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International Tax Systems: Six Countries, Six Questions

Posted on 23 June 2020

On 15 June 2020 we held the Legalink Seminar, discussing the International Tax Systems of six different Countries with six questions for each, as answered by:

  • Nayia Morphi, Director Tax Services, Ioannides Demetriou LLC from Cyprus
  • Maria P. Deguara, Partner, DF Advocates from Malta
  • Teresa Pala Schwalbach, Senior Associate, Sérvulo & Associados, from Portugal
  • Alfonso López-Ibor, Managing Partner, López-Ibor Abogados from Spain
  • Michael Barrot, Partner, Bratschi AG from Switzerland
  • Kassim Meghjee, Partner at Mishcon de Reya from the UK

To review the key insights from the event, please see below.

How does an individual become tax resident?

Cyprus, Malta, Portugal, Spain and the UK

An individual becomes a tax resident in the respective Country above if he spends more than 183 days there in a calendar year (or tax year in the case of the UK, which runs 6 April to 5 April).

There are also special rules whereby an individual can become resident despite spending less than 183 days. In all cases, this is subject to any applicable double tax treaties.

Switzerland

To become Swiss tax resident, the individual must contact the migration office in the relevant Canton, apply for a residence permit and Swiss health insurance.

Are there any tax incentives of special regimes available for tax residents?

Cyprus

Various full or partial exemptions are available on employment income, subject to certain conditions. Profits from the sale of securities are fully exempt. For non-domiciled Cyprus tax resident individuals, interest income and dividend income is exempt from tax. 

Malta

Non-domiciled individuals can be taxed on Maltese source income and income remitted to Malta, but non-Maltese capital gains are exempt. They can in certain circumstances be eligible for a 5/7th or 6/7th tax refund of the corporate tax paid by a Maltese entity in which they are a shareholder in certain circumstances.

Residents under the Residence Programme and The Global Residence Programme are only taxed on non-Maltese income when it is remitted, and at a reduced rate of 15% (subject to a minimum annual tax payment of €15,000).

Portugal

Under the Non-Habitual Residents’ regime, foreign income such as dividends may benefit from a tax exemption for up to ten years. In that case, rental income, capital income (dividends, interest, royalties), employment income and capital gains arising from the sale of real estate are tax exempt. Conversely, Portuguese sourced income may benefit from a flat 20% rate.

Spain

For certain expatriates the "Beckham Law" enables foreigners who move to Spain to only be taxed on Spanish sourced income (other than employment income). The rate of tax is 23% for savings income, and 24% to 45% on other income.

Switzerland

Individuals may apply the lump-sum taxation regime, which essentially allows non-locals to avoid Swiss tax on non-Swiss sourced income.

UK

For non-domiciled individuals, the remittance basis allows them to avoid UK tax on offshore income and gains unless and until they are "remitted" to the UK. The remittance basis is free for the first seven years, thereafter there is an annual charge of £30,000 until year 13 when it jumps to £60,000.

How are non-locals who become tax resident usually taxed on income/gains?

Cyprus, Spain, Portugal, Switzerland and the UK

Such residents are usually subject to tax on their worldwide income (and gains), subject to double tax treaties and certain exemptions.

Malta

Persons who are resident but not domiciled in Malta are taxed on a source and remittance basis; that is on income and capital gains arising in Malta and on income arising outside Malta which is received in Malta. Any capital gains arising outside of Malta would not be taxed, even if remitted to Malta.

Is there a wealth tax?

Cyprus, Malta, Portugal and the UK

No

Spain

Yes, tax residents in Spain must pay taxes for all their goods/assets and rights, whether they have them or are in Spain or (for those not using the Beckham ruling) abroad. The rate depends upon the region. In Madrid there is no taxation as it exists a 100% tax relief. Conversely, in Catalonia it is payable at up to 2.75%. The present government also intends to introduce a new tax on “large fortunes”.

Switzerland

Yes, there is a wealth taxation on the worldwide net wealth, whereas non-movable assets are exempt. The rate depends on the Canton of residency: from 0.13% to 1%.

How are non-locals who are tax resident on their death taxed in terms of inheritance tax/gifts and estate tax?

Cyprus, Malta, Portugal

There is no inheritance tax or estate tax, but stamp taxes may apply. Transfers of immovable property arising on death are generally not subject to stamp taxes and there are also certain exceptions for non-situs assets and/or inheritances to direct heirs.

Spain

Inheritance tax depends upon the relevant Autonomous Regions. (For example, in Madrid there is an allowance of 99% in inheritance tax, and in Catalonia, there is an allowance which ranges from 57.37% to 99%, and in gifts from 20% to 99%). Heirs are taxed in the region where the deceased has been resident for the longest time in the last 5 years. Resident are taxed on worldwide basis. Non-resident are taxed on the assets which are based or the rights which may be exercised in Spain.

Switzerland

Any estate of an individual taxpayer deceased in Switzerland is subject to Swiss inheritance tax. Worldwide moveable assets are taxable, but foreign real estate and (irrevocable) trust funds are exempt. Spouses and direct heirs (children) are exempt from inheritance taxes in almost all Cantons.

UK

Liability to UK inheritance depends on your domicile. If you are UK domiciled, you are subject to UK inheritance tax on your worldwide estate at 40% on your death, subject to certain reliefs and exemptions. Conversely, non-UK domiciled individuals are only subject to UK inheritance tax on UK assets, and indirect interests in UK residential property.

How are non-locals who are also non-resident subject to tax? 

Cyprus, Malta, Portugal, Switzerland and UK

Individuals who are non-domiciled and non-tax-resident may be subject to tax on income derived or accrued locally – mainly profits from a permanent establishment, employment income, rental income and capital gains tax on immoveable property.

Spain

Certain connecting factors determine what must be taxed in Spain. These can be: the place where the good/asset is located, the place where a right is exercised, the residence of the payer/issuer or the place of performance of some activities. The tax rate is 24% for non-EU/EEA countries, and 19% otherwise.

 

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