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On 30 June 2022, the Cyprus Parliament approved amendments to the Cyprus Income Tax Law and new Regulations to introduce Transfer Pricing (“TP”) documentation compliance obligations (Master File, Cyprus Local File, Summary Information Table).
The documentation requirements apply to Cypriot tax resident persons and Permanent Establishments (PE’s) of non-tax resident entities that engage in transactions with related parties. The aim of the new law and regulations is to ensure compliance of covered entities with the arm’s length principle.
In addition, the law has been amended to update the definition of related parties by introducing a minimum 25% relationship threshold relevant for companies.
The law amendments and Regulations are effective from the tax year 2022 onwards.
Overview
The new transfer pricing law and regulations cover all types of transactions between related parties in excess of €750.000 per category of transaction.
Different types of transactions include sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licences/royalties, others.
A relevant notification has been issued by the Cyprus Tax Department (“CTD”) providing (amongst others) the required detailed contents of the Master File and Cyprus Local File.
The Summary Information Table (SIT) must be prepared by all taxpayers that engage in Controlled Transactions on an annual basis, disclosing details regarding such transactions. There is no threshold for the SIT, and this must be submitted electronically together with the Income Tax return for the relevant tax year.
Exemptions
The following exemptions shall apply:
Master File: It applies only to Cyprus tax resident entities that are ultimate or surrogate parent entities of multinational group which has consolidated revenues above €750M (with CbCR obligations). All other persons are exempt from this obligation.
Local File: Exception is granted if the volume of controlled transactions does not exceed €750,000 per category of transactions.
in Cyprus is expected to perform a Quality Review of the Cyprus Local File.
Deadline
The TP Documentation File must be prepared on an annual basis, by the deadline of filing the Income Tax Return for the relevant tax year.
Penalties
In case of late submission or non-submission of files, the law and regulations prescribe the following penalties:
Non-submission of Table of Summarized Information within deadline
€ 500
Late filing of the Local &/or Master File:
– within the 61st and 90th day from request
€ 5,000
– within the 91st and 120th day from request
€ 10,000
– after the 121st day from request or non-filing
€ 20,000
If you have any queries about this Cyprus Transfer Pricing update, or Cyprus tax matters generally, 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.
Today, Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (hereinafter referred to as the “Corporate Tax Law”) was issued by the United Arab Emirates (“UAE”).
The UAE Corporate Tax Law provides the legal basis for the introduction of corporate tax in the UAE. It will be effective for financial years starting on or after 1 June 2023.
Why is the UAE introducing corporate tax?
The introduction of Corporate Tax is intended to help the UAE achieve its strategic objectives and accelerate its development and transformation.
Further, by introducing a regime that better reflects international standards, it is hoped these changes will fortify the UAE’s growth as a jurisdiction for business and investment.
Persons subject to UAE corporate tax
Taxable persons – generally
The following will be “Taxable Persons”:
UAE companies and other non-natural persons that are incorporated or effectively managed and controlled in the UAE;
Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
Non-resident non-natural persons (foreign legal entities) that have a Permanent Establishment in the UAE
Taxable persons in a Free Zone
Non-natural persons established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons”. As such, they will need to satisfy the requirements set out in the Corporate Tax Law.
An important qualification is around so-called Qualifying Free Zone Persons. These characters will pay 0% on their Qualifying Income. We discuss these terms below.
The scope of UAE corporate tax
General
The UAE Corporate Tax Law taxes income with regard to the following bases:
The residence status of the person; an
The source of the relevant income
Residence
Broadly, the exposure to UAE corporate tax is as follows:
Resident Person: such a person is taxable on income derived from both domestic and foreign sources
Non-Resident Person: such a person is taxed only on income derived from sources within the UAE
Determining residence
General
Residence for Corporate Tax purposes is not determined by where a person resides or is domiciled but instead by specific factors that are set out in the Corporate Tax Law. If a Person does not satisfy the conditions for being either a Resident or a Non-Resident person then they will not be a Taxable Person and will not therefore be subject to Corporate Tax.
Resident Persons
Companies and other non-natural persons that are incorporated or otherwise formed or recognised under the laws of the UAE will automatically be considered as Resident Persons.
This covers non-natural persons incorporated in the UAE under either mainland or the applicable Free Zone legislation.
In addition, foreign companies and other foreign non-natural persons may also be treated as Resident Persons. Generally, this will be where they are effectively managed and controlled in the UAE.
Natural persons will be subject to Corporate Tax as a “Resident Person” on income from both domestic and foreign sources. However, this will only be in respect of income derived from a business activity conducted in the UAE.
Non-Resident Persons
Generally, Non-Resident Persons are non-natural persons who are not Resident Persons and have a Permanent Establishment in the UAE.
They will be subject to corporate tax on taxable income that is attributable to their Permanent Establishment.
A special 0% Withholding Tax will apply to certain UAE source income arising to a Non-Resident Person.
Exempt Income
The new legislation also sets out exemptions in relation to certain types of income.
The stated aim of the exemptions is to eliminate the potential for double taxation on certain types of income.
As a result, dividends and capital gains earned from domestic and foreign shareholdings will largely be exempt from Corporate Tax.
In addition, a Resident Person can also elect in certain circumstance to not take into account income from a foreign Permanent Establishment for UAE Corporate Tax purposes.
UAE Corporate Tax rates
General
The headline rate of corporate tax is 9%.
This applies to Taxable Income exceeding AED 375,000. Below this threshold, the rate of tax is 0%
A special 0% withholding tax applies to certain types of UAE sourced income that is received by non-residents.
There is no need for UAE businesses or foreign recipients of UAE sourced income to register for the withholding tax or to undertake other filing obligations.
Withholding tax does not apply to transactions between UAE resident persons.
When is a Free Zone Person a Qualifying Free Zone Person?
General
A special rate of 0% applies to Free Zone Persons that are both:
Qualifying Free Zone Persons; and
Receive “Qualifying Income”
In such circumstances, the Free Zone Person will pay 0% on their Qualifying Income.
What is a Qualifying Free Zone (“QFP”) Person?
In order to be a QFP, a Free Zone Person must:
maintain adequate substance in the UAE;
derive Qualifying Income;
not have made an election to be subject to Corporate Tax at the standard rates; and
comply with the transfer pricing requirements under the Corporate Tax Law.
Where a Free Zone Person does not satisfy these requirements, then the standard rates apply.
Qualifying Free Zone entities that are part of a large multinational group are anticipated to be subject to a different CT rate once the Pillar Two rules are embedded into the UAE CT regime.
What is Qualifying Income?
As per Article 18 of the legislation, “Qualifying Income” is defined as that specified in a decision issued by the Cabinet at the suggestion of the Minister.
Compliance & UAE corporate tax
All Taxable Persons are required to register for Corporate Tax and to obtain a Corporate Tax Registration Number. This includes Free Zone Persons.
Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period.
The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.
If you have any queries about the UAE corporate tax or UAE tax matters more generally, 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
Ireland’s Minister for Finance recently formally launched the Digital Games Tax Credit.
The measure was originally provided for in Finance Act 2021 subject to commencement order and, importantly, EU State Aid approval.
The European Commission has now provided that approval and a commencement order has now been passed.
It is expected that qualifying certificate holders are able to avail themselves of the relief from 1 January 2023.
Digital Games Tax Credit – What is it?
The credit takes the form of a refundable corporation tax credit in respect of qualifying expenditure on:
the design,
production; and
testing of a digital game
The Digital Games Credit is available to digital gaming development companies that are
resident in Ireland, or
resident in the EEA and have a branch or agency in Ireland
The rate of the credit is 32% of eligible expenditure. This is capped at a limit of €25m per project. A minimum project spend of €100,000 also applies.
Qualification
There are a number of requirements that must be satisfied in order to qualify for the credit, including:
Nature of the game;
Qualifying expenditure;
Certification;
Certification types and claim period;
Nature of game
The game must be one which integrates digital technology, can be published on an electronic medium, is interactive/built on an interactive software and incorporates as least three of the following elements:
text;
sound;
still images; and
animated images
The digital game should not be produced solely / mainly as part of a promotional campaign or be used as advertising for a specific product.
Further, the game must not be produced solely or mainly as a game of skill or chance for a prize comprising money or money’s worth.
Qualifying expenditure
There is a requirement for expenditure to be incurred directly by the digital games development company on the design, production and testing of a digital game.
The categories of expenditure that may qualify for relief include:
employee related costs;
capital costs of assets used for the development of the game;
costs of renting or leasing equipment;
costs of consumable items, software, copyright and other intellectual property rights; and
sub-contractor payments subject to a €2m limit.
Certification
A company must obtain certification from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media.
When deciding whether it will grant such a certificate then the Minister will have regard to a matrix of cultural requirements. A points system is applied in assessing the merits of the application.
Under the rules, there is a provision for the issuing of:
an interim certificate (issued to companies still in the process of game development); or
final certificate (issued to companies that have completed development of the game).
Making a claimfor the Digital Games Credit
Where a company has been issued with an interim certificate then the credit can be claimed within twelve months following the end of the accounting period in which the expenditure was incurred.
Alternatively, where a company has been issued with a final certificate, the company may make a final claim after deducting any amounts that have already been received under an interim certificate.
Process for claiming relief
The Digital Games Credit is first offset against any corporation tax liability company for the relevant accounting period.
However, where there is no corporation tax liability or if the credit takes the company into a loss-making position, then the Company may make a claim for a cash refund.
If you have any queries about the Digital Games Credit or Irish tax matters more generally, 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
The new budget agreement will have a tax impact for individuals and companies established or operating in Belgium. Below is an initial discussion of the tax measures announced in this context.
Individuals
The highlights in the Belgian Budget are as follows:
Curtailment to aspects of the copyright regime
At present, copyright income is subject to withholding tax of 15% following the deduction of lump sum expenses of up to 50%. This will be curtailed over a phasing in period of two years.
Tax relief for second homes
From 2024, tax relief for second homes will be abolished.
Flexi job scheme extension
The scope of the flexi jobs regime will be extended with an increase in hours for student jobs.
Companies
The prime cuts of corporate measures in the Belgian Budget are as follows:
Employer contributions on indexed wages
There will be a reduction for employer contributions on indexed wages. This applies to contributions for quarters one and two of 2023.
Restriction on offset of carried forward tax losses
Tax losses from earlier periods are restricted if the profit of the current taxable period is in excess of €1m. For the 2023 year, large companies would be able to offset only 40% (as opposed to 70%) of profits that exceed €1m against carried forward tax losses.
Restrictions to deduction for risk capital
From financial year 2023, the application of the deduction for risk capital will be restricted.
Energy Producers Profits Tax
For energy produced between 1 January 2022 and 1 November 2022, there will be an excess profits tax on profits above €180 per MWh. This is a retrospective tax. From November to June 2023, excess profits above EUR 130 per MWh will be taxed.
Indirect taxes
The main indirect tax measures are as follows:
Excise taxes on tobacco
An increase in tobacco excise duties was announced
Excise taxes on e-cigarettes
Further, the introduction excise duty on e-cigarettes was unveiled
Eco tax on polluting packaging
The tax on polluting packaging was extended
It is worth noting that the budget has not yet been finalised at this stage so there might be changes or revisions to these proposals.
If you have any queries about the Belgian budget and the proposed tax changes, or Belgian tax more generally, 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.