What important legislative changes do you anticipate so far as they affect your advice to private clients?
Private Client (2nd edition)
The authors are not aware of any proposals to reform private client law in Israel.
Irish tax advice to private clients is subject to change following the publication of the annual Finance Bill in October of each year and the subsequent enactment of the annual Finance Act shortly thereafter.
The question of whether a central register of beneficial ownership for trusts will be established is also going to be very relevant.
Currently, the parliamentary process is ongoing to reform the Belgian Companies Code. In principle, this new code will enter into force on 1 May 2019.
The same goes for a reform of certain parts of the Civil Code, e.g. on property law and contract law, but the parliamentary process for these reforms has not advanced far enough yet to give a realistic indication of the date these reforms will enter into force.
On December 22, 2017, President Trump signed into law H.R. 1, a Congressional bill informally known as the “Tax Cuts and Jobs Act” (the Act), which represented the most significant overhaul to the US tax system in over 30 years. Generally, the provisions of the Act took effect for tax years beginning after December 31, 2017. Among other changes, the Act modified the individual income tax brackets, doubled the amount of the exclusions from gift, estate and generation-skipping transfer taxes, and limits individual income tax deductions for state and local taxes. These changes are effective until January 1, 2026, at which time the Act provides for a return to prior law. The above answers reflect the current state of the law under the Act.
Beginning January 3, 2019, the House of Representatives (the lower house of Congress) will be under the control of the Democratic Party; the Senate remains in the hands of the Republican Party. It is unlikely that significant further tax cuts will be enacted during that period of divided government, which should extend at least until January 3, 2021.
Cyprus has a modern, reliable legal framework for high net worth individuals to hold and manage their wealth and organise their affairs effectively. The only change to the law which is expected in the short- to medium-term is enactment of a law on foundations.
Currently there are no changes in the legislation in the area of private client advice.
The Corporate Income Taxation Act has been changed in order to implement the Anti-Tax Avoidance Directive (Council Directive (EU) 2016/1164 of 12 July 2016). The changes reflect the implementation of the rules on interest deduction limitation and controlled foreign companies. The changes will come into force as of 01.01.2019.
The codification of the conflict of law and jurisdiction rules following the recent enactment of the Code on Private International Law (Law no.1.448 of 28 June 2017, published in the Official Journal of Monaco on 7 July 2017) has a major impact on estate-planning.
There is currently growing consensus for the idea that cohabitation needs to be regulated. The current absence of legal provisions is clearly out-of-step with changing social realities and the consequent increasing frequency of cohabitation of both heterosexual and homosexual couples. New legislation is therefore currently under consideration which aims at filling such legal void.
Legislation is being considered to amend the provisions of the Civil Code relating to the judicial protection of adults who, by reason of an impairment or insufficiency of their personal faculties, are not in position to protect their interests. The new legal provisions aim at allowing individuals to make advance arrangements for their care and/or representation in the event of incapacity.
There has been a rumor that in the near future the Executive Branch may send a bill to the Congress to establish an inheritance/estate tax at a federal level. This rumor was especially strong when Law 27,260 was enacted introducing staggered modifications increasing the non-taxable minimum amounts and decreasing the rates of Personal Assets Tax, in a context where the Executive Branch was struggling to reduce the fiscal deficit. However, as mentioned in Question 4 above, the rates of Personal Asset Tax have been recently increased again and although the struggle to reduce fiscal deficit is still in the agenda, this rumor has been silenced.
Recently, the tax reporting obligations upon resident individuals in relation to non-resident trusts have been amended. Administrative guidelines have not been issued yet. The forthcoming release of such guidelines will hopefully provide useful clarifications on the scope and operation of the new reporting obligations for resident beneficiaries and settlors of non-resident trusts.
In line with many other British Overseas Territories and Crown Dependencies Bermuda is introducing economic substance legislation, further to an assessment by the EU Code of Conduct Group.
The Economic Substance Act 2018, which was tabled on 7 December 2018 and is due to come into force on 1 January 2019, sets out the requirements for companies carrying out certain activities in Bermuda to have a sufficient economic substance in Bermuda. The relevant activities are:
- fund management;
- distribution and service centre;
- intellectual property; and
- holding company
There are various criteria for such entities to satisfy, such as that core income generating activities are undertaken in Bermuda and the company has “adequate” premises and employees in Bermuda.
It is expected that many companies operating in Bermuda will already fulfil these criteria, due to compliance with the existing regulatory requirements.
Further details will be contained in regulations to be published by the Government are expected, however unlike similar legislation in other jurisdiction holding companies are not included in the list of relevant activities.
In addition, in October 2018 the Tax Reform Commission produced a report suggesting various changes to Bermuda’s tax system. However, if introduced these reforms will mainly impact Bermudian residents and should not have an impact on private clients who are looking to establish structures in Bermuda.
28.1 Amendments to the tax rates, bands, allowances and rules referred to above typically take effect from the beginning of each new tax year (§2.13), and so changes should be expected with effect from 6 April 2019. Details of some of these changes are set out in §2.
28.2 The UK proposes to extend from 6 April 2019 the scope of capital gains tax (§2.6; §8.3) to disposals (§2.8) by non-UK resident (§1.5-1.7) persons of non-residential real property situated in the UK, subject to the rebasing of such property as at that date. The proposals would also extend to disposals of substantial (i.e. 25% or more) interests in companies which derive at least 75% of their value from UK land, subject to exceptions where the land is used in a qualifying trade.
28.3 From 6 April 2019 Wales will have power to set different income tax rates from those applying in England.
28.4 By 10 January 2020 the UK is expected to incorporate into its domestic law the Fifth Anti-Money Laundering Directive of the European Union, which will significantly extend the disclosure requirements in respect of trusts (§19.2; 19.5).
Freedom of disposition of estate on death:
With the entry into force of Law 1934 of 2018, as of 1 January 2019 a person may freely dispose of half of their estate without being subject to forced heirship rules.
Colombian Tax Reform:
As of January 1st, 2019, with the entry into force of Law 1949 of 2018, the main aspects affecting private clients are:
Resident individuals are subject to Colombian income tax on their worldwide income and capital gains. Individuals are subject to a basket system, where income is categorized in different types of schedules:
1) General basket: Labour income, capital income and non-labour income;
3) Dividends and participations.
Taxable income is calculated independently in each basket and the applicable rates are the following:
The progressive income tax rates to resident individuals increased as follows:
Income per year
Applicable marginal tax rate
0 to 1090 Tax Value Units (Approx. USD 0 to 11.200).
1090 to 1700 Tax Value Units (Approx. USD 11.200 to 18.000).
1700 to 4100 Tax Value Units (Approx. USD 18.000 to 43.000).
4100 to 8670 Tax Value Units (Approx. USD 43.000 to 92.000).
8670 to 18970 Tax Value Units (Approx. USD 92.000 to 200.000).
18970 to 31000 Tax Value Units (Approx. USD 200.000 to 305.000).
31000 Tax Value Units onwards (Approx. USD 305.000 onwards).
Net Worth Tax:
As of January 1st, 2019, a net worth tax for FYs 2019 to 2021 is triggered on the possession of a net worth as of January 1st, 2019 equal to or in excess of COP $5.000.000.000 (Approx. USD 1.539.000).
This tax applies to individuals and foreign entities. In the case of resident individuals, this tax is based on worldwide assets and in the case of non-residents individuals and non-resident entities it is based on Colombian situs assets other than shares, accounts receivables and/or portfolio investments, for example real estate, aircrafts, yachts, boats, speedboats, art or oil and mining titles.
The net worth tax rate is 1%.
Law 1943 of 2018 established a new mechanism allowing taxpayers to include any omitted assets without having to pay income tax on the resulting equity increase, but instead by paying an additional tax on the omitted assets ("Normalization Tax").
In order to benefit from the Normalization Tax the following requirements must be met:
1. The minimum taxable base of the normalization tax is the historical cost basis of the foreign omitted assets.
2. The additional tax would apply at a 13% rate if reported, liquidated and payed only in September 25th, 2019.
3. If the reported assets held abroad are re-invested in the country, the taxable base shall be 50% of the value of the omitted assets. Assets would have to be repatriated before December 31st, 2019 and must be held in Colombia for at least two years.
4. If the assets are normalized and reported at their fair market value, the taxable base shall be 50% of the value of the omitted assets value.
Foreign private foundations, foreign trusts, insurances with a material savings component, investment funds or any other fiduciary business abroad must be reported at cost basis of the underlying assets. Normalized assets must be included in all applicable tax returns for FY 2019 onwards.
Law 1943 of 2018 reinforced the mechanisms for combating tax evasion by establishing:
- Taxpayers who fraudulently omit assets or include inexistent costs or expenses in an amount exceeding USD 1.274.122 will be subject to prison time without any possibility of extinguishing criminal liability. Prison time would vary between 2 and 9 years.
- Taxpayers having the intent to defraud the Colombian Tax Administration by omitting assets, including inexistent costs or expenses, or obtaining tax benefits that are not applicable, would be subject to criminal liability. Prison time would vary depending on the amount of the liable tax amount due not exceeding 7.5 years.
- The criminal action can only be undertaken at the request of the tax office director. When there is a reasonable interpretation of the applicable law, the tax office is restrained from initiating a criminal investigation, as long as the information of the taxpayer is complete and real.
The Trusts Law (2018 Revision) was the most notable recent development in respect of trusts in the Cayman Islands. At this time, we are not aware of any important legislative changes which will affect our advice to private clients.
The disposition on German foundation law will be revised. Presumably, the legal regime will be more liberal. However, a legislative proposal has not yet been issued. It isn’t expected before summer/autumn 2018.
Changes to tax incentive schemes
Several tax incentive schemes catered to the trust and wealth management industry are up for review by 31 March 2019.
Structures constituted / approved for purposes of existing schemes prior to 31 March 2019 can continue to benefit thereunder. Families and individuals who wish to take advantage of the schemes should act swiftly.
Singapore Government is expected to announce further tax incentives to support growth of the wealth management industry in the upcoming Budget 2019.
Variable Capital Company ("VCC")
A new corporate vehicle tailor-made for funds, known as the VCC, was introduced in 2018. The VCC may issue / redeem shares at net asset value without shareholder approval, as well as pay dividends out of capital. It is also possible to re-domicile a similar structure to Singapore under the VCC framework.
It is widely expected that a tax incentive catered to the VCC will be introduced in 2019.
There are no foreseeable legislative changes that would affect private clients relocating to Portugal.
There is no important legislative changes the authors anticipate as our advice already take into account the provisions of the Finance Act for 2019.
We do not expect important changes in the near future which will influence our advice to private clients. However, a working group of the Institute of Professional Trustees and Fiduciaries is currently discussing some amendments to the law of trusts regarding the rights to information of discretionary beneficiaries and other aspects with the government.
Currently, we don’t have information of any legislative initiative in the congress that could affect the advice given to our private clients.
Since Brazilian general election in 2018, several organizations (and the Congress itself) have been working for a wide tax reform in Brazil. Nevertheless, there is not yet convergence on the reform proposals.
On the other hand, all the candidates that were running for president defended that dividends in Brazil must be taxed (there is no taxation on dividends in Brazil whatsoever until now).
Additionally, there has been rumours that a wealth tax might be implemented in Brazil (in light of the constitutional provision as per Q&A 4). Yet, there is no foreseeable legislative changes regarding this subject.
The tax deferral applicable to offshore companies held by individuals resident in Brazil (see Q&A no.11) might also be eliminate by the enactment of a new CFC rules (CFC rules already in place is not applicable to individuals, only legal entities).
In the State level, every year there are rumours concerning the elevation of the tax rate applicable on tax on Gifts and estate (ITCMD) up to 8% (please see Q&A 5).
In almost all these scenarios, the “new taxation” would be effective only in the subsequent calendar year.