Global Tax and Regulatory Update: November 2018

This month’s update covers important updates from Costa Rica to Norway.

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  Costa Rica: Update to Salary Tax Brackets

On October 1, 2018, the brackets for salary tax for the fiscal year 2018 – 2019 were published in the Official Gazette.

Income Bands (CRC) Rates (%)
0 – 817,000 0%
817,001 – 1,226,000 10%
1,226,001 – up 15%

Our Global Compliance Network Law Firm Dentos Muñoz in Costa Rica would be happy to provide you with more information. For any further information feel free to reach out to Anna Karina Jiménez annakarina.jimenez@dentons.com

Shareworks Global Compliance comment
We are happy to assist, should you have any query regarding this change.

  Ireland: Tax Measures 2019

Many changes are expected in Ireland from a tax perspective in 2019. This includes changes in the bands and/or rates of:

  • The Universal Social Charge (USC)
  • Income tax
  • Employer Pay Related Social Insurance (Employer’s PRSI)
  • An incentive for share based remuneration scheme KEEP
  • New PAYE for Employers

I. Universal Social Charge

The bands and rates of the USC with effect from January 1, 2019 will be:

Bands (EUR) Rates
0 -12,012 0.5%
12,012.01 – 19,874 2%
12,874.01 – 70,044 4.5%
70,044 – up 8%

* Please note that incomes of EUR 13,000 or less are exempt from USC

II. Income Tax

The new tax bands and rates for income tax for a single person from January 1, 2019 will be:

Bands (EUR) Rates
0 – 35,300 20%
35,300.01 – up 40%

III. Employer’s PRSI

The weekly income for the low rate of Employer’s PRSI is expected to increase from EUR 376 to EUR 386. The new bands are expected to be as follows on January 1, 2019:

Bands (EUR) Rates
0 – 386 8.7%
386.01 – up 10.95%

* The employee rate of PRSI remains at 4% where the weekly earnings exceed EUR 352

IV. Key Employee Engagement Programme (KEEP)

KEEP is a share option incentive scheme aimed at small growing companies. With an intention of increasing the attractiveness of KEEP to SMEs, The Irish Government has introduced three measures in its 2019 Budget. The measures are:

  • Increase the ceiling on maximum annual market value of shares that may be awarded to equal the amount of the salary (up from 50%);
  • Replace the three-year limit with a lifetime limit; and
  • Increase the quantum of share options that can be granted under the scheme from EUR 250,000 to EUR 300,000.

V. New PAYE for Employers

A new PAYE regime for employers will be introduced from January 1, 2019. This involves the online reporting of payroll information to the Revenue on or before the employees are paid. Deductions of income tax, USC, PRSI and the local property tax shall be duly made by employers and details of the deductions will be notified to the Revenue on a monthly basis. The Revenue Payroll Notification (RPN) will replace the current tax credit certificate. Employers are required to register existing employees online for this new regime by October 31, 2018.

Our Global Compliance Network Law Firm in Ireland, McCann FitzGerald, would be happy to provide you with more information. For any further information feel free to reach out to Eleanor Cunningham at eleanor.cunningham@mccannfitzgerald.com and Michael Ryan at michael.ryan@mccannfitzgerald.com

Shareworks Global Compliance comment

We recommend companies review and adjust accordingly when changes become effective.

  Netherlands: Tax Plan 2019

On September 18, 2018 – Budget Day (in Dutch: Prinsjesdag) – The Dutch government published its 2019 Tax Plan covering the Dutch government’s plans for the coming years. On October 15, 2018, the Dutch government sent a letter to parliament amending some of these tax plans. This summary highlights the main tax proposals relating to individuals taking into account the letter of October 15, 2018. Note that these proposals are subject to change as they still have to be adopted by the Dutch Parliament.

Currently in the Netherlands income from work and home (box 1) is subject to four progressive tax brackets with a maximum rate of 51.95%, including social security contributions. The figures of box 1 will slightly change in 2019, as follows:

Tax Brackets 2018 (EUR) Tax Brackets 2019 (EUR) Income Tax Rates 2018 Income Tax Rates 2019
0 – 20,142 0 – 20,384 36.55% 36.65%
20,143 – 33,994 20,385 – 34,300 40.85% 38.10%
33,995 – 68,507 34,301 – 68,507 40.85% 38.10%
68,508 – up 68,508 – up 51.95% 51.75%

Since these changes would primarily benefit the middle and upper incomes, by increasing the general tax credit and labour tax credit the lower incomes are granted a benefit as well.

In addition, the Dutch government proposes to replace the current four bracket system with a two-bracket system. This change should take effect from January 1, 2021. Income from work and home up to an amount of EUR 68,507 would then be subject to a 37.05% tax rate and the excess at a rate of 49.5% (these rates include social security contributions).

In the Netherlands, qualifying mortgage interest is deductible from taxable income in box 1, though not at the maximum available income tax rate of (currently) 51.95%. The maximum tax deduction is at a rate of 49.5% and was intended to decrease gradually 0.5% per annum to reach the level of the minimum tax rate by 2042. Under the proposals this decrease is accelerated to 3% a year to reach the minimum tax rate of 37.05% by 2023. The benefit of this for the government’s budget will partly be returned to house owners by means of reducing the taxable notional income on the value of their houses.

From January 1, 2020 the maximum tax benefit of certain personal tax credits available in box 1, such as entrepreneurs’ allowances, medical expenses and schooling expenses will be maximized at the above limited maximum rates as well.

As a result of these changes, income from work and home will be taxed at higher rates than available for deductions. Under current law, income realized, including dividends and capital gains, on qualifying shareholdings (generally a shareholding of 5% or more) is taxed at a rate of 25%. It has been proposed to increase the applicable income tax rate from 2020 to 26.25% and in 2021 to 26.90%.

The availability of the 30% tax treatment for qualifying expats is to be reduced from January 1, 2019 onwards. On Budget Day, it was proposed to reduce the maximum period of the 30% ruling from eight to five years from January 1, 2019 for new and existing cases. The related rules, such as the tax-free reimbursement of actual costs and the possibility to opt for the partial non-resident status, will be limited to a maximum of 5 years as well. The letter of October 15, 2018 announced that a grandfathering rule would be made available for expats with a 30% ruling that as a result of the reduction will ends in 2019 or 2020, the exact terms of which are yet to be determined.

Lastly, on Budget Day the Dutch government has initially announced plans to abolish dividend withholding tax (which is currently 15%) for companies and individual shareholders from January 1, 2020. Simultaneously anti-abuse legislation would be adopted, introducing a general withholding tax on certain payments of dividends, interest and royalties to tax havens. In the letter of October 15, 2018, the Dutch government has cancelled the proposal to abolish the dividend withholding tax. This may affect the introduction of the general withholding tax as well.

Our Global Compliance Network Law Firm Wieringa Advocaten in Netherlands would be happy to provide you with more information. For any further information feel free to reach out to Maartje Oliemans at oliemans@wieringa.nl and Erik Herkströter at herkstroter@wieringa.nl

Shareworks Global Compliance comment

Please contact us if you need guidance or assistance related to this particular scenario

  Norway: Budget Plan 2019

On October 8, 2018, the Government presented its proposal for the 2019 budget.

The proposal contains minor adjustments in the income tax rates. The largest change is the reduction in the net income tax rate from 23% to 22%. This applies to both individuals and corporations.

For wage earners, however, the rate reduction is partly offset by the proposed increase in the progressive rates. Thus, the marginal income tax rate on wage income has only been reduced with 0.2 – 0.5 % (depending on the income level). Further, the special shareholder tax rate which has been in place for some years now, is proposed to increase from 30.59% to 32.09%. This tax rate applies for individuals receiving dividends or realizing capital gains on shares (and similar instruments).

The government has not proposed any substantial changes to the tax rules relating to employee equity.

here is no certainty on whether any of the rate reduction proposals will be adopted or not.

Our Global Compliance Network Law Firm in Norway, Arntzen de Besche, would be happy to provide you with more information. For further assistance feel free to contact Marianne Sahl Sveen at mss@adeb.no and Eyvind Sandvik at eys@adeb.no

Shareworks Global Compliance comment

We recommend companies review and adjust accordingly when changes become effective.

  Vietnam: Tax Consequences for Employees

This month’s article of our series on Vietnam, provided by our collaborating Global Compliance Network Law Firm Russin & Vecchi, will discuss the tax consequences an employee faces under an employee share plan.Vietnam: Tax consequences for employees

Personal income tax

As personal income tax (“PIT”) is deferred on the sale of shares, whether from onshore or offshore shares, no tax is imposed on employees when the shares are granted or when they vest. According to the Law on Personal Income Tax No. 04/2007/QH12 (“Law on PIT”) dated November 21, 2007 (as amended by Law No. 26/2012/QH13 dated November 22, 2012 and Law No. 71/2014/QH13 dated November 26, 2014), when taken together, an employee who receives an award in the form of shares must pay two PIT components:

Value of awarded shares as recorded in the local employer’s accounting books (known as employment income): Progressive tax rates apply up to a maximum tax rate of 35% for income over VND 960 million per year

Transfer/sale price of awarded shares (known as securities income): The tax rate is 0.1% of the sale proceeds

PIT is payable at the time of transfer or sale of the shares following purchase/exercise/vesting.

Tax on dividends

According to Articles 3.3 and 23 of the Law on PIT, a 5% tax rate applies to dividends received by an employee from an offshore company in case the employee remits his/her money to purchase the shares, which is considered to be an offshore capital investment. If there is no remittance abroad by the employee, dividends paid on unvested awards would be considered to be general income of the employee and is taxed at normal progressive rates up to 35%.

If payment of dividends or proceeds from the sale of shares to employees is made through the local employer’s account, the local employer must withhold the employees’ personal income tax.

In every case, there is no social security charge on dividends or proceeds from a sale of shares.

Expatriates’ tax obligations

Since Circular No. 10 only applies to an employee share plan offering to Vietnamese employees rather than expatriates working in the local employer, an expatriate may participate in an employee share plan without the State Bank of Vietnam’s approval. It means that legally, expatriates participate in share plans individually if the parent offers expatriates directly and individually the right to participate in the share plan, or through the local employer. In this case there is no reason for the local employer to deduct employees’ salary to pay for the shares or to withhold personal income tax upon income that employees will receive from the dividends or the proceeds of offshore shares. If the share plan requires expatriates to pay for the shares, payment may be made:

Under a form by which the parent company deducts the expatriate employees’ salary —if the expatriate employees’ salary is paid directly by the parent; or

Under a form that the expatriate, individually, makes payment for the shares directly.

This is the last article on our special Vietnam series. We would like to thank our collaborating Global Compliance Network Law Firm Russin & Vecchi for providing us with the articles and their continuous support during many years. If you have any question on this topic, please feel free to reach out to our Vietnamese lawyer Diu Dao Hong dhdiu@russinvecchi.com.vn

Shareworks Global Compliance comment
We recommend companies consider offering cash-settled share plans. Please, contact us if you need assistance.

Partner Spotlight: Maartje Oliemans

Maartje Oliemans is a specialist at the interface of corporate law and employment law, specifically in employee participation schemes. She is a trusted advisor of companies and their directors, HR managers, works councils and supervisory boards. The core of her practice relates to contracting and cooperation in the broadest sense. She represents companies mainly in the IT, non-profit, retail and healthcare industry. Maartje advises and litigates about matters including reorganizations, partnerships, restructuring, working conditions, (European) employee participation, retirement, top income standardization, (directors) liability and contracts of various kinds, including shareholders agreements, business rental, social plans and service agreements.

Upcoming Filing and Reporting Deadlines

  Israel: Equity Reporting

November 9, 2018
Affects: Local company

For stock option, RSU, and ESPP grants under trustee and non-trustee plans in Israel, reports must be made quarterly to the Israeli tax authorities. At the end of each calendar quarter, the local affiliate or trustee, as applicable, must file Form 146 detailing the grants made during that quarter with the Israeli tax authorities.

Please note that while the Israeli tax authorities have indefinitely extended the deadline for these submissions until an electronic submission system is operable, some companies and trustees choose to make these reports in hard copy in the meantime.

Our collaborating law firm in Israel, Yair Benjamini Law Offices, is happy to assist, should you need any support with this.

  India: Indian Employer Tax Filings

January 15, 2019
Affects: Local company

Indian employers are required to file Form 24Q with the Indian tax authorities on a quarterly basis. The quarterly returns report information on employment income paid to employees (including from share-settled awards) as well as taxes withheld.

The quarterly returns must be submitted by:

  • Quarter ending March 31: May 31
  • Quarter ending June 30: July 31
  • Quarter ending September 30: October 31
  • Quarter ending December 31: January 31

Our collaborating law firm in India, Little & Co., is happy to assist, should you need any support with this.

  Thailand: Thai SEC Filing

January 15, 2019
Affects: Parent Company

The annual reporting deadline for companies that grant stock options to employees in Thailand is approaching. Companies must report any exercises of those options to the Thai SEC by January 15 following the year in which they were exercised.

Our collaborating law firm in Thailand, International Legal Counsellors Thailand Limited, is happy to assist, should you need any support with this.

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