tax Archives - Tax Natives

United States / Croatia double tax treaty – first agreement signed

1 January 2023 12:33 pm Leave a Comment

The United States and Croatia signed their first double tax treaty (“treaty”) on 8 December 2022.

This means that all member states of the European Union (“EU”) now has a tax treaty with the US, as Croatia was the ‘last man standing’ in terms of not having such a treaty.

So, what does the treaty say?

The treaty

Item	Description
Dividends	The treaty reduces withholding taxes (“WHT”) on dividends. The treaty rate is capped at 15%. One exception is where the beneficial owner of the dividend is a company which has held a direct interest of at least 10% of the company paying the dividends for the preceding twelve-month period. Here, the maximum rate under the Treaty is reduced to 5%. In addition, dividends generally paid to certain pension funds qualify for a full exemption from WHT in the source company.
Interest	The treaty seeks to eliminate WHT on most interest payments. However, WHT is payable and capped at 15% in some circumstances. Those circumstances include: interest arising in Croatia that is determined with reference to receipts, sales, income, profits or other cash flow of the debtor, to any change in the value of any property of the debtor or to any dividend, partnership distribution or similar payment made by the debtor interest arising in the United States that is contingent interest of a type that does not qualify as portfolio interest under the law of the United States.
Royalties	The treaty limits WHT on royalties to 5%.
Reservation	In the treaty, the US reserves the right to impose what is known as the “BEAT” tax under US Internal Revenue Code section 59A (“Tax on Base Erosion Payments of Taxpayers with Substantial Gross Receipts”). This applies to relevant profits of a company resident in Croatia and attributable to a US permanent establishment.
Limitation on benefits (“LoB”)	Those familiar with double tax treaties where one of the contracting parties is the US will be familiar with the LoB article. Broadly, such a clause has applied since the introduction of the 2016 US model tax convention. It is a complex limitation on benefits clause. The result of the LoB in this case means that the application of the treaty is generally limited to “qualified persons” as defined in Article 22 of the Treaty. In general, Article 22(2) requires a resident to be a qualified person at the relevant time that treaty benefits are sought. For the ownership-base erosion test under Article 22(2)(f), the resident must also satisfy the ownership threshold on at least half of the days of any 12-month period that includes the date when the treaty benefit would be accorded. Alternatively, a resident that is not a qualified person under paragraph 2 may still be eligible for treaty benefits for an item of income if it meets one of the other tests under the LOB provision, namely the active trade or business test (ATB test), derivative benefits test or headquarters company test under Articles 22(3), (4) and (5) respectively.

Conclusion on United States / Croatia double tax treaty

The signing of the treaty by the US and Croatia is a welcome development. It will clearly be of great application to businesses and individuals operating across the two jurisdictions.

The Treaty will enter into force after both contracting parties have approved it in accordance with their internal legislative procedures.

If you have any queries about the United States / Croatia double tax treaty, or US or Croatia 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

Israel Real Estate Tax Appeals – Ruling on luxury apartments

24 November 2022 4:36 pm Leave a Comment

Introduction

A new ruling was issued by Judge Yardena Seroussi in respect of an appeal to the Real Estate Tax Appeals Committee. The ruling concerned how luxury apartments should be taxed.

Israel Real Estate Tax Appeal – The facts of the case

The Appeals Committee considered whether a land appreciation tax exemption should be granted to several sellers during the sale of a luxury apartment.

It was claimed by the vendors that they were entitled to the full sum of the maximum exemption for a single apartment prescribed by law.

However, the Israel Tax Authority held that the exemption applies only to sales of an entire apartment unit and not each share in a multiple ownership arrangement. Accordingly, it calculated its tax on the maximum exemption per seller—not according to their actual portion of ownership.

The owner of a single apartment is entitled to an exemption from land appreciation tax, up to the amount permitted by law.

At the moment, this amount stands at ILS 4.6 million.

It is worth noting in the case that:

the apartment sold for in excess of ILS 10 million;
the vendors were separate family units (a family unit consists of parents and children under 18 years of age); and
each of the two rights-holders in the apartment applied for an exemption at the full maximum sum.

The decision

The Israel Tax Authority had decided that the exemption was available in respect of the entire apartment rather than to each individual seller.

However, the Appeals Committee ruled that the exemption applied to the sale of a single apartment and therefore the exemption should be granted to each separate vendor.

This was on the basis that the sellers were not part of the same family unit

Is an appeal likely?

It seems quite likely the Israel Tax Authority will appeal this ruling.

If you have any queries about this Israel Real Estate Tax Appeal or Israel tax matters in general, then please do not hesitate to get in touch.

Will change in wind snuff out the Portuguese crypto tax beacon?

13 August 2022 5:13 pm Leave a Comment

Background

Back in May we set out the reasons why Portugal had become a beacon for crypto investors. However, in that very article, we raised the prospect that a mooted change in the winds might potentially snuff out that beacon.

The 2023 State Budget and Portugal Crypto tax

The ill wind stems from the publication of the 2023 State Budget document earlier in the week. It included a section in respect of the taxation of cryptocurrencies. Thus far, as can be gleaned from our previous article, profits have largely been untouched.

Instead, Portugal’s government is proposing a new 28% tax on capital gains from cryptocurrencies held for less than a year. This is consistent with the statements of the finance minister Mr Medina reported on this blog in May this year.

There is also a proposed income tax from other crypto activities such as mining or trading.

Other proposals include a 4% taxation fee on transfers of cryptocurrencies as a result of death plus stamp duties on commissions charged by crypto intermediaries.

Of course, Portugal’s parliament is still to have its say on whether these proposals are enacted.

Conclusion

Portugal will be aware that it is treading a fine line here. Portugal has become a magnet for crypto enthusiasts because of its benign tax position. Many such individuals are highly mobile and it might be that, if enacted, it causes a flight of crypto capital

If you have any queries about Portugal crypto tax changes, Portugal tax matters, or the matters discussed more generally, then please do not hesitate to get in touch.

For further resource on crypto assets please see www.cryptotaxdegens.com.

Cyprus Tax residency for individuals – an overview

24 May 2022 7:22 pm Leave a Comment

Introduction

This article provides a brief overview of Cyprus tax residency in relation to individuals, the implications of such a status and some of the practical considerations.

Cyprus tax residence – the general rule

Firstly, an individual who is present in Cyprus for 183 days will be resident for tax purposes in Cyprus.

Cyprus tax residence – ‘the 60-day rule’

In addition, one will also be resident for tax purposes in Cyprus under the so-called 60 day rules where each of the following is satisfied:

You remain in Cyprus for one or more periods totalling a minimum of 60 days;
You are not present in any other state for a total of over 183 days;
You are not resident for tax purpose in any other state for the same tax year;
You have some relevant activity in Cyprus, specifically that:
- You operate a business in Cyprus;
- are employed in Cyprus; or
- hold a position in a company that is tax resident in Cyprus; and
You maintain a permanent residence in Cyprus (either owned or rented).

Tax residency and Cyprus personal taxes

Cyprus personal income tax is imposed on the worldwide income of individuals that are resident for tax purposes in Cyprus.

However, income from dividends and (most types of) interest income that is received by individuals are exempt from personal income tax

From 16 July 2015, individuals are subject to Special Defence Contribution on dividends and interest income where the person is both both Cyprus tax resident and Cyprus domiciled.

Capital gains are also not usually taxable in Cyprus unless they have arisen in respect of Cyprus situs immovable property

Individuals who are not tax residents of Cyprus are taxed only on certain types of income accrued or derived from sources in Cyprus.

Cyprus tax residency – practical considerations

In order to obtain a certificate of tax residence, all supporting documents must be submitted to the Tax Department of Cyprus. These docs must be stamped.

If the documents are in any other language than English or Greek then they must be translated.

If an individual is considering relocating to Cyprus, expert advice should be taken with respect to Cypriot as well as cross-border tax implications arising from the relocation.

If you have any queries about this article, tax residency in Cyprus, or tax matters more generally, then please do not hesitate to get in touch.

Crypto tax Ireland – Buying and selling crypto

17 May 2022 7:18 pm Leave a Comment

Introduction – crypto tax Ireland

Like most jurisdictions around the world, there are no specific tax rules that apply to the buying and selling crypto assets in Ireland.

Therefore, like those other jurisdictions, the tax position on the sale of crypto assets will be subject to general Irish tax law principles.

In addition, the Irish Revenue has also issued guidance in some particular areas.

This article will mainly discuss cryptocurrencies – such as bitcoin, Ethereum and Dogecoin. The position for non-fungible tokens (“NFTS”) and other digital assets might differ.

Buying cryptocurrency

As one might surmise, the purchase of cryptocurrency is unlikely to give rise to any direct tax implications. For instance, there is no stamp duty on crypto assets (as there might be on the purchase of shares, for instance). Further, it is unlikely there will be any VAT implications where we are looking at an investor or trader buying and selling crypto-assets.

However, the purchase of the cryptocurrency will be relevant for determining the base cost of the crypto when the investor decides to sell the assets.

Sale of crypto-assets by individuals

General

The Irish tax position will depend on the Irish residence position of our crypto-investor. Specifically, whether they are:

Resident for tax purposes in Ireland; or
They are not resident for tax purposes in Ireland

Irish resident individuals selling cryptocurrency

If an Irish resident individual sells such an asset at a gain then it will usually be subject to capital gains tax. This is currently 33%.

Where the disposal results in a loss, then this capital loss can generally be:

Used in the current year against other gains; or
Carried forward to future years

The position is slightly different if the person is carrying on a ‘trade’ of dealing in crypto. Here, any profit on the sale of crypto would be subject to income tax. Marginal income tax rates of up to 55% – where one includes social charges – might therefore be payable.

It is worth noting that a trading classification is only likely in exceptional cases with the trading needing to be carried out in a deliberate and commercial fashion.

Non-resident individual

A non-Irish resident individual (who is also non-ordinarily resident) is liable to Irish CGT on gains arising in Ireland from the disposal of Irish ‘specified’ assets only (e.g. land and buildings in Ireland). As such, crypto gains should not be taxable.

Sale of crypto-assets by Companies

An Irish resident company that disposes of crypto at a gain will be subject to capital gains tax at 33%. Similarly, losses will also be treated in the same way as set out above for individuals.

Where such a company conducts a ‘trade’ of dealing in crypto, then it’s profits will generally be subject to corporation tax at 12.5%.

Again, the threshold at which activities might be considered a trade is a high one. However, it is generally thought that a company might satisfy this more easily than an individual.

Mining cryptocurrencies

General

The Irish Revenue has not provided any guidance on the position when it comes to the mining of cryptocurrencies.

If they follow the UK tax authorities position on the same activity, then the treatment will depend on whether:

The person is conducting a trade of mining crypto; or
The person’s activities fall short of a trade

Trade

Here, the person will be taxable on the trading profits generated from the mining activities.

A company will pay tax at 12.5% but an individual will be subject to tax at their marginal rates.

No trade

Where the activities fall short of a trade, then the income received by the person will be treated as ‘miscellaneous’ income.

Miscellaneous income tends to qualify for fewer reliefs than trading income.