A LOOK INTO 2018
The following includes local law changes impacting tax rates, documentation and market procedures; and newly ratified tax treaties that resulted in a tax rate impact to our clients.
Local Law Changes
- Pursuant to the Argentine tax reform, the corporate tax rate has decreased from 35 percent to 30 percent for the period between January 1, 2018 and December 31, 2019.
- Another reduction to 25 percent will take effect on January 1, 2020.
- The reform establishes a dividend withholding tax rate of 7 percent on distributions from profits earned during fiscal years 2018 and 2019. The withholding tax rate will increase to 13 percent for distributions out of profits accrued for fiscal year January 1, 2020 and onwards.
- Nonresident investors are exempt from capital gains taxation on the sale of publicly traded shares, traded on stock exchanges which are under the supervision of the Argentine Securities and Exchange Commission.
- A tax exemption on interest income and gains from the sale debt securities issued by the National government, provinces and City of Argentina, corporate debt, securities issued by financial trusts, mutual funds, and share certificates issued abroad (i.e. ADRs).
- The capital gains tax exemption also extends to trades executed between September 23, 2013 and the date upon which the law became effective.
- Treasury bills issued by the Central Bank (LEBACS) are subject to a 5 percent capital gains tax on the profit.
- The tax haven jurisdictions list has been expanded to include countries which do not have an adequate Exchange of Information Agreement or a Double Taxation Avoidance Treaty in force with Argentina.
INVESTOR IMPACT: Investors should be aware of the changes related to both dividend withholding tax and capital gains tax on the sale of equities, corporate and certain government debt and ADRs.
BELGIUM (Parliament approved – pending publication in official gazette)
- Implementation of a 0.15 percent subscription tax on securities accounts where the total assets in the account exceed euro (EUR) 500,000 in listed securities.
- The tax will be applied by financial institutions.
- Pensions and life insurance schemes will not be subject to the subscription tax.
- Increase of the stock exchange transaction tax rate from 0.09 percent on bonds and 0.27 percent on stock to 0.12 and 0.35 percent respectively. The tax applies to the sale, purchase, and exchange of listed or unlisted Belgian or foreign securities.
- Introduction of a withholding tax on capital decreases in proportion to the company’s reserves available for distribution.
- Income distributions made by contractual funds (e.g. FCPs) become taxable, regardless of the type of income being distributed.
- Extension of the scope of the Belgian Savings Tax to all funds investing in debt receivables. Funds would need to have their Belgian taxable income per share or an asset ratio available in order to avoid Belgian individual investors being taxed on the full amount of capital gain realized on their fund investments
INVESTOR IMPACT: Nonresidents should be aware of the guidelines for the Belgian Tax Reform package.
- Proposal to introduce an at source withholding tax regime (2019)
- Proposal for a withholding tax exemption on dividend income paid by Danish equity based mutual funds (2019).
INVESTOR IMPACT: If the proposal passes, treaty eligible nonresident investors may be required to provide documentation to support at source benefits.
- The following new procedures proposed for nominee accounts, which may require disclosure and documentation:
- Abolition of the current process of relief at source for investors eligible for withholding tax rates between 15 and 29 percent, without providing a full beneficial owner disclosure.
- Undisclosed investors would be subject to a 50 percent withholding tax rate.
- Beneficial owners disclosed as Finnish residents, would be subject to a 50 percent withholding tax. In practice, however, Finnish investors are required to maintain accounts registered in their own name.
- If the nonresident investor’s country of residence is disclosed, but the beneficial owner details are not disclosed, then a 35 percent withholding tax rate would apply.
INVESTOR IMPACT: Nonresident investors maintaining nominee account in Finland, may be required to provide documentation and certain disclosures.
- Introduction of a dividend withholding tax relief at source mechanism for qualifying nonresident investment funds.
- The German Federal Tax Office has issued the application form and guidance for the fund status certificate (Statusbescheinigung).
INVESTOR IMPACT: The fund status certificate allows qualifying nonresident investment funds, regardless of whether they have German investors or treaty status, to obtain dividend withholding tax relief at source effective January 1, 2018, rather than under the present German regime through reclaim only. The fund status certificate is valid for 3 years from the date stated on the certificate.
- Inland Revenue issued clarifications on validity of foreign certificate of residency (CoRs.)
- A CoR issued in electronic format must be verifiable: (i) an original stamp or signature of the officer issuing the CoR on the document; (ii) validity of the CoR can be corroborated directly on the foreign tax authority’s website.
- CoRs issued on paper form must be submitted in original copy with a stamp and wet ink signature.
- All CoRs must contain the following:
- CoR must contain the date of issuance.
- CoR must contain conditions under which the tax relief is requesting, including a reference to the treaty and the article under which relief is being sought.
- CoR must contain the fiscal year in which such conditions are met.
- U.S. CoRs will continue to be acceptable pursuant to an agreement between the two countries.
INVESTOR IMPACT: U.S. investors are not impacted by this change. Investors domiciled in all other countries are encouraged to review their CoRs prior for submission for renewal.
- A 23 percent withholding tax on interest payments from short term government bonds, gains derived from the sale of government bonds, and on distributions from Israeli Real Estate Investment Trust (REITs), subject to reduction pursuant to an applicable tax treaty.
- Distributions from Israeli REITs and capital gains resulting from the sale of REIT shares are not eligible for reduced tax rates pursuant to a tax treaty with Israel. The 23 percent corporate income tax rate would apply.
INVESTOR IMPACT: Nonresidents investors are subject to a reduced withholding tax rate on interest from certain bonds, on gains derived from the sale of government bonds and on distributions from REITs.
- Reduction of the withholding tax rate applicable to dividend and interest income paid to nonresident investors from designated Special Economic Zone (SEZ) enterprises, as follows:
- Reduction of the withholding tax rate applicable to interest paid by SEZs to nonresident investors to five percent.
- Dividends paid by SEZs to nonresident investors are exempt from withholding tax.
- An SEZ enterprise is an enterprise operation in a specified designated geographical area where business enabling policies, integrated land uses and sector-appropriate infrastructure and utilities are provided, (or which have the potential to be developed) whether on a public, private or public-private partnership basis. A list of SEZ enterprises has not yet been made publicly available.
INVESTOR IMPACT: Nonresidents investing in designated SEZ enterprises can avail of reduced withholding tax rates.
- Investors domiciled in countries on Latvia’s Tax Haven list and undisclosed investors are subject to an increased dividend and interest withholding tax rate of 20 percent, up from the previous 15 percent.
- Nonresident individuals are subject to an increased capital gains tax rate of 20 percent.
- Withholding tax rate on the sale of real estate or shares in a company whose assets comprise, directly or indirectly of more than 50 percent of Latvian real estate increases from 2 percent to 3 percent.
INVESTOR IMPACT: Nonresidents domiciled in countries that are on Latvia’s tax haven list are subject to an increased dividend and interest withholding tax rate. Nonresident individuals are subject to an increased capital gains tax rate.
- The Tax Administration Act and its regulations which came into effect on January 1, 2017 resulted in new documentation requirements with effect from January 1, 2019, after a one year postponement was granted.
- The following documentation will be required for all treaty eligible investors and European Economic Area (EEA) local law exemption eligible investors:
- Certificate of residency (CoR) confirming that the beneficial owner is resident of its country of domicile pursuant to the DTAT with Norway.
- The CoR will be valid for a period of three years.
- Confirmation from the dividend recipient that they are the beneficial owner of the income.
- Treaty and exemption eligible institutional investors will need to obtain an Approval Letter from the Norwegian Tax Authorities confirming that a reclaim was previously paid out by the Norwegian Tax Authorities (or) a confirmation that the investor is eligible to avail of a reduced withholding tax rate under a tax treaty with Norway or the local law exemption.
- EEA exemption eligible institutional investors will also need to provide a confirmation every three years that there are no changes to their exempt status since the Norwegian Tax Authorities confirmed its exempt status.
- Luxembourg SICAVs can continue to avail of the EEA local law exemption at source by providing proper documentation, without seeking prior approval from the Norwegian Tax Authorities.
- US regulated investment companies (RICs) are not deemed treaty eligible investors and therefore are not impacted by these changes.
INVESTOR IMPACT: Impacted investor have been contacted and requested to complete a Norwegian Pre-Approval application. Once the Norwegian Tax Authorities (NTA) confirm approval, additional documentation will be required to secure relief at source.
Luxembourg SICAVs do not need to obtain a pre-approval from the NTA and can secure relief at source with documentation.
U.S. RICs are not deemed treaty eligible in Norway and are therefore not impacted by this development. BBH will continue to file tax reclaims on behalf of its US RIC clients to protect the statute of limitations on filing claims in Norway, in case the tax treaty should be renegotiated by the tax authorities.
- Nonresident investors domiciled in countries on Poland’s Tax Haven List, are subject to a 19 percent capital gains tax on disposition, redemption or exchange of Polish equities.
- The obligation to withhold is understood to be with the trade counterpart resident in tax haven countries.
INVESTOR IMPACT: Capital gains tax due on to nonresident institutional investor domiciled in a country on Poland’s tax haven list, are subject to a 19 percent tax.
- Income derived from the indirect transfer of immovable property located in Portugal, through a transfer of foreign shares will be subject to tax.
- Transfer of such shares would be taxable if at any time during the 365 days preceding such transfer, more than 50 percent of the value of the shares was derived directly or indirectly, through one or more entity, from immovable property located in Portugal.
- If the amendment passes, nonresident institutional and individual investors would become liable to tax on the sale of shares in foreign companies that hold, directly or indirectly, a significant interest in immovable property in Portugal.
- Portuguese subcustodians do not act as withholding agents with respect to income derived from the transfer of shares.
- Isle of Man, Jersey and Uruguay are added back to Portugal’s tax haven list, thereby subjecting investor domiciled in these jurisdictions to the higher statutory withholding tax rate of 35 percent.
INVESTOR IMPACT: Nonresidents selling shares in foreign companies that hold, directly or indirectly, a significant interest in Portuguese Immovable property, may become subject to taxation.
- The capital gains tax rate applicable to nonresident and resident individual investors will decrease from the current rate of 16 percent to 10 percent.
- The local subcustodians do not calculate or withhold capital gains taxes. As such, nonresident investors should be registered in Romania for capital gains tax purposes and a local representative should be appointed.
INVESTOR IMPACT: Individuals investors can avail of reduced capital gains tax rate on disposition of Romanian securities.
- Nonresident investors domiciled in countries that are not on Slovakia’s white list, are subject to a 35 percent dividend withholding tax rate on distributions out of 2017 profits, that are made in 2018.
- Nonresident institutional investors domiciled in countries on the white list will continue to avail of a dividend withholding tax exemption.
- Nonresident individual investors domiciled in countries on the white list will be subject to a seven percent dividend withholding tax rate.
- In order to avail of the dividend withholding tax exemption, eligible investors must provide a Certificate of Tax Residency (CoR) for the respective year.
- The CoR will be presented to the issuer. Issuers may request additional documentation at their discretion.
INVESTOR IMPACT: Nonresident investors domiciled in countries on Slovakia’s Whit List must provide documentation to support the local law dividend withholding tax exemption.
- Pursuant to recently issued clarifications by the Slovenian Tax Authorities, investors that are not subject to tax in their country of domicile, can avail of a withholding tax exemption on Slovenian dividend income.
- In order to avail of the exemption, investors must provide a statement confirming that they are not subject to tax in their country of domicile, signed by the fund asset manager or by the investment/pension fund. Such statement is valid for three years from date of issuance.
- The exemption is available at source, via quick refund or standard reclaim and is effective immediately.
- Qualifying investor may file reclaims for tax withheld on prior payments, provided the reclaim is filed within 5 years from payment date.
INVESTOR IMPACT: Nonresident tax-exempt investors may avail of a dividend withholding tax exemption at source with proper documentation.
SOUTH KOREA (July 1, 2018)
- Nonresidents that hold 5 percent or more of a listed South Korean company would be subject to capital gains taxation.
- Currently, nonresident investors that hold 25 percent or less of the capital of a listed company, are exempt from capital gains taxation on disposition of listed shares.
- The legislative amendment will become effective when officially announced by the National Tax Service.
INVESTOR IMPACT: Nonresident investors that hold 5 percent or more of the shares of a South Korean company may be subject to capital gains taxation.
- Withholding tax rate on dividends and interest from corporate bonds increased from 10 percent to 14 percent.
- Interest from government bonds is exempt from withholding tax.
INVESTOR IMPACT: Nonresident investors are subject to increased withholding tax rates on dividend and interest from corporate bonds, and will avail of an exemption on interest from government bonds.
- A dividend withholding tax rate increased from 20 percent to 21 percent.
- This rate may be further reduced pursuant to a tax treaty with Taiwan.
INVESTOR IMPACT: Nonresidents investing in Taiwanese equities are subject to an increased dividend withholding tax rate
- Nonresident investors are subject to a 10 percent withholding tax rate on dividend income, an increase from the previous 5 percent rate.
INVESTOR IMPACT: Nonresidents investing in Taiwanese equities are subject to an increased dividend withholding tax rate.
TAX TREATY CHANGES
Note: The list of treaties provided below does not cover all treaty changes that become effective on January 1, 2018, but only those that resulted in a significant tax rate impact to investors domiciled in one or both of the contracting counties.
For more information please contact your relationship manager or Global Tax Services.
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IS-03597-2018-01-16 Expires 1/2020