Which factors bring an individual within the scope of tax on income and capital gains?
Private Client (2nd edition)
Under the Israeli Income Tax Ordinance [New Version], 5721- 1961 (the "Ordinance"), Israeli income tax is imposed on the world-wide income and gains of Israeli residents and on the income and gains of non-residents of Israel from Israeli source. The Ordinance does not imposed tax based no habitual residence, domicile, nationality, citizenship, but rather based on residency and location of assets and/or location of economic activity, as applicable. In addition, determination of residency in the case of corporate entities is made by the place of their "management and control" or place of formation (if in Israel). For individuals, they will be regarded as residents of Israel based on their "center of life".
An individual’s tax residence, ordinary residence and domicile status need to be considered when determining the extent of an individual’s exposure to Irish tax. However, income on Irish situs assets, and gains on certain specified assets, will always fall within the charge to Irish tax irrespective of these factors.
Irish nationality will not bring an individual within the charge to Irish tax
Domicile is a common law concept. There are three categories of domicile – domicile of origin, domicile of choice, and domicile of dependence.
Every person is born with a domicile of origin, which usually follows the domicile of the persons father until he / she acquires 18 years of age.
A domicile of choice can be acquired by establishing residence in another country with the settled intention of remaining there indefinitely.
An individual will be resident in Ireland if:
- He / she spends 183 days or more in Ireland in any given tax year; or
- He / she spends 280 days in Ireland, in aggregate, in any given tax year and the previous tax year, except that if his / her presence in Ireland in either tax year is less than 30 days, in which case the 30 days are ignored in the calculation of any aggregate over a two-year period unless, at his option, he / she satisfies the tax authorities that he / she is in Ireland with the intention and in such circumstances that he / she will be resident in Ireland for the following year.
In considering the above time periods, an individual is deemed to spend a day in Ireland if he / she is present for any part of the day in Ireland.
An individual will be ordinarily resident in Ireland if he / she has been resident in Ireland for each of the three preceding tax years. Once an individual becomes ordinarily resident, he / she will only cease to be resident in his / her fourth year once he / she has been non-Irish resident for three consecutive tax years.
Notwithstanding that an individual may not be resident for a particular tax year, ordinary residence is sufficient to bring an Irish domiciled individual within the Irish charge to capital gains tax on worldwide disposals and certain of their worldwide income.
Personal income tax is due by inhabitants of Belgium, i.e. persons whose domicile or seat of wealth, if not domiciled in Belgium, is located in Belgium. ‘Domicile’ refers to a factual situation characterised by the person’s habitual residence (which implies a certain continuity); ‘seat of wealth’ refers to the central place from where one’s assets concerned are managed.
Unless proven otherwise, all individuals listed in the National Register of Individuals are considered inhabitants of Belgium. A taxpayer is liable to the additional income tax of the Region (Flemish Region, Brussels Capital Region or Walloon Region) in which his tax residence is located on 1 January of the tax year.
Subject to the provisions of double tax treaties, non-residents are in principle subject to non-resident income tax on their Belgian source income.
An individual is considered a ‘US Person’, and therefore subject to income tax on worldwide income and capital gains, if the individual is a US citizen (regardless of physical residency) or is a Lawful Permanent Resident (i.e., a ‘green card’ holder) or meets the ‘substantial presence test’, determined by the following formula: days (including partial) present in the US in the current tax year (which must be at least 31), plus days present in the prior tax year divided by 3, plus days present in the US in the second year before the current year divided by 6. If the sum of this calculation equals or exceeds 183, then the person is a US Person for the current tax year. An individual can be present in the US for up to 182 days in the current tax year without becoming a US Person if the individual has a documented closer connection to a foreign country. A nonresident is generally subject to US income tax only on (1) income from the sale of US real property, (2) income from a US trade or business, and (3) most interest, dividend, rental and royalty income from US sources. Interest on US bank deposits is not subject to income tax for nonresidents. Income tax treaties entered into between the US and certain countries can ameliorate the effect of any such taxes for nonresidents.
Taxes on income
An individual who is resident in Cyprus for a particular tax year is liable to income tax on worldwide income, whether that income is remitted to Cyprus or not. Non-residents are subject to income tax on income accruing or arising from sources in Cyprus. However, there is no income tax on dividend and interest income, so if the individual is not domiciled in Cyprus and liable to SDC tax (see below), these categories of income are entirely free of Cyprus taxation.
Special Defence Contribution, commonly known as SDC tax, is payable on dividends, interest (other than interest received as a business activity) and rents receivable. In order to be liable for SDC tax an individual must be both resident and domiciled in Cyprus for the tax year concerned. Individuals who are resident but not domiciled in Cyprus are exempt from SDC tax.
Capital gains tax
An individual who is resident in Cyprus for a particular tax year is liable to capital gains tax. However, capital gains tax is levied only on a very limited category of gains, namely gains on disposal of immovable property in Cyprus and on disposal of shares in non-listed companies directly or indirectly holding immovable property in Cyprus, to the extent that the gain on disposal of the shares derives from the immovable property.
The traditional determinant of residence for individuals is physical presence, with individuals being considered to be resident if they are present in Cyprus for more than 183 days in the relevant year. Days of departure and arrival are treated as follows:
- The day of departure from Cyprus counts as a day of residence outside Cyprus.
- The day of arrival in Cyprus counts as a day of residence in Cyprus.
- Arrival in and departure from Cyprus on the same day counts as one day of residence in Cyprus.
- Departure from and return to Cyprus on the same day counts as one day of residence outside Cyprus.
Law 119(I) of 2017 introduced an alternative residence qualification for 2017 and later tax years. An individual will be deemed to be resident in Cyprus if during the tax year concerned he or she maintained a permanent residence in Cyprus, undertook any business or employment in Cyprus which continued to exist at the end of the tax year) and was present in Cyprus for at least 60 days. All three conditions must be satisfied and the individual concerned must not be a tax resident of any other country (for example by reason of a physical presence there for 183 days) for the tax year in question.
Domicile is a general legal concept and is distinct from nationality or residence. Generally, a person's domicile is the place that person considers their permanent home. As in many areas, Cyprus follows English common law in determining domicile.
For the purpose of determining liability to SDC tax, an individual will be deemed to be domiciled in Cyprus if he or she has been a tax resident for 17 or more of the 20 tax years immediately preceding the year of assessment.
Austrian tax law distinguishes between unlimited income tax liability and limited tax liability. Whereas unlimited income tax liability is triggered by an individual having its domicile and/or habitual abode in Austria and encompasses the individuals worldwide income, limited tax liability only includes specific Austrian source income and encompasses individuals having neither domicile nor habitual abode in Austria.
Bulgarian taxes on income and capital gains have two triggers – tax residence and source of income.
Residents are taxed on their worldwide income.
An individual is considered to be a Bulgarian tax resident if he/she:
- has a permanent address in Bulgaria, or
- has stayed in Bulgaria for more than 183 days in total in any given 12-month period, or
- Under this criterion the person is considered a tax resident only for the tax year for which his/her total stay in Bulgaria (including the days of arrival and departure) exceeds 183 days.
- is dispatched abroad by the Bulgarian State, by its authorities and/or organizations, by Bulgarian enterprises, or by their family members, or
- has his/her centre of vital interests in Bulgaria.
Non-residents are taxed only on certain categories of income derived from Bulgarian sources. Income derived from Bulgarian sources includes but is not limited to:
- income from work carried out in Bulgaria;
- income from dividends and liquidation shares from participation in legal entities resident in Bulgaria;
- income from the use, sale, exchange or other transfer of immovable property located within the territory of Bulgaria.
Individuals residing in Argentina are subject to personal income tax (Impuesto a las Ganancias Personas Físicas) on worldwide income while non-residents are only taxable on their Argentine sourced income through a withholding system.
Section 119 of Income Tax Law (hereinafter “ITL”) establishes that the following will be deemed Argentine residents for income tax purposes:
- Argentine citizens, whether native or naturalized individuals excluding those that lost their income tax resident status according with the parameters mentioned in Section 120 of ITL. (see below);
- Foreign individuals who have obtained permanent residency status in Argentina or, if they have not obtained such status, have been in Argentina with temporary authorizations for 12 months assuming that the temporary absences that comply with the terms and conditions established by the regulations in this regard will not interrupt the continuity of the permanence. The acquirement of argentine income tax resident status will cause effect as from the beginning of the month which follows the month in which either the permanent resident status was obtained or the 12 month period was achieved.
However, foreign individuals who have not obtained permanent residency in the country and whose stay in the country is due to causes that do not imply an intention of habitual residence, may prove before the Argentine National Tax Authority (“AFIP”, for its acronym in Spanish) the circumstances that motivated it within the deadline and conditions established by the regulations (example: complex health treatment).
Contrarily, it must be stressed that if a foreign individual enters Argentina with the intention of habitual residence he/she will be considered an Argentine resident for income tax purposes as from the beginning of the month which follows the month in which the mentioned individual entered Argentina. That is to say that the 12 month period would not apply in this case.
- Undivided estates in which the decedent was an Argentine resident as of the date of his or her death.
According with Section 120 of ITL, an individual will lose its Argentine resident status for income tax purposes if:
a) The individual acquires a permanent resident status in a foreign Country according to such foreign country’s migration laws (pérdida de residencia de derecho); or
b) The individual stays abroad for a period of 12 months. For these purposes, the continuous or alternate presence in the country that does not exceed 90 days during each 12-month period does not change the criterion of loss of residence (pérdida de residencia de hecho).
Related with the above, on May 8th, 2018, AFIP published the General Resolutions number 4236/2018 and 4237/2018 in the Official Gazette, which regulates both the way in which an individual must prove the loss of its Argentine income tax resident status and the procedure that must be encouraged before AFIP in order to terminate the registration in income tax, alleging the grounds provided for in Section 120 ITL. The loss of argentine income tax resident status will cause effect as from the beginning of the month which follows the month in which the registration was terminated. As from then the individual will be deemed a non-resident (Beneficiario del Exterior) and will be taxed exclusively for its Argentine sourced income. Notwithstanding the foregoing, the individual should file an income tax return for the involved irregular tax period.
If the individual who have lost his Argentine resident status for income tax purposes (according to Section 120 ITL) returns to Argentina for the periods mentioned below, the following would apply:
- Individual will acquire again the Argentine income tax resident status if he stays more than 183 days throughout the calendar year;
- AFIP may consider that the Individual has an Argentine income tax resident status if he stays more than 90 days throughout the calendar year provided he keeps his permanent home in Argentina and he has no permanent home in the other country. If the individual keeps permanent homes both in Argentina and in the other country, then AFIP will analyze other factors in order to ascertain with which country his personal and economic relations are closer (center of vital interests). This is known as the double residence test (Section 125 ITL).
Notwithstanding the foregoing, if the individual enters Argentina with the intention of habitual residence he/she will be considered an Argentine resident for income tax purposes as from the beginning of the month which follows the month in which the mentioned individual entered Argentina. That is to say that the 183 days would not apply in this case.
Residence (for all Monegasque residents) and nationality (with respect to French nationals only).
Monaco law does not provide for an income tax for individuals acting within their private activities. There is no capital gains tax.
Monaco law does not provide for any income tax for Monegasque nationals and foreign nationals resident in Monaco, except for French nationals, subject to the 1963 Bilateral Tax Convention between France and Monaco. French nationals are deemed to be residents of France and accordingly liable to tax in France.
In Italy income and capital gains are subject to income tax. Income tax is levied upon residents on their worldwide income, while residents are subject to income tax only in Italian-source income.
For Italian income tax purposes, an individual is regarded as a resident of Italy if at least one of the following conditions is fulfilled for most part of the tax period (i.e., the calendar year): (i) he/she is registered with the Italian Official Register of the resident population; (ii) he/she has his/her residence in Italy for civil law purposes. Residence is defined by the Civil Code as the place in which the person has his/her habitual abode; or (iii) he/she has his/her domicile in Italy for civil law purposes. Domicile is defined by the Civil Code as the place in which a person established the main seat of his/her business and interests.
The rules to determine the source of the income depends on the type of income. However, in general terms, income from employment and self-employment is sourced where the activity is performed, income from real estate is sourced where the property is situated, income from capital is sourced where the payor is resident or has a permanent establishment, and other income is sourced where the income-generating asset is situated or where the income-generating activity is carried out.
There is no income tax or capital gains tax in Bermuda.