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A Foreign Tax Credit (FTC) is a tax relief mechanism that allows individuals or businesses to reduce their tax liability in their home country by the amount of tax they’ve already paid to a foreign country.
This is an important tool in international taxation because it prevents double taxation — being taxed on the same income in two different countries.
Let’s say you’re a company based in the UK, but you also earn profits in Germany.
Germany will tax you on the income you make in their country, but the UK also expects you to pay tax on your global income.
Without the Foreign Tax Credit, you would be paying tax on the same income twice—once in Germany and once in the UK.
The FTC works by allowing you to reduce your UK tax bill by the amount of tax you already paid in Germany.
So, if Germany taxed you £10,000 on your foreign income, you could subtract that £10,000 from your UK tax liability.
There are some limitations to how much tax you can credit. For example:
Foreign Tax Credits are crucial for businesses and individuals who earn income abroad.
Without this credit, companies and people working internationally would face double taxation, making cross-border business much more expensive and complicated.
The FTC encourages international trade and investment by reducing the tax burden on cross-border income.
Foreign Tax Credits are an essential feature of international tax systems, ensuring that individuals and businesses aren’t taxed twice on the same income.
By allowing taxpayers to reduce their home country’s tax liability by the amount of tax they’ve already paid abroad, the FTC promotes fair taxation and encourages international trade.
If you have any queries on this article – what are foreign tax credits – or any other tax matters, then please get in touch.
Brazil is taking significant steps to reform its tax system, aiming to alleviate the financial burden on low-income earners.
The government plans to exempt individuals earning up to 5,000 reais (approximately $850) per month from income tax.
This move aligns with President Luiz Inacio Lula da Silva‘s campaign promises and seeks to promote economic equity.
The current income tax exemption threshold in Brazil is 2,824 reais per month.
The proposed reform would nearly double this threshold, allowing more workers to retain a larger portion of their earnings.
Finance Minister Fernando Haddad has indicated that this change is part of a broader tax reform strategy, which may include taxing higher-income individuals to offset revenue losses.
Following the announcement, Brazilian markets experienced volatility.
The real depreciated over 1% against the U.S. dollar, and the Bovespa index fell by 1.4%.
Investors expressed concerns about potential reductions in government revenue and the impact on fiscal reforms.
The government aims to balance these concerns by implementing measures to tax the super-rich and high salaries.
For low-income workers, this tax exemption represents a significant financial relief.
By increasing the tax-free income threshold, the government intends to enhance disposable income for millions, potentially stimulating consumer spending and economic growth.
Brazil’s initiative to raise the income tax exemption threshold reflects a commitment to social equity and economic stimulation.
While market reactions indicate some investor apprehension, the government’s comprehensive approach aims to balance fiscal responsibility with support for low-income earners.
If you have any queries about this article on income tax exemptions, or tax matters in Brazil, then please get in touch.
Alternatively, if you are a tax adviser in Brazil and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
The Canadian government has announced significant updates to its carbon tax policy, aiming to reduce emissions and meet ambitious climate goals.
These changes, while environmentally focused, have raised questions about their economic impact and implications for households and businesses.
This article unpacks the new rules, their expected outcomes, and how Canadians can navigate the changes.
The updated policy introduces several key changes:
The federal carbon tax will rise from CAD 65 per tonne in 2024 to CAD 80 per tonne by 2026.
This will affect fuel prices, including gasoline, diesel, and natural gas.
The tax will now cover previously exempt industries, such as certain agriculture sectors and small-scale manufacturing.
Households will continue to receive quarterly rebates, but the amounts will be recalibrated to focus more on low-income families.
Clean Fuel Regulations
A separate set of rules will incentivise businesses to adopt cleaner fuels and reduce reliance on carbon-heavy energy sources.
The primary goal is to encourage individuals and businesses to reduce their carbon footprints.
The increased tax serves as a financial incentive to transition to cleaner energy alternatives.
Additionally, the government aims to raise funds to support green initiatives, such as renewable energy projects and infrastructure upgrades.
For households, the most noticeable effect will be on fuel and heating costs. For example:
While rebates will offset some of these costs, middle-income families may find their budgets stretched further, especially in provinces where winters are harsher.
Businesses will also face higher operational costs, particularly in transportation and manufacturing.
Small and medium enterprises (SMEs) are likely to feel the pinch more acutely due to limited resources for transitioning to greener technologies.
However, incentives and grants for adopting renewable energy systems may alleviate some of these burdens.
Canada aims to reduce greenhouse gas emissions by 40–45% below 2005 levels by 2030.
These tax changes are part of a broader strategy that includes investment in public transit, electrification, and carbon capture technologies.
While the government remains optimistic about achieving these targets, critics argue that the economic costs may outweigh the benefits.
Canada’s revised carbon tax rules represent a bold step toward combating climate change.
However, they bring with them economic challenges for households and businesses.
Early preparation and taking advantage of available incentives will be key to minimizing the financial impact.
If you have any queries about this article on Canada’s carbon tax rules, or tax matters in Canada, then please get in touch.
Alternatively, if you are a tax adviser in Canada and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
A recent report highlights that the United Kingdom’s growth in Research and Development (R&D) tax incentives is falling behind other OECD countries.
This trend raises concerns about the UK’s ability to remain competitive in attracting innovation-driven businesses.
Let’s explore the details of this issue and its potential implications for the UK’s economy.
R&D tax incentives are government initiatives designed to encourage businesses to invest in research and development activities.
These incentives often take the form of tax credits, deductions, or grants, reducing the financial burden of innovation.
The UK has long been recognised for its generous R&D tax schemes, but recent findings suggest that its growth in funding these incentives has stagnated compared to other OECD nations.
Several factors contribute to this trend:
For UK businesses, the stagnation in R&D tax growth poses challenges:
Innovation is a key driver of economic growth, and R&D incentives play a crucial role in fostering it.
If the UK fails to keep pace with other countries, it risks losing its competitive edge in sectors like technology, pharmaceuticals, and manufacturing.
The UK’s declining R&D tax budget growth is a wake-up call for policymakers.
To remain an innovation leader, the country must prioritise consistent, generous incentives that encourage businesses to invest in R&D.
If you have any queries about this article on incentives, or tax matters in the United Kingdom in general, then please get in touch.
Alternatively, if you are a tax adviser in the UK and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
In sunny California, the state’s film tax credits are helping to secure its place as a leader in the film and television industry.
On July 10, 2023, Governor Gavin Newsom signed a new law that extends and expands California’s Film and TV Tax Credit Program 3.0.
Originally set to expire in June 2025, the program will now run until June 2030, under the new name “Program 4.0”.
This program, which offers $330 million a year in tax credits, has already started attracting new productions to California.
With the launch of Program 4.0, California has become an even more appealing destination for film and television productions.
Colleen Bell, the Director of the California Film Commission, noted that by mid-2024, the state had already welcomed 12 new TV series and one relocating series.
One of the major projects drawn to California was “Suits: L.A.” by Universal Content Productions LLC, which was awarded a $12 million tax credit.
The show’s shift from Canada to California is expected to inject $50.7 million into the state’s economy and create around 2,600 jobs.
California’s move to extend its film tax credits isn’t just about keeping the state’s film industry alive; it’s about ensuring its dominance in a competitive market.
Since 2021, 17 other states have introduced or expanded their own film tax incentive programs. By supporting local productions, states can encourage economic growth, create jobs, and even boost tourism.
California, recognising the growing competition, made significant changes in Program 4.0. The most notable change is that the tax credits are now refundable, which makes them more attractive to filmmakers.
Additionally, the program aims to support people from underserved communities by requiring projects to submit diversity, equity, inclusion, and accessibility (DEIA) workplans.
Projects must also show a commitment to hiring individuals who reflect the diversity of California’s population.
The film and television industry in California provides more than 700,000 jobs and generates nearly $70 billion in wages.
It also brings in billions of dollars in production spending. This makes it clear why the state is so invested in keeping film productions in California.
The tax credits aren’t just about supporting big-budget films; they’re a key part of the state’s economic strategy.
In September 2024, the California Film Commission awarded $51.6 million in tax credits to 18 projects, including a film about singer Janis Joplin.
Shailene Woodley, one of the producers and stars of the Janis Joplin biopic, expressed her gratitude to the California Film Commission, saying that California was the best place to capture Janis’s life story authentically.
California’s Film and TV Tax Credit Program 4.0 has proven to be a valuable tool for keeping the state at the forefront of the entertainment industry.
By offering generous, refundable tax credits and promoting diversity within productions, California is ensuring that it remains a top choice for filmmakers around the world.
If you have any queries about this article on film tax credits or tax matters in the US more generally, then please get in touch.
Alternatively, if you are a tax adviser in the US. and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
On 20 September 2024, Malaysia’s Finance Minister II, Datuk Seri Amir Hamzah Azizan, unveiled an exciting new financial incentive package for the Forest City Special Financial Zone (FCSFZ).
Forest City, often referred to as the ‘Jewel of the South’, is located on four reclaimed islands in the Straits of Johore, nestled between the State of Johore and Singapore.
Recently declared a duty-free zone, Forest City aims to become a preferred regional financial hub, similar to Shenzhen in China and the Dubai International Financial Centre in the UAE.
To support the development of FCSFZ, Malaysia’s Finance Minister announced a range of tax incentives that aim to attract businesses and skilled workers to the area.
The goal is to make Forest City an attractive destination for international finance and innovation.
Here are the key tax benefits outlined in the financial package:
Companies in FCSFZ will enjoy a concessionary corporate tax rate ranging between 0% and 5%.
This makes the region highly competitive for businesses looking to reduce tax costs.
Knowledge workers, as well as Malaysians working in the FCSFZ, will benefit from a special individual income tax rate of just 15%.
This is intended to attract skilled professionals from various sectors.
Family offices, which manage the wealth of high-net-worth families, will enjoy a 0% tax rate for a period of 10 years under the Single-Family Office Scheme.
Further details for this regime, targeted at high-net-worth investors, are as follows:
This scheme will be coordinated by the Securities Commission Malaysia and is set to be operational in the first quarter of 2025.
Global business services, financial technology firms, and foreign payment system operators will be subject to a special tax rate of 5%.
Qualifying banking institutions, insurance companies, and capital market intermediaries will receive incentives such as special deductions on relocation costs, enhanced industrial building allowances, and withholding tax exemptions.
These benefits are designed to lower operational costs for financial sector entities moving into the FCSFZ.
Locally incorporated foreign banks will be given regulatory flexibilities to establish additional branches within the FCSFZ.
They will also have the ability to borrow in foreign currencies and invest in foreign currency assets.
There is excitement surrounding the anticipated agreement between Malaysia and Singapore to establish the Johore-Singapore Special Economic Zone (JS-SEZ), with the deal expected to be signed in November 2024.
It is hoped that the FCSFZ will complement, rather than compete with, the initiatives planned for JS-SEZ. Together, these zones are expected to stimulate economic activity in the region.
Forest City has faced difficulties in recent years, particularly as Chinese investors, who were a key target for the development, have scaled back their overseas investments.
This slowdown is due to economic challenges within China itself.
However, by offering this new incentive package, Malaysia’s government hopes to broaden Forest City’s appeal, attracting a more diverse range of investors and giving the project a much-needed boost.
The FCSFZ incentive package is an ambitious step by the Malaysian government to revitalise the Forest City development.
By offering a competitive tax environment and regulatory flexibilities, it aims to attract global businesses and high-net-worth individuals, turning Forest City into a leading financial hub for the region.
If you have any queries about this article on Malaysian tax incentives or tax matters in Malaysia more generally, then please get in touch.
Alternatively, if you are a tax adviser in Malaysia and would be interested in sharing your knowledge and becoming a tax native, there is more information on membership here.
Singapore has become a global hub for startups and entrepreneurs due to its business-friendly environment, strategic location, and supportive tax policies.
To further boost the growth of new businesses, Singapore offers several tax relief programs designed to help startups during their early years.
These tax reliefs make it easier for entrepreneurs to focus on growing their businesses without worrying about excessive tax burdens.
Singapore has introduced several tax relief programs specifically aimed at newly incorporated companies. The two main tax relief schemes are:
To qualify for the Startup Tax Exemption (SUTE) scheme, companies must meet certain conditions:
It’s also important to note that the SUTE scheme does not apply to companies engaging in certain industries, such as property development or investment holding.
The Partial Tax Exemption (PTE) scheme, however, is open to all companies, regardless of their size or shareholders, making it a flexible option for businesses that don’t qualify for the SUTE scheme.
Starting a business often involves significant financial challenges, especially during the first few years.
These tax relief schemes help reduce the tax burden on startups, allowing them to reinvest their profits back into the business.
This can be particularly beneficial for tech startups, which often require significant capital for research and development (R&D) before they start generating profits.
By offering tax relief, Singapore encourages innovation and entrepreneurship, helping businesses grow faster and contribute to the country’s economy.
Singapore’s tax relief programs for startups provide a strong incentive for entrepreneurs to set up their businesses in the country.
The Startup Tax Exemption and Partial Tax Exemption schemes reduce the financial burden on new companies, allowing them to focus on growth and innovation.
For entrepreneurs looking to launch a business in Asia, Singapore’s supportive tax environment, combined with its strategic location and infrastructure, makes it an ideal place to start and grow a business.
If you have any queries about this article on Singapore’s Tax Relief for Startups, or tax matters in Singapore at all, then please get in touch.
Energy tax credits are incentives provided by governments to encourage investment in renewable energy, energy efficiency, and other environmentally friendly technologies.
These credits allow companies and individuals to reduce their tax liability if they invest in qualifying projects, such as solar panels, wind farms, or energy-efficient buildings.
In the United States, the government has recently made $40 billion available for credits, though the amount requested by companies far exceeds the available funds.
Let’s explore what this means for businesses and the future of renewable energy.
The US government offers a range of tax credits to support the transition to cleaner energy.
These credits are part of the Inflation Reduction Act, which aims to reduce carbon emissions and promote sustainable energy projects.
The most sought-after credits include:
Both credits are designed to make renewable energy projects more financially viable and attract investment into the sector.
According to recent reports, companies have applied for more than $40 billion in credits, far exceeding the amount available.
This high demand reflects the growing interest in renewable energy projects, driven by both economic and environmental factors.
However, not all applications will receive funding.
The government will need to prioritise projects based on their potential impact, technological innovation, and contribution to reducing carbon emissions.
As a result, companies will face stiff competition for these tax credits.
Large corporations, particularly in the energy, tech, and manufacturing sectors, are the biggest beneficiaries of these credits.
Companies like Tesla, NextEra Energy, and General Electric have all taken advantage of tax incentives to invest in renewable energy projects.
But it’s not just large companies that can benefit.
Small and medium-sized enterprises (SMEs) can also apply for tax credits if they are involved in the renewable energy sector.
Additionally, individuals who install solar panels or make energy-efficient improvements to their homes may also be eligible for tax credits.
Despite the benefits, the application process can be complex.
Companies must meet strict requirements and provide detailed documentation to qualify for the credits.
This includes proving that the project is eligible under the specific terms of the credit and demonstrating its potential environmental impact.
Moreover, as demand continues to outpace supply, companies may need to explore other forms of financing for their renewable energy projects.
Tax credits are just one part of the broader financial toolkit available to companies investing in clean energy.
The strong demand for credits highlights the growing momentum behind the shift to renewable energy in the United States.
While not every company will secure funding through tax credits, the availability of these incentives is encouraging more businesses to invest in sustainable projects.
For companies considering renewable energy investments, it’s essential to stay informed about the latest tax credit opportunities and work with experienced advisers to navigate the application process
If you have any queries about this article, or tax matters in the US more generally, then please get in touch.
Puerto Rico offers attractive tax incentives to lure high-net-worth individuals and businesses to the island, fostering local economic growth.
The Puerto Rico Incentives Code of 2019, known as Act 60, provides significant tax advantages for those who qualify as bona fide residents and meet certain economic contribution requirements.
Act 60 consolidates and updates previous tax incentives, including Act 20 and Act 22, targeting a variety of sectors such as individual investors, businesses, manufacturers, international financial entities, and private equity funds.
Act 20 provides tax incentives for companies based in Puerto Rico that export services to other regions.
Benefits include a fixed income tax rate of 4% on eligible export services and a complete tax exemption on dividends from earnings and profits.
Eligible businesses must maintain a bona fide office in Puerto Rico and render services to clients outside the island.
Act 22 offers a 100% tax exemption on dividends, interest, and capital gains for new Puerto Rico residents.
To qualify, individuals must be bona fide residents, meeting criteria such as spending the majority of the year in Puerto Rico, having no tax home outside Puerto Rico, and showing stronger connections to Puerto Rico than any other location.
Additional requirements include an annual $10,000 donation to local nonprofits and purchasing residential property within two years of establishing residency.
Due to the generous nature of these tax breaks, the IRS has increased its enforcement efforts to prevent abuse of Act 60 incentives.
In 2021, the IRS launched a compliance campaign targeting potentially fraudulent claims, focusing on whether individuals and businesses genuinely meet the residency and income sourcing requirements.
Puerto Rico’s tax incentives offer substantial benefits, but they come with strict compliance requirements.
Properly navigating these can avoid IRS scrutiny and potential penalties.
For those considering a move to Puerto Rico, consulting with experienced tax attorneys is crucial to optimize benefits and ensure compliance.
If you have any queries on Puerto Rico and its tax incentives then please get in touch.
On June 23, 2023, the Digital Games Tax Offset (DGTO) became law in Australia.
This new measure aims to support eligible video game developers by providing a 30% refundable tax offset for qualifying Australian development expenditure.
But what does this mean in practical terms?
A tax offset typically reduces the amount of tax a company owes.
In the case of the DGTO, it’s a refundable offset, meaning if your tax payable is less than the offset amount, the Australian Taxation Office (ATO) will refund the difference.
For example, if you owe $500 in tax but have a $1000 offset, you’ll receive a $500 tax refund.
This mechanism effectively allows the government to contribute to and boost the development budget of a video game, provided the company has already spent the money.
To claim the DGTO, the following criteria must be met:
The development expenditure must be Australian, meaning the goods or services are acquired in Australia. This excludes expenses incurred overseas.
A company can claim up to 30% of all qualifying expenditure, with a maximum claimable amount of $20 million per year.
This cap applies across multiple games. For instance, if three games are developed with a total budget of $90 million, the maximum offset remains $20 million.
The approximate limit of a game’s budget that can be claimed is around $66.7 million.
The ATO will group related companies for the purpose of applying the cap, so developing two games from separate companies will have their expenditures added together.
Before filing an offset claim with the ATO, developers need a certificate (completion, porting, or ongoing) from the Arts Minister. This certificate verifies that all the requirements are met.
The definition of a video game under the act is broad, encompassing games in electronic form that can generate a display on:
The DGTO is likely to benefit larger developers more than indie developers.
The minimum threshold of $500,000 in development expenditure will rule out many independent studios, particularly considering the expenditures that do not qualify.
Therefore, even a game with a budget over $500,000 may not meet the criteria.
If you have any queries about this article on the Digital Games Tax Offset, or Australian tax matters in general, then please get in touch.