Application in Practice’). Stimulering Duurzame Energieproductie (SDE) (Stimulation of Sustainable Energy production) The Dutch Ministry of Economic Affairs wants to support both companies and individuals who want to produce sustainable energy. Anyone who wants to produce energy in a way that does not adversely affect the environment, can make use of this regulation. The production of sustainable energy is not always cost-effective. The SDE compensates the difference between the cost price of regular energy and sustainable energy over a period of 12 or 15 years.

Foreign Markets

Private Sector Investeringsprogramma (PSI) (Private Sector Investment Programme)
The purpose of the Private Sector Investment Programme (PSI) is to contribute to the sustainable economic development of a number of developing countries with the use of the knowledge and capital available in Dutch companies and institutions. If you are planning to invest in a developing market, but the associated risks are excessively high, PSI might offer a suitable solution. The scheme could contribute to (partial) compensation of your investment costs. The programme applies to selected countries in Africa, Latin America, Asia and Eastern Europe. Foreign companies from a selected number of countries can also apply for the PSI.

Prepare2Start
The Prepare2Start programme helps Small and Medium-size enterprises (SME) in taking the first steps in exporting. The purpose of the scheme is to support SMEs with limited or no experience in export when entering new or practically new foreign markets. The support is available in the form of advice and supervision when setting up and implementing an internationalization plan, as well as a contribution towards the cost of a number of activities specified in the plan. The Prepare2Start is applicable to all countries in the world.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl

The following are a few of the benefits offered by the Dutch tax system:

• The Netherlands does not charge tax at source on interest and royalties.
• In most cases all the profits that the Dutch parent company receives from foreign subsidiaries are exempted from tax in the Netherlands (participation exemption).
• The Netherlands offers attractive tax-free compensation in the form of the 30% scheme for all foreign personnel who are temporarily employed in the Netherlands.

The Dutch tax system can be divided into taxes based on income, profit and assets, and cost price increasing taxes.

Below you find a summary regarding other taxes and duties.

Dividend tax

Companies often pay out profits to the shareholders in the form of dividends. The following are further examples of dividend situations:

• Partial repayment of the moneys paid up on shares by shareholders;
• Liquidation payments above the average paid-up equity capital;
• Bonus shares from profits;
• Constructive dividend. This concerns situations in which the shareholder sells something to the company at a lower value than the prevailing value in the market. In other words, this works to the company’s advantage;
• Compensation received for a cash loan, where the loan was taken out under such conditions that it effectively functions as corporate equity capital.

The company (liable for withholding the tax) that pays out the dividend is bound to withhold the dividend tax and to pay it to the tax authorities.

Exemption
No tax is withheld, among others, in the following situations:

• Where, in inland relationships, benefits are enjoyed from the shares, profit-sharing certificates and cash loans of participations to which the participation exemption applies;
• If a Dutch company pays out dividends to a company established in a member state of the European Union and the company holds at least a 5% share of the Dutch company;

Tax rate
The tax rate for dividends is 15%. The tax is withheld by the company that pays out the dividends and pays it to the tax authorities. The dividend tax withheld serves as an advance tax payment on income and corporate income tax.

The Netherlands has signed tax treaties with various other countries, as a result of which a lower tax rate will apply in many instances.

Prevention of double taxation

Residents of the Netherlands and companies that are registered in the Netherlands must pay tax on all revenue generated worldwide. This could result in any given income component being taxed both in the Netherlands and abroad.

To prevent this kind of double taxation, the Netherlands has signed tax treaties with many other countries. The treaties are largely modelled on the OESO Model Treaty for the prevention of double taxation.

If an income tax component is nevertheless double-taxed as income or corporate income tax, the taxed amount is reduced based on the exemption method. The method entails a reduction of the Dutch tax related to the foreign income. The exemption on the income tax is calculated per box.
Double taxation of dividend payments and interest payments and royalties is prevented with the use of the settlement method. The use of this method means that the Dutch tax is reduced by the amount of tax charged abroad.

In certain situations it is also possible to deduct the foreign tax directly from the profits or as costs related to income.

The 30% rule

Foreign employees who come to work in the Netherlands temporarily qualify for the 30% Rule under certain circumstances. The rule entails that the employer is entitled to pay the employee a tax-free remuneration to cover the extra costs of their stay in the Netherlands (extraterritorial costs). The disposition is only valid for a maximum period of 10 years, and the situation can be reviewed after 5 years. The compensation amounts to 30% of the salary, including the compensation, or 30/70 of the salary excluding the compensation. The condition is that, based on this salary, the employee is not entitled to prevention of double taxation. If the employer reimburses more than the maximum amount, then this is additional salary before salary deductions.

Conditions for qualification for the 30% rule
1. The employee has a permanent job;
2. The employee has a specific expertise that is hardly or not at all available in the Dutch employment market. This is, in any event, the case if the employee is employed in the mid or upper levels of the management of an international company and is sent to the Netherlands on a rotational basis. The employee must have been employed by the company for a period of approximately 2.5 years.

Extraterritorial costs
The extraterritorial costs consist of the following, among other things:

• extra cost of living because of the higher cost of living in the Netherlands than in the country of origin (cost of living allowance);
• the cost of an introductory visit to the Netherlands, with or without the family;
• the cost of the application for a resident’s permit;
• double housing costs, because the employee will continue his or her residence in the country of origin.

The following aspects are not covered by the extraterritorial costs and can therefore not be compensated or granted untaxed:

• the overseas posting allowance, bonuses and comparable compensations (foreign service premium, expat allowance, overseas allowance);
• loss of assets;
• the purchase and sale of a house (reimbursement of house purchase expenses, agent’s fee);
• the compensation for higher tax rates in the Netherlands (tax equalization).

If the employee has children, the employer is entitled to offer the employee tax-free compensation for school fees at an international school in addition to the 30% rule. Other professional costs can be compensated untaxed based on the normal rules applicable to the Wages and Salaries Tax Act (Wet op de loonbelasting).

If the extraterritorial costs add up to more than 30%, then the actual costs that have reasonably been incurred can also be compensated tax-free. It must however be possible to demonstrate that the costs incurred are justifiable.

To be able to make use of the 30% rule, the employer and the employee must jointly submit an application to the Foreign Office of the tax authorities in Limburg (Belastingdienst/Limburg/kantoor Buitenland). If the application is approved, the tax authorities will issue a decision.

The decision is valid for a maximum period of 10 years. Should the request be made within four months after the start of employment as an extraterritorial employee by the employer, the decision shall be retroactive to the start of employment as an extraterritorial employee. If the request is made later, the decision shall apply starting the first day of the month following the month in which the request is made.
The ten-year period is reduced by previous periods of stay or employment in the Netherlands.

In addition, the employee can also submit an application for registration as a partial foreign taxpayer for tax purposes in the Netherlands. This entails that he will be entered as a foreign taxpayer in Box 2 and 3.

Value Added Tax (VAT)

The Dutch turnover or value added tax system is based on the European Directive concerning tax on added value. Tax is due the Added Value (VAT or ‘BTW’ in Dutch). This entails that tax is charged at each and every stage of the production chain and in the distribution of goods and services. Businesses charge one another VAT for goods and / or services provided. The company that charges the VAT is required to pay the VAT amount to the tax authorities. If a company is charged VAT by another company, it is entitled to deduct the VAT amount from VAT due on the company’s part. By doing so, the system ensures that the end user is effectively responsible for paying the VAT. Foreign companies that perform taxed services in the Netherlands are in principle also liable to pay VAT. Those companies, too, will be required to pay the VAT due in the Netherlands and will therefore also be able to claim the VAT invoiced to it by Dutch companies.

Exemptions
Not all good and services in the Netherlands are subject to VAT. The following services are VAT exempt: medical services, services provided by educational institutions, most banking services, insurance transactions, services performed by sports organizations and property rentals. Companies that provide exempted services are not entitled to charge VAT for their services. In addition, they are also not entitled to claim the VAT charged to them for goods and services. Companies that perform both VAT liable and VAT exempt services will assign VAT to those specific services on which VAT is due.

The VAT system in the internal European market
Europe has recognized the existence of an internal European market since 1 January 1993. From that date on, the European Union has recognized the free traffic of goods, persons, services and capital in the EU. Performances within the European Community are referred to as the intracommunity supply and acquisition of goods and intracommunity services. VAT is charged based on the destination country principle. This means that goods that cross the border to another EU country are taxed in the destination country. With effect from 1 January 2010 there is a new main rule for business to business services (B2B). These are from now on usually taxed in the country where the customer is established or has a permanent establishment.

Tax rates
The general VAT tax rate is 19%. The Netherlands also has a low VAT rate of 6%. Goods and services falling under the low tax rate are specified in Table 1 of the Turnover Tax Act (Wet op de omzetbelasting 1968). This applies, among other things, to foodstuffs and medicines. The zero rate is mainly intended for goods exported to outside the EU and for goods exported to other EU members states.
All companies are bound to submit VAT declarations. If the company also supplies goods or services to elsewhere in the European Union, it is also bound to fill in the Opgaaf Intracommunautaire Prestaties (Intracommunity Supplies) tax form.

Excise and other Duties

Excise duty
The Netherlands charges excise duties on alcohol-containing beverages, tobacco, fuel and other mineral oils. Manufacturers, traders and importers pay excise duties to the tax authorities. The Excise Duty Act (Wet op de accijns) in the Netherlands is fully harmonized with the applicable EU directives.

Environmental taxes
The Netherlands charges the following environmental taxes:

• Groundwater tax
• Tax on mains water
• Waste tax (Afvalstoffenbelasting)
• Fuel tax
• Energy tax
• Packaging tax

Groundwater tax
The taxes are paid by companies that extract groundwater. The amount of tax due is based on the amount of cubic metres of groundwater that is extracted by the company. The rate is € 0.1951 per m3.

Tax on mains water
The Netherlands charges tax on mains water. All companies and households pay tax on a maximum amount of 300 cubic metres of water per connection per annum. The rate is € 0.157 per m3.

Waste tax (Afvalstoffenbelasting)
Waste tax is charged on all dumped waste. The rate is € 107.49 per 1,000 kg of dumped waste. The rate for non-burnable waste and waste that should not be incinerated is subject to a rate of € 16.79 per 1,000 kg.

Fuel tax
Fuel tax is paid by the producers and importers of coal. The rate is € 13.42 per 1,000 kg coal.

Energy tax
The purpose of energy tax is to reduce CO2 emissions and to reduce energy consumption. The energy tax is charged to the user of the energy (natural gas, electricity and certain mineral oils). The rates are related to the amounts used, whereby the rates are progressively reduced as consumption increases.

Packaging tax
With effect from 1 January 2008 the Netherlands has introduced a new tax: the packaging tax. The principal pays the tax. The tax is also payable by people who for the first time market a packaged product or an (empty) packaging together with a product. For each taxpayer there is a tax threshold of 50,000 kg. The packaging tax is only paid on the amount of packagings that exceed the threshold. Businesses who make available or market less than 50,000 kg of packagings are not affected by the packaging tax and also do not have to notify the Dutch Tax Authorities.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl