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.
1.1 The main factors which bring an individual within the scope of UK tax on income and capital gains are residence (§1.5-1.7), domicile (§1.9), the location of his assets, and the location of the sources of his income.
1.2 An individual who is not UK resident (§1.5-1.7) and is not temporarily non resident (§1.8) has limited exposure to income tax (§2.1) and capital gains tax (§2.6). His exposure to income tax is limited to certain kinds of income having a UK source, e.g. rental income from UK real property (§3.2), profits of a trade carried on in the UK, employment income insofar as duties are performed in the UK (§3.1), and UK royalties (§3.3). His exposure to capital gains tax is limited to chargeable gains (§2.7) on the disposal (§2.8) of UK residential property (§8.3) and of UK assets used in a trade that he carries on in the UK. Any such exposure to income tax and capital gains tax is subject to relief under an applicable double tax treaty and to unilateral relief.
1.3 By contrast, an individual who is UK-resident (§1.5-1.7) is exposed to income tax (§2.1) in respect of his worldwide income and to capital gains tax (§2.6) on the disposal (§2.8) of assets wherever situated. He may also be exposed to income tax where income, and capital gains tax where capital gains, of trustees (§20.4; §20.6) or of a non UK resident company (§20.6; §20.8) are treated as arising to him for tax purposes. In many cases, his exposure is subject to relief under an applicable double tax treaty, unilateral relief, and (if available) the remittance basis (§10). The remittance basis is not available to individuals who are domiciled (§1.9) or deemed domiciled (§1.10) in the UK.
1.4 An individual who is temporarily non resident (§1.8) may be charged to income tax (§2.1) and capital gains tax (§2.6) on income and capital gains arising during the period of non residence, with such income and capital gains treated as arising in the tax year (§2.13) of return.
1.5 The residence status of an individual must be determined for each tax year (§2.13). Whether an individual is UK resident or not for a given tax year depends principally on the number of midnights that he spends in the UK in that tax year.
1.6 An individual who has not been UK resident (§1.5-1.7) in any of the three previous tax years (§2.13) will not become UK resident for a tax year if he spends fewer than 46 midnights in the UK in that tax year. Any individual who spends 183 or more midnights in the UK in a tax year will usually be UK-resident in that tax year. An individual who spends fewer than 183 midnights in the UK in a tax year may still be UK resident for that tax year, for example, where his only home is in the UK or he has full time work in the UK. In some circumstances, the residence status of an individual for a tax year depends on the number of midnights spent in the UK and the number of ties (§1.7) that the individual has with the UK. The more midnights the individual spends in the UK in a tax year, the fewer ties are necessary for him to be UK resident for that tax year.
1.7 The ties which are relevant to residence are having a UK resident (§1.5-1.7) spouse, civil partner or minor child, having available accommodation in the UK, performing more than three hours work in the UK on 40 or more days in the tax year (§2.13), spending 91 or more midnights in the UK in one or both of the two previous tax years, and spending more midnights in the tax year in the UK than in any other country.
1.8 An individual is temporarily non-resident if, following a period of residence, he is non-UK resident (§1.5-1.7) for a period of five years or less, and he has been UK-resident (§1.5-1.7) in at least four of the seven tax years (§2.13) before the tax year in which the period of non-residence begins.
1.9 For the general purposes of English law every individual has at any given time a domicile (§1.9) in one country alone. The domicile of an individual depends, in the first place, on the domicile that his father or (in some circumstances) mother had at the time of the individual's birth (known as the individual's "domicile of origin"). Upon attaining the age of 16, the individual may change his domicile to that of another country (his domicile of choice) by residing in that country with the intention of residing there permanently. If, later, he ceases to reside in that country and to have that intention, his domicile may revert to his domicile of origin, unless he establishes another domicile of choice.
1.10 For the purposes of income tax (§2.1) and capital gains tax (§2.6) an individual is deemed domiciled in the UK if he has been UK resident (§1.5-1.7) for at least 15 of the 20 previous tax years (§2.13) and has been UK resident for a tax year beginning after 5 April 2017. In addition, an individual who was born in the UK with a domicile of origin (§1.9) in the UK is deemed domiciled in the UK for the purposes of those taxes in any tax year for which he is UK resident.
Tax residents are subject to income tax and capital gains on worldwide basis. Non- residents are subject to income tax and capital gains only on Colombian sourced income and capital gains.
An individual becomes a tax resident when she/he remains in the country, continuously or discontinuously, for more than 183 calendar days during a period of 365 days.
If the individual remains in the country continuously or discontinuously for 183 days during 2 consecutive fiscal years, the individual will become a tax resident after the second of the two consecutive years.
Colombian citizens are considered tax residents if their family members (i.e., spouse or dependent children) are Colombian tax residents, or if 50 per cent or more of the individual’s income is Colombian sourced, or if 50 per cent or more of the individual's assets are managed or held in Colombia. A Colombian citizen is considered a tax resident in Colombia if she/he has tax residence in a tax haven.
Colombian citizens are not deemed as tax residents in Colombia if 50 per cent or more of the individual's income is sourced in the juris¬diction of her/his domicile and 50 per cent or more of her/his assets are managed or possessed in the country in the jurisdiction of her/his domicile.
Non-residents are subject to income tax only on source income and they are only required to report income or assets located in Colombia.
Colombian sourced income refers to income from activities undertaken within Colombian territory. The Colombian tax code refers to this as the provision of services inside Colombian territory, the transfer of assets located in Colombian territory at the time the transfer takes place and the exploitation of tangible or intangible assets located inside the country.
The Cayman Islands is a tax neutral jurisdiction. As such, there is no income tax or capital gains tax in the Cayman Islands.
Tax liability in Germany is determined by the concept of residence. The concept of domicile, however, is not recognised in Germany. An individual is a German resident if he or she has either a permanent home (accommodation permanently available to the individual which is used at least from time to time) or a habitual abode in Germany. The resident individual’s worldwide income and gains are subject to German income tax.
Generally, tax on income is charged on –
- income accruing in or derived from Singapore ("Singapore-sourced income"); and
- income received (or deemed received) in Singapore from outside Singapore ("foreign-sourced income").
An individual is exempt from income tax on certain types of Singapore-sourced investment income, including dividends paid by Singapore-incorporated companies and interests derived from specified investments. All foreign-sourced income is tax exempt for individuals (excluding income received through a partnership in Singapore).
As Singapore's income tax regime is source-based, factors such as residence, domicile, nationality and citizenship do not, each on their own, give rise to tax liability, although residence and nationality / citizenship may affect tax rates, availability of reliefs, exemptions and treaty benefits.
On the other hand, locations of assets and economic activity relate directly to the source of income and are, therefore, factors for determining tax liabilities.
Singapore does not impose tax on capital gains. Nevertheless, gains from disposal of assets and properties can give rise to income tax liabilities if they are considered revenue (as opposed to capital) in nature. The test to determine the revenue / capital dichotomy is found exclusively in case law – it consists of the overarching enquiry of the taxpayer's intention to trade upon acquisition of the asset / property, and the interplay of various factors including length of holding period, circumstances of disposal, inter alia.
Individuals will be liable to Portuguese Personal Income Tax (“PIT”) depending on their tax residency status: if they are considered Portuguese tax residents, they will be liable to PIT over their worldwide income and capital gains received; if they are considered as Portuguese non-tax residents, they will only be liable to PIT over their Portuguese sourced income and capital gains.
Two factors bring an individual within the scope of tax on income and capital gains in France. The individual is resident of France (1.1.) and the income and/or capital gains is generated in France or assets are located in France (1.2.).
1.1. The individual is resident of France for tax purposes
Article 4B of the French tax code defines the residence in the same way for all tax purposes (income tax, wealth tax, IFI, gift and inheritance tax). Four alternative tests are provided for determining whether an individual is treated as a resident for tax purposes:
- He/she has his/her home in France;
- His/her primary place of residence is in France;
- He/she performs an activity in France;
- His/her centre of economic interest is in France.
Individuals who are resident of France under article 4B of the French tax code are liable to French taxes in respect of their worldwide income and/or assets, except when a tax treaty provides otherwise.
1.2. French source income/capital gains and French located assets
French source income/capital gains as well as French located assets may entail French tax burden on individuals who do not qualify as French resident for French tax purposes as defined by article 4B of the French tax code (see §1.1.).
Withholding taxes are generally levied at different rates depending on the nature of the income/capital gains received.
Resident individuals are taxed on their worldwide income. If wealth is subject to wealth tax, effective income on wealth is tax exempt with the exception of property capital gains on Liechtenstein properties. However income from foreign businesses and foreign immovable property is tax exempt.
Non-residents are taxed on Liechtenstein employment income and Liechtenstein income such as income from Liechtenstein business and Liechtenstein immovable property. If gross income is higher than CHF 200'000 non-residents will get taxed as residents.
Residence is given either in case of domicile in Liechtenstein or in case of staying in Liechtenstein permanently (habitual abode).
Married couples are assessed jointly. However upon application a separate assessment is possible.
In Mexico, there is no distinction between income tax and capital gains tax. Capital gains are considered as ordinary income for tax purposes.
Individuals are obliged to pay income tax over all their income, regardless it is obtained in cash, goods, credit and in its case accrual or services. In this context, capital gains are considered as an additional cumulative income for individuals and integrate the taxable base to which the income tax progressive rate will be applied (that can go from 1.92% up to 35% on the total individual's income, depending on its amount).
The factors for which a person is obliged to pay income tax are regulated in Article 1 of the Law, and none of them includes citizenship, the location of a person's assets, or the location of their economic activity, so these factors don’t bring an individual within the scope of income tax.
The factors that subject an individual to pay income tax are the following:
- Tax Residence in Mexico. Residents in Mexico are obliged to pay income tax with respect to all their income, whatever the location of the source of wealth they come from.
- Permanent Establishment in the country. Residents abroad who have a permanent establishment in the country are obliged to pay income tax regarding all the income attributable to said permanent establishment.
- Source of wealth in Mexico. Residents abroad are also obliged to pay income tax regarding income which sources of wealth are located in national territory, when they do not have a permanent establishment in the country, or when having it, such income is not attributable to it.
It is important to note that according to article 9 of the Mexican Federal Tax Code, it is considered that an individual is resident in Mexico when he has established his home within national territory. When the individual in question also has a domicile in another country, he shall be considered resident in Mexico if his center of vital interests is in the national territory.
For these purposes, the center of vital interests is considered to be in national territory when, among other cases, the individual is located in any of the following cases:
- When more than 50% of the total income obtained by the individual in the calendar year has a source of wealth in Mexico.
- When in the country they have the main center of their professional activities.
An individual resident in Brazil is subject to tax on his worldwide income. On the other hand, a non-resident person is taxed by income tax in Brazil only on income earned or by capital gains derived from the selling of Brazilian assets, even if the transaction occurs between two non-residents.
According to the Brazilian legislation, the concept of resident for tax purposes is defined as the natural person:
I - who resides in Brazil on a permanent basis;
II - who leaves the country to render services as employee of local authorities or agencies of the Brazilian Government located abroad;
III - who enters in Brazil:
a) with a permanent visa, on the date of arrival;
b) with temporary visa:
1. to work with an employment relationship;
2. on the date you complete 184 days, consecutive or not, of permanence in Brazil, within a period up to 365 days;
3. on the date of obtaining a permanent visa or employment relationship, if it occurs before completing 184 days, consecutive or not, of permanence in Brazil, within a period of up to 365 days;
IV - a Brazilian citizen who acquired the status of non-resident in Brazil and returns to the country with intention to remain on the date of arrival;
V - who is absent from Brazil on a temporary basis or withdraws permanently from the national territory without communicating to the Revenue Authority, during the first twelve consecutive months of absence.
There is also a special regime for individuals resident in Brazil who intend to transfer their residence to a low tax jurisdiction or a country with preferred tax regime. In these cases, the transfer of residence only occurs if the individual satisfies one of the two conditions: (i) if the individuals remains at least 184 days, consecutive or not, within a period of up to 365 days there or his family lives there and most of his wealth is located in the jurisdiction indicated; or (ii) his worldwide income is taxed in that jurisdiction and income tax and capital gains tax are effective paid in that jurisdiction.