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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.
On April 25, 2024, the Internal Revenue Service (IRS) and the Treasury Department issued final regulations (the Final Regulations) for energy tax credit transfers under Section 6418 of the Internal Revenue Code (the Code).
Section 6418, introduced as part of the Inflation Reduction Act of 2022 (the IRA), allows eligible taxpayers to transfer certain clean energy tax credits to unrelated taxpayers for cash, creating a marketplace for these tax credit transfers and spurring investment in the energy sector.
Before the IRA, clean energy tax credits could only be used by taxpayers who owned the underlying clean energy projects, often involving complex tax equity structures typically accessible to large-scale projects and financial institutions.
The IRA addressed concerns about the sufficiency of the tax equity market to support clean energy adoption by introducing the transferability of clean energy credits, thus creating a broader market for these credits.
Any taxpayer that is not a tax-exempt organization, state, political subdivision, Indian Tribal government, Alaska Native Corporation, rural electricity cooperative, or the Tennessee Valley Authority. These entities can benefit from the direct pay mechanism under Section 6417.
Eleven tax credits are eligible for transfer under Section 6418, including:
The Final Regulations, which follow proposed regulations issued on June 14, 2023, adopt rules for making transfer elections with additional clarifications:
Section 6418 became effective for taxable years beginning after December 31, 2022, and the Final Regulations take effect from July 1, 2024.
These regulations provide additional certainty for taxpayers as the market for clean energy tax credit transfers grows. Congress is closely monitoring the performance of this new mechanism, which, if successful, could potentially expand to include other tax credits.
If you have any queries about this article on Transfers of Clean Energy Tax Credits, or US tax matters more generally, then please get in touch.
On Tuesday, April 4th, 2024, the Brazilian Federal Government published Provisional Measure (PM) No. 1,227/2024, introducing significant changes to tax regulations.
As a PM, this measure has the immediate force of law but must be approved by Congress within 120 days to remain effective.
The measure revokes previous provisions that allowed taxpayers to recover presumed PIS/Cofins credits in cash.
Under the new legislation, companies can only offset these credits against other federal taxes.
This change limits the flexibility businesses previously had in managing their tax liabilities.
One of the most controversial aspects of the PM is the prohibition on offsetting PIS/Cofins credits, calculated under the non-cumulative system, with other federal taxes.
Previously, taxpayers could offset these credits with taxes such as Corporate Income Tax (IRPJ) or Social Contribution on Net Profit (CSLL).
Now, PIS/Cofins credits can only be offset against debts of the same contributions, although requesting reimbursement in cash is still possible in certain legislatively defined cases.
The PM imposes a new obligation on taxpayers to declare their tax benefits.
Taxpayers must inform the Federal Revenue Service about the incentives, exemptions, benefits, or tax immunities they enjoy, as well as the corresponding tax credit value.
Failure to report or late reporting of this information can result in fines of up to 30% of the value of the tax benefits.
The Government has stated that these measures aim to balance public accounts, particularly in light of payroll tax exemptions.
To provide further clarity, a Normative Instruction will be issued, detailing the changes, especially those concerning the declaration of tax benefits.
We would suggest that any taxpayers who might be affected by these changes should seek advice in relation to them.
If you have any questions regarding this Provisional Measure Limiting Compensation, or other tax matters in Brazil, please get in touch.
Malta Enterprise has reinvigorated the local business landscape by reintroducing the Micro Invest Scheme, a strategic initiative aimed at fostering growth and investment among small and medium-sized enterprises (SMEs).
This tax credit scheme, designed to support businesses in scaling their operations, opens up opportunities for a wide range of entities, including startups, family-owned businesses, and self-employed individuals, to invest more robustly in their future.
Central to the Scheme is the provision of a tax credit covering 45% of eligible expenditures for businesses across Malta and an enhanced 60% for those operating within Gozo. This significant financial incentive is designed to lighten the fiscal load on businesses as they seek to expand and innovate.
The Scheme covers a variety of investment avenues, including:
To tap into the Scheme’s benefits, businesses must meet certain criteria, including:
The relaunch of the Micro Invest Scheme by Malta Enterprise signifies a strategic investment in the sustainable growth of the local business ecosystem.
By offsetting a portion of the investment costs through tax credits, the Scheme not only makes it financially feasible for SMEs to pursue growth initiatives but also stimulates economic activity and job creation within Malta and Gozo.
As the application window opens, businesses are encouraged to assess their eligibility and consider how the Scheme can support their growth ambitions in the coming year.
If you have any queries about the Malta Micro Invest Scheme, or Maltese tax matters more generally, then please get in touch.
In an announcement by the Chancellor of the Exchequer during the Spring Budget on 6 March 2024, the UK government has introduced the Independent Film Tax Credit (IFTC).
The credit is aimed at revitalising the UK’s independent film industry.
This initiative emerges in the wake of the Culture, Media and Sport Committee‘s examination of sectoral challenges, underlining the government’s commitment to nurturing filmmaking within the country.
The IFTC aims to offer producers of eligible films the opportunity to claim an enhanced Audio-Visual Expenditure Credit (AVEC) on qualifying expenditure.
With a gross rate of 53%, this translates to a net tax credit of 39.75%, capped at £6.36 million per film.
The introduction of IFTC builds upon the AVEC regime, initiated on 1 January 2024, which already provides a tax credit for film and high-end TV programmes, children’s TV, and animation projects.
Notably, the Spring Budget also announced an increase in AVEC for visual effects costs and the removal of the 80% cap on qualifying expenditure in this category from 1 April 2025.
Films aiming to qualify for IFTC must meet specific criteria, including a theatrical release, a production budget up to £15 million, commencement of principal photography on or after 1 April 2024, and adherence to the British Film Institute (BFI) test for UK independent film.
The BFI’s assessment will ensure that films either feature a UK writer or director, or are certified as official UK co-productions.
Films commencing principal photography from 1 April 2024 are eligible to opt-in for IFTC, with claims being submitted from 1 April 2025.
This transitional period allows production companies to choose between AVEC and the previous tax relief schemes for expenditure incurred from 1 January 2024.
However, all new productions from 1 April 2025 must utilize AVEC, with a complete transition to AVEC mandated by 1 April 2027.
The introduction of IFTC and adjustments to AVEC represent a significant boon for independent filmmakers in the UK.
By enhancing support for the independent film sector and incentivizing visual effects production, these measures are expected to bolster creative endeavors, attract new talent, and secure the industry’s future.
The government’s strategic investment in independent filmmaking not only acknowledges the sector’s cultural significance but also aims to catalyze growth and innovation post-pandemic and beyond.
If you have any queries about the new Independent Film Tax Credit, or any other UK tax matters, then please do get in touch.
The Indonesian government, in collaboration with the Investment Coordinating Board (BKPM) and the Ministry of Finance (MOF), is introducing additional incentives for the battery electric vehicle (BEV) sector.
These incentives, which include a 0% import duty tariff, exemption from the tax on sales of luxury goods, and a reduced value-added tax (VAT) rate of 1%, are designed to stimulate further investment in the burgeoning electric vehicle industry.
These measures are aligned with Indonesia’s ongoing commitment to accelerating EV investment and complement previous fiscal incentives outlined in the 2019 Presidential Regulation.
Issued on 19 January 2024, BKPM Regulation No. 6 of 2023 offers a range of incentives for BEV manufacturing in Indonesia. Highlights include:
In alignment with BKPM Regulation No. 6 of 2023, the MOF issued three critical regulations to implement the new incentives:
An additional 10% VAT borne by the government for BEV deliveries in 2024, applicable to BEVs with a TKDN of at least 40%;
Further outlines the exemption from the tax on sales of luxury goods for the fiscal period of January to December 2024.
Updates goods classification and import duty rates, specifically adding BEV under certain tariff posts to be subject to a 0% customs duty rate.
To avail of these incentives, manufacturing companies must submit a proposal through the OSS system by no later than 1 March 2025.
This process involves a proposal letter, commitment statements, and subsequent assessment by relevant ministries.
Upon meeting all requirements, companies will receive an approval letter, which serves as the basis for obtaining incentives from the Ministry of Finance and an import certificate from the Ministry of Trade.
As these regulations represent a significant boost for Indonesia’s EV sector, they mark a promising step towards the country’s sustainable and innovative automotive future.
While the application process is still evolving, these incentives are expected to attract considerable investment, drive EV manufacturing, and position Indonesia as a leader in the electric vehicle market.
If you have any queries over this article on Indonesia EV Sector Incentives, or Indonesian tax matters more generally, then please get in touch.
Also, we are looking for tax experts in Indonesia to join our ranks. If you fit the bill, then please get in touch. For more details, please see here.
On 6 March 2024, the Federal Parliament in Belgium saw the introduction of a transformative draft bill aimed at refining Belgium’s investment deduction and tax credit regimes.
This initiative reflects a proactive response to ongoing technological advancements and the pressing demands of climate policy.
Traditionally, Belgium’s tax system encouraged investments through deductions on taxable profits, pegged at a certain percentage of the acquisition value for newly acquired tangible or intangible assets.
Currently, individuals and SMEs enjoy an 8% deduction, with opportunities for enhanced deductions tied to specific investments and adjustments for inflation. However, the landscape is set to change dramatically.
The proposed legislation introduces additional tax deductions for companies and self-employed individuals engaging in specific categories of new assets utilized within Belgium for business operations. Exclusions apply, maintaining a strategic focus on environmental and digital progress.
The basic Investment Deduction is set at 10% for SMEs and self-employed, excluding climate-detrimental investments.
It is boosted to 20% for digital assets investments, with a forthcoming detailed exclusion list.
The Thematic Deduction offers an enhanced 40% deduction for SMEs and self-employed and 30% for larger companies.
Eligible investments include efficient energy, carbon-free transport, eco-friendly projects, and digital advancements in these areas.
A 13.5% deduction for eco-conscious R&D and patents, increasing to 20.5% for staggered deductions.
The bill retains the mechanism for carrying forward unused deductions, ensuring flexibility.
Set to take effect from 1 January 2025, the new regime keeps the current spread investment deduction for assets acquired before this date, promoting a seamless transition.
Belgium’s forthcoming tax reform is a bold step towards marrying fiscal incentives with the urgent need for sustainable and technological advancement.
By fostering a conducive environment for eco-friendly and digital investments, the country positions itself at the forefront of economic resilience and environmental stewardship.
If you have any queries on Belgium’s Investment Deduction for a Sustainable Future, or Belgian tax matters more generally, then please get in touch.
Saudi Arabia’s tax landscape has undergone significant transformations in alignment with the ambitious Saudi Vision 2030.
In this article, we’ll look at some of the incentives designed to attract investments to the Kingdom.
Taxation in Saudi Arabia falls under the purview of the Zakat, Tax and Customs Authority (ZATCA).
The tax regime is unique due to the inclusion of zakat and its approach to personal income tax which is levied only on non-residents.
The fundamental distinction in the Saudi tax system is between:
For non-Saudi businesses, income tax is levied on profits while zakat is calculated on the net worth for Saudi entities, at a rate of 2.5%.
The Income Tax Law imposes a 20% tax rate on profits, while income from hydrocarbons is taxed between 50% and 85%.
Notably, a new draft tax law introduced in December 2023 – which is open for public feedback – is set to further align Saudi tax policy with international standards.
Customs duties in Saudi Arabia protect local production, with rates up to 25%.
Value Added Tax (VAT) experienced an increase from 5% to 15% in 2020, with excise taxes levied on products like tobacco and energy drinks to discourage consumption.
Furthermore, a Real Estate Transaction Tax (RETT) applies to property transactions at a rate of 5%.
To attract multinational corporations to set up regional headquarters in Saudi Arabia, ZATCA has introduced lucrative tax exemptions for income tax, WHT on dividends, and more.
These incentives can last up to 60 years.
The Kingdom provides incentives for investments in certain underdeveloped regions, offering deductions on training, education expenses, and salaries of Saudi personnel.
Payments to non-residents from within Saudi Arabia are subject to WHT, with the rate depending on the type of payment.
Saudi Arabia’s revised tax framework reflects its attempts to foster a competitive, integrated global economic environment.
For more insights on Saudi Arabia’s changing tax environment and investment opportunities, feel free to get in touch.
“No one has become poor by giving” so that saying goes.
Indeed, charitable giving is a worthy pursuit. However, when it comes to getting it right for US / UK taxpayers, a failure to navigate the tax rules on both side of the pond might result in one becoming poorer than one needs!
This is particularly the case for UK residents who are also US citizens.
Here, understanding the tax implications and opportunities for relief is crucial.
The remainder of this short article sets out some of the considerations for such taxpayers when it comes to tax-efficient giving.
For donors aiming to optimize their contributions, the UK offers several tax reliefs, including for:
These reliefs encourage donations by reducing the tax impact on the donor. However, there’s no such thing as a free lunch – so each of them comes with specific requirements, particularly concerning the recipient charity’s eligibility.
A key consideration for UK taxpayers is ensuring donations are made to entities recognised as charities under UK law.
This recognition is crucial for accessing tax reliefs, and recent clarifications have emphasized that only donations to UK charities qualify, excluding those to charities based in the EU, EEA, or beyond.
For US taxpayers, the criteria for charitable tax relief differ, posing challenges for those looking to donate to UK charities.
Given the discrepancies between US and UK definitions of charitable entities, a direct donation to a UK charity may not be eligible for US tax relief.
This discrepancy necessitates exploring alternative giving options that satisfy both jurisdictions’ requirements.
A DAF serves as a flexible option, allowing donors to contribute to a fund recognized for tax purposes in both the US and UK.
This approach offers the convenience of less administrative burden, as the DAF provider handles compliance and reporting requirements.
While it provides a streamlined way to support charitable causes, it may offer less control over the exact use of the funds compared to more direct involvement in a charity.
For donors seeking a more hands-on role or aiming to support activities beyond grant-making, establishing a dual resident charitable structure may be preferable.
This setup involves a US charity that wholly owns a UK charitable entity, enabling tax-efficient grants that are eligible for relief in both countries.
This structure is ideal for those looking to actively engage in charitable operations or governance.
Another option for one-off donations is to contribute to a ‘friends of’ entity within the donor’s home jurisdiction, which then forwards the funds to the main charity abroad.
This method ensures tax reliefs are applicable, though it’s dependent on the existence of such ‘friends of’ branches.
Charitable giving for US-UK taxpayers involves navigating a maze of tax regulations to ensure donations are both impactful and tax-efficient.
Whether opting for a DAF, a dual resident charity, or a ‘friends of’ charity, the goal is to maximize the benefit to both the donor and the recipient charity.
Given the potential for tax pitfalls, seeking expert advice is paramount to ensuring that charitable gestures do not inadvertently lead to tax liabilities, thereby preserving the spirit of giving in a financially savvy manner.
If you have any queries on this article on Charitable donations and US / UK taxpayers, or US tax matters in general, then please get in touch.