Recent changes in tax regimes
It has become common practice in the last few years for countries to make changes to tax and social security structures, and 2016 is no exception. Singapore added two new tax brackets and increased the tax rates for those with taxable income above SGD 160 000, creating a top marginal rate of tax of 22% on taxable income over SGD 320 000. The contribution rates to the Central Provident Fund (CPF) remained the same except for employees aged between 50 and 55, whose rate increased to 20%. The monthly ceiling for contributions on ordinary pay to the CPF has also increased, meaning higher contributions for employees of all ages in 2016 when compared to 2015’s rates.
Greece also introduced a number of changes to its tax and social security systems this year. The personal income tax table expanded from three to four brackets with the top marginal rate now 45% payable on taxable income in excess of EUR 40 000. The solidarity surcharge, an additional tax on income, also expanded from five to seven brackets and changed from a flat rate tax to a progressive tax. Increases in the social security rates also add to the increased liability for this tax year. Taxpayers in Greece are likely to pay higher contributions in 2016 due to these changes.
Other countries which added additional tax bands include Austria, Norway and Malaysia. However, Ukraine has done the opposite going from a progressive tax system in 2015 to a flat rate tax of 18% in 2016. Furthermore, it has simplified the social security system by abolishing contributions for employees.
A significant change to the social security structure in the UK has seen the ‘contracted-out’ element 1 of the earnings-related part of the state pension scheme be abolished. Therefore, those employees who had previously ‘contracted-out’ will find that their National Insurance contributions have increased from April 2016.
From 6 April 2016, Scottish taxpayers are required to pay the Scottish Rate of Income Tax (SRIT). The Scottish Parliament was recently given new powers which allows it to amend the amount of income tax paid by Scottish taxpayers. SRIT works by reducing the UK rate of income tax on non-savings income by 10% on the basic rate, higher rate and additional rate, then adding the Scottish rate for the applicable tax year. For the tax year beginning 6 April 2016, the SRIT is set at 10%, which means individuals will pay the same amount of income tax as the rest of the UK. The SRIT will also be collected by HMRC, before being paid over to the Scottish government. However, the recently passed ‘Scotland Act 2016’ means more powers will be devolved to the Scottish government and they will then be able to set all rates and income thresholds for future tax years.
In a number of countries, taxpayers may be entitled to receive allowances for their children in the form of a tax deduction, credit or paid as an allowance. As these often have a significant impact on the net salary an employee receives, it is good to be aware of countries where changes to these allowances have occurred.
Canada eliminated the Family Tax Cut credit, which had only been introduced in 2015, and also reformed the child benefit system. The Canada Child Tax Benefit, National Child Benefit Supplement and Universal Child Care Benefit were all replaced by a single payment, the Canada Child Benefit. This benefit is tax-exempt and income dependent, with payments based on the adjusted family net income (family gross income less certain elements) in the 2015 tax year. As a result, households with an adjusted family net income above CAD 30 000 per annum will have their benefit gradually phased out.
France underwent a reform which made family allowance amounts vary depending on combined household income. Previously, all families were entitled to receive a family allowance regardless of how much income they earned. However, the payments have now been reduced for household incomes that are higher than certain values, which vary depending on the size of the family. For example, a family with two children and a household income of EUR 100 000 would have received an allowance of EUR 1 552 in 2015, but this amount has now been reduced to EUR 388 in 2016.
Luxembourg also passed a family reform which combines the basic monthly allowance and the child bonus payment into one single monthly payment of EUR 265 per child 2 (a breakdown of those affected by the reforms can be found below). This reform was introduced to make the family allowance system simpler and reflect cost of living changes in recent years. Luxembourg is also planning a tax reform in 2017 which looks to include many changes for taxpayers and so it’s definitely a country to keep an eye on.
Another way of reducing tax liability for families is through a family quotient system 3, which was introduced in Portugal in 2015. This system has now reverted back to the previous tax structure where for married couples, tax rates are applied to half of the aggregate income and the result is then doubled to calculate tax liability. In 2015, the number of children was also taken into account which reduced the amount of tax due. To help compensate for the greater amount of tax payable, tax credits for dependent children have increased in 2016. Although, families should still expect a decrease in their overall net incomes for 2016.
Expatriate tax concessions
2016 has also seen some changes to the tax concessions offered by governments to expatriate employees. Italy introduced a new expatriate concession which grants a tax deduction of 30% of employment income to certain individuals. The individual must meet a number of conditions in order to be eligible and if granted, the concession will apply in the year they become a tax resident and the following four years.
Switzerland has tightened up its criteria to determine whether or not an individual can qualify for an expatriate concession. Certain expatriates may claim additional deductions from federal tax but to qualify they must be employed as a member of senior staff or as a specialist with select professional qualifications, seconded by an employer to Switzerland for no more than five years.
Finland has an expatriate concession which provides a flat rate of tax on gross employment income received by qualifying individuals. This originally applied to expatriates starting assignments before 31 December 2015, but this has now been extended until 31 December 2019 to continue attracting top professionals to Finland.
1) ‘Contracted-out’ – If you were contracted out of the earnings-related part of the State Pension Scheme (also known as second State Pension or ‘SERPs’) your National Insurance contributions were lower because you/your employer paid contributions into another pension scheme e.g. a company/private pension.
2) The new family allowance in Luxembourg will apply to taxpayers:
• with one child;
• with children born on or after 1 August 2016; or
• who start working in Luxembourg on or after 1 August 2016 and have children.
Taxpayers with two or more children before the reform will remain on the same family allowance as before. If families have an additional child after 1 August 2016, the basic allowance for the existing children remains unchanged but the new-born child will receive the new allowance of EUR 265 per month.
3) Family quotient system (Portugal 2015) - This is where the income of the husband, wife, dependent children and dependent parents/grandparents is aggregated and divided into a number of equal parts using a coefficient which reflects the family status and number of dependants supported by the taxpayer. The tax rates are then applied to the resulting taxable income and the tax payable is found by multiplying the result by the same coefficient.
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