British Chamber Lunch Luxembourg Taxation: Changes in 2013 and how does Luxembourg compare with the rest of Europe in 2012
Tax Changes in Luxembourg in 2013 Individual Taxation: 1. A new tax bracket of 40% for taxable income over € 100, 000 single (€ 200, 000 married) Current max 39% on incomes over € 41, 793. 2. Increase in solidarity surcharge from 4% to 7% for taxable income less than € 150, 000 3. Increase in solidarity surcharge from 6% to 9% for taxable income more than € 150, 000 4. Loan or credit card interest deduction is reduced from € 672 pppa to € 336 pppa 5. Travel allowance between home and work minimum of € 396 pa is cancelled and maximum is reduced from € 2, 970 to € 2, 574 pa 6. Taxation of the benefit in kind of stock options is to be changed 7. Max VAT reimbursement on construction and renovation of private homes to be reduced from € 60, 000 to € 50, 000
Tax Changes in Luxembourg for 2013 Company Taxation: 1. Minimum corporate tax of € 3, 210 for non-regulated companies that are Soparfi and Finance Cos (>90% of balance sheet is financial assets) Was € 1, 575 2. For all other non-regulated companies and foreign companies having a permanent establishment in Luxembourg like owning real estate in Luxembourg € 535 if balance sheet total is less than € 350, 000 and up to € 21, 400 for balace sheet total of more than € 20 million. No reduction for fiscal unity and investment tax credits and no credit against net wealth tax. 3. Investment tax credits reduced from 13% to 12%. 4. Solidarity surcharge increased from 5% to 7% bringing the total corporate tax rate from 28. 82% to 29. 22%. 9
A 2012 European Comparison of : 1. Salary Taxes, Social Security & Expat Tax 2. Self Employed Tax 3. Gift & Inheritance Tax 4. Corporate Tax 5. Parent Company Tax 6. Value Added Tax 7. Q&A 4
Salary Taxes, Social Security & Expatriate Taxation: A European Comparison 2012
Survey 2012: Salary Tax and Social Security 14
Salary Tax and Social Security Items to note: In 2012 in ES tax is expected to rise 15% and social security for employees has been introduced. In 2012 PL employers have to pay four times the amount for social security than they did in 2011 increasing the cost to the employer as percentage of net salary from 50% to 208%. In Fr. employee tax is € 3, 520 and social security is € 21, 424 and € 43. 052. In CY employee tax is € 24. 246 and social security is € 3. 625 and € 6. 531. The net salary retained by the individual is almost the same but the percentage cost to the employer is 148% in CY and 190% FR is the most expensive country for employers with a total cost to the employer of € 143. 052. The survey shows that RU € 87, 975 and LI € 86, 416 leave the most money in the pocket of the employee and HR the least € 44. 837. In SE the total cost of employing someone is almost 2, 5 times net salary, in PT almost 2 times and in BE even more than 2, 5 times. 12
Salary Tax and Social Security Company Cars are taxed in all countries, except HU, PL, TR and RU. The amount is generally based on catalogue price, but can be invoice price, engine size (IM - 1999 cc was used for the survey), or CO 2 emissions (’green’ cars are taxed lower in the Netherlands). This year BE starts with a 6% taxation of company cars based on engine size and CO 2 emissions. Company Pension Schemes: Premiums paid by employers are taxed as a benefit in only: CY, LI, UA (38%) and LU (20%). Other Insurance Premiums paid by employers for life, sickness, invalidity and surviving spouse benefits are not taxed as a benefit in about 50% of the countries. Share Options are taxed in most countries except AT, HU, RO and IM. Mobile Phones are a taxable benefit in many countries such as CY (private use), CZ, DK, HU, IE (% private use) IT, NO and RO. Lap-Top Computers and Internet costs are generally not treated as a benefit in kind. 13
Salary Tax and Social Security Expatriate Schemes: BE, FR, RO, HU, PL, ES and UK do not tax employer funded home visit travel or the payment of relocation costs. Only CY (20%), NO (10%) and NL (30%) exempt from tax a percentage of the expatriate’s income. Only HR, PL and LI do not allow expatriates to buy houses there. 9
Self- Employed Taxation: A European Comparison 2012
Survey 2012 Self Employed 11
Self Employed Net Income: BE leaves the least amount of money in the hands of the individual (36%) followed by GE (38%) and GR (39%). The best results are offered by RU (88%), CZ (82%) and IM (82%). VAT Registration is required in every country with a registration threshold for majority of the countries. Depreciation is allowed as a deduction except for the UK (the UK has a capital allowances system rather than a deduction for depreciation). Most countries apply much shorter periods with 6 years being the average for cars and 4 years for computers. Mortgage Payments are allowed as a deduction in most countries. The exception being AT, CY, GE, IE, LI, SR, SE and TR. Social Security Contributions are also a deductible expense in most countries with only the CZ, GR, IE, IM, the UK, and the UA not allowing a deduction. 13
Self Employed Travel Expenses are allowed as a deduction in every country. Entertaining Expenses on the other hand are only allowed as a deduction in 15 countries. They are not allowable in CZ, GR, IE, NO, PL, PT, TR, the UK, and UA. Flat Rate Deductions are allowable in only 10 countries surveyed (CZ, GE, LI, NL, NO, PT, RO, RU, ES and the UA). Taxpayer’s Children deduction: are allowed in 13 of the countries surveyed but are not allowed in CY, IM, IE, LU, NL, PL, RO, SR, SE, TR and the UK. Taxpayer’s non working spouse deduction: is also available in 10 countries, the exceptions being CY, GE, GR, LU, NL, PL, RO, RU, SR, ES, SE, CH, TR, and the UK. The most generous jurisdiction appears to be the IM where € 11, 160 is allowed.
GIFT & INHERITANCE TAX: A European Comparison 2012
Survey 2012: GIFT & INHERITANCE TAX 1
Gift and Inheritance Taxes Tax Rate: 0% in the particular scenario, these being HR, CZ, IT, LU, PL, PT, RO, RS, SI, CH and UA. Depends on family relationship with deceased. Freedom to Choose: Civil Law countries tend to follow 'forced heirship' rules which dictate who benefits from the deceased's estate. Common Law countries allow freedom to choose. Exemption for assets transferred to the spouse All countries except BE, GR, IT, NL, and RO Exemption for assets transferred to children : Only HR, CZ, LU, PL, PT, SK, ES, CH, and the UA offer this exemption. Valuation of Assets: The family home is generally valued using current market value; the following countries apply reduced values: FR (80%), MT (50%), SI (80%) and ES (58%). Valuation of Assets: Share Portfolios. Distinction between listed and non listed companies and the proportion of the shareholding is important. 3
CORPORATE TAX A European Comparison 2012
Survey 2012: Corporate Tax 1
Corporate Tax: Nominal corporate tax rates These range from 10% BG, CY and GI 13% IE and LI 16% RO and RO 19% 26% DE, IT, LU, NO, ES, SE, TR and the UK 33 -35% BE, FR, MT 0% IM (except for rental profits from Manx property, and local banking services) 3
Corporate Tax: Effective corporate tax rates The effective corporate tax burden is affected by tax adjustments on the accounting profit and withholding taxes on business expenses such as intercompany interest and royalties. Effective corporate tax rates are: 11% BG, to 45% (UA). Most countries surveyed have effective corporate taxes between 23% and 38%. GI shows the largest divergence between nominal 10% and effective 34% rates, followed by the UA, PL, LU and FR. 4
Corporate tax : Net dividends received by shareholders Without considering the shareholder's personal income tax position the range of percentages of accounting profit received is: a. Individual shareholder resident in same country: From 85% (BG) to 43% (CZ). b. Individual shareholder resident in treaty country: From 93% (MT) to 43% (CZ). c. Individual shareholder resident in non-treaty country: From 93% (MT) to 43% (FR, CZ). d. EU resident company as shareholder: From 93% (MT) to 43% (CZ). e. Treaty country (non EU) resident company as shareholder: From 93% (MT) to 43% (CZ). f. Non-treaty country resident company as shareholder: From 93% (MT) to 43% (FR, CZ). 5
Corporate Tax: Adjustments to Commercial Result Bad Debts: GI, IM, LI, MT, NL, RU, RS, CH and UA allow general provisions whereas most other countries allow specific provisions. BG, GR, NO, PL and SI and TR allow neither specific nor general provisions. Complimentary Pension Provision: BG, CZ, FR, IE, LI, PL, RS, ES, TR and the UK do not allow deduction of company pension provisions. LU limits such deductions and also levies a withholding tax. Directors Fees: AT, DE and SK allow a 50% deduction. CZ, GR, LU and RU disallow them completely. IE, PL, RS and ES allow a deduction, but charge a withholding tax, as does CZ, GR, LU and RU. Depreciation: Apart from BG, CZ, IE, IM, RU, SK and the UK, depreciation of fixed assets for accounting purposes is also accepted for tax purposes. Company Cars: AT, HR, FR, IE, IT, LI, MT, PL, PT and CH set a maximum purchase price. Annual depreciation rates range from 10% (GI, RS) to 50% (TR). 8
Corporate Tax: Adjustments to Commercial Result Intercompany Interest: Most countries apply the arm's length principle for interest on loans from group companies or related parties and about 50% apply thin capitalisation rules. In the UK transfer pricing rules apply. BE, BG, HR, the CZ, GR, IT, PL, PT, RO, RU, RS and the UK apply withholding taxes between 5% and 25% on intercompany interest payments. Royalties: DK, GI, HU, IM, LI, LU, NL, NO, SE, CH and the UA do not apply withholding taxes to royalties paid to EU companies. The others do at rates between 5% (PT) and 25% (BE, SK). 12
PARENT COMPANIES: A European Comparison 2012
Survey 2012: PARENT COMPANIES 2012 11
Parent Companies Net cash receivable by non-resident parent company: GI pays the highest net dividend to a shareholder domiciled in a non-treaty country which amounts to 96, 56% LI (96, 31%), CY (96, 06%) and MT (94, 51%). Bottom of the list comes GR (58, 57%), followed by PT (60, 81%) and the UA (61, 01%). Net cash receivable by non-resident parent company: CH pays the highest net dividend to a shareholder domiciled in a non-treaty country which amounts to 98, 46% LI (96, 31%), CY (96, 06%) and MT (94, 51%). Bottom of the list comes PT (51, 55%) GR (59, 25%), and the UA (61, 40%). Dividend withholding tax: CY, DK, HU, LI, MT, NO, SK, SE, CH, TR and the UK 100% exempt otherwise the rate varies from 15% to 30%. Dividend income : Full dividend income exemption in most countries except RU, SK and TK 100% taxed and BE, FR, GE and IT 95% taxed. Capital gains: Usually 100% exempt except GR, HU, PL, RO, SK, TR and the UA 100% taxed, and DE and IT 95% taxed. 12
Parent Companies Investment Cost write down: 100% in AT, HU, LU, SK, ES and CH otherwise no. Interest paid on a loan taken by the parent company to purchase a foreign subsidiary 100% deductible except in Cy and Ty. Interest withholding Tax: None in AT, CY, DK, FR, GE, HU, IE, LI, LU, NL, NO, SE and CH in the rest the rate varies between 12, 5% and 25%, Belgium and Portugal being on the higher end.
VAT: A European Comparison 2012
Survey 2012: VAT Rates 11
VAT Rates: VAT suffered on expenses incurred while away on business in other countries is, in theory, recoverable. In practice it often ends up being an additional cost and with VAT rates ranging from less than 10% up to 27% it can represent quite a substantial additional cost. These can now be reclaimed in your own country through the ETVA web site. VAT Registration: The huge variation in registration thresholds represents a trap for the unwary. Many businesses assume that VAT is a simple enough tax for it to be safely ignored when starting up a new business venture. This can lead to disastrous results. With VAT registration thresholds ranging from zero (SE and several other countries) to more than € 87, 000 (UK) it is clear that local advice is essential and should be taken at an early stage. Filing delays: The time available for sending in the VAT returns can be as short as 10 days (GE, RS) through to 60 days (LI and CH) thereby adding to the complexities associated with complying with the local VAT rules. Distance Selling: In theory each member state should be using either the lower threshold of € 35, 000 or the higher threshold of € 100, 000. However, as the survey demonstrates, even this requirement has not been implemented uniformly. 14
Q&A Thank you for listening If you want to go into more detail on the surveys and download them please go to www. agn-europe. org and on the right click on tax surveys. There you find the ressults of these surveys since 2004. Or call me to discuss Karl Horsburgh International Audit Services SARL Cabinet de Révision Agrées Tel: +352 26687234 Email: karl. horsburgh@iasaudit. lu 13
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