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Spanish Taxes. International and EU Taxes. VAT, Corporate Taxes, Capital Gains Tax

There are a number of alternatives open to individuals wishing to invest in Spain.  These include setting up a limited company or forming a branch / permanent establishment.  Due to the number of Irish clients with trading companies in Spain, we have prepared a general summary of the taxes arising. This is not a full and comprehensive guide to Spanish taxes.  It does not provide detail on the local operation of taxes.  As a result, we would always advise anyone with Spanish interests to seek the advice and expertise of a local tax professional.

RESIDENCE

Corporate tax is levied on the income of companies and other separate legal entities.  Spanish resident entities are liable to tax on their worldwide income, not just on profits from activities carried on in Spain.

What is a Spanish resident entity?

1. A company which is incorporated in Spain shall be regarded for the purposes of Spanish Corporate Tax as being resident in Spain under Spanish law.

2.  The location of central management and control in Spain may bring the entity into the Spanish Corporate Tax regime.  For example, if the legal headquarters/registered offices of the company are located in Spain, or if it is effectively managed from Spain, then the corporate entity is deemed to be Spanish resident.

3.  In the event of the legal entity being resident in a country where no taxation is levied on its profits or gains (i.e. a tax haven) then that entity is deemed to be Spanish tax resident if the following arise:

a)      The majority of the entity’s main assets are located in Spain.

b)      The entity’s principal business activity is carried out in Spain.

c)      The strategic control is exercised in Spain

It is important to keep in mind that the above point (i.e. number 3) will not apply if the entity exercises its management and control in another country.  This is  provided it does so for bona fide commercial reasons and not for the purposes of managing securities or other assets.

NON-RESIDENCE

Non-resident companies and entities are only liable to Corporate Tax on their Spanish income arising from business operations carried out by a Permanent Establishment within the jurisdiction.  Please consult Article 5 of the Ireland/Spain Double Taxation Agreement for a definition of Permanent Establishment.

Please be aware that a “Fiscal Representative” must be appointed by a non-resident individual or company, to correctly handle all tax affairs, when carrying out commercial activities in Spain.

TAX RATES

Corporate Tax

25% is the general tax rate for residents as well as non-residents carrying out commercial activities in Spain through a “Permanent Establishment.” Other tax rates may apply, however, depending on the type of company and the type of business carried out.

Where foreign companies have permanent establishments in Spain, Non-Resident Income Tax of 25% is chargeable on the income arising to the Permanent Establishment.

A reduced rate of 15% applies to newly incorporated entities set up on or after 1^st January 2015.  This preferential rate applies to the first two years of operation, providing a taxable profit arose in the first tax period.

This start up rate of 15% does not apply in the following situations:

1. Where the trade/business was carried on previously by a related entity.

2.  if the newly created company belongs to a Group of Companies.

3.  Where the company is considered, by law, to be an equity company.

For new companies set up prior to 1^st January 2015 they will be taxed at 15% on their tax base up to €300,000 with 20% tax being levied on any excess amounts.  This will apply for the first two tax periods.

Without a Permanent Establishment

When dealing with non-residents operating in Spain without a permanent establishment, but who are resident in another EU or EEA state with which there is an Information Exchange Agreement in place, a distinction should be made between an individual and a corporate entity.

The tax rate applicable in the above situation is 19% and the tax deductible expenses are calculated in line with Personal Income Tax and Corporate Income Tax legislation.

In all other situations, the general rule is that non-residents operating in Spain without a permanent establishment are taxable at a rate of 24%.

Capital Duty

A 1% Capital Duty is payable by the shareholders on the dissolution of a company or on a reduction in its share capital.

Dividends, Interest and Royalties

 Dividends paid to non-residents are liable to a 19% Withholding Tax unless a lower rate applies under a relevant Double Taxation Agreement.

It is also possible for an exemption to apply under the EU Parent Subsidiary Directive.  Distributions paid to E.U. parent companies by Spanish subsidiaries are exempt from withholding tax provided the parent company held, either directly or indirectly, at least a 5% holding in the subsidiary company for a continuous period of twelve months in addition to satisfying other conditions.

Anti-Avoidance legislation exists where the ultimate shareholder in not E.U. resident.

Following an amendment in the Spanish Personal Income Tax Legislation, a share premium distribution paid to a non-resident shareholder may now be treated as a dividend distribution liable to withholding tax under the general rules.

Interest paid to a non-resident including a non-resident individual is liable to 19% withholding tax unless a lower rate applies under the relevant Double Taxation Treaty.

Interest income is exempt from tax if the recipient is a resident of an E.U. member state or an E.U. Permanent Establishment of an E.U. resident company which is not deemed to be a tax haven.

Royalties paid to non-residents including a non-resident individual are liable to withholding tax of 24% or 19% if the recipient is resident in an EU or EEA member state where an Information Exchange Agreement exists.

This rate can be reduced by the provisions of a relevant Tax Treaty.

Royalties paid to associated EU resident companies or permanent establishments are exempt from tax in Spain providing certain conditions are satisfied.

Capital Gains

Under Spanish law capital gains are treated as ordinary business income taxable at the 25% corporate tax rate.

Capital gains on disposals by non-residents without a permanent establishment in Spain are taxed at a reduced rate of 19%.

Where non-residents without a permanent establishment dispose of real estate situated in Spain, a tax of 3% will be withheld from the sales price by the purchaser and paid over to the Spanish Tax Authorities to be offset against the vendor’s tax liability.

Capital Gains from the transfer of shareholdings/ownership interests in Spanish companies and foreign subsidiaries by corporate entities are exempt from tax if the conditions of Participation Exemption are satisfied.

For an E.U. corporate shareholder, ownership of at least 5% must be held directly or indirectly or the shareholding must be valued at over €20 million and it must be held for at least a twelve month period.

In situations where the company is non-resident, a foreign tax which is similar to Spanish Corporate Income Tax of 10% will apply providing the corporate entity is resident in a country with which Spain has concluded a Double Taxation Agreement.

VAT

Spanish VAT or IVA is charged on the supplies of goods and services within the Spanish VAT territory as well as on imports and intra-EU acquisitions of goods and services.

IVA is charged at 21% on the majority of goods and services in Spain.

There is a reduced rate of 10% which applies to certain goods and services such as the purchase of a newly built property, passenger travel, health products and equipment, toll roads, refuse collection and treatment, entrance to cultural buildings and events, some foodstuffs, water supplies, renovation and repair of private dwellings, agricultural supplies, hotel accommodation, restaurant services, etc.

There is a super reduced rate of 4% which applies to the basic necessities other than those classified under the 10% rate and these include human medicine, basic foodstuffs (i.e. bread, milk, cheese, eggs, fruit, vegetables, cereals, potatoes, etc.), books, newspapers and magazines except the electronic equivalents.

Sales Tax is applied in Ceuta and Melilla instead of VAT.

The Canary Island Indirect Tax or IGIC applies in the Canary Island instead of VAT.

The ordinary rate of IGIC is 7% but there are a range of other rates: 0%, 3%, 9½%, 13½% and 20%.

CHANGES TO VAT RULES

On 1^st July 2017 a new “Immediate Supply of Information” system took effect in Spain.

This new VAT management system now requires taxpayers to maintain their VAT books and records through the Spanish Tax Authorities website on a near real-time basis.

This new system is mandatory for all taxpayers who file their VAT Returns on a monthly basis including:

• Companies included in the VAT Grouping Special Regime.

• Large organisations whose annual turnover exceeds €6 million.

• Taxpayers registered on the VAT Monthly Refund  Registry (REDEME)

This new system, however, also enables Taxpayers to elect to use the S.I.I.  If they voluntarily choose to use this system then they must declare their intention on Form 036.

For further information, please click: https://sede.agenciatributaria.gob.es/Sede/en_gb/estadisticas/estadisticas-impuesto/declaracion-pais-pais-multinacionales-matriz-espanola/informe-pais-pais-2017.html

To speak with a Chartered Tax Advisor, specialising in Spanish Taxes, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Income Tax, Corporation Tax, Capital Gains Tax, Revenue Compliance Interventions, Capital Acquisitions Tax, VAT.

Are you aware of how much has changed since 1st January 2017 in terms of Tax compliance, Tax Credits, Employee Subsistence Expenses, Personal/Income Tax, Corporation Tax, Capital Acquisitions Tax, Capital Gains Tax, Value Added Tax, PAYE, Stamp Duty, Transfer Pricing, Local Property Tax, Revenue Audit Procedures, etc.?

Here are a list of the Revenue eBriefs published so far this year:

1. Revenue eBrief No. 01/17  Finance Act 2016 – VAT Notes for Guidance
2. Revenue eBrief No. 02/17 Improved online services for PAYE customers
3. Revenue eBrief No. 03/17 Stamp duty levies – changes made by Finance Act 2016 and Health Insurance Amendment Act 2016
4. Revenue eBrief No. 04/17  Finance Act 2016 changes to Capital Acquisitions Tax Consolidation Act 2003 – Changes to section 86 (Dwelling House Exemption) and Schedule 2 (Group Thresholds) CATCA 2003 
5. Revenue eBrief No. 05/17  Fisher Tax Credit 
6. Revenue eBrief No. 06/17  Special Assignee Relief Programme
7. Revenue eBrief No. 07/17  Deduction for statutory registration fees paid to the Health and Social Care Professionals Council
8. Revenue eBrief No. 08/17  Revenue Opinions and Confirmations 
9. Revenue eBrief No. 09/17  Tax Relief on Retirement for Certain Income of Certain Sportspersons 
10. Revenue eBrief No. 10/17  Irish Real Estate Fund declarations
11. Revenue eBrief No. 11/17  Average Market Mid-Closing Exchange Rates v Euro – Lloyds Conversion Rate
12. Revenue eBrief No. 12/17  Revenue Arrangements for Implementing EU and OECD Exchange of Information Requirements In Respect of Tax Rulings
13. Revenue eBrief No. 13/17  PAYE – Exclusion Orders
14. Revenue eBrief No. 14/17 –  Taxation of Paternity Benefit
15. Revenue eBrief No. 15/17  Deduction for income earned in certain foreign states (Foreign Earnings Deduction) 
16. Revenue eBrief No. 16/17  Revenue Technical Service – Solicitor Access to the MyEnquiries online contact facility 
17. Revenue eBrief No. 17/17  R and D tax credit claims in respect of projects supported by Enterprise Ireland R and D grants
18. Revenue eBrief No. 18/17  Updates to the Electronic Relevant Contracts Tax (eRCT) System – Look up Payment Notifications
19. Revenue eBrief No. 19/17  Revenue seeks applications for independent Research & Development (R&D) experts
20. Revenue eBrief No. 20/17  Solvency II – EU (Insurance and Reinsurance) Regulations 2015 
21. Revenue eBrief No. 21/17  Opticians in employment 
22. Revenue eBrief No. 22/17  Securitisation: Notification of “Qualifying Company” Section 110 Taxes Consolidation Act, 1997.
23. Revenue eBrief No. 23/17  Code of Practice for Revenue Audit and other Compliance Interventions
24. Revenue eBrief No. 24/17  Health Expenses / Assistance Dogs
25. Revenue eBrief No. 25/17  Non Principal Private Residence (NPPR) Charge
26. Revenue eBrief No. 26/17  Irish Real Estate Fund declarations
27. Revenue eBrief No. 27/17  Certification of Residence for Individuals/Companies/Funds
28. Revenue eBrief No. 28/17  CGT implications for individuals of takeover of Fyffes plc by Sumitomo Corporation
29. Revenue eBrief No. 29/17  PAYE Modernisation – Report on Public Consultation Process
30. Revenue eBrief No. 30/17  Non Principal Private Residence charge notification facility
31. Revenue eBrief No. 31/17  Home Renovation Incentive (HRI)
32. Revenue eBrief No. 32/17  Help To Buy Scheme
33. Revenue eBrief No. 33/17  Section 900 Taxes Consolidation Act 1997 – Power to call for the production of books, information etc.
34. Revenue eBrief No. 34/17  Charitable Donations Scheme
35. Revenue eBrief No. 35/17  Revenue Technical Service (RTS) for Agents and Taxpayers
36. Revenue eBrief No. 36/17  Large Cases Division: Opinions/Confirmation on Tax/Duty Consequences of a Proposed Course of Action
37. Revenue eBrief No. 37/17  VAT treatment of education and vocational training
38. Revenue eBrief No. 38/17  ROS – Extension of Pay & File Deadline for ROS Customers for 2017
39. Revenue eBrief No. 39/17  Corporation Tax (CT1) Returns for 2016 and 2017, Forms 46G (Company)
40. Revenue eBrief No. 40/17  Offshore funds regime
41. Revenue eBrief No. 41/17 Incapacitated Child Tax Credit
42. Revenue eBrief No. 42/17  MyEnquiries enhancements
43. Revenue eBrief No. 43/17  Exemption in respect of certain expense payments for resident relevant directors
44. Revenue eBrief No. 44/17  Definition of ‘chargeable person’ – Self Assessment
45. Revenue eBrief No. 45/17  Employees’ Subsistence Expenses and Motoring and Bicycle Expenses
46. Revenue eBrief No. 46/17  Underpayment of Preliminary Corporation Tax: waiver of interest where the underpayment arises solely due to movements in the exchange rate of the functional currency
47. Revenue eBrief No. 47/2017  Pre self-assessment – stamp duty manual
48. Revenue eBrief No. 48/17  Taxation of exam setters, exam correctors, invigilators, etc.
49. Revenue eBrief No. 49/17  Tax treatment of the reimbursement of Expenses and Travel and Subsistence to Office Holders and Employees
50. Revenue eBrief No. 50/17  Returns Compliance Income Tax and Corporation Tax
51. Revenue eBrief No. 51/17  Local property tax appeals
52. Revenue eBrief No. 52/17  Company reconstructions without change of ownership (Section 400 TCA 1997)
53. Revenue eBrief No. 53/17  Restructured VAT Tax and Duty Manual
54. Revenue eBrief No. 54/17  Full self-assessment: Time limits for making enquiries and making or amending assessments
55. Revenue eBrief No. 55/17  Surcharge on certain undistributed income of close companies
56. Revenue eBrief No. 56/17  Charges on income for Corporation Tax purposes
57. Revenue eBrief No. 57/17 Time limits for raising assessments and making enquiries – section 955 TCA 1997
58. Revenue eBrief No. 58/17  Filing and paying Stamp Duty on Instruments
59. Revenue eBrief No. 59/17  Capital Acquisitions Tax – Business Relief
60. Revenue eBrief No. 60/17  Pensions Manual Amended
61. Revenue eBrief No. 61/17  PAYE Taxpayers and Self-Assessment – Interaction of PAYE and Self-Assessment Procedures: Income Tax
62. Revenue eBrief No. 62/17  Company Incorporation – Economic Activity
63. Revenue eBrief No. 63/17  Tax-Geared Penalties for Non-Submission of Returns
64. Revenue eBrief No. 64/17  Tax treatment of certain dividends
65. Revenue eBrief No. 65/17  Full self-assessment – Revenue assessment in the absence of a return
66. Revenue eBrief No. 66/17  New PAYE Services and ROS registration changes
67. Revenue eBrief No. 67/17  Data Retention Policy for Compliance Interventions
68. Revenue eBrief No. 68/17  Provisions Relating to Residence of Individuals
69. Revenue eBrief No. 69/17  Guidelines on tax consequences of receivership and mortgagee in possession (MIP)
70. Revenue eBrief No. 70/17  Irish Real Estate Funds
71. Revenue eBrief No. 71/17  ROS Form 11 – 2016 income tax return
72. Revenue eBrief No. 72/17  Guide to Exchange of Information under Council Directive 2011/16/EU, Ireland’s Double Taxation Agreements and Tax Information Exchange Agreements and the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters.
73. eBrief No. 73/17  Guidelines for requesting Mutual Agreement Procedure (MAP) assistance in Ireland
74. Revenue eBrief No. 74/17  Transfer Pricing Documentation Obligations
75. Revenue eBrief No. 75/17  Tax Treatment of Members of the European Parliament
76. Revenue eBrief No. 76/17  ROS – Digital Certificate Renewal reminder notices
77. Revenue eBrief No. 77/17  Corporation Tax Statement of Particulars – Section 882 TCA 1997
78. Revenue eBrief No. 78/17  Accessing Schedule E information – 2016 Income Tax Return

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

2017 Tax Reform for Economic Growth and American Jobs

The Biggest Individual And Business Tax Cut In American History

Top Line:

The U.S. tax code is overcomplicated and fails to create enough jobs, or provide relief to middle class families.

–          Since 2001, the U.S. tax code has faced nearly 6,000 changes, more than one per day.

–          Taxpayers spend nearly 7 billion hours and over $250 billion annually on compliance costs.

–          The U.S. has the highest statutory tax rate in the developed world, discouraging business investment and job creation.

President Trump is proposing the largest tax cut for individuals and businesses in U.S. history.

–          It will simplify the tax code, incentivize investment and growth and create jobs.

–          It will provide historic tax relief for middle income families and small business owners.

The Need For Comprehensive Tax Reform

An overly complex tax code is confusing and burdensome on American taxpayers.

–          The last major effort to successfully reform the U.S. tax code was over 30 years ago under President Reagan.

–          Today, according to the IRS’ National Taxpayer Advocate, the federal tax code is nearly four million words long.

–          Congress has made more than 5,900 changes to the federal tax code since 2001 alone, averaging more than one change a day.

–          The National Taxpayers Union estimates that Americans spend 6.989 billion hours at a cost of more than $262 billion on compliance and record keeping costs.

–          Instead of a single tax form, the IRS now 199 individual income tax forms and 235 business tax return forms.

–          Approximately 90% of taxpayers need help doing their taxes.

Today, with a corporate tax rate of 35%, U.S. businesses face the highest statutory tax rate in the developed world, and fourth highest effective tax rate, which discourages job creation or investment.

–          The U.S. is out of step with its competitors, having the highest corporate income tax rate among the 35 OECD nations and being the only nation that has increased its rate since 1988.

–          A lower business tax rate will discourage corporate inversions and companies from moving jobs overseas.

–          The high corporate tax rate keeps trillions of business assets overseas rather than being reinvested back home.

–          Even President Obama proposed lowering the business tax rate to 28 per cent to help spur economic activity.

Tax Reform for Economic Growth and American Jobs: The Biggest Individual And Business Tax Cut In American History

Goals For Tax Reform

–          Grow the economy and create millions of jobs

–          Simplify our burdensome tax code

–          Provide tax relief to American families-especially middle-income families

–          Lower the business tax rate from one of the highest in the world to one of the lowest

Individual Reform

–          Tax relief for American families, especially middle-income families:

–        Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%

–        Doubling the standard deduction

–        Providing tax relief for families with child and dependent care expenses

Simplification:

–          Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers

–          Protect the home ownership and charitable gift tax deductions

–          Repeal the Alternative Minimum Tax

–          Repeal the death tax

Repeal the 3.8% Obama care tax that hits small businesses and investment income

. Business Reform

–          15% business tax rate

–          Territorial tax system to level the playing field for American companies

–          One-time tax on trillions of dollars held overseas

–          Eliminate tax breaks for special interests

Process

–          Throughout the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input.

–          Working with the House and Senate, the Administration will develop the details of a tax plan that provides massive tax relief, creates jobs, and makes America more competitive – and can pass both chambers.

Information courtesy of WHfactsheet04262017.pdf

For further information, please click: https://trumpwhitehouse.archives.gov/articles/president-trump-proposed-massive-tax-cut-heres-need-know/

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Gift and Inheritance Tax. Capital Acquisitions Tax. Dwelling House Exemption. CAT Reliefs and Exemptions

Everyone is aware that significant changes were introduced in the 2016 Budget but have you thought what they might mean for you?  From 25th December 2016, the Dwelling House Exemption from CAT (Capital Acquisitions Tax) will apply (i) to inheritances and (ii) gifts to a dependent relative.   Subject to certain exceptions, the inherited property must have been the principal place of residence of the deceased person at the date of death.  This requirement, however, will be relaxed in situations where the deceased person was required to leave their home, prior to the date of death, as a result of ill health.

Situation prior to 25th December 2016

Prior to 25^th December 2016, Section 86 CATCA 2003 provided a means of passing on a property to the next generation, either by gift or inheritance, in a tax free manner.

The exemption from Capital Acquisitions Tax for a gift or inheritance of a dwelling house or part of a dwelling house applied if the following conditions were met:

1. the donee/successor/beneficiary who received the gift or inheritance must have continuously occupied the dwelling house as their sole or main residence throughout a period of three years immediately up to the date of the benefit or
2. in circumstances where the dwelling house replaced another property, the donee/successor/beneficiary must have occupied the property as their only or main residence for a period of three out of the four years immediately before the date of the benefit  and
3. the donee/successor/beneficiary must not at the date of the gift/inheritance have been beneficially entitled to any other dwelling house or interest in any other dwelling house and
4. in circumstances where the donee/successor was aged under fifty five years, he/she must have continued to occupy the dwelling house as their sole or main residence for six years beginning on the date of the gift or inheritance.

Capital Acquisitions Tax Situation from 25^th December 2016

1. The Dwelling House Relief is available for inheritances of a dwelling house or part of a dwelling house only.  It is no longer available for gifts or gifts which convert to inheritances in circumstances where the donor dies within two years of the date of the gift.
2. The donor must have occupied the dwelling house as their sole or main residence at the date of his/her death. Please be aware that this requirement will be relaxed in situations where the deceased person could not remain in the dwelling house due to mental or physical infirmity. In other words if that individual requires specialist care in, say, a nursing home and as a result, has to leave their home, then they will be deemed to continue to occupy the property during that period.
3. The beneficiary/successor must have occupied the dwelling house as their sole or main residence for a continuous period of three years preceding the date of the inheritance. In other words, the house must be occupied by both the person making the gift at the date of death and the beneficiary receiving the gift at the date of the inheritance. Please be aware that this requirement does not apply in the case of a gift of a dwelling house to a “Dependant Relative.”
4.  The beneficiary/successor must not have an interest in any other dwelling house or part of a dwelling house at the date of the inheritance and
5.  The beneficiary/successor must continue to occupy the dwelling house as his/her main or sole residence for six years from the date of the inheritance.   Please be aware that this requirement will be relaxed in situations where the beneficiary/successor cannot remain in the dwelling house due to mental or physical infirmity or because the terms of their employment requires them to live elsewhere.
6.  The Dwelling House Relief will however be available on a gift of a dwelling house which is made to a “Dependant Relative.”   This is defined as a direct relative of the person making the gift or their spouse/ civil partner, and who is permanently and totally incapacitated by reason of mental or physical infirmity or is over the age of sixty five years.

What does this mean?

The amendment to Section 86 CATCA 2003 (Exemption relating to certain dwellings) has removed a valuable tax planning opportunity and will lead to unforeseen Capital Acquisitions Tax liabilities for individuals who receive gifts.

To most it seems like an excessive way of addressing the problem of wealthy families using this exemption as a means of transferring property to the next generation tax free.   For many families in Ireland the “Dwelling House Relief” was used by parents to help their children get on to the property ladder.   Some, however, welcome this amendment stating that it will ensure that family members who genuinely want to live with and care for elderly parents will inherit the family home tax free providing the conditions are met.

It is also important to keep in mind that since the conditions for this Relief are based on mental or physical infirmity then medical proof will be required to avoid a claw-back of the relief.

 In summary

1. Section 86 CATCA 2003 Dwelling House Relief is only available for inheritances unless a gift of a dwelling house is taken by a Dependant Relative who is permanently or totally incapacitated or aged over sixty five years.
2. The age at which a beneficiary/successor can take a property without being liable to the claw-back provisions has been increased from fifty five years to sixty six years.
3. The house must be occupied by both the disponer and the beneficiary at the date of the inheritance except where the property was gifted to a dependent relative.
4. The property is the only residential property that the beneficiary/successor is beneficially entitled to.

For further information, please click:

http://www.revenue.ie/en/practitioner/ebrief/2017/no-042017.html

For all your Irish or cross-border gift or inheritance concerns under Inheritance Tax, Gift Tax, Estate Tax and Capital Acquisitions Tax,  please contact us on queries@accountsadvicecentre.ie.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Landlord Taxes, Rental Expenses, Property Tax Deductions

The High Court decision in Revenue Commissioners v Thomas Collins has just been published.  It states that contrary to Revenue’s position, the NPPR (Non Principal Private Residence) charge was in fact an “allowable” expense against rental profits under Section 97(2) TCA 1997.

What was the NPPR Charge?

The NPPR (Non Principal Private Residence) charge was an annual charge of €200.  It was implemented by the Local Government (Charges) Act 2009, as amended by the Local Government (Household Charge) Act 2011.

What does it relate to?

It related to all residential property situated in Ireland which was not used as the owner’s sole or principal residence from 2009 to 2013.

Examples of the type of residential properties liable for the NPPR charge were:

• private rented properties including houses, maisonettes, flats, apartments or bedsits.

• vacant properties – This definition excluded new but unsold residences in situations where they had never been used as a dwelling houses but instead were deemed to be part of the trading stock of a business.

• holiday homes or second homes.

Previous Tax Treatment of NPPR

Irish Income Tax is calculated on the net amount of rents received or rental profits.  In other words Income Tax is charged on the gross rents received less any allowable expenses, as specified in the Taxes Consolidation Act 1997.

The main deductible expenses include:

• Interest on money borrowed to purchase, repair or improve the property,

• Any rent payable by the landlord in relation to a sub-lease,

• The cost to the landlord of providing any goods or services to the tenant,

• The cost to the landlord of insurance, repairs & maintenance, property management fees, etc.,

• Local Authority Rates where relevant.

For details of allowable rental expenses, please visit www.revenue.ie/en/tax/it/leaflets/it70.html

What was the Irish Revenue Authorities and the Department of Finance’s stance prior to this ruling?

That the payment of the NPPR charge for residential properties was NOT an allowable deduction in calculating Income Tax on the rental profits.

Effect of this Ruling

If this High Court decision is not overturned, then it could result in a repayment of taxes overpaid.

There is a time limit for claiming refunds of tax overpaid.

All claims for tax refunds must be made within four years of the end of the year to which the claim relates.

If you are a landlord of rented residential property in Ireland seeking tax advice or looking to regularise your tax affairs, and wish to deal with a Property Taxes Specialist please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Corporation Tax, Corporate Taxes, Business Tax Ireland, Capital Gains Tax, CT1 Return

The Irish corporation tax system operates on a self-assessment basis.  Therefore, it is solely the responsibility of the company to calculate and pay its corporation tax liability within deadline.  Any company liable to corporation tax must submit a CT1 Form.  This is a Tax Return containing details of profits, chargeable gains and other relevant information.  This is outlined in Section 884 TCA 1997.

When must the CT1  Return be filed?

(a) It must be filed within nine months of the end of the company’s accounting period but

(b) no later than the 23rd day of the month

(c) if the Tax Return along with payment of the associated tax liability is filed via the Revenue Online Service.

(d) Otherwise, the Return must be filed within eight months and twenty one days of the company’s year-end.

For Example:

A company with a 31st December 2016 year-end must file its CT1 form on or before 21st September 2017.  This is unless it files its Return and the relevant tax payment using the Revenue Online Service.  In that case the deadline date is extended to 23rd September 2017.

Can an Accounting period be longer than 12 months?

An accounting period for CT purposes cannot be longer than twelve months.

What happens if a company has two accounting periods?

If a company has an accounting period of say, 15 months for example, then it is deemed to have:

(a)   Two accounting periods for Corporation Tax purposes and

(b)   Two Preliminary Tax payment dates.

How would that work?

(a) The first accounting period would be for the first twelve months.

(b) The second accounting period would be for the remaining three months.

Consequences of filing a late or incomplete/incorrect CT Return

The following surcharges will apply:

(i) If the Corporation Tax Return is filed less than two months late, a 5% surcharge (subject to maximum of €12,695) will be calculated on the company’s CT liability for the accounting period in question.  This surcharge will apply irrespective of whether the tax had been paid within deadline because this surcharge arises in relation to the late filing of the CT1 Form.

(ii) If filed more than two months late, a 10% surcharge (subject to maximum of €63,485) will be levied on the company’s tax liability for the period in question regardless of whether or not the tax had been paid on time.

Please be aware that the surcharge also includes any Income Tax due.

Is there anything else to keep in mind?

In addition to the above surcharges, in circumstances where a company does not submit its return on time, the following restrictions on the use of certain allowances and reliefs will also apply:

(i) If filed less than two months late, the reliefs and allowances will be restricted by 25%.  This is subject to a maximum of €31,740 in each case,

(ii) If filed later than 2 months, the reliefs and allowances are restricted by 50%.  This subject to a maximum of €158,715 in each case.

What about Group Relief?

For Group Relief to apply, both the surrendering and the claimant company must have submitted their Corporation Tax Returns within the deadline date.

Interaction with Local Property Tax 

A surcharge of 10% will be levied on the final liability where the CT1 Return has been filed on time but where the LPT Return or payment is outstanding at the CT filing date.  This surcharge will also be levied if an agreed payment arrangement for LPT has not been set up.  Finally, if the company subsequently pays its LPT liability in full, bringing its tax affairs up to date, the amount of the surcharge will be capped at the amount of the LPT liability involved.

 Preliminary Tax

In Ireland, companies are required to prepay a portion of their corporation tax liability. This is known as “Preliminary Tax”.  The rules for calculating Preliminary Tax depends on whether a company is considered to be a “small company” or a “non-small company”.

What’s a “small company”?

For preliminary tax purposes it’s a company whose corporation tax liability for the previous twelve month accounting period did not exceed €200,000.

How is it’s Preliminary Corporation Tax calculated?

A company which qualifies as a “small company” has the option of computing its preliminary CT payment on the lower of:

(a) 90% of the total estimated corporation tax liability for the current period, or

(b) 100% of the final corporation tax liability for the previous period.

When can a “small company” pay it’s Preliminary Tax?

It has the option of paying its Preliminary Tax one month before the end of its accounting period.  This is provided it’s on a date no later than the 23rd day of the month.

What about the balance of outstanding tax?

It must be paid on or before the company’s tax return filing date.  In other words, on the 23^rd day of the ninth month following the end of the accounting period.

Example:

If the accounting period ended on 31^st December 2016, the balance of the tax would be payable by 23^rd September 2017.  This is provided the Return and payment were made via ROS.  Otherwise, it would be on or before 21^st September 2017.

Which is the most advisable option to choose?

It is advisable to choose the second option.   By paying 100% of the previous year’s CT liability, this ensures that no underpayment will have been made by the Company thereby avoiding exposure to interest penalties.

What happens if sufficient Preliminary CT isn’t paid or is not paid on time?

Please be aware that if the company doesn’t pay sufficient preliminary corporation tax or if the preliminary tax is not paid on time, an interest charge will be levied.   A daily simple interest rate of 0.0219% will arise on the difference between:

(a) 100% of the final CT liability and

(b) The amounts paid over to the Irish Revenue Authorities.

What about companies not deemed to be “small Companies”?

For companies which are not deemed to be “small companies” the following rules will apply:

The first preliminary tax payment or “Initial Instalment” falls due no later than the 23rd day of the sixth month from the commencement of the chargeable period. The payment due is the lower of:

(a)   50% of the previous periods corporation tax liability or

(b)   45% of the current year’s liability.

The second preliminary tax payment or “Final Instalment” falls due no later than the 23rd of the month preceding the end of the chargeable period (i.e. by the 23^rd day of the eleventh month of the accounting period). This payment must bring the total preliminary tax payment submitted to the Revenue Authorities to at least 90% of the total tax payable for the current chargeable period including the tax on any chargeable gains.

The company must file its CT1 Return and pay the balance of the Corporation Tax (i.e. the remaining 10%) no later than the 23^rd day of the ninth month after the chargeable period ends.

If you are a Business Owner looking to incorporate or a Director/Shareholder seeking comprehensive tax advice or looking to regularise your tax affairs, and wish to deal with a Corporate Taxes Specialist please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

If you intend to set up a new company in Ireland in 2017, please be aware that you must register with the Irish Revenue Authorities.  Registration must be within thirty days of incorporation.  This can be done by completing the relevant sections of a TR2 Form:

http://www.revenue.ie/en/tax/vat/forms/formtr2.pdf

http://www.revenue.ie/en/tax/vat/forms/formtr2-nonresident.pdf

What information is required to register?

1. Your CRO Number – For further information you should contact the Companies Registration Office https://www.cro.ie

2. The company’s year-end.

3. The company’s trading activities.

4. The name of the company, its registered office address and the address of its principal place of business.

5. The name of the Company Secretary.

6. Details of Directors and the main shareholders of the company including their Personal Public Service (PPS) numbers.

Who must file a Form 11F CRO?

Every company which is incorporated in Ireland regardless of its residency.  This includes a foreign incorporated company commencing to carry on a trade or profession in Ireland

To file a Form 11F CRO please click: www.revenue.ie/en/tax/it/forms/11fcro.pdf

It must be filed, with the Irish Revenue Commissioners, within thirty days of commencing to trade.

Are there any additional information required?

Under Section 882(2) TCA 1997 where the company is incorporated but not tax resident in Ireland, the following is required:

1. The country in which the company is resident;

2. The name and address of the company which is trading in Ireland if the Trading Exemption in Section 23A(3) applies.

3. The names and addresses of the beneficial shareholders if the Treaty Exemption under Section 23A(2) applies. If, however, the company is controlled by a company whose shares are traded on a stock exchange in an EU or DTA country then the registered office of that company will be required.

How will the company be taxed?

If your company is deemed to be tax resident in Ireland then it will be liable to tax on its worldwide income/profits in Ireland.  In other words,  not just the profits generated in Ireland.

If it is not deemed to be Irish tax resident, then it will only be liable to Irish tax on Irish source or generated income/profits.

How can you determine the residence of your company?

The first question to ask yourself is how to determine the residence of the company.  The 2014 Finance Act, came into effect on 1st January 2015.  It amended the corporate tax residence rules contained in Section 23A TCA 1997.  The aim was to address concerns about the “double Irish” structure.

How can the legislation be summaried?

• A company incorporated in Ireland will be deemed to be Irish tax resident.

• However, to ensure it complies with how company residence is dealt with in the Double Taxation Agreements, there is an exception to this rule.

• The exception states that if, under the provisions of a Double Taxation Agreement, the Irish incorporated company is deemed to be tax resident in another jurisdiction then that company will not, in fact, be considered to be Irish tax resident.

• A company which was not incorporated in Ireland but is managed and controlled in Ireland will not be prevented from being taxed as an Irish tax resident company according to the amendments to Finance Act 2014.

Are there specific rules for companies incorporated in Ireland before 1st January 2015?

The new provisions apply only from the earlier of the following dates:

a) 1st January 2021 or

b) The date of “change” which takes place after 1st January 2015.

What is meant by the term “change”?

By “change” we mean where there is both:

(a) a change in ownership of the company and

(b) a major change in the nature or conduct of the business activities of the company.

Is there a time span for this change to have taken place?

Within one year before the date of the change or on 1st January 2015, whichever is the later date, and ending five years after that date.

What does this really mean?

It means that companies incorporated in Ireland before 1st January 2015 can use the previous company tax residence legislation until 31st December 2020.

It is essential that up to 31st December 2020, all corporate groups take into consideration the impact of the new legislative provisions on any proposed reorganisations, mergers or acquisitions where there would be:

(a) a change in the ownership and

(b) a change in the nature/conduct of the business in relation to non-resident companies which were incorporated in Ireland.

Tax Rates in Ireland

• Trading Income is taxed at 12½%

• Investment Income including Deposit Interest, Interest on Securities and Rental Income is taxed at 25%.

• Dividends or distributions paid by one Irish resident company to another Irish resident company are known as Franked Investment Income and are not liable to Irish Corporation Tax in the hands of the recipient.

• Foreign Dividends received by Irish resident companies will be subject to Irish corporation tax at 25% in most cases. However, tax at the 12½% rate will apply on dividends received from EU subsidiaries where certain conditions are met under 21B TCA 1997.

• Companies are subject to Corporation Tax on their chargeable gains. The relevant rate of Capital Gains Tax is 33% which is applied to the gain which is then adjusted to an amount which would give the same tax liability using the 12½% Corporation Tax rate. The tax adjusted chargeable gain is the figure to be included in your Corporation Tax calculation.

If you are a Company Director or a Business Owner looking to incorporate, and are looking for up-to-date tax advice or compliance services, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.