In Focus – A Look Forward: 2021 Tax Changes Impacting Global Portfolio Investors

January 29, 2021
In this edition of In Focus, we provide a comprehensive list and breakdown of local law changes impacting tax rates, documentation, and market procedures, as well as newly ratified Double Taxation Avoidance Treaties (DTAT) and protocols that result in a tax rate impact to our clients.

A Look Forward: 2021 Tax Changes Impacting Global Portfolio Investors

The COVID-19 global pandemic resulted in a marked reduction in the introduction of new tax laws and the entry into force of Double Avoidance Tax Treaties (DTATs). Despite the lower volume, major tax changes are pending to take effect or took effect on January 1, 2021. In this edition of In Focus, we provide a comprehensive list and breakdown of local law changes impacting tax rates, documentation, and market procedures, as well as newly ratified DTATs and protocols that result in a tax rate impact to our clients.

Local Law Tax Changes

Cambodia (Status: Postponed)

Cambodia introduced a 20 percent Capital Gains Tax (CGT), the application of this new tax has been postponed to January 1, 2022.

Investor Impact: Investors should be aware of the newly introduced 20 percent CGT, which is scheduled to go into effect on January 1, 2022.

Chile (Status: Effective)

Resolution 151 simplifies the requirements for Certificates of Residence (CoRs) used to access DTAT benefits and the First Category tax credit under Chilean law. Resolution 151 allows for the use of digital copies of a CoR, provided its authenticity can be verified. Further, the Resolution clarifies that a CoR’s validity will be established upon the language within the CoR, if no language, the CoR will be considered valid until the last day of the year in which it was issued (December 31st).

Investor Impact: Investors into Chile should be aware of the changes to the CoR requirements.

Colombia (Status: Effective)

In Colombia, taxable dividends are subject to 25 percent tax and non-taxable dividends are not subject to tax.

Decree 1475 simplifies the withholding tax process in Colombia setting out that dividends:

  • Paid from profits in years prior to 2016 are not subject to an additional withholding tax; and
  • Paid from profits from 2017 are subject to an additional 10 percent withholding tax.

Where an issuing company withholds the corporate tax of 25 percent prior to the distribution, the dividend is considered non-taxable. The additional 10 percent withholding tax is applied after the corporate tax has been deducted, resulting in a blended rate of 32.5 percent.

Investor Impact: Nonresident investors should be aware of the change to the dividends withholding tax process.

Croatia (Status: Effective)

The Croatian Parliament adopted amendments to the Corporate and Personal Income Tax Acts which reduced the statutory dividend withholding tax rate for nonresident investors from 12 percent to 10 percent. The Capital Gains Tax (CGT) rate for nonresident individual investors decreased from 12 percent to 10 percent.

Investor Impact: Nonresident investors should be aware of the decreased statutory rate applicable to dividend withholding and nonresident individual investors should be aware of the decreased rate to CGT.

Cyprus (Status: Pending)

The Draft Budgetary Plan included provisions to fight tax evasion by introducing a statutory withholding tax on dividend and interest payments made to non-resident investors located in a jurisdiction listed on the European Union’s (E.U.’s) list of non-cooperative jurisdictions on tax matters.  

Investor Impact: Nonresident investors located in a jurisdiction listed on the E.U.’s list of non-cooperative jurisdictions on tax matters should be aware of the proposed introduction of a statutory withholding tax on Cypriot dividend and interest payments.

Czech Republic (Status: Partially Effective/Partially Postponed)

In order to align taxation of nonresident and resident investors, interest from coupon bearing Czech Eurobonds issued after January 1, 2022 will be subject to a 35 percent statutory withholding tax, subject to reduction pursuant to an applicable DTAT with the Czech Republic. 

Interest from government bonds issued on or after January 1, 2021 by the Czech Republic or by an E.U. or European Economic Area (EEA) member state will be exempt from withholding tax.

Income from zero coupon bonds (issued at a discount), will not be subject to withholding tax, rather, investors will need to self-assess tax based on the difference between the face value and the acquisition price of the bond and remit the tax by filing an annual Czech income tax return. In cases where the bondholder is not a resident of an E.U. or EEA member state, upon maturity of the bond, the issuer will be obligated to withhold a 1 percent advance tax based on the face value of the bond, subject to reduction pursuant to a DTAT with the Czech Republic. The advance tax can offset the final tax liability as declared on the annual Czech income tax return.

Investor Impact: Amendments to tax laws implement a withholding tax on interest from Czech Eurobonds and exemption on interest from Czech and E.U./EEA issued government bonds. 

E.U. Member States (Status: Effective)

The Directive on Administrative Cooperation (DAC6) became effective on July 1, 2021 with the reporting period beginning January 1, 2021 for most E.U. member states (Austria, Finland, and Germany required reporting in 2020). The first reports will become due as early as January 31, 2021 covering cross-border arrangements that meet certain specified hallmarks as set out in DAC6 and were identified between July 1, 2020 and January 1, 2021.  Reporting for arrangements identified between June 25, 2018 and July 1, 2020, “historical arrangements,” are due February 28, 2021.

Investor Impact: Investors with E.U. nexus should be aware of any reporting obligations under DAC6.

E.U. Member States (Status: Effective)

The Directive on Administrative Cooperation (DAC6) became effective on July 1, 2021 with the reporting period beginning January 1, 2021 for most E.U. member states (Austria, Finland, and Germany required reporting in 2020). The first reports will become due as early as January 31, 2021 covering cross-border arrangements that meet certain specified hallmarks as set out in DAC6 and were identified between July 1, 2020 and January 1, 2021.  Reporting for arrangements identified between June 25, 2018 and July 1, 2020, “historical arrangements,” are due February 28, 2021.

Investor Impact: Investors with E.U. nexus should be aware of any reporting obligations under DAC6.

Finland (Status: Effective)

The statutory rate for undisclosed nonresident investors increased from 30 percent to 35 percent.

Investor Impact: Nonresident investors should be aware of the increased statutory withholding tax rate.

Brown Brothers Harriman & Co. (BBH) continues to evaluate its position on becoming an Authorized Intermediary in Finland. In the interim, all dividends will be subject to a 35 percent withholding tax at the time of payment. BBH will continue to facilitate standard tax reclaims for treaty and local law exemption eligible clients. Please note that intermediary clients that have not confirmed that there are no Finnish Resident Investors in their accounts, will be subject to a 50 percent withholding tax rate until such confirmation is made by submitting the Non-Resident Certification for Finland. Impacted intermediary clients should be in receipt of the Non-Resident Certification for Finland.  

France (Status: Effective)

The French Finance Law 2018 reduced the statutory withholding tax rate for dividends paid to nonresident non-individual beneficial owners from 28 percent to 26.5 percent effective January 1, 2021.

Investor Impact: Non-individual investors should be aware that French Finance Law 2018 reduced the statutory dividend withholding tax rate.  

Indonesia (Status: Effective)

The Indonesian government has passed new stamp duty laws which (1) increase the stamp duty rate from the current Indonesian rupiah (IDR) 3,000 and IDR 6,000 to IDR 10,000 and (2) provide a list of documents which are chargeable to stamp duty and a list of stamp duty exempt documents.

Investor Impact: The stamp duty rate will increase, and the scope of chargeable documents will expand.

Italy (Status: Effective)

Budget Law 2021 was published in the Official Gazette and became effective on January 1, 2021. The Budget Law introduces a dividend withholding exemption for collective investment funds who comply with Directive 2009/65/EC Undertakings for Collective Investment in Transferable Securities (UCITS) IV Directive. If the fund is not compliant with the UCITS IV Directive, then the fund manager would need to be subject to supervision pursuant to Directive 2011/61/EU Alternative Investment Fund Manager Directive (AIFMD).

The new law also introduces a CGT exemption for collective investment funds that previously did not qualify for the CGT exemption due to  the “significant holding threshold.”  A significant equity holding is defined as two percent of the voting rights or five percent of the stock capital of a listed Italian company; and 20 percent of the voting rights or 25 percent of the stock capital of an unlisted company.

Investor Impact: The Budget Law for 2021 introduces a dividend withholding tax and CGT exemption for certain collective investment funds.

Japan (Status: Effective)

A foreign tax deduction has been introduced which applies to tax withheld on dividends paid by Japanese Exchange Traded Funds (ETFs) investing in foreign stocks and Japanese Real Estate Investment Trusts (REITs) investing in overseas real estate.

The dividend withholding tax would be reduced by the amount of tax incurred by the ETFs and REITs investing in foreign countries. This will be in the form of a tax credit based on a formula consisting of a number of factors which include the foreign tax rate and the foreign asset ratio. 

Investor Impact: The foreign tax credit deduction would reduce the effective withholding tax rate on dividends paid by certain Japanese ETFs and REITs.

Japan (Status: Proposed)

As part of the 2021 tax reform proposals electronic submission of documentation supporting withholding tax relief under DTATs and with respect to interest on Japanese Government Bonds and corporate bonds under J-BEIM will be accepted.

Investor Impact: If passed, electronic submission of documentation for obtaining withholding tax relief will be accepted in Japan.

Nigeria (Effective)

The Federal Inland Revenue Service in Nigeria has announced that the stamp duty tax rate on securities transactions will be increased to 0.08 percent from the current rate of 0.075 percent. The new rate became effective on December 7, 2020. Members of the Nigerian Stock Exchange are currently incorporating the new rate into their systems to comply with the effective date.

Investor Impact: Nonresident investors will be subject to the increased stamp duty tax rate on securities transactions.

Russia (Effective)

A 30 percent interest rate applicable to nonresident individuals investing in Russian government bonds.

Investor Impact: Nonresident individuals should be aware of the interest rate change. Institutional investors continue to be eligible for the local law exemption on interest from government bonds, however, in order to facilitate the exemption for institutional investors, a Russia Side Letter would need to be on file with BBH.  

Spain (Status: Passed*)

Spain intends to implement a Financial Transaction Tax of 0.2 percent (subject to certain exemptions) on acquisitions of shares issued by Spanish companies with a market capitalization exceeding Euro 1 billion that are admitted to trade on the Spanish market or a regulated foreign market. The Financial Transaction Tax will become effective January 16, 2021.

*The initial Financial Transaction Tax declaration and payment has been postponed to April 2021. The April declaration and payment needs to cover tax accrued from January 16, 2021 to March 31, 2021. Investors would need to submit three declarations in April covering transactions that took place in January, February, and March.

Investor Impact: Acquisitions of shares issued by Spanish companies with a stock market capitalization of at least EUR 1 billion will be subject to a 0.2 percent tax, subject to certain exemptions.

South Korea (Status: Effective)

On January 1, 2021, the Securities Transaction Tax reduced by 0.02 percent for trades conducted and settled on the KOSPI, KOSDAQ and Over The Counter (OTC) markets. The new rates are:

  • KOPSI/KOSDAQ and K-OTC 0.23 percent
  • OTC 0.43 percent

Investor Impact: Investors conducting trades in South Korea should be aware of the new Securities Transaction Tax rates.

United Kingdom/E.U. Member States (Status: Effective)

On December 31, 2020 the transition period for the United Kingdom’s (U.K.’s) withdrawal from the E.U. ended. Domestic withholding exemptions and reductions previously extended by E.U. member states to U.K. domiciled investors may no longer be available. Such investors should consider whether they are eligible to obtain withholding tax relief through other domestic exemptions or the U.K.’s DTAT network and (where required) ensure proper documentation is on file to obtain the applied for relief.

Investor Impact: U.K. domiciled investors investing into the E.U. should be aware of the requirements for obtaining withholding tax relief and ensure the appropriate documentation is on file. 


Table showing dividend rates, interest rates, capital gains rates for contracting countries and the impact for investors

1Governments and central banks of the contracting states.
2Loans guaranteed by governments and/or central banks of the contracting states.
3Pension funds.
4Interest paid on any loan granted by a collective investment vehicle.
5Indebtedness due to the sale of equipment, merchandise, or services.
6Loan or credit granted by a bank
7Loan granted by a financial institution for a minimum of three years to finance investment projects.
8Gains from the sale of shares other than those on a recognized stock exchange.
9Gain from sale of shares in a company resident in the contracting jurisdiction.
10Gains derived from real property.
11Gains from the sale of shares of which principally consists of real property.
12Gains from the sale of shares which derive 50 percent or more of their income from real property and are not listed on a recognized exchange.
13Gains from the sale of shares which derive 50 percent or more value directly or indirectly from real property in the contracting state.
14Gains derived from the sale of shares which derive 50 percent of its value from real property during the prior year.
15Gains from the sale of shares which derive 75 percent or more of their value from real
property and not traded on a recognized stock exchange.
16Investor holds 25 percent of the paying company.
17Investor is a company, other than a partnership, which holds at least 10 percent of the paying company in the prior year.
18Investor is a company, other than a partnership, which holds at least 15 percent of the paying company.
19Investor is a company, other than a partnership, which holds at least 25 percent of the paying company for the 365-day period prior.
20Investor is a company, other than a partnership, which holds at least 20 percent of the paying company for the 365-day period prior (including dividend payment date).
21Investor is a company, other than a partnership, which holds at least 10 percent of the paying company.
22Investor is a company.
23Beneficial owner has directly invested in the capital of the company paying the dividends the equivalent of at least 100,000 euro.
24Non-individual residents of the contracting countries.
25Dividends paid by a Kosovan company to a Saudi Arabian resident.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2021. All rights reserved. IS-06994-2021-01-27

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