Which factors bring an individual within the scope of tax on income and capital gains?
Income tax including tax on capital gains is levied under the Income Tax Act, 1961 (“IT Act”) which follows the residence-based and source-based rule for the purposes of taxation.
A resident individual is taxed on his worldwide income whereas a non-resident individual is taxed on the income, which arises or accrues or deemed to be arising or accruing in India. An individual will be regarded as resident in India if he is in India for 182 days or more in the relevant financial year (April-March) or has been in India for 60 days or more in the relevant financial year and for 365 days or more during the 4 years immediately preceding that relevant financial year.
The IT Act further categorises residence rule under two heads: ‘resident but not ordinarily resident’ (“RNOR”) and ‘ordinary resident’ (“OR”). In case of an RNOR, Income is taxable in India to the extent it arises or accrues or is deemed to arise or accrue in India. In case of an OR, his worldwide income is taxable in India. An individual is regarded as RNOR, if he has been a non-resident in India in 9 out of the 10 financial years preceding the year, in which he becomes a resident or he has spent less than 729 days in India during the 7 financial years preceding the relevant financial year.
Any income arising by virtue of a business connection in India, fees for technical services, salaries earned in India, interest pay-outs, dividends, royalty pay-outs, capital gains arising on transfer (including sale, exchange, release, etc.) of a capital asset (tangible or intangible) which is situated or deemed to be situated in India is taxable in India.
The taxation of the different kinds of income, e.g. employment and capital gain depends on the individual’s tax residency and the source of the income - Bulgarian or foreign source. The Bulgarian legislation envisages two options regarding tax residency:
- Bulgarian tax residents are individuals having permanent address in Bulgaria, residing in the country for more than 183 days in any 12-month period or whose center of vital interests is in Bulgaria. Any person, who has a permanent address in Bulgaria but whose center of vital interests is not situated in the country, shall not be a Bulgarian tax resident. Tax Residents are subject to tax on their worldwide income.
- Bulgarian tax non-residents are all individuals who are not tax residents – as defined above. Bulgarian tax non-residents are subject to tax only on Bulgarian source income, i.e. remuneration for work/services performed on the territory of Bulgaria, capital gains from disposal of immovable property situated in the country and shares in Bulgarian companies, interests from Bulgarian bank accounts, etc.
Capital gains from disposal of shares on a regulated stock exchange in an EU/EEA member state are exempt from taxation.
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, although 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 of itself bring an individual within the charge to Irish tax.
Domicile is a common law concept. There are three categories of domicile – domicile of origin, of choice, and of dependence.
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 tax year; or
- He / she spends 280 days in Ireland in aggregate in a tax year and in the previous tax year, except that if his presence in Ireland in a tax year is less than 30 days, then those 30 days are ignored both for that tax year and in the calculation of any aggregate over a two-year period unless, at his option, he satisfies the tax authorities that he is in Ireland with the intention and in such circumstances that he will be resident in Ireland for the following year.
In considering the above time periods, an individual is deemed to be present in Ireland on any day in which he is present at any time of that day.
An individual will be ordinarily resident in Ireland if he has been resident in Ireland for each of the three preceding tax years. An individual will not cease to be ordinarily resident in Ireland unless he has not been resident for the three preceding 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.
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.
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.
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.
Under Israel’s tax regime, Israeli residents are generally subject to tax on their worldwide income, and non-Israeli residents are generally taxed on their income derived from Israeli sources (subject to applicable double tax treaties). Special provisions may apply to individuals who are Israeli residents, qualifying as "New Immigrants" or “Veteran Returning Residents”.
As a general rule, an individual is considered as an Israeli resident if the "centre of his life" is in Israel. In addition, the Israeli tax law provides for two presumptions of Israeli residency based on the number of days that the individual spent in Israel.
The Israeli Income Tax Ordinance provides a number of indications which can be used to determine where is the centre of an individual’s life. The indications are as follows:
- The place of his permanent home.
- The place in which he and his family live.
- His regular or permanent place of business or his permanent place of employment.
- The place of his active and substantive economic interests.
- The place where he maintains memberships in various organizations, unions or institutes.
In addition, the Israeli legislation stipulates two rebuttable presumptions, by which an individual would be deemed as an Israeli resident (the: "Day Tests"). The first presumption applies when an individual stays in Israel during the relevant tax year for 183 days or more and the second presumption applies when he stays in Israel during the relevant tax year for 30 days or more, and he has stayed in Israel for 425 days or more during the relevant tax year and the preceding two years.
However, these Day Tests are solely presumptions and are rebuttable by both the Israeli Tax Authority (the: "ITA") and the taxpayer, based on the Centre of Life Test.
The factors that bring an individual within the Greek scope of tax on income and capital gains are:
A. The Greek tax residency status, in which case worldwide income is taxed in Greece [in light of any applicable double taxation avoidance treaties as well as any foreign tax credits].
An individual is generally considered to be a Greek tax resident if:
(a) the individual maintains their permanent or principal or habitual residence or habitual abode [e.g. social, family, professional, economic links] in Greece or
(b) the individual’s physical presence in Greece exceeds 183 days [short stays outside Greece are included when calculating this period], while certain categories of individuals [related to tourist, medical and similar activities] are excluded [subject to conditions].
B. The income is generated within Greece, regardless of the individual’s tax residency jurisdiction [in light of any applicable double taxation avoidance treaties].
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.
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.
British Virgin Islands
In the Virgin Islands (the British Overseas Territory in the Caribbean commonly referred to as the British Virgin Islands or BVI) the rate of income tax is zero, and there is no capital gains tax.
There is currently no income tax, capital gains tax, or any other personal taxes payable within Dubai. That being said, expat residents may still have an ongoing tax liability in their home country and should ensure that they keep themselves up to date with the relevant regulations and reporting standards.
This will usually turn on the residence of the individual, location of assets and economic activity. An individual is tax resident if they have a permanent place of abode or is personally resident in New Zealand for one or more periods exceeding 183 days in an aggregate 12-month period. A person (including a company) who is a New Zealand tax resident (“NZTR”) is subject to New Zealand income tax on all gross income irrespective of the origin country.
Certain categories are important indicators of New Zealand sourced income, these include but are not limited to the following:
- salaries and wages;
- the ownership and mortgaging of land;
- shares of a resident company;
- government pensions, annuities, income and securities;
- beneficiary income under a trust where the income is derived in New Zealand;
- royalties from a New Zealand resident; and
- any other source in New Zealand (directly).
There is no capital gains tax (“CGT”) in New Zealand, although care must be taken not to buy and sell property in such a way that a business activity is established, thereby making any gains taxable as a business or trading activity.
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.
Preliminary remark: As a consequence of the Swiss federalist structure, individual income tax is levied at the federal, cantonal and municipal levels. There is a federal law aiming at harmonizing the cantonal tax laws in certain respects.
Tax on income: The main factor which will make an individual taxable Switzerland is residence. An individual is deemed resident in Switzerland if she or he takes up residence there with the intention of permanently staying. Residents are subject to full taxation in Switzerland on their worldwide income and assets. However foreign real estate and permanent business establishment maintained abroad are exempt from Swiss taxation; the respective income and assets are, however, taken into account for the determination of the applicable tax rates.
An individual can also be subject to unlimited taxation in Switzerland if she or he is physically present in Switzerland for a minimum of 30 days and is in gainful employment, or if he or she is physically present for a minimum of 90 days in Switzerland without being gainfully employed.
There is an exception to the unlimited tax liability on worldwide income and wealth for Swiss residents, namely the "lump sum taxation" system (see below question 10).
An individual resident outside Switzerland may be subject to limited taxation with regard to certain types of income, such as income derived from dependent professional services performed in the canton, business income derived from a permanent establishment maintained in the canton, and income and gains from immovable property locate within the respective canton.
Tax on capital gains: At the federal level, any capital gains realized on private (movable or immovable) assets are exempt from income taxation. At the cantonal/municipal level, capital gains on private movable assets are also tax exempted, while capital gains on private real estate are subject to a specific real estate gains tax. The applicable tax rate varies depending on the canton and on the duration of the holding of the property (from 0% to 55%). If a capital gain is realized on a commercial asset of an individual, it will be taxable as an income deriving from an independent activity (in some cantons, it is subject to the specific real estate gains tax, at least partly).
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 and had his domicile (§1.9) in the UK at the time of his birth is deemed domiciled in the UK for the purposes of those taxes in any tax year for which he is UK-resident.
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.