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The UK tax authority, HMRC, has recently released new guidance on how individuals should report and pay tax on dividends and capital gains, particularly focusing on shares acquired through employee share plans.
This guidance is especially relevant for those employees who do not typically file a tax return, which includes a significant portion of the UK workforce.
The details of this guidance are outlined in HMRC’s Employment Related Securities Bulletin 56, published in July 2024.
This new guidance comes in the wake of substantial reductions in the tax-free allowances for dividends and capital gains.
While many employees may still have dividend income below the £500 threshold from their employee share plans, this allowance applies across all dividend income sources.
As a result, an increasing number of employees who receive shares through employee share plans, as well as individuals holding shares generally, are now required to report and pay tax on their dividends and capital gains.
This issue is particularly pressing for companies with all-employee share plans, as most participants in executive share plans are likely already accustomed to completing tax returns.
It’s important to note that tax on dividends and capital gains is not managed through PAYE, meaning it’s up to the employee to report and pay these taxes to HMRC. Failure to do so on time could result in interest charges and penalties.
While the reduction in these tax-free thresholds is a government decision and not the fault of employers, companies need to be aware that employees may become frustrated if they find that their participation in a share plan has become more of a burden due to the increased administrative requirements.
Employers should also ensure that they adequately inform employees about what actions they need to take to comply with these new tax obligations.
The new guidance from HMRC, developed in consultation with tax practitioners, aims to address concerns that more UK taxpayers are being drawn into personal tax reporting due to these lower thresholds.
The fear was that without clear guidance, taxpayers might be confused, incur unnecessary costs for tax advice, or face penalties for late or incorrect submissions.
While the need for this guidance stems from the lowered tax-free allowances, it is unlikely that these thresholds will return to their previous levels in the near future.
If an employee does not usually submit a tax return, HMRC now allows them to contact HMRC directly if they have received up to £10,000 in dividends.
The employee can request that their tax code be adjusted so that any tax due on these dividends is collected through PAYE by their employer, rather than by filing a tax return.
While this option offers some relief compared to completing a full tax return, there is no online method to report this, and contacting HMRC by phone can be time-consuming.
Employees who receive less than £500 in dividends do not need to report this income, while those with dividends exceeding £10,000 will still need to file a tax return.
Employees can use an online process to report and pay tax on capital gains as they arise. This can be done before the end of the tax year, making it possible to report and settle the tax liability as soon as the gain is realised.
However, the process is not entirely straightforward, requiring multiple steps: employees must register, wait to report, and then wait to be informed of the amount due, each as separate actions.
The complexity of tax reporting may deter employees from holding onto shares acquired through employee share plans, especially if they fear the administrative burden associated with dividend reporting and tax payment, particularly when dividends are paid by non-UK companies.
Employers can take several steps to mitigate this issue:
Employers can help employees reduce their tax liabilities by advising them on strategies such as selling shares over multiple tax years, transferring shares into an ISA or pension (which also shelters dividend income from tax), or using dividends paid under a Share Incentive Plan to avoid dividend tax.
Additionally, transferring shares to a spouse can be beneficial in some circumstances.
Employers should consider enhancing the information provided to employees about their tax obligations.
While linking to the new HMRC bulletin is a good start, more detailed, tailored communication might be necessary.
This could include step-by-step guides and proactive reminders to take action before key deadlines, such as 31 January 2025, or subsequent years’ deadlines.
Share plan administrators are also likely to produce guidance materials, which employers can use to support their employees. It may be beneficial for share plan managers within companies to become familiar with the processes involved, as employees will likely seek detailed guidance on what exactly they need to do.
Investing in these areas could reap rewards in the long run, as the same guidance and processes are likely to remain relevant in future tax years.
By helping employees navigate these tax obligations, employers can maintain the attractiveness of their share plans and prevent them from becoming a source of frustration.
HMRC’s new guidance on reporting and paying tax on dividends and capital gains for employee share plan participants is a crucial resource for both employees and employers.
As tax-free thresholds have decreased, more employees are being pulled into the tax reporting net, making it essential for employers to provide clear, timely information to help them comply.
By doing so, employers can help ensure that their share plans continue to be seen as a valuable benefit rather than a burdensome obligation.
If you have any queries about this article on Share Schemes, or UK tax matters in general, then please get in touch.
The Court of Quebec has recently delivered a significant judgment in the case of Neko Trade v RQ.
The decision provides important insights into Quebec’s income tax legislation.
The court ruled that a loan from a corporation to its owner-manager for home refinancing did not constitute a shareholder benefit.
Instead, it fell under Quebec’s equivalent of a provision known as the Employee Dwelling Exception.
Additionally, the court criticized Revenu Québec’s (RQ) aggressive decision to reassess the owner-manager on a statute-barred year concerning this loan.
The Employee Dwelling Exception can reduce a seller’s capital gains tax rate from 20% to 10% for the first £1 million of lifetime qualifying capital gains, offering potential tax savings up to £100,000.
Historically, this provision has been risky for shareholder-employees due to the ambiguity in the criteria, which require the loan to be granted to the shareholder-employee as an employee, not as a shareholder, and that bona fide arrangements be made for repayment within a reasonable time.
Neko Trade provides valuable guidance for shareholder-employees considering this option.
The Canada Revenue Agency (CRA) and RQ often challenge any transfer of value from a corporation to a shareholder that is not reported as salary, dividend, or another taxable transaction.
The tax code prescribes tax consequences for taxpayers receiving such “shareholder benefits,” which include loans from a corporation to an individual shareholder. However, it also creates several exceptions, including the Employee Dwelling Exception.
This exception applies to loans given to a shareholder-employee (or their spouse) to acquire a dwelling for their habitation, provided specific conditions are met.
Neko Trade involved a corporation (Neko) established in 2009 by Dimitry Korenblit, its sole employee and shareholder.
During an audit of Neko’s 2015-2017 taxation years, RQ reviewed a loan made by Neko to Mr Korenblit in 2011 to refinance his home.
Mr Korenblit and his spouse initially financed their family residence with a bank mortgage and a line of credit.
In 2011, following advice from an accountant, Mr Korenblit arranged a loan from Neko to replace this temporary financing.
The loan was disbursed in three tranches, and all payments were duly recorded over the years.
Mr Korenblit transferred the residence title to his wife to mitigate financial risks related to his business, and they took out another bank loan secured by the residence’s value.
RQ argued that the Loan was a “smoke screen” to conceal a shareholder benefit and that a “simple employee” would not have obtained such a loan.
They cited several factors, including deficiencies in the loan documentation and the lack of a hypothec on the residence.
The Court concluded that the Loan qualified for the Employee Dwelling Exception, citing eight key factors:
The Court emphasized that the Loan was not a “smoke screen” and that Mr Korenblit was transparent in his tax returns.
RQ’s argument that the Employee Dwelling Exception cannot apply to refinancing an already-acquired residence was rejected.
The Court found that RQ’s published position allowed for such refinancing if agreed upon at the time of the original acquisition.
The Court also addressed the short possession period of the residence, noting that the Employee Dwelling Exception does not prescribe a minimum ownership period and that the transfer of title did not negate the Exception’s applicability.
Neko Trade offers encouragement to taxpayers in disputes over shareholder benefits, highlighting the importance of strict compliance with loan terms, specifying market rates and terms, and maintaining accurate corporate records.
The decision contrasts with the Tax Court of Canada’s 2013 decision in Mast, emphasising the need for detailed and transparent handling of shareholder-employee loans.
If you have any queries about this article on Neko Trade v RQ, or Canadian tax matters in general, then please get in touch.
In the wake of the remote and hybrid work revolution, San Francisco is taking proactive steps to adapt its tax structure to the changing economic landscape.
The Offices of Treasury and Controller have drafted a proposal aimed at mitigating risks posed by the current tax system.
This initiative, potentially shaping a ballot measure for November 2024, seeks to address the fallout of the shifting work environment on the city’s tax revenue.
The proposed reforms are the culmination of extensive dialogue with community members and stakeholders, reflecting around 30 meetings.
The primary objectives are to tackle the risk of lost tax revenue, streamline the tax compliance process, and alleviate the tax burdens faced by small businesses.
Key features of the proposal include transitioning away from the payroll factor and Commercial Rents Tax, broadening the Gross Receipts Tax structure, reducing taxes and fees for small enterprises, and enhancing the Small Business Exemption.
A critical aspect of these reforms is their focus on enhancing predictability for both the city and taxpayers.
For the city, the reforms aim to simplify the tax system to foster increased voluntary compliance, thereby making revenue projections more reliable.
Taxpayers, on the other hand, would benefit from clearer guidelines for future tax liabilities, supported by the proposal’s insistence on specific criteria for any forthcoming tax reforms.
The reform package also suggests several procedural adjustments to improve the tax system’s administration and taxpayer compliance.
These include consolidating tax schedules, codifying a voluntary disclosure program, and allocating more resources for administrative guidance.
Furthermore, the proposal advocates for a modification in the process of qualifying tax measures for ballot inclusion, proposing to remove the direct placement of tax measures by a minority of the Board of Supervisors or the mayor.
This change would bring San Francisco’s procedure in line with practices observed in other Californian cities.
Should the proposal be adopted, it promises to significantly streamline San Francisco’s business tax framework by consolidating various taxes into a singular tax system and moving away from a combined payroll and sales factor apportionment model.
Although the proposal is designed to be revenue neutral and does not directly reduce the overall tax burden for businesses in San Francisco, it represents a significant step towards simplifying tax compliance and administration.
The initiative has sparked discussions among taxpayers and business groups, who may advocate for further reductions in the overall tax burden in addition to the simplification measures.
As the proposal moves toward potentially becoming a ballot measure, its development and impact will be closely watched by businesses, policymakers, and the wider San Francisco community.
This tax reform effort underscores San Francisco’s commitment to adapting its economic policies to reflect the evolving nature of work and maintain its status as a vibrant hub for businesses and professionals.
If you have any queries on this article, or US tax matters in general, then please get in touch.
The Dutch tax landscape is undergoing significant changes, particularly concerning the ‘30%-facility’ for expatriate employees and the partial non-resident Dutch tax regime.
These revisions, effective from 1 January 2024, are reshaping the financial outlook for expatriates in the Netherlands.
The ‘30%-facility’ is a notable tax incentive for employees seconded or hired from abroad to work in the Netherlands.
Previously, eligible employees enjoyed a tax exemption on up to 30% of their income for a maximum of five years.
From 1 January 2024, the facility is undergoing a phased transformation.
Initially, for 20 months, the tax-free allowance remains at 30%.
Subsequently, it reduces to 20% for the next 20 months and finally drops to 10% for the last 20 months.
Transitional arrangements benefit employees already under this regime as of December 2023, including those who began working in the Netherlands before the year-end.
This provides some continuity amid these sweeping changes.
The partial non-resident Dutch tax status, an option under the 30% ruling, allowed expatriates to avoid Dutch tax on non-Dutch source income.
However, from 1 January 2025, this benefit will cease to exist.
Those granted the 30% ruling by 31 December 2023 can still enjoy this status until the end of 2026, thanks to transitional provisions.
Another significant change is the introduction of a cap on the 30%-facility, effective from 1 January 2024.
The tax-free allowance is now limited to 30% of the ‘WNT-standard’—a standard linked to top salaries, which is €233,000 for 2024.
For employees granted the 30% ruling in December 2023, this cap will be delayed until 1 January 2026.
Post the revision, as the tax-free allowance shrinks, considering reimbursement of extraterritorial expenses beyond the capped amount might be more beneficial than relying solely on the 30%-facility.
These changes necessitate a thorough review of compensation packages for expatriate employees.
It’s essential for employers and expatriates alike to understand these evolving rules to optimize tax benefits and ensure compliance with Dutch tax laws.
While the Netherlands continues to attract global talent, the revised tax regime calls for proactive planning and adaptation to the new fiscal environment.
If you have any queries about this article on Netherlands expatriate employees, or Dutch tax matters in general, then please get in touch.
You have probably never been sad enough to contemplate whether your pizza delivery man or woman was an employee or not as you waited for your stuffed crust.
But this is exactly the question posed to the Irish Supreme Court recently in the Revenue Commissioners v Karshan Midlands t/a Domino’s Pizza on 20 October 2023.
This landmark ruling has important implications for employers in Ireland.
The dispute initiated when Karshan (Midlands) Limited, operating as ‘Domino’s Pizza’ (“Karshan”), contended that their delivery drivers operated as self-employed contractors, managing their tax affairs.
The drivers signed an “umbrella contract,” recognizing themselves as independent contractors. However, the Irish Revenue Commissioners (“Revenue”) argued that these individuals should be classified as employees, subject to PAYE and relevant employment taxes.
The matter was initially taken to the Tax Appeals Commission (TAC), which supported Revenue’s stance.
Karshan appealed this decision to the High Court, which continued to endorse the TAC’s decision. Yet, the Court of Appeal reversed this in June 2022, classifying the drivers as independent contractors.
The Revenue appealed this to the Supreme Court.
Throughout the case’s progression, the concept of “mutuality of obligation” emerged prominently in defining an employee versus an independent contractor.
However, the Supreme Court rejected the notion that this concept is a prerequisite for establishing an employment contract, emphasising the need to assess the specific circumstances of each case.
The Supreme Court outlined five crucial steps to determine employment status:
Here, Justice Murray found that the Tax Appeal Commissioner was entitled to conclude that the drivers were employees for the purposes of income tax.
The Supreme Court’s comprehensive five-step approach provides clarity for organizations engaging workers as independent contractors.
This ruling underscores the risk of employers being liable for employment taxes despite contractual wording.
This verdict will likely influence determinations of employment status under various legislations, potentially affecting statutory leave, dismissal, and redundancy entitlements.
What should organisations look at doing in the light of this decision?
This decision reverberates beyond taxation, serving as a benchmark in employment status determinations, urging employers to reassess worker engagements and employment classifications.
If you have any queries about the Irish Domino’s Case, or Irish tax matters in general, then please get in touch.
In a ruling handed down by the High Court of Australia, the decision in Vanderstock & Ors v the State of Victoria [2023] HCA 30 has raised more than a few eyebrows.
It could be said that Vanderstock has been a Vander-shock (I’ll get my coat.)
This judgment calls into question the constitutional validity of State-imposed payroll taxes.
The implications of the decision are far-reaching and impact anyone currently paying payroll tax in Australia.
It is crucial for individuals or entities currently paying payroll tax or engaged in ongoing related disputes to understand the decision.
Further, Vanderstock opens the door to challenging the constitutionality of payroll tax.
In the case, the majority of the High Court determined that the Victorian Low Emission Vehicle Distance-based Charge (ZLEV Charge) was, in essence, an excise imposed by the State of Victoria.
Under the Australian Constitution (section 90), states are prohibited from imposing excises.
The consequence of the ZLEV Charge being classified as an excise is that it is now deemed constitutionally invalid.
Justice Edelman, in his minority decision, raises a pertinent point that should send alarm bells ringing for those connected to payroll tax. He highlights that the majority’s rationale in Vanderstock may potentially categorize payroll tax as a State-based excise, rendering it constitutionally invalid.
If this legal reasoning is applied, it could mean that any payroll tax assessments may be considered invalid, potentially entitling taxpayers to a refund of payroll tax paid to date, or at the very least, for the past five years.
Vanderstock represented a constitutional challenge to the validity of the Victorian ZLEV Charge, with the argument being that it constituted an excise. Section 90 of the Australian Constitution prohibits states from imposing excises.
Previously, the High Court had laid down certain criteria for identifying an excise, including its direct effect in the market and its connection to the production or manufacture of goods. This had come to be known as the supply-side and directness constraints.
The majority decision in Vanderstock marked a significant shift in this approach. It simplified the criteria for identifying an excise to anything considered a tax on goods or one that could have an indirect effect on the price of goods.
This simplification eliminated the previous supply-side and directness constraints. Justice Edelman pointed out that the consequence of this change could potentially classify payroll tax as an excise, stating:
“An example is a payroll tax with a direct economic effect in the market for the sale of labor that is used to produce goods. A payroll tax with a reasonably anticipated direct effect in the market for the sale of labor, rather than goods, has never been an excise. But if a reasonably anticipated indirect economic effect is sufficient, then the payroll tax could be an excise, at least in some of its applications, merely because of its anticipated indirect effect in the separate market for the sale of the goods produced with that labor.”
In essence, this change in approach now means that State-based taxes that indirectly impact the value of goods have the potential to be classified as excises. And if State-based payroll taxes are deemed excises, then the States would be constitutionally barred from imposing them.
The application of the High Court’s reasoning from Vanderstock to payroll taxes could potentially trigger claims for refunds by anyone who has paid payroll tax for the past five years or more.
The Vanderstock decision has introduced a significant level of uncertainty concerning the constitutional validity of payroll tax in Australia.
This ruling offers every payroll taxpayer the opportunity to question the legitimacy of their payroll tax assessments, potentially opening the door for refunds.
Furthermore, ongoing disputes and enforcement actions related to State payroll tax may be derailed as taxpayers explore the constitutional validity of these assessments as a threshold issue.
The full implications of this decision are yet to unfold, but it has undeniably set in motion a significant legal debate with far-reaching consequences.
If you have any queries about the Vanderstock decision, or any other Australian tax matters, then please do get in touch.
The Central Board of Direct Taxes (CBDT) announced changes to the so-called Angel Tax provisions.
It did this through a notification dated 25 September 2023.
The notice has made amendments to Rule 11UA of the Income-tax Rules, 1962, which outline the methodology for calculating the fair market value (FMV) of unlisted equity shares and compulsorily convertible preference shares (CCPS) under Section 56(2)(viib) of the Income-tax Act, 1961.
Section 56(2)(viib) is commonly known as the “Angel Tax” provision.
The Angel Tax provisions apply when a company not substantially owned by the public (private or unlisted public company) issues shares at a premium that exceeding the FMV of the shares.
The excess amount received is treated as income from other sources.
Prior to April 1, 2023, Angel Tax applied only to shares issued to Indian tax residents but now extends to shares issued to non-residents.
The amendments introduce flexibility in valuation methods and incentivize venture capital investments, with the following notable provisions:
Types of Valuation Methods: The issuer company can choose from various valuation methods, including new methods for non-resident investors and venture capital investments
Methods for Non-Resident Investors: Five new valuation methods (e.g., Comparable Company Multiple Method) have been introduced for shares issued to non-resident investors. These methods must be computed by a Category I merchant banker registered with the Securities and Exchange Board of India (SEBI).
Methods for Venture Capital Undertakings: The FMV of equity shares issued to venture capital investors can be used as a benchmark for shares issued to other investors within a specific period.
Methods for Notified Investors: The valuation method for unquoted equity shares issued to Notified Investors is used as a benchmark for shares issued to other investors within a set period. Notified Investors are specified in Notification No. 29/2023 dated May 24, 2023.
Valuation of CCPS: The FMV of CCPS can be determined using the DCF method or new valuation methods based on the type of investor or FMV of unlisted equity shares.
The valuation date allows the use of a valuation report issued up to 90 days before the date of share issuance.
A safe harbour provision permits a tolerance limit of 10% between the issue price and FMV.
If the difference does not exceed 10%, the issue price is considered the FMV.
The Angel Tax provisions also apply to startups receiving investments from non-residents, with exceptions based on specified conditions.
While these measures are welcomed, Indian companies continue to face scrutiny regarding share premiums and valuation methods.
An observation is that Indian tax authorities often challenge valuation methodologies and assumptions, focusing on increasing the tax base by treating undervalued share issuances as income from other sources.
If you have any queries about the Changes to the Angel Tax Valuation Rules, Indian tax, or tax matters in general, then please get in touch.
Malta, a strategic hub within the European Union, continues to attract highly skilled professionals from around the world.
On June 19th, the Commissioner for Revenue unveiled new guidelines under Article 6 of the Income Tax Act, aimed at providing compelling tax benefits to “investment services and insurance expatriates.”
The goal is to bolster these sectors, which have experienced substantial growth since Malta’s EU accession in 2004, by enticing top-tier talent to contribute their expertise.
Who Qualifies?
For those looking to make a significant impact in Malta’s investment services or insurance sectors, the criteria are well-defined.
An ‘Investment Services Expatriate’ is someone employed by or providing services to a company holding an investment services license or recognized by the relevant competent authority.
This includes activities like management, administration, safekeeping, and investment advice to collective investment schemes.
Similarly, an ‘Insurance Expatriate’ works for an entity authorized under the Insurance Business Act, an insurance manager under the Insurance Distribution Act, or engaged in the business of insurance broking.
To be eligible, these expatriates must not be ordinarily resident or domiciled in Malta, nor have resided there for a minimum of three years preceding their employment or service provision in Malta.
The Generous Benefits
Qualifying Investment Services or Insurance Expatriates will enjoy a range of exemptions, which makes this opportunity even more attractive.
The tax benefits cover personal expenses paid by the employing company, such as removal costs, accommodation expenses in Malta, travel costs for the expatriate and immediate family, provision of a car in Malta, medical expenses, medical insurance, and school fees for children.
These benefits, which are typically taxed as fringe benefits, are exempt from taxation for a remarkable period of ten years, starting from the first taxable year in Malta.
Additionally, these expatriates will be treated as not resident in Malta for specific income tax purposes, leading to exemptions on various types of income, including interest, royalties, profits from transfers of units in collective investment schemes, shares, securities, and more. These benefits remain in effect throughout the duration of the individual’s employment as an Investment Services or Insurance Expatriate.
It’s essential to note that individuals who qualify for these tax benefits cannot simultaneously benefit from Malta’s Highly Qualified Persons Rules. The two registration options are mutually exclusive.
Malta’s progressive tax benefits for Investment Services and Insurance Expatriates paint an attractive landscape for skilled professionals seeking a dynamic and rewarding career within these thriving sectors.
The generous exemptions, combined with Malta’s strategic position in the EU, make this opportunity a compelling proposition for those looking to make a significant impact while enjoying a supportive environment
If you have any queries regarding this article on Malta’s new tax benefits for expatriates or Malta tax in general, then please get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
As remote work becomes the new norm in many industries, employers face a maze of tax obligations when their employees operate from Canada.
Whether intentional or a result of Covid-19 travel restrictions, these arrangements can spark a range of tax issues for non-Canadian employers.
In this blog, we shed light on some key considerations and obligations that employers must navigate when their employees work remotely in Canada.
Having an employee in Canada triggers payroll tax obligations for the employer.
These include deductions for income tax, Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and any applicable provincial payroll taxes.
While resident and non-resident employers share similar obligations, non-resident employers without a presence in Canada may not be required to withhold CPP contributions.
Similarly, they may not withhold EI premiums if they are payable under the employment insurance laws of the employee’s home country.
However, when CPP contributions and/or EI premiums are due, the employer becomes liable for these on its own account.
Under a non-resident employer certificate regime, certified employers resident in a treaty country may be exempt from deducting and remitting Canadian income tax on remuneration paid to qualified non-resident employees.
To qualify, employees must be residents of a country with which Canada has a tax treaty, and they must be exempt from Canadian income tax on the remuneration due to the treaty.
Additionally, the employees must not be present in Canada for 90 or more days in any 12-month period, or not in Canada for 45 or more days in the calendar year that includes the payment time.
While this certification offers relief, employers should ensure ongoing reporting and compliance to maintain eligibility.
For employers without non-resident certification or non-qualifying employees, a Regulation 102 waiver may be sought if the remuneration is exempt from Canadian income tax due to a tax treaty.
Having an employee in Canada may expose the employer to the risk of being considered to be “carrying on business” in Canada.
A non-resident carrying on business in Canada is generally liable for tax on profits from such activities, subject to any treaty exemptions.
Certain activities of the employee, such as soliciting orders or offering sales in Canada, may cause the employer to be deemed to be carrying on business in the country.
Employers entitled to treaty benefits are exempt from Canadian income tax on business profits if they do not have a permanent establishment (PE) in Canada.
However, certain scenarios, like employees having the authority to conclude contracts, may trigger PE status and tax obligations.
When employees provide services in Canada, the employer’s customer may need to deduct and remit 15% of the payment for those services to the CRA unless a waiver is obtained.
Employers can apply for waivers to reduce or eliminate withholding taxes, depending on treaty provisions and income projections.
Value-added taxes (GST/HST) apply on the supply of goods and services in Canada, requiring non-resident employers to register and comply with the GST/HST regime if they make taxable supplies in the country.
In sum, remote work arrangements in Canada can create complex tax implications for non-Canadian employers.
Understanding and fulfilling these obligations is essential to avoid potential pitfalls and ensure compliance with Canadian tax laws.
Seeking professional advice can illuminate the path forward and help employers navigate the tax terrain with confidence.
If you have any queries about this or other Canadian tax matters then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Earlier in the month, in the Pre-Budget Report (“PBR”), the Bermudan Government announced a proposal that will represent significant changes to the current employment tax regime.
It is a fair observation to say that some of the proposals were quite eye-catching.
Firstly, an increase is proposed to the employer portion of payroll tax for exempted companies. Here, the rate will increase from the current 10.25% to 10.75%.
The result of this is that it means that Bermuda’s exempted companies are now required to pay payroll tax at a higher rate than local companies.
In addition, the PBR proposes a change to the employee portion of payroll tax. The result here is that it means a greater proportion of the overall tax burden will fall on the shoulders of higher earners.
The Government had made election pledges in 2020 in this area. Firstly, it seeks to make good its promise to eliminate the employee portion of payroll tax for those earning below $48,000 a year. At present, this is 1.5%.
This is accompanied by an increase in the rates for all other income brackets. These are set out below.
| Income bracket | Current rates | Proposed Rates |
| $0 – $48,000 | 1.50% | 0% |
| $48,001 – $96,000 | 9% | 10% |
| $96,001 – $235,000 | 9% | 11.50% |
| > $235,001 | 9.50% | 13% |
The PBR also includes a proposal to increase the cap on annual taxable remuneration.
At the moment, the cap is set at $900,000. However, the proposal suggests raising this to $1,000,000.
The measures set out above would result in high-earners shouldering a greater proportion of the tax burden.
In addition, there is likely to be a sizeable increase in the payroll tax bill for exempt companies.
In terms of next steps, the PBR will be open for consultation until 13 January 2023. A Budget will follow this – perhaps as early as February.
So, watch this space!
If you have any queries about this article on the Bermuda PBR, Bermuda employment taxes or Bermudan tax matters in general then please do not hesitate to contact us.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.