VAT treatment of virtual currencies and transactions – GERMANY

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On 27th February 2018, the Germany‘s Federal Ministry of Finance (MOF) issued guidance clarifying the VAT treatment of bitcoins and other “virtual currencies.”

 

It determined that although transactions to exchange a traditional currency for a virtual currency and vice versa were deemed to be a “taxable supply” these transaction are considered to be VAT exempt.

 

The guidance confirms that Germany will not impose a VAT charge in circumstances where the virtual currency is a substitute for a traditional currency and is used merely as a form of payment.

 

This guidance is in line with the ruling of the Court of Justice of the European Union (CJEU)— Hedqvist (C-264/14, 22nd October 2015).

Revenue Investigations for Airbnb Hosts

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  1. Are you letting a property through Airbnb?
  2. Have you recently received a Letter from Revenue advising you that your tax affairs are “under investigation”?
  3. Do you believe that you may be at risk of a Revenue Investigation?

 

The Irish Revenue is cracking down on anyone who has a listing on the accommodation website Airbnb.

It appears that Revenue is focusing on the tax years 2014, 2015 and 2016 but please be aware, Revenue have the legislative powers to extend the scope of their investigation to include previous years.

 

So, what does that potentially mean for a Tax Payer?

Once the Tax Payer receives a Notice of Investigation the option to make a voluntary disclosure no longer exists.

Previously unreported income from the letting of property via an accommodation website such as Airbnb will be liable to interest and penalties with potential publication of the Tax Payer’s name on the defaulters list.

 

What should the Tax Payer do?

If you haven’t received a Notice of Investigation, then you should file the relevant Income Tax Returns NOW.  If you have already filed tax returns for 2014, 2015 and 2016, you should make the necessary amendments to those forms as soon as possible.

If you file your Tax Returns immediately you are reducing the risk of being selected for a Revenue Investigation.

 

What should the Tax Payer include in his/her Return?

Your Rental Profit is liable to Income Tax, PRSI and Universal Social Charge.

The profit is arrived at by reducing your “Rents Receivable” figure by expenses which are wholly and exclusively incurred for the purpose of your business which include:

• Repairs and Maintenance including decorating, laundry and cleaning.

• Airbnb fees/commission

• Insurance

• Legal fees

• Accountancy / Taxation Fees

• Advertising Costs

• Utilities

 

 

Non-allowable expenses include:

• Food

• Commuting/Travel

 

 

Recent Revenue eBrief

Revenue eBrief No. 59/18 was published on 17th April 2018 in relation to the Tax treatment of income arising from the provision of short-term accommodation:

 

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-01-20.pdf

 

This comprehensive and detailed guidance material differentiated between frequent hosting and occasional hosting:

 

Frequent Hosting – Schedule D Case I

If the property is expected to be available for rent on a frequent and/or regular basis as opposed to a once-off or occasional basis then any profits arising from the provision of the accommodation will be liable to Income Tax under Case I Schedule D.

 

Allowable Case I Expenses:

  • Capital allowances – The annual wear & tear allowance of 12½% for plant and machinery used for the purposes of a trade e.g. furniture and fixtures.
  • Pre-trading expenses – expenses incurred up to three years prior to the date of commencement of a trade are completely tax deductible where the expenditure would be deductible had it been incurred after the trade commenced. Examples include the cost of painting or wall papering a room or purchasing towels and bed linen in advance of the guest accommodation being put into use for the first time.
  • Expenses wholly and exclusively expended carrying on a trade

 

Occasional Hosting – Schedule D Case IV

If the property is let only on an occasional or infrequent basis then the profits generated will be taxed under Schedule D Case IV.

Allowable Case IV Expenses:

  • No Capital Allowances
  • No Pre-trading expenses
  • Annual costs with a property will not be permitted such as the Television licence, Insurance, etc.

 

 

Additional Tax Issues to Watch Out for

VAT @ 9% could arise if your turnover figure is greater than €37,500.  Please be aware that the VAT registration is based on Turnover (i.e. what you received in rental income) and not Profit (i.e. the difference between your rental income and the allowable expenditure).

 

In the event of a subsequent sale of this property, since it won’t have qualified as your home for the entire period of ownership, you may not be entitled to the full CGT exemption afforded by Principal Private Residence Relief.

 

 

What to do Next

If any of this post has affected you and you’re worried about a potential tax liability or Revenue Investigation, please don’t hesitate to contact us to see what we can do for You.

 

 

 

Zero-rated GST implemented in Malaysia

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According to Malaysia’s Ministry of Finance, the supply of goods and services made in Malaysia will now be subject to the zero rated Goods and Services Tax (GST) effective from 1st June 2018.  The “Goods and Service Tax (Rate of Tax) (Amendment) Order 2018” amends the rate of tax on the supply of goods or services as well as on the importation of goods from 6% to 0%.

 

Please be aware that the zero rating will not apply to the supply of goods and services listed under the Goods and Services Tax (Exempt Supply) Order 2014.  These goods and services will remain exempt from GST.

 

All persons registered for GST (Goods & Services Tax) must comply with the new legislation in relation to zero rating but will continue to be governed by the current regulations with regard to invoicing, filing and claiming input tax credits.

 

GST registered persons must continue to ensure that the pricing of goods and services provided adheres to the Price control and Anti-Profiteering Act 2011.

VAT Treatment of Staff Secondments (Ireland)

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Revenue eBrief 66/18, published on 23rd April 2018, contained guidance on the VAT treatment of staff secondments to companies established in Ireland from related foreign companies.

https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0662018.aspx

 

These guidance notes confirm that staff secondments are subject to VAT at the standard rate, being 23%. This applies even where both companies are connected and members of an international group.  Revenue, however, have provided a concession whereby VAT will not be charged on payments in relation to the seconded staff provided that correct Irish PAYE and PRSI have been operated on these payments.

 

 

This concessionary treatment will only apply in situations where the staff members are seconded from a company established outside Ireland but which is part of the same corporate group as the recipient company and where the staff are seconded to an Irish established company or an Irish branch of a foreign company. In addition, the Irish company to which the employee is seconded must exercise control over the performance of his/her duties or the secondee must effectively have managerial responsibility for the operation of the Irish company or Irish branch. Finally, the PAYE and PRSI liabilities relating to the payments to the seconded employee must be paid over to the Irish Revenue in a timely manner.

 

If the company sending the employee does not charge in excess of the emoluments paid then no VAT liability will arise.  However, where the company sending the employee charges the Irish company an amount which is in excess of the amounts payable to the employee, then the excess will be subject to VAT in the hands of the Irish company engaging the employee on the “reverse charge basis.”

 

Tax Treatment for short term rentals e.g. through online accommodation booking sites

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Yesterday, Revenue eBrief No. 59/18 was published.

 

This comprehensive nine page document outlines the tax treatment for income arising from the provision of short-term accommodation:

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-01-20.pdf

 

short term letting is defined as a letting of all or part of a house, apartment or other similar establishment:

- to a tourist, holidaymaker or other visitor
- for a period which does not exceed or is unlikely to exceed 8 consecutive weeks

 

There are a number of different circumstances which will be covered by this new guidance material including

(i) persons staying in hotels, guesthouses, B&Bs, hostels, etc.,
(ii) persons either sharing a property with the owner or occupying the whole property for a short period of stay or
(iii) persons occupying self-catering holiday accommodation for short periods

 

If your rental income meets the criteria outlined in this document, you could be looking at an obligation to register for VAT depending on your turnover as well compliance obligations under Cases I or IV Schedule D.  In addition to the annual tax on the rental profits and the potential VAT exposure, you could encounter a Capital Gains Tax liability on the sale of the property generating this rental income which might otherwise have been tax exempt.

 

This document has clarified situations where Rent-a-Room Relief will not be available.  Specifically if you are someone who rents out one or more rooms in your home through online accommodation booking sites you will not be entitled to the Rent-a-Room Relief.  Instead you may be treated as if you are carrying on a trade with an obligation to register and account for Income Tax and/or VAT.

 

If you provide short term rentals to tourists, guests or visitors where the room or property is available for rent on a regular or frequent basis with a view to making a profit and involves you, the owner, carrying out some or all of  the following activities then you may be deemed to be carrying on a trade and if so, this document is relevant to you:

  1. Advertising the property online on accommodation booking websites
  2. Dealing with booking enquiries, reservations and payments
  3. Arranging for cleaning, laundry and maintenance during and between lets
  4. Providing meals
  5. Providing information to visitors about local tourist attractions, restaurants etc.
  6. paying staff to provide such services, etc.

 

According to this document:

“The provision of traditional short-term guest accommodation in hotels, guesthouses, B&Bs and hostels will generally constitute a trade. Persons who provide short-term guest accommodation, either in their home or in another property owned by them, will only be trading to the extent the activity is sufficiently frequent and regular and is carried on a commercial basis and with a view to the realisation of profit.”

 

If you are renting out a room in your own home or an entire property using an online accommodation booking site and you are unsure of the correct tax treatment pertaining to your situation, why not contact us to discuss the matter further.

VAT Amendments – South African Budget 2018

 

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On Budget Day, 21st February 2018, the South African Minister for Finance released updated draft regulations in relation to VAT levied on electronic services provided by foreign businesses.  The aim is to extend the definition of “electronic services” to include “any service supplied by means of an electronic agent, electronic communication or the internet…”

 

If enacted, the amended draft regulations could result in a significant overhaul of the VAT treatment electronic services.

 

In 2014 Section 89 of the Value Added Tax Act 1991 was amended.  From 1st June 2014 on-wards the definition of “enterprise” was to include in the supply of electronic services provided by foreign suppliers to recipients within South Africa. As a result, non-resident suppliers of these services were required to register for VAT where their supplies exceeded the threshold amount of R50 000 in a twelve month period.

 

The amendments proposed in this Budget, which should take effect from 1st October 2018, include the following:

  • Repealing the current Regulation – This would allow for the deletion of the specific types of services currently outlined as “electronic services” and
  • Revising the definition of “electronic services” to effectively include any type of service supplied electronically with the exception of telecommunication services and educational services provided by a person who is regulated by an educational authority in a foreign jurisdiction.

 

This new definition will bring into the South African VAT regime; foreign suppliers whose services were previously outside its scope including online advertising, broadcasting, cloud computing, access to databases and information systems, etc.

 

The VAT Act does not, however, distinguish between Business to Business (B2B) supplies and supplies made directly to South African consumers (B2C). This will have a significant impact on the tax compliance burden for foreign suppliers who supply services electronically into South Africa as well as for the South African Revenue Service.

 

Amendments have been proposed for intermediaries and platforms to be allowed to register as vendors.  This will enable them to account for the VAT arising on sales made through such platforms providing the platform or intermediary facilitates the supply and assumes responsibility for the issuing of invoices and collection of the associated payments.

 

The National Treasury has allowed until 22nd March to provide comments.  Following which, if the proposed amendments are enacted they will become effective from 1st October 2018.

Nestlé UK Ltd. loses its Case – Strawberry and Banana Nesquik are liable to standard rated VAT

 

Chocolate milk

 

Nestlé has lost its appeal against the original 2016 ruling by the UK’s First Tier Tribunal over the VAT treatment that should apply to its strawberry and banana flavoured Nesquik powders.

 

The First Tier Tribunal found in favour of the HMRC not repaying the £4 million of output VAT which had been over declared by Nestlé on these products.  Nestlé’s grounds for seeking this repayment were that the fruit flavoured powders were liable to the zero VAT rate as they were deemed to be “a powder for the preparation of beverages.”

 

The Tribunal held in favour of the HMRC that the products in question should remain at the standard VAT rate and as a result, no claim for the over declared output VAT is to be allowed.

 

Nestlé argued that strawberry and banana Nesquik should be zero rated. The reason being that they encourage milk drinking and milk is zero rated.

 

Nestlé also argued that these flavours should have the same VAT treatment as the chocolate flavour powder because they are in essence, the same product.

 

Both Nestlé and the HMRC agree that the chocolate flavoured Nesquik should be zero rated on the basis that this product contains cocoa thereby allowing it to fall within the list of “exceptions to the excepted items” according to the UK’s zero rating provisions.

 

The Upper Tribunal pointed out that there are number of other anomalies within the VAT system. For example, the fact fruit salad is zero rated while fruit smoothies are liable to VAT at the standard rate.

 

This case is likely to be appealed by Nestlé.

 

The lesson to be learnt from this case is that advice should always be sought in advance, especially with regard to new supplies, to ensure that the correct VAT treatment is always applied.

 

The full ruling can be found here:

 

 Nestlé UK Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2018] UKUT 29, Appeal number: UT/2016/120 

 

 

 

 

Image courtesy of tiverylucky at FreeDigitalPhotos.net

4% Stamp duty rebate on development land used for residential development

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A stamp duty refund scheme in respect of land purchased to develop residential property was signed into the 2017 Finance Act on 25th December 2017.

 

The Act provides that where stamp duty, at the new higher rate of 6%. is paid on the acquisition of land which is subsequently used to build residential property, the purchaser will be entitled to a rebate of 4% being 2/3rds of the duty paid.

 

It is important to keep in mind that the refund of stamp duty is only applicable in relation to the proportion of the land used for residential development.

 

 

The Main Points of the Scheme are:

 

  • The scheme only applies where the residential development begins within thirty months of the date the land was acquired but before 1st January 2022.

 

  • It only applies to the construction of dwelling units.

 

  • It does not apply to the refurbishment or completion of existing or partially constructed units.

 

  • The time taken to conclude any planning appeal may be added to this 30 month period.

 

  • The development must commence on foot of a Commencement Notice served in compliance with the Building Control Regulations and must be completed within two years of the relevant Local Authority’s acknowledgement of the Commencement Notice.

 

  • There is a four year time limit on claiming a repayment.  Please be aware that the repayment does not carry interest and must be claimed using Revenue’s e-Stamping system.

 

  • The 4% duty refund can be claimed following the commencement of the works

 

  • Where the residential development is being carried out in phases, repayments can be sought on a phased basis i.e. the refund can be reclaimed on the commencement of each phase but only in proportion to the area of the land in each phase.

 

  •  75% of the land, for which the refund claim is made, must comprise of dwelling units.

 

  • If the legislative conditions are not met or if the works have not been completed within the 2 year deadline then Clawback Provisions will apply to this refund.

 

 

Despite the fact that this scheme has been signed into legislation there are still areas of uncertainty.  It is expected that Revenue will issue guidance material to clarify matters in due course.

 

 

Irish Employment Tax

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It’s very difficult to keep up to date with all the amendments to the Irish tax system so here is a summary of some of the changes to be mindful of in 2018:

 

 

1. Annual Membership Fees paid to a professional body (Revenue eBrief 04/18 published on 9th January 2018)

 https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0042018.aspx

 

The updated Revenue guidance notes allow an employee to claim a deduction for professional membership fees only in circumstances where:

  1. There is a statutory requirement for that employee to be a member of a specific professional organisation or body or to hold a practicing certificate in order to carry out the duties of his/her employment or
  2. In the absence of that professional membership or practicing certificate the individual cannot legally fulfill the full duties of his/her employment.

 

Where the employer pays the membership fee on the employee’s behalf and either of the above two conditions apply then no Benefit-in-Kind is deemed to have arisen.  Subsequently no payroll taxes will arise.

 

We would advise all employers to ensure the payment of professional membership fees on behalf of employees can be supported in the event of a Revenue Audit.

 

 

 

2. Increase in Employer’s Pay Related Social Insurance from 10.75% to 10.85% from 1st January 2018.

 

 

 

 3. Benefit-in-Kind Exemption of Electric Vehicles for 2018. 

Finance Act 2017 introduced this exemption for electric vehicles which were available for private use for employees during the 2018 tax year.  It is not clear whether or not this scheme will be extended into 2019 which may result in a low uptake in purchasing electric vehicles by employers.

 

The exemption applies to cars and vans deriving their power from an electric motor.

 

It does not apply to hybrid vehicles.

 

 

 

4. PAYE Modernisation or Real Time Reporting

From 1st January 2019 all employers will be required to accurately provide PAYE data to Revenue on a Real Time basis.

 

This effectively means:

  • Revenue will be able to automatically review employees’ payroll information and immediately identify any discrepancies and errors.
  • The PAYE information submitted to Revenue must be 100% correct.  In other words, the opportunity to amend errors at the end of the year has been elimited.

 

For further information, please follow the link:

https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-892017.aspx

 

We would advise all employers to take the time, sooner rather than later, to ensure their payroll processes will be adequate to handle the increased obligations of the Real Time Reporting.

 

 

 

 Here is a list of other relevant Revenue eBriefs:

 
Home Carer Tax Credit – Revenue eBrief No. 009/18 (29 January 2018) https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0092018.aspx

 

Change in Basis of Assessment – Schedule E – Revenue eBrief No. 127/17 (29 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1272017.aspx

 

Taxation of payments to craft apprentices by Education and Training Boards –Revenue eBrief No. 126/17 (29 December 2017)

 

Benefit-in-Kind on use of Company Vans – Revenue eBrief No. 124/17 (28th December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1242017.aspx

 

Exemption from Income Tax in respect of certain payments made under employment law – Revenue eBrief No. 118/17 (20 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1182017.aspx

 

PAYE Services: Tax and Duty Manual Updates – Revenue eBrief No. 111/17 (01 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1112017.aspx

 

Amendments to the Employment and Investment Incentive on 2nd November 2017 – Revenue eBrief No. 99/17 (02 November 2017)
 https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-992017.aspx

Stamp Duty for Non-Residential Properties

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As you are aware, Finance Act 2017 increased the rate of stamp duty on the transfer of non-residential property from 2% to 6% with effect from midnight on Budget Day.

 

The change applied to instruments executed on or after 11th October 2017.

 

This dramatic increase will, most likely, reduce the number of commercial property transactions carried out in Ireland in 2018.

 

On 27th October 2017, The Irish Revenue Commissioners published Revenue eBrief No. 94/2017 outlining the transactions eligible for the 2% Stamp Duty rate under Transitional Relief Measures:

 

In circumstances where a binding contract has been entered into before 11th October 2017 the rate of stamp duty will remain at 2%, provided the following two conditions are met:

 

  1. the instrument was executed before 1st January 2018, and

 

  1. the instrument contained certification that the instrument was executed on foot of a binding contract entered into before 11th October 2017.

 

 

A person who filed a stamp duty return before the enactment of the Finance Bill and who was satisfied that the transitional measures would have applied if the Finance Bill had been enacted, had two options:

 

  1. To file a return through the e-stamping system, pay stamp duty of 6% and be issued with a stamp certificate.  Now that the Finance Act has been enacted the filer can amend the Return, submit the relevant documents to Revenue thereby requesting a refund of 4% (i.e. the difference between the 6% and 2% rate). Please follow attached link for detailed instructions:

 https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf or

 

  1. To file a return through the e-stamping system and pay the stamp duty at the lower rate of 2%.  In this situation a stamp certificate was not be issued at this stage.

 

On 4th January Revenue published guidelines on how this postponed stamp certificate can be obtained. To receive the certificate, you must amend the Stamp Duty Return by following the link:

https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf

 

For those who filed their Returns but did not pay the correct amount of Stamp Duty at the 2% rate, you will not have received a Stamp Certificate.

 

In order to obtain the stamp certificate you must amend the Stamp Duty Return, pay the Stamp Duty of 2%, pay any Interest accruing on the late payment of Stamp Duty and pay any surcharge arising on the late filing of the Return, if relevant.

 

Once the payments have been processed your Stamp Certificate will issue automatically.