Bulletin 36

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UK: Budget announces details of digital services tax

From April 2020, the UK government will introduce a new 2 per cent tax on the revenues of digital businesses that derive profits from their UK users, it was confirmed in the 2018 Autumn Budget statement. It will apply to UK annual revenues of more than GBP25 million generated from search engines, social media platforms and online marketplaces, where the group’s annual global revenues are more than USD500 million. The budget also announces a new tax on offshore intangible property income.

UK: Government presses on with extra taxes on non-residents and non-doms

Two further measures confirmed in HM Treasury’s 2018 Autumn Budget affect non-resident owners or beneficiaries of UK property. First, the government is going ahead with its plans for a one per cent stamp duty land tax surcharge for non-residents buying residential property in England and Northern Ireland, subject to consultation. Second, Finance Bill 2019-20 will confirm that additions of assets by UK-domiciled, or deemed-domiciled, individuals to trusts made when they were non-domiciled are not excluded property for inheritance tax purposes.

CORPORATE TAXATION: EU ministers consider sunset clause for digital services tax

The German and French governments are urging other European Union Member States to agree a compromise plan for a tax on digital services, under which all Member States will implement the tax but only bring it into effect if efforts at the OECD fail to achieve worldwide consensus. The UK has already announced a 2 per cent digital services tax to come into effect in April 2020, and Italy and Spain have also committed to the tax. But smaller EU Member States, notably Ireland and Denmark, are resisting the digital tax idea.

FREEZING ORDERS: EU regulation strengthens mutual recognition of freezing and confiscation orders

The EU Council of Ministers has adopted a regulation promoting the mutual recognition of cross-border freezing and confiscation orders. The regulation states that all judicial decisions in criminal matters taken in one EU country will normally be directly recognised and enforced by another Member State, with few grounds for non-recognition and non-execution. It will come into effect 24 months after publication in the EU official journal, replacing the 2003 and 2006 framework decisions on mutual recognition of freezing and confiscation orders.

ENFORCEMENT: Five countries collaborate on data analytics against ‘enablers’

The Joint Chiefs of Global Tax Enforcement (J5), leaders of tax enforcement authorities from Australia, Canada, the Netherlands, the United Kingdom and the US, have held a meeting focussing on new data matching techniques to identify ‘professional enablers suspected of facilitating significant tax fraud across international boundaries’. The J5 has already identified, and is actively pursuing, a number of professional enablers, identified through intelligence sharing between members since the alliance was formally announced in June this year.

CITIZENSHIP BY INVESTMENT: Cyprus seeks reversal of OECD blacklisting

Cyprus’s finance ministry is preparing a report requesting the OECD to remove the jurisdiction’s citizenship- and residency-by-investment programme from the ‘blacklist’ of schemes considered to pose a high risk to the international exchange of financial information. In October, the OECD named Cyprus as one of 21 jurisdictions that give wealthy individuals access to low income tax on their global assets but do not require them to spend much time in the jurisdiction.

NORWAY: Flat-tax option for foreign workers

The 2019 Norwegian budget proposes a 25 per cent flat tax rate regime for foreign workers and company directors, available by election for non-residents and first-year residents with annual salary below NOK617,500 (USD74,000), with no deductions allowed. Obtaining a certificate of coverage will reduce the tax rate to 16.8 per cent, and provide full exemption from social security contributions.

RESIDENCE: Moldova enters citizenship-by-investment market

The Moldovan government’s citizenship-by-investment programme is now officially open for applications. Candidates must contribute EUR100,000 to the Moldovan Public Investment Fund, plus an EUR11,000 pre-application fee and a EUR35,000 fee per application, which provides full citizenship rights transferrable, without restrictions, to future generations. The passport provides visa-free access to 121 countries, including Russia and the EU’s Schengen area, although the countries are not in the EU.

RUSSIA: Tax authority names and shames delinquent shell companies

The Russian Federal Tax Service (FTS) has begun publishing information on the financial practices and tax liabilities of Russian corporate taxpayers, in order to help reputable companies avoid working with undesirable partners. According to the FTS, the ease of setting up short-lived shell companies in Russia to evade tax has made businesses wary of forming new relationships. The FTS has already published financial details of a large number of ‘relevant companies,’ and has released information concerning overdue payments, tax indebtedness, and information concerning tax fraud on last 1 December.

FRANCE: Non-Europeans will not benefit from social charges reform package

France is to amend its system of imposing social security charges on non-residents’ French-sourced rental income and property gains, following a series of defeats in domestic courts and in the European Court of Justice. Non-residents from the European Economic Area (EEA) who are in the social security system of another EU Member State will no longer be liable for social charges on rental income from France, and will also be exempt from social charges on the sale of French real estate, though there is no exemption for non-EEA nationals. A new 7.5 per cent ‘solidarity tax’ is to be created and the minimum rate of income tax on rental and investment income earned by all non-residents will rise from 20 to 30 per cent this year.

UAE: Foreign investors to be allowed 100 per cent company ownership

The United Arab Emirates (UAE) has announced that foreign investors are to be allowed sole ownership of companies in some onshore business sectors. Until now, there was a 49 per cent limit on foreign ownership in UAE companies, apart from those incorporated in a special free trade zone.

CHINA: Five-year grace for non-doms will be retained

On 20 October, the Chinese government released draft individual income tax implementation rules and draft measures on itemised deductions. The five-year non-domicile concession will remain, protecting resident foreigners from becoming taxable on worldwide income, with continued tax concessions on fringe benefits and simplified administration of itemised deductions. Consultation ended on 4 November last year.

Sources: STEP | IFC Review

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