Table of Contents

Getting the Deal Through - Private Client 2019

Global overview

Andorra

Austria

Belgium

British Virgin Islands

Cayman Islands

Colombia

Cyprus

Dominican Republic

England & Wales

France

Germany

India

Ireland

Japan

Liechtenstein

Malta

Monaco

Netherlands

Panama

Poland

Singapore

Spain

Switzerland

United States

www.gettingthedealthrough.com

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Private Client 2019

Contributing editors

Anthony Thompson and Nicole Aubin-Parvu

Forsters LLP

Getting the Deal Through is delighted to publish the seventh edition of Private Client, which is available in print, as an e-book and online at www.gettingthedealthrough.com.

Getting the Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers.

Throughout this edition, and following the unique Getting the Deal Through format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Our coverage this year includes new chapters on Andorra, Colombia, Ireland, the Netherlands, Panama, Singapore and Spain.

Getting the Deal Through titles are published annually in print. Please ensure you are referring to the latest edition or to the online version at www.gettingthedealthrough.com.

Every effort has been made to cover all matters of concern to readers. However, specific legal advice should always be sought from experienced local advisers.

Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We also extend special thanks to the contributing editors, Anthony Thompson and Nicole Aubin-Parvu of Forsters LLP, for their continued assistance with this volume.

Publisher

Tom Barnes

tom.barnes@lbresearch.com

Subscriptions

James Spearing

subscriptions@gettingthedealthrough.com

Senior business development managers

Adam Sargent

adam.sargent@gettingthedealthrough.com

Dan White

dan.white@gettingthedealthrough.com

Published by

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© Law Business Research Ltd 2018

No photocopying without a CLA licence.

First published 2012

Seventh edition

ISBN 978-1-78915-053-7

The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. The information provided was verified between September and October 2018. Be advised that this is a developing area.

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Global overview

Anthony Thompson and Nicole Aubin-Parvu

Forsters LLP

International mobility

As advances in technology and communication contribute to an ever-shrinking world, people are increasingly living an international existence, owning property in several different jurisdictions and dividing their time between them. At the same time, their children are moving to different places and starting lives and relationships in countries with widely differing cultures and legal and tax systems.

Wealthy people who are deciding where to live or invest, or both, tend to make their decisions according to a number of factors that remain largely true across the world. Some of these (in no particular order) are:

• stability of the economy and tax system;

• security of the person and property within the jurisdiction and a strong rule of law;

• respect for family life and a developed education system; and

• a thriving environment in which to do business.

In many cases, not all of these factors will exist in the same jurisdiction. For example, a country may be a good place in which to do business but not necessarily an ideal place to bring up a young family or to own property. Furthermore, the attributes of jurisdictions can change over time. For example, where will the United Kingdom stand in five years’ time following the country’s decision to leave the European Union (Brexit)?

With this in mind, many wealthy people divide their lives and investments between different jurisdictions. As a result, they find that they may be regarded as resident in more than one country for the purposes of tax, and that different systems of law apply to the succession of their property in different jurisdictions. For example, an individual’s domicile may be the critical factor in determining succession to his or her property in one jurisdiction, while nationality or habitual residence may be the key determinant in another. One country may permit complete freedom of disposition over an individual’s estate, while another has strict rules as to the categories of heirs who may inherit property, and in what shares.

Accordingly, before wealthy individuals move to, or invest in, property in a new country, it is vital that they understand how the rules that apply to their personal lives, their property and their tax status may change.

Wealth trends

For many generations, the developed countries of the West were the primary focus of private client lawyers and other professionals focused on individual and family wealth. It was in the West that concepts such as trust law in the common law world and the civil law foundation developed as vehicles to protect and manage wealth for the benefit of generations to come.

This has been changing for many years and, since 2015, Asia-Pacific has continued to lead both North America and Europe in terms of its high net worth population and overall wealth, with Japan and China remaining significant drivers of growth.

In these developing jurisdictions, as well as those of the Middle East, Latin America and Africa, there is often a focus on strong family values and a tendency to be first-generation wealthy, which leads to difficulties in ceding control by the family patriarch or matriarch to the successor generation and an awareness of the vital importance of a stable jurisdiction in which to locate their wealth.

Particularly in the case of non-common law countries, the law imposes strict inheritance rules upon their assets, either through shariah law in the case of Muslim countries, or a civil system of forced heirship. While many wealthy individuals are happy to comply with these rules to a greater or lesser degree, they may, nevertheless, wish to maintain some degree of control over the disposition of their property. Accordingly, they may choose to invest in jurisdictions without such rules and seek wealth structures that can assist them to plan as they wish to.

For individuals in all of these jurisdictions, and as a general rule among the wealthy wherever they live, confidentiality and privacy are of great importance. This importance may be heightened by fears of kidnap, a significant concern in Latin America, or, not uncommonly, as a result of uncertainty over the rule of law within their own country. Whatever the cause, it tends to lead to a focus on careful structuring of assets through asset-holding vehicles to maintain privacy and protection in the context of a global political climate that is placing increased emphasis on transparency.

Tax and the global fight against its evasion and avoidance

Over the past decade the fight against tax evasion and avoidance and the drive for transparency have become global. Governments realise that as their citizens increasingly hold business and personal interests in different countries, the reach of the tax system also has to become international. In the 10 years since the global banking crisis in 2008, the subsequent recession and ongoing financial problems within certain EU countries and elsewhere, the need for individual countries to refresh their coffers by extracting as much tax revenue as possible has added to their determination to seek out sources of additional tax.

The early targets of the fight were the international offshore finance centres providing low-tax safe havens for international assets. The efforts of the Organisation for Economic Co-operation and Development (OECD) and the Financial Action Task Force have borne fruit, forcing such jurisdictions to comply with stringent international regulatory requirements and information exchange obligations in order to avoid being blacklisted as uncooperative tax havens.

The OECD in particular has done much to encourage jurisdictions, whether ‘tax havens’ or otherwise, to sign tax agreements enabling exchange of information between countries regarding the ownership of assets. Initially, in the United Kingdom and other countries, ‘tax amnesties’, both unilateral and bilateral, such as the Liechtenstein Disclosure Facility and offshore disclosure facilities between the United Kingdom and each of its Crown dependencies (the Isle of Man, Guernsey and Jersey), enabled taxpayers to repay their undisclosed tax liabilities, particularly those offshore, with lower rates of interest and penalties than would otherwise have been the case. In the United Kingdom, all remaining beneficial terms ended on 30 September 2018 when new sanctions under the ‘Requirement to Correct’ legislation came into effect in relation to past undisclosed offshore tax liabilities. For the future, new multilateral transparency agreements seek to ensure that taxpayers comply with their tax obligations going forward.

FATCA and CRS

The US Foreign Account Tax Compliance Act (FATCA) was the first example of a national development with international reach. It was developed to improve tax compliance involving foreign financial assets and offshore accounts and, in addition, to placing filing and payment obligations on US taxpayers. It also requires non-US financial institutions to report directly to the Internal Revenue Service about accounts held by US taxpayers or held by foreign entities in which US taxpayers hold a significant ownership interest. The impact of FATCA on non-US institutions has been significant and heralded a new trend in how governments seek to enforce their tax laws against overseas entities.

After the introduction of FATCA, a number of jurisdictions, including the United Kingdom, signed enhanced automatic tax information exchange agreements with the United States, based around the FATCA model. The United Kingdom also signed automatic tax information agreements with its Crown dependencies and overseas territories (Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands). Of these, those signed with the Crown dependencies and Gibraltar are reciprocal, requiring the United Kingdom to provide information as well as to receive it.

These unilateral and bilateral agreements were effectively superseded by the introduction of the OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters. This was released and approved by the OECD in July 2014 and calls for governments to obtain and automatically exchange with other jurisdictions detailed account information from their financial institutions on an annual basis. The Standard consists of the Common Reporting Standard containing due diligence rules for financial institutions to follow, collect and report the information on financial assets of individuals. The reporting is wider and more onerous than FATCA upon which it is based. Of 107 countries that have committed to this initiative, 102 were due to have undertaken their first exchanges of information in either 2017 or 2018. Five more countries should do so by 2020 and it is likely that more countries will join over time.

Crypto-assets – new opportunities and challenges

In the past few years, the emergence and seemingly rapid development of crypto-currencies such as bitcoin and its less well-known cousins, ethereum and litecoin, among others, have introduced a new challenge to the global drive for transparency and the fight against tax evasion, money laundering and other financial crimes.

At the same time, such crypto-currencies and, in particular, the phenomenon of initial coin offerings, have sparked an interest among wealthy investors, especially those in the ultra high net worth band who can afford to speculate, and perhaps unsurprisingly, principally among younger investors. Their interest arises not only from the potential for investment returns, but also as an alternative store of value for their wealth.

Currently, lack of regulation and legislation is an issue for investment in crypto-currencies and crypto-tokens, but gradually global bodies such as the World Economic Forum and the Financial Stability Board are beginning to review the situation. At the level of individual countries, some jurisdictions, such as Switzerland and Japan, have accepted crypto-currency as legal tender backed by legislation, while others such as China and India have introduced restrictive regulation. Others, such as Malta and Gibraltar, have introduced specific legislation and regulatory guidance. This is an area in which we are likely to see rapid change and development over the next few years as distributed ledger technology is more widely adopted across industry and government.

Immigration

Given the trend throughout the world for international mobility, it is important for wealthy individuals to have an understanding of each country’s unique immigration rules. To avoid a situation in which one member of a family moves to a new country, only to discover subsequently that there is no right for his or her family to follow, these rules must be analysed and considered in good time before any such move takes place.

In general, immigration rules across the Western world are being tightened. Since the recession and subsequent financial instability within Europe and financial and social instability elsewhere in the world, there has been an underlying desire within countries to avoid an influx of people who may increase pressure on already scarce resources. With the crisis in Syria and other humanitarian crises in other parts of the Middle East and Africa, levels of immigration have become a primary political issue in many countries.

However, countries are usually keen to welcome wealthy people and indeed, recent years have seen increasing popularity in certain countries’ citizenship or residence-by-investment programmes and a correlating relaxation in their respective requirements as a means of encouraging more inward investment. In addition, some countries offer tax incentives for high net worth individuals who wish to reside in that country, although these are being restricted in many cases for political, as well as economic, reasons. Switzerland and the United Kingdom have offered such incentives for many years; Portugal introduced a programme in 2009 and Italy introduced its own regime in 2017.

Summary

Given the international mobility of wealthy individuals and their families discussed above, it is vital that they and their advisers have a resource to guide them through the often significantly different legal frameworks they may face in other jurisdictions in which they choose to live, do business and invest. This publication seeks to draw together the main issues of importance to a private client in this situation, rules in relation to tax, succession, the holding and management of property and immigration, to serve as a starting point to understand such rules in each jurisdiction. By its nature, such a guide is general in its scope and expert advice must be taken within each relevant jurisdiction before any action is taken. However, we hope it provides a useful initial guide for individuals and advisers beginning this process.

Andorra

Jose Maria Alfín and Marc Urgell

Cases&Lacambra

Tax

1 How does an individual become taxable in your jurisdiction?

Tax residence is key to determining the tax liability of an individual and entails the obligation to include all income obtained worldwide; or what the law defines as tax liability by personal obligation, and is regulated by the Personal Income Tax Act (Law 5/2014, 24 April (PIT)).

Regarding individuals, Andorran PIT sets forth two rules and a presumption to consider an individual as a tax resident in Andorra:

• A permanence test applies when the individual stays for more than 183 days per calendar year in Andorra. Occasional absences shall be included to calculate the period of residence, except when individuals prove that they have their tax residence in another country.

In other words, to calculate the days spent on Andorran territory, sporadic absences will be computed as time of residence unless the individual can prove that his or her tax residence is located in another country.

• The centre of economic interest test applies when the main or central place of business of the individual is directly or indirectly located in Andorra.

Finally, unless there is clear evidence by the taxpayer demonstrating otherwise, the law presumes that if the non-separated husband or spouse and dependent minor children reside in Andorra (presumption applicable), the individual will be considered as resident in such jurisdiction.

2 What, if any, taxes apply to an individual’s income?

Individuals resident and classified as taxpayers by personal obligation must include in their declaration all their worldwide income, including the capital gains. Moreover, capital gains derived from the sale of real estate located in Andorra are subject to a specific tax and, consequently, are not subject to PIT.

3 What, if any, taxes apply to an individual’s capital gains?

Capital gains are taxable in Andorra; however, in some cases the Andorran tax framework foresees different exemptions. The most important exemptions to an individual’s capital gains are the following:

• capital gains obtained by Andorran tax-residents derived from alienation of local or foreign companies are exempt under certain conditions, specifically, in the following cases:

• if the individual has held a stake of less than 25 per cent of the company during the previous year before alienation; and

• if the individual had held the investment uninterruptedly for, at least, the previous 10 years before alienation;

• capital gains obtained by Andorran tax-residents derived from alienation of collective investment undertakings participations are generally exempt in the following cases:

• if the individual held a stake of less than 25 per cent of the participation of collective investment undertakings during the year before alienation; and

• if the individual had held the investment uninterruptedly for at least the previous 10 years before alienation; and

• capital gains obtained by Andorran individuals derived from alienation of real estate properties in Andorra are exempt if they have held the ownership for at least 10 years. In the case of capital gains acquired fewer than 10 years before the acquisition of the company, the special law regulating the capital gain tax on real estate transactions regulates degressive tax rates from 15 per cent to 1 per cent.

4 What, if any, taxes apply if an individual makes lifetime gifts?

We do not have gift tax for individuals resident in Andorra. Consequently, if an individual resident receives a gift, that gift would not entail any tax levy.

The donor will be subject to tax if the gift generates a capital gain. However, the PIT law provides exemptions in the case of family transactions (up to the third level of kinship).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There is no inheritance tax for individuals resident in Andorra. Consequently, if an individual resident in Andorra receives an inheritance, that inheritance would not entail any tax levy.

The deceased is not subject to taxes for capital gain derived from the mortis causa transfer.

6 What, if any, taxes apply to an individual’s real property?

Andorra has a local property tax that taxes real estate property located in Andorra. The tax is between zero and €0.75 per square metre of surface area of the property per year. It is not a relevant tax in terms of tax burden.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Imported goods are subject to indirect taxation (VAT) in Andorra, and the standard tax rate applicable is 4.5 per cent, governed by Law 11/2012, 21 June (VAT).

However, goods imported for personal use and enjoyment are exempt if the importation is linked to a change of tax residency.

8 What, if any, other taxes may be particularly relevant to an individual?

For an individual who plans to invest in Andorra, the most relevant taxes would be related to real estate investments. If an individual acquires a residential property in Andorra, VAT (at 4.5 per cent) would apply if the seller is a company or professional regularly carrying out real estate transactions, or transfer tax (4 per cent) if the seller is an individual.

As regards VAT, apart from the general tax rate of 4.5 per cent, there are special tax rates that depend on the kind of goods or service. A summary of these tax rates is as follows:

• a super low rate of zero per cent (for public medical services, public education and housing leases);

• a reduced rate of 1 per cent (for private education services, books, newspapers and food);

• a special rate of 2.5 per cent (for transport and its commercialisation (except cableway transport), objects or art and private libraries, theatres, exhibitions and other cultural and social activities);

• an increased rate of 9.5 per cent for financial services; and

• EU citizens’ reinsurance operations activities are taxed by tax on the provision of services, at 4 per cent rate and not subject to VAT.

Finally, Andorra does not have a wealth tax and, consequently, holding goods or rights in Andorra are not taxable.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts are not recognised under Andorran law because Andorra has not signed the Hague Convention of Recognition of Trusts and is a civil law country.

In fact, there is no inheritance or gift tax; consequently, tax planning regarding local assets will be not necessary.

Nevertheless, normally there is always an international or cross-border element that must be carefully analysed for inheritors resident in Andorra. An Andorran tax-resident may use an Andorran company to hold different kind of assets in several jurisdictions. Andorran company shares will be the subject of the inheritance instead of the resident’s foreign assets, and this fact could reduce the tax burden in some cases.

10 How are charities taxed in your jurisdiction?

Andorran tax residents do not have any tax incentive to donate money to charities.

Charitable institutions are not subject and exempt to corporate income tax. Consequently, they would not entail any tax levy.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are not recognised under Andorran law because Andorra has not signed the Hague Convention of Recognition of Trusts and is a civil law country.

The tax treatment of foreign trust income was clarified by Technical Communication 25-11-15 published by the Andorran tax authorities.

First, the most important consideration is whether the assets have changed possession or not. If the beneficiary does not have possession and control of the assets, Andorran law considers that the settlor is still the owner. Otherwise, if the beneficiary has possession and control of the assets and the settlor cannot revoke the trust, Andorran law considers that the beneficiary is the owner of the assets.

At the time of creation of the trust, settlors can have a capital gain when they transfer their assets only if the settlor cannot revoke the situation. Under Andorran law, this contribution involves the transmission of settlors’ assets to the beneficiaries of the trust. If the beneficiaries are relatives of the settlors, up to a third degree of kinship, settlors have no capital gain, as considered under the express provision of the law. When the transmission of assets to the trust is mortis causa, the potential capital gain will be exempt under the express provision of the law.

During the lifetime of the trust, income and capital gains linked with it will be allocated to the beneficiary or to the settlor, depending on the above-mentioned first consideration.

At the time of distribution of the assets, the beneficiary will receive the trust assets and they will be considered a gift (inter vivos or mortis causa). Inheritance and gift tax does not exist in Andorra; consequently, the beneficiary does not have to pay any taxes on this kind of capital gain.

Finally, Andorran residents usually plan their estate through unit-linked insurances or collective investment vehicles, since the tax treatment is much more favourable.

12 Does your jurisdiction recognise private foundations?

Law 11/2008, of 12 June, on foundations recognises private foundations and public foundations. These legal entities must be focused on legal objectives of general interest and activities that benefit society. Private interest foundations, as a wealth vehicle for preserving private assets, are not regulated in Andorra. However, Andorran residents can create them or be beneficiaries from this kind of foreign private foundation.

At the time of incorporating assets to the foundation, founders could have a capital gain when they transfer their assets to the foundation.

During the lifetime of the foundation, the founders and beneficiaries will not incur any tax if they do not receive any income from the foundation. Andorran tax authorities recognise the foundation as a legal entity separated from the founders and beneficiaries.

Distribution of the assets or any income reception by the beneficiary will be considered a gift (inter vivos). Inheritance and gift tax does not exist in Andorra; consequently, the beneficiary does not have to pay any taxes on this capital gain.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Same-sex civil partnerships are permitted and recognised in our jurisdiction. However, same-sex marriages are not permitted and recognised in Andorra. In recent years, Andorra has intended to adapt its laws to the neighbouring jurisdictions. Therefore, marital status between same-sex civil partnerships (de facto marriages) and different-sex marriages is the same.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

The Qualified Law of couples on stable union (Law 4/2005, 21 February) recognises the legal implications of a stable union. The stable union has the same effect as marriage for tax and succession purposes.

Succession

15 What property constitutes an individual’s estate for succession purposes?

The estate for succession purposes will be the total net wealth of the deceased, calculated as the difference between assets and liabilities. In the case of co-ownership affecting an estate, participation in undivided co-ownership will be included in the net wealth.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

In accordance with Andorran law, if the spouses have not entered a pre-nuptial agreement, the general matrimonial property regime recognised in our jurisdiction is the separation of goods. On the other hand, spouses can enter a system of community of goods, but this must be requested and granted before a local public notary.

Additionally, Andorran law provides a specific rule relating to clawback of gifts on death, in order to enforce the forced heirship rules.

17 To what extent do individuals have freedom of disposition over their estate on death?

Testamentary freedom restrictions in Andorra are regulated by Act 46/2014 Law 46/2014 de la succesió per causa de mort.

Basically, there are two important restrictions on testamentary freedom.

A quarter of the estate (calculated by the difference between assets and liabilities of the deceased) must be transmitted to children compulsorily. The children of the deceased or, failing these, their ascendants, will have equal rights to this part.

At a maximum of one quarter of the estate (calculated by the difference between assets and liabilities of the deceased) is an unavailable part named quarta vidual. A surviving spouse without sufficient economic resources to maintain his or her economic standard of living has a right to this part.

In conclusion, rules exist that restrict testamentary freedom and these restrictions apply to no more than half of the total estate.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

The successor legislation of the Principality of Andorra follows the constitutional principles, which recognise the right of citizens to private property and inheritance, determining that the death of a person does not extinguish the set of rights and duties that were part of their heritage, nor are they directly attributed to the state.

In this sense, at the moment of an intestate death, intestate succession is opened, and correlatively, the following Andorran tax-resident relatives do not have any tax incentive to donate money to charities:

• in the first place, the children inherit in their own right, and their descendants by right of representation;

• when there are no children or other descendants of the deceased, the widowed spouse inherits. In this case, the parents of the deceased have the legitimate right, but the rest of the descendants will not have this right;

• when there are no children, descendants or spouse, the parents inherit equally; and

• when the previous assumptions are not fulfilled, the collateral relatives of the deceased inherit.

Lastly, the Andorran state will accept the inheritance for the benefit of inventory. In this case, the state must allocate the goods or their value to the establishment of social assistance or cultural institutions in the population where the deceased had his or her last residence.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Adopted children are treated as equal to natural legitimate children. In accordance with Andorran regulations, the adoption causes kinship between the adopting family and the adoptee. According to the inheritance law, adoptees have the same rights as legitimate children in the adoptive family, both in the intestate succession and in relation to the legitimate offspring. On the other hand, a comparison between adoptive and biological filiation cannot be applied in the case of testamentary succession, because the discrimination of adopted children with respect to biological ones is possible if it derives from the private will manifested in a disposition of the last will.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

The distribution of assets after the death of the deceased is Law 46/2014, of 18 December, on succession following a death. This law applies regardless of the type of asset, as the estate of the deceased is transferred as a res universitas (ie, a single patrimonial set).

21 What formalities are required for an individual to make a valid will in your jurisdiction?

The main requirement to grant a will is to be over 14 years old and have full capacity to act at the time of the event. Andorran inheritance law allows a will to be made before a notary (it can also be closed) as well as a holographic testament.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Andorran international law recognises foreign wills when (i) the personal law applicable at the time of death is Andorran law; (ii) the deceased had his or her domicile and residence in Andorra at the time of death; and (iii) he or she held property or rights located in Andorra.

23 Who has the right to administer an estate?

The deceased may appoint any person with legal capacity to administer an estate.

The interested parties, the heirs, the legatees and others favoured by the inheritance have the right to administer the estate.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

To transfer the assets and rights of the decedent to the heirs, the heirs must previously have accepted the inheritance (either expressly or implicitly).

Before acceptance of the inheritance, heirs may only perform acts of conservation, defence and ordinary administration.

All of the heirs are individually legitimised by the acts of conservation and defence of the goods, but for the other acts of ordinary administration, the agreement of the majority is necessary. These acts do not imply acceptance.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

In the hypothetical case of debts, contingency or conflict in the distribution of the inheritance, parties can mutually agree to submit to mediation or go to the civil jurisdiction.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Age is very important to be able to carry out legal business with full legal efficiency. The minor must obtain more qualified protection from the legal system, which translates into the consideration of a minor and the limited (rather than full) ability to act. The term minor is defined by the subject not having full capacity to act, or sufficient mental maturity to carry out legal business with full responsibility. The Andorran legal system has developed some institutions aimed at helping children who cannot take care of themselves.

The first and most important institution is parental authority, which is usually exercised by the father and mother. The protection of the child can also be carried out by state institutions and by justice. The second institution would be guardianship, which takes place when the parents have died or have been deprived of parental authority.

Therefore, until their emancipation or until they are 18 years old, the minor’s legal representatives are the parents or guardian. In this sense, the person who exercises guardianship or holds the legal representation of the minor manages the assets and the property of the goods under judicial control.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

The age at which an individual attains legal capacity for the purposes of holding and managing property is 18. In reference to the effectiveness of the minor’s actions, without the intervention of his or her legal representative, the following clarifications should be established. The Andorran legal system has always taken into account the fact that carrying out an act with patrimonial transcendence on the part of a minor is not the same as that act performed by a minor close to 18 years. The faculties of perception and understanding are very different in both cases, although neither has full capacity to act. Therefore, in our jurisdiction, contracts awarded by minors without the consent of their legal representative are void, whether it was for their benefit or against their interests. In this sense, the rule of injury has no applicability.

As for the effects of acts performed by minors, when they are acts carried out by minors who do not have sufficient natural capacity to understand, the absolute nullity of said acts shall be declared. On the other hand, with regard to minors, if they have the capacity to understand, the solution must be nullity. In this sense, the validity and effectiveness of the act will be contingent until the challenge by the minor or his or her legal representative is successfully exercised.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

The affairs of someone who has lost capacity are managed through an incapacitation procedure, which ends with a sentence agreeing on the appointment of a guardian or curator. The guardian or curator must be registered in the corresponding Civil Registry, in the margin of the birth certificate of the person who is incapacitated.

The sentence declaring the incapacitation of a person has expressed the scope of capacity affected by the limitation. The appointment of a guardian or curator is made by the judge who chooses the person he or she considers most suitable. The guardian holds the legal representation of the incapacitated persons and administers the assets under judicial control. In addition, the guardian must care for the incapacitated person and, in particular, must ensure his or her moral and material well-being, and must do whatever it takes to recover capacity, and achieve social reintegration.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Andorra does not provide any visas to visitors. According to immigration law, foreign nationals do not need a visa to visit Andorra if they stay fewer than 90 days in the country in a one-year period. EU citizens only need a current passport or ID card.

If visitors wish to stay in Andorra for more than 90 days per year, they need an immigration permit according to Andorran immigration law.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

See question 29.

31 Is there a visa programme targeted specifically at high net worth individuals?

According to Andorran immigration law, there are various kinds of authorisations with different characteristics and requirements. The two main kinds of permits are ‘residence and work permit’ and ‘residence without work permit’. Non-lucrative residency is a kind of residence without a work permit tailored to high net worth individuals.

The requirements to obtain non-lucrative residency are the following:

• being of age (18 years old) or an emancipated minor;

• having sufficient financial resources for the applicant and his or her dependent family residing in Andorra;

• contracting insurance that covers the applicant’s illness, incapacity and old age and that of the dependent family who reside in Andorra;

• having a dwelling in Andorra (ownership or rental);

• establishing his or her principal effective residence in Andorra for at least 90 days per year, without working in the country. However, he or she can perform the necessary operations for the management of his or her own assets; and

• investing in a permanent and effective form with a sum of at least €400,000 in real estate located in Andorra; equity of companies’ resident in Andorra; debt or financial instruments issued by public suthorities in Andorra; and non-remunerated deposits in the Andorran National Institute of Finance.

Part of the above-mentioned investment must be a non-refundable deposit of €50,000, plus another non-refundable €10,000, for each dependant who resides in Andorra.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Yes. Non-lucrative residents can bring their family members as ‘dependant residents’ if they meet the above-mentioned requirements.

These family members will have the same rights to reside in Andorra as the non-lucrative resident but their authorisation depends on the authorisation of the permit holder.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

A non-lucrative resident has a right to reside in Andorra during the time allowed according to the residency permit. However, non-lucrative residents can renew their residency if they meet all the requirements. The first authorisation and renovation will be two years. From then on, every renovation will be from three years.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Yes, these include a foreign person who has lived during the past 20 years in Andorra and proves his or her integration in Andorra. To obtain Andorran nationality this way, the person has to submit the ‘Govern’ form to the Andorran government.

In addition, this applies to a foreign person who marries an Andorran national, if he or she fulfils the following requirements: permanent and main residence in Andorra in the past three years, before or after her or she gets married; and (proof of his or her integration into Andorra.

Jose Maria Alfín

josemaria.alfin@caseslacambra.com

Marc Urgell

marc.urgell@caseslacambra.com

C/ Manel Cerqueda i Escaler 3-5

AD 700 Escaldes-Engordany

Andorra

Tel: +376 728 001

www.caseslacambra.com

Austria

Paul Doralt, Katharina Binder, Elmar Drabek and Siegfried Podda-Prewett

Dorda Rechtsanwälte

Tax

1 How does an individual become taxable in your jurisdiction?

Austrian resident individuals are subject to national federal income tax. There are no local income taxes. Any individual having a permanent home or his or her habitual abode in Austria is deemed to be an Austrian resident. Exemptions apply for individuals with holiday homes if they do not use them for more than two months a year.

Austrian resident individuals are taxable on their worldwide income, whether received in cash or in kind. Non-resident individuals pay tax on their Austrian-sourced income.

2 What, if any, taxes apply to an individual’s income?

Austrian income tax is levied on an individual’s income from seven sources:

• agriculture and forestry;

• self-employment;

• trade and business;

• employment;

• investment;

• rent, lease payments and royalties; and

• other specified income such as certain annuities and capital gains upon the disposal of certain privately held assets, in particular real property.

Income not covered by the above categories is not taxable.

Austria generally taxes income at a progressive tax rate, ranging from 25 per cent to 50 per cent (55 per cent for income exceeding €1 million in the calendar years 2016 to 2020). Investment income drawn in Austria is generally subject to a special flat rate tax of 27.5 per cent; interest from savings accounts and current accounts is taxed at 25 per cent. Income from a sale of private real property is subject to a special flat rate tax of 30 per cent.

3 What, if any, taxes apply to an individual’s capital gains?

An individual’s capital gains are subject to income tax, which is levied as a final 27.5 per cent per cent withholding tax if generated in Austrian deposit accounts. If such income is derived in foreign bank accounts, it must be included in the individual’s tax return and is subject to a flat and final income tax rate of 27.5 per cent.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Austria currently does not levy gift tax. There are, however, notification obligations for certain gifts if the donor or the donee has their permanent home or habitual abode in Austria. Gratuitous transfers of Austrian real property are subject to real estate transfer tax and land register fees (see question 6).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Austria currently does not levy inheritance tax. Transfers mortis causa of Austrian real property are subject to real estate transfer tax and land register fees (see question 6).

6 What, if any, taxes apply to an individual’s real property?

Property tax

Owners of Austrian real property are subject to property tax based on the property’s historically-assessed uniform value, which is generally substantially below its actual fair value. The property tax is levied at a basic federal rate of 0.2 per cent multiplied by a municipal coefficient of up to 500 per cent.

Real estate transfer tax

Real estate transfer tax is levied on:

• transfers of real property located in Austria; and

• transfers of, or the consolidation of, a substantial shareholding (at least 95 per cent) in a company owning real property in Austria.

Real estate transfer tax is generally charged based on the consideration. For gratuitous transfers, transfers mortis causa, lifetime transfers between family members, transfers of, or the consolidation of, substantial shareholdings in a property-owning company and any case where the consideration cannot be determined, the property’s land value serves as the tax basis. It is the lowest of:

• three times the value of the land as assessed under the Austrian Land Valuation Regulation plus the value of the building;

• the property’s standardised value based on average property values published by Statistics Austria; or

• the property’s fair market value.

Transfers of real property located in Austria are taxed at 3.5 per cent of the consideration. Gratuitous transfers of Austrian real property are taxed in tiers: the first €250,000 of the land value are taxed at 0.5 per cent, the subsequent €150,000 at 2 per cent and any exceeding land value at 3.5 per cent. Special provisions apply for only partially gratuitous transfers.

In addition, a 1.1 per cent fee falls due for the registration of a new owner in the Austrian land register.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Customs duty, excise duty or import value added tax (VAT) may be payable when goods are brought to Austria from outside the European Union. Certain exemptions apply to goods for private use and enjoyment brought into Austria by the individual traveller in his or her personal luggage. Austrian law further provides for certain reliefs from import duties (eg, if the individual moves his or her primary residence to Austria). Exports from Austria to non-EU countries are generally tax-free.

Upon first registration of cars and motorcycles in Austria, car registration tax of up to 20 per cent for motorcycles, and up to 32 per cent for cars, falls due. It is based on the motorcycle’s cubic capacity or the car’s CO2 emission values. Electric cars are exempt.

8 What, if any, other taxes may be particularly relevant to an individual?

There is no wealth tax in Austria. The standard VAT rate is 20 per cent. A reduced rate of 10 per cent applies in particular to food, books and newspapers, as well as rent and lease payments for residential purposes, while VAT of 13 per cent is levied on deliveries, private consumption and imports of inter alia art and antiquities.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts are generally not recognised in Austria. The comparable Austrian asset-holding vehicle is the private foundation (see question 12). Whether foreign trusts qualify as transparent or opaque for Austrian tax purposes is determined on a case-by-case basis.

10 How are charities taxed in your jurisdiction?

Austrian law provides various tax benefits for corporations pursuing charitable purposes; in particular, in relation to VAT and income tax, provided that the charity, based on its statutes and its actual management, exclusively and directly pursues non-profit, charitable, or religious objectives.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

There are no trusts under Austrian law. Austria has neither ratified the HCCH Hague Convention on the Law Applicable to Trusts and on their Recognition (Hague Trust Convention).

12 Does your jurisdiction recognise private foundations?

An Austrian private foundation is a legal entity designed as managed property without an owner or a shareholder. It may be set up for charitable or private purposes but it may not pursue commercial activities. The founders can be individuals or legal entities; the minimum capital is €70,000. A private foundation’s beneficiaries are not on public record but must be disclosed to the tax authorities. It is possible for the founder to be a beneficiary. A management board, consisting of at least three members, of whom two must have their habitual abode in the European Economic Area (EEA), is the governing body of the private foundation. Neither beneficiaries nor their close family members or personal advisors may be part of the managing board. The private foundation’s annual accounts are not publicly disclosed but must be audited by a certified public accountant.

Contributions to Austrian private foundations and comparable foreign entities are subject to 2.5 per cent foundation entry tax on the fair market value of the assets contributed. If not all the required information is disclosed to the tax authorities, or certain other conditions are not met, the tax rate is increased to 25 per cent. Contributions of Austrian real property are subject to real estate transfer tax (see question 6) plus a 2.5 per cent foundation entry tax equivalent and land register fees of 1.1 per cent based on the property’s land value.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Austrian law recognises same-sex civil partnerships. It provides equal rights in labour, immigration, pension, tax, and civil law to same-sex couples as marriage does to opposite-sex couples. It also allows same-sex partners to change their surname to match their partner’s and take a family surname. Same-sex civil partnerships, like civil marriages, are formed at the municipal civil registration office. Austrian law allows joint adoption by same-sex couples. For succession rights of same-sex civil partners please see below.

Following a recent judgment by the Austrian Constitutional Court, from 1 January 2019 onwards, marriage will be available also to same-sex couples.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

From 1 January 2019 onwards, civil partnerships will be available also to heterosexual couples.

Succession

15 What property constitutes an individual’s estate for succession purposes?

Under Austrian law, an individual’s estate for succession comprises all property he or she owns, whether in his or her sole name or in a co-ownership.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Under Austrian law, the principle of testamentary freedom applies and an individual is generally not restricted in his or her disposition over his or her estate during their lifetime.

17 To what extent do individuals have freedom of disposition over their estate on death?

Under Austrian law, testamentary freedom is restricted by mandatory inheritance rules. Under these rules, the individual’s children, spouse and registered civil partner are entitled to receive half of their statutory share in the estate (see question 18). In addition, if a married couple enters into a testamentary contract or if an individual makes a gift on death, one quarter of the individual’s estate must by law remain clear of any such dispositions as well as claims of mandatory inheritance.

A person entitled to a mandatory inheritance generally has a cash claim against the testamentary heirs, which is calculated on the basis of the total fair value of the deceased’s assets and due one year after the individual’s death. Gifts made by the individual to family members entitled to mandatory inheritance claims prior to his or her death are taken into account for the calculation of mandatory inheritance claims and may also result in clawbacks of lifetime gifts.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

Under Austrian inheritance law, family members of the deceased individual share the estate based on a modified per capita system. Under these rules, the spouse or registered civil partner is entitled to one-third of the estate’s value, while all of the individual’s children share two-thirds of the estate’s value. If the deceased leaves no children behind, the spouse or registered civil partner is entitled to two thirds of the estate if the parents of the deceased individual are still alive. If one or both parents are already deceased at the time of the individual’s death, their share in the remaining third of the estate is also passed to the spouse or registered civil partner.

If the individual leaves neither valid instructions for the disposition of his or her estate nor statutory heirs, the estate passes to the individual’s life companion, provided that the life companion lived with the deceased in a shared household for the last three years prior to the deceased individual’s death.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Under Austrian law, illegitimate and adoptive children have the same statutory inheritance rights to their adoptive parents’ estates as natural legitimate children. In addition, adoptive children keep their statutory inheritance rights to the estates of their natural parents. Adoptive children, however, have no statutory inheritance rights to the estate of other members of their adoptive family.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Austria implemented the EU Succession Regulation, Regulation (EU) No. 650/2012. Under these rules, the distribution of an individual’s estate is generally governed by the law of the country, where the individual had his or her last habitual abode, regardless of whether it is an EU country or not. An individual may also validly opt for the application of the inheritance regime of his or her nationality in his or her last will. The respectively applicable law governs the distribution of moveable and immovable property.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

Under Austrian law, an individual may make a valid will either in writing, orally or publicly. A valid will in writing can either be entirely handwritten and signed or a printed document, where he or she, in front of three independent and simultaneously present witnesses, adds a handwritten solemn declaration that the document contains his or her last will and testament. The witnesses must then also add their handwritten signatures indicating their personal details and capacity as witnesses. An oral will can be validly made only in life-threatening situations. It requires two independent witnesses and is valid for three months. A public will is made in front of a court or an Austrian public notary. Individuals between 14 and 18 years of age may only make public wills.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Austria adopted the HCCH Convention on the Conflicts of Law Relating to the Form of Testamentary Dispositions 1961 (Hague Testamentary Dispositions Convention). Under its rules, a will is valid and therefore recognised in Austria if its form complies with the internal law:

• of the place where the testator made it;

• of a nationality possessed by the testator, either at the time when he or she made the disposition, or at the time of his or her death;

• of a place in which the testator had his or her permanent home either at the time when he or she made the disposition, or at the time of his or her death; or

• so far as immovables are concerned, of the place where they are situated.

23 Who has the right to administer an estate?

Under Austrian law, the estate is generally administered by all heirs jointly. It is possible to appoint a special administrator or executor for the estate, either based on the testator’s will or a respective joint application of the heirs.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Under Austrian law, the deceased assets pass to the heirs and successors by universal succession and to the legatees by singular succession based on a respective decree issued by the probate court after the probate proceeding has been completed by the notary public. An heir may accept his or her share in the estate either unconditionally, assuming liability for the deceased’s debts regardless of the value of his or her inherited share in the estate, or conditionally, assuming liability for the deceased’s debts only up to the value of his or her inherited share in the estate based on an appraisal and inventory.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Austria does not recognise after-death variations. Heirs and beneficiaries may challenge the validity of a will. Any claims of family members entitled to a mandatory inheritance must be addressed against the heirs and not against the estate.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Under Austrian law, minors hold their property themselves. A minor’s property is generally managed by his or her parents or legal custodians on the minor’s behalf. They must invest the minor’s assets in gilt-edged securities only. Contracts of substantial economic impact require approval by the family court.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

Under Austrian law, individuals who attain the age of 14 may freely dispose over their employment income and assets left at their disposal, as long as it does not threaten satisfaction of their life needs. On an individual’s 18th birthday, he or she becomes of age and attains the legal capacity to manage his or her property him or herself.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

The new Austrian Adult Protection Law enacted on 1 July 2018 introduced a four-pillar system for the representation of adults in need of support.

The first pillar is a healthcare power of attorney, where the attorney is instructed to take decisions on medical treatment whenever the individual is not capable of making decisions; the court’s involvement is limited to situations where the individual and his or her attorney dissent, as well as a permanent relocation of the individual.

The second pillar is elected adult representation for adults, who recognise that they are no longer fully capable of making decisions and, therefore, appoint a representative themselves.

The third pillar is representation by a close family member. It is monitored by the court and must be renewed at least every three years.

The fourth pillar is court-appointed representation, which is no longer intended for all of the individual’s affairs, but rather for a specific area. It is valid until the respective task is accomplished or for a maximum period of three years. Court-appointed guardians must render account on a regular basis.

For each of the first three pillars, representation is valid only if the representative is registered in the Austrian Central Representation Registry.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

EU, EEA and Swiss nationals generally do not require a visa to enter and stay in (visit) Austria for up to three months. Nor do they require a residence permit or settlement to reside, work and study in Austria for longer than three months. In such cases, they do, however, require certain documentation that simply confirms that a person’s residence status derives from EU law.

Foreign nationals who are not EU, EEA or Swiss nationals generally do require a visa, stay permit or residence permit to enter and/or visit Austria. Certain third-country nationals (eg, United States nationals) may enter and stay in Austria visa-free (see question 30).

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A visitors’ visa (Schengen visa) enables a foreign national to enter and stay in Austria (or in any other country of the Schengen area) for a total of 90 days in a 180-day period. Foreign nationals can also apply for visas or temporary stay permits. The former are valid for up to six months, the latter for up to one year. Both are limited to specific purposes, such as education or training, temporary self-employment, temporary employment, humanitarian reasons, highly-qualified jobseekers, company secondments, intra-company transfers.

31 Is there a visa programme targeted specifically at high net worth individuals?

Applicants for Austrian residence permits are generally required to demonstrate that they possess sufficient funds or will earn an income so as to not need recourse to public funds. A minimum level of funds or income is prescribed by regulation.

In the case of residence permits for ‘financially independent people’, the foreign national must demonstrate possession of double the statutory minimum amount as required for other residence permits. In 2018, the annual amount required was approximately €22,000 for individuals. This residence permit does not grant access to the Austrian labour market, is quota-restricted and (initially) valid for one year. With certain exceptions, such as possession of a bachelor’s degree, a requirement to learn German may also apply.

High net worth individuals may also decide to invest as key self-employed persons in Austria. This requires an investment capital of at least €100,000 in a business that brings macro-economic benefit to the relevant Austrian region. In addition, high net worth individuals could invest in a start-up company. This requires an investment of €50,000 in an innovative product, service, process or technology, personal influence on the management of the company and a business plan.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Family members of persons who possess a ‘financially independent’ residence permit can also obtain a ‘financially independent’ residence permit. In this case, the minimum amount of funds or income required increases. In 2018, the annual amount required was approximately €33,000 for married couples and approximately €3,400 per minor child. This residence permit does not grant access to the Austrian labour market, is quota-restricted and valid for one year. With certain exceptions, such as possession of a bachelor’s degree, a requirement to learn German may also apply.

Family members of self-employed investors can obtain a quota-free, one-year residence permit that grants free access to the Austria labour market.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Residence permits for persons who are financially independent or who are self-employed investors are issued for one year. The residence permits can then be extended for one year and thereafter, for a further three years. After five years’ material residence in Austria, the person can apply for permanent residence, provided they have intermediate knowledge of German, pass an integration test and have sufficient funds or income.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

There are two routes to obtaining citizenship in Austria. The first is a privileged route that enables a person to obtain citizenship after six years’ residence in Austria. The second is citizenship after 10 years’ residence in Austria. The former can be obtained, for example, where a foreign national has upper-intermediate knowledge of German.

For both these routes, it is a general requirement that the person has earned sufficient income for at least six months prior to filing their application and over 36 months in total in the six years prior to the application. In addition, the applicant must have spent no more than 20 per cent of the preceding period outside Austria and must pass an integration test.

Paul Doralt

paul.doralt@dorda.at

Katharina Binder

katharina.binder@dorda.at

Elmar Drabek

elmar.drabek@dorda.at

Siegfried Podda-Prewett

siegfried.podda-prewett@dorda.at

Universitätsring 10

1010 Vienna

Austria

Tel: +431 533 47 950

Fax: +431 533 47 97

www.dorda.at

Belgium

Saskia Lust and Barbara Albrecht

Loyens & Loeff

Tax

1 How does an individual become taxable in your jurisdiction?

An individual becomes taxable in Belgium when he or she becomes a Belgian resident. A Belgian tax resident is an individual who has his or her main residence in Belgium. An individual who does not have his or her main residence in Belgium but who has the seat of his or her fortune in Belgium also qualifies as a Belgian resident. Residency depends on all relevant circumstances. It is a factual criterion. However, the registration of the individual in the National Register creates a rebuttable presumption of residency.

Belgian residency triggers the liability of Belgian personal income taxes over the following types of income and gains:

• income of real property (see question 6);

• income of capital (see question 2);

• income of professional activities (see question 2); and

• income of diverse sources and (capital) gains (see questions 2 and 3).

2 What, if any, taxes apply to an individual’s income?

Income of capital is taxed at flat rates.

In principle, dividends are taxed at a flat rate of 30 per cent, whatever the amounts of dividends earned. Belgium does not grant a credit for foreign withholding tax. The foreign withholding tax can be deducted from the gross dividend to determine the taxable basis in Belgium. Upon fulfilment of conditions and deadlines, dividends can be taxed at a flat rate of 15 per cent. Dividends received upon the liquidation of a company qualify for a flat tax rate of 10 per cent, when conditions are met.

As for dividends, the basic tax rate for interest income is a flat rate of 30 per cent. Interest income from savings accounts within the European Economic Area (EEA) can qualify for a lower rate of 15 per cent, if conditions are met.

Income of professional activities is taxed at progressive rates up to 50 per cent. The basic rates can be increased with surcharges up to approximately 53.5 per cent.

3 What, if any, taxes apply to an individual’s capital gains?

Gains realised upon the transfer of shares are not taxed in the hands of a Belgian tax resident when the sale or contribution qualifies as ‘normal private wealth management’. In principle, a sale to a third party can qualify as ‘normal private wealth management’. The sale of shares to an entity that is controlled by the seller will generally not qualify as ‘normal private wealth management’ and triggers tax liability at a flat rate of 33 per cent (increased with surcharges).

Gains realised upon speculative transactions are always taxed. The flat rate of 33 per cent (increased with surcharges) is applicable.

The gain on the sale of shares in a Belgian company is taxed when the purchaser is a legal entity established outside the EEA and when the seller holds a substantial shareholding (of more than 25 per cent) in the sold company. The applicable flat rate is 16.5 per cent (increased with surcharges).

4 What, if any, taxes apply if an individual makes lifetime gifts?

A Belgian tax resident can gift movable assets without liability of Belgian gift tax. The gift needs to be made in an informal way or before a foreign notary to avoid the liability of the Belgian gift tax. The basic rule is that when the donor of a gift free of Belgian gift tax passes away within a period of three years after the gift, Belgian inheritance tax is due over the gift if the donor was a tax resident of Belgium at the date of his or her decease. There are several exceptions to the rule according to which Belgian inheritance tax remains due over the tax-free gift upon decease of the donor as a Belgian resident, even if the date of the decease falls out of the scope of the three years after the gift (eg, gifts made under the condition precedent of the decease of the donor).

A Belgian resident can also opt for a gift of movable assets with payment of Belgian gift tax. Gift tax is levied by the regions. Belgium has three regions: Flanders in the north, Wallonia in the south and the capital city, Brussels, in the centre. Each region has specific rates, reliefs and exemptions in the field of gift tax. In principle, the applicable regime is the regime of the region where the donor resides. The rates for gifts of movable assets are flat rates, irrespective of the value of the gift. For gifts in direct line and between spouses, the flat rate is 3 per cent in Flanders and Brussels and 3.3 per cent in Wallonia.

All three regions have introduced a specific regime for the gifting of assets of family-owned businesses and shares in family-owned companies established in the EEA. The regions grant an exemption when conditions are met.

Real property situated in Belgium cannot be gifted without payment of gift tax. The rates, reliefs and exemptions are determined by the regions. In principle, the tax is levied at progressive rates depending on the market value of the real property and the degree of kinship between the donor and the beneficiary.

Belgium does not levy gift tax when a Belgian tax resident gifts a real property that is situated outside Belgium.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

If the deceased individual was a Belgian resident, inheritance tax is due over his or her worldwide assets.

In principle, each of the three regions applies progressive inheritance tax rates, depending on the degree of kinship between the deceased and the heir and on the market value of the inherited assets. In direct line and between spouses, the highest applicable inheritance tax rate in Flanders is 27 per cent. In Brussels and Wallonia, the highest rate is 30 per cent in direct line and between spouses.

In Flanders, the inheritance tax due by the spouse and by the heirs in direct line is calculated separately over the movable and immovable assets. This distinction does not exist in Brussels or Wallonia.

All three regions grant an exemption to the spouse of the deceased from payment of inheritance tax over the value of the inherited share in the family home. No substantial exemptions are granted with respect to movable assets (eg, the exemption for the surviving spouse in Flanders is limited to €50,000).

All three regions have introduced a specific regime for the inheritance of assets of family-owned businesses and shares in family-owned companies established in the EEA. If certain conditions are met, assets in family-owned businesses and shares in family-owned companies can be inherited at a flat rate of 3 per cent in Flanders and Brussels. In Wallonia, those assets and shares can be inherited free of inheritance tax, upon fulfilment of conditions.

6 What, if any, taxes apply to an individual’s real property?

Upon purchase of real property situated in Belgium, registration rights are due over the purchase price at, in principle, a flat rate of 10 per cent in Flanders. The flat tax rate is reduced in Flanders to 7 per cent for the purchase of the family home.

When an individual rents a house situated in Belgium to another individual, income tax is due by the owner at progressive rates up to 50 per cent (increased with surcharges) over the cadastral income of the property. The cadastral income is a fictitious rental income. If the tenant rents the house for professional use, income tax is due by the owner at progressive rates up to 50 per cent (increased with surcharges) over the actual rental income.

An individual who owns property situated in Belgium needs to pay a property tax on an annual basis.

If real property situated outside Belgium is rented out by a Belgian individual, Belgium has no authority to levy taxes over the rental income according to the double tax treaties.

If an individual who is a tax resident of Belgium sells his or her family home, no income tax is due over the capital gain. However, if an individual sells real property, which is not his or her family home, within five years of the acquisition of the property, income tax can be due over the (reduced) capital gain at a flat rate of 16.5 per cent (increased with surcharges).

Belgium has no authority, according to the double tax treaties, to levy income taxes over capital gains if real property situated outside Belgium is sold by a Belgian individual.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Customs duties, excises (only for goods that qualify as excise goods) and import VAT will, in principle, become due when goods are brought into Belgium from outside the European Union. However, goods having no commercial character (therefore for personal use and enjoyment) contained in personal luggage may be exempted from duties and taxes within certain limits.

There are no customs duties payable when travelling from another EU member state to Belgium. The same goes for excise duties and VAT as long as the goods are purchased tax included and they are destined for personal use.

EU and Belgian legislation foresees certain general reliefs of import duties, excises and VAT such as, for example, for persons transferring their normal residence from outside the European Union to Belgium.

In principle, there are no customs duties, excises or VAT due if goods are taken out of Belgium (eg, export).

In Belgium, the standard rate for VAT over consumer goods amounts to 21 per cent.

8 What, if any, other taxes may be particularly relevant to an individual?

There is no general wealth tax in Belgium.

However, tax on stock exchange transactions (TSET) is due on stock exchange transactions entered into or carried out in Belgium and on stock exchange transactions entered into or carried out by foreign intermediaries on behalf of Belgian residents. The TSET rate due depends on the underlying financial instrument: 0.12 per cent on bonds, 0.35 per cent on shares and 1.32 per cent on capitalising shares. The TSET due on a transaction is limited to respectively €1,300, €1,600 or €4,000.

Moreover, natural persons holding one or more securities accounts, either in Belgium or abroad, with taxable financial instruments for a total value of €500,000 or more, are subject to an annual subscription tax. Taxable financial instruments are (certificates of) shares (certificates of), bonds, units of undertakings for collective investments, shares of investment companies, cash certificates and warrants. The subscription tax amounts to 0.15 per cent and is due on the total value of the taxable financial instruments held in the securities accounts. Securities held through pension savings and life insurances are exempt, as well as nominative shares.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Targeted foreign legal structures

Belgium applies the Belgian Cayman tax to Belgian residents who are the founder or beneficiary of targeted foreign legal structures. The following foreign legal structures are targeted:

(i) all trusts;

(ii) low-taxed companies and foundations established outside the EEA, as well low taxed companies and foundations established in the EEA that are included in a ‘blacklist’, eg, the Luxembourg SPF;

(iii) insurance contracts that either provide for the distribution of assets of (i) and/or (ii) structures or have been funded with assets of (i) and/or (ii) structures.

Further, fund-linked entities are targeted when they are fully controlled by an individual (and his or her family).

Founders are both the legal founders and the economic founders, as well as the persons who hold the shares of (ii) structures and the persons who concluded the insurance contract or on whose behalf the premiums have been paid (iii). Upon demise of the founder, the heirs of the founder will be subjected to the Belgian Cayman tax if they are Belgian residents. Heirs can only avoid the application of the Belgian Cayman tax if they can provide the evidence that neither they nor their heirs will ever receive a benefit from the foreign legal structure.

The Belgian Cayman tax includes a transparency measure, a tax on distributions and a reporting obligation.

First, the Cayman tax subjects founders to the ‘look-through-tax’, a transparency measure on the basis of which founders are taxed on the income of the structure, as if the structure did not exist, regardless whether the income was actually distributed to them or not. The taxability of income and the applicable tax rates depend on the income tax regime applicable to individuals (see questions 2 and 3). For example, if a targeted structure sells a substantial shareholding to a third party, the look-through-tax can be without consequence. If the structure concerns a double layer structure, the look-through-tax can be applicable to the income of all targeted entities in the structure.

Further, beneficiaries, Belgian residents, are taxed on distributions received at the flat tax rate of 30 per cent, insofar and to the extent the evidence cannot be provided that the distribution represents the initial capital. Distributions are deemed to be made on a LIFO-basis.

Lastly, founders and beneficiaries (who actually received a distribution) need to report the existence of the targeted foreign legal structure in their annual income tax return and need to declare the income or the distribution of the foreign legal structure. Income tax is due through the annual income tax assessment.

Since its introduction, the Belgian Cayman tax has been amended and extended several times. It is expected that the Cayman tax will be extended again in the future.

Belgian holding companies

Profits of Belgium-based holding companies are subject to corporate income tax at a flat rate of 29.58 per cent, to be lowered to 25 per cent in 2020. Under conditions, capital gains realised on subsidiaries are 100 per cent tax exempt. Under conditions, dividends received from subsidiaries are 100 per cent tax exempt as well. Dividends distributed to shareholders, residents of Belgium, are taxed as described in question 2. In principle, dividends are taxed at a flat rate of 30 per cent. Dividends received upon the liquidation of a company qualify for a flat tax rate of 10 per cent, when conditions are met.

The holding needs to submit annually a corporate income tax return. Corporate income tax is due through the annual corporate income tax assessment.

10 How are charities taxed in your jurisdiction?

A specific Belgian tax regime applies to charities. Mainly, this specific tax regime taxes the charitable entity on capital income and capital gains, as described for individuals under questions 2 and 3.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

There are no trusts according to Belgian law. Belgium has not ratified the The Hague Trust Convention. Belgium qualifies trusts as transparent for income tax purposes (see question 9). See question 15 for the qualification of trusts for inheritance tax purposes.

12 Does your jurisdiction recognise private foundations?

Belgium has its own private foundation. The Belgian private foundation requires an altruistic objective. Neither the founder nor the directors of the foundation can receive an advantage from the foundation.

A specific Belgian tax regime applies to private foundations. In basic terms, this specific tax regime taxes the private foundation on capital income and capital gains as described for individuals under questions 2 and 3.

Distributions made by Belgian private foundations can remain without gift tax and income tax when conditions are met. According to rulings, the beneficiaries can be family members of the founder, when conditions are met.

Belgium recognises private foundations governed by the laws of other jurisdictions (for the tax regime applicable to low-taxed foundations established outside the EEA: see question 9).

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Belgium recognises same-sex marriages and legal cohabitation. In the case of marriage or legal cohabitation, same-sex relationships benefit from the same (preferential) regimes as heterosexual relationships in income tax, gift tax and inheritance tax.

With regard to inheritance tax, spouses as well as legal cohabitants, enjoy preferential rates and specific exemptions (see question 5).

With respect to civil law, a surviving spouse has a forced heirship in the estate of his or her deceased spouse. In principle, when there is no will, the surviving spouse is entitled to the usufruct (eg, right of income) of the estate of the deceased spouse. According to the forced heirship rules, the surviving spouse is entitled to the usufruct of half of the estate of the deceased spouse (see question 17).

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

As an alternative for marriage, a heterosexual couple has the possibility to submit a declaration of legal cohabitation at their municipality.

Legal cohabitants benefit from the same (preferential) regimes and specific exemptions as spouses in income tax, gift tax and inheritance tax.

With respect to civil law, a surviving legal cohabitant has no forced heirship. When there is no will, the surviving cohabitant receives the usufruct of the family home. In a will, the surviving legal cohabitant can be disinherited.

Succession

15 What property constitutes an individual’s estate for succession purposes?

An individual’s estate consists of all his or her personal property or in the case of co-ownership, the percentage of his or her property.

In Belgium, the concept of usufruct and bare ownership exists. The usufructuary is entitled to the income of the goods (eg, rental income or interests and dividends). The bare owner is entitled to the capital gains. Usufruct will end automatically upon decease of the usufructuary. In that case, the bare owner of the good acquires full ownership.

According to current Belgian legislation, trusts are not transparent for inheritance tax purposes. If a Belgian individual is the settlor of an irrevocable discretionary trust and dies as a Belgian resident, the assets of the trust are not part of his or her estate for inheritance tax purposes. However, according to an administrative standpoint of the Belgian tax authorities, distributions made by the trust to a beneficiary upon or after the decease of the settlor are deemed to be fictitious legacies made by the settlor in favour of the beneficiary. Inheritance tax is due by the beneficiary over the value of the distribution at the moment of the distribution. The inheritance tax rate depends on the value of the distribution and on the degree of kinship between the settlor and the beneficiary. If no distributions are made out of the irrevocable discretionary trust, no inheritance tax is due.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Individuals can gift everything they own during their lifetime.

However, certain legal restrictions apply. Individuals married under the regime of community of property cannot give away common goods without the consent and approval of their spouse. An individual cannot give in such a way that he or she endangers the family interests (eg, he or she cannot give away the family home, not even if the family home is a personal property).

If an individual who is a tax resident of Belgium gifts movable property and dies within a period of three years after the gift, Belgian inheritance tax will be due over the value of the gift if no Belgian gift tax has been paid (see question 4).

Also, an individual must take into account that his or her children and his or her surviving spouse have forced heirship rights according to Belgian inheritance law. The basis on which forced heirship is calculated includes not only the estate at the date of decease but also all the gifts that have been made by the deceased during his or her lifetime.

A new inheritance law entered into force on 1 September 2018. The rules on forced heirship of children have been rewritten.

17 To what extent do individuals have freedom of disposition over their estate on death?

In a will, an individual can freely dispose of his or her estate. However, in the event that Belgian law applies to the succession, or in the event that Belgium can impose the Belgian forced heirship rules on the basis of the applicable conflict of law rules, both the surviving spouse and the children of the deceased can invoke a forced heirship on the basis of Belgian forced heirship rules.

In principle, the surviving spouse is entitled to a forced heirship of at least half of the estate in usufruct. The new inheritance law limits the forced heirship of children to half of the estate (in bare ownership when there is a surviving spouse), irrespective of the number of children.

The forced heirship is calculated on the estate of an individual at the moment of death as well as on all assets that have been gifted by the individual during his or her lifetime.

In the event at least one spouse has children from a previous marriage, it is possible to limit the inheritance rights of the surviving spouse in a marriage contract.

The new Belgian inheritance law makes it possible for a parent to come to a valid agreement with his or her children on the division of the estate upon the demise. The agreement is binding on all parties involved.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If the deceased leaves a surviving spouse and children, the surviving spouse receives the estate in usufruct. The children receive the estate in bare ownership, each in equal shares.

In the event that there is no surviving spouse, the children receive the estate in full property, each in equal shares.

If the deceased leaves a surviving spouse but no children, the surviving spouse receives the deceased’s share in the community property in full, the full ownership of the deceased’s share in the assets jointly held by the spouses, as well as the usufruct of the deceased’s personal property. The bare ownership of the deceased’s personal property is divided between the surviving blood relatives on the basis of the degree of kinship with the deceased.

If the deceased leaves no surviving spouse, nor children, the estate is divided between the surviving blood relatives on the basis of the degree of kinship with the deceased.

In a marriage contract, gifts can be made to the surviving spouse.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Only children of whom the legal parentage has been established can inherit from their parents.

It is not required for the parents to be married in order to establish legal parentage.

In principle, maternity is established automatically, as the name of the mother of the child is included in the birth certificate.

In the event that the mother is married, in principle, paternity (or co-maternity) is established automatically through the presumption that the mother’s spouse is the father (or co-mother) of the child.

In the event the parents of the child are not married, the father (or co-mother) of the child needs to acknowledge the child in order to establish legal parentage.

An adopted child has the same rights in the estate of his or her adoptive parent as other children of which the legal parentage has been established.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Since 17 August 2015, the European Union’s Succession Regulation (EU) No. 650/2012 has determined the conflict of law rules. In the event that no choice of law has been made in a will, in principle the law of the state in which the individual had his or her last habitual residence is applicable. However, if it is clear from all circumstances that, at the moment of death, the deceased had a manifestly closer connection with another state, the law of this state is applicable. The applicable law governs the distribution of both the movable and the immovable estate.

A choice of law can be made in a will for the law of the state of which the resident has the nationality. This law governs the distribution of both the movable and the immovable estate.

On the basis of the European Union’s Succession Regulation, Belgium will respect the application of non-Belgian law, even if this foreign law infringes Belgian forced heirship rules.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

According to Belgian law, an individual can make a valid will before a notary. A valid will can also be drafted personally. The third option is the international will.

A notarial will needs to be drafted by the notary. The will needs to be read out by the notary to the testator in the presence of two witnesses. The will needs to be dated. To be valid, the testator has to sign the will in the presence of the notary and the two witnesses.

A testator can also draft his or her will personally. In order to be valid, the entire content of the will must be handwritten by the testator. The will needs to be dated and signed by the testator.

The international will can be drafted by the notary, by the testator or by a third party. To be valid, the international will does not need to be handwritten. The testator needs to sign the will in the presence of a notary and two witnesses. The will must be dated by the notary. The will needs to be signed by the notary and the two witnesses.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

If a Belgian resident who is not a Belgian national has drafted a will in accordance with the laws of his or her state of nationality, in principle Belgium will recognise the will, provided it is valid according to the laws of the state of nationality. In principle, it will not be possible for the heirs to challenge the content of the will on the basis of the forced heirship rules of Belgian inheritance law.

23 Who has the right to administer an estate?

The executor appointed in the will has the right to administer the estate.If no executor has been appointed, the heirs administer the estate.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Title to a deceased’s assets passes to the heirs and successors on the basis of a notarial certificate of succession.

Provided that there is no executor, the notarial certificate of inheritance gives the heirs the authorisation to administer the estate. They must take all precautionary measures in order to preserve the assets until the estate is divided between the heirs.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Disappointed heirs have the possibility to start a procedure before the court of first instance.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

When both parents are alive, they jointly hold and manage the property of a minor. Upon the death of a parent, the surviving spouse holds and manages the property. After the death of both parents, a guardian who has been appointed in the parents’ will can take over the holding and the management of the property of the minor. If there is no will, a guardian will be appointed by the court.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

At the age of 18.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Every interested party can ask the court to declare that a person has lost the capacity to manage his or her affairs. The court will appoint an administrator. The administrator has to report to the court.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Nationals of EU member states do not need a visa to visit Belgium for a period of a maximum of three months. If the EU national wants to visit Belgium for more than three months, he or she needs a visa. A national of a country outside the EU may need a visa to visit Belgium.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

In principle, he or she can spend three months in Belgium, unless the visa has been issued for a shorter or longer term.

31 Is there a visa programme targeted specifically at high net worth individuals?

There is no specific visa programme for those individuals.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Not applicable.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Not applicable.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Not applicable.

Update and trends

A draft bill on the introduction of a new Code for companies, associations and foundations has been submitted to parliament. The draft bill includes a reform of the current legal forms and introduces more flexibility with respect to control and profit distribution.

Saskia Lust

saskia.lust@loyensloeff.com

Barbara Albrecht

barbara.albrecht@loyensloeff.com

Woluwe Atrium

Neerveldstraat 101-103

B-1200 Brussels

Belgium

Tel: +32 2 743 43 43

Fax: +32 2 743 43 10

www.loyensloeff.be

British Virgin Islands

Robert Lindley

Conyers Dill & Pearman

Tax

1 How does an individual become taxable in your jurisdiction?

There are no forms of income, corporate or capital gains tax in the British Virgin Islands (BVI). However, an individual is taxable in the BVI if they are employed or own BVI property.

2 What, if any, taxes apply to an individual’s income?

Income tax in the BVI is zero-rated and no individual is taxed unless gainfully employed in the BVI. Payroll tax and social security is charged on every self-employed person or employer who carries on business in the BVI. Payroll tax at the rate of 10 per cent is chargeable for small employers and up to 14 per cent of remuneration for large employers. Eight per cent of the total remuneration may be reclaimed from the employee. Employees also pay 4 per cent social security contributions and employers pay 4.5 per cent. The first US$10,000 of remuneration is free from payroll tax.

3 What, if any, taxes apply to an individual’s capital gains?

There are no capital gains taxes in the BVI.

4 What, if any, taxes apply if an individual makes lifetime gifts?

There are no gift taxes in the BVI.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There is no estate duty or inheritance tax payable in the BVI.

6 What, if any, taxes apply to an individual’s real property?

BVI stamp duty is payable on the purchase of real estate in the BVI at different rates, depending on whether the purchaser is a foreign national or a BVI national.

Land and house tax together is called ‘property tax’. For land owned by a BVI national or a BVI Company, there is a land tax of US$3 per year on the first acre or part thereof, and US$1 for each subsequent acre or part thereof.

On land owned by a foreign national, there is a tax of US$50 per year for the first half acre or part thereof, and US$150 for the second half acre and an additional US$50 per year for each subsequent half acre.

House tax amounts to 1.5 per cent per annum on the notional annual rental value of the house.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Generally, import duty ranges from 5 per cent to 20 per cent of the market value of the imported goods, subject to a number of exemptions.

8 What, if any, other taxes may be particularly relevant to an individual?

There are no other applicable taxes, such as VAT, in the BVI.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Corporate tax is zero-rated. Trust duty of US$200 is payable on the establishment of a trust governed by BVI law. The income received by the trustees is not subject to any BVI tax. There are no BVI fiscal implications arising out of transactions entered into by trustees or distributions to beneficiaries.

10 How are charities taxed in your jurisdiction?

Charities are not taxed in the BVI.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are recognised in the BVI, as a general rule. Trusts governed by the laws of other jurisdictions are also recognised. The HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985 (Hague Trusts Convention) has been extended to the BVI. Therefore, in general, the courts of the BVI will recognise most trusts established under foreign law for the benefit of foreign persons.

A range of trusts may be established in the BVI including discretionary trusts, fixed interest trusts, reserved power trusts, charitable and non-charitable purpose trusts. The principal legislation applicable to trusts is set out in the Trustee Act 1961 as amended. Trustees are ultimately subject to the jurisdiction of the BVI courts.

The Virgin Islands Special Trust Act 2003 (VISTA), as amended, may apply to all types of BVI trust. VISTA enables a settlor to create a trust holding shares in a BVI incorporated company under which the trustee may be disengaged, notwithstanding that his or her shareholding gives him or her a controlling interest in the company, from management responsibility in relation to the company’s affairs. It therefore allows the company and its business to be retained and run as its directors see fit. It is desirable and has become routine when establishing VISTA trusts to preserve the trustee’s statutory right to information about the company’s affairs and to specify well-defined permitted grounds for complaint on the part of interested persons in relation to the trust. Appropriate use of the provisions of VISTA allows a settlor to achieve what cannot be achieved by mere exclusion of power and duty in a trust instrument (since no provision in a trust instrument can deprive a trustee of the power to exercise rights that it holds as a matter of company law). One other advantage of VISTA is that it allows a settlor to specify in advance ‘office of director rules’ whereby the trustee can be required to secure a specified composition of the board throughout the trust period.

12 Does your jurisdiction recognise private foundations?

There is no statutory provision for the establishment or recognition of private foundations under BVI law.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

There is no statutory provision for the recognition of same-sex relationships in the BVI.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

There is no statutory provision for the recognition of legal relationships other than marriage between heterosexual couples in the BVI.

Succession

15 What property constitutes an individual’s estate for succession purposes?

All property, whether owned under law or equity, constitutes an individual’s estate in the BVI. Certain assets, such as real property held on joint tenancy, do not pass to an individual’s estate, but rather transfer to the joint surviving owner upon death.

As under English law, there are two types of co-ownership under BVI law.

In a joint tenancy, the co-owners hold an indivisible share of the property. On the death of a joint tenant, the property vests in the surviving joint tenant or tenants by operation of law, and does not form part of his or her estate on death.

In a tenancy in common, the co-owners own a separate and identifiable share in the property and on death the share of the property forms part of the deceased co-owner’s estate (so that is passes under the terms of his or her will or intestacy).

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

The BVI maintain complete freedom of disposition over their estate for individuals during their lifetime, provided the assets are not encumbered by any legal or equitable co-ownership or other interests. There is no comity of property regime.

17 To what extent do individuals have freedom of disposition over their estate on death?

The BVI maintain complete freedom of disposition of estates upon death and there are no forced heirship rules.

In relation to lifetime transfers into trusts established under BVI law, there is a comprehensive set of conflict of laws rules (set out in section 83A of the Trustee Act). These are designed to provide certainty and to prevent a challenge to the validity of the trust on forced heirship grounds. Therefore, trusts governed by the laws of the BVI or dispositions of property held on these trusts cannot be held void, voidable, liable to be set aside or defective, and the capacity of the settlor cannot be questioned simply because the laws of any foreign jurisdiction prohibit or do not recognise the concept of a trust. Furthermore, the trust or disposition avoids or defeats rights, claims or interests conferred by foreign law on any person because of a personal relationship to the settlor or by way of heirship rights, or contravenes any rule of foreign law, any foreign judicial or administrative order or action that recognises, protects or enforces such rights, claims or interests.

A foreign judgment will not be recognised, enforced or give rise to an estoppel if it is inconsistent with these provisions.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

The BVI’s rules of intestacy are set out in the Intestates Estates Act Cap 34 to the following effect:

• if the deceased leaves a surviving spouse, the surviving spouse always receives:

• the personal chattels (as defined in the Act); and

• 10 per cent of the net value of the residuary estate (or US$240 if greater) plus interest at 5 per cent per annum;

• if the deceased leaves a surviving spouse and no issue, the balance of the residuary estate is held in trust for the surviving spouse for life;

• if the deceased leaves a surviving spouse and issue:

• one-half of the balance of the residuary estate is held in trust for the surviving spouse for life, with the remainder given to the deceased’s issue on statutory trusts; and

• the other half of the balance of the residuary estate is held in statutory trusts for the deceased’s surviving issue (but if those statutory trusts fail during the lifetime of the spouse then this property is held in trust for the spouse for the remainder of his or her lifetime);

• if the deceased leaves issue, but no surviving spouse, the residuary estate is held on statutory trusts for the deceased’s surviving issue;

• if the deceased leaves no issue, but one or both parents, subject to the interest of any surviving spouse, the residuary estate is held in trust for the deceased’s parents equally, or for the surviving parent;

• if the deceased leaves no issue or parent, subject to the interests of any surviving spouse, the residuary estate is held in trust for the following surviving relatives (in the following order of priority):

• on statutory trusts for the deceased’s brothers and sisters of the whole blood;

• if none of the above, on statutory trusts for the deceased’s half-brother and half-sisters;

• if none of the above, on statutory trust for the deceased’s uncles and aunts of the whole blood; or

• if none of the above, on statutory trusts for the deceased’s uncles and aunts of the half-blood; and

• if the deceased leaves neither issue nor parents, nor any relatives within the categories described above, the entire estate passes to the surviving spouse or, if there is no surviving spouse, the estate passes to the Crown (and the Crown may make provisions for any dependents of the deceased or any person for whom the deceased might reasonably have been expected to make provisions).

The formation of a statutory trust under the Intestates Estates Act means that:

• the property is held on trust for sale for the relevant class of relatives and their children and more remote issue in equal shares per stirpes (in shares according to the family branch) on attaining the age of 18;

• statutory provisions relating to maintenance and accumulation apply;

• hotchpot provisions (where amounts already received are taken into consideration when calculating the final amount due to the beneficiaries under the terms of the trust) may apply; and

• if these trusts fail, the property passes as if those concerned had died before the deceased. Therefore, the entitlements of a child, sibling, uncle or aunt who has predeceased the intestate pass to his or her own children (or more remote issue) on attaining majority.

It is not possible for beneficiaries to challenge the adequacy of these provisions.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

The status of illegitimacy has been abolished in the BVI. The term ‘child’ will generally be interpreted as meaning a child born in a marriage, a legitimated child (ie, a child born outside of marriage to parents who subsequently marry one another) or an adopted child.

The Status of Children Act 2014 abolishes the status of illegitimacy and declares that all children are of equal status, whether or not they were born within or outside of wedlock.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

In the BVI, the distribution of real property is governed by the lex situs and all other property is governed by lex domicilii.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

The requirements of a valid will in the BVI are provided for under the Wills Act, Cap 81. To create a valid will (ie, applicable to persons dying domiciled in the BVI at death and in respect of BVI-situated immovable property), a testator must possess the requisite testamentary and mental capacity to understand and approve of the contents of the will, and the testator must have been free from undue influence. A will must be in written form and signed by the testator in the presence of two attesting witnesses.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

The validity of a will disposing of immovable property in the BVI is governed by BVI law. The validity of a will disposing of moveable property in the BVI is governed by the law of the testator’s domicile at death.

The validity of a will disposing of immovable property situated outside the BVI is determined by the law of the jurisdiction where the immovable property is situated.

For these purposes, shares in a BVI company are regarded as moveable property situated in the BVI.

A will is construed in accordance with the law intended by the testator and if a will includes a statement to the effect that it will be governed by BVI or foreign law, this is normally conclusive.

A foreign will is therefore recognised as valid if:

• to the extent that it disposes of immovable property, it is valid under the laws of the jurisdiction in which the property is situated; or

• to the extent that it disposes of movable property, it is valid under the laws of the jurisdiction in which the testator dies domiciled.

23 Who has the right to administer an estate?

The right of, and responsibility for, administering a deceased person’s BVI-situated estate falls on the personal representative(s) (PRs) appointed under a BVI grant of representation or, under a foreign grant re-sealed by the BVI High Court, and in no other person. PRs are either executors (if appointed by will), or administrators (if not appointed by will).

The powers and duties of BVI personal representatives (whether under a domestic or re-sealed foreign grant) are determined exclusively by the law of the BVI and include:

• ascertaining the BVI-situated estate and worldwide liabilities;

• getting in the deceased’s BVI-situated estate; and

• paying or making due provision for the estate’s worldwide liabilities out of the BVI-situated estate (it is possible, to obtain protection by appropriate advertisement under section 28 of the Trustee Act).

Distributing the remaining assets to those beneficially entitled to them under and in accordance with applicable succession law (which may be a system of law other than that of the BVI).

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

A BVI grant of probate is generally required before property in the BVI (such as shares in a BVI company) is transferred to the deceased’s personal representatives (or heirs).

The Probate Registry will issue the grant to either:

• the executor or executors’ names in a valid will;

• if there is either no valid will, the will does not name an executor, or if the executor renounces the will, the person entrusted to administer the deceased’s estate in the jurisdiction in which he or she died domiciled; or

• if no such person was entrusted, the person or persons beneficially entitled to the estate under the laws of that jurisdiction.

A grant of probate or letters of administration (or a BVI re-sealed foreign grant) is required in order to establish title to the estate and allow the personal representative (PR) to collect in the assets, unless assets will vest separately (for example, by way of survivorship).

The grant must be applied for within three years of death and an affidavit of reasons for any delay must be filed with any application for a grant outside of this period. Grants are regularly made to applicants outside of the period when the registrar is satisfied with the reasons, subject to the objections of those entitled in a lesser degree of priority. There is no time limit for an application for the resealing of a foreign grant.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

A will can be challenged on the following grounds:

• the testator lacked capacity, such as:

• lack of mental capacity;

• not having the requisite knowledge and approval of the will’s contents;

• being a minor;

• the will was executed by mistake; or

• fraud or undue influence;

• failure to comply with the formal requirements for executing the will; or

• essential invalidity of the will (such as in the case of a will disposing of the moveable property of a non-BVI domiciled individual).

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

There is no general bar on a minor (the age of majority is 18 years old) owning assets (other than BVI land), but this may lead to difficulties associated with acquiring good title from a minor, so assets are often held on trust in such circumstances.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

In the BVI the age of majority is 18 years old.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

The authority given to an attorney by a power of attorney ceases on the donor’s death or incapacity, and BVI domestic law contains no provisions that enable enduring powers of attorney (which continue to have effect following the donor’s incapacity) to be made. However, the Conveyancing and Law of Property Act enables irrevocable powers of attorney to be made in circumstances in which valuable consideration is provided.

Part III of the Mental Health Act, Cap 191 contains extensive provisions that enable the court to exercise various powers for:

• the maintenance and benefit of persons who are incapable, by reason of mental disorder, of managing and administering their property and affairs, or members of their family;

• providing for other persons or purposes for whom or which the patient might be expected to provide if he or she were not suffering from mental disorder; and

• administering the patient’s affairs.

An application to the BVI court under the Mental Health Act by a person, such as an attorney appointed under an enduring power of attorney that is valid under the law of the jurisdiction in which the person is domiciled and physically present, who has been appointed as the curator or a mentally incapable person in a foreign country is likely to be successful.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Some foreign nationals do require visas to visit the BVI (see a full list on www.bvitourism.com/visas).

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Initially 30 days, but this is renewable on special application to the Chief Immigration Officer.

31 Is there a visa programme targeted specifically at high net worth individuals?

There is no citizenship by investment programme in the BVI.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Not applicable.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Not applicable.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Not applicable.

Robert Lindley

robert.lindley@conyersdill.com

Commerce House, Wickhams Cay 1

PO Box 3140, Road Town

Tortola, VG1110

British Virgin Islands

Tel: +1 284 852 1000

Fax: +1 284 852 1001

www.conyersdill.com

Cayman Islands

Robert Lindley and Erik Bodden

Conyers Dill & Pearman

Tax

1 How does an individual become taxable in your jurisdiction?

There are no income or capital gains taxes in the Cayman Islands.

2 What, if any, taxes apply to an individual’s income?

There is no income tax in the Cayman Islands.

3 What, if any, taxes apply to an individual’s capital gains?

There is no capital gains tax in the Cayman Islands.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Subject to certain exemptions, for example, where there has been a transfer of land for ‘love and affection’ between family members, stamp duty is payable in the Cayman Islands on gifts of land located within the Islands, by the person receiving the land gift.

Ad valorem stamp duty on the transfer of land is 7.5 per cent of the market value. First-time Caymanian purchasers of land are eligible for reduced rates of duty of zero to 2 per cent, depending on the value of the property being purchased and whether it is undeveloped land or developed property. The Minister of Finance of the Cayman Islands is able to waive or abate the whole or part of the duty payable, and an application can be made for a waiver of stamp duty with respect to transfers that do not result in any change of beneficial ownership. There are also waivers of stamp duty when property passes because of ‘natural love and affection’ between certain family members.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There are no estate taxes in the Cayman Islands.

6 What, if any, taxes apply to an individual’s real property?

Other than stamp duty, referred to in question 4, there are no taxes applicable to real property in the Cayman Islands.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Imported items in the Cayman Islands are generally subject to a 22 per cent import duty. This is subject to certain personal allowances. There are concessions on particular goods and some items, such as coffee and books, which are duty free.

8 What, if any, other taxes may be particularly relevant to an individual?

There are no other applicable taxes, such as VAT, in the Cayman Islands.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

There are no other applicable taxes in the Cayman Islands, save that on the establishment of a Cayman trust CI$40 stamp duty is payable. The income received by the trustees is not subject to any Cayman Islands tax. There are no Cayman Islands fiscal implications arising out of transactions entered into by trustees or distributions to beneficiaries.

10 How are charities taxed in your jurisdiction?

Charities are not taxed in the Cayman Islands.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are recognised in the Cayman Islands and, as a general rule, trusts governed by the laws of other jurisdictions are also recognised. Although the HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985 (Hague Trusts Convention) has not been extended to the Cayman Islands, the courts of the Cayman Islands recognise most trusts established under foreign law.

A range of trusts may be established in the Cayman Islands including discretionary trusts, fixed interest trusts and charitable and non-charitable purpose trusts (knows as STAR trusts). The principal legislation applicable to trusts is set out in the Trusts Law (2018 Revision). Trustees are ultimately subject to the jurisdiction of the Cayman Islands courts.

Also, reserved powers trusts (in which powers are reserved to the settlor or conferred on the protector or other person) are common in the Cayman Islands (Part III of the Trusts Law (2018 Revision)).

STAR trusts, established under the Special Trusts Alternative Regime Law (Part VIII of the Trusts Law (2018 Revision)) are unique to the Cayman Islands. STAR forms an entirely separate regime from ordinary trusts, so only applies where the trust instrument contains a declaration to that effect. The objects of a STAR trust can be persons or purposes, or both. The purposes of a STAR trust can be of any number or kind, charitable or non-charitable, provided they are legal and not contrary to public policy. Unlike ordinary trusts, STAR addresses the questions of benefit and enforcement separately. Provided there is an effective enforcement mechanism, a beneficiary of a STAR trust need not have any enforcement or information rights, which allows for a number of unique planning opportunities.

Trusts can be registered as exempted trusts, if there are no Cayman beneficiaries. After registration, the trustees can apply to the Registrar for an undertaking that no future taxes on income, capital assets gains or appreciations, or in the nature of estate duty or inheritance tax, will apply to any property in or income arising under the trusts or the beneficiaries of it. The undertaking usually applies for 50 years. Where the exempted trust is discretionary, it is also possible to apply for its registration under section 83 of the Trusts Law. Under this, all rights or remedies which would otherwise have been vested in the beneficiaries are instead vested in the Registrar of Trusts.

12 Does your jurisdiction recognise private foundations?

Private foundations, as known in civil law jurisdictions, do not exist in the Cayman Islands. Depending on the individual circumstances surrounding a particular foundation, they may be recognised in the Cayman Islands as a type of company instead.

However, the Foundation Companies Law, 2017 provides that a Cayman Islands foundation company may be established as a new form of Cayman company and will share many of its features with regular exempted Cayman companies, save that it will be prohibited from paying dividends to its members.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

The Marriage Law (2010) defines ‘marriage’ as a union between a man and a woman as husband and wife. The Cayman Islands’ Constitution provides that: ‘Government shall respect the right of every unmarried man and woman of marriageable age (as determined by law) freely to marry a person of the opposite sex and found a family’. Cayman Islands legislation does not specifically recognise foreign same-sex marriages or civil partnerships or both; however, the Immigration Appeals Tribunal in 2016 found that the Cayman Islands Constitution does not allow for discrimination against foreign same-sex marriages and that there was scope for a dependent to include a spouse in a same-sex marriage pursuant to the Immigration Law where the parties were lawfully married in their respective countries.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

The Cayman Islands do not recognise any form of legal relationship for heterosexual couples other than marriage.

Succession

15 What property constitutes an individual’s estate for succession purposes?

All property, whether owned under law or equity, constitutes an individual’s estate in the Cayman Islands. Certain assets, such as real property held on joint tenancy, do not pass to an individual’s estate, but rather transfer to the joint surviving owner upon death.

As under English law, there are two types of co-ownership under Cayman Islands law.

In a joint tenancy, the co-owners hold an indivisible share of the property. On the death of a joint tenant, the property vests in the surviving joint tenant or tenants by operation of law, and does not form part of his or her estate on death.

In a tenancy-in-common, the co-owners own a separate and identifiable share in the property and on death the share of the property forms part of the deceased co-owner’s estate (so that is passes under the terms of his or her will or intestacy).

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

The Cayman Islands maintain complete freedom of disposition over their estate for individuals during their lifetime, provided the assets are not encumbered by any legal or equitable co-ownership or other interests. There is no comity of property regime.

17 To what extent do individuals have freedom of disposition over their estate on death?

The Cayman Islands maintain complete freedom of disposition of estates upon death and there are no forced heirship rules. Furthermore, pursuant to Part VII (Trusts-Foreign Element) of the Trusts Law (2018 Revision) of the Cayman Islands, Cayman Islands Law prevails over the law of the settlor’s jurisdiction governing forced heirship or non-recognition of trust structures.

Trusts governed by the laws of the Cayman Islands or dispositions of property held on these trusts cannot be held void, voidable, liable to be set aside or defective, nor can the capacity of any settlor be questioned because:

• the laws of any foreign jurisdiction prohibit or do not recognise the concept of a trust;

• the trust or disposition avoids or defeats rights, claims or interests conferred by foreign law on any person because of a personal relationship to the settlor or by way of heirship rights; or

• contravenes any rule of foreign law, any foreign judicial or administrative order or action that recognises, protects or enforces such rights, claims or interests.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

Where a person domiciled in the Cayman Islands dies without leaving a valid will, the disposition of the deceased’s estate will pass in accordance with the Succession Law (2006 Revision). In such a case, the estate will pass to family relatives in accordance with a fixed order of priority, whereby the spouse has the highest priority, followed by the issue of the deceased and then other relatives. The spouse has absolute entitlement to all personal chattels. In addition, from the residuary estate, the surviving spouse takes the greater sum of either:

• CI$20,000; or

• 50 per cent of the net value of the residuary estate, with interest from the date of death at a rate of 5 per cent per annum until it is paid or appropriated.

The remainder of the residuary estate is held on the statutory trusts for the intestate’s issue (that is, for the children in equal shares at the age of 18 or on marriage under 18, with gifts on a per stirpes basis to the children’s issue if they predecease). If those trusts fail or determine in the lifetime of the surviving spouse, the residuary of the estate is held on trust for the surviving spouse for the residue of his or her life.

If the intestate deceased leaves a spouse with no issue, the surviving spouse takes the personal chattels absolutely, 25 per cent of the residuary estate passes to the intestate’s surviving parent or parents equally. The remaining 75 per cent passes to the surviving spouse absolutely. If there are no surviving parents, the residuary estate passes to the surviving spouse absolutely.

If the intestate deceased leaves no spouse but has issue, the residuary estate is held on the statutory trusts for the intestate’s issue.

If the intestate deceased leaves no spouse and no issue but leaves a parent or parents, the residuary estate is held on trust for the parents in equal shares absolutely or if only one survives wholly to that parent absolutely.

If the intestate deceased leaves no spouse, no issue and no parent, the residuary estate is held on statutory trust absolutely for the following persons surviving the intestate, in the following order and manner:

• for the brothers and sisters of the whole blood;

• for the brothers and sisters of the half-blood;

• for the grandparents (where more than one grandparent survives the intestate, in equal shares);

• for the uncles and aunts (being the brothers or sisters of the whole blood of a parent of the intestate); and

• for the uncles and aunts of the intestate (being the brothers or sisters of the half blood of a parent of the intestate).

If the deceased leaves no spouse, no issue, no parents and no relatives within the categories described above, the residuary estate belongs to the Crown as bona vacantia. The Crown has a discretion to provide for the intestate’s dependents, whether family members or not, and other persons for whom the intestate might reasonably have been expected to make provision.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Pursuant to the Status of Children Law 2003, the status of a child is not dependent on whether he or she is born inside or outside of marriage, and where an adoption order has been made pursuant to the Adoption of Children Law 2013 or under the laws of any other jurisdiction, the child is the child of the adoptive parents as if they were his or her natural parents. Unless a contrary intention appears in the will of the deceased, both illegitimate and adopted children shall be treated the same as natural children.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

In the Cayman Islands, the distribution of real property is governed by the lex situs and all other property is governed by lex domicilii.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

The requirements of a valid will in the Cayman Islands are provided for under the Wills Law (2004 Revision). In order to create a valid will (ie, applicable to persons dying domiciled in the Cayman Islands at death), a testator must possess the requisite testamentary and mental capacity to understand and approve of the contents of the will, and the testator must have been free from undue influence. A will must be in written form and signed by the testator in the presence of two attesting witnesses.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

A will is admissible to be resealed for proof by the Grant Court of the Cayman Islands if it has been accepted by the country of domicile as a valid testamentary document and if it is executed in accordance with the law of the Cayman Islands.

Where a deceased person was domiciled in a foreign country, the courts of the Cayman Islands will apply the law of the foreign country when dealing with the succession of moveable property.

23 Who has the right to administer an estate?

Where probate is granted under a will that named an executor of the estate, the Grand Court will appoint the named person as the representative of the estate.

Where a will is admitted to probate but no person is named, the Grant Court may appoint a person to be administrator of the estate pursuant to Rules 32 of the Probate and Administration Rules (2008 Revision).

Where the deceased died wholly intestate, the Grand Court may appoint a person to be the administrator of the estate pursuant to Rule 33 of the Probate and Administration Rules (2008 Revision). The order of priority of entitlement in relation to the estates of persons dying domiciled outside the Cayman Islands, is set out in Rule 37.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Once a grant of probate has been issued to the estate representatives by the court, the representatives are entitled, and indeed obliged, to gather and take control of the assets of the deceased person and to require assets such as bank accounts and shares to be either transferred into the names of the executors, or directly to a person who is ultimately entitled to the same under the terms of the relevant will.

In the absence of leave of the Grand Court, no grant of probate or letters of administration with the will annexed can be issued within 21 days of the death of the deceased. No grant of letters of administration can be granted within 28 days of the death of the deceased. The grant must be obtained within six months of death or two months of the termination of any dispute concerning the right to a grant unless special leave of the Grand Court is obtained. Special leave is ordinarily given where a reasonable explanation for the delay is given, subject to the objections of those entitled in a lesser degree of priority. There is no time limit for an application for the resealing of a foreign grant.

An estate must be administered within a one-year period from the time of the grant of probate, unless the Grand Court has granted an extension of time for submission of the final accounting of the estate.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

The validity of a will and the identity of the applicant for probate can be challenged at the appropriate time during the application for probate. A beneficiary under a will or the rules of intestacy can also apply to the Grand Court to challenge the manner of administration of the estate. Administration cannot be challenged on the basis that no adequate provision was made for dependants of the deceased or otherwise.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

A minor cannot hold title to property in the Cayman Islands. Section 32 of the Trusts Law (2018 Revision) provides that a trustee may pay or apply the property in which a minor has an interest to the parent or guardian of the minor for his or her maintenance, education or benefits. Upon attaining the age of 18, the trustee shall pay any unvested interest to the individual.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

In the Cayman Islands a person attains full age at 18.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Pursuant to the Grand Court Law, the Cayman Islands Grant Court has the power to appoint a guardian for a person, or the estate of a person, of unsound mind or suffering from mental illness.

When making a determination for guardianship under the Grand Court Law, the court will hear evidence from the applicant party, and any opposing parties, regarding the suitability of certain individuals to act as legal guardian, and will require medical and expert evidence regarding the mental capacity of the patient.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Foreign nationals require a visitors’ entry permit, which is typically limited to a six-month period. Persons requiring a visa to visit the Cayman Islands must apply to the nearest British Embassy or Consulate with a visa section.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A foreign national can usually stay within the jurisdiction for a six-month period, but may apply to the Department of Immigration for an extension.

31 Is there a visa programme targeted specifically at high net worth individuals?

A person may apply to the Chief Immigration Officer for permanent residence if they are of independent means, whereby they have sufficient resources to adequately maintain themselves and their dependants.

There are four types of independent means categories. First, a residency certificate for persons of independent means, which grants permanent residency for a period of 25 years.

Second, a residency certificate (substantial business presence), which entitles the person to reside and work in the business in which he or she has invested, or are employed in a senior management position.

Third, a certificate of direct investment, which enables a person to apply for 25 years of residency as a high net worth investor with the right to work in the business or businesses in which he or she holds an investment.

Finally, a Certificate of Permanent Residency for Persons of Independent means, which grants residency for life, and the holder may apply to the Caymanian Status and Permanent Residency Board for a variation to allow for the right to work for any employer, but only in particular occupations specified by the Board.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

The right to bring dependants can vary depending on the type of grant. The Cayman Islands government website should be consulted (www.immigration.gov.ky).

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Yes, in some cases. The Cayman Islands government website should be consulted (www.immigration.gov.ky).

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Yes, in some cases. The Cayman Islands government website should be consulted (www.immigration.gov.ky).

Robert Lindley

robert.lindley@conyersdill.com

Erik Bodden

erik.bodden@conyersdill.com

Cricket Square

PO Box 2681

Grand Cayman

KY1-1111

Cayman Islands

Tel: +1 345 945 3901

Fax: +1 345 945 3902

www.conyersdill.com

Colombia

Rodrigo Castillo Cottin, Ana Maria Lopez and Hanspeter Misteli Reyes

Baker McKenzie

Tax

1 How does an individual become taxable in your jurisdiction?

An individual is subject to income tax in Colombia owing to residence status or upon deriving Colombian source income.

Residents

An individual becomes a Colombian tax resident when he or she 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 two consecutive fiscal years, the individual will become a tax resident after the second of the two consecutive years.

Colombian citizens are considered residents if their family members (ie, spouse or dependent children) are Colombian residents, or if 50 per cent or more of the individual’s income is of a Colombian source, or if 50 per cent or more of the person’s assets are managed or held in Colombia. A Colombian citizen will also be considered a tax resident in Colombia if he or she has tax residence in a tax haven.

Colombian citizens will not be deemed as tax residents in Colombia if 50 per cent or more of the individual ‘s revenue is sourced in the jurisdiction of his or her domicile abroad and 50 per cent or more of his or her assets are managed or possessed in the country in the jurisdiction of his or her domicile.

Non-residents

Non-residents are subject to income tax only on source income and they are only required to report income or assets derived or located in Colombia.

Colombian source income refers to income from activities undertaken within Colombian territory. The law 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.

2 What, if any, taxes apply to an individual’s income?

Non-Colombian tax residents are only taxed at a 35 per cent rate on their Colombian income and are only required to declare any earnings or assets generated or located in Colombia

Colombian tax residents are subject to income tax in Colombia on a worldwide basis.

Individual income tax rates are determined according to income baskets and residence status. Losses can be offset only against the same type of income. The rates for each type of income are as per the following table.

Labour income

Pensions

Capital income

Non-labour income

Dividends

0%-33% for residents

35% for non-residents

0%-33% for residents

35% for non-residents

0%-35% for residents

35% for non-residents

0%-35% for residents

35% for non-residents

0%-10% plus an additional 0%, 5% or 10% for dividends paid out of taxed profits at the corporate level, or 35% plus an additional 0%, 5% or 10% for those paid out of untaxed profits or from a foreign entity

5% for non-residents for dividends paid to them out of taxed profits at the corporate level, or 35% plus 5% on the distributed dividend (net of the 35% initial tax)

Exemptions, reliefs or deductions are available.

Revenues not considered as income

Mandatory health and pension contributions made by employees

Voluntary contributions to pension funds and AFC accounts (savings accounts for housing purchase)

Deductions

Payments of interests derived from loans destined to housing purchase

Payment of pre-paid health services and health insurance payments

10% of all labour payments made to individuals who are dependent from the taxpayer (ie, children who have not reached legal age, children who have reached legal age but are being financed in a recognised educational institution and children over 23 years of age who are dependent due to physical or psychological incapability)

Exempt income

25% if the individual’s labour is considered as exempt income

The above-mentioned tax benefits may be applied as long as they do not exceed 40 per cent of any income received or 5,040 tax value units (UVTs) (approximately US$6,000).

Further considerations are that joint returns (husband and wife) are not acceptable under Colombian tax law, and the taxable period is annual and coincides with the calendar year.

3 What, if any, taxes apply to an individual’s capital gains?

For Colombian tax purposes, capital gains are those that are not obtained by a taxpayer as a result of the activities that he or she ordinarily carries out. The activities that trigger capital gains are specifically listed in the Colombian Tax Code:

• gains from the sale of fixed assets that have been owned by the taxpayer for a term of two or more years;

• profits obtained in the liquidation of legal entities, and that do not correspond to undistributed profits or reserves;

• gains resulting from estates, legacies and donations (gifts); and

• prizes, awards, lotteries and gambling earnings.

The tax rates applicable to capital gains is 10 per cent, provided that a holding period of two years has been reached (except for gains resulting from estates, legacies and donations). As an exception, gains from lotteries, draws and gambling are subject to a flat rate of 20 per cent.

4 What, if any, taxes apply if an individual makes lifetime gifts?

The gift of Colombian situs assets is considered capital gains for the beneficiary and subject to capital gains tax at a 10 per cent rate. The gift of foreign assets in favour of Colombia tax residents is also subject to capital gains tax at 10 per cent rate.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Following the death of the individual, the administrator of the estate is required to hold the estate assets under deposit. Once the inventory and appraisals of the estate are final, the administrator may sell the deceased assets to cover any debts our outstanding taxes or fees.

Once the estate has covered all obligations, the inheritance is distributed among all heirs. Such distribution is subject to capital gains tax at a 10 per cent rate. However, in some cases part of the inheritance may be considered as exempted income.

6 What, if any, taxes apply to an individual’s real property?

The following taxes apply to an individual’s real property.

Property tax

Real estate held by an individual is subject to taxation at a municipal level at an applicable rate of 0.5 per cent to 1.6 per cent based on the valuation of the real state assets made by the municipalities where the asset is located.

Transfer tax

The net gain on the sale of real state is taxed as income or capital gains, depending on the holding period of the asset. If held for more than two years, the gain is subject to capital gains tax at a rate of 10 per cent. If held for less than two years, the gain is subject to income tax progressive rates (zero to 35 per cent as shown above) and a non-resident individual is subject to a 35 per cent rate.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

As a general rule, the import of assets or goods that are not expressly excluded are subject to custom duties (zero t0 20 per cent) and VAT at a 19 per cent rate.

8 What, if any, other taxes may be particularly relevant to an individual?

The following taxes are relevant to individuals in Colombia.

VAT

VAT is levied on the import of goods into the country and rendering services when the direct user or recipient is located in Colombia. Certain goods (livestock, certain fruits and vegetables, seeds and others) and services (catering services for companies, food preparation services, bar services) are excluded from VAT. The general rate is 19 per cent, but there are certain goods and services subject to a 5 per cent rate (coffee, corn for industrial use, agricultural machinery, pre-paid medicine plans, security services and temporal services).

Industry and commerce tax

A municipal tax is triggered on revenues derived from the performance of industrial, service and commercial activities within a Colombian municipality at an applicable rate of 0.7 per cent to 1 per cent. The tax is triggered on gross income, excluding revenues for exports, proceeds from the sale of fixed assets, refunds, subsidies and withholdings.

Income tax withholding

As a mean to collect income taxes in advance, Colombian law establishes a system of income tax withholdings that requires every person making payments to a taxpayer to withhold a certain percentage, depending on the tax being paid. For those who must file an income tax return, all amounts withheld or self-withheld are a prepayment of the final tax liability and as such are credited on their return.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

The following is the applicable tax treatment for both local trust and foreign trusts in Colombia.

Local trusts

Colombian tax law treats local trusts as flow-through entities for tax purposes. Thus, trusts must determine their profits annually and the beneficiaries have to include such profits in their own income tax returns for that same year and pay the relevant taxes.

The title to the assets that an individual contributes to the trust fund must pass to the trust fund (exceptions apply – for example, for the guarantee trust) or otherwise such assets would have to be declared by the individual as part of his or her equity and thus be subject to net worth taxes.

Additionally, if the individual receives fiduciary rights over the trust fund because of said contribution, he or she would be obliged to report such rights for Colombian income tax purposes.

Whenever the settlor or any of the beneficiaries receive income from the trust, they must pay the relevant taxes in Colombia. Income tax regulations establish that the results of any activities of the trust and all equity increases must be reported in the income tax return of the beneficiaries.

Trusts are used in Colombia as an instrument to administer properties or businesses or to grant a warranty, considering that trustees are professional entities. In the case of successions, trusts are used to administer the estate of certain heirs until they can do so themselves.

Foreign trusts

The Colombian Tax Office (DIAN) analysed the formal and substantial obligations applicable to tax resident beneficiaries of foreign irrevocable and discretionary trusts. DIAN concluded the following in Tax Rulings 34071/2017 and 13287/2018:

• Only if a Colombian tax resident has the economic benefits of a trust’s underlying assets must the tax resident comply with all formal and substantial tax obligations derived from such assets.

• Regardless of their status as trust’s beneficiaries, Colombian tax residents who receive a distribution, income or benefit from a foreign trust must report such distribution, income or benefit in their income tax return, regardless of whether they enjoy the economic benefits from the trust’s assets or not.

To date, DIAN has made no further remarks on the discretionary powers that may be exercised by a trustee in an irrevocable foreign trust, and it determined that each case must be analysed on a standalone basis. Further developments in this area are expected.

10 How are charities taxed in your jurisdiction?

As a general rule, non-profit corporations, foundations and associations are subject to the general tax regime and are subject to income tax at a 33 per cent rate (plus a surcharge of 4 per cent for 2018).

However, the Colombian Tax Code establishes that non-profit corporations, foundations and associations are subject to a special tax regime with respect to income tax and complementary taxes provided always that they comply with the following conditions:

• they are incorporated according to Colombian law;

• their main purpose and resources are destined to health, sports, formal education, culture, scientific or technological, ecological research, environmental protection or social development programmes;

• such activities are of general interest;

• their capital contribution or surpluses cannot be distributed; and

• their surpluses are totally reinvested in the activity of its corporate purpose and such corporate purpose corresponds to the activities mentioned in the preceding clause.

Entities that comply with the aforementioned requirements could be considered as entities of the special tax regime, with DIAN’s approval.

Entities approved by DIAN as eligible for the special tax regime are subject to income tax at a 20 per cent rate. However, any income surplus is considered as exempt, provided that the funds are destined directly or indirectly for programmes that develop the entity’s social purpose and meritorious activities. Any excess benefits or surplus that are not reinvested in programmes that develop the entity’s social purpose are deemed as taxable for the next fiscal year.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Colombian civil law does not provide rules on common law trusts. However, Colombian law sets out rules on civil and commercial local trust agreements whereby a settlor transfers the property or administration of certain assets to a trustee in exchange for fiduciary rights. The trustee is responsible for managing such assets or transferring them to a third party to carry out the purpose determined in the local trust agreement, either for the benefit of the settlor or a third party. The local trusts should not be confused with the Anglo-Saxon or common law trust.

Local trusts are commonly used in Colombia as instruments to administer properties or businesses with a specific purpose or to grant guaranties or collaterals, considering that trustees are professional regulated entities.

There are no civil or commercial regulations regarding the establishment of common law trusts in Colombia. However, common law trusts are recognised by Colombian civil, commercial and tax authorities.

Trusts in Colombia are taxed as follows.

Local trusts

Colombian tax law treats local trusts as flow through entities for tax purposes. Thus, trusts have to determine their profits annually and the beneficiaries have to include such profits in their own income tax returns for that same year and pay the relevant taxes.

Title to the assets that an individual contributes to the trust fund must pass to the trust fund (exceptions apply for certain type of trusts, for example the guarantee trust) or otherwise such assets would have to be declared by the individual as part of his or her equity and thus, subject to net worth taxes. Additionally, if the individuals receive fiduciary rights over the trust fund as a result of said contribution, they would be obliged to report such rights for Colombian income tax purposes.

Whenever the settlor or any of the beneficiaries receive income from the trust, they are obliged to pay the relevant taxes in Colombia. Income tax regulations establish that the results of any activities of the trust and all equity increases have to be reported in the income tax return of the beneficiaries.

Foreign trusts

Regarding the taxation of foreign trusts, DIAN analysed the formal and substantial obligations applicable to tax-resident beneficiaries of foreign irrevocable and discretionary trusts.

The DIAN concluded that only if a Colombian tax resident has the economic benefits of a trust’s underlying assets must the tax resident comply with all formal and substantial tax obligations derived from such assets.

Regardless of their status as trust’s beneficiaries, Colombian tax residents who receive a distribution, income or benefit from a foreign trust must report such distribution, income or benefit in their income tax return, notwithstanding whether they possess the trust’s assets economical benefits or not.

To date, the DIAN has made no further remarks on the discretionary powers that may be exercised by a trustee in an irrevocable foreign trust and it determined that each case must be analysed on a stand-alone basis. We expect further developments in this area.

12 Does your jurisdiction recognise private foundations?

There are no civil or commercial regulations regarding the establishment of foreign private foundations in Colombia. However, private foundations are recognised by Colombian civil, commercial and tax authorities. The above-mentioned tax treatment for trusts is also applicable for foreign private foundations.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

A progressive recognition of legal rights for same-sex couples has taken place in Colombia through case law. Today, same-sex couples can constitute de facto marital unions and even formalise their contractual bond before a judge or a notary public, and have the same pension, social security, property, inheritance and adoption rights as heterosexual couples. The latest legal development took place with Ruling SU-214/2016, whereby the Constitutional Court accepted same-sex marriages.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Colombian law recognises ‘common law’ unions under ‘de facto marital union’ provisions. Opposite-sex couples that have cohabited together for at least two continuous years may request the declaration of the existence of a de facto marital union. As of 2007, both opposite and same-sex couples who have cohabited together for at least two continuous years may request the declaration of the existence of a de facto marital union. This declaration implies the presumption of the existence of a community of property regime (as applicable to married couples), and leads to the distribution of the common property. This declaration may be made by a family judge or by mutual consent of the couple before a notary public or a duly authorised conciliation centre.

Succession

15 What property constitutes an individual’s estate for succession purposes?

In accordance with article 1016 0f the Colombian Civil Code, the following allocations must be deducted from the unsettled estate:

• public advertising of the deceased’s will (if applicable);

• hereditary credits;

• outstanding taxes;

• allocations for child support; and

• marital share.

The result constitutes the net estate available for partition between heirs, which must be performed in accordance with the rules on forced heirship and a quarter of the estate that may be freely assigned by a will.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Under Colombian law, individuals have the freedom to dispose of their state without limitation during their lifetime. However, the disposition of certain assets may require the approval of the other spouse under Colombian marital rules.

The general rule for marital property is the community of property regime. This is a regime that automatically comes into effect for all marriages and will remain so until the community of property is liquidated (either as a result of judicial decision or the will of the spouses). In this regime, most community property is owned in common by the spouses. It is not similar to co-ownership because the spouses (joint owners) do not possess a share in the property, but are full owners of the community property.

Upon liquidation of the community of property, the entire community property is split into equal shares. Under this regime, the right of a spouse to unilaterally dispose of assets is unlimited. A spouse is entitled to dispose of personal property and the assets of the community of property as he or she sees fit. However, other dispositions may require, as a rule, the approval of the other spouse. This would be the case with real estate property. Some assets expressly excluded from the community of property by the Civil Code are:

• real estate owned by each spouse before marriage;

• real estate acquired by each spouse during marriage ‘replacing’ a real estate property owned by the spouse before marriage; and

• real estate received during marriage as an inheritance.

At the time of the dissolution of the community property, each spouse is subject to debts acquired by the community of property and entitled to half the value of the community property. This, again, does not apply to certain properties or rights already owned by each spouse before the marriage.

17 To what extent do individuals have freedom of disposition over their estate on death?

By executing a will, a person may freely dispose of only part of their estate, which normally is one-quarter. The Civil Code contains compulsory portions that cannot be circumvented by will. This situation will change as of 1 January 2019, when Law 1934 of 2018 comes into force. As of next year, by executing a will, a person may freely dispose of half of their estate.

Colombian rules on forced heirship are mandatory and apply to the estates of all individuals (nationals and foreigners) who die with their last residence in Colombia. Colombian resident heirs and foreign heirs have the same rights and, thus, are entitled to equal treatment in Colombian probate proceedings. The Civil Code forces the testator to assign certain compulsory portions, even against his or her will.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

Colombian law distinguishes between different orders of heirs in an intestate succession. Succession orders or levels determine who inherits and in which proportion. One level excludes the others. The following table sets out the different orders of heirs in an intestate succession.

Order of heirs

Proportion

Descendants: biological and adopted

Descendants inherit equal portions, not including the surviving spouse’s marital portion

Ancestor and surviving spouse: ancestors of nearest degree exclude the others

In this order, heirs inherit per capita along with the surviving spouse, who receives the marital portion

Siblings and surviving spouse

The inheritance is divided into two parts, one for the brothers and sisters that receive equal portions and one for the spouse

Children of brothers and sisters

Equal portions

The state through the Colombian Family Welfare Institute

The entire estate

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

There is no legal distinction between natural and adopted children in terms of estate and succession planning. In accordance with Law 29/1982, natural and adopted children have the same rights and obligations.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

In Colombia, the last residence of the deceased determines the successions applicable law. Colombian rules on forced heirship are mandatory and apply to the estates of all individuals (nationals and foreigners) who die with their last residence in Colombia. Colombian resident heirs and foreign heirs have the same rights and, thus, are entitled to equal treatment in Colombian probate proceedings.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

If the law governing the will is Colombian law, one should bear in mind that the testator is free to assign its properties to his or her legatees, but must consider the compulsory portions. Such portions are the part of the estate that, according to the forced heirship law, go to the forced heirs.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign wills are recognised in Colombia as long as the following requisites are met:

• the will is presented before any Colombian Consulate abroad;

• witnesses of the will are domiciled in the jurisdiction where the will is granted; and

• the rule of a solemn will in Colombia is observed.

23 Who has the right to administer an estate?

Under Colombian law, an estate executor is designated to administer the assets and insure the fulfilment of the deceased’s last will. The estate executor must accept such designation; however, if an executor is not designated, the heirs are in charge of administering the estate.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Under Colombian law, an estate executor is designated to administer the assets and insure the fulfilment of the deceased’s last will. The estate executor must accept such designation; however, if an executor is not designated, the heirs are in charge of administering the estate.

The administrator of the estate is required to hold the estate assets under deposit. When the inventory and appraisals of the estate are final, the administrator may sell the deceased’s assets to cover any debts or payment of any taxes and fees.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Under Colombian law, a valid will may not be amended after the deceased’s death. The validity and content of a will can be challenged for various reasons, such as the deceased’s lack of capacity or the existence of an heir that was not included in the deceased’s inheritance as a rightful heir under Colombian law. Colombian succession law determines that the testator may freely assign only part of his or her inheritance. Thus, if the testator does not respect the compulsory portions, the judge can still apply the will and change its content in order to assign to the heirs the portions that they are legally entitled to under Colombia’s mandatory heirship laws.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Colombian family law grants the parents of a child usufruct over the property of the child, save for some exceptions, such as the assets acquired by the child because of his or her work, or received by the child as a result of an inheritance, legacy or gifts. In addition, Colombian family law grants the parents a right to manage the property of their children, except for the assets acquired by the child because of his or her work.

Once a child becomes of legal age, and the parental powers over a child terminate, the parents are required to give full account of and hand over the property to the child. Parents are liable for any damage or reduction in the property of the child administered by them resulting from their negligence or wilful misconduct. They must therefore act in a careful and faithful manner. The administration of the child’s property by the parents can be subject to review by the authorities. Apart from establishing specific regulations regarding the administration of the property, authorities may, as an ultimate measure, appoint a legal guardian for the administration of the child’s property.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

Law 27/1997 determines that an individual has full capacity to exercise his or her civil rights (including holding and managing property) at 18 years of age.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Under Colombian law, any individual is subject to legal rights and obligations except for individuals deemed to be incapable by a Colombian judge after a medical evaluation and due process.

An individual may be declared incapable by means of a voluntary interdiction whereby a judge declares that an individual is unfit to exercise his or her rights and obligations. Once the individual has been declared unfit to handle his or her own affairs, the judge will designate a guardian to take care of the individual’s affairs.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Foreign nationals belonging to one of the 102 jurisdictions (eg, the United States, Canada, the United Kingdom, EU, Japan) established in Resolution No. 1,128 of 2018 of the Ministry of Foreign Affairs are not required to apply for a visa for a tourist or business stay of 90 days or less.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A visitors visa is granted for a term of up to 90 calendar days with multiple entries and may not be renewed. However, foreign nationals who visit the country on short-term visits without receiving any salary or compensation in Colombia may request an NE visa. The NE visa applies to a foreign national who is a legal representative or occupies a managerial or executive position in a foreign company.

Foreign nationals who obtain this kind of visa may perform activities of business promotion related to the interests of their company, such as attending board meetings of partners or directors, and the supervision of the operations of economically, strategically and legally related companies. This kind of visa is valid for a term of up to five years, depending on the type of NE visa granted, for multiple entries, and authorises a stay of up to four years, also depending on the type of visa granted. As a general rule, a foreign national entering Colombia under an NE visa cannot take residence or receive a salary or compensation in Colombia.

31 Is there a visa programme targeted specifically at high net worth individuals?

There is no specific visa programme targeted specifically at high net worth individuals in Colombia. However, foreigners performing direct investments starting from 650 Minimum Monthly Wages (approximately US$170,000) may obtain a resident visa.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Individuals performing direct investment in Colombia exceeding the above-mentioned amount are entitled to bring their family members as visa beneficiaries.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

The resident visa gives an individual the right to reside indefinitely in Colombia. However, the visa certificate has to be renewed before the Colombian migration authorities every five years.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Foreigners who are not Latin American, from the Caribbean or Spanish nationals may obtain Colombian citizenship provided that they are domiciled in Colombia for a term of five years counted from the visa’s date of expedition. This term may be reduced to two years if the individual is married to a Colombian national or has Colombian children.

Update and trends

Upcoming Colombian tax reform

Mr Ivan Duque was elected as Colombia’s president on August 2018 and announced major reforms to rebuild the Colombian economy and tackle inequality. The government has not presented an official draft of the tax reform; however, the Colombian Minister of Finance recently announced an upcoming tax reform focusing on the following objectives:

• reducing the tax burden for businesses and simplifying administrative processes;

• improving DIAN’s capacity to administer matters concerning tax evasion; and

• increasing taxation for natural persons.

Rodrigo Castillo Cottin

rodrigo.castillo@bakermckenzie.com

Ana Maria Lopez

ana.lopez@bakermckenzie.com

Hanspeter Misteli Reyes

hanspeter.misteli@bakermckenzie.com

Avenida 82

No. 10–62, Piso 7

Bogota

Colombia

Tel: +57 1 6341544

Fax: +57 1 376 2211

www.bakermckenzie.com

Cyprus

Despina Sofokleous and Lorenzo Toffoloni

Andreas Th Sofokleous LLC

Tax

1 How does an individual become taxable in your jurisdiction?

An individual becomes taxable in Cyprus in any year of assessment (the tax year and the calendar year are the same) on the basis of his or her residence.

As of 1 January 2017, an individual will be considered as a tax resident of Cyprus if the individual satisfies either the 183-day rule or the 60-day rule for the tax year, explained as follows:

• the 183-day rule applies to an individual who is tax resident if he or she is physically present in Cyprus for more than 183 days in the relevant year;

• the 60-day rule applies to an individual who, in the relevant tax year:

• does not reside in any other single state for a period exceeding 183 days in aggregate;

• is not tax resident in any other state;

• is reside in Cyprus for at least 60 days; and

• carries out any business in Cyprus or is employed in Cyprus or holds the office of director in a company tax resident in Cyprus at any time during the tax year, provided that it is not terminated during the tax year. In addition, the individual must maintain in the tax year a permanent residential property in Cyprus that is either owned or rented by the individual.

For the purpose of calculating the days of presence in Cyprus of the 183-day rule and the 60-day rule:

• the day of departure from Cyprus is considered to be a day of residence outside Cyprus;

• the day of arrival in Cyprus is considered to be a day of residence in Cyprus;

• the arrival in and departure from Cyprus on the same day is considered to be a day of residence in Cyprus; and

• the departure from and return to Cyprus on the same day is considered to be a day of residence outside Cyprus.

Individuals who are Cyprus tax resident are taxed on the basis of worldwide income, but certain exemptions apply. Of particular note is the non-domicile rule, which provides that a Cyprus tax resident individual is exempt from taxation in Cyprus on his or her worldwide dividend and ‘passive’ interest income, where the individual is not domiciled in Cyprus for Cyprus tax purposes.

An individual is considered to be domiciled in Cyprus if he or she has a domicile of origin in Cyprus (this is acquired at birth and, as a rule, is the same as the domicile of the father at the time of birth and, in exceptional cases, of the mother according to the Wills and Succession Law, Cap 195) or if he or she has been a tax resident in Cyprus for at least 17 years out of the past 20 years prior to the tax year in question.

Non-residents are subject to tax on income accruing or arising from sources in Cyprus.

2 What, if any, taxes apply to an individual’s income?

The following two main types of taxes apply on income: income tax and special contribution for defence.

Income tax

The personal income tax rates are listed below.

Taxable income

Tax rate

Below €19,500

0%

€19,500 to €28,000

20%

€28,000 to €36,300

25%

€36,300 to €60,000

30%

Above €60,000

35%

Income tax is payable on business profits, income from an office or employment, discounts, pensions, charges or annuities, rents, royalties, remuneration or other profits from property and net consideration in respect of trade goodwill. Expenses incurred for the production of taxable income are deductible provided that they are supported by invoices or relevant receipts.

The following are exempt from income tax:

• interest and dividends;

• lump sums received on retirement or as commutation of pension or as a result of bodily injury or death;

• capital sums from approved life assurance policies and provident or pension funds;

• income from employment services provided abroad to a non-resident employer or an overseas permanent establishment of a resident employer for a period exceeding 90 days in the tax year;

• profit from the sale of shares (if the shares are of an unlisted company owning real estate in Cyprus the gain may be subject to capital gains tax, see question 3);

• salaries of officers and crew of ships owned by a Cyprus shipping company that sail under the Cyprus flag and operate in international waters;

• income from a qualifying scholarship, exhibition, bursary or similar educational endowment; and

• donations to approved charities, professional and trade union subscriptions, life insurance premiums and contributions to pension, social insurance and welfare funds.

Subject to certain conditions, expenditure on maintaining buildings subject to a preservation order may also be deductible.

Annual writing down allowances are available against plant, machinery and other assets used in a trade or profession.

Foreign pensions may be taxed either on the normal basis set out above, or on an alternative basis, under which the first €3,420 per annum of the foreign pension is free of tax and the excess over that amount is taxed at 5 per cent. At current rates the alternative basis results in a reduced tax liability on pensions above €24,860. The taxpayer may choose which basis to adopt in any particular year.

The local legislation provides for a separate, highly favourable tax system for international shipping and ship-management activities based on the tonnage of vessels operated or managed.

A 20 per cent deduction is granted to individuals from rental income received to cover expenses. The full amount of interest paid on loans for the acquisition of the let property is allowed as a deduction.

With regard to widow’s pensions, as of 1 January 2014 a special basis of taxation applied under which the first €19,500 per year was tax-free and any amount above €19,500 was taxed at 20 per cent. As of 2014 tax year onwards, the Income Tax Law (Amendment) of 2015, Law 116 (I) provides the option for the taxpayer to elect on a year-by-year basis the special basis mentioned above or to be taxed under the general rules provided by the Income Tax Law.

The Income Tax Law (Amendment) (No.2) of 2015, Law No. 187 (I) extends the exemptions to individuals who wish to take up tax residency in Cyprus. However, the below exemptions apply for tax years up to 2020 and provided the employment started during on or after 1 January 2012. An annual allowance equal to 20 per cent or €8,550 (the lower) is granted for remuneration from any office or employment of an individual provided that he or she was not resident of the Republic before employment (applicable for five years commencing from the 1st of January following the year of employment). If income from such employment exceeds €100,000 per annum, a 50 per cent deduction is allowed for the first 10 years of employment. The following limitations are noteworthy with regard the 50 per cent exemption and which apply for individuals whose employment commenced on or after 1 January 2015; it will not be available to individuals who were Cyprus tax residents for a period of three out of five years preceding the year of employment and it will not be available to individuals who were Cyprus tax residents in the year preceding the year of commencing their employment. Finally, the amended law provides that the 20 per cent exemption does not apply in case the 50 per cent exemption is also available.

Special contribution for defence

Up to and including 15 July 2015, all residents of Cyprus were subject to special defence contribution on interest, dividend and rents received at the following rates.

Nature of income

Rate

Dividends

17%

Interest income

30%

Rental income less 25%

3%

The Special Defence Contribution (Amendment) Law of 2015, Law No. 119 (I) restricts liability to special defence contribution with effect from 16 July 2015 to taxpayers who are both resident and domiciled in Cyprus for the year of the assessment concerned (and as a result the aforementioned rates apply). Therefore, individuals who are resident but not domiciled in Cyprus are exempt from Cyprus tax of all forms on dividends, rents and interests, regardless of whether such income is derived from sources within Cyprus.

3 What, if any, taxes apply to an individual’s capital gains?

Subject to certain exemptions and reliefs, capital gains tax is payable at 20 per cent on net gains from the disposals of immoveable property situated in Cyprus and on gains from the disposal of shares in unlisted companies to the extent that their value derives from such property.

The Capital Gains Tax (Amendment) (No 2) Law of 2015, Law No. 117(I) exempts gains on certain disposals of property (whenever the disposal may occur) that was acquired by the alienator on an arm’s-length basis within the period beginning on 16 July 2015 and ending on 31 December 2016. The exemption does not apply to property acquired under the foreclosure process prescribed in the Transfer and Mortgage of Immoveable Property Law.

The Capital Gains Tax (Amendment) (No. 3) Law of 2015, Law No. 189(I) imposes capital gains tax on the sale of shares which directly or indirectly participate in other companies that hold immoveable property in Cyprus provided that at least 50 per cent of the market value of the shares sold is derived from property situated in Cyprus.

All other capital gains are exempt from tax.

4 What, if any, taxes apply if an individual makes lifetime gifts?

There are no taxes on lifetime gifts in Cyprus.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There are no succession taxes in Cyprus.

6 What, if any, taxes apply to an individual’s real property?

Annual taxes

Immovable property tax has been abolished as from 1 January 2017.

Transfer fee and stamp duty when acquiring immovable property in Cyprus

Real estate transfer fees are imposed by the Land Registry in order to transfer freehold ownership to the name of the purchaser. The transfer fees are due for payment when the transfer of the title deed in the name of the purchaser takes place. The purchaser is solely responsible for the payment of the transfer fees. The rates are on a graduated scale as set out in the following table.

Value of property (€)

Transfer fee rate

Up to €85,430

3%

From €85,431 to €170,860

5%

Over €170,860

8%

According to the ‘Land and Surveys Department (Fees and Rights) (Amendment) (No. 2) Law’, which was passed on 14 July 2016, the property transfer fee has been reduced by half and this is now permanent.

A one-off stamp duty is levied on the purchase of property in Cyprus. The rates are dependent on the contractual purchase amounts and payment is due within 30 days of signing the sale agreement. The amount is payable by the purchaser to the tax authorities. The rates are listed below (a maximum duty of €20,000 applies).

Purchase price in €

Stamp duty

Up to €5,000

0%

From €5,001 to €170,000

0.15%

Over €170,000

0.20%

Capital gains tax

A disposal of real property may give rise to a charge to capital gains tax (see question 3).

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

As an EU member state, Cyprus is a member of the EU Customs Union. No customs duties are levied on goods travelling within the customs union and members of the customs union impose a common external tariff on all goods entering the union.

8 What, if any, other taxes may be particularly relevant to an individual?

There is no wealth tax or the like. Cyprus is a low-tax country and its standard VAT rate of 19 per cent is among the lowest in Europe.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts are transparent for tax purposes. Section 12 of the Cyprus International Trusts Law as amended provides that income and profits of an international trust which are earned or deemed to be earned from sources within and outside Cyprus are subject to every form of taxation imposed in Cyprus in the case of a beneficiary who is resident there. In the case of a non-resident beneficiary only Cyprus-source income and profits are subject to Cyprus tax.

10 How are charities taxed in your jurisdiction?

Approved (by the Inland Revenue Department) charities are exempt from Cyprus tax. Charities with trading activities which exceed the registration threshold must register and account for VAT.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are recognised by and may be established under Cyprus law. The International Trusts Law of 1992 (which builds on the Trustee Law of 1955) has been widely amended in 2012, giving Cyprus a modern and favourable trust regime.

Cyprus international trusts offer, among others, the following benefits:

• all income whether trading or otherwise of an international trust (ie, a trust whose property is located and income is derived from outside Cyprus) is not taxable in Cyprus;

• dividends, interest or other income received by a trust from a Cyprus company are also neither taxable nor subject to withholding tax;

• gains from the disposal of the assets of an international trust are not subject to capital gains tax in Cyprus;

• powerful asset protection features (among others, a two-year ‘hardening period’); and

• the possibility to reduce or eliminate inheritance taxes of the settlor.

Trusts governed by the laws of other jurisdictions are recognised under the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1 July 1985, which is applicable in Cyprus.

12 Does your jurisdiction recognise private foundations?

The establishment of foundations had been allowed by the Associations and Foundations Law of 1972. The latter has been recently amended. Broadly, the amendments are aimed at simplifying the procedure for the establishment of foundations.

Foundations governed by the laws of another jurisdiction are recognised.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

The Civil Cohabitation Law of 2015, Law No. 184 (I), enforced in Cyprus as of 9 December 2015, allows same-sex couples to form a legally recognised civil partnership.

Civil partners or cohabitees are treated in the same way as spouses for the purposes of succession law and thus the relevant provisions of the Wills and Succession Law, Cap 195 apply.

The Law affords civil partners or cohabitees the same rights as a married couple except the possibility to adopt children under the relevant laws of the Republic.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

The Civil Cohabitation Law of 2015, Law No. 184 (I), enforced in Cyprus as of 9 December 2015, allows heterosexual couples to form a legally recognised civil partnership.

Civil partners or cohabitees are treated in the same way as spouses for the purposes of succession law and thus the relevant provisions of the Wills and Succession Law, Cap 195 apply.

The Law affords civil partners or cohabitees the same rights as a married couple except the possibility to adopt children under the relevant laws of the Republic.

Succession

15 What property constitutes an individual’s estate for succession purposes?

An individual’s estate for succession purposes is made of all property passing on his or her death. Property held by an individual as trustee is not part of the estate, nor is property placed in a trust. The concept of joint ownership of property does not exist in Cyprus law. Co-owners hold property in specified shares, and on the death of one of the co-owners his or her share in the property, will devolve in accordance with the individual’s will or the rules of intestacy.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Individuals are free to dispose of their estate during their lifetime.

17 To what extent do individuals have freedom of disposition over their estate on death?

Cyprus law imposes restrictions on the freedom of the testator to dispose his or her estate by will and it allows him or her to dispose only a portion of the estate (known as the ‘disposable portion’; the one that cannot be disposed of by will is instead called the ‘statutory portion’).

In particular, if a person dies leaving spouse and child, or spouse and descendant of a child, or no spouse but child or descendant of a child then the disposable portion must not exceed the quarter of the net value of the estate.

Whether a person dies leaving spouse or father or mother but no child or descendant of a child, then the disposable portion must not exceed the half of the net value of the estate.

The only way a person is able to dispose all of his or her estate freely is where he or she dies leaving neither a spouse, nor a child, nor a descendant of a child, nor a father, nor a mother. In that cases, he or she is free to dispose by will all of his or her estate.

In cases where a testator disposed more than the disposable portion, the will is not void but the portion is reduced to the disposable portion. However, when a person dies leaving only a spouse, but neither child or descendant of a child, nor father or mother and he or she leaves to his or her spouse a portion that exceeds the disposable portion, no reduction is necessary.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

The Wills and Succession Law, Cap 195 sets out in its first schedule the rules of intestacy. Such rules apply not only if there is no valid will, but also to any part of the estate not disposed of by will.

The persons entitled to succeed to the estate of a deceased person are divided into the following four classes:

• first class: the children of the deceased living at the time of his or her death and the surviving descendants of the deceased’s children who died in his or her lifetime. The first schedule of the Wills and Succession Law restricts succession to legitimate children, but this restriction no longer applies and all children are entitled to succeed (see question 19);

• second class: the father, mother, brothers and sisters of the deceased and the surviving descendants of brothers or sisters who died in the lifetime of the deceased;

• third class: the surviving ancestors of the deceased nearest in degree of kindred; and

• fourth class: the nearest surviving relatives of the deceased up to the sixth degree of kindred (more remote relatives are excluded).

The estate is distributed to the members of the highest class. The persons of one class exclude persons of a subsequent class. Distribution takes place after the deduction of the share of the surviving spouse (see below). In the first class, the surviving children of the deceased succeed equally per capita, but the descendants of children who died before the deceased succeed per stirpes (the phrase per stirpes means that the descendants of a deceased child will equally inherit the share that their deceased mother or father would otherwise have inherited if the mother or father was alive). In the second class, parents and surviving siblings are entitled to equal shares but half-brothers and half-sisters are entitled to only half the share of a full sibling (a legacy of when polygamous marriage was permitted for Muslims).

The descendants of siblings who died before the deceased succeed per stirpes. In the third class the succession is per stirpes and in the fourth class it is per capita.

The estate of an individual who dies leaving no spouse and no relative within the sixth degree of kindred will become the property of the Republic of Cyprus.

The rights of the surviving spouse

After the repayment of any debts or liabilities of the estate, the surviving spouse is entitled to a share in the statutory portion and in the part of the disposable portion that remains undisposed, if any.

In particular, if the deceased leaves except from the spouse, a child or a descendant of a child, they all receive equal shares.

If the deceased leaves neither a child nor a descendant of a child but he or she leaves an ascendant or a descendant of an ascendant within the third degree of kinship, the share of the surviving spouse will be half of the net estate.

If the deceased leaves no child or descendant of a child, or any ascendant or a descendant of an ascendant within the third degree of kinship, but leaves an ascendant or a descendant of an ascendant within the fourth degree of kinship, then the share of the surviving spouse will be three-quarters of the net estate.

If, however, the deceased leaves no child or descendant of a child, nor any ascendant or a descendant of an ascendant within the fourth degree of kinship, then the share of the surviving spouse will be the whole statutory portion and the whole part of the disposable portion that remains undisposed.

Under section 45 of the Wills and Succession Law, property received by the surviving spouse from the deceased under a marriage contract is not taken into account in calculating the surviving spouse’s entitlement.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

The Wills and Succession Law restricts the right of inheritance to legitimate children of a deceased and their descendants only. However, this provision is overridden by Cyprus’s obligations under the European Convention on the Legal Status of Children Born out of Wedlock, which Cyprus signed in 1978 and which was ratified by Law No. 50 of 1979. Article 9 of the Convention provides that a child born out of wedlock will have the same right of succession to the estate of its father and its mother and of a member of its father’s or mother’s family as if it had been born in wedlock. Section 54 of the Wills and Succession Law provides that the latter will not be applied in the event of inconsistency with any obligation imposed by treaty.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

The provisions of the EU Regulation (EU) No. 650/2012 regarding International Jurisdiction and the applicable law relating to Wills and Succession in European Union countries apply in Cyprus for persons who deceased on or after 17 August 2015. The EU Regulation provides the general rule that the applicable law to the succession as a whole of an individual shall be the law of the state of habitual residence of the deceased at the time of his or her death. If this was Cyprus then the provisions of the Wills and Succession Law apply as stated in questions 17 and 18.

According to the EU Regulation, where by way of exception it is clear that at the time of death the deceased was manifestly more closely connected with a state other than the state his or her habitual residence, the law applicable to the succession shall be the law of that other state.

In addition, according to the EU Regulation, citizens can choose the law of their country of nationality to apply to their estate, whether it is an EU or a non-EU country.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

The testator must be of sound mind, memory and understanding and must be at least 18 years old. The will must fulfil the requirements of section 23 of the Wills and Succession Law, pursuant to which a valid will must be in writing and executed in the following manner:

• it must be signed at the foot or end by the testator, or by some other person on the testator’s behalf, in the testator’s presence and by his or her direction;

• this signature must be made or acknowledged by the testator in the presence of two or more witnesses present at the same time;

• the witnesses must attest and subscribe the will in the presence of the testator and in the presence of each other; and

• if the will consists of more than one sheet of paper, each sheet must be signed or initialled by or on behalf of the testator and the witnesses.

If the person making the will is blind or illiterate, the will must be read out to him or her before execution and the testator must place his or her mark on it or it must be signed by some other person on the testator’s behalf, in the testator’s presence and by his or her direction.

All the other formal requirements apply equally in the case of blind or illiterate testators.

Wills made in Cyprus must comply with the aforementioned requirements, irrespective of the nationality, residence or domicile of the testator.

Wills made by soldiers and sailors need not comply with these requirements, even if they dispose of real estate in Cyprus.

Law No. 96(I) of 2015 amends the Wills and Succession Law by inserting a new section which gives the court discretion to overlook or amend any grammatical or numeric errors in a will, provided that the request has been submitted with persuasive evidence by an interested party and that it considers it equitable to do so.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

A will executed overseas that complies with the formalities required by the Wills and Succession Law or a will that meets the requirements of the Hague Convention will be recognised by the Cyprus courts, as long as it has been deposited with a probate registry in Cyprus.

If the will does not meet these requirements it will not be recognised, and any property in Cyprus will have to be administered and devolve according to the laws of intestacy.

23 Who has the right to administer an estate?

The right to administer an estate of a deceased person is granted to the ‘personal representatives’ of the latter, namely, the executor or executors named in the will or the administrator appointed by the court.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Title to a deceased’s assets, except for very small and uncomplicated estates, does not pass directly to the heirs and successors. Instead, title passes to the executor or the administrator of the estate, referred to generically as the ‘personal representatives’, whose duty is to pass them on to the heirs. The executor derives his or her powers over the estate of the deceased from the will of the deceased, and the estate is vested in him or her at the time of death of the deceased. If no executor is appointed by the will, the court will appoint an administrator who has the same powers and duties as an executor appointed by the will. The administrator derives his or her powers from the order of the court appointing him or her, but once the order has been issued the vesting of the estate is effective from the time of death of the deceased.

The executor or administrator acquires all the rights and obligations of the deceased and may sue and be sued in all matters concerning the estate of the deceased and his or her administration of it. Pending the grant of administration, the estate vests temporarily in the court and, for small estates, the court may make an order for summary administration, in which case the probate registrar or another public officer appointed by the court will act as administrator.

The Administration of Estates Law Cap 189 sets out the general rules governing administration by personal representatives. Executors have the powers and duties given and imposed on them by common law and the doctrines of equity as applied in England, except as specifically varied by Cyprus law. Subject to any limitations contained in the grant, administrators will have the same powers and duties, namely:

• to administer the estate of the deceased according to the law;

• to pay the just debts of the estate;

• to collect and distribute the assets among the heirs according to the will, if any, and the hereditary rights of the heirs; and

• to account to the court for their administration.

The court may remove any executor or administrator for wilful neglect or misconduct in the administration of the estate, either on its own initiative or on the application of any person interested in the estate. The court may grant letters of administration to some other person in the place of an executor or administrator who has been removed or has died or has become incapable of acting.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Disappointed heirs may institute legal proceedings against the executor, disputing the formal validity of the will, its compliance with the legal requirements as to the statutory portion or the testamentary capacity of the testator. Under the Limitation of Actions Law No. 66(I) of 2012, no action can be commenced questioning the validity of a will, or in relation to the estate of a deceased or any portion or part thereof or bequest, after eight years from the date of death. In the event that the claimant was absent from Cyprus, the limitation period will not be deemed to have been completed unless one year has elapsed from the time that the claimant returned to Cyprus or became aware of the death (or with reasonable diligence could have become aware of the death).

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Pursuant to the Parents and Children Relations Laws, 1990 to 2008, the property of a minor shall be managed by the parents until the child reaches the age of majority. In case where the parental responsibility terminates by reason of death, or declaration of disappearance, or absence of one of the parents, the parental responsibility is exercised exclusively by the other parent. In the event that one of the parents is unable to exercise parental responsibility due to practical reasons or because he or she lacks the necessary legal capacity, the other parent exercises parental responsibility alone. However, a minor parent may also exercise care of the person of the child.

In case of divorce or annulment of the marriage or void marriage and provided that both parents are alive, the exercise of parental responsibility is regulated by the court.

When dealing with immovable property the parents of minor children are required to sign a written statement declaring that they have not been disqualified to administer the property of their minor children. They must also obtain the leave of the court before transferring or mortgaging the immovable property of their minor children or alienating it in any other way.

In the event there is no parent able to exercise parental responsibility the nearest ascendants are to exercise parental responsibility jointly as if they were the parents. If, for whatever reason, the nearest ascendants are not able to exercise parental responsibility, the court may appoint a guardian. The guardian may not without a leave of the court:

• dispose of, mortgage, charge, exchange, or in any other way alienate property of the minor;

• lease any of the immovable property of the minor for a term exceeding five years;

• purchase any immovable property on behalf of the minor;

• invest money belonging to the minor; or

• settle suits or claims in favour or against the minor.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual attains legal capacity for the purposes of holding and managing property at the age of 18 years.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Agents are appointed by the relevant legislation or by the court to act for and on behalf of individuals such as mental patients and missing persons who are no longer capable of managing their affairs.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Citizens of the European Economic Area (EU states plus Iceland, Liechtenstein and Norway), Switzerland and approximately 30 other countries and other categories of persons as listed on the website of the Ministry of Foreign Affairs may visit Cyprus for up to 90 days without a visa.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

For third-country (non-EU) nationals the duration of each visit may not exceed three months in any half year, starting from the date of first entry. Multiple entry visas may be issued provided that the total duration of visits does not exceed three months in any half year.

31 Is there a visa programme targeted specifically at high net worth individuals?

The Republic of Cyprus has a fast-track procedure allowing high net worth individuals to acquire a permanent residence permit on an accelerated basis.

The procedure applies to individuals who have fully and freely at their disposal a secured annual income, high enough to allow a decent living in Cyprus, without having to engage in any business, trade or profession.

Associated requirements for the granting of the permit are:

• evidence of a steady income from abroad of at least €30,000, from sources other than employment in Cyprus (namely: certificates of dividends, certificates of fixed deposits, pension statements, rents or salary advice). The necessary minimum income, if applicable, is increased by €5,000 for each dependent;

• a confirmation letter from a Cypriot bank, showing deposits of a minimum capital of €30,000 in an account, from sources other than employment in Cyprus. The capital should be transferred from an international bank to a local Cypriot bank and it should be pledged for at least a period of three years; and

• a title deed or purchase agreement of a residential property, issued on the name of the applicant. The minimum market value of the property should be €300,000 plus VAT and proof of payment for at least €200,000 excluding VAT. The VAT rate of 5 per cent is applied for first residences with a total area not exceeding 275 square metres in accordance with the architectural plans (after the exception of up to 88 square metres for common areas). The first 200 square metres are subject to 5 per cent VAT and anything above 200 square metres is subject to the standard rate of VAT, currently 19 per cent.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

A married spouse, children under 18 years old and financially dependent children up to 25 years old may also obtain the right of permanent residence. A permanent residence permit may also be granted to the parents and parents-in-law of the applicant or holder of a permanent residence permit with the submission of an application and the payment of the relevant fee, with the condition that the applicant or holder of the permanent residence permit presents only an additional annual income of €8,000 for every such dependent parent.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

The programme gives the right of permanent residence. This right is automatically lost if the holder is absent from Cyprus for a continuous period of two years.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

As a part of its policies aiming to attract foreign investors in Cyprus the Council of Ministers introduced in 2011 an economic citizenship programme under which applicants may obtain ‘fast-track’ citizenship.

The Cyprus government, through the Council of Ministers, has revised in September 2016 the criteria for granting the Cypriot citizenship by investment, in an effort to further promote foreign direct investments in Cyprus and align the scheme with the most recent industry requirements and standards.

In order to be eligible for the scheme, the applicant must have a clean criminal record, be the holder of a residency permit of Cyprus and hold a permanent privately owned residence in Cyprus with a value of at least €500,000 (plus VAT) and fulfil at least one of the following criteria:

• the applicant has made a direct investment in Cyprus of at least €2 million for the acquisition or development of real estate projects (residential, commercial, tourism or other infrastructure). It shall be noted that the acquisition of land that falls under residential, tourist or commercial building zones is an allowable investment. Land not under a building zone (ie, forest and agricultural land, etc) is not considered to be a qualifying investment under this criterion;

• the applicant has purchased or created or participated in Cypriot businesses or companies. The applicant must make an investment of at least €2 million in the purchase, creation or participation in businesses or companies that are based and operate in Cyprus. These businesses or companies should evidently have a tangible presence and substantial activity in Cyprus and employ at least five Cypriot or EU citizens who have been legally residing in Cyprus for a continuous period of at least five years;

• the applicant has made an investment in alternative investment funds (AIFs), financial assets of Cypriot businesses or organisations that are licensed by the Cyprus Stock Exchange Commission. The applicant must purchase financial assets of at least €2 million (units in AIFs, bonds (maximum €500,000 possible to buy per application), debentures, other securities, etc) registered and issued in the Republic of Cyprus, in companies or organisations with substantial economic activity in Cyprus that are regulated by the Cyprus Stock Exchange Commission; or

• the applicant may choose to have a combination of any of the above criteria amounting to at least €2 million. In the context of this criterion (ie, combination of investments), the applicant may also purchase governmental bonds of the Republic of Cyprus of a maximum amount of €500,000 and a €1.5 million real estate in Cyprus.

It is noted that under the revised criteria, the investor’s parents are entitled to apply for Cyprus citizenship by exception, provided that the investor’s parents are the owners of a permanent residence in Cyprus of at least €500,000 excluding VAT.

In addition, it is noted that under the revised criteria, the investment in government bonds of the Republic of Cyprus is now fixed restricted to a maximum €500,000.

Finally, it is noted that under the revised criteria, if the applicant has invested under the first criterion mentioned above (real estate) or the applicant has chosen to have combination of the criteria, for example, €500,000 government bonds and a real estate project of €1.5 million that contains at least one residential villa or apartment of €500,000, then the applicant does not need to buy an additional residence with a value of at least €500,000 plus VAT.

Despina Sofokleous

d.sofokleous@aslaw.eu Lorenzo

Lorenzo Toffoloni

l.toffoloni@aslaw.eu

2 Agapinoros Street & Makariou III

Iris Tower, Offices 403–405

1076 Nicosia

Cyprus

Tel: +357 22763601

Fax: +357 22763635

www.aslaw.eu

Dominican Republic

Maria Arthur

Arthur & Castillo (AC Law)

Tax

1 How does an individual become taxable in your jurisdiction?

The Dominican Republic (DR) imposes a tax on income. The tax system is based on a territoriality principle whereby income from DR sources is subject to income tax. Consequently, non-residents shall be subject to income tax for their Dominican sourced income. In this sense, payments abroad and credits on account of DR source income to non-residents should be collected through withholding taxes, as a sole and definite payment.

Individuals who are domiciled or residents in the DR shall also be taxed on their foreign-sourced income derived from investments and financial gains. The foregoing would apply to individuals who become DR residents after the third year in which they became residents.

Individuals become tax residents if their stay in the DR is of at least 183 days during the calendar year.

2 What, if any, taxes apply to an individual’s income?

Income tax for individuals domiciled or resident in the DR is levied at a progressive scale and tax rates ranging from zero to 25 per cent, after applying the annual income tax exemption amount.

As mentioned in question 1, payments abroad and credits on account of DR source income to non-residents or not domiciled in the DR should be subject to withholding taxes at a 27 per cent as a sole and definite payment; except those related to interest and dividends where a 10 per cent withholding tax applies.

3 What, if any, taxes apply to an individual’s capital gains?

Capital gains derived by individuals are subject to the same progressive tax rate as for ordinary income mentioned above in question 2. Capital gains may be credited with ordinary losses and capital losses of the same fiscal year.

In order to determine an individual’s capital gain or loss, the cost of the capital asset adjusted by local inflationary rules shall be deducted from the sales price or transfer value. The taxable basis may be decreased by depreciation adjustments or other reduction concepts and increased by improvements.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Lifetime gifts are subject to a gift tax based on the value of the assets donated in the DR, at the same tax rate as the one applicable to corporate income tax when the transfer occurs (now 27 per cent), payable by the beneficiary.

Donations made to create or develop a family asset such as a house or apartment for a family are exempt from the gift tax. Gifts to charities recognised by the DR state are also exempt.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

A 3 per cent estate tax applies to an individual’s transfers on death of property located in the DR, minus allowable deductions. If the decedent had his last domicile in the DR, moveable assets located abroad shall also form part of the taxable basis. Following the death of the individual, the heirs should pay real estate property taxes at a 1 per cent rate, if applicable.

Transfers at death of marital community assets to the surviving spouse are not subject to estate taxes and are exempt of transfer taxes.

6 What, if any, taxes apply to an individual’s real property?

Transfer of Dominican real property is subject to the payment of transfer taxes, payable by the purchaser within a period of six months, at a 3 per cent rate over the value of the property.

Ownership of real property by individuals is subject to an annual real estate property tax levied at a 1 per cent rate of the value of the property as established by the Dominican Cadastral Office, provided that such value exceeds the total exemption amount of DR$7,138,384 for 2017 (approximately US$143,341), adjusted by inflation every year.

There are several scenarios in which owners are exempt from the real estate property tax, including:

• when the owner is at least 65 years old and has owned the single piece of property for more than 15 years; and

• owning property acquired through the Tourism Incentive Regime Law No. 158-01.

A series of tax incentives may apply for pensioners and rentiers that have the intention of permanently residing in the Dominican Republic, including the tax on the transfer of the first real estate purchased, partial exemptions on annual real estate property tax, registration of a mortgage, and on the potential capital gains tax derived from the sale of such real estate.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Export of assets for personal use and enjoyment are not subject to the payment of taxes and duties.

In general, import of assets are subject to the application of ITBIS (which works like a VAT) at an 18 per cent rate and to the application of duties according to their customs classification. Some specific assets are also subject to the application of a selective consumption tax at variable rates (mostly 20 per cent).

Qualified pensioners or rentiers may benefit from the exemption of customs duties on the import of personal effects, home furniture and equipment used in professional activities, as well as from partial or total tax exemption on the importation of a vehicle or first local purchase, respectively.

Imports of personal effects through private couriers, of no more than US$200, from a United States, DR and Central America Free Trade Agreement (DR-CAFTA) country, are exempt from import taxes and customs tariff duties.

Import of personal effects and household appliances by foreigners who will be definitely residing in the DR are exempt from duties and not subject to taxes. Likewise, Dominicans who will be definitely residing in the DR after living abroad for at least two years, will also benefit from this treatment. In both scenarios, the importation of a vehicle may be subject to a partial deduction on all applicable import duties.

8 What, if any, other taxes may be particularly relevant to an individual?

Within the framework of business activity, the import and supply of goods and services in DR territory give rise to the Tax on the Transfer of Industrialised Goods and Services (ITBIS) (which works like VAT), at rates that vary from 8 per cent to 18 per cent, while specific goods and services are exempt. Exports of goods are zero taxed, as well as services rendered to non-domiciled entities that do not affect Dominican income and are consumed outside DR territory. The ITBIS paid at import and to local providers in the acquisition of goods and services may be compensated with a gross ITBIS of the same monthly fiscal period, and the excess may be carried forward to the following monthly fiscal periods.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

When transferring assets to the trust, the corresponding transfer taxes should apply. With respect to real estate assets and motor vehicles, taxes should be paid within the six months following the date of the trust agreement. However, the transfer of the assets to the trust should be exempt from capital gains tax.

On the other hand, the potential ITBIS should be filed and paid by the trustee (on behalf of the trust) in the period wherein the trust is registered before the Tax Administration.

With regards to trust beneficiaries, the same shall file annual income tax returns to reflect any gains or losses.

10 How are charities taxed in your jurisdiction?

Charities registered in the Dominican Republic and in good legal and tax standing, benefit from a total tax exemption from national taxation, including those applicable to gifts and bequests.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

A DR trust is constituted by an act through which one or several settlers transfer property or other rights to one or several entities named trustees in order to constitute a separate patrimony that shall be managed in favour of one or several beneficiaries, to be restored to the designated person when such act expires, pursuant to the instructions of the settler or settlers.

Trusts are recognised in the DR since the year 2011, being most widely used for construction projects as a way to offer real estate purchasers more warranties as to the use of their funds in their investment, whereby the trustee (in most cases a financial institution) would manage disbursements to the constructor.

The Law on Trust foresees the inability of creditors to seize the assets in trust. Nevertheless, there are a series of exceptions whereby the trust assets may be subject to query.

Trusts governed by the laws of other jurisdictions are not recognised in the DR.

12 Does your jurisdiction recognise private foundations?

Private foundations are not recognised in the DR.

Private foundations governed by the laws of other jurisdictions may be recognised in the DR as foreign private companies.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

No. The DR Constitution only recognises the natural union or marriage between a man and a woman.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Yes. Since the year 2010, the DR Constitution established that rights and duties derive from a de facto union between a man and a woman, both unmarried, that form a household. There is not yet a law setting forth the specific rules governing these types of relationships but the Supreme Court of Justice established certain minimum formation requirements:

• an obvious, public and monogamous relationship between a man and a woman;

• no married union between them or with third parties; or

• a stable, lasting and affectionate family life.

The latest precedent regarding partition of assets considered that the parties to the relationship are not subject to demonstrating the measurement of their contributions to their community of assets given that contributions are not necessarily constituted by material assets (eg, domestic work). Therefore partition of the assets shall be made in equal shares.

For tax and succession purposes, relationships meeting minimum formation requirements should have the same rights and duties as those existing for civil law marriages.

Succession

15 What property constitutes an individual’s estate for succession purposes?

An individual’s estate for succession purposes is constituted by the individual’s worldwide assets, provided that the decedent’s last domicile was in the DR.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Individuals can dispose of their total assets during their lifetime if they do not have ascendants or descendants.

If the individual has one child, the free disposition of the estate is of one half part, decreasing to one third part if having two children and to one quarter when having three children or more.

In the case that the individual does not have children but has one or several ascendants on the mother’s and father’s side, gifts can be made up to one half of the individual’s assets, increasing up to three quarters of the assets if there are only ascendants on one side of the family.

In the event that the gifts exceed the above-mentioned limits, clawback rules may be claimed, upon the death of the donor, by the individuals who benefit from the reserved portion of the estate, whereby such excess in gifts may be reduced.

In general terms, a reduction of the gifts will apply beginning from the last donation made, successively after obtaining the net amount of the assets and liabilities left by the decedent (donor) including the current value of the assets donated, thereby calculating the amount of free disposition available, while considering the status of the heirs to the succession.

Spousal consent is required for an individual to make gifts of community property. Real estate assets from such community of assets regime and any furniture therein can only be given as gifts for accommodating the children of their marriage.

17 To what extent do individuals have freedom of disposition over their estate on death?

Forced heirship rules apply with the same restrictions as for the disposition of the estate in lifetime gifts.

Individuals can dispose of their total assets in a will, if they do not have ascendants or descendants. However, if the individual has one child, the free disposition of the estate constitutes one half, decreasing to one third if having two children and to one quarter when having three children or more.

In the case that the individual does not have children but has one or several ascendants on the mother’s and father’s side, the disposition of the estate cannot exceed one-half of the individual’s assets; and of three-quarters of the decedent’s assets if there are only ascendants on one side of the family.

When the free disposition of assets in the will exceeds the forced heirship limits, the reduction will apply in all cases proportionately.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If there is no valid will, the disposition of the estate shall be governed by the intestate succession rules as follows:

• the estate may be inherited by the individual’s children and descendants, its ascendants and collaterals, as follows (each category excludes the next and is divided equally at the closest generation):

• the individual’s children or their descendants (per stirpes) will inherit in equal shares;

• ascendants (father and mother) and collaterals (siblings): will have two equal shares (one for the relatives of the father’s side and the other for the mother’s side). Siblings from the same parents inherit in both sides in equal shares. Absent of any descendants of the individual, each parent receives one quarter-share and the rest one half-share;

• if there is only one surviving parent: one quarter-share and the rest one half-share;

• if there is no surviving parent, the siblings or their descendants (per stirpes) will inherit;

• ascendants: if there are no siblings or descendants from them (per stirpes), the estate is divided in one half-share between the ascendants of the decedent’s mother and father’s sides. Therefore, the relative from the closest generation has right to the corresponding one half-share, excluding the rest. Ascendants of the same generation will inherit per capita;

• collaterals (cousins, uncles, etc): if there are no surviving ascendants on one side, the inheritance pertains one-half share to the surviving ascendants of the other side and the other one half-share to the ordinary collaterals. If no surviving ascendants on either side, ordinary collaterals inherit up to the 12th generation. If there are no qualified collaterals on one side, qualified collaterals of the other side will inherit; and

• the surviving spouse or civil union partner, under certain conditions:

• since 2010, the DR Constitution established that rights and duties derive from a de facto union between a man and a woman, both unmarried, who form a household. There is not yet a law setting forth the specific rules governing these types of relationships, but the Supreme Court of Justice established certain minimum formation requirements:

• an obvious, public and monogamous relationship between a man and a woman;

• no married union between them or with third parties; or

• a stable, lasting and affectionate family life; and

• the State.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Yes. Adopted or illegitimate children are treated the same as natural legitimate children.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Successions are governed by the law of the individual’s domicile at the time of death (lex domicilii).

Domicile is defined as the place of habitual abode. Individuals cannot have two or more domiciles. The place of the last domicile shall determine the competent court if litigation between the heirs arises.

In succession matters, DR courts may have jurisdiction when the individual owns real estate assets in the DR or when the last domicile was in the DR.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

There are three types of wills from which an individual may choose from:

• handwritten;

• a notary will; and

• mystic.

The handwritten or holographic will’s sole requirement is that the individual must have handwritten the will from start to finish including the date and signature.

The notary will can be given orally in the presence of two qualified witnesses before a notary public, who shall include the testator’s wishes in an authentic document that must be signed by the individual, the two witnesses and the notary public.

If the contents of the will want to be kept a secret, the individual may dictate or handwrite a mystic will in a paper that must be closed and sealed, before or during the delivery of the same to a notary public, in the presence of at least six witnesses, among other basic requirements.

In all cases, the testator must be of sound mind and at least 18 years old.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Yes. Foreign wills are recognised in the DR provided that the document is duly legalised or apostilled, in the case that it is a notary will; and translated by a judicial interpreter if in a language other than Spanish. However, the provisions of the will shall be subject to DR succession rules when the individual’s last domicile was in the DR.

23 Who has the right to administer an estate?

The beneficiary heir has the right to administer the assets of the estate, and only in the case of litigation over a determination of heirs may the court grant the appointment of a judicial administrator. When an heir is a person under age, then the father or the mother may administer their assets, but they may not sell any real estate.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Title to a deceased’s assets are transferred after concluding a determination of heirs’ process before the Land Court in the case of real estate property, after the inheritance tax return has be filed and the corresponding taxes paid before the tax authorities. Complementary processes additional to the above are required for transferring to heirs and successors movable assets, such as motor vehicles, aircraft or vessels, rights, money, certificates of deposit or company shares.

While administering the estate assets, the beneficiary heir must render an accounting of its administration to creditors and legatees, and his or her personal assets may be attached only where the beneficiary heir administering the assets has been placed in arrears for the presentation of an accounting and for lack of complying with such obligation.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Yes. A claim may be brought before the civil court of the place where the succession was opened.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

A father and mother are always obliged to manage the assets of their children and must represent their children in the management of their property rights. In case there is only a surviving father or mother, the surviving father or mother will manage their assets, but real estate property transactions will require the authorisation of the family board.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

At age 18.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Any family member or other interested party may file a claim alleging incapacity. If a Dominican court agrees, the closest relative or spouse, would be appointed guardian. The guardian would then take control of all his or her assets within and outside the Dominican Republic and manage all property and business affairs. The guardian as a fiduciary must avoid self-dealing and must obtain the consent of the family board before entering into any guarded property transactions.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Generally, foreign nationals are not required a visa to visit the DR and are only required to purchase a tourist card included in the plane or ship ticket price.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

The visitor’s visa covers a period of 60 days, which is renewable for an equal period upon the foreign national’s request.

31 Is there a visa programme targeted specifically at high net worth individuals?

Foreign nationals, such as a business investors, retirees or a person receiving monthly rents from outside the DR, may be granted a residence visa, followed by permanent residence upon completing their immigration process.

Regarding the investor programme, business investments must be valued as at least US$200,000.

Rentiers must have monthly passive income of at least US$2,000 for a period of at least five years and retirees must have a monthly pension of at least US$1,500.

Qualifying under the above programmes entails the granting of certain facilities and tax advantages within the DR.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Spouses and unmarried children of the investor may also obtain a residence visa and permanent residency under this programme. For retirees and rentiers, and additional income amount per relative is required.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

The investor programme grants permanent residence for one year, renewable. Subsequent renewals shall be valid for a period of four years. For retirees and rentiers, subsequent renewals shall be valid for two-year periods.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

DR citizenship may be requested after two years of fulfilling the permanent residence category.

Update and trends

Bill on asset revaluation

On 3 September 2018, the President of the Dominican Republic submitted a Bill before Congress regarding the application of a temporary tax regime for the Declaration and Revaluation of Assets, based on the need to create certain conditions for the taxpayers to be able to voluntarily transparent their goods and real estate assets, undeclared before the Tax Administration, and revaluate them according to the current market value prices.

The purpose of said Asset Declaration and Revaluation Bill is the establishment of a temporary tax regime that allows individuals, legal entities and undivided estates to perform an asset declaration and revaluation of the goods described therein, and make the payment according to the following tax rate.

Goods declared or revaluated (as applicable)

Rate

Real estate property

3 per cent

Movable assets located in the Dominican Republic*

5 per cent

Local or foreign currency deposited in a regulated entity, financial instruments or securities, nominal shares, rights of the beneficiary of the trust and other similar types of assets or rights susceptible of economic value

5 per cent

Any asset whereby the revaluation implies a decrease of its assets, such as: shareholder receivable accounts, real estate assets and movables transferred when such transfer does not imply a shareholder distribution

5 per cent

* Except motor vehicles, goods acquired as a result of illicit activities, cash deposited in foreign financial institutions and securities registered in countries identified by the Financial Action Task Force as high risk or non-cooperative.

It is important to note that the Asset Declaration and Revaluation Bill establishes certain conditions for the declaration or revaluation, as applicable, of the taxpayers’ assets, as well as the compliance of certain formalities so that the request is duly filed and approved by the tax administration.

According to the proposed Asset Declaration and Revaluation Bill, the period available for being able to apply to such transitory tax regime is nine months, and 30 business days to make the corresponding payment, after the payment authorisation has been received.

Registration of wills

All notaries that provide notarisation services for the preparation of a will must register an extract of such will, before the corresponding judicial authority, within a period of 10 business days, stating the name of the testator, date, place and witnesses of the will. Failure to comply with registration of the will may entail the application of pecuniary fines to the notary public.

Certifications of registered wills may be requested to the corresponding judicial authority upon the completion and filing of the requirements thereto.

Civil Code

There is a bill amending the Civil Code that is pending approval by Congress.

Maria Arthur

marthur@aclaw.com

Avenue Abraham Lincoln 1009

Fourth Floor, Piantini

Santo Domingo

DN Dominican Republic

Tel: +1 809 472 2222

Fax: +1 809 472 2220

www.aclaw.com

England and Wales

Anthony Thompson, Nicole Aubin-Parvu, Katie Coles and Alfred Liu

Forsters LLP

Tax

1 How does an individual become taxable in your jurisdiction?

Principal factors

An individual’s place of domicile and residence are the principal factors in determining how he or she may be taxed in the United Kingdom (UK). The situs of assets will also be relevant in respect of certain taxes.

Domicile

Broadly speaking, an individual’s domicile is where he or she has a ‘permanent home’ and intends to live permanently or indefinitely. Long-term residence may be a factor in determining domicile, but is insufficient in itself.

At birth, an individual’s domicile of origin will be based on the domicile of his or her parents (primarily his or her father). A domicile of origin can be displaced by the acquisition of a domicile of dependency (if an individual’s parents acquire a new domicile while he or she is under 16 years) or, after the age of 16 years, a domicile of choice (if an individual resides in another country with the intention of residing there permanently or indefinitely). However, if an individual loses a domicile of choice in a country by leaving it, not intending to return to it, and moving to a different country without forming the intention of living there permanently or indefinitely, his or her domicile of origin will revive unless and until it is replaced by a new domicile of choice.

Strictly, an individual is not domiciled ‘in the UK’ but in one of the jurisdictions that make up the UK: England and Wales, Scotland or Northern Ireland. However, we use the shorthand ‘domiciled in the UK’ to refer to an individual who is domiciled within one of these jurisdictions.

Deemed domicile

From 6 April 2017, new deemed domicile rules came into effect that apply across inheritance tax (IHT), income tax and capital gains tax (CGT). The general rule is that a person who is not otherwise domiciled in the UK will be deemed to be domiciled in the UK if he or she has been resident for at least 15 of the 20 tax years immediately preceding the relevant tax year. If a non-UK domiciled person subsequently leaves the UK and spends at least six consecutive complete tax years outside the UK, he or she will no longer be deemed domiciled for income tax and CGT purposes. For IHT purposes, he or she would cease to be deemed domiciled if he or she is non-resident for four consecutive complete tax years, with the deemed domicile status falling away at the beginning of the fourth tax year of non-residence.

Non-UK domiciled individuals who were born in the UK with a UK domicile of origin are subject to stricter rules from 6 April 2017. Such individuals will be treated as deemed domiciled for income tax and CGT purposes on any occasion when they are tax resident in the UK, even if they continue to have a domicile overseas for general law purposes. For IHT purposes, a non-UK domiciled person who was born in the UK will be deemed domiciled in the UK if he or she was resident in the UK for the relevant tax year and for at least one of the two tax years immediately preceding the relevant tax year. Assuming he or she has not become deemed domiciled under the general deemed domicile rules (residence in the UK for 15 out of the preceding 20 tax years), such an individual will no longer be deemed UK-domiciled from his or her first tax year of non-residence.

Residence

With effect from 6 April 2013, tax residence in the UK is based on a statutory residence test. This test combines a test of presence in and connections with the UK. It applies only to individuals and covers income tax, capital gains tax and, where relevant, inheritance tax and corporation tax. It supersedes all existing legislation, case law and guidance for tax years following its introduction.

The test is divided into three parts, as follows:

• the automatic overseas tests: the satisfaction of one of these for a tax year means that the individual concerned is automatically non-UK resident for that year. There are five tests (two of which relate to individuals who have died during the relevant tax year). Three of the five tests focus on the number of days spent by an individual in the UK in the relevant tax year, combined with his or her residence in preceding years, and the other two focus on work overseas, combined with days spent in the UK in that tax year, or the individual’s residence status in preceding years. If none of these tests applies to an individual;

• the automatic residence test must be considered: this is divided into four automatic UK tests (one of which relates to individuals who have died during the relevant tax year). The first test provides that an individual is UK-resident for any tax year in which he or she spends at least 183 days in the UK (the old statutory test). Two of the other tests focus on time spent by an individual in a home in the UK compared with any homes overseas, and one focuses on work in the UK. The satisfaction of any one of these tests for a tax year means that the individual is automatically UK-resident for that year. If neither automatic test applies to an individual; and

• the sufficient ties test will determine the position: this test compares the number of days during a tax year spent by an individual in the UK with the number of ‘ties’ the individual has with the UK during that year. These ‘UK ties’ relate to family, work, accommodation, days spent in the UK in earlier tax years (90-day tie) and (for those who have been UK-resident for one or more of the previous three tax years) days spent in the UK in the relevant tax year compared with other countries (country tie).

There are specific tests that apply to determine the residence status of international transport workers. There is also a set of split-year rules determining how an individual’s residence for years of departure from or arrival in the UK may be determined in different situations, as well as a number of anti-avoidance and transitional provisions.

For tax years prior to 6 April 2013, the concept of residence was based primarily on physical presence in the UK, so that if an individual spent 183 days or more in the UK during the tax year, or an average of 91 days or more in a tax year in the UK over four years, he or she would be tax resident in the UK (as mentioned above, the 183-day test is retained in the new statutory test). However, spending less time in the UK would not automatically have led to the conclusion that an individual was not a UK resident, as other factors linking the taxpayer to the UK were also considered. Other relevant factors were:

• the frequency and duration of an individual’s periods of presence in the UK;

• the purpose and pattern of his or her presence; and

• his or her connections to the UK.

Ordinary residence

The concept of ordinary residence was scrapped in the UK with effect from 6 April 2013, other than in very limited circumstances. Transitional provisions were put in place for those who already benefited from a particular tax treatment due to being not ordinarily resident in the UK, provided that such individuals would have met the conditions to be not ordinarily resident in the relevant transitional years (2013–14, 2014–15 or 2015–16, depending on the particular situation). An individual was treated as ordinarily resident in the UK if he or she came to the UK for a settled purpose and established a regular and habitual mode of life here.

It was possible to be resident, but not ordinarily resident, in the UK and vice versa.

Remittance basis

Under the existing rules, an individual who is resident, but not domiciled in the UK or deemed to be so domiciled for tax purposes, is entitled to elect to be taxed on the remittance basis in respect of his or her foreign income and capital gains. In this case, he or she is only liable to tax on foreign income and gains that are brought into, or ‘remitted’ to, the UK.

Subject to certain exemptions (including an exemption for minors) and de minimis limits, for individuals who have been resident in the UK in at least seven of the preceding nine tax years, there is an annual charge of £30,000 to claim the benefit of the remittance basis. The annual charge increases to £60,000 for individuals who have been resident in the UK in 12 of the preceding 14 tax years. Prior to 6 April 2017, there was also a £90,000 annual charge for individuals who had been resident in the UK in 17 of the preceding 20 tax years. This charge no longer applies because, with effect from 6 April 2017, an individual who has been resident in the UK for at least 15 of the preceding 20 years is deemed to be domiciled in the UK for all tax purposes and not entitled to claim the remittance basis.

In most cases, an individual who claims the remittance basis loses his or her entitlement to the personal allowance for income tax and the annual exemption for capital gains tax.

The changes enacted in Finance (No. 2) Act 2017 with effect from 6 April 2017 provide for a capital gains tax rebasing relief for certain non-UK domiciled individuals who became deemed domiciled for the first time on 6 April 2017 and who have paid the remittance basis charge in at least one prior tax year. Where the conditions for the relief are met, personally-held non-UK assets are treated as having been acquired at their market value on 6 April 2017. In addition, a ‘cleansing’ relief is available to most non-UK domiciled individuals for a limited period of time until 5 April 2019. Where the provisions apply, they allow the extraction of clean capital from mixed funds that may then be remitted to the UK without a remittance arising. Local law advice on these provisions should be sought.

2 What, if any, taxes apply to an individual’s income?

Income tax is levied on an individual’s income from all sources: employment, profits of a trade or business, savings and investments.

Under the existing rules, a UK-resident individual who is domiciled outside the UK may claim, or be automatically entitled to, the remittance basis of taxation in relation to his or her foreign income (see question 1 for recent changes to the applicable rules). Otherwise, UK-resident individuals are taxable on their worldwide income as it arises, subject to any double tax treaty relief where foreign income has been taxed at source.

An individual who is resident outside the UK is taxable only on his or her UK income and, if that income is also taxed in the individual’s country of residence, he or she may be entitled to relief under a double taxation treaty if there is one in force between the UK and the country of residence.

Rates

The income tax rates applicable vary according to the source and level of income received by the individual in any tax year.

In tax year 2018–19, the income tax rates applicable are as follows.

Savings income

Up to £5,000: 10%

Above £5,000: rates are as for non-savings income

Dividend income

Up to £2,000: 0%

£2,001 to £34,500: 7.5%

£34,501 to £150,000: 32.5%

Over £150,000: 38.1%

Other income

Up to £33,500: 20%

£34,501 to £150,000: 40%

Over £150,000: 45%

The personal allowance for income that can be earned in any tax year before income tax is paid is £11,850 for individuals with an annual income of £100,000 or less. Above that limit, the allowance is reduced by £1 for every £2 of extra income, until it is exhausted when income exceeds £123,700. There are certain other allowances for blind people and for individuals and married couples over the age of 65 or 75, although age-related allowances are also subject to income limits.

As set out in the table above, from April 2016 the notional 10 per cent tax credit on UK dividends was replaced by a new tax-free dividend allowance. Under this allowance, in tax year 2018–19 there is no tax on the first £2,000 of dividend income regardless of what non-dividend income is available. However, any dividends received over £2,000 are taxed at 7.5 per cent within the basic-rate band, 32.5 per cent within the higher-rate band and 38.1 per cent within the additional-rate band.

3 What, if any, taxes apply to an individual’s capital gains?

CGT is levied on the taxable gains of individuals resident in the UK. Individuals resident outside the UK are not liable to tax in the UK on their capital gains, UK or otherwise, other than in respect of gains on disposals of residential property in the UK made on or after 6 April 2015, as a result of the introduction of the non-resident CGT charge. Indirectly, non-resident individuals may also be affected by the ATED-related CGT charge (see question 6) where they have an interest in UK residential property held through a company or certain other entities.

A UK-resident individual who is domiciled outside the UK under the general law and not deemed to be domiciled in the UK for tax purposes may claim or be automatically entitled to the remittance basis of taxation in relation to his or her foreign gains (see question 1 for recent changes to the applicable rules which, amongst other things, introduce a deemed domiciled tax status). Otherwise, UK-resident individuals are taxable on their worldwide capital gains, subject to any double tax treaty relief applicable.

Capital gains realised on the disposal of an asset, which includes a sale or a gift, are taxed as the top slice of income and in 2018-19 are levied at a rate of 10 per cent for basic-rate taxpayers (18 per cent on upper rate gains, which include carried interest and residential property) and otherwise at 20 per cent (or 28 per cent on upper rate gains). There is an annual exemption from tax on gains up to £11,700 (£5,850 for trustees).

Transfers of assets between spouses or civil partners are not liable to CGT and neither are disposals of a main residence, as a result of principal private residence relief (PPR). PPR may be claimed by UK residents disposing of a UK or non-UK residential property and non-UK residents disposing of a UK residential property provided that, in either case, the property qualifies as a main residence for the purposes of the relief.

Other CGT deferrals and reliefs may be available, including entrepreneurs’ relief on the sale of certain business assets owned for at least one year, the effect of which is to reduce the rate of tax to 10 per cent on gains up to a lifetime limit of £10 million. Similarly, Finance Act 2016 introduced investors relief that reduces the rate of tax to 10 per cent on lifetime gains of up to £10 million. This new relief is available on the disposal of ordinary shares in unlisted trading companies by individuals other than officers and employees, and is subject to a three-year ownership period. The shares must have been issued on or after 17 March 2016.

4 What, if any, taxes apply if an individual makes lifetime gifts?

There is no gift tax in the UK.

Gifts of cash made between individuals give rise to no immediate tax consequences. Gifts of other assets may be liable to CGT if standing at a gain (see question 3).

Gifts into trust (other than of excluded property, see question 5) are liable to IHT as ‘immediately chargeable transfers’ at the rate of 20 per cent, to the extent that they exceed the available nil rate-band of the individual (a maximum of £325,000 in tax year 2018–19).

However, if an individual dies within seven years of making a gift (including one into trust) then, unless the gift is subject to an exemption or relief, IHT or additional IHT may be payable in certain circumstances (see question 5).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

IHT

IHT is payable by reference to an individual’s domicile and the situs of assets. UK-domiciled individuals (actual or deemed) are subject to IHT on their assets worldwide (subject to any applicable double tax treaty relief). Generally, non-UK domiciled individuals are only liable to IHT on their UK situs assets as non-UK situs assets are treated as excluded property for inheritance tax purposes. With effect from 6 April 2017, UK residential property held by non-UK domiciled individuals through certain offshore entities (typically an offshore company) has been brought within the scope of IHT.

On an individual’s death, IHT is payable at 40 per cent on the value of any property he or she then owned or is deemed to have owned (see question 9) that exceeds the available nil-rate band, at present £325,000. A new additional nil-rate band for ‘qualifying residential interests’ (usually the family home, but certainly one that has at some point been a residence of the deceased) left to one or more of a specified class of lineal descendants is available for estates valued below a specified threshold where the deceased has died on or after 6 April 2017.

The additional bands will take effect, as follows:

• £100,000 in 2017–18;

• £125,000 in 2018–19;

• £150,000 in 2019–20; and

• £175,000 in 2020–21.

It will then increase in line with the Consumer Prices Index from 2021–22 onwards. It is possible to transfer any unused nil-rate band to a surviving spouse or civil partner, as is the case with the original nil-rate band (see below).

There is a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million at a withdrawal rate of £1 for every £2 over this threshold. Accordingly, in 2018-19 estates valued at £2.25 million or more are unable to take advantage of the additional band.

Provision has also been made for situations where the deceased had downsized or ceased to own a residence before death.

IHT may also be payable on property the deceased gave away within the seven years preceding death, to the extent that the value of such gifts and the estate of the deceased together exceed the nil-rate band available at his or her death. Taper relief reduces IHT liability in respect of gifts made between three and seven years before death.

In addition to his or her own nil-rate band, if the deceased survived his or her spouse or civil partner, and the nil-rate band of the first of the spouses or civil partners to die was not entirely used up at their death, any unused nil-rate band may be claimed, generally by the deceased’s personal representatives, and added to the deceased’s own nil-rate band to reduce the IHT payable on his or her estate. This is known as the transferable nil-rate band.

A number of IHT reliefs and exemptions exist, which include:

• legacies to a spouse or civil partner. Generally, such legacies are fully exempt from IHT. However, this exemption is limited to the annual nil-rate band, at present £325,000, on a transfer of assets to the non-domiciled spouse or civil partner of a UK-domiciled individual. However, it is possible for a non-UK domiciled spouse (or, where relevant, their personal representatives on their behalf) to elect to be treated as being UK-domiciled for IHT purposes, in which case they will be entitled to the full spouse exemption. At the same time, however, their estate will be chargeable to IHT in the same way as any other UK-domiciled individual;

• legacies to charity are exempt from IHT;

• business property relief and agricultural property relief, which may apply at 50 per cent or 100 per cent on relevant business or agricultural assets;

• annual exemption of £3,000;

• gifts in consideration of marriage or civil partnership, the value of which varies between £1,000 and £5,000 depending on the relationship between the donor and recipient;

• annual exemption for small gifts to any one person not exceeding £250 (provided that person does not also benefit from the whole or part of the £3,000 exemption);

• normal expenditure out of income: regular gifts made out of surplus income may be made tax-free. Regularity does not mean the amount has to be the same each year; the test is that such a gift does not adversely affect the donor’s standard of living; and

• potentially exempt transfers: outright gifts that the donor survives by at least seven years.

Care must be taken with lifetime gifts to ensure that the donor does not continue to benefit from the asset transferred, for example, by continuing to live rent-free in a house he or she has given away. If the donor does continue to benefit in such a way, the asset remains in his or her estate. Such gifts are referred to as ‘gifts with a reservation of benefit’.

Liabilities of a deceased may generally be deducted from the assets of his or her estate before calculating IHT due. However, rules introduced in 2013 limit such deductions in certain situations. These include restrictions to the deductibility of liabilities attributable to financing the acquisition of, or the maintenance or enhancement of, the value of excluded property or of relievable property (ie, business property, agricultural property or woodlands) and of liabilities that are not discharged on or after death, other than in certain specified circumstances.

Other taxes

On death, there is a tax-free uplift to market value of the deceased’s assets for CGT purposes, so that there is no tax liability on their deemed disposal on death.

CGT and income tax will be payable by the personal representatives of the deceased on any gains realised or income accruing during the administration of the estate.

6 What, if any, taxes apply to an individual’s real property?

Stamp duty land tax (SDLT)

When real property is transferred in England, SDLT is payable by the purchaser (see ‘Update and trends’). SDLT does not generally apply to a gift made by an individual unless the property is subject to a mortgage.

A purchaser of residential property pays SDLT at the following rates, each rate being applicable to the part of the price within the relevant band:

• £0 to £125,000: zero per cent;

• £125,001 to £250,000: 2 per cent;

• £250,001 to £925,000: 5 per cent;

• £925,001 to £1,500,000: 10 per cent; and

• £1,500,001 and over: 12 per cent.

A purchaser of a new residential leasehold property pays SDLT on the purchase price of the lease (lease premium) at the rates above. If the total rent over the life of the lease is more than £125,000 SDLT is also payable at 1 per cent on the portion over £125,000 unless the purchaser buys an existing assigned lease.

First-time buyers purchasing properties at £500,000 or less can claim relief from SDLT up to £300,000. They pay a rate of 5 per cent on the portion of the purchase price between £300,001 and £500,000.

If a purchaser of residential property valued at £40,000 or over already owns another property, he or she may also have to pay an additional 3 per cent SDLT on the value of the new property. This additional rate will not apply if the new property is being acquired to replace a main residence that is being sold. A company will usually have to pay the additional SDLT rate regardless of whether it owns any other property. In certain circumstances, trustees may also have to pay the additional rate.

For residential property costing over £500,000 acquired for private use through a company or other relevant non-natural person (such as a collective investment scheme or partnership with at least one corporate partner), higher-rate SDLT at 15 per cent is payable on the entire purchase price.

However, if an appropriate relief applies, for example, if the residential property is used for a property rental or development business, the standard residential rates above apply instead. If the higher-rate SDLT at 15 per cent is payable on an acquisition, the additional 3 per cent rate will not also be payable.

With effect from 6 April 2018, SDLT has been replaced by Land Transaction Tax for transfers of property in Wales.

CGT

See ‘Update and trends’ for proposed changes to the taxing regimes described below to take effect from 6 April 2019.

A disposal of real property may give rise to a charge to CGT if a gain is realised on disposal (see question 3). The rules under which such a charge arises, the gains to which it applies and the rates at which it is levied will vary according to the nature of the property (eg, whether it is residential or commercial) and the nature and residence status of the individual, trustees, company, partnership or other entity that makes the disposal. Reliefs and exemptions may be available to mitigate a charge in appropriate circumstances. For example, in the case of an individual’s main residence, principal private residence relief should apply to relieve the gain from tax.

Broadly, gains made on a disposal of real property may be taxed under the following regimes:

• the main CGT regime: these are the rules that apply to tax gains made on disposals of all types of chargeable property owned by UK tax residents, with the exception of companies that are liable to corporation tax on their chargeable gains. Reliefs and exemptions are available in certain circumstances;

• ATED-related CGT: this regime was introduced with effect from 6 April 2013, together with the annual tax on enveloped dwellings (see below) and higher-rate SDLT (see above). It taxes gains arising on or after 6 April 2013 (unless an election is made to take into account earlier gains) on disposals of higher-value UK residential property made by companies, collective investment schemes or partnerships in which a company is a partner. The charge applies where consideration for a disposal exceeds a ‘threshold amount’, currently £500,000. Tax is charged at 28 per cent and reliefs applicable to ATED and higher-rate SDLT also apply to ATED-related CGT; and

• non-resident CGT: this regime was introduced with effect from 6 April 2015. Gains made on or after that date (unless an election is made to different effect) on disposals of UK residential property by non-UK residents, including individuals, trustees, partnerships, closely held non-resident companies and funds that are not widely marketed, are potentially within charge. In contrast to ATED-related CGT, all property that is ‘used or suitable for use as a dwelling’ is within the scope of the non-resident CGT charge, regardless of its value, including residential property used for letting purposes. The reliefs available under ATED-related CGT are not available under this regime. However, in appropriate circumstances, principal private residence relief may be available to individuals and trustees making disposals.

In circumstances where a gain is within the scope of both ATED-related CGT and non-resident CGT, ATED-related CGT will take precedence so that there is no double charge. If any part of a gain post 6 April 2015 is not within ATED-related CGT (perhaps because a property was rented out for a period), that part of the gain will be potentially subject to the non-resident CGT charge.

In addition to the CGT provisions described above, there are anti-avoidance provisions in place that attribute gains made by non-resident companies to their UK-resident members. Similar provisions apply to attribute gains made by non-resident trustees to settlors and beneficiaries in certain circumstances. While both ATED-related CGT and non-resident CGT takes precedence over such provisions in respect of gains to which they apply, the provisions will still be relevant to tax gains not caught by either regime.

Income tax

Any rental income arising from a UK property will be from a UK source and always taxable in the UK at the individual’s marginal rate of tax.

Council tax

Council tax on residential property is payable annually to the local authority.

Annual tax on enveloped dwellings

An annual tax was introduced, with effect from 1 April 2013, on high-value residential property in the UK held through a company (other than one holding the land as trustee), a collective investment scheme or a partnership in which a company is a partner. It also applies to property in joint ownership where such an entity holds jointly with individuals.

It is known as the ‘annual tax on enveloped dwellings’ (ATED) and, with effect from 1 April 2016, applies to interests in UK residential property valued over £500,000. For the first five years from 1 April 2013, the charge was based on the market value of the property as at 1 April 2012 or on the date of acquisition, if later. Subsequent revaluations are to be made every five years. The first revaluation date was 1 April 2017 and, for the five years from 1 April 2018, the charge is based on the market value of the property as at 1 April 2017. For the present period of account (1 April 2018 to 31 March 2019) the charge is being levied at the following rates:

• over £500,000 and up to £1 million: £3,600;

• over £1 million and up to £2 million: £7,250;

• over £2 million and up to £5 million: £24,250;

• over £5 million and up to £10 million: £56,550;

• over £10 million and up to £20 million: £113,400; and

• over £20 million: £226,950.

ATED returns and payment for each year are generally due 30 days after the start of a period of account (ie, 30 April each year).

There are a number of reliefs and exemptions from ATED, including (among others) relief for property developers, property traders and property rental businesses, as well as for providers of social housing, and charitable companies that do not fall within the ‘ownership condition’ for the purposes of the tax. These exemptions and reliefs are also applicable to the higher rate of SDLT (15 per cent) for acquisitions of residential property over £500,000 by companies, collective investment schemes or partnerships in which a company is a partner, as well as to the ATED-related charge to CGT on disposals of high-value residential property (see above and ‘Update and trends’). In certain circumstances, it is possible to claim a refund of the ATED charge if the property is sold or otherwise outside the scope of ATED after the return has been filed.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

A purchaser of goods brought into the UK from another EU member state pays acquisition value added tax (VAT) (as under EU law, there is no ‘import’ or ‘export’ of goods or services between member states).

One or more of UK customs duty, excise duty or import VAT may be payable on certain assets imported to the UK from a country outside the European Union. In the case of import VAT, it may also be payable on imports from certain EU ‘special territories’, among others, the Aland Islands, Canary Islands, Channel Islands, French Overseas Departments of Guadeloupe, French Guiana, Martinique and Reunion and Mount Athos (also known as Agion Oros).

There are certain reliefs, including a relief for personal belongings of a certain class or value and a private motor vehicle from outside the European Union and for sailing pleasure craft to and from the UK. Imported works of art, antiques and collectors’ items may be entitled to a reduced valuation at importation for the purposes of duty and import VAT.

In practice, there are no export taxes, duties or levies payable on goods being exported from the European Union. VAT is levied on a supply of goods from the UK (whether to a place inside of or outside the European Union) but is zero-rated (charged at zero per cent).

Clearly, the proposed departure of the UK from the European Union in 2019 is likely to result in changes to the rules in relation to the taxation of imports and exports. However, until the terms of the UK’s departure are agreed, it is impossible to know what such changes, if any, will look like (see also ‘Update and trends’).

8 What, if any, other taxes may be particularly relevant to an individual?

There is no wealth tax in the UK.

VAT is payable on many goods and services at the rate of 20 per cent. In some circumstances, a reduced rate or exemption may apply.

Stamp duty is payable at 0.5 per cent on transfers of shares for value in UK companies. It does not apply to shares in non-UK companies if transferred abroad, nor to gifts of shares. Following an Office of Tax Simplification report in July 2017, changes to the stamp duty regime may be expected in the coming years. The detail and time frame is not yet known.

Stamp Duty Reserve Tax (SDRT) is payable on paperless transactions relating to:

• shares in a UK company;

• shares in a foreign company with a share register in the UK;

• an option to buy shares;

• rights arising from shares already owned;and

• an interest in shares, like an interest in the money made from selling them.

Certain transactions are now outside the scope of SDRT following court decisions to that effect. The position should be reviewed in respect of a specific transaction. Where SDRT is payable, it is charged at 0.5 per cent rounded up or down to the nearest penny.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts are recognised in England and Wales. A trust is not a separate legal entity. It is a relationship that can be defined as an equitable obligation binding a person, the trustee, to deal with property over which he or she has control, the trust property, for the benefit of persons, the beneficiaries, of whom he or she may him or herself be one, and any one of whom may enforce the obligation.

While a trust is not a legal entity, it is a taxable entity, and UK-resident trustees are responsible for completing tax returns and paying tax.

IHT

For IHT purposes, the treatment of a trust varies according to whether the trust is a relevant property trust. Relevant property trusts include:

• discretionary trusts, where no beneficiary has a fixed interest in the trust assets unless and until the trustees make an appointment in his or her favour; and

• life interest (or interest in possession) trusts created during the settlor’s lifetime on or after 22 March 2006. A life interest trust is one in which one or more beneficiaries have an immediate right to the income of the trust. (In certain circumstances, life interest trusts created prior to 22 March 2006 may subsequently qualify as relevant property trusts.)

Relevant property trusts are liable to IHT on each 10-year anniversary at a rate of up to 6 per cent of the value of any assets in excess of the nil-rate band. An exit charge or ‘proportionate charge’ of up to 6 per cent is also imposed when property leaves the trust. There are rules in place to prevent individuals avoiding IHT through the use of multiple trusts, each with its own nil-rate band. The rules apply to settlements created on the same day (‘related settlements’) and, with certain limited exceptions, now also apply to two or more relevant property trusts created on different days where, on or after 10 December 2014, property is added to each of them on the same day and after the commencement of those trusts.

There are no IHT charges on life interest trusts that do not qualify as relevant property trusts because the assets are treated as forming part of the life tenant’s taxable estate on death. The life tenant’s death is not a taxable event in the case of a relevant property trust.

Certain trusts created on the death of a parent from which a minor or young person under the age of 25 can benefit are also treated differently for IHT purposes.

Trusts established by individuals domiciled outside the UK may be excluded property trusts for the purposes of IHT to the extent property held within them is situate outside the UK. Such property is not subject to either 10-year anniversary charges or exit charges. Under existing law, property situate in the UK other than residential property is outside the scope of IHT provided it is not held directly by the trustees but instead through a non-UK situated company or other vehicle. This changed with effect from 6 April 2017 in relation to UK residential property held through offshore vehicles (whether owned by trustees or individuals) so that such property no longer escapes a charge to IHT. Excluded property trusts established by non-UK domiciled individuals who were born in the UK with a UK domicile of origin are also treated as relevant property trusts for IHT purposes during any period in which such individuals are resident in the UK.

Income tax and CGT

Trustees of UK-resident discretionary trusts pay income tax at the relevant rate applicable to income (currently 38.1 per cent for dividend income and 45 per cent otherwise for trust income over £1,000) and CGT (at 20 per cent generally or 28 per cent for carried interest and residential property) on their worldwide income and gains.

Trusts are treated as UK-resident for both taxes if all of the trustees are UK-resident or at least one of the trustees is UK-resident and the settlor was UK-resident or domiciled or deemed to be so domiciled for tax purposes when he or she created the trust (on death or otherwise) or subsequently added funds to it.

A trustee who is not otherwise UK-resident will be treated as such if the trustee acts as such in the course of a business that the trustee carries on in the UK through a branch, agency or permanent establishment.

Trustees of non-UK resident trusts pay income tax only on UK income, and CGT only on disposals of UK residential property held directly by the trustees and even then, generally only on gains arising after 5 April 2015 (the ‘non-resident CGT charge’) (see ‘Update and trends’ for proposed changes to these rules). However, there are complex anti-avoidance rules in place that, in appropriate circumstances, attribute for tax purposes other income or gains of such trusts and their underlying companies to UK-resident settlors or beneficiaries. Significant changes to the anti-avoidance rules took effect from 6 April 2017.

In the case of disposals of interests in high-value UK residential property, underlying companies may be liable for the ATED-related CGT charge (see question 3) introduced with effect from 6 April 2013 on ATED-related gains. To the extent that disposals of UK residential property by an underlying company do not fall within the ATED-related CGT charge for any reason, they may be caught by the non-resident CGT charge, in which case gains arising on or after 6 April 2015 may be taxed. In either situation, the anti-avoidance provisions may also be relevant to tax gains in respect of such property interests that fall outside both charges (eg, gains arising before 6 April 2013 on high-value property not subject to an ATED relief, or other residential property-related gains arising before 6 April 2015). However, see ‘Update and trends’ for proposed extension of and changes to the rules for the taxation of non-residents disposing of UK real property.

10 How are charities taxed in your jurisdiction?

Broadly speaking, charities are taxable in the same way as other entities of the same type, for example, companies, trusts or unincorporated associations. However, organisations that are recognised as charities in the UK are subject to a number of exemptions and reliefs from tax on most types of income and on their capital gains, and on the profits of certain activities, provided the money is used for charitable purposes only.

Donations made through the Gift Aid scheme by individuals who are UK taxpayers enable a charity to claim basic rate tax from Her Majesty’s Revenue and Customs on income received. Charities are also exempt from tax on donations received from companies, although no tax may be reclaimed as companies (unlike individuals) do not have tax deducted at source. Again, however, for any charitable tax exemption to apply, the money must be used for charitable purposes only.

There are also reliefs available for SDLT on the purchase of property by a charity and, in certain circumstances, from VAT on goods and services (eg, most cultural, medical and educational supplies).

Profits made by a charity from trading activities are likely to be taxable unless the activities are very closely aligned to the charitable purposes of the charity. There are exemptions on profits from fundraising events, for example, and for activities carried out by the beneficiaries of the charity.

Many charities undertake taxable trading activities through a trading subsidiary that is taxable in the same way as any other company. If the subsidiary transfers some or all of its profits to the charity as a donation, the subsidiary is able to claim tax relief. Provided the charity uses the income for charitable purposes, it will also be exempt from tax on that income.

Rental income from properties in the UK or overseas held by charities is exempt from UK tax provided the income is used for charitable purposes. However, profits made from developing property or land do not attract an exemption from UK tax.

Charitable companies are not liable for ATED in respect of any interest they hold in UK residential property that would otherwise be caught, provided that the interest in the property is held for qualifying charitable purposes.

Gifts made to charities are also exempt from IHT.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are recognised by and may be established under the law of England and Wales.

Trusts established under the laws of other jurisdictions are recognised in England and Wales both under the general law and under the Hague Convention on the Law Applicable to Trusts and on their Recognition, 1 July 1985, which is applicable in the UK.

In certain circumstances, an express trust (one where there is a clear and expressed intention to create a trust, usually created by a written document) must be registered on the UK trust register and specified information provided regarding the trust and its settlor and beneficiaries. UK resident express trusts must be registered where there is a tax liability for any trust income or assets under any of the following taxes:

• capital gains tax;

• income tax;

• inheritance tax;

• stamp duty land tax; and

• stamp duty reserve tax or stamp duty.

Non-UK resident express trusts must be registered where there is a tax liability for any of the above taxes in respect of UK source income or UK assets. The deadline for registration will depend on the tax liability that triggers the registration requirement.

For proposed changes to the trust register, please see ‘Update and trends’.

12 Does your jurisdiction recognise private foundations?

There is no specific law of private foundations in England and Wales. Neither is there any specific legislation dealing with the recognition of foreign private foundations. Under the general law, foundations governed by the laws of other jurisdictions may be recognised by the courts of England and Wales and they are likely to be treated according to whether their characteristics are most closely aligned to companies or trusts.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

The Civil Partnership Act 2004 provides for same-sex couples to form (and to dissolve) a legally recognised civil partnership. Civil partners are treated in the same way as spouses for the purposes of tax and succession law.

Following the introduction of the Marriage (Same-Sex Couples) Act 2013, same-sex couples have been able to marry since 29 March 2014. Since 10 December 2014, civil partners who wish to do so have been able to convert their civil partnership into a marriage. Following a review of the future of civil partnership in 2014, the government confirmed that it has no plans to make any changes. Accordingly, civil partnership will continue to be an option for same-sex couples alongside marriage.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

No. See ‘Update and trends’.

Succession

15 What property constitutes an individual’s estate for succession purposes?

Under the law of England and Wales, an individual’s estate for succession purposes comprises all property he or she owns in his or her sole name.

It also includes the deceased’s interest in any property owned jointly with others under a ‘tenancy in common’. With a tenancy in common, each co-owner has a fixed share in the property, succession to which is determined by their will or intestacy rules.

The estate also comprises assets over which the deceased had power to control their use and determine their destination, known as a general power of appointment, together with assets in the estate of an individual who predeceased him or her, to which the deceased is entitled.

For these purposes, a deceased’s estate does not include jointly owned property held under a ‘joint tenancy’, in which the co-owners each own an indivisible share. In these circumstances, on the death of a co-owner, the rule of survivorship applies to vest his or her interest in the property in the other joint tenants.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Under the law of England and Wales, individuals have freedom of disposition over their entire estate during their lifetime. England and Wales does not have a marital property or forced heirship regime to place restrictions on an individual’s freedom of disposition.

In the event of a divorce, the dissolution of a civil partnership or a legal separation, the English court has wide discretion to order the distribution of assets between a couple in order to achieve fairness in accordance with the principles of need, contribution and sharing, which may effectively restrict an individual’s freedom to deal with his or her assets as he or she chooses. In doing so, following recent case law in this area, the court will generally give effect to a valid marital property agreement entered into by parties to a marriage provided, in all the circumstances, it is fair to do so. This is notwithstanding the fact that under the existing law of England and Wales, marital property agreements are not contractually enforceable.

17 To what extent do individuals have freedom of disposition over their estate on death?

Under the law of England and Wales, individuals have complete freedom of disposition over their estate. There is no system of forced heirship, nor are there any provisions for clawback of lifetime gifts.

The rules relating to jointly owned property will affect an individual’s ability to dispose of such property.

Individuals with specified relationships to a deceased may make a claim for provision or increased provision from his or her estate if they consider they have not been adequately provided for. However, this does not restrict the individual’s testamentary freedom (see question 25 for further detail of these potential claims).

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

The rules of succession on intestacy are set out in Part IV of the Administration of Estates Act 1925. In each case, minors inherit at the age of 18 and, until they reach that age or marry or enter into a civil partnership earlier, their share is held on statutory trusts under which the income is either used for their maintenance, education or benefit, or is accumulated.

Intestates leaving a surviving spouse or civil partner

Since the Inheritance and Trustees’ Powers Act 2014 (ITPA 2014) came into force on 1 October 2014, if an individual dies leaving a surviving spouse or civil partner but no issue (broadly, children or grandchildren, etc), the entire residuary estate passes to the surviving spouse or civil partner.

If the same individual leaves issue, the surviving spouse or civil partner takes the deceased’s personal chattels, a fixed statutory sum of (currently) £250,000 plus interest from the date of death and half of the residuary estate of the deceased absolutely. The issue receives the other half of the estate on statutory trusts. The issue inherits on a per stirpital basis, a grandchild taking only if their parent has predeceased the intestate, for example.

If the same individual died before 1 October 2014, leaving a spouse or civil partner but no issue, and was survived by one or more of his or her parents, full siblings or issue of such siblings, the spouse or civil partner would have received the personal chattels, a fixed statutory sum of £450,000 and half of the residuary estate absolutely. The other half passed to the parents of the deceased absolutely or in equal shares if one or both survived. If the parents had died, the other half passed to the full siblings of the deceased.

Intestates leaving no surviving spouse or civil partner

If a deceased leaves children or other issue but no surviving spouse or civil partner, his or her issue take his or her residuary estate in equal shares at age 18.

If the same individual leaves no issue but is survived by one or both of his or her parents, they take the residuary estate either alone or in equal shares absolutely.

If the same individual leaves no issue or parent, then his or her residuary estate passes to the following people in order of priority:

• full siblings and, if none, then;

• half siblings and, if none, then;

• grandparents and, if none, then;

• uncles and aunts (being full siblings of a parent of the deceased) and, if none, then;

• uncles and aunts (being half siblings of a parent of the deceased) and, if none, then;

• bona vacantia, to the Crown, the Duchy of Lancaster or the Duchy of Cornwall.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Adopted children

Adopted children are treated as the legitimate children of an adopter or adopters and of nobody else. Once they have been adopted, they do not have any rights of inheritance from the estate of their biological parents, other than any to which they became entitled prior to adoption. Before the introduction of ITPA 2014, only interests to which the child had an unconditional entitlement (‘vested in possession’) would have been preserved. For adoptions made on or after 1 October 2014, an interest of a child in the estate of a deceased biological parent, which is a contingent interest other than one in remainder, will also be preserved. A contingency is a condition that must be fulfilled before the child has an absolute entitlement to the interest. For example, an interest may be contingent on the child attaining the age of 18 years. A contingent interest is in remainder, and therefore not preserved by ITPA 2014, if it is subject to the interest of another person. An example would be a gift in a will of a deceased’s estate to a person for life and then to the child at 18 years. The child’s interest is contingent on reaching 18 years but is in remainder to the above person’s life interest and, therefore, not preserved by the new rules.

As a testator has complete testamentary freedom over his or her estate, no child has a right to inherit from a parent, but if a will provides for a legacy to children without expressly naming individuals, adopted children would be entitled to inherit in the same way as biological children.

Illegitimate children

No distinction is made between legitimate and illegitimate children. This rule applies to wills and trusts made on or after 4 April 1988 and to the intestacy rules where the intestate died on or after 4 April 1988.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

In England and Wales the law of the place where the property is situated governs the distribution of immovable property. Movable property is governed by the law of domicile of the individual.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

In England and Wales, a will must be made in writing and must be signed by the testator, testatrix or by some other person in his or her presence and by his or her direction. This signature must be made or acknowledged by the testator in the presence of two witnesses, who must be present at the same time. Each witness must either sign the will or attest their signature in the presence of the testator or testatrix, but not necessarily in the presence of another witness.

There is no requirement for a will to be dated unless it appoints guardians of a minor. However, if there is doubt as to the date on which a will was executed, evidence may be required to establish it.

If a beneficiary under the will, or their spouse or civil partner, witnesses the will, the legacy to that beneficiary is void.

Formalities are relaxed for wills for servicemen on active service. These may be written in a paybook or even made verbally.

The Law Commission issued a consultation on the reform of the law of wills in England and Wales in July 2017, which proposes regulations to permit electronic wills or electronically executed wills. This reform is not expected in the short term.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign wills are recognised in England and Wales provided that they comply with the law of a country in or of which the testator was domiciled, habitually resident or a national either at the time of the execution of the will or at the date of his or her death, or both.

A grant of probate or grant of representation will usually be required to administer property in England and Wales owned by a deceased person who died domiciled outside the jurisdiction. However, if the deceased was domiciled in a country to which the Colonial Probates Acts 1892 and 1927 apply, and a grant has been issued in that country, an application may be made for the grant to be re-sealed to administer the estate in England and Wales.

23 Who has the right to administer an estate?

The personal representatives (PRs) of the deceased have the right to administer an estate in England and Wales. Where someone has left a valid will, the PRs are called executors and where the deceased died intestate, the PRs are appointed by the court and are called administrators. The latter administer the estate according to the intestacy rules.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Where the deceased left a valid will, his or her estate vests in the executors at the date of death. Where a deceased dies intestate, the estate vests in the public trustee until a grant of administration is made by the court at which point the estate vests in the administrators.

The grant of probate or administration (together a grant of representation) enables the PRs to obtain title to the assets of the deceased and to distribute them to his or her heirs.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Under the Inheritance (Provision for Family and Dependants) Act 1975, the following categories of individuals can make a claim for reasonable financial provision from the estate of a deceased person if a will or the applicable intestacy rules do not do so:

• present or former spouses and civil partners (provided they have not entered into a subsequent marriage or civil partnership);

• co-habitees, whether same-sex or opposite-sex, who had lived with the deceased for two years prior to their death;

• a child of the deceased or anyone who was treated by the deceased as a child of a family in which the deceased stood in the role of parent; or

• any other person who was being maintained wholly or partly by the deceased immediately before his or her death.

Claims must be made within six months of the grant of representation being taken out but, in relation to deaths after 10 October 2014, there is nothing to prevent an application being made before such a grant is taken out. Claims can only be made if the deceased was domiciled in England and Wales at the time of death.

Alternatively, a person with a potential interest in an estate can bring an action to challenge the validity of a will on the grounds that it was not validly executed, the deceased lacked testamentary capacity at the time of its execution, he or she did not know or approve its contents, that in making it the deceased was subject to undue influence or that the will was forged or there was some other type of fraud involved.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Under the law of England and Wales, a minor (children under 18) can hold most types of property in their own name, with the exception of legal title to land. Having said that, a minor has no capacity to contract and cannot give a valid receipt. Accordingly, assets left for a minor under a will may be held in bare trusts for them until the age of 18. Often, the terms of a will expressly provide for the interests of minors to be held in trust for them until they reach 18 (or a later age).

If a minor inherits property under the intestacy rules, he or she is entitled to his or her share of an estate on attaining the age of 18 or on an earlier marriage or civil partnership.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual attains his or her majority at the age of 18 and, therefore, legal capacity to hold and manage a legal interest in land.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

When someone loses capacity to manage their affairs, either their attorney or, if the individual does not have a validly appointed attorney, a deputy appointed by the Court of Protection, manages their affairs on behalf of the incapacitated.

Since 1 October 2007, it has been possible for someone to appoint an attorney by way of a lasting power of attorney (LPA) at a time at which he or she has full capacity. Prior to 2007, an attorney was appointed by way of an enduring power of attorney (EPA) and EPAs created prior to 1 October 2007 are still valid.

Two types of LPAs exist: a property and financial affairs LPA, under which an attorney can make decisions in relation to someone’s property and financial affairs and a health and welfare LPA, under which attorneys can make decisions in relation to issues such as the medical treatment a person should receive.

A property and financial affairs LPA may be made either to be used only when the donor of the power lacks capacity to make decisions or at any time. Health and welfare LPAs can only be used at a time at which the donor lacks capacity. An LPA must be registered with the Office of the Public Guardian.

Attorneys appointed under an EPA may only deal with decisions relating to the donor’s property and financial affairs.

Foreign equivalents of an LPA or the appointment of a deputy are recognised by the court in England and Wales as ‘protective measures’ if they are valid under the law of the country in which the donor is habitually resident. However, the court does have the power to refuse to recognise such measures in certain circumstances where it considers that to do so would be unjust, against public policy, against a provision of the law of England and Wales or inconsistent with a measure already taken in England and Wales in relation to the individual. In a 2018 case, the Court of Protection held that the reference to ‘protective measures’ in the Mental Capacity Act 2005 is intended to refer to arrangements that have been made or approved by a foreign court. If arrangements have not been so made or approved, they could not be recognised as protective measures under the law of England and Wales.

In relation to an LPA, a donor can specify that the law applicable to the power is that of any country of which he or she is a national, in which he or she was habitually resident or in which he or she has property.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

The requirement for a visa depends upon the nationality of the visitor. Nationals of countries in the European Economic Area and Switzerland do not currently require a visa to come to the UK and are permitted to live and work in the UK. It still remains to be seen whether this will continue once the UK formally leaves the EU following the result of the referendum on 23 June 2016.

Visa nationals always require a visa in advance to visit the UK. A visa national is a citizen of a country that is listed in Appendix 2 of Appendix V of the Immigration Rules (this includes countries such as China, India, Russia and the United Arab Emirates).

Non-visa nationals may visit the UK for less than six months without obtaining a visa in advance. Non-visa nationals who wish to visit the UK for more than six months will require a visa. A non-visa national is a citizen of a country that is not listed in Appendix 2 of Appendix V of the Immigration Rules (this includes countries such as Australia, Brazil, Singapore and the United States).

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Generally, visa and non-visa nationals can spend six months in the UK as a visitor (business or tourist).

31 Is there a visa programme targeted specifically at high net worth individuals?

The Tier 1 (Investor) category is aimed at high net worth individuals who are willing to make a substantial financial investment in the UK. The principal requirement is to demonstrate the ability to invest a minimum of £2 million in the UK. Once in the UK, the individual must invest their money in UK government bonds, share capital or loan capital in active and trading UK-registered companies (ie, ‘qualifying investments’) within three months. There is also a requirement to open an account with a UK-regulated bank for the purposes of making the investment in the UK prior to applying for the visa. In addition, an overseas criminal record certificate must be provided for any country the individual has resided in continuously or cumulatively for 12 months or more in the 10 years prior to their visa application.

Unlike the other visa categories available, there is an exemption for Tier 1 (Investor) applicants from demonstrating English language and maintenance requirements. Additionally, the visa allows the individual (and their dependants) to work or study in the UK with few restrictions.

Note that the pre-6 November 2014 visa category will continue to apply to individuals with a Tier 1 (Investor) Visa granted before that date. One of the key differences under the previous rules is that the minimum value category of qualifying investments was £1 million.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Yes. Individuals are entitled to bring dependants (ie, children under 18 years of age, or their husband, wife, civil partner, or unmarried or same-sex partner) with them to the UK. Dependants will normally be granted a visa in line with that of the main applicant, though a separate application form must be completed for each dependant. The overseas criminal record certificate requirement applies to adult dependants.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Yes. To obtain indefinite leave to remain (also known as settlement), an applicant must be continuously resident in the UK for a period of either two, three or five years (if they have invested either £10 million, £5 million or £2 million respectively in the UK). The applicant cannot be outside the UK for more than 180 days a year – the way that this is calculated changed in January 2018. For leave granted before 11 January 2018, absences are calculated in separate 12-month periods ending on the date of the settlement application. For leave granted after 11 January 2018, absences are calculated on a rolling basis.

Applicants must have sufficient English language ability and knowledge of life in the UK to apply for settlement, unless they are under 18 or over 65.

Applicants must also be able to show that they have maintained their investment throughout the continuous period of residence and that they meet all the other requirements of the Immigration Rules.

Dependants can apply for settlement at the same time as the main applicant under the five-year continuous residence route. However, for the two-year and three-year routes, only the main applicant is eligible for settlement after the two- or three-year period, and any dependants must still wait five years. From 11 January 2018, dependant spouses must satisfy the above-mentioned residence requirement (ie, not be outside the UK for more than 180 days in any 12 calendar months in their five year’ continuous period of residence). Prior to this date dependant spouses were exempt from this requirement. This new rule will not apply retrospectively (ie, only post-11 January 2018 absences will be taken into account for the purposes of this requirement). Dependant minor children continue to be exempt from this residence requirement.

Tier 1 (Investor) visa holders whose visas were granted before 6 November 2014 will be eligible to apply for UK settlement under the previous rules. The rules are as summarised above but the minimum investment level (ie, for the five-year route) is £1 million.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

The earliest an applicant may apply for British citizenship is 12 months after having been granted settlement. In addition, they must be over 18 years, of sound mind and have the intention to continue living in the UK. They must also satisfy the residential requirements, which means that they must have:

• been resident in the UK for at least five years (the residential qualifying period);

• been present in the UK five years before the date of the application;

• not spent more than 450 days outside the UK during the five-year period;

• not spent more than 90 days outside the UK in the last 12 months of the five-year period; and

• not been in breach of the Immigration Rules at any stage during the five-year period.

Update and trends

Proposed changes to the taxation of non-residents disposing of UK property

With effect from 6 April 2019, the rules taxing gains made by non-residents on disposals of UK property are to be extended from gains on residential property only to also include those made on disposals of all UK real estate. A public consultation on the proposals for change ran from November 2017 to February 2018, and draft legislation was published in July 2018. This draft legislation is subject to a technical consultation until the legislation is finalised for Budget 2018 in autumn 2018.

Among other provisions, the draft new rules include the following:

• All non-UK resident persons, whether liable to CGT or corporation tax, will be taxable on gains on disposals of interests in any type of UK land, whether residential or non-residential.

• The existing elections for the non-resident CGT rules not to apply for certain persons will be removed.

• All non-UK resident persons will also be taxable on indirect disposals of UK land under the new rules. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75 per cent or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25 per cent interest. The 25 per cent exemption will not be available for collective investment vehicles investing in UK real estate, with the definition to be decided in further consultation.

• There will be a trading exemption so that disposals of interests in property rich entities that are trading before and after the disposal will not be chargeable disposals where the land is used in the trade.

• The normal anti-avoidance rules for capital gains will apply, and in addition there will be anti-avoidance rules to target the provisions for indirect disposals.

• An anti-forestalling rule, which commenced on 22 November 2017, and targets arrangements that use provisions of double tax treaties to escape the charge on non-UK residents, will be incorporated into the ongoing anti-avoidance provisions.

• All non-UK resident companies, including close companies, will be charged corporation tax rather than CGT on their gains.

• Existing reliefs and exemptions available for capital gains will be available to non-UK residents, with modifications where necessary. Those who are exempt from CGT for reasons other than being non-UK resident will continue to be exempt.

• Losses arising to non-UK resident companies under the new rules will be available in the same way as capital losses for UK-resident companies. CGT losses will follow the existing rules for non-resident CGT losses.

• There will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019. Both options will be available for both direct and indirect disposals. Where the original cost basis is used to calculate an indirect disposal and this results in a loss it will not be an allowable loss.

• Special rules will apply to collective investment vehicles investing in UK real estate that agree to certain conditions including reporting to HMRC.

• The provisions relating to ATED-related Capital Gains Tax described in question 6 will be abolished.

Brexit

Following the result of the referendum held on 23 June 2016, the UK government began the process of exiting the European Union. On 29 March 2017, the government formally notified the European Council that the UK intends to withdraw from the EU. This notification is required by article 50 of the Treaty of the European Union to commence the withdrawal process. Article 50 provides for a two-year period of negotiation of the terms of withdrawal. The period of negotiation may be extended with the agreement of all member states and there is speculation that the negotiations may not be finalised in time to allow withdrawal on 29 March 2019. At the time of writing, the likely terms of the withdrawal agreement and their potential impact on private clients are still unclear.

The European Union (Withdrawal) Act 2018 is expected to repeal the European Communities Act 1972 and convert EU law into UK law at the moment of the UK’s withdrawal from the EU. Local legal advice on developments and their likely impact should be sought.

The Fifth Money Laundering Directive

The Fifth Money Laundering Directive (5MLD) came into force on 9 July 2018. It amends the Fourth Money Laundering Directive (4MLD) and has to be transposed by member states by 10 January 2020. Among other provisions, if it is transposed into UK law, as it is expected to be, the UK trusts register will be extended to include all UK express trusts and non-EU trusts that own UK real estate or have a business relationship with a UK-obliged entity (that is, an entity covered by the money laundering directives). Furthermore, access to information on the register will be extended to obliged entities and anyone with a ‘legitimate interest’. This term is still to be defined.

Civil partnerships for mixed-sex couples

In June 2018 the Supreme Court ruled that the Civil Partnership Act 2004, which only applies to same-sex couples, is incompatible with the European Convention on Human Rights. The government subsequently announced in October 2018 that the law will be changed to allow mixed-sex couples to enter into civil partnerships. As yet, no date has been announced as to when this change will take effect.

Stamp duty land tax – higher rate for non-residents

In October 2018, the government announced its intention to impose an SDLT surcharge on individuals and companies not tax-resident in the UK. A consultation is being prepared on the proposal. At the time of writing, there is no date for the introduction of the new levy.

Anthony Thompso

anthony.thompson@forsters.co.uk

Nicole Aubin-Parvu

nicole.aubin-parvu@forsters.co.uk

Katie Coles

katie.coles@forsters.co.uk

Alfred Liu

alfred.liu@forsters.co.uk

31 Hill Street

Mayfair

London W1J 5LS

United Kingdom

Tel: +44 207 863 8333

Fax: +44 207 863 8444

www.forsters.co.uk

France

Maryse Naudin

Tirard, Naudin – Société d’Avocats

Tax

1 How does an individual become taxable in your jurisdiction?

The concept of ‘residence’ determines the French tax authorities’ right to tax. It is defined in the same way for all tax purposes (article 4B of the French Tax Code (FTC)). There are four alternative tests for determining whether an individual is treated as a resident for tax purposes:

• the individual’s home is in France;

• the individual’s primary place of residence is in France;

• the individual performs an (economic) activity in France; or

• the individual has the centre of his or her economic interests in France.

In principle, individuals who are residents of France under article 4A of the FTC are liable to income tax in France in respect of their worldwide income. However, where jurisdictions conflict, the applicable tax treaty determines which country can tax.

The concept of ‘domicile’ is not used by the FTC. However, the French courts usually find that the law of the deceased’s last domicile governs succession (see also question 18). Under the French Civil Code (CC), domicile is the place where a person has his or her habitual residence. The place of origin has no influence on the determination of habitual residence.

2 What, if any, taxes apply to an individual’s income?

Residents of France are subject to income tax on their worldwide income, except by virtue of the application of a tax treaty. Non-residents are subject to French income tax on their French source income. Taxable income is as a general rule subject to a progressive tax scale with a marginal tax rate (for 2017) of 45 per cent. A minimum tax rate of 20 per cent applies to non-residents. Capital and property income are also subject to social contributions at a rate of 17.2 per cent for 2018. (Social contributions rate was previously of 15.5 per cent). Withholding taxes may also be levied depending on the type of income.

A supplementary contribution also applies to an individual’s high annual income, at a rate of 3 per cent for the fraction of income between €250,001 and €500,000 for single taxpayers (between €500,001 and €1 million for couples subject to joint taxation) and 4 per cent for the fraction of income over €500,001 for single taxpayers (over €1 million for couples subject to joint taxation). This contribution is assessed on the individual’s reference tax income, corresponding to the net annual amount of all income and capital gains, including capital gains on the sale of real estate and exceptional income. This contribution applies to both French residents and non-residents whose French reference tax income exceeds the above thresholds. The tax treatment differs according to the type of income.

Wages and salaries

These are subject to a withholding tax when paid to non-resident individuals. A lump sum corresponding to professional expenses amounting to 10 per cent of the wages received (limited to €12,305 for 2017) is deductible for the determination of the net income subject to the progressive tax rate for residents. Social contributions are withheld by the employers.

Real estate income

This is taxed on the progressive tax scale applied to resident taxpayers (a minimum rate of 20 per cent applies to non-residents). As of 1 January 2017, all non-resident individuals’ rental income from their real property in France is also subject to social contributions at the rate of 17.2 per cent (Social contributions rate was of 15.5 per cent before this date).

Investment income

As from 1 January 2018, they are subject to a flat tax of 30 per cent (including income tax at a 12.8 per cent rate and social contributions amounting to a total of 17.2 per cent rate). Under certain conditions, royalties can also be subject to a flat rate of 30 per cent (12.8 per cent for income tax and 17.2 per cent for social contributions). Under the flat tax system all tax relief granted under the former regime are no longer available (in particular, concerning capital gains, the tax reliefs for owning shares for a number of years and concerning dividends, the 40 per cent abatement).

However taxpayers are still allowed to elect for the former regime (ie, application of the progressive income tax rates instead of the flat tax) if it is in their interest (this would be the case of taxpayers with smaller incomes). Where an individual elects to be taxed using the progressive scale, the above-mentioned tax reliefs will still be applicable. The option for the progressive tax scale is global and apply to all investment incomes.

Withholding taxes are assessed on the income of non-resident taxpayers at the following rates:

• dividends: 12.8 per cent;

• royalties: 33.33 per cent;

• interest benefit from an exemption under certain conditions; and

• 75 per cent when dividends, royalties or interest are paid to an individual resident in a ‘non-cooperative state or territory’.

Tax treaties usually provide for exemptions or lower rates.

3 What, if any, taxes apply to an individual’s capital gains?

As a general rule, French-resident individuals are taxed on realised capital gains upon the sale of real estate property (regardless of where the property is located) at the global rate of 36.2 per cent for 2018 (19 per cent plus social contributions at the rate of 17.2 per cent. For capital gains realised before 1 January 2018, the global rate was 34.5 per cent).

Capital gains on the sale of the main residence are, however, tax-exempt. Rebates apply depending on the ownership period preceding the sale of the real estate. As a consequence, capital gains are fully exempted from income tax (at the rate of 19 per cent) after 22 years of ownership and social contributions (at the rate of 17.2 per cent) are fully exempted after 30 years of ownership.

Capital gains upon the sale of shares of real estate companies realised by French tax residents are taxable at different rates depending on the form of the company. Assuming the company sold is a pass-through entity, capital gains are subject to a flat rate of income tax of 19 per cent plus social security contributions. Capital gains upon the sale of real estate companies that are subject to corporate tax are taxable as if they were business companies (see below).

Non-resident individuals’ capital gains on the sale of real estate are only taxed in France when the property transferred is situated in France. Capital gains realised on the sale of shares of companies directly or indirectly owning French properties (having a market value that exceeds the market value of the other assets they own) are also taxable in France. Taxable capital gains are determined on the same basis as for a French resident. As opposed to the tax regime applying to resident taxpayers, they are always subject to a withholding tax of 19 per cent representing income tax and social contributions at the rate of 17.2 per cent (since 1 January 2017). Tax treaties do not provide for exemptions any longer when the French real estate is sold. However, some treaties do not allow France to tax the sale of shares of companies owning directly or indirectly French real estate under certain conditions.

From 1 January 2013, an additional tax varying from 2 per cent to 6 per cent applies when the taxable capital gain on French real estate and shares of companies owning directly or indirectly real properties exceeds €50,000. Moreover, the supplementary contribution levied to individuals’ high annual income, at a rate of 3 per cent or 4 per cent also apply to capital gains. As a consequence, the marginal rate of taxation of real estate’s capital gains realised by non-French resident may reach 46.2 per cent.

From 1 January 2018, realised capital gains from the sale of securities or shares by a French resident are subject to a flat tax at a rate of 30 per cent (12.80 per cent corresponding to the income tax and 17.20 per cent corresponding to the social contributions).

However, taxpayers can still elect for the progressive tax scale with a marginal rate of 45 per cent. Social contributions at the rate of 17.2 per cent are also due.

If the taxpayer elects for the progressive tax scale, rebates apply depending on the ownership period preceding the sale amounting to 50 per cent if the shares have been held for more than two years and less than eight years, and to 65 per cent assuming the shares have been held for more than eight years.

Unrealised capital gains can, however, be taxable under the ‘exit tax’. We are convinced that the exit tax does not comply with the constitutional and European fundamental principles. Moreover, French President Emmanuel Macron has recently announced that a suppression of the ‘exit tax’ was possible from 2019. We are now waiting for the Finance Bill 2019 to be discussed to see if the announcement is followed-up by concrete action.

Finally, unless a tax treaty provides otherwise, a non-resident individual’s capital gains from the sale of securities or shares are taxed only if his or her participation, together with the participations of his or her spouse, ascendants (that is, those from whom a person is descended, for example, parents and grandparents) and descendants exceeds 25 per cent of the shareholding in a resident company subject to corporate income tax at any time during the previous five years. From 1 January 2018, a flat tax rate of 12.80 per cent applies (the flat tax rate was 45 per cent before this date).

4 What, if any, taxes apply if an individual makes lifetime gifts?

Liability to French gift and inheritance taxes is determined by the donor’s and donee’s residence (or the deceased and heir’s residence), as well as the location of the assets transferred.

When the donor (or deceased) is a resident of France or when the donee (or heir) has been so for at least six of the preceding 10 years, all moveable and real property (wherever situated) transferred without valuable consideration is liable to tax in France.

When the donor and the donee are both resident outside of France, only moveable and real property situated in France is liable to French gift or inheritance taxes in these circumstances.

Tax treaties may modify the above rules. As a general rule, gift taxes apply to the beneficiary’s net entitlement, after applying tax-free allowances (see below) and deducting liabilities under certain strict conditions.

Allowances

The amounts that can be transferred free from inheritance and gift tax depend on the transferor’s relationship with the beneficiary. The allowances for 2018 are as follows:

• parents and children in the direct line: up to €100,000 for each 15-year period;

• brothers and sisters: up to €15,932 for each 15-year period;

• nephews and nieces: up to €7,967 for each 15-year period;

• lifetime gifts made to a spouse or partner: up to €80,724 for each 15-year period;

• lifetime gifts made to grandchildren: up to €31,865 for each 15-year period;

• lifetime gifts made to great-grandchildren: up to €5,310 for each 15-year period;

• lifetime gifts made to disabled people: up to €159,325 for each 15-year period; and

• bequests made to other beneficiaries: up to €1,594.

Rates

Gift tax rates do not depend on the beneficiary’s wealth. Rates vary according to the family relationship between the transferor and the beneficiary, with it being specified that reduced rates can apply to gifts depending on the transferor’s age.

The gift rates for 2018 are as follows:

• transfers to parents and children in direct line are taxable at progressive rates varying from 5 per cent (under €8,072) to 45 per cent (over €1,805,677);

• transfers by lifetime gift to a surviving spouse or partner of a civil union (PACS) in the case of an inter vivos gift are also taxable at progressive rates varying from 5 per cent (under €8,072) to 45 per cent (over €1,805,677);

• transfers to brothers and sisters are taxable (when the amount transferred is over €15,932) at the following rates: 35 per cent up to €24,430 and 45 per cent over €24,430;

• transfers to fourth-degree relatives are taxable at the rate of 55 per cent; and

• transfers to relatives greater than fourth degree and other beneficiaries are taxable at the rate of 60 per cent.

Exemptions

From 22 August 2007, cash gifts of up to €31,865 to children, grandchildren, great-grandchildren (or nephews and nieces, in the absence of direct descendants) are exempt from gift tax if, at the time of the donation:

• the donor is under 80 years old (for gifts made since 31 July 2011); and

• the beneficiaries are over 18 years old or emancipated (that is, a child over 16 years old who has acquired legal capacity from a judge).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Inheritance taxes are also calculated on the beneficiary’s net entitlement after applying the same tax-free allowances as for gift taxes (see question 4) and deducting liabilities.

Rates

The inheritance tax rates do not depend on the beneficiary’s wealth but on the amount transferred by death, and vary according to the family relationship between the transferor and the beneficiary:

• no inheritance tax is payable on transfers to a surviving spouse or partner of a PACS in the case of succession; and

• in all other situations, inheritance tax applies at the same rates as for gift taxes.

6 What, if any, taxes apply to an individual’s real property?

Inheritance and gift taxes

In principle, France levies inheritance and gift tax upon transfer without consideration of all real property (wherever situated) owned by French residents. Tax treaties may, however, provide otherwise. France always levies inheritance and gift taxes on non-resident owners’ real property situated in France, even if the transferor and the beneficiary are both resident outside France. The same treatment also applies to the transfer of shares in foreign companies whose assets are mainly composed, directly or indirectly, of real property located in France.

The same rates and rules apply irrespective of whether the beneficiary is resident or non-resident in France.

Registration fee

When real property located in France is transferred by gift, a registration fee must be paid in addition to gift tax.

Transfer duties and notaries’ fees

The purchase of real estate located in France is subject to transfer duties and notaries’ fees at a global rate of approximately 6.2 per cent.

The purchase of shares in a company (French or foreign) that directly or indirectly owns French real property with a value representing more than 50 per cent of its total French assets is also subject to transfer duties at a rate of 5 per cent (applying to the market value of the property after deduction of the sole debts incurred for the acquisition of the property).

The above taxes apply irrespective of whether the buyer is a French resident or not.

Local property tax

The tax base and rates of local property taxes are set up by local authorities and vary significantly according to the location and size of the property.

Any owner of real property, whether an individual or a corporate entity, must pay local property tax on any developed or undeveloped property in the municipality where the property is located.

Wealth taxes

The wealth tax (ISF) due since 1981 on movable and immovable wealth owned by French resident and non-resident individuals was repealed as from 1 January 2018. A new wealth tax has been introduced as from 1 January 2018 (IFI), which applies to real estate properties and rights, directly or indirectly owned by resident and non-resident individuals. The IFI is a new tax with its own rules, which are sometimes similar to those applying to ISF but sometimes either totally different or new.

Resident taxpayers are liable to IFI on their worldwide real estate properties and rights whereas non-resident taxpayers are only liable to IFI on their French real estate properties and rights.

IFI is payable only by individuals whose private real estate wealth, after the deduction of debts, exceeds a certain limit on 1 January each year (€1.3 million for 2018).

For 2018, individuals liable to IFI will be subject to a progressive tax scale. The rate, applicable to the net estate, varies as follows:

• up to €800,000: zero per cent;

• €800,000 to €1.3 million: 0.5 per cent;

• €1,300,001 to €2.57 million: 0.7 per cent;

• €2,570,001 to €5 million: 1 per cent;

• €5,000,001 to €10 million: 1.25 per cent; and

• more than €10,000,001: 1.5 per cent.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

See question 8.

In addition to VAT that may be due on imported and exported assets (except if they are second-hand assets), custom duties may also apply depending on the nature of the assets when they are imported from or exported to states that are not EU members.

8 What, if any, other taxes may be particularly relevant to an individual?

VAT

French legislation has applied the VAT Sixth Community Directive since 1 January 1979. Article 256, I of the FTC provides that the sale of goods, the delivery of assets and the supply of services for payment by a taxpayer are subject to VAT. This extremely broad definition contains a certain number of exceptions that are set out in the FTC. However, some exempt transactions may be rendered taxable if the appropriate elections are made.

The standard rate is 20 per cent. A reduced VAT rate of 10 per cent applies to certain goods and services (eg, agricultural products, non-reimbursable medication, books) and a reduced VAT rate of 5.5 per cent applies to basic necessities such as food products. Nevertheless, a number of specific rates should be added to this list (eg, newspapers) as well as various specific rates applicable in Corsica and the overseas territories.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Up until the adoption of the Law of 29 July 2011 (the Law on Trusts), France had no tax legislation dealing with the tax treatment of trusts in respect of gift and inheritance taxes as well as wealth tax. As a consequence, irrevocable and discretionary trusts benefited from a very favourable tax treatment in France.

However, to counter the exploitation of what were perceived as loopholes, the Law on Trusts introduced a comprehensive gift, inheritance and wealth tax regime for the taxation of trusts. The same regime applies to all trusts, regardless of their characteristics.

The Law on Trusts is particularly difficult to analyse as it does not follow the concepts generally applicable in common law jurisdictions and tries to tax the trust’s assets as if no trust had been set up. The Law on Trusts only affects the tax treatment of trust’s assets. It does not interfere with the French or foreign legal treatment of the trust (notably in matters of successions and estate devolutions), which remains unchanged.

Inheritance or gift tax

The Law on Trusts introduced a fiction under which upon the death of the original settlor, beneficiaries (appointed by the trust settlement or by default by the trustee) become deemed settlor. This is because French law does not allow for a trusts’ assets to be under the ownership of a legal owner different from the economic owner.

The beneficiaries are liable for the payment of gift or inheritance tax, which is assessed on the value of the trust assets at the time of either the transfer to beneficiaries or the death of the original settlor or beneficiary deemed settlor. The tax rate is determined in accordance with the relationship between the original settlor (or deemed settlor) and the beneficiary (see question 4).

If it is not possible to ascertain the shares of the beneficiaries in the trust fund on the death of the settlor, the trustee and the beneficiaries are jointly liable for the payment of tax, at the rate of:

• 45 per cent: if the class of beneficiaries only contains descendants of the settlor; or

• 60 per cent: if the class of beneficiaries contains non-descendants.

The 60 per cent rate will always apply if the trust either:

• is governed by the law of other non-cooperative states or territories; or

• was settled by a French resident after 11 May 2011.

Wealth taxes

Since 2012, the original settlor (or the beneficiaries treated as deemed settlors after the original settlor’s death) must pay French wealth taxes (ISF up to 2017 and IFI as from 2018) on assets held in any kind of trust (including an irrevocable discretionary trust) if either the settlor (or the beneficiary deemed settlor) is a French resident, or the trust fund containsed taxable French assets.

After the death of the settlor, the beneficiaries who become deemed settlors are subject to wealth taxes.

As explained before, ISF was replaced on 1 January 2018 by IFI, which only applies to real estate properties and rights directly or indirectly owned by resident and non-resident (IFI).

The specific tax applicable to trusts, due at a rate of 1.5 per cent remains due after the introduction of the new IFI. This catch-all provision provides that the trustee is liable for this tax jointly with the settlor and the beneficiaries if either the real estate properties and rights held by the trust are not included in the settlor’s or the beneficiaries deemed settlors’ estates for IFI purposes, or if the trustee failed to comply with its French reporting obligations.

10 How are charities taxed in your jurisdiction?

Tax exemption for qualifying purposes

As a general rule, a favourable tax regime applies to public utility foundations and under certain conditions to ‘associations’. Article 206-5 of the FTC provides that public utility foundations and associations benefit from a corporate tax exemption in respect of their income deriving from non-profit activities. Reduced corporate tax rates also apply, under certain conditions, on other income derived from ‘business activities’.

Donations from individuals

Individuals making donations to public utility foundations and foundations under the aegis of a public utility foundation can deduct 66 per cent of the contribution from their French income tax, in the limit of 20 per cent of the donor’s taxable income (article 200-1 of the FTC). A gift or inheritance tax exemption is also granted under certain conditions.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

The concept of a trust is alien to the CC, which makes no distinction between legal and equitable ownership. Therefore, creating a trust under French law is impossible. The French fiducie, adopted in February 2007, is a very different institution and cannot be seen as an alternative structure to the common law trust, either conceptually or functionally.

Although it is not possible to create a trust under French law, French courts recognise the effects in France of common law trusts, provided they comply with the mandatory rules of French law.

12 Does your jurisdiction recognise private foundations?

Public utility foundations cannot be used in France for estate planning purposes because they are always controlled by a representative of the state, and only acquire legal personality and the right to receive gifts or legacies upon special authorisation that can only be granted under very strict conditions and provided that the only purpose of the foundation is to promote public welfare.

However, a new type of foundation (fonds de dotation), inspired by Anglo-Saxon endowment funds, was introduced into French law in 2008 and amended in 2016. This type of foundation can benefit from an inheritance tax exemption on bequest or gifts, provided that certain conditions are met, and does not need to be controlled by a representative of the state or be granted special authorisation, contrary to the public utility foundation. The non-lucrative income part of such foundations is exempt of corporate income tax and VAT.

The above-mentioned foundations can only be set up for cultural, scientific or charitable purposes and cannot be considered as a substitute for trusts (except, to a limited extent, in the case of charitable trusts).

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

A same-sex couple as well as two persons of the opposite sex can conclude a contract to organise their life in common (PACS). They are not treated as spouses for succession purposes, but they are fully exempt from inheritance tax under certain conditions.

As of 17 May 2013, a marriage can be contracted by two persons of the same sex pursuant to article 143 of the CC. Married couples can choose their matrimonial regime by marriage contract before getting married, which they may change during the marriage (see question 16).

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

See question 13 with regard to the PACS.

Succession

15 What property constitutes an individual’s estate for succession purposes?

French civil law makes no distinction between legal and equitable ownership.

However, under French law, ownership can be divided into two distinct elements: usufruct and bare ownership. Article 578 of the CC defines usufruct as the right to enjoy property owned by another as if one were the beneficial owner, but subject to a duty to conserve its substance. Although a usufruct that allows a person to use the property and to receive any income thereon bears some resemblance to the common law concept of ‘life interest’, the two concepts are significantly different.

A usufruct comes to an end with the death of the usufructuary, as a result of the expiry of the period for which it was granted or by reuniting in the same person the two qualities of usufructuary and bare owner. A usufruct may be created by operation of law (eg, the rights of a surviving spouse) or by gift or sale. Although generally granted for life, usufruct may also be granted for a fixed term.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Lifetime freedom of disposition can be restricted under certain circumstances due to applicable ownership rules or family relationships.

Co-ownership

The Law of 10 July 1965 defines all the rights and obligations of co-owners concerning estate administration. A co-ownership agreement must be signed by all co-owners. Each co-owner can dispose of his or her private part of the property and, in principle, has the right to sell, give and bequeath it (unless prohibited by the co-ownership agreement).

Matrimonial regimes

Spouses can enter into a contract before marriage to regulate their property rights but they may also change it during marriage. When a spouse transfers property, it is essential to refer to the marriage contract, which may contain clauses affecting the division of assets held as common property.

If a couple marries without a contract, spouses automatically fall under the regime of ‘community reduced to acquisitions’. Movable and real property owned separately at the time of the marriage, or subsequently acquired by gift or inheritance, remain the sole property of the original owner. Common property is then limited to the assets acquired by the couple during the marriage. Both spouses hold a 50 per cent interest in the common property and can dispose of their share in the common property by will.

If the spouses choose not to apply the community reduced to acquisitions regime, the CC provides two main alternatives:

• the separation of property: each spouse retains the administration of his or her present or future property and has the free enjoyment and disposition of both capital and income; therefore, each spouse can dispose of all his or her own property by will; and

• the universal community: all of the assets acquired by the spouses before or after the marriage are common property. Spouses hold together the interest in the assets composing the common property and can, therefore, dispose of his or her share in the common property by will. Upon the death of one of the spouses, the surviving spouse becomes the sole owner of the assets, as from their acquisition.

A person who lived with the deceased without being married to them (such as a common law spouse or a civil partner) is not acknowledged by the intestate succession rules and is treated as a third party.

Forced heirship rules

There is a forced heirship regime. Dispositions of property made in contravention of forced heirship rules are valid, but they can be reduced to protect the hereditary reserve (see question 17). Only spoiled heirs may request for the application of the forced heirship rules.

17 To what extent do individuals have freedom of disposition over their estate on death?

Forced heirship rules

Under the French forced heirship rules, a certain portion of the estate (hereditary reserve) cannot be disposed of by lifetime gift or will other than to descendants and, under certain conditions, to the surviving spouse.

The remaining portion of the estate that can be freely disposed of depends on the number of children the deceased had:

• one child: half;

• two children: one-third; and

• three children or more: one-quarter.

If the deceased does not leave descendants, the surviving spouse is entitled to 25 per cent of the estate, provided that no divorce proceeding is pending.

Other restrictions

Two other restrictions to the freedom of disposition on death may apply:

• the prohibition of covenants on future inheritance: any agreement that purports to allocate assets falling within a future estate to the future heirs is prohibited unless it is made according to the provisions of the CC; and

• the prohibition of ‘substitutions’: any provision under which a donee or an heir is obliged to conserve property and transfer it to a third party is prohibited, except in the cases expressly allowed by the law.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

Applicable law

As from 17 August 2015, a new EU Regulation has considerably modified the rules on the jurisdiction and the applicable law governing matters of successions in France.

Under the new EU Regulation, the law applicable to the succession as a whole (immovable and movable succession) shall be the law of the country in which the deceased had his or her habitual residence at the time of the death.

The EU Regulation, however, allows a person to choose the law of the country whose nationality he or she possesses at the time of making the choice, or at the time of death, as the law to govern the succession.

Devolution of intestate estates under French law

In the absence of a valid will, article 731 of the CC establishes five hierarchical categories of heirs:

• children or their descendants inherit from their parents, grandparents and other ascendants. They inherit equal, per capita shares, without any distinction on the basis of sex or primogeniture and irrespective of whether they are legitimate children from different marriages, illegitimate children or illegitimate children of adulterous origin (where one parent is married to a third person at the time of conception) with the exception in the last case of children born in the marriage during which they were conceived. The presence of such descendants excludes all other relatives. Moreover, descendants of a predeceased child are allowed to inherit by ‘representation’;

• parents and brothers and sisters share the estate if the deceased had no living descendants in accordance with the following principles:

• if there are no living parents, the brothers and sisters (including half-brothers and sisters), or their surviving descendants are entitled to the whole estate. All other relatives are excluded;

• if there is one surviving parent, the brothers and sisters share three-quarters of the estate between them and the other quarter goes to the surviving parent;

• if both parents are living, the brothers and sisters receive half of the estate and the remaining half is shared equally between the parents; or

• if both parents are living but there are no brothers and sisters, the parents receive the entire estate (half for the mother and half for the father);

• grandparents, etc: if there are no living parents or brothers and sisters or their descendants, the surviving grandparents or other ascendants in each line (the father’s family is one line, the mother’s family is another) share half the estate between them. If there are no ascendants in one line the estate devolves entirely to the ascendants in the other line;

• ordinary collateral relations (cousins, uncles, aunts): if there are no descendants, ascendants, brothers or sisters on either side of the family, the nearest relations in each family line share half the estate between them on a per capita basis. However, collateral relatives do not inherit beyond the sixth degree; if there are neither any closer relatives nor a surviving spouse (see below), the State will be entitled by the court to take over the estate; and

• the surviving spouse has varying rights depending on whether the deceased leaves descendants:

• if there are only descendants from both spouses, the surviving spouse can elect to receive either the whole of the estate in usufruct or a quarter in full ownership;

• if the deceased leaves descendants who are not also the descendants of the surviving spouse, the surviving spouse receives a quarter of the estate in full ownership without the option to receive the usufruct;

• in the absence of descendants, a distinction should be made depending on whether the deceased leaves either of his or her parents. The surviving spouse receives half of the estate if both the parents survive and three-quarters if only one of the deceased’s parent survives; and

• in the absence of descendants and surviving parents, the surviving spouse is entitled to the whole of the estate even if siblings survive.

Moreover, the spouse can claim, under certain conditions, a life right to inhabit the principal accommodation that is part of the estate (article 764 CC). It should also be noted that a person who lived with the deceased without being married to them (including those having the status of a common law spouse or PACS), is not acknowledged by the intestate succession rules and is treated as a third party.

People who have concluded a PACS are not treated as spouses for succession purposes (see above), but they are fully exempt from inheritance tax (see question 5).

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

All children are treated equally (see question 18).

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

As explained in question 18, the law applicable to the succession as a whole (immovable and movable succession) shall be either the law of the country in which the deceased had his habitual residence at the time of the death, or the law of the country of is citizenship.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

There are two main forms of wills under French law:

• a holographic will: this must be handwritten by the testator but does not need to be witnessed. This is the most common type of will; and

• an authentic will: this must be made in the presence of a notary and two witnesses.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Wills valid in another jurisdiction are recognised as valid in France. French law also recognises the effect of a foreign grant of representation.

23 Who has the right to administer an estate?

Either the heirs collectively or a representative designated by the will administers the estate. The role of the executor is different from that in many countries. His or her powers are only supervisory and his or her role lasts for up to two years.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Heirs are deemed to inherit property from a deceased person immediately upon death without a common law estate administration (thus the distinction between common law ‘probate’ and civil law ‘succession’).

Establishing title and gathering in assets

Under French law, there is no procedure to prove a will. The nearest equivalent to a grant of representation is an affidavit drafted by a notary. It is prepared by the person who acts in the estate and certifies the persons who are entitled to inherit from it.

Procedure for paying taxes

Inheritance tax is imposed on the recipient. Any other transfer by reason of death is subject to tax, payable by the heirs, on condition that they accept the property. The heirs must pay the inheritance tax within six months of the death if the deceased was a French resident and within one year if he or she was a non-French resident.

Distributing the estate

The concept of personal representatives does not exist in French law. It is therefore necessary to have arrangements to vest the deceased’s property in the beneficiaries, which will depend on whether the deceased died intestate or left a will:

• in the case of intestacy, French law determines the persons who are entitled to inherit, namely the heirs. As a general rule, a share of the deceased person’s estate is attributed to each heir on acceptance of the inheritance, without the requirement for any further action (see question 16); and

• in the case of a will, the testator decides to allocate, by inter vivos gift or legacy, a part of his or her estate to the person he or she chooses, provided that this complies with the forced heirship rules (see question 17).

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Heirs can challenge a will if the forced heirship rights have not been respected.

Only reserved heirs (ie, those entitled under the forced heirship regime) can bring a court action to challenge gifts made by the deceased during his or her life that harm their heirship rights. The reserved heirs must act within five years of the opening of the succession.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Under French law a minor (that is, under the age of 18) can own assets. Legal administration is, however, attributed either to parents or to a guardian in certain circumstances.

When an heir is a minor, only his or her parents can accept any inheritance on his or her behalf. Until the age of 16, an heir’s parents represent him or her and act for him or her.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

See question 26.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

When a person loses capacity, the law organises his or her protection. Different regimes apply depending on the degree of incapacity. In some cases where the person is of totally unsound mind he or she must be represented by another person. In other cases he or she will only be advised or supervised.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

In principle, foreign nationals entering and staying on French territory must be in possession of a valid entry and stay visa, unless exempt from this requirement. Visa exemption depends on the individual’s nationality, the possession of a residence permit for France or a Schengen state, the duration of the stay and where on French territory the individual intends to stay.

As a general rule, only nationals of member states of the European Union, the European Economic Area, Andorra and Monaco are exempt from entry and long-stay visa requirements.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A short stay is a stay in the Schengen area lasting less than 90 days or a succession of stays totalling less than 90 days in any period of six months. For short stays, European regulations specify the list of countries whose nationals are exempt from visa requirements to enter the Schengen area.

31 Is there a visa programme targeted specifically at high net worth individuals?

No.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Not applicable.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Not applicable.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Not applicable.

Maryse Naudin

tirard.naudin@online.fr

9 rue Boissy d’Anglas

75008 Paris

France

Tel: +33 1 53 57 36 00

Tel: +33 1 53 57 36 00

www.tirard-naudin.com

Germany

Andreas Richter and Katharina Hemmen

P+P Pöllath + Partners

Tax

1 How does an individual become taxable in your jurisdiction?

Tax liability in Germany is determined by the concept of residence. An individual is a German resident for tax purposes if he or she has either a permanent home or a habitual abode in Germany. Tax residence is assessed using objective criteria. The concept of domicile is not recognised in Germany.

The worldwide income and assets of individuals whose tax residence is located in Germany (hereinafter referred to as: ‘residents’) are subject to:

• income tax (see questions 2 and 3); and

• inheritance and gift tax (IGT) (see questions 4 and 5).

2 What, if any, taxes apply to an individual’s income?

An individual’s income is subject to income tax. Income tax covers income from seven sources:

• income from agriculture or forestry;

• income from trade or business;

• income from the self-employment;

• income from employment (salaries and wages);

• income from capital investments;

• income from letting property, especially real property or groups of assets; and

• other items of income, for example, income from leases of movable assets.

Income is generally taxed at a progressive tax rate, ranging from 14 to 45 per cent. In addition, a solidarity surcharge of 5.5 per cent of the tax due is still being levied. This surcharge was intended to finance the German reunification of 1990. Recently, the government decided on the gradual abolition of the surcharge, with the aim to have it completely abolished by 2021; however, high-income earners will not benefit from this tax relief.

Income from capital investments is subject to withholding tax at a flat rate of 25 per cent plus the solidarity surcharge (a total of 26.375 per cent plus church tax, if any).

3 What, if any, taxes apply to an individual’s capital gains?

An individual’s capital gains are subject to income tax (see question 2).

4 What, if any, taxes apply if an individual makes lifetime gifts?

Lifetime gifts are taxable in accordance with transfers on death under the German Inheritance and Gift Tax Act (see question 5).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Each transferee is liable for IGT on the value of the assets transferred generally, regardless of his or her personal wealth. The tax rates range from 7 to 50 per cent, depending on the relationship between the transferor and the transferee, and the value of the share of the estate received. Spouses and descendants pay IGT at a rate of 7 to 30 per cent. Transfers between most other relatives are taxed at a rate of 15 to 43 per cent. Between unrelated persons, the applicable tax rate is 30 or 50 per cent (for more than €6 million).

The following tax-free allowances apply if either the transferor or the transferee is a resident in Germany:

• spouses receive a personal allowance of €500,000 and a maintenance allowance of up to a maximum of €256,000; and

• descendants receive a personal allowance of €400,000 and an age-dependent maintenance allowance of up to €52,000.

According to a ruling of the European Court of Justice, the same tax-free allowances have to apply for the calculation of gift tax if neither the transferor nor the beneficiary is a German resident but citizen of a member state of the EU.

In addition, there is no IGT on a lifetime transfer of the family home to a spouse and on an equalisation of the gains accrued during the course of a marriage, where the statutory matrimonial property regime of the community of surplus (as provided for by the German matrimonial regime or a similar foreign regime) applies.

6 What, if any, taxes apply to an individual’s real property?

A real estate transfer tax with differing regional rates ranging from 3.5 to 6.5 per cent applies to:

• the acquisition of real property; and

• the acquisition of a substantial shareholding (at least 95 per cent) in a company holding real property.

In addition, an annual property tax may be due on the value of real property (on the basis of an assessed uniform value that is often less than the fair value of the property) at the discretion of the relevant local authority. Though the assessed uniform value is quite low, the property tax is becoming more and more significant because of continuously rising rates of assessment. Furthermore, since the German Federal Constitutional Court recently held that the property values which were last assessed in 1964 or 1935 are inconsistent with the constitutional principle of equality of taxation, the reform, which has now become mandatory, could result in a significant increase of the tax burden.

Income from real property is subject to income tax at the standard rates (see question 2).

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

The import of assets to Germany may trigger VAT. There are different rules for transactions within the European Union and transactions to or from non-EU states.

The import of goods for personal use and enjoyment from non-EU states by an individual into Germany triggers import turnover tax. The import turnover tax rate equals the VAT rates of 19 per cent or 7 per cent and has to be paid to the customs authority. The import turnover tax cannot be refunded as input tax if the imported assets are not used for business but for personal use and enjoyment. The export of such goods to countries outside the EU is generally VAT-tax-free, as the other state, in accordance with the German VAT-rules, levies an import turnover tax on the goods imported.

In contrast, the import of assets for personal use and enjoyment from EU member states by an individual does not trigger German VAT as the other state, in accordance with the German VAT-rules, levies VAT tax on the goods exported. Correspondingly, Germany levies VAT on the goods exported for personal use and enjoyment into EU member states.

8 What, if any, other taxes may be particularly relevant to an individual?

Wealth tax has not been levied in Germany since 1997 owing to it being declared unconstitutional by the German Federal Constitutional Court.

VAT applies to the net turnover of the entrepreneur at a tax rate of 19 per cent or 7 per cent (for certain tax-privileged turnover, eg, food).

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts, domestic as well as foreign, are not recognised in Germany (see question 11). However, the following can trigger IGT or income tax or both:

• foreign trusts created by residents;

• the transfer of assets located in Germany to a trust; and

• a distribution to beneficiaries during the trust period or on the trust’s dissolution if the beneficiary is a German resident or as far as assets located in Germany are distributed.

German corporation tax can apply to:

• income received by a foreign trust from German sources; and

• the worldwide income of a foreign trust if its place of management is in Germany and if certain other conditions are met.

Income received by a foreign trust can be attributed to the settlor or the beneficiaries if they are German residents.

Instead of trusts, corporations, fiscally transparent partnerships and foundations (see questions 10 and 12) are used as asset-holding vehicles in Germany.

Corporations and non-charitable foundations are subject to corporation tax at a tax rate of 15 per cent plus solidarity surcharge of 5.5 per cent of the tax. An additional trade tax of about 15 per cent (at the discretion of the competent local authority) is due for all corporations. Foundations are subject to trade tax only to the extent that they are engaged in trade or business. Partnerships are treated as fiscally transparent; the income is attributed to the partners according to their interest in the partnership and subject to income tax at their level. The partnership itself may be subject to trade tax; the partners will receive a tax credit for their personal income tax for any trade tax levied at the partnership’s level. IGT is levied if a non-charitable foundation is created or endowed with assets.

10 How are charities taxed in your jurisdiction?

Charities are tax-privileged in Germany. Recognition as a charitable foundation or corporation requires that the charity’s activities be dedicated to the altruistic advancement of the general public in material, spiritual or moral respects. These purposes must be pursued altruistically, exclusively and directly. The formation of a charity does not trigger IGT, nor does it trigger real estate transfer tax if real property is transferred gratuitously to the charity. A charity is exempt from almost every current form of taxation, especially corporate tax and trade tax.

Special rules apply for charitable foundations: for example, a charitable foundation may use one-third of its income for the maintenance of the founder and his or her family. In addition, an endowment of up to €1 million made to increase the capital stock of the foundation may be deducted from the assessment basis for income tax purposes, in addition to the deductions that can be made for gifts to other charities.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts, domestic as well as foreign, are not recognised in Germany, which has not ratified the Hague Conference on Private International Law (HCCH) Convention on the Law Applicable to Trusts and on their Recognition 1985.

12 Does your jurisdiction recognise private foundations?

German civil law provides for the creation of private foundations, which can be established as a corporate body for any legal purpose. A family foundation can also be set up for the benefit of the settlor and his or her family. The foundation’s directors are bound to the foundation’s statutes as provided by the settlor. A private foundation resident in Germany is subject to supervision by a local authority under the applicable law of the respective federal state where the foundation’s registered seat is. However, such supervision is very limited. Foreign private foundations are recognised as well, provided the structure is comparable to a foundation as provided for in German civil law.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

From 1 August 2001, same-sex couples could enter into a registered civil partnership. A civil partnership is a recognised form of legal relationship similar to marriage, except with regard to the rules concerning the adoption of children. On 20 July 2017, a law was passed allowing same-sex marriage. The law entered into force on 1 October 2017 and established full equality for same-sex couples. Since then, no new civil partnerships can be entered into, civil partners may opt for a conversion to marriage and same-sex couples not yet in a civil partnership may enter into marriage. With regard to inheritance and tax law, same-sex marriages will not differ from heterosexual marriages and civil partnerships.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Other legal relationships for heterosexual couples do not exist.

Succession

15 What property constitutes an individual’s estate for succession purposes?

For succession purposes, an individual’s estate is constituted by his or her property as a whole (universal succession). Legal ownership determines whether an asset belongs to the estate. Debts and other liabilities, as well as the individual’s interest, for example, in the co-ownership of an asset, are part of the estate to the extent the individual was their legal owner.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Generally, an individual can dispose of his or her estate during his or her lifetime without restrictions.

However, there are narrow exceptions from this rule: a spouse may enter into a contract on his or her property as a whole or on household articles only if the other spouse agrees to the contract.

In addition, an unsatisfied creditor may reclaim property:

• within 10 years if the property was disposed of in order to harm the creditor’s interest;

• within four years if the property was gifted to a non-related person; or

• within two years if the property was transferred to a related person in circumvention of the creditor.

17 To what extent do individuals have freedom of disposition over their estate on death?

Generally, individuals can dispose freely of their estate by will or by a contract of succession. Thereby, an individual can:

• choose his or her heirs and provide what share each heir receives; or

• entitle a person to a legacy without making that person an heir. This legacy claim can be for an amount of money, a share of the deceased’s estate, an item or anything else.

However, if spouses have entered into a contract of succession or into a joint will and one of them dies, the surviving spouse may not rescind the contract or the will to change dispositions unless the changes correspond to the intention the spouses have originally agreed in the contract or the will.

There is a forced heirship regime, under which the following categories of relatives are entitled to make a claim for a compulsory share of the deceased’s estate if they are excluded from the testator’s will or if the share granted to them is less than their compulsory share:

• descendants;

• spouse;

• civil partner; and

• parents.

A relative’s compulsory share under a will generally amounts to 50 per cent of the value of that relative’s share on intestacy. It is a monetary claim and not a claim for a share of the estate.

If the deceased is not survived by any of these individuals, he or she can freely distribute his or her whole estate.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

On intestacy, the order of succession is as follows (each of the following categories precludes the subsequent heirs from receiving a share of the deceased’s estate):

• children of the deceased and, subordinated, their descendants;

• parents of the deceased and, subordinated, their descendants;

• grandparents of the deceased and, subordinated, their descendants; and

• great-grandparents of the deceased and, subordinated, their descendants.

Relatives within a particular category inherit in equal shares (succession per stirpes).

The surviving spouse (or civil partner) also has a right of inheritance, determined by the applicable matrimonial regime.

Community of surplus

The surviving spouse is entitled to:

• 50 per cent of the inheritance if relatives in the first category (see above) survive; or

• 75 per cent of the inheritance if there are no surviving relatives in the first category but relatives in the second category survive.

Separation of property or community of property

The surviving spouse is entitled to:

• 25 per cent of the inheritance if relatives in the first category survive; or

• 50 per cent of the inheritance if there are no surviving relatives in the first category, but relatives in the second category survive.

If there is a separation of property regime and the surviving spouse is entitled together with one or two children of the deceased, the surviving spouse and each child inherit in equal shares.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Generally, adopted and illegitimate children are treated the same as natural legitimate children.

However, where an individual is adopted after he or she has reached the age of 18, the adopted person is treated as a child of the adopter but not of the adopter’s family. This can be important for maintenance and succession reasons.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

For successions on and after 17 August 2015, the conflict of laws rules of the European Union’s Succession Regulation apply. They are valid in all EU member states except Denmark, Ireland and the United Kingdom. According to the Regulation, the deceased’s habitual residence at the time of his or her death is relevant for the question of which succession law is applicable, instead of his or her nationality. If it is obvious that the deceased had a closer relationship to another state, that state’s law will apply under certain circumstances. There is, however, the opportunity to opt for the succession law of an individual’s nationality by a will, a joint will or by an agreement as to succession.

In addition, provisions on legal jurisdiction, recognition and enforcement of decisions and authentic instruments and on the European certificate of succession are part of the Regulation. As a general rule, the legal jurisdiction shall be determined by the habitual residence at the time the individual dies.

The EU Succession Regulation is not applicable to trusts, hence the respective national conflict of law regime applies.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

Under German law, there are two valid forms of will:

• a holographic will, which is handwritten, dated and signed by the testator; and

• a public will, which is signed before and certified by a notary public.

Neither form of will requires a witness.

A testator can also enter into a contract of succession with another person or a joint will with his or her spouse or civil partner. A contract of succession must be signed before and certified by a notary public (a handwritten contract does not meet the formal requirements).

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Germany recognises the HCCH Convention on the Conflicts of Law Relating to the Form of Testamentary Dispositions 1961 (Hague Testamentary Dispositions Convention). A will is valid if it complies with the law of any of the following:

• the state of the testator’s nationality;

• the state where the testator made the will;

• the state of the testator’s residence; and

• the state where the assets are situated (in the case of real estate).

According to article 75 of the EU Succession Regulation, the HCCH Convention prevails over the provisions of the Regulation with regard to the formal validity of a will.

23 Who has the right to administer an estate?

A testator can appoint an executor at his or her own discretion. The executor has to be legally competent. According to the German Federal Court of Justice, an executor does not have to be a lawyer, tax adviser, notary public or any other person who has to take out liability insurance.

An executor can ask the probate court for a certificate of executorship, which officially verifies his or her authority to act as executor.

German law gives broad powers to executors but the testator can limit these powers. For example, an executor can be given the power to:

• distribute the estate;

• administer a single bequest; or

• administer the estate for a defined period of time (eg, until the date of the executor’s death or until the naming of a successor executor who may be appointed within 30 years of the testator’s death).

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

The estate vests automatically in the heirs on the deceased’s death. The heirs also administer the estate if an executor has not been appointed.

The deceased’s will and other dispositions taking effect on death must be filed with the probate court (unless the documents are already in the court’s custody).

The probate court will officially read the will and disclose its contents to the heirs.

After the will has been read (or, in the case of intestacy, immediately) the heirs can ask the probate court for a certificate of inheritance. The certificate specifies:

• the heirs’ names;

• their share in the inheritance; and

• the executor’s name if the testator has appointed one
(see question 23).

The certificate of inheritance gives the heirs the legitimacy to administer the estate, provided there is no executor. If the law of a foreign jurisdiction governs the succession, the probate court issues a certificate relating only to assets and property located in Germany.

The beneficiaries must file a notice of inheritance with the competent tax authority within three months of receiving the notice of succession. At the request of the tax authority, the beneficiaries (or the executor, if appointed) must file an inheritance tax return.

The estate is distributed in kind among the heirs according to what is agreed and there is no time limit for distribution. Until distribution, the estate remains joint property of the heirs.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Heirs or beneficiaries cannot make a post-death variation.

Heirs or beneficiaries can challenge the validity of a will before a civil court. If the court sets the will aside, then intestacy rules will apply if there is no other valid will.

Under the intestacy rules, it is not possible for heirs or beneficiaries to challenge the adequacy of their provision.

An heir can sell his or her share in the estate after the death of the testator by entering into a contract before a notary public.

If an heir does not want to receive his or her portion of the estate, he or she must disclaim his or her right within six weeks of receiving notice of the death of the deceased and the inheritance. The time limit is extended to six months if either:

• the deceased had his or her habitual abode outside Germany; or

• the heir was abroad when the period began to run.

The disclaimer is made by a declaration to the probate court. The declaration must be made in the presence of, and recorded by, the probate court or in notarially certified form.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

A minor can own assets (see question 27). Usually, it is the parents’ duty to manage these assets on the minor’s behalf. The following rules apply:

• all contracts of substantial economic impact that are entered into by the parents on the minor’s behalf and that establish an obligation of the minor (eg, sale or purchase of real property, sale or purchase of a business or of shares in a business entity, and similar transactions) are subject to approval by the family court; and

• for specified transactions, particularly for contracts between the minor and his or her parents or other close relatives, the parents must not act on the minor’s behalf. Instead, the family court appoints a legal guardian to act on the minor’s behalf.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

In Germany, children under 18 years of age are minors. Having legal personality, a minor can hold assets regardless of his or her age. Parents usually have joint custody of their child. Parents with custody administer the minor’s estate, including his or her inheritance (see question 26). If the minor and the parents are heirs of the same testator, it may be necessary to appoint a guardian to distribute the estate.

A testator can name in his or her will a person other than the minor’s parents to administer the minor’s inheritance. If the testator does not name a person, the court will nominate a guardian.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

When a person loses capacity, a guardian is appointed to represent that person in all legal matters, under supervision by a court. The applicable law is that of the nationality of the incapacitated person.

A power of attorney is recognised in Germany if it complies with the law of the nationality of the incapacitated person.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

EU citizens generally do not require any residence or settlement title to stay, work or settle in Germany.

Non-EU citizens, however, need a visa, a temporary residence permit or a permanent settlement permit (see question 30) in order to enter into and stay in Germany.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A visa enables the holder to entry or short stays in Germany of up to 90 days for each period of 180 days. In the event of longer stays, a temporary residence or permanent settlement permit is required.

Temporary residence permits are issued for specified purposes (eg, education or training, gainful employment, humanitarian, political or family reasons). They allow the holder to stay in Germany for at least six months. The permission to work in Germany is not always part of a temporary residence permit.

Permanent settlement permits are issued if a foreign national has possessed a residence permit for five years and meets additional requirements (eg, a secure income, no criminal record, adequate command of the German language). Permanent settlement permits are valid for an unlimited period of time. However, they can be taken back or revoked if the foreign national does not meet the requirements.

31 Is there a visa programme targeted specifically at high net worth individuals?

Germany does not have a visa programme targeted at high net worth individuals.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Not applicable.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Not applicable.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Not applicable.

Update and trends

With regard to cross-border holding structures, changes to the CFC rules are expected in the foreseeable future. Sections 7 to 14 of the German Foreign Tax Act (AStG) are currently being revised by a special task force of the German tax authorities with the aim to modernise. Adjustments are also required with regard to the European Anti Tax Avoidance Directive.

Andreas Richter

andreas.richter@pplaw.com

Katharina Hemmen

katharina.hemmen@pplaw.com

An der Welle 3

60322 Frankfurt

Germany

Tel: +49 69 247 047 0

Fax: +49 69 247 047 30

Potsdamer Platz 5

10785 Berlin

Germany

Tel: +49 30 253 53 0

Fax: +49 30 253 53 999

www.pplaw.com

India

Rajesh Narain Gupta and Anju Gandhi SNG & Partners, Advocates & Solicitors

Ashok Natwarlal Shah N A Shah Associates LLP

Tax

1 How does an individual become taxable in your jurisdiction?

An individual is charged to income tax in India on the basis of income earned during a financial year, which commences on 1 April and ends on 31 March of each tax year. The charge of tax depends upon residential status. An individual who is resident is charged tax on all global income. An individual who is a non-resident in India is charged tax only on income that is accrued or aroused or is received in India. However, income accrued or aroused outside India will not be taxable.

An individual who is not ordinarily resident is charged tax on income that is accrued or aroused or is received in India and income that accrued or aroused outside India if such income is derived from a business controlled in or profession set up in India.

The residential status of an individual is determined on the basis of number of days a person stays in India.

Generally, a person is said to be resident of India if:

• his or her stay in India exceeds 181 days in a tax year; or

• in the previous four years, he or she stays in India for a period that exceeds 364 days and in the current tax year, his or her stay exceeds 59 days in India.

There is a relaxation for individuals who leave India for employment purposes or those of Indian origin, where the period of 60 days is extended to 182 days.

2 What, if any, taxes apply to an individual’s income?

An individual is liable to income tax on taxable income based on the following slab rate.

Tax rate (%)

Age below 60 years

Age 60 years or more but less than 80 year

Age 80 years or more

5

250,000 rupees to 500,000 rupees

300,000 rupees to 500,000 rupees

–

20

500,000 rupees to    1 million rupees

500,000 to 1 million rupees

500,000 rupees to    1 million rupees

30

More than 1 million rupees

More than 1 million rupees

More than 1 million rupees

The tax computed on the basis of above slab, shall be further increased by surcharge at 10 per cent in case the taxable total income exceeds 5 million rupees but less than 10 million rupees or by surcharge at 15 per cent in case the taxable total income exceeds 10 million rupees during the tax year.

The total tax including surcharge (if any) shall be further increased by education cess at 4 per cent.

3 What, if any, taxes apply to an individual’s capital gains?

An individual is liable to capital gains tax on the basis of following rates:

• Long-term capital gains are taxed at 20 per cent.

• Long-term capital gains arising from unlisted securities or shares of private companies is taxed at 10 per cent without claiming indexation benefit for non-residents.

• Long-term capital gains from listed securities (other than units) or zero coupon bonds may be taxed either at 10 per cent without claiming indexation benefit or at 20 per cent with claiming indexation benefits for both residents and non-residents.

• Long-term capital gains from sale of equity shares through a recognised stock exchange in India on which securities transaction tax (STT) is paid at the time of purchase (except for those required prior to 1 October 2004) and at the time of transfer or STT paid units or units of business trust at the time of transfer, shall be as follows:

• up to 1,00,000 rupees is exempt from tax;

• above 1,00,000 rupees is chargeable to tax at 10 per cent on gains, herein gains shall be computed as under:

Sales price

Less: cost of acquisition

- For assets acquired on or after 1 February 2018, actual cost of acquisition

- For assets acquired prior to 1 February 2018, actual cost of acquisition or fair market value of the asset as at 31 January 2018, whichever is higher. However, the fair market value of the asset cannot exceed the sale consideration

Taxable long-term capital gain

Short-term capital gains is taxed based on the applicable slab rate.

Short-term capital gains from sale of equity shares through a recognised stock exchange in India or STT paid units or units of business trust, is chargeable to tax at 15 per cent.

Short-term capital gains means a gain arising from a capital assets held by a taxpayer for not more than 36 months immediately preceding the date of transfer.

However, in case of securities listed in a recognised stock exchange in India, unlisted shares and immovable property, the period of 36 months shall be substituted by 12 months, 24 months and 24 months respectively.

Long-term capital gains means a gain arising from an asset that is not a short-term capital asset.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Presently, there is no gift tax applicable on gifts made by an individual.

However, a recipient of a gift would be liable to tax as income unless such gift is received:

• from a relative defined under the Income Tax Act 1961;

• on the occasion of marriage of the individual;

• under a will or inheritance;

• in contemplation of death; or

• from a fund or foundation or university or other education institution, or hospital or medical institution or charitable trust, etc.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There is no estate duty or inheritance tax on the transfer of an individual’s estate on death.

6 What, if any, taxes apply to an individual’s real property?

Generally, there are no income taxes applicable on an individual’s real property that is occupied for his or her personal use or business. However, if more than one real property owned by the individual is occupied for personal use, only one property at his or her option shall be exempt from tax and other property shall be chargeable to tax on the basis of notional rent.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

There is import duty on items imported in India. Rates of tax range from zero to 45 per cent depending upon the nature of product imported in India. Duty-free import of goods is allowed up to the value of 5,000 rupees as gift. There are certain items that are prohibited for import in India.

8 What, if any, other taxes may be particularly relevant to an individual?

Apart from income tax, individuals are liable to pay profession tax levied by state government. There are other taxes that are generally borne by an individual indirectly on consumption of goods or services that is, Goods and Services Tax, customs duty, etc.

In India wealth tax was abolished effective from 1 April 2015.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

There are no specific taxes on trusts or other asset-holding vehicle. They are usually taxed at rates applicable to beneficiaries or at maximum marginal rate (currently 30 per cent), increased by applicable surcharge and cess, depending upon circumstances.

10 How are charities taxed in your jurisdiction?

Charities enjoy exemption from tax if they fulfil required conditions. Generally, they are required to spend 85 per cent of their income on their objects. They can also accumulate income and spend them in a period of five years provided required notice is given and accumulated income is invested in a prescribed manner. There are various regulations relating to the activities that charities can carry on and the manner in which they are required to invest their funds.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are well established and recognised in India. There are essentially two types of trusts in India: private trusts and public trusts. A private trust is one that is constituted for the benefit of one or more individuals who are, or within a given time may be, definitely ascertained. A public trust is one that is constituted wholly or mainly for the benefit of the public at large, and accordingly, the beneficiaries in the public trust constitute a body that is incapable of ascertainment. Public trusts can further be classified into religious and charitable trusts.

Private trusts are governed by, and may be set up under, the Indian Trust Act 1882. While there is no all-encompassing national level law that governs public trusts in India, the provisions of the Societies Registration Act 1860, Religious Endowments Act 1863, Charitable and Religious Trust Act 1920 and Multi State Co-operative Societies Act 2002 regulate the various public trusts set up in India. Further, some states in India (eg, Maharashtra, Rajasthan) have also enacted local state specific laws which, inter alia, govern the creation and registration of public trusts. In the absence of a trust act in any particular states or union territories, the general principles of the Indian Trusts Act 1882 are applicable to public trusts.

India does not recognise trust as a separate entity (except for tax purposes). A trust is identified as a legal obligation that is attached to the ownership of property arising out of a confidence placed by the settlor in the trustee for the benefit of the beneficiaries (as identified by the settlor), or the beneficiaries and the settlor. The trustee is the legal owner of such trust property, whereas the beneficiaries have beneficial interest in the trust property.

A person may set up a private trust either orally or under a written instrument, that is, either through a will (testamentary trust) or through a written trust deed during the person’s lifetime. A trust having immovable property and created through a non-testamentary instrument requires to be declared through a registered written instrument (section 5 of the Indian Trusts Act 1882). However, the registration (under the Indian Registration Act 1908) is not compulsory as in the case of a testamentary trust.

India, being a common law jurisdiction, not only acknowledges the concept of trust, but also recognises trusts governed by other jurisdictions. Depending upon the need of the settlor or family various trust structures are prevalent which include discretionary, non-discretionary, revocable, irrevocable, specific, general, determination linked to happening of an event or non-occurrence of an event. In a private trust, one is to be conscious to address the rule against perpetuity as provided for by Indian laws, which impose a time limit on the age of the trust.

Trust formation is an important tool in the hands of private client practitioners and is gaining momentum in India as most wealthy families, high net worth individuals and HNIs and ultra high net worth individuals wish to adopt an appropriate trust structure to address the needs arising in the area of estate planning, family succession and business succession. There is a growing need for a trust platform for promoters or families to have a bankruptcy remote vehicle for wealth protection and preservation by creating legally valid structures at the right time. A need for trusts has also arisen owing to the large non-resident Indian population, which is subject to different laws in the respective jurisdiction where it is located and the people desire to address their succession issues by creating suitably fitting structures in India.

Owing to new regulations relating to corporate social responsibility activities to be undertaken by organisations, there has been an increase in the setting-up of not-for-profit organisations (NPOs) or public charitable trusts.

12 Does your jurisdiction recognise private foundations?

India recognises private foundations in the form of NPOs. Generally, the NPOs come in three forms: trusts, societies and limited companies.

• Trust: a public charitable trust is usually irrevocably established for various purposes including: poverty relief, education, yoga, medical relief, preservation of environment, monuments, etc, and the advancement of any other object of general public utility. As mentioned above, there is no central act that governs public charitable trusts in India. Certain states in India (eg, Maharashtra, Rajasthan) have public trusts acts in force and an office of charities commission supervises the functioning of such trusts.

• Society: a society for charitable purposes may be registered under the Societies Registration Act 1860, and such societies are usually managed by a governing council or a managing committee.

• Company: under section 8 of the Companies Act 2013 (earlier section 25 of the Companies Act 1956), the central government may issue a licence to a registered limited or private limited company or an NPO for the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or such other object.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

In a historic verdict, a Constitution Bench of the Supreme Court in the case of Navtej Singh Johar & Ors. Versus Union of India, has partially struck down section 377 from the Indian Penal Code (IPC), thereby de-criminalising gay sex in India. The Supreme Court has declared that section 377 of the IPC, in so far as it criminalises even consensual sexual acts between adults competent to consent, is in violation of the Constitution of India.

The Supreme Court observed that history owes an apology to the members of LGBT community and their families for the delay in providing redressal for the ignominy and ostracism that they have suffered through the centuries. The mis-application of section 377 has denied the LGBT community the fundamental right to equality guaranteed by article 14. It infringed the fundamental right to non-discrimination under article 15, and the fundamental right to live a life of dignity and privacy guaranteed by article 21.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

India does not yet recognise any form of legal relationship for heterosexual couples other than marriage. A legislative attempt has, however, been made in the form of the Protection of Women from Domestic Violence Act 2005 (DV Act), to expand the scope of recognition to relationships outside of marriage. The DV Act provides for protection of women from physical, mental, verbal and economic abuse, and also provides for their maintenance. The DV Act applies not only to married couples but also to ‘relationships in the nature of marriage’, thereby bringing certain kinds of live-in relationships within the scope of the protection offered by the DV Act. Further, Indian courts have, from time to time, recognised children born to heterosexual couples in live-in relationships as legitimate. Pertinently, there is no straightjacket formula that can be applied to live-in relationships, and the rights of a person in a live-in relationship would necessarily depend on the particular facts and circumstances of each case.

Succession

15 What property constitutes an individual’s estate for succession purposes?

All immovable assets (all forms of real estate and land) and movable assets (eg, fixed deposits, money in bank accounts securities, bonds, proceeds of insurance policies, retirement benefits, art, artefacts precious metals, brands, goodwill, digital assets (photographs, sketches, blogs, websites, email accounts such as Gmail, Yahoo!, etc, and social websites such as Facebook, Twitter, etc) and intellectual property rights, etc, constitute an individual’s estate for succession purposes. All assets (immovable and movable) owned by a person can be bequeathed by an individual subject to his or her personal laws.

An individual cannot bequeath ancestral property not owned by him or her, unless such property or a share in such property has devolved upon him or her.

Further, individuals who are governed by their personal laws (eg, shariah or the Muslim personal law) can bequeath only as per the limited extent as restricted under their personal laws.

Assets in which an individual is a joint or co-owner, can be bequeathed only to the extent of such individual’s share in the joint property. If an individual does not execute a will, then post his or her demise, the assets are distributed to his or her successors as per his or her applicable personal law.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

An individual who owns assets in his or her own name whether acquired out of his or her own income, inherited or received as gift and a married woman in respect of her property, assets or estate gifted to her during or after her marriage – over which the husband has no claim (streedhan), both have complete authority and freedom of disposition over their own estate during their lifetime.

However, any fraudulent disposition by an individual, including disposition to defraud creditors or to avoid attachment orders by a court are not permitted.

In India, being a common law jurisdiction, marriage is a societal obligation and a sacred union forming an institution, and hence, any contractual arrangement in relation to marriages (eg, pre-nuptial or post-nuptial contracts) is considered void. However, codified Muslim law allows for marriage as a contract between individuals and provides that only upon divorce shall the wife receive the property given to her directly and an amount equal to the sum of mahar or dower agreed during marriage to be paid to her.

Presently, in India, only the state of Goa recognises the community of property of spouses under the Goa Civil Code, which follows the Portuguese Civil Code.

17 To what extent do individuals have freedom of disposition over their estate on death?

In India, individuals have complete testamentary freedom (ie, the right to control the disposition of their property upon death). However, there are certain exceptions to this rule. Individuals falling under the shariah or the Muslim personal law are restricted from disposing their estate on death owing to the forced heirship rules basis the shariah sub-sect the individual falls under.

Most Indian Muslims follow the Hanafi doctrine of Sunni law as opposed to Shia law. The courts presume that Muslims are governed by Hanafi law unless the contrary is established.

Upon the death of a Muslim, it becomes incumbent upon the deceased’s family members to ensure that, according to shariah law as prescribed in the Koran and authentic Sunnah, the wealth and property left behind in the estate of the deceased are distributed. After meeting the initial expenses incurred in giving the deceased an Islamic burial, and, after paying all of his debts and the mahar dowry that may still be due to his wife, up to one-third of the remaining estate only may be expended according to the deceased’s dying wishes or a legal will that is left behind, for those who are entitled not only by the shariahh. The remainder of the estate must be distributed to all the legal heirs.

A Muslim can make a bequest to anyone including a stranger, without the consent of the legal heirs provided the bequest does not exceed one-third of the estate, but a bequest to a legal heir without the consent of other legal heirs is invalid.

Further, property held in the name of Hindu undivided families (HUF) is not available for disposition by a member or coparcener of such HUF under a will except upon the actual partition of the HUF property, although his or her undivided share can be bequeathed by a will.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

An individual who dies without leaving a will or valid instructions for disposition of his or her estate, that is, the individual has died ‘intestate’, then his or her legal heirs are entitled to a share in the assets of the deceased as per the applicable personal law of the deceased. The individual share for each of the legal heirs shall be decided basis the applicable personal law governing the intestate.

In the case of Hindus, Buddhist’s, Jains or Sikh’s, the Hindu Succession Act 1956 (HSA) is applicable. The Indian Succession Act 1925, consolidated the law in respect of succession to property of Indian Christians, Jews and persons married under the Special Marriage Act 1954 and the law relating to succession rights of Parsis. Muslims are governed by their own personal laws (see question 17).

The HSA lists the order of succession for the division of property of an intestate, according to the Schedule and specified Rules. The Class I heirs shall take simultaneously and to the exclusion of all other heirs; those in the first entry in Class II shall be preferred to those in the second entry and those in the second entry shall be preferred to those in the third entry, and so on.

Class I heirs inherit simultaneously: son; daughter, widow, mother, son of a pre-deceased son, daughter of a pre-deceased son; son of a pre-deceased daughter, daughter of a pre-deceased daughter; widow of a pre-deceased son; son of a pre-deceased son of a pre-deceased son; daughter of a pre-deceased son of a pre-deceased son; widow of a pre-deceased son of a pre-deceased son; son of a pre-deceased daughter of a pre-deceased daughter; daughter of a pre-deceased daughter of a pre-deceased daughter; daughter of a pre-deceased son of a pre-deceased daughter; daughter of a pre-deceased daughter of a pre-deceased son.

If the heirs of Class I are not available, only then the property goes to the Class II heirs, where an heir in a higher entry is preferred over an heir in a lower entry.

I. Father

II. (1) Son’s daughter’s son, (2) son’s daughter’s daughter,

(3) brother, (4) sister.

III. (1) Daughter’s son’s son, (2) daughter’s son’s daughter,

(3) daughter’s daughter’s son, (4) daughter’s daughter’s daughter.

IV. (1) Brother’s son, (2) sister’s son, (3) brother’s daughter,

(4) sister’s daughter.

V. Father’s father; father’s mother.

VI. Father’s widow, brother’s widow.

VII. Father’s brother; father’s sister.

VIII. Mother’s brother; mother’s sister.

In case there are no Class I or Class II heirs, then the property passes on to his or her relatives who are agnates (descended from the male line). If there are no agnates, then the property shall pass onto his or her relatives who are cognates (descended from the female line).

When an Indian Christian, Jew, persons married under the Special Marriage Act 1954 and Parsi dies intestate, the Indian Succession Act 1925 provides for various rules for devolution of property in cases when the intestate has left behind a widow, lineal descendant, kindred, parents, siblings and grandchildren as listed under a schedule. The right to the property of the intestate, however, may be established only when the legal heir has obtained the requisite letters of administration to the estate granted by a court of competent jurisdiction.

If an individual has no heir qualified to succeed to his or her property, such property shall then devolve upon the state government or the Union Territory government within whose territorial jurisdiction the estate is situated subject to all the obligations and liabilities of the deceased individual.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

In India, the rights of an adopted child or illegitimate child to the property of his or her parents would depend on applicable personal law. In so far as Hindus are concerned, the Hindu Marriage Act 1955 has been amended to empower children of void or voidable marriages to inherit the property of their parents, although these children do not have the right to seek any partition of ancestral property during the lifetime of their parents. The Supreme Court of India has also upheld the validity of this amendment in the matter of Revanasiddappa v Mallikarjun. The Supreme Court has also held that if a man and woman live together for a long time, there would be a presumption of marriage and their children could not be called illegitimate. However, as set out above, when it comes to determination of the legitimacy of a child born to a couple outside wedlock, there is no straightjacket formula and the same would depend on the particular facts and circumstances of each case and consequently, the rights of such child in the property of their parents would also vary.

Adoption is not recognised in Islam. However, in cases of uncertainty of legitimate descent of a child, an acknowledgment of paternity by the fathers raises a presumption of legitimacy. An illegitimate child otherwise has no right to inherit property from the father. Under Hanafi law the mother and her illegitimate child have mutual rights of inheritance. The illegitimate child inherits not only property of his mother but also property of all other relations with whom it is related through the mother. Further, Muslim law does not confer any right to maintenance to the illegitimate child. However, such children can approach the court under section 125 of the Criminal Procedure Code, which ensures that all such illegitimate children are maintained by their parents.

Under the law applicable to Indian Christians, an illegitimate child is not recognised. Further, there is no obligation to maintain an illegitimate child.

Further, an individual can exclude his or her immediate family members from being the beneficiaries in his or her self-acquired assets. However, in the case of inherited assets, the rights of the family members who are legal heirs, including adopted, illegitimate and disinherited children, shall prevail and an individual has to abide by the prevalent law dictating such rights.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Depending upon the type of property, the lex situs or lex domicilii, as applicable, governs the distribution of an individual’s estate.

The Indian Succession Act 1925 regulates the succession to a deceased persons’ immovable and movable property respectively. There are different rules for moveable and immovable assets. The law of India governs succession to immovable property situated in India (ie, the lex situs). Whereas, the succession to moveable property is governed by the law of the country in which the deceased was domiciled at the time of his or her death (ie, the lex domicilii).

21 What formalities are required for an individual to make a valid will in your jurisdiction?

It is important that an individual should be an adult and of sound mind at the time of making his or her will. It is also important that such a will should not be made under coercion or undue influence from anyone. A will can be made on plain paper and should be attested by two witnesses who should sign the will in the presence of the individual making the will at the time of execution. Pertinently, none of the attesting witnesses should be beneficiaries under the will. Lifetime interest in an asset under a will may be given to a beneficiary. As per the current trend, videography of execution of wills is being encouraged and accepted in the courts. Registration of a will with the Sub-Registrar of Assurances, although not compulsory, proves to be beneficial in certain cases for the change of name for ownership in government records.

Further, recently, the Supreme Court of India has by virtue of its decision in the matter of Common Cause v Union of India, permitted people to draw up ‘living wills’. The Supreme Court has laid down a detailed procedure for execution and filing of such advance medical directive or living will, inter alia, providing for the following.

Who can execute the Advance Directive and how?

i. The advance directive can be executed only by an adult who is of a sound and healthy state of mind and in a position to communicate, relate and comprehend the purpose and consequences of executing the document;

ii. It must be voluntarily executed and without any coercion or inducement or compulsion and after having full knowledge or information.

iii. It should have characteristics of an informed consent given without any undue influence or constraint.

iv. It shall be in writing clearly stating as to when medical treatment may be withdrawn or no specific medical treatment shall be given which will only have the effect of delaying the process of death.

What should it contain?

v. It should clearly indicate the decision relating to the circumstances in which withholding or withdrawal of medical treatment can be resorted to.

vi. It should be in specific terms and the instructions must be absolutely clear and unambiguous.

vii. It should mention that the person executing the same may revoke the instructions/authority at any time.

viii. It should disclose that the executor has understood the consequences of executing such a document.

ix. It should specify the name of a guardian or close relative who, in the event of the executor becoming incapable of taking decision at the relevant time, will be authorized to give consent to refuse or withdraw medical treatment in a manner consistent with the advance directive.

x. In the event that there is more than one valid advance directive, none of which have been revoked, the most recently signed advance directive will be considered as the last expression of the patient’s wishes and will be given effect to.

How should it be recorded and preserved?

xi. The document should be signed by the executor in the presence of two attesting witnesses, preferably independent, and countersigned by the jurisdiction Judicial Magistrate of First Class (JMFC) so designated by the relevant district judge.

xii. The witnesses and the jurisdictional JMFC shall record their satisfaction that the document has been executed voluntarily and without any coercion or inducement or compulsion and with full understanding of all the relevant information and consequences.

xiii. The JMFC shall preserve one copy of the document in his office, in addition to keeping it in digital format.

xiv. The JMFC shall forward one copy of the document to the Registry of the jurisdictional District Court for being preserved. Additionally, the Registry of the District Judge shall retain the document in digital format

xv. The JMFC shall cause to inform the immediate family members of the executor, if not present at the time of execution, and make them aware about the execution of the document.

xvi. A copy shall be handed over to the competent officer of the local Government or the Municipal Corporation or Municipality or Panchayatm, as the case may be. The aforesaid authorities shall nominate a competent official in that regard who shall be the custodian of the said document.

xvii. The JMFC shall cause to hand over a copy of the Advance Directive to the family physician, if any.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign wills are recognised in India in respect of assets or properties held in India by a foreigner. A foreigner need not have a separate Indian will for his or her assets in India, and he or she can have a foreign will for all his or her assets.

An order of a foreign court granting probate of a will can be enforced through Indian courts.

A foreign judgment given by a competent court of a country having a reciprocity arrangement with India is enforceable in India unless it falls under the exceptions set out in section 13 of the Civil Procedure Code. For example, when the foreign judgment has not been given on the merits of the case, or is based on an incorrect view of international law or a refusal to recognise the law of India in cases where such law is applicable, or the judgment is opposed to natural justice, where it has been obtained by fraud or where it sustains a claim founded in breach of law in India.

If a probate or a court order from the foreign court on the will has already been obtained, then such probate or court order is to be produced in the Indian court of appropriate jurisdiction. In the case of Sukumar Banerji v Rajeswari Debi the Calcutta High Court held that to grant probate in common form of a foreign will, the court will be satisfied with prima facie proof that a foreign court has adopted the document as a valid testament, without any regard to the form in which such adoption is signified. It does not require that the form of approval should be the same as its own grant of probate.

23 Who has the right to administer an estate?

Any person of 18 years and above, of sound mind and capable of entering into a contract, or a professional agency, can be appointed as an executor or an administrator, under a will or a trust to administer the estate.

Under the Indian Succession Act 1925, if the deceased died intestate and was a Hindu, Muslim, Buddhist, Sikh, Jain or an exempted person, the competent court may grant letters of administration of the deceased’s estate to any person who would be entitled to the whole or any part of such deceased’s estate in accordance with the personal succession laws of the deceased. When several persons apply for such administration, the court may grant it to any one or more of them. When no such person applies, the letters of administration may be granted to a creditor of the deceased.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

The title to an immovable property passes on to the legal heirs and successors based on nomination, succession as per applicable personal laws, wills, probate from the court of appropriate jurisdiction, letters of administration and succession certificate. On the same basis, the mutation entry is carried out for immovable property in the relevant municipal records made by the Tehsildar or district officer based on the original will or probate granted by the court.

Also see questions 17, 18 and 23.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Legal heirs or beneficiaries excluded under a will can approach an appropriate court in India to challenge a will or make a claim against an estate.

It is compulsory to issue public notice during ongoing court probate proceedings whereby any person disputing the validity of a will has the right to object.

Separate suit for partition or right in property can also be filed by legal heirs or beneficiaries before the appropriate court subject to compliance with the Indian Limitation Act.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

A minor (child under 18 years of age) can hold and manage property during his or her minority either through:

• a natural guardian, that is, their father or mother;

• a guardian appointed through a will; or

• a court-appointed guardian.

A contract for transfer of the minor’s property entered into by the minor’s guardian is specifically enforceable against the minor if it was entered by a guardian competent in law to bind the minor and the transfer was for legal necessity or for the minor’s benefit. A guardian, however, cannot sell an immovable property owned by a minor without the permission of the court.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual attains legal capacity for the purposes of holding and managing property is when he or she:

• is a major: 18 years of age or above;

• is of sound mind; and

• is not otherwise debarred by any competent authority.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

When an individual loses his or her physical capacity or becomes incapable of managing his or her affairs (has sound mind), the individual can give a power of attorney for someone to manage his or her affairs. An individual can also set up a living trust.

However, in case of mental incapacity, such individual would be dependent on his or her friends and family. Lasting powers of attorneys are not recognised in India.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Foreign nationals require a visa to visit India.

Separate requirements are prescribed for (country, penalty to stay, etc) for registration of persons visiting India with the foreigners’ registered office.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Foreign nationals can spend a maximum of 180 days on a single visit on a visitor’s or a tourist visa.

31 Is there a visa programme targeted specifically at high net worth individuals?

India does not have a visa programme targeted specifically at high net worth individuals.

The Indian government has recently with an objective to attract investments from abroad and facilitate the ‘Make in India’ initiative by the government of India, approved a scheme under the foreign direct investment policy to grant permanent residency status to foreign investors. In order to avail of the scheme, foreign investors will be required to invest minimum of 100 million rupees within 18 months and generate 20 jobs every year or 25o million rupees within 36 months from the time the foreign investor arrives in India. The permanent residence status initially available for 10 years can be extended by another 10 years.

This investment is meant to encourage job creation in the country and includes permanent residence status to the foreign investors for up to 20 years with the option for multiple visits. Further, the permanent residence status will serve as a multiple entry visa without any stay stipulation and the holders will be exempted from registration requirements. They will be allowed to purchase one residential property for dwelling purposes. A spouse and dependants will be allowed to take up employment in the private sector (with a relaxation of salary stipulations for an employment visa) and undertake studies in India.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

The scheme mentioned in question 31 allows the spouse and dependents of the foreign investor to settle in India.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

See question 31.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

See question 31.

Rajesh Narain Gupta

rajesh_narain@sngpartners.in

Anju Gandhi

anju_gandhi@sngpartners.in

One Forbes

Dr VB Gandhi Marg

Kalaghoda, Fort

Mumbai 400023

India

Tel: +91 22 4028 5151

Fax +91 22 4028 5153

www.sngpartners.in

Ashok Natwarlal Shah

ashok.shah@nashah.com

B 41-15, Paragon Centre

Pandurang Budhkar Marg

Worli

Mumbai 400013

India

Tel: +91 22 4073 3000

Fax: +91 22 4073 3090

www.nashah.com

Ireland

John Gill and Lydia McCormack

Matheson

Tax

1 How does an individual become taxable in your jurisdiction?

An individual’s tax treatment will depend on their domicile and residence.

‘Domicile’ is not defined under Irish law. Usually, a person’s domicile is the jurisdiction in which they live with the intention of residing there permanently.

‘Resident’ is defined under section 819 of the Taxes Consolidation Act (TCA) as being present in Ireland for a period of 183 days or more in the tax year, or being present in Ireland for 280 days or more in the current and the previous tax year. The Irish tax year is a calendar year.

‘Ordinarily resident’ under section 820 of the TCA 1997 occurs when an individual has been resident in Ireland for three consecutive years. An individual will be considered ordinarily resident until he or she has not been resident for three consecutive years.

If an individual is resident and domiciled in Ireland, they will be liable for tax on worldwide income and capital gains.

If an individual is not domiciled in Ireland but is resident or ordinarily resident, her or she will be liable for tax on Irish source income and gains, and any income or gains that are remitted to Ireland, save for some exceptions.

If an individual is ordinarily resident but not resident, they will be liable for tax on worldwide investment income over €3,810, other than income from a profession that is not carried out in any part of Ireland, or an office or employment where all duties are performed outside Ireland.

An individual who is not resident or ordinarily resident in Ireland will only be liable to income tax on income arising in Ireland and capital gains tax (CGT) on gains made on the disposal of Irish immovable property, Irish minerals or mineral rights, shares in a company that derives more than 50 per cent of its value from Irish property or mineral rights.

2 What, if any, taxes apply to an individual’s income?

An employed individual is subject to income tax under the Pay As You Earn (PAYE) system. The rate of PAYE depends on the amount of the individual’s income and their personal circumstances. The standard rate is 20 per cent and the higher rate is 40 per cent. There are various income tax reliefs and credits available.

Self-employed individuals are subject to income tax at the above rates under the self-assessment system.

There is a further tax known as universal social charge, charged on gross income. Again, the rate payable increases as an individual’s income increases and the rate goes up to 11 per cent.

There is also a charge of pay related social insurance, which is a form of social security. The amount chargeable depends on an individual’s income and there are limited exemptions.

3 What, if any, taxes apply to an individual’s capital gains?

CGT is currently at a rate of 33 per cent on personal gains in excess of €1,270.

An individual who is not domiciled or resident or ordinary resident will be liable to CGT on on gains made on the disposal of Irish immovable property, Irish minerals or mineral rights, shares in a company that derives more than 50 per cent of its value from Irish property or mineral rights.

An individual who is Irish domiciled and either resident or ordinarily resident will also be liable to pay Irish CGT on the gain arising on a disposal of foreign property, though foreign CGT paid should generally be capable of being offset against this amount.

There are also several reliefs and exemptions for CGT.

4 What, if any, taxes apply if an individual makes lifetime gifts?

A gift will come within the charge to capital acquisitions tax (CAT) if:

• the disponer is resident or ordinarily resident in Ireland;

• the recipient is resident or ordinarily resident in Ireland; or

• the gift comprises Irish situs assets.

Individuals have three ‘tax-free’ thresholds, depending on the relationship of the individual making the gift to the beneficiary. These thresholds apply to both lifetime gifts and inheritances. There is a full spousal exemption in respect of benefits to spouses.

Under the current rates, an individual may receive €310,000 tax free from a parent, €32,500 tax free from family members (must be a blood relationship) and €16,250 tax free from a stranger in blood. Gifts or inheritances received from members within the same group are aggregated together.

There is also a ‘small gift exemption’ of €3,000 per annum. A person may receive €3,000 from any person or persons in a calendar year tax free and it is not taken into account when calculating their available tax-free threshold.

CAT at a rate of 33 per cent is payable by the person receiving a gift on the value received in excess of that person’s available tax-free threshold and small gift exemption.

CGT may be payable by the person making the gift depending on the nature of the asset. Under section 104 of the Capital Acquisitions Tax Act 2003, the CGT paid by the disponer may be set off against the CAT payable by the beneficiary as a credit, provided the beneficiary retains the gift for two years

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There are no taxes payable by an individual’s estate unless the individual has so directed.

Similar to lifetime gifts, an inheritance will come within the charge to CAT if:

• the disponer is resident or ordinarily resident in Ireland;

• the successor is resident or ordinarily resident in Ireland; or

• the inheritance comprises Irish situs assets.

Individuals have three lifetime ‘tax-free’ thresholds, depending on the relationship of the deceased to the beneficiary. These thresholds apply to both lifetime gifts and inheritances.

Under the current rates, an individual may receive €310,000 tax free from a parent, €32,500 tax free from family members (must be a blood relationship) and €16,250 tax free from a stranger in blood. These thresholds are used on an aggregate basis.

CAT at a rate of 33 per cent is payable by the person receiving an inheritance on the value received in excess of that person’s available tax-free threshold.

Where a deceased person held foreign assets at the date of death, a charge to tax may arise in that foreign jurisdiction and in Ireland. To mitigate double taxation arising on death, Ireland has entered into double taxation agreements with the United Kingdom and United States.

6 What, if any, taxes apply to an individual’s real property?

Local property tax is charged on the market value of residential properties on an annual basis. It is a self-assessed tax and is a set amount depending on which one of 19 valuation bands applies to the property.

Stamp duty is payable on by the purchaser on the acquisition of real property but this does not arise where real property is inherited. It is charged on residential property at a rate of 1 per cent up to a value of €1 million, and at a rate of 2 per cent on amounts over €1 million. A single rate of 6 per cent applies to non-residential property.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

An individual who is not resident or ordinarily resident in Ireland will only be liable to income tax on income arising in Ireland and CGT on gains made on the disposal of Irish immovable property, Irish minerals or mineral rights, shares in a company that derives more than 50 per cent of its value from Irish property or mineral rights. For individuals who are tax resident but not domiciled, the import of goods or property purchased with previously unremitted income or gains may constitute a taxable remittance bringing them within the charge to income tax or CGT.

No additional taxes apply to imports from within the EU.

Imports from outside the EU may be subject to customs duty, excise duty and VAT.

Customs duty is normally calculated as a percentage of the value of the goods, and varies depending on the type of goods and the country or origin.

Excise duty is charged on alcohol and tobacco, in addition to customs duty and will vary depending on the type of product and the amount of product.

VAT is charged at the same rate as would be charged on similar goods sold within Ireland.

8 What, if any, other taxes may be particularly relevant to an individual?

There is no wealth tax in Ireland.

Irish domiciled individuals may be liable to a domicile levy, irrespective of their tax residence, if their:

• worldwide income exceeds €1 million;

• Irish property is valued in excess of €5 million; and

• Irish income tax paid in a year was less than €200,000.

The amount of Irish income tax paid in a year may be offset against the domicile levy due for that year.

VAT is charged at different rates for different goods and services;

• 23 per cent is the standard rate for goods and services that do not fall into a reduced rate category;

• 13.5 per cent is a reduced rate for fuel, building services, maintenance services and additional services;

• 9 per cent is a reduced rate for tourism-related activities;

• 4.8 per cent is a reduced rate for agriculture; and

• zero per cent VAT applies to certain goods such as disability aids, children’s clothing and shoes and exports.

Certain transactions are exempt from VAT, such as financial services (including share dealing and operating bank accounts), insurance services and the letting of property.

Deposit interest retention tax (DIRT) at 37 per cent is deducted at source by deposit takers from interest paid or credited on deposits. A non-resident can receive Irish deposit interest free from DIRT.

Dividend withholding tax (at 20 per cent. An exemption may be available where the recipient individual is resident in a jurisdiction with which Ireland has a double taxation agreement or in another EU member state.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

A trust is liable to Irish income tax on the worldwide trust income if:

• all the trustees are resident in Ireland; or

• a majority of the trustees are resident in Ireland and the general administration of the trust is carried on in Ireland.

Trustees must also pay CGT on any gains made from a disposal of the trust’s assets. A trust’s residence will be determined by the trustees’ residence, so if the trust is Irish resident, it must pay CGT on its worldwide gains.

However, for CGT purposes, where the services of an Irish professional trustee have been engaged for the purposes of managing the trust, that trustee will not be treated as resident in respect of the trust if the settlor was not, as the time of the settlement, resident or ordinarily resident in Ireland.

The income of a trust is subject to income tax at a standard rate of 20 per cent only. The beneficiary is given a credit for the income tax paid by the trustees against his income tax liability but the beneficiary can be taxed directly if he or she has the right to be paid the income as it arises.

A discretionary trust will be subject to discretionary trust tax (DTT). DTT is charged at a one-off rate of 6 per cent of the trust value on either the death of the settlor or the date on which all principal objects of the trust have reached the age of 21, whichever is the later. If the total trust fund is transferred to the beneficiaries within five years of the one-off charge, half of that initial charge will be refunded. One year after the once-off charge, the trust will become liable for an annual tax of 1 per cent of the trust value.

A surcharge at a rate of 20 per cent may apply to trust income that has not been distributed within 18 months.

10 How are charities taxed in your jurisdiction?

A charity must register with the Charities Regulatory Authority to obtain charitable status and, separately, with the Revenue Commissioners to obtain a charitable tax-exempt status.

On an ongoing basis, the charity will be exempt from income tax or CGT on its earnings, provided certain conditions are met. There are exemptions from Capital Acquisitions Tax under section 76 of the Capital Acquisitions Tax Consolidation Act 2003, CGT under section 609 of the 1997 Act, Deposit Interest Retention Tax under section 266 of the 1997 Act, Income Tax or Corporation Tax under sections 207 and 208 of the 1997 Act and stamp duty under section 82 of the Stamp Duties Consolidation Act 1999.

Following receipt of a charitable tax exemption, the charity may apply for authorisation as an Eligible Charity pursuant to section 848A of the 1997 Act after two years, which gives donors (in the case of corporations) and the charity itself favourable tax treatment in relation to donated sums.

Charities must pay PAYE on behalf of its employees. While a charity cannot apply for a VAT exemption, there are several specific reliefs available.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are recognised in Ireland. The most common types of trusts are:

• discretionary trust – the trustees hold the trust fund for the benefit of a class of beneficiaries, and have discretion as to any distributions made out of the trust fund;

• bare trusts – trustees hold the legal title to property on the beneficiary’s behalf, and the beneficiary holds the beneficial interest; and

• fixed trust – the settlor directs the beneficiaries’ entitlement to the trust fund.

Trusts governed by the law of another jurisdiction are generally accepted in Ireland, provided they comply with the essential elements of a trust recognised in Ireland. These essential elements of a settlement are:

• certainty of intention;

• certainty of subject matter of the trust; and

• certainty of objects of the trust.

Real property held in trust must be evidenced in writing, signed by a person able to declare the trust.

12 Does your jurisdiction recognise private foundations?

Ireland has not legislated to recognise foundations unlike civil and many offshore jurisdictions. Foreign foundations are taxed by the Revenue Commissioners as discretionary trusts, which are discussed above.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Since 16 November 2015, same-sex couples may legally marry one another. Same-sex marriage is recognised in the same way as heterosexual marriage.

Following marriage, a couple may choose to be assessed for tax as a single person, to be assessed separately or to be assessed jointly. The difference between being assessed as a single person and being assessed separately relates to certain tax credits available to married couples. Joint assessment is usually the more favourable treatment.

The standard rate cut-off point for married couples is €43,550 in 2018. This amount is taxed at 20 per cent and the balance is taxed at 40 per cent. Where both spouses have income, this standard rate cut-off point can be increased by either €25,550 in 2018 or the amount of the income of the spouse with the smaller income, whichever amount is lower.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Prior to the legalisation for same-sex marriage, same-sex couples could enter a civil partnership from January 2011. Following the introduction of same-sex marriage, no new civil partnerships may be entered into. Existing civil partnerships may apply to get married or may remain as a civil partnership.

The treatment of existing civil partners, in respect of tax and succession, is the same as for a married couple.

Succession

15 What property constitutes an individual’s estate for succession purposes?

All property beneficially owned by an individual in his or her sole name will form part of an individual’s estate, save where the property is subject of a nomination, statutory or otherwise. All property held by a nominee of which the deceased is beneficial owner will form part of his or her estate.

All interests held by a deceased by way of tenancy-in-common will also form part of an individual’s estate. Where property is held by joint tenancy, the deceased’s interest in that property will pass to the surviving joint tenants according to the rules of survivorship.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Individuals have complete freedom of disposition over lifetime dispositions as there is no community property regime in Ireland. However, where a person makes a disposition of property within three years of his or her death and the court is satisfied that the disposition was made for the purpose of defeating or substantially diminishing the share of the disponer’s spouse, whether as a legal right or on intestacy, or the intestate share of any of his or her children, or of leaving any of his or her children insufficiently provided for, then, whether the disponer died testate or intestate, the court may order that the disposition shall, in whole or in part, be deemed to be a devise or bequest made by him or her by will and to form part of his or her estate, and to have had no other effect.

In the event of a divorce or separation, the court may make an order distributing the couple’s assets that may restrict future dispositions.

17 To what extent do individuals have freedom of disposition over their estate on death?

Ireland operates a schismatic system of succession law. Where a person dies Irish domiciled, Irish succession law shall apply to their worldwide movable estate and their Irish immovable estate.

Where a person dies not Irish domiciled but with Irish immovable property, Irish succession law shall apply to that property.

The principal legislation governing the area of succession law in Ireland is the Succession Act 1965.

There is a form of forced heirship in that a surviving spouse has a legal right to a share in the deceased’s estate (section 111, Succession Act 1965). If the testator has left surviving children, the surviving spouse is entitled to a one-third share of the estate. If there are no children, then the surviving spouse is entitled to one-half. The spouse can renounce the legal right to a share either before or after marriage.

The courts have a discretionary power to make provision for a child (including a child born outside marriage) where satisfied that the testator has failed in his or her moral duty to make proper provision for the child and has died testate. An order will not affect the legal right to a share of a surviving spouse or any bequest to that spouse if that spouse is also the child’s parent. There are strict time limits on bringing an application.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

The Succession Act 1965 governs the distribution of intestate estates. If a person dies Irish domiciled, these rules shall apply to their worldwide movable estate and their Irish immovable estate. If the person dies not Irish domiciled, these rules shall only apply to their Irish immovable assets.

The rules of order of entitlement on intestacy are set out in the Succession Act 1965. On the death of a spouse without issue the surviving spouse will inherit all of the estate. However, on the death of a spouse leaving children, the surviving spouse will inherit two-thirds of the estate and the children one-third of the estate divided equally between them, with a predeceased child’s issue taking that child’s share.

The nearest next-of-kin alive at the date of death of the deceased are entitled to apply to administer the estate. The Rules of Superior Courts 1986 set out the order of priority. In summary, the next of kin begins with the deceased’s surviving spouse, or surviving spouse and children. If the spouse is predeceased, the surviving children share equally and the issue of predeceased children take per stirpes, or per capita if all children have predeceased the intestate. If no spouse or issue survive, the parents of the deceased inherit in equal shares. If a person dies without spouse or issue or parent, all brothers and sisters take equally and the children of a predeceased brother or sister take per stirpes. If no brothers or sisters survive, all nieces and nephews share equally and so on with a general preference for lineal descendants. An administration bond is required from the applicant, which binds him or her to compensate the High Court if he or she fails to administer the estate.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

In a testate situation, save any claim made by a child under section 117 Succession Act 1965, a child is only entitled to whatever the Will of the deceased says. The testator may have a number of different types of children including non-marital, unborn, adopted, step-children and foster children.

In an intestate situation, a spouse is entitled to two thirds of the estate with the one-third going to the ‘issue’. ‘Issue’ for the purposes of the Succession Act 1965 includes marital and non-marital children, adopted children and their lineal descendants. Step-children and foster children are not included.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Movable property passes in accordance with the succession laws of the country in which the deceased was domiciled at the time of his death. Immovable property passes in accordance with the laws of the country in which it is actually situated. Ireland is not a party to Regulation (EU) 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (Succession Regulation). In respect of foreign immovable property, the doctrine of renvoi is accepted in Ireland (that is, where Irish courts adopt the rules of a foreign jurisdiction and the rules of the foreign state refer the court back to the law of the forum where the case is heard, then the Irish courts will generally accept the reference back).

It is expected that where an Irish domiciled individual holds property in a participating member state under the Succession Regulation, that the matter will be referred back to Ireland as the place where the deceased died habitually resident or where the deceased had made an election of Irish law on the applicable succession regime to the devolution of their estate.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

Part VII of the Succession Act 1965 sets out the formalities for making a will. There is no difference in respect of the nationality, residence or domicile of the testator.

A will can be made by any person who has attained the age of 18 years (or is or has been married) and is of sound mind. A person who has attained the age of 18 years and is of sound mind can get married. A person who has not attained the age of 18 years, is of sound mind and has obtained a court exemption order under the Family Law Act 1995 can also get married. There are three essential elements that make a will valid, that is:

• the will must be in writing;

• the testator must sign in the presence of two or more witnesses; and

• the witnesses must sign the will in the presence of the testator.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Wills made in other jurisdictions are recognised as valid if they fall under one of the eight alternative systems of law set out in section 102 of the Succession Act 1965. Section 102 gives effect to the Hague Convention on the Conflict of Laws relating to the form of testamentary disposition. In addition, a testamentary disposition shall be valid if its form complies with the internal law of:

• the place of the testator’s nationality at the time the will was made;

• the place where the testator made the will;

• the place in which the testator had his or her domicile, either at the time when he or she made the disposition or at the time of his or her death;

• the place of the testator’s habitual residence, either at the time he or she made the disposition or at the time of his or her death; and

• the place where the assets are situated (in the case of real property).

23 Who has the right to administer an estate?

An executor named in a will obtains the grant of probate and his or her powers arise at the death of the deceased as the estate is vested in the personal representative from the date of death.

If there is no executor under the will or there is an intestate situation, an administrator obtains the grant of administration. An administrator’s powers arise when the grant is issued from the probate office. During the period from the date of death to the date the grant is issued, the estate is vested in the President of the High Court.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

If an individual dies testate, his or her estate will vest in the legal personal representatives named in his or her will on death. If there is no valid will or there is no valid executor, his or her estate will vest in the President of the High Court until a grant of administration is made by the court, at which stage the estate will vest in the appointed administrators.

The legal personal representatives or administrators must apply for the appropriate grant of representation. Upon receipt, they may obtain title to the deceased’s assets and distribute them accordingly to the beneficiaries.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

A surviving spouse has a legal right to a fixed share in the deceased’s estate under the succession regime set out in the Succession Act 1965 (see question 17).

A child can challenge a will so that a previous advancement made to the deceased’s other children is brought into account (section 63, Succession Act 1965).

A child, while having no fixed entitlement, has the right to take an action against an estate and the court may order in that child’s favour if the testator has failed in his moral duty to make proper provision for the child (section 117, Succession Act 1965). The court has discretion whether to make such provision. However, an order will not affect the legal right share of a surviving spouse.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

At common law, any disposition by minors is voidable by them when they attain majority or within a reasonable time afterwards. Many testators use a bare trust or a discretionary trust until the minor reaches the age of majority. Under the recent Land and Conveyancing Law Reform Act 2009, a minor’s land is held in trust with the minor holding an equitable interest. The legal title is held by the trustees and the trustees have the power to deal with the property.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

The age of majority under Irish law is 18 years.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Irish law presumes that a person has capacity. This presumption can be displaced by evidence.

In the event that the donor loses mental capacity, an enduring power of attorney is a legal mechanism for granting certain decision-making powers to a nominated attorney, made when the individual has mental capacity (Powers of Attorney Act 1996). This must be created when the donor has capacity and will only become effective in the event that the donor loses capacity and the enduring power of attorney is registered with the High Court of Ireland.

Under the existing system, where a person does not have mental capacity but does not have an enduring power of attorney, they can be made a ward of court. In these circumstances, the High Court is given jurisdiction over all matters relating to a ward’s personal estate.

The Assisted Decision-Making (Capacity) Act 2015 was signed into law on 30 December 2015 but the principal provisions have not yet been commenced. Under the new legislation, capacity will be determined by assessing an individual’s ability to understand the nature and consequences of a decision to be made by him or her in the context of the available choices at the time the decision is made. Capacity will be assessed based on their decision-making capacity and will be a time and issue-specific test. There will be a tiered system of assistance available to those with varying levels of decision-making capacity. There is a presumption of decision-making capacity unless the contrary is shown.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Whether you need a visa to enter Ireland depends on your citizenship. If you are a citizen of a European Economic Area (EEA) member state (27 countries of the European Union, together with Iceland, Norway and Liechtenstein) you do not require a visa to visit the Republic of Ireland. Non-EEA nationals, whether they require a visa or not, must be in a position to satisfy to immigration officers that they can be granted leave to land and in particular must have sufficient funds to support themselves during their visit and that they have a work permit if required. You will need a visa if you are a citizen of one of the countries whose nationals require a visa to enter Ireland. You can find a detailed list of these countries on the website of the Irish Naturalisation and Immigration Service.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Anyone wishing to visit Ireland for a period of less than three months can apply for a short stay ‘C’ visa for either a single entry or multiple entries. The maximum stay allowed under a short stay ‘C’ visa is 90 days. If you enter the state on a ‘C’ visa you cannot have your permission to remain in the state extended. You must leave and reapply from outside the state if you want to return.

31 Is there a visa programme targeted specifically at high net worth individuals?

The Immigrant Investor Programme permits non-EEA nationals who commit to an approved investment in Ireland to secure residency status for them and their immediate family members. Initial residence permission will be granted for a defined period with the possibility of renewal. There are a number of different investment options available including mixed investments, immigrant investor bonds, approved fund investment, enterprise investment and endowment, all of which have minimum investment requirements (ranging from €500,000 to €2 million).

The Start-up Entrepreneur Programme permits non-EEA nationals with an innovative business idea for a high potential start-up and who have funding of €75,000 to acquire residency for the purposes of developing their business.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Yes, successful applicants for the Immigrant Investor Programme and the Start-up Entrepreneur Programme can apply for residency status on similar terms for their immediate families. Their immediate family means their spouse, civil partner or partner and dependent children aged under 18. In certain cases, children between the ages of 18 and 24 will be considered for residence under the programme where they are unmarried and are financially dependent on their parents.

Under the Immigrant Investor Programme, eligible family members will be allowed to enter Ireland on multi-entry visas and remain for a defined period. Ordinarily this will be for a period of five years – reviewable after two years. Similarly, under the Start-up Entrepreneur Programme, eligible family members will be granted a residence permission for two years, which will be renewable thereafter provided that family needs are met from the resources of the entrepreneur or other private means. No access to state benefits will be permitted during this period.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Under the Immigrant Investor Programme, the individual will be granted residence permission for two years initially. A further three years will be granted following a review to ensure the individual is continuing to meet the conditions of the scheme. After this initial five-year period, the individual’s immigration permission will be extended for further five-year periods without limit subject to the following conditions: they have not become a financial burden on Ireland; or they have not been investigated, indicted or convicted in relation to any criminal offence in any jurisdiction.

Under the Start-up Entrepreneur Programme, the individual will be granted residence in Ireland for two years, which will be renewable for a further three years. After five years’ residence, participants under the programme will be eligible for long-term residence in the state. Where required, the individual will be granted a multiple-entry visa for Ireland for the same duration. This will allow successful candidates to reside in Ireland and to travel freely to Ireland for the duration of the permission.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

The two schemes offer interested parties the potential for long-term residence in Ireland and not Irish Citizenship. Successful applicants will, however, be able to apply for naturalisation under the terms of the Irish Nationality and Citizenship Acts 1956–2004, in the same way and under the same conditions as all other non-Irish nationals.

John Gill

john.gill@matheson.com

Lydia McCormack

lydia.mccormack@matheson.com

70 Sir John Rogerson’s Quay

Dublin 2

Ireland

Tel: +353 1 232 2000

Fax: +353 1 232 3333

www.matheson.com

Japan

Kenichi Sadaka and Akira Tanaka

Anderson Mōri & Tomotsune

Tax

1 How does an individual become taxable in your jurisdiction?

The main tax imposed on incomes of individuals is income tax under the Income Tax Act of Japan. An individual’s taxability is generally determined by the location of his or her residence and source of income.

A resident individual is defined as a natural person who is domiciled in Japan or a natural person who has resided in Japan continuously for more than one year. Resident individuals are further classified into permanent residents and non-permanent residents. A non-resident individual is defined as a natural person other than a resident individual. Income taxation for these groups is applied as follows:

• permanent resident individuals are taxed on a worldwide income basis. Non-Japanese citizens residing in Japan are presumed to be permanent residents when they have resided in Japan for a cumulative period of five years (measured within a 10-year time period). Japanese citizens are presumed to be permanent residents from the moment they reside in Japan;

• non-permanent resident individuals are subject to Japanese taxation with regard to Japan-sourced income and non-Japan-sourced income paid in or remitted to Japan. Non-Japanese citizens who have resided in Japan for less than five years on a cumulative basis (measured within a 10-year time period) are treated as non-permanent resident individuals; and

• non-resident individuals are taxed on Japan-sourced income only.

Upon the death of a decedent, inheritance tax will be imposed on the legal heirs and the testamentary donees (in this tax section, the word ‘testamentary donees’ shall refer to individuals entitled to receive testamentary gifts, irrespective of whether they are the legal heirs, and shall not include any legal entities) under the Inheritance Tax Act of Japan. The taxability of legal heirs and testamentary donees of decedents is generally determined by the location of their residence, their nationality, the location of the decedent’s residence and the location of the assets. The 2017 tax reform has amended the rules concerning the taxability of legal heirs and testamentary donees of decedents in order to achieve two goals:

(i) preventing wealthy people, mainly Japanese people who lived in Japan for so many years, from avoiding inheritance tax imposed by the Japanese government; and

(ii) encouraging foreign people, especially highly skilled foreign professionals, to live and work in Japan without being too concerned about inheritance tax in Japan.

To achieve (i), the 2017 tax reform has made it difficult to meet the requirements for benefiting from limited taxability, which may be applicable to assets located outside Japan. On the other hand, in order to achieve (ii), the 2017 tax reform has introduced a relief for foreigners who hold a work-related visa and temporarily (which means less than 10 years’ living in total in Japan within 15 years preceding his or her death) reside in Japan. The effect of such reform is that assets located outside Japan that are owned by such foreigners are exempt from the inheritance tax of Japan even if the foreigners pass away during their stay in Japan and thus are presumed to be permanent resident individuals. In addition, the 2018 tax reform has introduced a relief for foreigners who lived in Japan for more than 10 years and then left Japan, in order to eliminate a disincentive for highly skilled professionals to live and work in Japan. The effect of such reform is that assets located outside Japan that are owned by such foreigners are, in principle, exempt from the inheritance tax of Japan, even if the foreigners pass away within five years of leaving Japan.

2 What, if any, taxes apply to an individual’s income?

In addition to income tax referred to in question 1 (imposed at a national level), a special reconstruction tax (also imposed at a national level), equivalent to 2.1 per cent of income tax, is payable from 1 January 2013 to 31 December 2037. Local inhabitant taxes will also apply to an individual’s income if the individual resides in Japan. There are two categories of local inhabitant taxes: one at the prefectural level and the other at the municipal level. The tax base for income tax and local inhabitant taxes are almost identical. The overall income-based tax rate (including national tax and local taxes) is progressive and reaches a maximum rate, which is currently 55.945 per cent (comprising a 45 per cent income tax rate, a 0.945 per cent special reconstruction tax rate and a 10 per cent local inhabitant tax rate).

In the case of an individual entrepreneur operating a business in Japan, a local enterprise tax will also be imposed on his or her business income by the prefectural tax authority where his or her office is located. The applicable tax rate differs based on the category of business operated by the sole entrepreneur, as well as the location of his or her office, but generally ranges between 3 and 5 per cent.

3 What, if any, taxes apply to an individual’s capital gains?

Capital gains are derived from the sale of assets. Assets from the viewpoint of capital gains include real properties, land lease rights, shares of corporations, certain kinds of bonds, gold bullion, jewels, vessels and ships, machines and equipment, golf course membership and intellectual property.

Income tax at the national level and local inhabitant taxes are applicable to capital gains. Tax preferential treatments are available for certain capital gains, such as gain as a result of the rise in value of shares of corporations. With regard to individuals, capital gains derived from the sale of shares or derived from the sale of bonds are taxed at the rate of 20.315 per cent (comprising a 15 per cent income tax rate, a 0.315 per cent special reconstruction tax rate and a 5 per cent local inhabitant tax rate) until 31 December 2037. Capital gains derived from the sale of real property will be subject to tax at the rate of 20.315 per cent (comprising a 15 per cent income tax rate, a 0.315 per cent special reconstruction tax rate and a 5 per cent local inhabitant tax rate) from the present, up to 31 December 2037 if the real property is held for more than five years. Reduced tax rates will be applicable to capital gains derived from the sale of land for residential purposes if certain requirements are met. Capital gains derived from the sale of real property held for five years or less will be taxed at 39.63 per cent (comprising a 30 per cent income tax rate, a 0.63 per cent special reconstruction tax rate and a 9 per cent local inhabitant tax rate).

In order to prevent wealthy resident individuals from avoiding tax on capital gains by moving out of Japan with appreciated financial assets (eg, securities), and subsequently selling those assets overseas, the 2015 tax legislation has amended the Income Tax Act of Japan and introduced a new ‘exit tax’, which imposes income tax on unrealised capital gains on certain financial assets at the time of departure. Under the new rule, a resident individual is subject to income tax on capital gains on financial assets at the time of their departure (as if the individual sold the securities or settled the derivative transactions at the fair market value) if he or she satisfies both of the following conditions:

• the total value of certain financial assets held by the person as of departure from Japan is ¥100 million or more; and

• the person has lived in Japan for more than five of the last 10 years prior to departure.

For a similar purpose, income tax shall also be imposed on unrealised capital gains on certain financial assets if a resident individual who satisfies the conditions stated above donates certain financial assets to non-residents, or if a resident individual who satisfies the conditions stated above dies and, in a succession procedure, his or her legal heirs and testamentary donees who are non-residents of Japan come to acquire the financial assets.

4 What, if any, taxes apply if an individual makes lifetime gifts?

If an individual makes lifetime gifts, different tax consequences will arise between:

(i) an individual who makes gifts to another individual; and

(ii) an individual who makes gifts to a legal entity.

In the case of (i), the recipient of gifts will be subject to a gift tax under the Inheritance Tax Act of Japan. As set out in the table below and the table in question 5, the gift tax rate is much higher than the inheritance tax rate. When certain requirements are met (such as where the provider of the gift is a parent or grandparent who is aged 60 or older and the recipient of the gift is at least 20), the recipient can elect to enjoy the reduced gift tax rate and to credit such gift tax against the inheritance tax after the death of the decedent.

A provider of gifts will not generally be subject to tax. However, if the recipient of gifts does not pay the gift tax, the provider of gifts will be jointly liable.

The present gift tax rate is as follows (although it should be noted that reduced rates are applicable to gifts from lineal ascendants to lineal descendants who are 20 years of age or older).

Tax base after basic deduction* applicable to all gifts

Tax rate (%)

¥2 million or less

10

¥3 million or less

15

¥4 million or less

20

¥6 million or less

30

¥10 million or less

40

¥15 million or less

45

¥30 million or less

50

More than ¥30 million

55

* Basic deduction is ¥1.1 million (ie, no tax is payable for gifts of amounts up to ¥1.1 million).

In the case of (ii), the recipient legal entity will be subject to corporate income tax. The tax base is fair market value of the gifts. The individual provider of gifts is also subject to income tax (deemed capital gains tax) if the gifts provided are property other than cash. The tax base is unrealised capital gains (ie, the fair market value less acquisition costs and other related expenses). However, if the recipient legal entity falls within the category of certain charities, deemed capital gains tax will not be levied.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

If an estate is gifted to a legal entity on the death of the testator, the recipient legal entity and the individual testator will be subject to corporate income tax and deemed capital gain tax, respectively, in the same manner set forth in (ii) in question 4. The tax obligation of the individual testator will be borne by his or her heirs.

Inheritance tax will be imposed upon each of the legal heirs and testamentary donees and not upon the estate itself. The following sets out the method of calculating inheritance tax where an estate is gifted to individuals and inheritance tax is payable.

The basic calculation method of inheritance tax is as follows:

(i) the tax base must be determined. The total value of the estate less debts incurred by the decedent, untaxable properties and costs incurred for the funeral plus gifts made within three years of death will be the tax base;

(ii) a deduction of ¥30 million and ¥6 million multiplied by the number of legal heirs will be applied to the tax base. Legal heirs in this case include illegitimate children and adopted children. However, there are certain restrictions on the number of adopted children who may be included in this calculation in order to prevent inheritance tax avoidance;

(iii) assuming that the tax base determined in (i) and (ii) above is divided among the legal heirs pursuant to the legal inheritance ratio provided in the Civil Code of Japan (see question 18), the total inheritance tax amount to be imposed is then calculated. The inheritance tax amount is allocated based on the actual assets acquired by each of the heirs and the testamentary donees. If the amount of the assets acquired by a certain legal heir is more (or less) than his or her legal inheritance ratio, then the inheritance tax to be imposed upon him or her will increase (or decrease) accordingly, although the total amount of the inheritance tax to be imposed upon all the legal heirs will, in principle, remain the same as where the division is faithful to each legal heir’s legal inheritance ratio;

(iv) in calculating the inheritance tax amount, special deductions or exemptions are available. In particular, the surviving spouse can be exempted if the amount of the assets he or she acquires is less than ¥160 million or the amount of the spouse’s legal inheritance ratio. If gift tax has already been paid for gifts made within three years of death, such gift tax is creditable against the inheritance tax to be paid by the gift tax payer. On the other hand, a person who receives assets by inheritance or testament who is not a spouse or a first-degree family member (including an heir per stirpes set out in question 18) of the decedent will be liable for an additional 20 per cent of inheritance tax; and

(v) as stated above, inheritance tax is imposed upon each of the heirs and testamentary donees of a decedent. However, in the event that a certain heir or a testamentary donee does not pay the inheritance tax due, the other heirs and testamentary donees are severally and jointly liable to a certain extent.

The current basic inheritance tax rates are as follows.

Tax base after applicable deduction

Tax rate (%)

¥10 million or less

10

¥30 million or less

15

¥50 million or less

20

¥100 million or less

30

¥200 million or less

40

¥300 million or less

45

¥600 million or less

50

More than ¥600 million

55

It should be noted that preferential tax treatments apply to cases of inheritance involving business succession. Such preferential treatment is intended to facilitate business succession by reducing the inheritance tax burden. This treatment may be applied to the inheritance of medium to small-sized businesses (defined as, for example, a business of which the stated capital is a specified amount or less and the number of employees is a specified number or less). Under such preferential treatment, 80 per cent of the inheritance tax will be deferred upon certain requirements being met (such as the approval of the Minister of Economy, Trade and Industry being obtained, the decedent being the representative of the business who held at least 50 per cent of the shares or interest in the business and the heir or the testamentary donee succeeded the business as such a representative). In addition to the above preferential tax treatment, the 2018 tax reform has introduced a more preferential tax regime for business succession which applies to shares donated or inherited until 31 December 2027. Under this tax regime, 100 per cent of the inheritance tax will be deferred upon certain requirements being met (such as a submission of business succession plan to the prefectural government).

6 What, if any, taxes apply to an individual’s real property?

Upon acquisition, a real property acquisition tax will be imposed. The tax rate is generally 3 or 4 per cent. Upon registration, a registration and licence tax will be imposed. The tax rate varies depending on the type of registration made. For example, if the registration relates to the transfer of ownership, the tax rate is 2 per cent of the value of the real property (reduced tax rates may apply depending on the type of real property, eg, land, dwelling house). If the ground for the acquisition of real property is inheritance, inheritance tax will be imposed as described above and registration and licence tax will also be imposed (the tax rate is 0.4 per cent of the value of the real property), while the real property acquisition tax will not be imposed.

In the period in which real property is held, a fixed assets tax will be imposed generally at the rate of 1.4 per cent of the value of such real property. Various tax preferential treatments are available for a fixed assets tax. In addition, real property located in certain areas, such as Tokyo, will be subject to urban planning tax at the rate of 0.3 per cent of the value of real property.

When disposing of real property, a capital gains tax (income tax and local inhabitant tax) will be imposed, as stated in question 3.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

There are neither taxes nor duties on exportation in Japan.

Regarding importation, customs and duties are levied depending on the goods to be imported into Japan. In addition, upon importation, a consumption tax will be levied at a rate of 8 per cent (the tax rate will increase to 10 per cent on or after 1 October 2019).

The rates of customs and duties are provided in the Customs Tariff Act of Japan. Certain economic partnership agreements (EPAs) to which Japan is a signatory (such as with Indonesia, Malaysia, Singapore, Thailand, Vietnam, other Association of Southeast Asian Nations’ countries, Chile, India, Mexico and Switzerland) provide preferential treatment in terms of tariff rates. The customs and duties are applicable regardless of the purpose of importation (ie, duties and customs are applicable even if the importation is for personal use and enjoyment). However, if goods are imported using the general cargo or postal package and the value of such goods is less than ¥200,000, a simplified tariff code will be applied. No customs and duties are payable on imported goods that have a value of ¥10,000 or less, except alcohol and cigarettes.

8 What, if any, other taxes may be particularly relevant to an individual?

Consumption tax (the present rate of which is 8 per cent, but on or after 1 October 2019 will increase to 10 per cent) may be relevant to an individual. The payer of consumption tax is:

• a person or a legal person who, as a business, with consideration, sells or leases assets and provides services within Japan; or

• a person or a legal person who receives goods from a bonded area.

Therefore, an individual who purchases goods or receives services is not a taxpayer under the Consumption Tax Act of Japan. Generally speaking, such an individual simply bears the economic burden of the consumption tax passed onto consumers by businesses.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

For Japanese tax purposes, there are generally three types of trusts:

(i) transparent type trusts;

(ii) non-transparent type trusts; and

(iii) corporate trusts.

Transparent type trusts are disregarded in the taxation process and the beneficiaries may directly obtain gains and losses at the time such gains and losses are realised (ie, gains and losses attributable to the trust are considered to be gains and losses of the beneficiaries). All trusts other than trusts classified into (ii) and (iii) are included in this category.

Beneficiaries of non-transparent type trusts are taxed at the time when the distribution of profits is made to the beneficiaries. This type of trust includes collective investment trusts, retirement pension trusts and qualified public interest trusts.

The treatment of corporate trusts is largely similar to the treatment of ordinary corporations. Therefore, corporate trusts are taxable entities. Corporate trusts include certain securities-issued trusts, trusts with no beneficiaries, certain trusts the trustee of which is a corporation, and certain specific purpose trusts.

10 How are charities taxed in your jurisdiction?

There are various types of charities recognised in Japan, as long as the respective legal requirements are met. Generally speaking, charities are tax-exempt entities, including the donations and charitable contributions they receive (see questions 4 and 5). However, if such charities have certain premises established as an office and continuously conduct business in certain areas for profit as stipulated in the Corporate Tax Act of Japan, such businesses are taxable to the extent profits are derived from such businesses. Such businesses include the sale of goods and real properties, money lending, leasing of real property, manufacturing, communication services, transportation, warehousing, printing, publishing, photography, the hotel industry, agency, commissionaire-related businesses, restaurants, mining, hairdressing, medical insurance businesses and the provision of parking spaces.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are recognised in Japan, and are regulated by the Trust Act. In general, trusts can be established by settlors transferring their properties to trustees who then hold legal title to the properties for the benefit of the beneficiaries, who may or may not be the settlors. Trust properties, the legal title of which has been transferred from settlors to trustees, become remote from the settlors’ bankruptcy. If the property to be transferred to a trustee falls under a category of assets that are capable of being registered in Japan (such as real property and patents), then the transfer of titles to such assets must, for purposes of perfection against third parties, be registered.

Trustees manage or dispose of trust property in accordance with certain trust objectives, and carry out the necessary acts to achieve such objectives in accordance with the trustees’ duties (such as the duties of care and loyalty). Although trust properties are incapable of being legal entities, they must be segregated from trustees’ own properties, and must be kept free from seizure by trustees’ own creditors and bankruptcy. There are three methods by which to establish a trust in Japan:

• a trust established by way of a contract between the settlor and trustee;

• a trust established by way of the will of a settlor; and

• a trust established by way of a declaration (where the settlor declares, in a notarised deed or such other prescribed form, that it manages or disposes of property in accordance with certain objectives and carries out the necessary acts to achieve such objectives).

Additionally, trusts governed by the laws of another jurisdiction may be recognised in Japan (although the validity of such trusts is ultimately determined by a Japanese court in the event of disputes regarding these trusts).

12 Does your jurisdiction recognise private foundations?

A general incorporated foundation (GIF), which is a legal personality, can be established under the Act on General Incorporated Associations and General Incorporated Foundations. There are no limits to the objectives of a GIF, whose objectives can be driven by, among others, public interest, mutual benefit for specified members and commercial purposes, as long as such objectives are legal. A GIF can be established by one or more founders contributing ¥3 million or more. A founder can also establish a GIF by way of a will, in which case the executor carries out the procedures necessary to establish the GIF. A GIF can be operated by a representative director or an operating director depending on the determination of a board of directors. A board of councillors determines certain fundamental matters in relation to the GIF (such as the election of directors and amendments to the GIF’s articles of incorporation) in accordance with applicable law or the GIF’s articles of incorporation.

Private foundations governed by the laws of another jurisdiction may also be recognised in Japan (although the validity of such foundations is ultimately determined by a Japanese court in the event of disputes regarding the foundations).

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

In Japan, a same-sex marriage is treated as invalid. If a person with gender identity disorder changes their gender pursuant to the Gender Identity Disorder Act, then the person may enter into a marriage with a person who is biologically the same sex as the person was before they changed their gender. The Gender Identity Disorder Act provides the requirements for a person with gender identity disorder to legally change their gender. The requirements are as follows:

• the person is at least 20 years old;

• the person is unmarried at the time they wish to legally change their original gender;

• the person does not have a child under 20 years old;

• the person does not have reproductive organs or reproductive ability; and

• the person has external genital organs similar to the opposite sex.

These requirements may be hard for a person with gender identity disorder to satisfy.

Under Japanese tax law, the term ‘spouse’ has the same meaning as in the Civil Code of Japan (ie, a spouse in a marital relationship). Accordingly, a person in a same-sex relationship is not eligible for tax benefits granted for a spouse or a marital relationship, such as spouse tax deductions under the Income Tax Act and a spouse’s amount of tax reductions under the Inheritance Tax Act (see (iv) at question 5).

It should be noted, however, that some progressive movements in relation to same-sex marriage have been occurring at local government level. In March 2015, Shibuya Ward, a ward in Tokyo, enacted the same-sex partnership ordinance. Under this ordinance, Shibuya Ward issues a ‘partnership certificate’ to same-sex couples who satisfy certain requirements, and then such same-sex couples may be treated by Shibuya Ward and business operators located in it as equivalent to a formally married couple, in limited situations. However, such same-sex couples are not treated as married couples within the meaning of the Civil Code of Japan and, accordingly, they do not receive the same legal protection as married couples. Such progressive movements have gradually been expanding to other local governments, including Setagaya Ward, another ward in Tokyo, which enacted an ordinance that prohibits discrimination against LGBT people on 2 March 2018. However, some people continue to object to same-sex marriage by referring to article 24 of the Constitution of Japan, which provides: ‘Marriage shall be based only on the mutual consent of both sexes and it shall be maintained through mutual cooperation with the equal rights of husband and wife as a basis.’

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

In Japan, heterosexual couples who intend to marry are required to submit a marriage notification to a government office in order for the marriage to be formally admitted as a marital relationship under Japanese law. If heterosexual couples live together with an intention to marry but have not submitted a marriage notification, the relationship is not treated as a marital relationship but as a de facto marriage. Although to a limited extent, such couples are also eligible for protections and obligations that are substantially similar to those provided for a marital relationship, for example:

• if a de facto marriage is terminated without justifiable reasons, the terminated party to the de facto marriage may seek damages against the terminating party;

• if a de facto marriage is terminated, a party may ask the other party to distribute community property and joint property;

• partners to the de facto marriage shall share expenses that arise from the relationship, taking into account their property, income and all other circumstances; and

• for social security purposes, it is often the case that a de facto marriage is treated the same as a marital relationship (eg, a partner to a de facto marriage is eligible to obtain pensions and industrial injury insurance after the death of the other party).

However, there is a big difference between marriage and de facto marriage: a partner to a de facto marriage is not treated as an heir. That said, it is possible to give an estate to the partner by way of testament.

Under Japanese tax law, the term ‘spouse’ has the same meaning as in the Civil Code of Japan (ie, a spouse in a marital relationship). Accordingly, a partner to a de facto marriage is not eligible for tax benefits granted for a spouse or a marital relationship, such as spouse tax deductions under the Income Tax Act and a spouse’s amount of tax reductions under the Inheritance Tax Act (see (iv) at question 5).

Succession

15 What property constitutes an individual’s estate for succession purposes?

In principle, any and all rights and duties attached to the property of the decedent, including a legal title to tangible and intangible property and co-ownership interest in property, claims and obligations, are succeeded to at the time of the death of the decedent. This, however, shall not apply to rights or duties of the decedent that are purely personal, such as the right to welfare or public assistance.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

In principle, individuals may make any and all dispositions over their estate, whether by sale or through gifts, during their lifetime, except where such disposition is against public policy (eg, a lifetime gift for the purposes of maintaining an adulterous relationship) and should be considered void. However, if the heirs who are entitled to a statutory reserved share claim for abatement of the gift so request, the recipient must return the gift or make compensation for the value of the gift to the extent required by the Civil Code of Japan. For details of the statutory reserved share, see question 25.

17 To what extent do individuals have freedom of disposition over their estate on death?

In principle, individuals have testamentary freedom over their estate, except in cases where such disposition is against public policy. However, if the heirs who are entitled to a statutory reserved share claim for abatement of the gift so request, the recipient must return the gift or make compensation for the value of the gift to the extent required by the Civil Code of Japan. For details of the statutory reserved share, see question 25.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If the intestate decedent is survived by his or her spouse, such spouse shall, in principle, always be an heir. As to other heirs, it depends who survives the decedent.

Intestate decedent survived by spouse and children

In this case, the spouse and the children of the decedent become heirs. If the decedent is survived by his or her spouse and one or more children, the surviving spouse takes half of the estate and the surviving children take the other half in equal shares. If any of the decedent’s children has died prior to the death of the decedent, or has lost the right to inheritance by disqualification or disinheritance, and if any of his or her lineal descendants is surviving, then such lineal descendant (ie, a grandchild or a further descendant of the decedent) will be an heir per stirpes.

Intestate decedent survived by spouse and lineal ascendants with no surviving children

The lineal ascendants of the decedent, such as his or her father or mother, may become heirs only if the decedent has no children (and no heirs per stirpes). In this case, the surviving spouse takes two-thirds of the estate and the surviving lineal ascendants take one-third of the estate in equal shares.

Intestate decedent survived by spouse and siblings with no surviving children or surviving lineal ascendants

The siblings of the decedent may become heirs only if the decedent has neither surviving children (and not heirs per stirpes) nor surviving lineal ascendants. If the decedent is survived by his or her spouse and siblings, the surviving spouse takes three-quarters of the estate and the surviving siblings take one-quarter of the estate in equal shares. If any of the decedent’s siblings has died prior to the death of the decedent, or has lost the right to inheritance by disqualification or disinheritance, and if his or her children are surviving, then the child (ie, a nephew or a niece of the decedent) will be an heir per stirpes.

Special benefit and contributory portion

The above-mentioned shares of each heir are subject to adjustment by the amount of special benefit that heirs have already received from the decedent and the amount of contributory portion of heirs who have made a special contribution relating to the decedent’s business, medical treatment or nursing of the decedent or other means.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Adopted and illegitimate children are now treated in the same way as natural legitimate children. In the past, article 900 of the Civil Code stipulated that an illegitimate child was only entitled to half the estate to which a legitimate child is entitled. There were, for many years, strong criticisms of the fairness of this clause, and the Supreme Court of Japan finally decided on 4 September 2013 that this unequal treatment was in violation of article 14 of the Constitution of Japan, which provides for equal protection for all. After this Supreme Court decision, article 900 was formally amended in December 2013, and the distinction between the legitimate child and the illegitimate child was abolished.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

It depends on the nationality of the decedent. If the decedent’s nationality is Japanese, the Civil Code of Japan governs the distribution of an individual’s estate. The explanations in this ‘succession’ section are based on the Civil Code of Japan. Even if a foreign law governs the succession or distribution of an individual’s estate because of the nationality of the decedent, the heirs, testamentary donees and the recipient legal entities who succeed to real property within Japan must complete its registration to perfect changes in rights through the procedure required by the laws of Japan.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

This depends on which law governs the formality of a will. Under Japanese law, a will is considered valid in its formality if it complies with:

• the law of the place where the act was performed;

• the law of the country where the testator had nationality, either at the time he or she made the will or at the time of his or her death;

• the law of the place where the testator is domiciled, either at the time he or she made the will or at the time of his or her death;

• the law of the place where the testator was habitually resident, either at the time he or she made the will or at the time of his or her death; or

• in the case of a will concerning real property, the law of the place where the real property is located.

If the Civil Code of Japan applies to a will in question, then (i) a holograph document, (ii) a notarised document or (iii) a sealed and notarised envelope document is considered valid in terms of formality.

With regard to (i), the testator must write the entire text, the date and his or her name in his or her own hand and affix his or her seal. (Please note that the testator will be allowed to prepare the list of assets by a word-processor after 2018 amendments will take into force as stated in ‘Update and trends’.)

With regard to (ii), the following requirements must be satisfied:

• no fewer than two witnesses must be in attendance;

• the testator must give oral instruction of the tenor of the will to a notary public;

• the notary public must take dictation from the testator and read this aloud, or allow inspection, to the testator and witnesses;

• the testator and witnesses must each sign, and affix his or her seal to, the certificate after having approved its accuracy; and

• the notary public must give supplementary registration to the effect that the certificate has been made in compliance with the formalities listed in each of the preceding items, sign it, and affix his or her seal thereto.

With regard to (iii), the following requirements must be satisfied:

• the testator must sign and affix his or her seal to the certificate;

• the testator must seal the certificate and affix the same seal;

• the testator must submit the sealed certificate before one notary public and not less than two witnesses, with a statement to the effect that it is his or her own will, giving the author’s name and address; and

• after having entered the date of submission of the certificate and the statement of the testator upon the sealed document, the notary public must, together with the testator and witnesses, sign it and affix his or her seal thereto.

Apart from a will, which is required to comply with considerable formality in order to be valid, it is possible to make a gift in the form of a gift agreement by and between a donor and a recipient, which becomes effective at the time of the donor’s death. This gift agreement is required to comply with relatively lower standards of formality in order to be valid.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

The law of the nationality of the testator governs the execution and effect of foreign wills. In terms of the formality of wills, refer to question 21.

23 Who has the right to administer an estate?

Where there is only one heir and there is no will, he or she inherits the entire estate and is allowed to administer it. If there are two or more heirs and there is no will, most of the inherited estate, such as real estate, belong to those heirs in co-ownership, and such co-ownership is terminated only after it is decided which of the heirs should take which specific assets by the effect of an out-of-court agreement or the completion of a formal court procedure. Until such decision is made, those joint heirs administer the inherited estate. However, the family court may appoint, if it thinks it necessary to preserve such an estate, a manager of such estate.

Where there is a will, an executor, in principle, has the right and duty to administer the estate until the time the succession of the estate under the will is fully completed. An executor may be designated by the will itself, or be appointed by the family court.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

In principle, if a person dies intestate, his or her estate automatically and directly passes to heirs upon the commencement of the inheritance and, if there are two or more heirs, they will co-own the deceased’s assets. However, a divisible claim such as a monetary claim, will not be co-owned, but will be automatically divided among those heirs. In this respect, the Supreme Court of Japan decided on 19 December 2016 that the court precedent which had treated bank deposits as divisible claims should be revoked and that bank deposits are not treated as divisible claims (see ‘Update and trends’ for more information). If a person dies testate, his or her estate will be passed to his or her heirs, testamentary donees and recipient legal entities in accordance with his or her will. For the process of the division and the rules for administration of the estate, refer to question 23.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Heirs other than siblings have statutory reserved shares. If only lineal ascendants are heirs, they have statutory reserved shares that are equal to one-third of the decedent’s estate. In the other cases, heirs have statutory reserved shares that are equal to half of the decedent’s estate. Heirs must claim for statutory reserved shares, in principle, within one year of having knowledge of the commencement of inheritance and the existence of a gift or of a testamentary gift to be abated.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

The legal capacity of a person to act is governed, in principle, by his or her national law. In the case of a Japanese citizen, the Civil Code of Japan will apply, under which a minor’s act without the consent of his or her statutory agent (in principle, his or her parents) may be rescinded unless such act grants only a right or discharges his or her duty.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

Under the current Civil Code, an individual attains legal capacity for the purposes of holding and managing property at the age of 20. However, if a minor is married, he or she will be deemed to have attained majority. The minimum legal age of marriage for a man is 18 and for a woman, 16. A minor who is permitted to carry out business has the same capacity to act as a person who has reached the age of 20, as far as such business is concerned.

In June 2018, a bill of amendment to the Civil Code has passed the Diet. Under the revised Civil Code, an individual will attain legal capacity for the purposes of holding and managing property at the age of 18. The minimum legal age of marriage for a woman will be raised from 16 to 18. The revised Civil Code will take effect on 1 April 2022.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

If someone loses the capacity to discern right and wrong due to any mental disability, the family court may order the commencement of guardianship upon the request of related parties. Acts of a person under guardianship may, in principle, be rescinded.

If a person’s capacity to appreciate right and wrong is severely insufficient due to any mental disability, the family court may order the commencement of curatorship upon the request of related parties. A person under curatorship must obtain the consent of his or her curator if he or she intends to do important acts such as borrowing money. If there is no consent, acts of a person under the curatorship may, in principle, be rescinded.

If someone has insufficient capacity to appreciate right or wrong due to any mental disability, the family court may order the commencement of assistance upon the request of related parties. A person under assistance must obtain the consent of his or her assistant if he or she intends to do any particular act determined by the court. If there is no consent, such an act of a person under assistance may, in principle, be rescinded.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

In principle, a visa is required. However, if persons from certain visa waiver countries intend to visit Japan for certain purposes (eg, business, conference or sightseeing purposes) for a limited period of time, then a visa is not required.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

It depends on the status of the visitor. Examples of status and permitted terms are as follows:

Status

Term

Short stay

15, 30 or 90 days

Highly skilled foreign professional

Five years for highly skilled foreign professional (i); unlimited for highly skilled foreign professional (ii) – see question 31 for details

Business manager

Three or four months or one, three or five years

Researcher, instructor, engineer, specialist in humanities, international services, intra-company transferee

Three months or one, three or five years

Nursing care

Three months or one, three or five years

Spouse or child of Japanese national, spouse or child of permanent resident

Six months or one, three or five years

Permanent resident

Permanent

31 Is there a visa programme targeted specifically at high net worth individuals?

A designated activities long-stay visa for sightseeing and recreation became available from 2015. Under this visa, nationals and citizens of visa waiver countries or regions are entitled to stay in Japan for up to one year if they meet certain requirements, such as:

• the individual is aged 18 or older and has savings equivalent to more than ¥30 million owned by him or herself and his or her spouse;

• he or she will come as an accompanying spouse of the individual who is mentioned in the point above (they must have the same place of residence and travel together in Japan); and

• the individual and the accompanying spouse have sufficient medical insurance to cover their stay in Japan.

In addition, significant developments were made to facilitate the acceptance of highly skilled foreign professionals in Japan. Further to the adoption of the points-based system in 2012, a new category of visa status, highly skilled foreign professionals, was formally introduced in 2015. The highly skilled foreign professionals visa has the following three sub-categories depending upon the activities of the foreign individuals:

• advanced academic research activities;

• advanced specialised or technical activities; and

• advanced business management activities.

In determining whether a highly skilled foreign professionals visa should be issued, the points-based system shall be used. For example, in the case of a foreign individual applying for the highly skilled foreign professionals (advanced specialised or technical activities) visa, if he or she is 30 years old, the amount of his or her promised annual salary is ¥10 million and he or she has a doctoral degree, then 10 points, 40 points and 30 points will be given for each element. The applicant may also earn points for other factors listed in the relevant ordinance, such as their academic background, professional career (research or business experience), age, achievements and qualifications. If the total points awarded are 70 or more, a highly skilled foreign professionals visa may be issued, in which case various types of preferential treatment will be available, including:

• permission for multiple-purpose activities during their stay in Japan (ie, permission not only for the intended professional activities, but also for other certain activities which are related to the intended professional activities but may require, in principle, other types of visas);

• the grant of a five-year period of stay;

• relaxed requirements for the grant of permission for permanent residence (from 10 years down to three years (one year if the total points awarded are 80 or more));

• preferential and expeditious processing of immigration and stay procedures;

• permission for a spouse to work;

• permission to bring a parent under certain circumstances; and

• permission for a domestic servant under certain requirements.

After engaging in activities as a highly skilled professional for three years or more, the foreign individual may be promoted from highly skilled foreign professional (i) (lower status) to highly skilled foreign professional (ii) (higher status), in which case additional preferential treatment will be available, including:

• permission for almost all activities during their stay in Japan (ie, permission not only for the intended professional activities, but also for other certain activities that are related or unrelated to the intended professional activities and require, in principle, other types of visas) in addition to those permitted under the Highly Skilled Foreign Professional (i) visa; and

• an unlimited period of stay.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

A holder of a designated activities long-stay visa for sightseeing and recreation, as outlined in question 31, may bring his or her spouse to Japan under certain circumstances. However, there is no special treatment for children.

A holder of the highly skilled foreign professionals visa may bring his or her spouse and children to Japan. Further, it is possible to bring his or her parent to Japan for certain reasons and under certain requirements, whereas a foreign national with an ordinary working immigration status is, generally, not allowed to.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Holders of the highly skilled foreign professionals visa who have engaged in the activities of a highly skilled person in Japan for approximately five consecutive years, may apply for a permanent resident visa. Further, holders of the highly skilled foreign professionals (ii) visa can stay in Japan indefinitely without changing visa status.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Not applicable.

Update and trends

Amendments to the inheritance rules

Considering the increasing aging population and changes to public awareness on issues concerning inheritance in Japan, amendments to the inheritance rules contained in the Civil Code of Japan have been discussed by the Japanese government. On 6 July 2018, an amendment bill to the Civil Code of Japan, which includes the following new rules, passed the Diet and was promulgated into law, and will come into force by 13 July 2019.

Measures to protect rights of the spouse of the deceased

To protect the spouse of the deceased, if one spouse donates a real property for residence to the other spouse who has been married for 20 years or more, such real property will be, in principle, excluded from estate of the deceased. As a result, such real property will not generally be subject to a division of the estate, and accordingly the spouse of the deceased will be able to receive a larger amount of assets included in the estate, in comparison with an amount receivable under the current rule.

Introduction of temporary payment rules concerning bank deposits of the deceased

As stated in question 24, the Supreme Court of Japan decided on 19 December 2016 that the court precedent that had treated bank deposits as divisible claims should be revoked and that bank deposits are not treated as divisible claims. Under the new court precedent, no heir is, in principle, able to withdraw deposits of the deceased before the division of the estate without obtaining consent from all the other heirs regardless of the necessity for withdrawing deposits to pay, for example, expenses for funeral services, which may cause some inconveniences. To address this issue, temporary payment rules will be introduced so that the court can issue a temporary order to grant partial withdrawal of deposits in a more flexible and expeditious manner than in the case of formal preliminary injunction procedures. A new measure will also be introduced so that heirs can withdraw certain small deposit amounts without obtaining consent from all the other heirs.

Plan to accept foreign unskilled workers

For a long time, Japan has adopted the immigration policy that it does not generally accept foreign unskilled workers. However, to sustain the growth of the Japanese economy and to resolve anticipated workforce shortage, the Japanese government intends to make pivotal changes to this policy. It is likely that the Japanese government will present to the Diet in this autumn a bill that amends the Immigration Control and Refugee Recognition Act in order to broadly accept foreign unskilled workers from April 2019.

Kenichi Sadaka

kenichi.sadaka@amt-law.com

Akira Tanaka

akira.tanaka@amt-law.com

Otemachi Park Building

1-1-1 Otemachi

Chiyoda-ku

Tokyo 100-8136

Japan

Tel: +81 3 6775 1000

www.amt-law.com

Liechtenstein

Thomas Nigg

Gasser Partner Attorneys at Law

Tax

1 How does an individual become taxable in your jurisdiction?

The Liechtenstein tax system is based on a general wealth tax with supplementary income tax for individuals and an income tax for legal entities. Liechtenstein nationals are taxed on their worldwide income and assets if they are domiciled in Liechtenstein.

The Liechtenstein Tax Act is primarily applicable to natural persons who have their domicile in Liechtenstein or who reside in Liechtenstein for the purpose of employment.

The general tax rate is calculated based on the taxable income including the assets converted into an income and is calculated as follows:

• less than 15,000 Swiss francs per annum: zero per cent;

• between 15,001 and 20,000 Swiss francs: 1 per cent (minus 150 Swiss francs);

• between 20,001 and 40,000 Swiss francs: 3 per cent (minus 550 Swiss francs);

• between 40,001 and 70,000 Swiss francs: 4 per cent (minus 950 Swiss francs);

• between 70,001 and 100,000 Swiss francs: 5 per cent (minus 1,650 Swiss francs);

• between 100,001 and 130,000 Swiss francs: 6 per cent (minus 2,650 Swiss francs);

• between 130,001 and 160,000 Swiss francs: 6.5 per cent (minus 3,300 Swiss francs);

• between 160,001 and 200,000 Swiss francs: 7 per cent (minus 4,100 Swiss francs); and

• more than 200,000 Swiss francs: 8 per cent (minus 6,100 Swiss francs).

Note that single parents and spouses have different calculations. The tax rate shall be reduced by a specific tax-free amount as specified as follows: individuals are either taxed as a single person, a single parent or with their spouse as a married couple. Spouses have different tax levels and higher tax-free amounts than singles and single parents.

In addition to the state tax, each municipality imposes a municipal surcharge equal to a certain percentage of the state tax amount. The municipal supplement amounts between 150 and 250 per cent of the state tax amount (eg, for an income of 110,000 Swiss francs, domestic tax of 5 per cent, minus the tax-free amount of 1,950 Swiss francs = 3,550 Swiss francs, plus 150 per cent of 3,550 Swiss francs = total tax of 8,875 Swiss francs).

2 What, if any, taxes apply to an individual’s income?

In Liechtenstein, individuals are subject to income and wealth tax. Income tax is calculated based on the taxable net income. Wealth tax applies to all kinds of assets, including moveable and immoveable assets. With regard to income and profit taxation, Liechtenstein recognises the taxation of liquid funds and monetary gains. However, many proceeds are not subject to profit and income tax, though to wealth tax (no double taxation). For unlimited taxpayers, taxable income does not include, inter alia, income from the management of foreign land used for agricultural and forestry purposes or rental and leasing income from property located abroad. Net taxable income does not include, inter alia, capital obtained from inheritance, legacy or gifts.

3 What, if any, taxes apply to an individual’s capital gains?

Net taxable income for unlimited taxpayers does not include, inter alia, capital gains obtained from inheritance, legacy or gifts, deposits in foundations or institutions similar to foundations. Limited taxpayers may claim such deductions in determining the taxable net income only to the extent that they are able to deduct domestic income in accordance with provisions stated in the Tax Act.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Since 1 January 2011, gift tax no longer applies in Liechtenstein. There is still, however, a legal obligation to disclose the giving or receiving of gifts exceeding the value of 10,000 Swiss francs. Individuals are obliged to list all endowments and benefits given or received during the taxable year in their annual tax declaration (see article 96 of the Tax Act).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Liechtenstein abolished the inheritance tax with effect from 1 January 2011. There is still a legal obligation to disclose inherited assets. Heirs must include details of their inheritance in their annual tax declaration in case the inheritance exceeds 10,000 Swiss francs (see article 96 of the Tax Act).

6 What, if any, taxes apply to an individual’s real property?

Liechtenstein recognises property gains tax, which shall be paid by individuals selling the whole or parts of their domestic property. Specific regulations exist to avoid double taxation.

The seller always bears that kind of tax because he or she receives the final profit of the disposal. The tax burden consists of the calculated tax amount plus a levy of 200 per cent of this calculated amount. Municipal tax is not applicable on real estate transactions.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Regarding taxation on imported products, Liechtenstein is subject to Swiss and European Economic Area (EEA) regulations because of its EEA membership. An individual is entitled to bring goods with a value of up to 300 Swiss francs across the border for personal use or as gifts, without paying any tax on imported products (duty-free limit). Each individual (including children) may use the duty-free limit once a day (eg, four persons may import goods with a value of 1,200 Swiss francs, which would be 300 Swiss francs each). Lower duty-free limits apply to alcohol, tobacco products and certain agricultural products (eg, meat). Value added tax (VAT) must be paid for all goods.

8 What, if any, other taxes may be particularly relevant to an individual?

In addition to above-mentioned taxes, motor vehicle tax may be relevant to individuals.

Concerning VAT, Swiss regulations are applicable. VAT is applicable in Liechtenstein at a general rate of 7.7 per cent. A reduced VAT rate of 2.5 per cent applies, for instance, to the delivery of goods such as water in pipes, livestock, poultry, fish or cereals. Some services are VAT-exempt, such as the transportation of items or medical treatment.

The tax on accommodation services is 3.7 per cent (special rate). Accommodation services include the provision of accommodation including breakfast, even if this is charged separately.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

According to article 44 of the Tax Act, all legal entities (in particular corporations, establishments, foundations, investment firms and registered trusts) are subject to income tax if they are domiciled in Liechtenstein or if their place of actual administration is in Liechtenstein (unlimited tax liability). Further, foreign legal entities and special dedications to assets without legal personality are subject to income tax with their domestic income (limited tax liability).

Income tax amounts to 12.5 per cent of the taxable net income. The minimum income tax is 1,800 Swiss francs. The minimum income tax is not levied on legal entities whose sole purpose is to operate a commercial business, so far as their total assets on average for the past three years have not exceeded 500,000 Swiss francs (see article 62 para. 3 of the Tax Act). Liechtenstein trusts are subject to the minimum income tax of 1,800 Swiss francs.

All legal entities (legal persons) that manage, exclusively, private assets in pursuit of their purpose and carry on no economic activity may be qualified as a private asset structure (PVS), which guarantees a favourable tax treatment. A legal entity that has received the status of PVS is subject merely to the minimum income tax in the amount of 1,800 Swiss francs.

In addition to the requirement of not performing any economic activity, the law requires, in essence, the fulfilment of the following additional prerequisites for classification of legal entities as a PVS:

• their stocks or shares are not permitted to be placed publicly and there are not traded on a stock exchange;

• they are not allowed to advertise for any shareholders or investors, nor receive from these latter or third parties, payments or reimbursements of costs for their non-economical activities; and

• the articles must show that they are subject to the restrictions for a PVS.

On application, which is usually made on the setting-up of the legal entity or before the start of a new tax year, the Liechtenstein tax authorities will, under the condition that all preconditions prescribed by law are fulfilled, grant the status of a PVS.

The transfer of assets to trusts or foundations or other asset-holding vehicles is not subject to tax in Liechtenstein.

10 How are charities taxed in your jurisdiction?

Charities are tax-exempt. Non-profit institutions, foundations or other non-profit organisations can apply for tax exemption if the main purpose of the organisation is non-profit oriented and for charitable objectives.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Liechtenstein was the first and only country in continental Europe that has usurped the legal institute of trusts. Hence, lawyers need to be familiar with not only Liechtenstein trust law, but Anglo-Saxon trust law as well. In this context, Liechtenstein recognises:

• trust companies providing trustee services with a licence for extensive or restricted activities, granted by the Liechtenstein financial market authority; and

• trusts and trust reg., in case a trust is registered (trust reg.), is considered a legal entity whereas a ‘classic’ trust is not considered as an entity. Regarding Liechtenstein trust law, there are some significant similarities to the Anglo-Saxon trust laws.

Under Liechtenstein jurisdiction, trusts are well established and have a good and solid reputation. One can rely on detailed laws and judgments. Further, Liechtenstein is a signatory to the Hague Convention on the Law Applicable to trusts and on their Recognition (the Hague Trust Convention 1985).

12 Does your jurisdiction recognise private foundations?

Liechtenstein is well known for its sophisticated and highly recommended opportunities for investors. In essence, a distinction is made between private-benefit purpose and common-benefit purposes. Liechtenstein foundations may also have mixed purposes. Both can be set up as discretionary foundations. The Liechtenstein foundation is formed by endowing assets for the benefit of a specific purpose. Upon formation, the foundation receives its own legal personality, forming a legally independent entity and therefore existing separately from the founder’s fate. In contrast to a company, the foundation does not have any owners or shareholders but only beneficiaries to enjoy the foundation’s income or assets. As a result of legal independence, the foundations assets remain outside the asset sphere of the founder, the beneficiaries and the prospective beneficiaries.

The Liechtenstein law on foundations does not contain any restrictions as to the possibility of the settlor to be a beneficiary at the same time. Further, there are no restrictions as to the possibility of being a board member. The settlor as well as beneficiaries can be members of the foundation board without any restrictions. Moreover, the settlor can reserve certain powers to influence the foundation (eg, the right to revoke the foundation or to amend the foundations documents).

Liechtenstein can rely on a detailed and well-established foundations act, as well as case law and various literature.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Same-sex relationships are recognised by the Laws of Liechtenstein. Liechtenstein recognises registered partnerships but not same-sex marriages. Provisions on registered partnerships, available in the Registered Partnership Act of 16 March 2011 and the registered Partnership Regulation of 16 August 2011, entered into force in 2011. Therefore, two persons of the same sex are entitled to register their partnership with mutual rights and obligations. The status of such a relationship is ‘in registered partnership’. Registration of the partnership is applied for at the civil registry office. The written agreement regarding the registered partnership is signed by both partners and legalised by the civil registry office. Each partner owns his or her own property and assets and is liable for debts concerning his or her own property. Regarding tax law, registered partners are treated as spouses, therefore their property is added together for tax purposes. For succession purposes, registered partners are subject to the same rules as spouses.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Liechtenstein law does not provide any other legal relationship for heterosexual couples other than marriage.

Succession

15 What property constitutes an individual’s estate for succession purposes?

All assets, movable and immovable, regardless of their location, as well as rights and duties fall into an individual’s estate. Liechtenstein is aware of the concept of co-ownership or joint ownership. Such collective ownership plays a role in the succession procedure. As a result, heirs can only inherit the appropriate part of a jointly owned asset that belonged to the deceased.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Persons of legal capacity have the right of disposition over their whole estate in accordance with general applicable rules. Therefore, individuals can usually dispose freely of their estate during their lifetime without restrictions. Under certain circumstances, donations or gifts before the testator’s death can be credited on the portion of the inheritance. Marriage alone does not constitute joint property between spouses. Therefore, spouses can enter into a joint property that, however, requires a special contract. Further, spouses may enter into an inheritance contract.

17 To what extent do individuals have freedom of disposition over their estate on death?

In general, individuals have the freedom of disposition over their estate upon death. Nonetheless, there are ‘protected heirs’. For instance, children and the spouse of the deceased are protected and are entitled to a compulsory portion. Depending on the specific circumstances among these persons, the compulsory portion varies.

Liechtenstein succession law allows protected heirs to claw back gifts or legacies that are gifted to third parties in breach of their compulsory portion. Protected heirs may file a clawback claim to receive the balance of their compulsory portion if they receive less than their compulsory share in the estate.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

Liechtenstein provides a legal order of succession in cases where no valid instruction is left by the deceased individual. The legal heirs are descendants, spouses or registered partners as well as the closest relatives. By law, there are four parentela. The first parentela contains the deceased’s descendants. The children inherit in equal shares and predeceased children are represented by their own descendants. Alongside this first parentela, the spouse or registered partner is entitled to one-half of the heritage. If the deceased leaves no descendants, the second parentela is inheritable. Those are the deceased’s parents, who inherit in equal shares, or if one or both of them are predeceased, their descendants represent them. The spouse or registered partner is entitled to two-thirds of the heritage alongside this line, as well as alongside the third parentela, who are the grandparents and their descendants. The third parentela inherits from the deceased if there is no remaining second-parentela relative. If there are no third-parentela relatives, inheritance passes to the fourth parentela, the great-grandparents (who if predeceased are not represented by their descendants); however, alongside the fourth parentela, the spouse or registered partner is entitled to the whole inheritance. In other words, the great-grandparents do not inherit any of the estate if the deceased is survived by a spouse or a registered partner. If the deceased leaves no spouse or registered partner and no relative in any of the four parentelas, there are no entitled legal heirs. In this case the estate falls to the state.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Regarding the law of succession, Liechtenstein does not distinguish between legitimate and illegitimate children. Adopted children are treated like natural legitimate children in relation to their adoptive parents and siblings, but they are not entitled to inherit from their adoptive parents’ ancestors (grandparents and their descendants). A descendant shall be entitled to inherit from their natural ancestors, regardless of his or her adoption by third persons.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

The applicable law of succession is determined by nationality. The laws of Liechtenstein are applicable unless the deceased was either a foreign national or a Liechtenstein national living abroad. Note that Liechtenstein is not subject to the European Succession Regulation. Nonetheless, the Liechtenstein International Private Law Act may apply.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

A valid will is required to be either written and signed by one’s own hand, or signed by the testator and testified by three capable witnesses, who also need to sign the document if the last will is written by someone other than the testator, or written by the testator but not by hand. Additionally, there is the possibility of making either an oral or written will in court. If there is a direct risk of the testator dying or losing his or her capacity to make a valid will, it is possible to determine one’s oral will attended by members of the court.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign wills are recognised if they meet the formal requirements either of the testator’s country of origin or the testator’s residence. If the inheritance procedure is executed by a Liechtenstein court the will must comply with the formalities required by Liechtenstein law.

23 Who has the right to administer an estate?

Heirs accepting the succession have the right to administer the estate individually, or jointly if there is more than one heir. If the heirs are at odds with each other, or if the titles of inheritance are ambiguous, a curator will be appointed by the court.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

The estate of a deceased person is to be considered as entity with a legal personality. Depending on their probate, heirs are liable with their entire assets or only to the extent of their inheritance. In general, the estate is transferred in accordance with the formal requirements for the transfer of assets under Liechtenstein law. Regarding the administration, after the declaration of acceptance, the heirs have the right to administer the estate together by making consensual decisions. In the case of conflict, the court appoints a trustee of the estate as a representative. Disposal of any part of the estate is not allowed without the approval of court.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Heirs may challenge the validity of a will. After the declaration of acceptance, Liechtenstein law provides a special succession proceeding against persons gaining the estate or a share of it. In this lawsuit any other person can claim a better or equal right to the estate. Someone who claims a single item of the estate shall only use the regular civil proceeding.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

The parents or a person entitled to custody hold and manage a minor’s property, as the minor’s representatives. They are obliged to manage the property prudently. They should preserve and increase the value of the property, if possible. The law also provides that it is the parents’ duty to annually render an account to the court, if the property contains real estate or shares of entities, or if the revenues can provide the financial support of the child. The court can free parents of this duty if they administer the property prudently. However, contracts of substantial economic impact usually require approval by the family court.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual attains full legal capacity for the purposes of holding and managing property at the age of 18. At the age of 14, individuals have limited legal capacity for holding and managing property.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

In the case where someone loses capacity to manage his or her affairs, these affairs should be managed by a legal representative or a relative. The law recognises a special power of attorney whereby someone gives directions as to how and by whom his or her affairs should be managed. If this option is not possible, the court may appoint a guardian to act on behalf of the person without capacity to contract.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Whether or not a foreign national requires a visa to visit Liechtenstein depends on the citizenship of such person. There are no border controls between Switzerland and Liechtenstein, and the same requirements as in Switzerland apply to travellers in Liechtenstein. Like Switzerland, Liechtenstein is a signatory to the Schengen agreement; therefore, visas are required only from certain countries. In essence, nationals of a Schengen member state do not need a visa to visit. They may enter Liechtenstein for up to 90 days for tourist or business purposes without a visa. Their passport, however, must be valid for at least three months beyond the period of their stay and anyone may be questioned by border guards about the purpose of the visit. As Liechtenstein and Switzerland share a customs and monetary union (Zoll- und Währungsunion), reference should be made to Swiss provisions as provisions on persons subject to visa requirements are largely the same (deviating regulations based on bilateral or multilateral agreements remain reserved). Whether there is a visa requirement can be found on the internet (www.sem.admin.ch) or in the Liechtenstein National Law Gazette LGBl.2011 No. 572.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A visitors’ visa, category C (also referred to as a Schengen visa application) is for stays in the entire Schengen area lasting up to 90 days within 180 days. Nationals of Schengen agreement member states can enter with a valid passport.

31 Is there a visa programme targeted specifically at high net worth individuals?

There is no visa programme targeted at high net worth individuals in Liechtenstein, but there are different ways to receive a residence permit to stay. A short-term permit allows the holder to stay in Liechtenstein, in employment, for up to one year. A long-term permit allows the individual to stay for more than one year, either in or out of employment. These permits are generally limited to a period of five years for EEA and Swiss nationals, and one year for nationals of third countries. The permit can be extended if certain legal prerequisites have been met. The requirements for an employment permit are stricter for third-country nationals (eg, the requirements include an application by the employer and job qualifications). One of the requirements for a third-country national to obtain a non-employment permit is, for instance, that Liechtenstein takes an interest in offering the particular individual residence in the country. Owing to its EEA membership, Liechtenstein issues a certain number of residence permits (direct issue). Further, Liechtenstein offers a biannual lottery for residence permits for EEA nationals only, which is similar to the US Green Card Lottery.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

A valid residence permit allows the holder of the permit to bring family members with him or her. Under Liechtenstein jurisdiction, EEA and Swiss nationals are allowed to bring their spouses or registered partners, children under the age of 21, as well as first-line ancestors who are supported financially by the individual in possession of the respective permit if certain prerequisites have been met.

For third-country nationals, conditions are stricter. They are not allowed to bring their relatives with them on a short-term permit, and they are only allowed to bring their spouse or registered partner and their mutual children under 18 years of age on a long-term permit.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Permanent residency may be granted if certain prerequisites were met. Depending on the individuals’ origin (EEA, Switzerland or a third country), different regulations apply. For instance, an EEA national is entitled to file a request for a permanent residence permit after living in the country with a valid residence permit for five years, whereas third-country nationals have to fulfil additional criteria such as passing a civic education exam and proving their knowledge of the German language. They may get their permanent residence permit granted if they are in sufficient funds and have not committed any crime in the past five years.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

There are six ways to obtain Liechtenstein citizenship, as follows:

• by birth: children of a Liechtenstein mother or father obtain Liechtenstein citizenship;

• naturalisation in the ordinary procedure: the applicant must have been domiciled in Liechtenstein for 10 years and must renounce his or her previous citizenship. The citizenship in this ordinary procedure is granted by the municipal citizens in a vote;

• naturalisation as a result of marriage: the applicant has to be married to a Liechtenstein national for at least five years, has his or her place of residence in Liechtenstein and renounce his or her previous citizenship;

• naturalisation as a result of registered partnership: the applicant has to be living in a registered partnership with a Liechtenstein national for at least five years, has his or her place of residence in Liechtenstein and renounce his or her previous citizenship;

• naturalisation as a result of long-term residence: this form of naturalisation requires a regular residence in Liechtenstein for 30 years, whereby the years up to the age of 20 are counted twice. Further, the applicant must renounce his or her previous citizenship; or

• naturalisation due to statelessness: this way to naturalisation requires a regular residence in Liechtenstein for five years.

Thomas Nigg

thomas.nigg@gasserpartner.com

Wuhrstrasse 6

9490 Vaduz

Liechtenstein

Tel: +423 236 30 80

Fax: +423 236 30 81

www.gasserpartner.com

Malta

Ramona Azzopardi, Sonia Brahmi and Marlene Cini

WH Partners

Tax

1 How does an individual become taxable in your jurisdiction?

Individuals are subject to tax in Malta on the basis of territoriality, ordinary residence and domicile and to some extent remittance as follows:

• individuals who are ordinarily resident and domiciled in Malta are subject to tax in Malta on their worldwide income;

• individuals who are either ordinarily resident or domiciled in Malta are subject to tax in Malta on income arising in Malta and income (not capital gains) arising outside Malta and remitted to Malta; and

• income or chargeable gains arising in Malta are subject to tax in Malta irrespective of the status of the individual.

Third-country nationals who opt for long-term residence status and EU nationals who opt for permanent residence status will be subject to tax in Malta on their worldwide income.

Individuals whose spouse is ordinarily resident and domiciled in Malta shall automatically be considered as ordinarily resident and domiciled in Malta for tax purposes and therefore subject to tax on their worldwide income.

An individual may generally be considered as resident in Malta if he or she spends more than 183 days in a calendar year in the country. However, an individual who does not spend 183 days in a calendar year in Malta may nonetheless be considered as ordinarily resident on the basis of his or her frequent and regular visits, family or business ties in Malta.

Malta follows the British model on domicile in that a person acquires a domicile of origin at birth. The domicile of origin may change to domicile of choice if a person proves to the satisfaction of the Commissioner for Inland Revenue that he or she intends to reside permanently in a state other than the state of the domicile of origin.

With effect from year of assessment 2018, a minimum tax of €5,000 must be paid annually in Malta by individuals who are ordinarily resident in Malta but not domiciled. This applies to individuals who derive income outside Malta of at least €35,000, which is not remitted to Malta.

2 What, if any, taxes apply to an individual’s income?

An individual’s taxable income is classified in seven categories:

• trading income;

• employment income;

• dividends, premiums, interests and discounts;

• pensions, charges, annuities and annual payments;

• income from immovable property;

• royalties; and

• any other income.

Such classification of income is essential for computational and reporting purposes because certain deductions and tax collection processes apply solely to certain types of income.

An individual’s income is generally taxed at progressive rates. Certain types of income such as interest and rents may be eligible to a 15 per cent withholding tax. The progressive rates vary in line with the status of the individuals depending on whether the individual concerned is married, single, a parent, resident or non-resident. The progressive rates vary from zero to 35 per cent.

Special tax rates may apply to highly qualified individuals who are employed by companies licensed and/or recognized by the MFSA, Lotteries and Gaming Authority or Transport Malta. Individuals who so qualify may, subject to certain conditions, be subject to tax in Malta at a flat rate of 15 per cent.

Employment income and similar income is taxed at source and the employer has an obligation at law to withhold tax and social security contributions from the employees’ salary and pass same to the Inland Revenue Department.

3 What, if any, taxes apply to an individual’s capital gains?

The tax on capital gains is charged on gains derived from the transfer of the ownership, usufruct, assignment or cession over any rights on immovable property, securities, business, goodwill, business permits and intellectual property; or from the transfer of the beneficial interest in a trust whose property includes any of the said assets; or from the rights over any interest in a partnership, which may be subject to capital gains tax in Malta. Some exemptions and exceptions to the rule apply, for example, transfer between groups of companies, transfer of own residence upon certain conditions being satisfied and transfer between related individuals. Non-resident individuals may subject to certain conditions be exempt from tax on capital gains arising on the transfer of securities or shares in a company which is not a property company.

4 What, if any, taxes apply if an individual makes lifetime gifts?

In Malta, there is no gift tax; however, stamp duty may apply on certain donations of immovable property. In terms of the Duty on Documents and Transfers Act, every transfer of immovable property or real right to it, is subject to a charge of 5 per cent or part thereof, of the value of the property. By way of exception to the rule, the law provides for two instances where a duty relief applies in the case of donations. Both cases refer to donations linked to the sole ordinary residence including a dwelling house where one habitually resides.

The first instance is when a donation is made to the donor’s spouse, descendants and ascendants in the direct line and their spouses or, in absence of the aforementioned, to the donor’s siblings and their descendants. In this case, the value of the property shall be that of 80 per cent of the market value of the land, including the costs of improvements thereon, in the state that they are, on the date of the donation. This holds applicable only if such person is acquiring the property to establish therein or constructing thereon his or her sole, ordinary residence.

The second instance refers to duty relief payable by descendants in the direct line. Therefore, when descendants acquiring property through a donation for the first time from such ascendant, for the purpose of establishing it or constructing afterwards their sole, ordinary residence, no account shall be taken of the first €200,000 and 3.5 per cent duty shall be charged on the remaining value, to which proportionality also applies.

For these acquisitions to be according to law, the notary is to record in the deed, a written declaration by both the donor and donee (transferor and acquirer) that the property is being acquired as a sole, ordinary residence for the first time, while warning both parties of the importance of the truthfulness of such declaration.

A donation that does not qualify for either of the aforementioned instances of duty relief, but the property is still acquired for the purpose of using as a sole, ordinary residence it is levied at 3.5 per cent for the first €150,000 and the rest at 5 per cent. Any other donation of immovable property for any other reason than the purpose of a sole, ordinary residence, and duty relief, duty is levied at the standard 5 per cent.

By default, donations of marketable securities attract stamp duty of 2 per cent on the value of the shares. However, in terms of the Duty on Documents of Marketable Securities and Immovable Property Used for Business (Exemption) (Amendment) Order, the rate of stamp duty chargeable on donations made between 1 April 2017 and 1 October 2018 is reduced to 1.5 per cent. The reduced rate applies to the donation of shares issued by a company, or immovable property that qualifies as a ‘commercial tenement’ and has been used in a family business for three years or more. In order for the reduced rate to apply, the donation must be made by public deed and the respective statutory forms must be submitted to the Commissioner of Inland Revenue on or before 30 September 2018. Further, the donation must be made by an individual to his or her spouse, descendants and ascendants in the direct line or their relative spouses. In the absence of descendants, the individual may affect the donation in favour of his or her brothers or sisters and their descendants.

There are no taxes on capital gains on transfer of property where the property is transferred by a donation made by a person to his or her spouse, to his or her descendant or ascendant in the direct line, or to the spouse of any such descendant or ascendant, or, in the absence of any descendants in the direct line, to his or her brother or sister or to a descendant of his or her brother or sister, or to a philanthropic institution approved by the Minister.

The rate of duty is increased to 5 per cent where the company that issued the marketable securities in question owns, directly or indirectly, immovable property and the value of such immovable property exceeds a certain threshold.

Where an individual subsequently transfers a property acquired by way of donation exempt from tax, the date of acquisition will be deemed to be the original date of acquisition by the donor.

In addition, capital gain tax may apply to gifts. In terms of the Income Tax Act, a donation is considered as a deemed sale made at the market value of the property at the time of transfer. The capital gain will be computed by taking into account the cost of acquisition which would be the lower of (i) the value declared for the Duty on Documents and Transfers Act, or (ii) the market value at the time of donation. However, a donation would be exempt if made by a person to (i) his or her spouse, descendants and ascendants in the direct line and their relative spouses, or in the absence of descendants to his brothers or sisters and their descendants, or (ii) certain philanthropic institutions. Nonetheless, where the donated assets are transferred by the done within the next five years, said done would be subject to tax on the capital gain realised by taking into account the cost of acquisition of the asset at the time such asset was acquired by the donor.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There is no inheritance tax in Malta. Duty on documents and transfers is, however, imposed on the transfer of immovable property and marketable securities causa mortis. The general rate of duty chargeable on transmissions causa mortis of shares in a company is generally 2 per cent; the rate goes up to 5 per cent if the shares or securities being transferred are held in companies which are considered as a property company. Transfers of immovable property causa mortis are generally subject to duty at 5 per cent; however, the rate may be reduced to 3.5 per cent on the value of the property upon certain conditions being satisfied. Some exemption from duty may also apply.

6 What, if any, taxes apply to an individual’s real property?

There is no property tax in Malta. Tax and duty on documents may however be imposed on the transfer of immovable property.

Generally, on the acquisition of immovable property a 5 per cent duty is charged on the purchase price of the immovable property. If the buyer is a European Union citizen and declares on the deed of acquisition that he or she shall reside in the property being acquired as his or her sole ordinary residence, a reduced rate of 3.5 per cent is applied on the first €150,000. Some exemptions apply, for example, on the transfer of immovable property between spouse and spouses who were formerly married in the context of personal separation or between the surviving spouse and the heirs of the deceased spouse. First-time buyers may also, upon certain conditions being satisfied, be exempt from duty on the acquisition of their first property.

On the transfer of the immovable property, the seller is generally subject to tax at the flat rate of 8 per cent of the transfer value. Some exemptions apply for, example in the case of donations to relatives or philanthropic institutions, the transfer of a dwelling that has been owned and occupied by the seller for three years prior to the sale and the transfer of property between a group of companies. The flat rate of 8 per cent may go down to 5 per cent and go up to 10 per cent upon certain conditions being satisfied.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Property imported for personal enjoyment by natural persons transferring their normal place of residence from another country to the customs territory within the European Union is admitted free of import duties. Such property can either be household effects and motor cycles or private motor vehicles. There is no relief on alcoholic products, tobacco and tobacco products, commercial means of transport and articles used in the exercise of a trade or profession. Additionally, personal property acquired by inheritance by a natural person having his or her place of residence in the customs territory of the European Union is also admitted free from of imported duties. Otherwise, imports or exports from outside the European Union are subject to customs duty.

8 What, if any, other taxes may be particularly relevant to an individual?

The standard rate of VAT on taxable supplies in Malta is that of 18 per cent. By way of exception to the standard rate a 5 per cent rate applies to supplies of electricity, printed material and medical accessories, admission to museums, art exhibitions, concerts and theatres. A 7 per cent rate applies to tourism accommodations licenced in terms of the Malta Travel and Tourism Act,among others. A 7 per cent rate also applies to the use of sports facilities and hiring of bicycles. A zero rate applies, among others, to exports, intra-community supplies, international transport, food, pharmaceuticals, supplies of aircraft and seagoing vessels. Exemptions for VAT include the sale and leasing of immovable property upon some conditions being satisfied, financial services es, education and some online gaming activities.

There is no wealth tax in Malta.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts may be treated either as a see-through entity or taxed as a company in Malta.

The settlement of a trust would be treated as a chargeable transfer realised by the settlor at fair market value. The chargeable tax would depend on the type of assets settled into the trust: (i) 8 per cent property tax on the transfer of immovable property situated outside Malta, (ii) 12 per cent when the immovable property was acquired by way of donation, (iii) 10 per cent on immovable property situated in Malta, (iv) 2 per cent on the transfer of a sols ordinary residence situated in Malta.

However, no transfer would be deemed to have taken place if the settlor is the sole beneficiary.

The deemed transfer would have no tax implications in Malta if the settlors are not ordinarily resident and domiciled in Malta, when setting assets situated outside Malta.

Additionally, the settlement of assets into a trust would have implications in terms of Duty on Documents and Transfers. Settlement of immovable property is chargeable at a rate of 5 per cent and the settlement of marketable securities to 2 per cent. Nonetheless, no duty would be due if the settlor is the sole beneficiary and has an irrevocable right to receive the trust property.

The income attributable to the trust falls within the scope of the income tax act and is chargeable to tax on its worldwide income in the hands of the trustee, at a rate of 35 per cent, when treated as a company. Foundations may be elected to be treated as trusts or as companies for tax purposes. When a trust or foundation elects to be treated as a company the following treatment applies:

• a company is subject to tax on its profits at the standard corporate tax rate of 35 per cent. Upon a dividend distribution to the shareholders, the shareholders will be entitled to a tax refund of the Malta tax paid by a company. The refund can be that of six-sevenths, five-sevenths or two-thirds of the Malta tax paid by the company, subject to the satisfaction of anti-abuse provisions.

• a company that acts as a holding company may benefit from the participating holding regime and opt to have dividends and gains from subsidiaries that qualify as a participating holding to be exempt from tax.

Should the transparency model be opted for, the income realised by the trust would not be attributable to the trust, and will be deemed to be derived directly by the beneficiaries instead, provided the income is arising or is received in Malta.

10 How are charities taxed in your jurisdiction?

Institutions, trusts, associations, organisations and foundations established for the achievement of a social purpose or as non-profit making engaged in philanthropic work may be exempt from income tax. Such a charity must also be registered with the Office of the Commissioner of Voluntary Organisations.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Malta is one of the few civil law countries that has enacted and developed the concept of Trust Law in its own law. Before 2004, when Malta enacted its own Trust Law, Malta adopted the Hague Convention on the Law Applicable to Trusts and on their Recognition. Accordingly, Malta also recognises trusts that have foreign law as their proper law.

Where the proper law of a trust is foreign, the validity, construction, effects and administration are governed by the laws of the proper law jurisdiction and the trust shall be given effect and validity in Malta through the operation of the Hague Convention.

The Trust and Trusties Act regulates among other trustees that, in terms of Maltese Law, need to obtain a licence from the Malta Financial Services Authority. Settlors and beneficiaries of Maltese Trusts may be both persons who are resident and non-resident in Malta. Assets settled in a Malta trust must observe the mandatory rules as listed in the Trusts and Trustees Act.

The Act caters for various types of trusts: discretionary trusts and fixed interest trusts as well as purpose trusts which are generally set up for a charitable purpose. Maltese trusts may also have the office of the protector of the supervisory council to safeguard the wishes of the settlor.

Trusts in Malta are mainly set up for asset protection and continuation of patrimony. When used by persons who are neither resident nor domiciled in Malta, a trust may also be a tax efficient vehicle.

12 Does your jurisdiction recognise private foundations?

The law on foundations was enacted in Malta in 2007, through an amendment to the Civil Code. Before 2007 the concept of foundations was not unknown to Malta. Foundations where customarily used for non-profit-making purposes and other philanthropic purposes of public character.

Malta foundations are often seen as an alternative to trusts and appeal more to private clients from civil law countries. Contrary to trusts, Maltese foundations have a separate legal personality. Over the years, we have seen an increased interest by high net worth individuals making use of foundations as means of asset protection and continuation of patrimony.

A Maltese foundation can be created by public deed or through a will and obtains separate legal personality once the foundation is registered with the Registrar for Legal Persons. The deed of foundation must contain an endowment of at least €1,164.69, or of €232.94 in the case of a purpose foundation.

Private foundations are set up for the benefit of named persons or for a class of persons and may be created for numerous reasons such as for estate planning or as part of a tax-planning exercise. Unlike a purpose foundation, a private foundation does not solicit funds from the public.

Public foundations have no ascertained beneficiaries and may be established for a particular purpose such as for charitable or social purposes and other lawful purposes.

A unique characteristic of a Maltese foundation is the opportunity to create segregated cells within a foundation. In this case, while not having a separate legal personality, each cell constitutes a distinct patrimony from all other cells and the assets and liabilities of the organisation.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Malta does recognise same-sex relationships. A same-sex couple can opt for a civil union or civil marriage. Once a civil union is registered it has the equivalent effects and consequences in law of a civil marriage. For a civil union to be recognised the parties shall apply for the publication of banns at least three months before the union date and must provide the marriage registrar with their birth certificates, identification cards and copies of them, along with copies of the identification cards of the witnesses. They must also declare where and when the civil union will take place and which surname they wish to adopt.

The definition of the term ‘married couples’ in the Income Tax Acts includes two partners who have registered their partnership as a civil union. Hence couples in a civil union may benefit also from joint computation and joint tax refund just as married couples.

A civil union contracted before the coming into force of the Marriage Act and Other Laws (Amendment) Act 2017, may be converted into marriage within five years from the date of the coming into force of the said Act.

Same-sex couples, as heterosexual couples, may also opt for a de facto cohabitation which would have legal recognition after two years from the date the couple started cohabitating and that will grant basic rights to the parties. Cohabitation by means of a contract between the parties means that the couples must enter into a public deed in front of a notary and decide which rights and obligations they want to include in the contract or cohabitation by means of a unilateral declaration. The latter, which is a temporary right applicable for five years from when the Cohabitation Act came into force, is designed more for vulnerable individuals in abusive relationships who desire protection.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

As in the case of same-sex couples, heterosexual couples can also be legally recognised through a civil union, marriage or cohabitation.

Succession

15 What property constitutes an individual’s estate for succession purposes?

In terms of the Civil Code, the term ‘inheritance’ is defined as the estate of the person deceased that devolves either by the disposition of a person or in the absence of such disposition, by operation of law. Therefore, all property that an individual acquires throughout his or her life passes to his or her heirs for the succession purposes. This includes property owned in full ownership and in co-ownership. Additionally, the concept of split ownership (ie, legal and beneficial ownership) is unknown to Maltese civil law.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

An individual during his or her lifetime is free to dispose of his or her property either by an act inter vivos or by will.

Upon marriage, every couple, unless they agree to the contrary, adopt the community of acquests, meaning that everything that is contracted in marriage is owned jointly by the couple. A couple may opt out of the community of acquests, either by a pre-nuptial or post-nuptial agreement in the form of a public deed that will exclude the community of acquests and create a separation of estate. During the community of acquests, the spouses may not dispose of any of their patrimony without prior consent of the other spouse.

17 To what extent do individuals have freedom of disposition over their estate on death?

A will is an instrument that is revocable by nature, and an individual, according to the rules laid down by law, disposes for the time when he or she ceases to live off the whole or of the part of his or her property. Therefore, an individual may not dispose of his or her estate on death as he or she deems fit, as there are certain restrictions outlined by law, related to a reserved portion, which shall be discussed below

The Civil Code provides for a reserved portion due to all children whether conceived and born in wedlock or conceived and born out of wedlock or adopted. For children less than four in number, the reserved portion is that of one-third of the value of the estate of the deceased. For four or more children, the reserved portion is that of one-half of the value of the estate of the deceased.

The Civil Code also provides for a reserved portion for the surviving spouse. Should the deceased be survived by children or other descendants, the surviving spouse shall be entitled to a quarter of the value of the estate of the deceased. In all other cases, the surviving spouse is entitled to one-third of the value of the estate of the deceased.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

When an individual dies intestate in Maltese jurisdiction, the heirs, by operation of law, would be the descendants, the ascendants, the collateral relatives, the spouse of the deceased and the government of Malta.

If the deceased is survived by descendants and spouse, the succession devolves as to one-half upon the children and other descendants and the other one-half upon the surviving spouse.

If the deceased is survived by descendants but not by a spouse, the succession in this case devolves all upon the children and other descendants.

If the deceased has left no children or other descendants but is survived by a spouse, the succession devolves upon the spouse.

Children or other descendants succeed to their parents (or other ascendants) without distinction of sex, whether they are born or conceived in or out of wedlock and whether they are of the same or different marriages. In terms of Maltese law, children or other descendants succeed per capita when they are all in the first degree; they succeed per stirpes when all, or some of them, take by representation.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Yes. Natural legitimate, illegitimate and adopted children are all equal in the eyes of the law.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Malta follows EU Regulation (EU) No. 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession.

In terms of this regulation, the applicable law is the law of the jurisdiction in which the deceased had his or her habitual residence at the time of death, unless the testator has provided in his will that a particular applicable law should govern it. In the case of immovable property, the applicable law is the lex situs, the place where the immovable property is situated. In the case of movable property, the applicable law is the law of the domicile (lex domicilii), the law where the deceased resided.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

An individual of a sound mind and who is not subject to incapacity under the Maltese law may dispose of his or her property by a will. There are certain prohibitions related to certain persons incapable of making a will, including minors and individuals interdicted on the ground of insanity or of mental disorder.

In terms of Maltese law, any will made by a person subject to incapacity is null, even though the incapacity of the testator may have ceased before his death.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Yes. Foreign wills are recognised in our jurisdiction provided they are executed in accordance with Maltese law and have been successfully registered at the Public Registry in Malta. In situations when such wills are not considered valid, the estate of the deceased is liquidated according to the law of intestate.

23 Who has the right to administer an estate?

An individual may appoint a testamentary executor or executors for the purpose of administering and distributing the testator’s estate after his or her death. Any person can be appointed as a testamentary executor. However, there is a prohibition in terms of Maltese law to appoint a person under a disability or a minor in such position. The testamentary executor or executors shall administer the estate of the deceased for as long as the devolution of the state is completed and passed to the heirs and legatees as per testator’s will.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

The estate of a person deceased consisting of all the legal relations that may be valued in money, that is, both assets and liabilities, may only be transmitted to another person causa mortis, so that it will not remain vacant. The successor acquires the deceased’s property subject to the same burdens to which it was subject prior to his or her death. Such estate may devolve to his or her heirs and successors either by means of a will (testate succession) or, in the absence of a will, by operation of the law (intestate succession). A succession may be partly testate and partly intestate. A will is considered at law to be a draft until the death of the testator occurs. It comes into effect upon the death of the testator. This implies that a will may be revoked at any time before the death of the testator.

Intestate succession takes place by operation of the law, either in whole or in part in the following instance:

• when there is no valid will;

• when the testator has not disposed of the whole of his or her estate;

• when the heirs instituted are unwilling or unable to accept the inheritance; or

• where the right of accretion amongst the co-heirs does not arise.

In this respect, the estate of the testator may devolve through the operation of the law in favour of the descendants, the testator’s spouse, the ascendants, the collateral relatives, and, in the absences of these persons, the government of Malta.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Heirs and beneficiaries disappointed about the content of the will, have the right to the reserved portion depending on their relation with the deceased. In terms of Maltese law, only the deceased’s spouse and children have a right to the reserved portion. The reserved portion is the share of individual’s estate which cannot be freely disposed of by the testator. It is the right in the estate of the deceased reserved by law in favour of the descendants and the surviving spouse of the deceased.

The rest of the individual’s estate is known as the disposable portion. In situations when an individual leaves dispositions in the will which would exceed the disposable portion thus leaving disappointed heirs or beneficiaries, an abatement of the testamentary disposition exceeding the disposable portion may be brought into effect in virtue of the Civil Code. When the value of donations exceeds, or is equal to the disposable portion, all testamentary dispositions shall be ineffectual.

The action for demanding an inheritance, or a legacy, or the reserved portion, whether in testate or in intestate succession, shall lapse on the expiration of 10 years from the day of the opening of the succession. Nevertheless, with regard to minors, or persons interdicted, the said action shall not lapse except on the expiration of one year from the day on which they shall have attained majority, or the interdiction shall have ceased.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

An individual is considered a minor if he or she is not aged 18. Until the attainment of majority, the holding and managing of the minor’s property is the responsibility of his or parents or legal guardians. Parents or legal guardians may administer the property of the minor solely in the event that the acts of administrations are of ordinary nature. However, the intervention of both parents is required if the acts of administration are of extraordinary nature. The latter include the alienation of movables by nature, the collection of capital that may become due and the partition of movables by nature, among others. The parents may not alienate immovables or movables by operation of the law that belong to the minor, contract loans or other debt, hypothecate or pledge his or her property on his or her behalf, enter into suretyship or compromise or submit a dispute to arbitration unless it is necessary and the court authorises it. In the case where an inheritance is devolved on the minor, the parents must accept it after an inventory has been carried out. When the minor reaches the age of majority or upon termination of parental authority, the parents are bound to render to their child an account of the property and the fruits of such property if they do not have the usufruct, and of the property and its administration if they have usufruct.

In the event that the parents of the minor die or have forfeited their parental authority, the minor is placed under tutorship, for the holding and managing of his or her property and representing him or her in all civil matters until he or she becomes of age or until he or she marries.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual generally attains legal capacity upon reaching 18 years of age for the purpose of holding and managing property in Malta. Despite this, where a child attained the age of nine years, an agreement would be valid in so far as it relates to the obligations entered into by any other person in his or her favour. This also applies to an individual who has attained the age of 14 but has not attained the age of 18, provided he or she is still under parental authority or curatorship. However, minors cannot alienate or hypothecate his or her immovable property without the authority of the competent court. Upon reaching the age of 16, an individual can open a bank account in his or her own name, in which he or she can deposit and withdraw money, notwithstanding that such money is subject to the administration, usufruct or authority of any other person. Additionally, a minor who has attained the age of 16 may be emancipated to trade, where he or she would be considered as a major in regards to all matters relating to his or her trade or acts of trade.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

When a person becomes incapable of managing his or her own affairs, a demand shall be made to the Court of Voluntary Jurisdiction to declare the person interdicted or incapacitated. The court will review the submitted application and will appoint a curator to manage and administer the property of the incapable person if it is satisfied that there is the necessity to do so. The tutor is appointed for a period not exceeding three years. However, such period is subject to renewal upon approval of the court.

Malta also offers the possibility for a person of full age and capacity in anticipation of his or her incapacity to appoint a mandatary to administer his or her property and act on his or her behalf. Such an appointment shall be made in front of a notary public, in the presence of two witnesses after having procured a medical declaration stating that it is in the best interest of the person to draw up such a mandate. The coming into force and termination of the mandate depends entirely on the capacity of the mandator.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

In 2007, Malta implemented the Schengen Acquis and subsequently the Visa Code. All third-country nationals listed in the Visa Code require a visa to enter Malta. Malta follows the procedure in the Visa Code for the issuance of visas. Malta is also party to the US Visa Waiver Program.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A foreign national in possession of a visitor’s visa can spend up to 90 days in a six-month period in Malta and this may be single, double or multiple entry visa, depending on the length of travel and decisions made by the authorities.

31 Is there a visa programme targeted specifically at high net worth individuals?

There are currently two highly solicited programmes offered by the Maltese government to high net worth individuals and their family members:

• citizenship by investment (IIP): the granting of Maltese (EU) citizenship with all its benefits upon the contribution to the economic development of Malta, investment in the real estate and government bonds; and

• residence by investment (MRVP): an opportunity to reside indefinitely in Malta and travel freely within the Schengen area upon investment in real estate and contribution to the government.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

These programmes entitle a main applicant to bring their family members with them: in particular, their spouses, children and parents.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Yes. Upon satisfying the qualifying criteria for the IIP and MRVP programmes, an individual, together with his or her dependents, will obtain a right to reside indefinitely in Malta. The right to reside indefinitely in Malta may, upon certain conditions being satisfied, be inherited by ascendants.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

The IIP allows for the granting of citizenship by a certificate of naturalisation to foreign individuals and their families who contribute to the economic development of Malta. The process for naturalisation may take from one to two years.

The following are required as a minimum contribution to the government in order to qualify for the programme:

Contribution

• Main applicant: €650,000;

• spouse: €25,000;

• for each and every child under 18 years of age: €25,000;

• for each and every unmarried child between 18 years and 26 years of age: €50,000; and

• for each and every dependent parent above 55 years of age: €50,000.

Investment

A main applicant must invest in Malta an amount of at least € 150,000 in, among others, stocks, bonds, debentures, special-purpose vehicles, or other investment vehicles as may be identified from time to time, and retain the investment for at least five years.

Property

A main applicant must either:

• purchase a residential property in Malta having a minimum value of €350,000 and retain the property for a period of at least five years; or

• lease a residential property in Malta for a minimum annual rent of €16,000 and retain the property for a period of at least five years.

Ramona Azzopardi

ramona.azzopardi@whpartners.eu

Sonia Brahmi

sonia.brahmi@whpartners.eu

Marlene Cini

marlene.cini@whpartners.eu

Level 5 Quantum House

75 Abate Rigord Street

Ta’Xbiex, XBX1120

Malta

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Monaco

Christine Pasquier-Ciulla and Regina Griciuc

CMS Pasquier Ciulla Marquet & Pastor

Tax

1 How does an individual become taxable in your jurisdiction?

One of the major attractions of the Principality of Monaco for private clients is a favourable taxation regime for individuals.

Monaco law does not provide for an income tax for individuals acting within their private activities. There is no wealth tax, no capital gains tax, no local taxes (no property tax and no dwelling tax). There is no inheritance or gift tax between ascendants and descendants or between spouses.

An individual may be taxable on the profits of industrial and commercial activities. A business profit tax is applied to those commercial and industrial activities whose turnover is generated at more than 25 per cent outside Monaco.

2 What, if any, taxes apply to an individual’s income?

Monaco law does not provide for any income tax for individuals, with the exception of French nationals, subject to the 1963 Bilateral Tax Convention between France and Monaco. French nationals are deemed to be residents of France. Other nationalities do not pay income tax in Monaco.

3 What, if any, taxes apply to an individual’s capital gains?

Monaco levies no capital gains tax.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Tax on lifetime gifts only applies to assets that are situated in Monaco, regardless of the domicile, residence or nationality of the donor.

Gift tax is applicable to lifetime gifts evidenced in writing or by notarised deed. Gifts that can be made by a physical transfer of property (which does not require a written deed, such as a gift of a chattel) are not subject to tax.

No tax is levied on gifts between ascendants and descendants in direct line (ie, parents and children) or between spouses. Gift tax is otherwise applied at the rate of:

• 8 per cent between brothers and sisters;

• 10 per cent between uncles or aunts, nephews or nieces;

• 13 per cent between other collateral relatives; and

• 16 per cent between unrelated persons.

In addition, Monegasque public notaries charge an ad valorem fee for preparing the notarial deed.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Inheritance or succession tax is payable at the same rate as lifetime gift tax.

Succession tax only applies to assets that are situated in Monaco, regardless of the domicile, residence or nationality of the deceased.

6 What, if any, taxes apply to an individual’s real property?

Monaco does not levy any wealth tax or local taxes on properties.

Stamp duties are levied upon transfer of ownership of real property. The applicable tax rates vary depending on whether or not the transaction is carried out for the benefit of persons that meet the transparency criteria set out by the legislation enacted in 2011.

Prior to the 2011 reform, all real estate transactions were taxed at a rate of 7.5 per cent of the purchase price, to which a notarial ad valorem fee of 1.5 per cent was added. This led to a practice whereby foreign entities, mostly offshore companies, which acquired Monaco real estate, could avoid paying tax on transfers of real property where the sale was realised by means of transfer of shares of the foreign entities which owned the Monaco real estate.

To combat this practice, the Law No. 1.381 of 2011 introduced an annual reporting obligation for foreign companies, trusts and other such entities holding real estate in Monaco to appoint a local fiscal agent whose duty is to file an annual declaration regarding the change or the absence of change of beneficial ownership. Subject to certain exemptions, if there has been a change of beneficial ownership, a duty of 4.5 per cent of the value of the property is due.

If the change in the beneficial ownership of a non-transparent entity is the result of a lifetime gift or a transfer upon death in favour of the spouse, the ascendants or the descendants in direct line of the donor or the deceased, no such transfer tax is due.

The 2011 law reduced tax rates on real estate transfers carried out to the benefit of ‘transparent’ entities. The sale of a property situated in Monaco is subject to a proportional registration duty of 4.5 per cent on the purchase of Monaco real estate property by individuals or by Monégasque civil companies (general partnerships) owned by physical persons. Real estate purchases by non-transparent structures, such as foreign companies, trusts and any other such entities are still subject to transfer duty at 7.5 per cent.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Monaco has a customs union with the European Union (through France). The EU customs law is therefore applicable in Monaco.

VAT and other import duties are levied on the same basis and at the same rates as in France (20 per cent for the standard rate).

8 What, if any, other taxes may be particularly relevant to an individual?

As mentioned in question 1, Monaco levies no wealth tax.

VAT is levied on the same basis and at the same rates as in France.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

As a civil law country, Monaco does not have a substantive trust law. However, Monaco enacted special legislation (Law No. 214 of 1936) designed to recognise trusts and allow certain foreigners who are resident in Monaco to take advantage of their national law which enables them to create trusts either during their lifetime or by a will.

In addition, in 2007 Monaco has acceded to the Hague Convention on the Law Applicable to Trusts and on their Recognition, which entered into force in 2008. The new Code on Private International Law (instituted by Law No. 1.448 of 28 June 2017 on private international law) contains provisions on the law applicable to trusts and on their recognition which are in line with the Hague Convention on the Law Applicable to Trusts and on their Recognition.

Trusts, whether inter vivos or testamentary (will trusts), created pursuant to Law No. 214 are subject to proportional registration duties which are payable as a percentage of the total value of the assets placed in trust. Registration duties depend on the number of beneficiaries and vary between 1.30 per cent and 1.70 per cent as follows:

• one beneficiary: 1.30 per cent;

• two beneficiaries: 1.50 per cent; and

• more than two beneficiaries: 1.70 per cent.

Alternatively, at the parties’ request, an annual tax of 0.20 per cent of the value of the trust assets may be paid.

This duty or tax is levied to the exclusion of any gift or succession duties.

In the case of a will trust, the duties and taxes are levied after the death of the testator.

For trusts other than those subject to Law No. 214, the Monaco tax administration applies the highest tax rate of 16 per cent (as between unrelated persons) to any assets passing into a trust, irrespective of the relationship between the settlor and the trustee or the beneficiary, which is arguable technically.

In addition to registration duties, Monegasque public notaries charge an ad valorem fee which is determined depending on the nature of the transaction.

When trusts own Monaco real estate, directly or through underlying asset-holding vehicles, they are subject to the 2011 law referred to in question 6.

10 How are charities taxed in your jurisdiction?

A charity may be created in Monaco in the form of an association or a foundation.

No income tax or capital gains tax is levied.

Gifts and bequests of Monaco-based assets to charities (other than specific foundations exempted under Monaco law) are subject to gift and succession tax at 16 per cent.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

In 2007, Monaco has acceded to the 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition. The Code on Private International Law confirms the recognition of foreign trusts in accordance with the Hague Convention on the Law Applicable to Trusts and on their Recognition. Foreign trusts are therefore fully recognised in Monaco.

As mentioned in question 9, Monaco does not have a substantive trust law.

However, Monaco has enacted legislation (Law No. 214) designed to allow certain foreigners (generally nationals of common law countries) to take advantage of their national law, which enables them to create trusts and thus provide for the disposal of their estate on death or during their lifetime, according to their wishes, free of the restrictions imposed by the Monegasque rules of forced heirship. The use of trusts (both inter vivos and will trusts) is therefore reserved to those persons whose national law provides for the possibility for settling one’s estate in a trust. Foreign residents who qualify may thus create a Monaco-based trust according to their national (foreign) law. For example, an English national, resident in Monaco, may establish an inter vivos trust or a will trust, pursuant to Monaco Law No. 214, governed by English law. Such a trust will, however, be subject to the jurisdiction of the Monaco courts. Nevertheless, the Monegasque case law on trusts is very limited and there is some uncertainty as to the treatment of trust property by Monaco courts.

12 Does your jurisdiction recognise private foundations?

There are no specific legal provisions with regard to the recognition of foreign private foundations. It may be inferred that such foundations would be treated as any other foreign legal entities.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

No.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

No.

Succession

15 What property constitutes an individual’s estate for succession purposes?

As a general rule, assets that are registered in an individual’s name or are in his or her possession are deemed to belong to that individual and thus form part of his or her estate, unless proved otherwise.

Monaco law does not provide for a distinction between legal and beneficial ownership.

An asset in co-ownership is deemed to be owned by the co-owners in equal shares.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

As a general rule, individuals are free to dispose of their estates as they think fit during their lifetime. However, the freedom of disposition may be subject to certain restrictions depending on the matrimonial property regime that the donor adopted with his or her spouse as well as on mandatory rules which cannot be derogated from by voluntary act such as forced heirship rules. For example, the community of property regime may prevent one spouse from alienating or unilaterally settling property on trust without the consent of the other spouse.

Also, lifetime gifts can be reclaimed after the death of the donor by the legal heirs and returned to the estate. This is regardless of the intention of the gifts or how long before death the gifts were made. Gifts made in trust may also be subject to clawback. Hence, whenever the value of the estate is inadequate to meet the reserved portions (see question 17 for more details on Monaco forced heirship rules), the disappointed heirs can make a clawback claim against the value of any gifts made by the deceased.

17 To what extent do individuals have freedom of disposition over their estate on death?

Under Monaco law, the freedom of disposition over one’s estate on death is subject to statutory forced heirship rules. Forced heirship rules compel a particular distribution of a deceased’s estate which cannot be derogated from by will.

An individual’s assets on death consist of the reserved portion and the disposable portion. The reserved portion limits the testator’s right to dispose freely of his or her estate by will. It is determined by law.

The reserved portion must go to the protected or forced heirs, regardless of the provisions of the will. Children are legally entitled to inherit a reserved portion of their parents’ estates on death. In the absence of children, a certain portion of the deceased’s estate is reserved to his or her ascendants in each paternal and maternal line. No other relatives are reserved heirs. In particular, the surviving spouse is not a reserved heir. The surviving spouse can only benefit from the disposable portion of the estate.

If the deceased makes gifts or bequests which infringe on the reserved portion, the reserved heirs may, when the succession is opened, cause such gifts or bequests to be reduced in order to protect their share. Whenever the value of the estate is inadequate to meet the reserved portion, the disappointed heirs can make a clawback claim against the value of any gifts made by the deceased. Lifetime gifts as well as gifts made in trust may be subject to clawback after the death of the donor. The claim is made first against the most recent gifts, always clawing back gifts made closest to the date of death, until the reserved portion is met.

The reserved portion in the presence of one child is half of the estate and the disposable part is therefore also half. If the deceased leaves two children, the reserved portion is two-thirds of the estate and the disposable part is the remaining one-third. If there are three or more children, the reserved portion is three-quarters and the disposable part is only one-quarter. If a child predeceases the deceased, leaving descendants of his or her own, his or her descendants represent the deceased child and are entitled, on a stirpital basis, to the share that the deceased child would have taken had he or she survived.

If there are no children but the deceased is survived by ascendants, they are the forced heirs. If there are ascendants alive in both the paternal and maternal lines, the reserved portion is half of the estate and the disposable portion is also half. If there are ascendants only in one line, the reserved portion is one-quarter and the disposable portion is three-quarters. Other remoter ascendants are entitled to a reserved portion only if the deceased leaves no siblings or their issue.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If an individual dies without a will and Monaco internal law applies to the succession pursuant to the existing conflict-of-law rules (see question 20 on Monegasque conflict-of-law rules applicable to successions), the estate is distributed between the surviving members of the deceased’s family, according to the following rules of intestate succession as provided by the Monaco Civil Code:

In the presence of the surviving spouse

If the deceased leaves a spouse who was not judicially separated from the deceased at the time of his or her death, and also children, the surviving spouse receives the same share as a child. The spouse’s share cannot be less than one-quarter of the estate.

The following distribution is prescribed by law:

• if the deceased leaves a spouse and a child, each receives half of the estate;

• if the deceased leaves a spouse and two children, each receives one-third of the estate; or

• if the deceased leaves a spouse and three or more children, the spouse receives one-quarter and the remaining three quarters are divided between the children in equal shares.

If the deceased leaves no descendants and no collaterals, but leaves one or both parents and also a spouse, each parent takes one-quarter and the spouse takes the remaining part. There are also specific rules to determine the distribution of the estate in the event when the deceased leaves a surviving spouse and other ascendants than his or her parents.

If the deceased leaves one or both parents and brothers or sisters or their descendants, the surviving spouse receives half of the estate, with one-quarter going to each parent and any remaining balance (if only one parent survives) going to the deceased’s brothers or sisters or their descendants. The descendants of predeceased brothers and sisters inherit per stirpes on the same basis as descendants in direct line.

The surviving spouse will inherit the entire estate if the deceased is survived by no descendants, no ascendants, no brothers or sisters or their descendants.

In the absence of the surviving spouse

If the deceased leaves children, they take equally. If a child predeceases the deceased, leaving descendants of his or her own, the share attributable to that child is distributed equally between the descendants of the deceased’s child.

If there are no descendants, no brothers or sisters and no descendants of brothers or sisters, the surviving ascendants in the paternal and maternal lines take in equal shares. In the absence of closer ascendants, the remoter ascendants will inherit.

If the deceased leaves no descendants or parents, the estate is distributed in equal shares between the brothers and sisters or their descendants.

If there are no descendants, but the deceased is survived by one or both parents and by brothers and sisters or their descendants, the surviving parents will take half of the estate and the remaining half will be split equally among the brothers and sisters or their descendants. If only one parent survives, he or she takes one-quarter and the remaining three-quarters are equally divided among the siblings born of the same parents. In other cases, the estate is divided by half between the paternal and maternal lines. Siblings born of the same parents inherit from both lines. Half-brothers and half-sisters take only from one line.

If none of these relatives survives, remoter collaterals (uncles, aunts or cousins) may inherit up to the sixth degree of consanguinity, with the exception of descendants of brothers and sisters.

If there are no heirs, the estate belongs to the state.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

The filiation only gives rise to succession rights if it is legally established.

Adopted children are treated as legitimate children of the adopting parents.

Children born outside of marriage are treated, for all legal purposes, the same as legitimate children if they were legitimated by the marriage of their parents or recognised by their parents.

Under Monaco law, the recognition is a legal way to establish filiation. The natural filiation is established either by voluntary recognition of the child effected by formal deed executed before a notary or by court decision following an action to establish paternity or maternity.

The legitimation confers on legitimated children the same rights and obligations as natural legitimate children.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Under Monaco law, the place of the opening of the succession is the domicile of the deceased. In succession matters, Monegasque courts have jurisdiction where the succession has been opened in Monaco or where an immovable asset belonging to the estate is located in Monaco.

The lex fori defines the conflict-of-law rules applicable to successions. The estate of a foreigner resident or domiciled in Monaco is subject to Monaco private international law rules.

According to the new Monegasque rules of private international law set out in the Code on Private International Law, the succession is governed by the law of the state in which the deceased was domiciled at the time of his or her death. A person may designate, for the settlement of his or her succession, the law of a state of which he or she is a national when the choice is made. The law applicable to the succession governs the succession as a whole, from its opening to the final transfer of the estate to the beneficiaries. This law governs the distribution of both the moveable and the immoveable estate.

The law applicable to the succession may not deprive an heir of the reserved share afforded to him or her by the law of the state of which the deceased was a national at the time of the death, nor apply the reserved share to the succession of a person who, at the time of the death, was a national of a state whose law does not recognise forced heirship rights.

The Monegasque law no longer accepts the renvoi. Within the meaning of the Code on Private International Law, the law of a State means the rules of substantive law of that state, excluding its rules of private international law.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

Three types of will can be made under Monaco law: holographic, authentic and mystic.

A holographic will must be fully hand written by the testator, signed and dated, without witnesses.

An authentic will may be received by two notaries in the presence of two witnesses or by one notary in the presence of four witnesses. Its contents must be read out to the testator. The will must be signed by the testator, the notaries and the witnesses.

A mystic will must be written and signed by the testator or another person on his or her behalf and sealed. The signed will must be handed to the notary in a sealed envelope in the presence of four witnesses.

A will must be registered with the Monaco courts after the death of the testator.

The concept of probate does not exist under Monaco law.

As mentioned in question 11, Monaco has adopted legislation allowing residents whose national law incorporates trust law to create will trusts in Monaco under their national law. The creation of will trusts under Law 214 must comply with the forms prescribed by Monegasque law for authentic or mystic wills.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign wills are regarded as formally valid when executed in accordance with the requirements of one of the following laws:

• that of the state where the testator made his or her disposition;

• that of the state of which the testator was a national either when he or she made his or her disposition or at the time of his or her death;

• that of the state in the territory of which the testator had his or her domicile, either when he or she made his or her disposition or at the time of his or her death;

• that of the state in the territory of which the testator had his or her habitual residence, either when he or she made his or her disposition, or at the time of his or her death;

• for immoveable assets, that of the state where they are situated.

Under the Law No. 214 on trusts, any will that seeks to create a trust is void, unless it is made in accordance with the formal requirements prescribed by Law No. 214.

23 Who has the right to administer an estate?

Generally, the heirs have the right to administer the deceased’s estate.

The testator may also appoint one or more testamentary executors.

In case of a will trust established under Law No. 214, it is accepted that the executors and the trustees have the right to administer the estate.

A judicial administrator may be appointed by the court when the estate has not yet been accepted by the beneficiaries.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

In theory, Monaco law provides for the property of the deceased to pass automatically to the legal heirs according to the will or the rules of intestate succession. In practice, however, certain formalities need to be accomplished especially when the estate comprises real estate.

While forced heirs are deemed to automatically take possession of the deceased’s estate, special formalities must be accomplished by legatees in order to request the delivery of bequests pursuant to the will.

The heirs, unless they renounce the estate, are obliged to pay the debts and charges of the estate as well as any bequests given by the testator.

A will must be registered with the Monaco courts after the death of the testator.

The division of the estate and the payment of bequests are carried out before a Monaco notary.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

When a person makes a will in Monaco (other than a will trust under Law No. 214), his or her heirs who qualify as ‘reserved heirs’ are entitled to a reserved portion of the testator’s estate. The rights of the reserved heirs are protected and cannot be overridden by a will (see question 17 for details on the categories of reserved heirs and their reserved shares of the estate).

As mentioned in question 17, if the deceased makes gifts or bequests which infringe on the reserved portion, the reserved heirs may claim that any such gifts or bequests be returned to the estate after the death of the donor. Therefore, whenever the value of the estate is inadequate to meet the reserved portion, the disappointed heirs can make a clawback claim against the value of any gifts or bequests made by the deceased.

The reserved portion is calculated based on the aggregate of the net estate on death and the total of lifetime gifts. The clawback is first made against the part of the estate which is left to persons other than the reserved heirs. The claim is made first against the most recent gifts until the reserved portion is met, always clawing back lifetime gifts made closest to the date of death.

Although the surviving spouse is not a reserved heir, he or she can make a claim for maintenance against the deceased spouse’s estate. The Monaco Civil Code provides that the estate of the predeceased spouse has the duty to provide financial support to the surviving spouse. Such claim must be made within a year from the date of death.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

The management of a minor’s property is generally entrusted by law to his or her parents. This is known as the legal administration of a minor’s assets.

There is, however, an important exception to this principle. The Monegasque law allows any person to exclude from the legal administration by the parents the assets that he or she donates or bequests to a minor, provided that they are administered by a third party designated by will or deed of donation.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

At age 18.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

An application to the court can be made for the appointment of a guardian, curator or a judicial administrator.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

By virtue of treaties between Monaco and France, foreign nationals wishing to visit Monaco must be in possession of the same travel documents and visas as required for entry into France.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Three months. Foreign nationals wishing to reside in Monaco for more than three months in a year must apply for a residence card with the Monégasque authorities.

31 Is there a visa programme targeted specifically at high net worth individuals?

There is no specific programme targeted at high net worth individuals.

However, foreign nationals who wish to reside in Monaco must meet certain requirements and provide an extensive list of documents and background information.

Foreigners wishing to settle in Monaco without a work permit or without receiving the permission to set up a business activity must demonstrate that they have sufficient financial resources to live in Monaco without a revenue-generating activity. A reference letter from a Monaco bank is necessary to confirm that the applicant has sufficient funds to live in Monaco. There is no statutory minimum threshold required. Monaco banks have established internal policies with regard to the minimum amount of funds required for residency purposes, which may vary from €500,000 to €1 million or more depending on the bank.

Visa requirements for settling in Monaco vary depending on the nationality of the applicant.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Each spouse would need to file his or her own application for a long-stay visa (as appropriate) and for a Monaco residence card.

When a long-stay visa is required (depending on the nationality of the applicant) for the application for a residence card, the legal representatives of minor children need to apply for a long-stay visa for the minors. Minor children are allowed to stay in Monaco on their parents’ residency status and are registered on their dossier.

Residence cards are not issued to minors under the age of 16. A travel document for a foreign minor may be issued to enable overseas travel.

The Monegasque residence card allows its holder to move freely within the Schengen area.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Only Monegasque nationals have the right to reside permanently in Monaco.

Any foreigner aged 16 and over who intends to stay in Monaco for more than three months shall apply for a residence card (carte de résident). If granted, the applicant will be issued a ‘temporary’ residence card valid for one year and renewable upon request. The holder of a ‘temporary’ residence card will have the status of a ‘temporary resident’. After three years of residence, an ‘ordinary’ residence card is usually granted, which is valid for a period of three years, renewable upon request. The holder of an ‘ordinary’ residence card will have the status of an ‘ordinary resident’. After 10 years of residence, the status of ‘privileged resident’ may be given and the residence card will then be valid for 10 years.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Neither residency nor birth in the Principality of Monaco grants the right to Monegasque nationality.

A foreign national who has been ordinarily resident in Monaco for at least 10 years after reaching the age of 18 may apply to HSH the Sovereign Prince for naturalisation as a citizen of Monaco. Naturalisation is at the discretion of the Sovereign Prince, who may also grant an exemption of the residency requirement.

Update and trends

The codification of the conflict of law and jurisdiction rules following the enactment of the Code on Private International Law (Law No. 1.448 of 28 June 2017, published in the Official Journal on 7 July 2017) has brought majors changes affecting all the areas of private law (family law, successions, contract law, property law etc). The Code on Private International Law has been applicable since 8 July 2017, but the case law is still very scarce and there is much uncertainty as to the interpretation of the new private international law rules by the courts.

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 that 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 or representation in the event of incapacity.

CMS Pasquier Ciulla Marquet & Pastor

Christine Pasquier-Ciulla

christine.pasquierciulla@cms-pcm.com

Regina Griciuc

regina.griciuc@cms-pcm.com

Athos Palace

2, rue de la Lüjerneta

98000 Monaco

Tel: +377 97 98 42 24

Fax: +377 97 98 42 25

cms.law/pcm

Netherlands

Dirk-Jan Maasland and Jules de Beer

Loyens & Loeff NV

Tax

1 How does an individual become taxable in your jurisdiction?

In the Netherlands, resident individuals are liable to tax on their worldwide income and wealth. Non-residents are only taxable on certain types of income and wealth with a Dutch nexus listed in the income tax act. Domicile is not a relevant consideration for taxation purposes in the Netherlands.

The residence of a person has to be determined on the basis of all relevant facts and circumstances. Factors ‘connecting’ an individual to the Netherlands are, for example, the availability of a dwelling, where one has a place of habitual abode and where one’s family is located. Number of days spent in – or outside the Netherlands is, in practice, only one of the (less) relevant factors.

For non-residents the connecting factor is the ownership of certain assets with a link to the Netherlands. Among other things, ownership of real estate in the Netherlands, a (profit) stake in a business in the Netherlands and a substantial shareholding in a Dutch company (subject to application of a treaty for the avoidance of double taxation) result in a tax liability as non-resident taxpayer.

2 What, if any, taxes apply to an individual’s income?

In the Netherlands, income tax is levied according to a system of boxes for different types of income as explained below. Certain types of income are subject to a pre-levy such as wage tax (labour income) and dividend withholding tax. The Netherlands does not levy a withholding tax on interest and royalty income.

The taxable income of resident taxpayers from different sources is divided over three boxes:

• Box 1 – income from labour, business and principal dwelling;

• Box 2 – income from a substantial shareholding; and

• Box 3 – income from savings and investments.

The tax year is equal to the calendar year. In principle, taxpayers must file their tax declaration before 1 May of the calendar year following the tax year concerned. Interest is due for income tax assessments issued after July 1 of the year following the year over which the tax is due.

Box 1

The income from work and principal residence (Box 1) is taxed at progressive rates. The following rates (2019) apply to individuals who are not entitled to an old age pension.

Bracket

Taxable income

Tax rate

1

Up to €20,142*

36.65 per cent

2

From €20,142 to € 34,404*

38.10 per cent

3

From €34,404 to 68,507

38.10 per cent

4

Above 68,507

51.75 per cent

* The first two brackets include social security premiums.

In Box 1, the income from employment and owner-occupied dwellings is taxed. This includes income from business activities, income from present and past employment, income from other (eg, freelance) activities, certain periodic payments and deemed income from owner-occupied dwellings.

The progressive rates in Box 1 vary from 9 to 51.75 per cent. If an individual is insured under Dutch social security schemes, he or she additionally has to pay 27.65 per cent social security contributions on the first €34,300 of the income in Box 1. Social security premiums are only due in the first two brackets and, therefore, capped at some €9,500.

Box 1 has a limited number of deductions, the most important of which is interest paid on a loan for the acquisition, improvement or maintenance of the principal, owner-occupied, dwelling. Although an anomaly in a box that taxes active income, this interest deduction has for decades stimulated the ownership of personal dwellings in the Netherlands. In recent years, this tax incentive has been economised several times. Since 2001, this interest deduction has been limited in time to a period of 30 years as of the first moment a deduction is taken in the personal income tax return. As of 2013, mortgage interest payments on new loans will only be tax deductible if the loan is fully repaid within a maximum of 30 years on (at least) an annuity basis. Loans entered into before 1 January 2013 will under conditions be grandfathered. In addition, with effect from 1 January 2014, the maximum rate for the deductibility of mortgage interest of 52 per cent will be reduced by 0.5 per cent per year resulting in 42 per cent rate over a 20-year period. This reduction will apply for both existing and new mortgages. As such, in 2018 mortgage interest will be deductible at a maximum rate of 49.5 per cent instead of the former 52 per cent (before 1 January 2014). The current government has proposed to step up this reduction of the rate against which the interest deduction can be taken to 3 per cent per cent per annum as of 2020 and until 2023. As a result, in 2023 the effective income tax rate against which mortgage interest can be deducted will be 37.05 per cent.

Box 2

In Box 2, the income from substantial interests is taxed. A substantial interest is a shareholding (including, under circumstances, options on shares, profit rights and economic ownership) in a company of 5 per cent or more. Taxable income includes both dividends and capital gains. Box 2 also applies to non-resident taxpayers with a substantial interest in a company with its effective place of management in the Netherlands.

The personal income tax in Box 2 has a flat rate of 25 per cent. As of 2020 this rate will increase to 26.25 per cent. Dividends paid by companies resident in the Netherlands are subject to a 15 per cent dividend withholding tax. This dividend withholding tax may be credited against Dutch personal income tax resulting in a levy of income tax of 10 per cent.

In case of a substantial shareholding in a low-taxed or exempt portfolio investment company, a deemed 5.6 per cent (2019) yield over the net wealth of the company will be imputed on the income of the substantial shareholder in Box 2 to the extent no, or a lower amount of, actual dividends is distributed.

On 18 September 2018 (Budget Day), the Dutch government announced the possible introduction as of 2022 of a deemed dividend distribution of current accounts between the shareholder and the company in which he or she holds a substantial interest in as far as the loan amount exceeds €500,000.

Next to true alienations of substantial shareholdings, the Income Tax Act contains several events whereby the shares are deemed alienated, such as the repurchase of shares by the company, liquidation of the company, inheritance of the shares and emigration of the substantial shareholder (Exit Taxation) or the transfer of the effective place of management of the company out of the Netherlands.

Under the Exit Taxation, individuals with a substantial shareholding receive a protective assessment for the gain from the deemed disposition of their substantial shareholding upon emigration. The emigrating individual is granted an interest free delay of payment for the income tax (25 per cent) due on this assessment. The taxpayer must provide security if he or she emigrates outside the European Economic Area.

Until 15 September 2015, the assessment was collected if, inter alia, the individual disposed of all or part of the shareholding within the 10 years following the individual’s emigration. As of the first day of the 10th year following the year of emigration the remaining amount of the protective tax assessment was waived following a written request by the taxpayer. As of 1 January 2016, the legislation concerning Exit Taxation was amended with retroactive effect to 15 September 2015. For emigrations of substantial shareholders after this date, the protective assessment is no longer waived after 10 years, but will be imposed for an unlimited period. Furthermore, each euro of dividend distribution received on the substantial shareholding will result in a pro rata collection of the protective assessment (while respecting double tax treaties). Previously, only a distribution of over 90 per cent of the distributable reserves upon emigration would result in the collection of the protective assessment. Assessments issued for emigrations prior to 15 September 2015, are grandfathered.

Box 3

In Box 3, the income from savings and investments is taxed. The taxable income is a deemed income over the net value of assets and debts that qualify for Box 3, irrespective of the actual income or capital gains generated with the assets concerned. The Dutch tax authorities assume that the income or capital gains generated with the assets will progressively increase with the value of the net wealth. A specific allocation is given by the Dutch tax authorities regarding a saving and investment part of the net value of the assets and corresponding rates of deemed yield. The reference date for the valuation of the taxable assets in Box 3 is 1 January of the relevant year. The deemed income is taxed at a flat rate of 30 per cent. The actual tax rate depends on the net value of assets and debts that qualify for Box 3. For non-resident taxpayers, Box 3 applies, among others, to real estate in the Netherlands and rights that are directly or indirectly attached thereto. Debts connected to Dutch real estate may be deducted.

The deemed yield is progressive depending on the amount of net wealth, using the following thresholds:

• from €30,360 to € 71,650 the deemed yield is 1.94 per cent;

• from €71,650 to € 989,736 the deemed yield is 4.45 per cent; and

• above €989,736 the deemed yield is 5.60 per cent.

The deemed yields are determined under the assumption that up to (around) €100,000 people tend to hold their wealth in a savings accounts and that with an increase of their wealth, they shift their wealth allocation to securities with a full allocation to securities as of (around) €1 million of wealth. Subsequently, the deemed yields are annually adjusted based on a five-year moving average of yields on saving accounts and a certain mix of securities.

Up to 2017, the deemed yield was fixed at 4 per cent (taxed against 30 per cent). This deemed yield has been subject to much debate. Even though the Supreme Court ruled that the Box 3 taxation was within the ‘wide margin of appreciation’ left to the legislator and did not impose an excessive burden for the taxpayer, the Box 3 taxation was amended as of 1 January 2017, with the ‘progressive yield’ described above as result. Not surprisingly this regime, which also uses a deemed yield instead of the actual yield, again is widely criticised.

Dividend withholding tax

Next to the announcement mentioned previously, the Dutch government published on Budget Day several legislative proposals, including a proposal to abolish the dividend withholding tax. The abolishment is widely criticised and will be accompanied by several measures to compensate the impact on the budget including, in particular, the introduction of a withholding tax on all types (dividends as of 2020 and interest and royalties as of 2022) of source income in abuse situations and mentioned deemed distribution of shareholder current accounts. If the dividend withholding tax is abolished, it should be noted that the Box 2 income tax over dividends received remains due.

Expatriates – 30 per cent ruling

An important income tax incentive for expats (incoming employees) immigrating to the Netherlands is the 30 per cent ruling. Under conditions this ruling allows for a deduction of 30 per cent of the incoming employee’s income for deemed extraterritorial expenses.

More importantly, the individual can opt to be treated as foreign taxpayer for Box 2 and Box 3. As a result, he or she will in principle not be taxable for a substantial shareholding in a company incorporated and managed outside the Netherlands or private wealth (with the exception of rights related to Dutch real estate).

The 30 per cent ruling is granted for a period of eight years. This eight-year period is reduced with the period (in months) spent in the Netherlands ending in the 25-year period prior to immigration. Furthermore, in order to be eligible for the ruling, the incoming individual should not have resided within a 150km radius of the Dutch border during more than two-thirds of the 24-month period prior to emigration. The latter requirement has been challenged before the Dutch Courts and the European Court of Justice. In the spring of 2016 the Dutch Supreme Court, following a ruling of the European Court of Justice, upheld the 150km requirement.

On Budget Day, the government has proposed to reduce the applicable period of eight years to five years as of 1 January 2019. The new period of five years will apply both to new expats and to expats who already immigrated to the Netherlands under a 30 per cent ruling. As a result expats who are living in the Netherlands for five years or more can no longer apply the 30 per cent ruling as of 1 January 2018. No transitional regulations are foreseen yet in the proposal by the government.

3 What, if any, taxes apply to an individual’s capital gains?

The Netherlands does not impose a separate capital gains tax. Instead capital gains on substantial shareholdings are taxed in Box 2 (see previous paragraph) and all other capital gains fall within the deemed yield of Box 3 (and hence the actual gains are not subject to income tax). The only exception is made for gains on the principle dwelling. These are exempt from income tax in box 1 (see previous paragraph).

4 What, if any, taxes apply if an individual makes lifetime gifts?

If a resident taxpayer makes a donation, this donation is subject to Dutch gift tax, payable by the recipient.

For Dutch gift tax purposes all persons, regardless of their nationality, who emigrate from the Netherlands are deemed resident for a period of one year after emigration. Dutch nationals are deemed resident for gift and inheritance tax purposes for a total period of 10 years.

The Inheritance and Gift Tax Act 1956 holds various (fiction) provisions to prevent tax avoidance by transactions during a lifetime. Gift tax is imposed on the value of all that is acquired by gift from an individual who was (deemed to be) resident of the Netherlands at the time of the gift. Gift tax rates are equal to inheritance tax rates and are as follows (2018 rates).

Acquisition (€)

Spouses/ Children

Other descendants

Others

0-123,248

10 per cent

18 per cent

30 per cent

123,249 and more

20 per cent

36 per cent

40 per cent

Various thresholds apply for inheritance tax and gift tax. An important threshold for gift tax is (amount for 2018) the annual exemption for children of €5,363. A one-time increase of this exemption is allowed if the child is aged between 18 and 40 at the time of the gift. The increase is permitted up to an amount of €25,731. If the donation was made for the acquisition of a principal residence or the financing of an education that is more expensive than average studies, the increase is permitted up to an amount of €53,602.

As of 1 January 2017, the latter amount of the one-time increase of the annual tax-free allowance is raised to €100,800 (amount for 2018) if the donation relates to the acquisition or renovation of a principal residence or is used to repay a debt in connection with the principal residence.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Upon demise of a Dutch resident taxpayer, all acquisitions as a result of his or her death are subject to inheritance tax, payable by the recipients. This does not just concern the assets that are directly acquired from the estate. A non-resident donor or deceased is not subject to Dutch gift or inheritance tax, not even with regard to Dutch situs assets.

For inheritance tax purposes, the most important tax-free allowances are as follows:

• for partners: €643,194 (half of the cash value of pension rights derived by a partner from the death of the deceased is deducted from this amount);

• for children and grandchildren: €20,371;

• for parents: €48,242; and

• for others: €2,147.

For inheritance tax, the same rates as for the gift tax are applicable (as mentioned in paragraph 4).

6 What, if any, taxes apply to an individual’s real property?

The acquisition of real estate is subject to real estate transfer tax. The rate for real estate transfer tax is 6 per cent for commercial and 2 per cent for residential real estate. If the real estate is gifted and the gift has been subject to Dutch gift tax, the real estate transfer tax may be (partly) offset against the gift tax due. If real property in the Netherlands is acquired by inheritance, no real estate transfer tax is levied.

Under certain conditions shareholdings in real estate companies are deemed taxable real estate for real estate transfer tax purposes. This fiction may also apply to shares in (holding) companies outside the Netherlands, if these shares (in)directly derive their value from real estate in the Netherlands.

Because the Dutch tax authorities take the position that real estate portfolios (including in real estate companies) are to be considered passive investment assets even if it concerns an actively managed portfolio, real estate owners in principle cannot apply the business succession facilities. As a result the sale of shares in a real estate company could result in income taxation over the gain in Box 2. Fortunately, there have been a number of (lower) court cases considering large real estate portfolios as entrepreneurial assets. Nevertheless, the qualification of real estate portfolios either as entrepreneurial assets or passive investments is highly dependent on the facts and circumstances of each case, and the outcome remains very uncertain.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Generally speaking, custom duties and VAT may be due in the Netherlands on the import of goods from outside the European Union. Within the European Union, in principle, no customs duties apply and VAT is payable under the local VAT legislation in the jurisdiction where the purchase is made.

For migrations from an EU country to the Netherlands, generally speaking, no customs declaration has to be made for the removal of personal goods. For cars, there are certain conditions to make use of an exemption for private vehicle and motorcycle tax. Special attention may also need to be given to specific goods such as pets and goods with a cultural value. In the case of migration to the Netherlands from a non-EU country, one will, generally speaking, be allowed to import furniture without paying taxes. However, one must apply for a permit in this respect.

8 What, if any, other taxes may be particularly relevant to an individual?

Dutch VAT is charged on supplies of goods and services in the Netherlands. The basic VAT-rate is 21 per cent. Certain supplies, such as educational services, medical services and financial services, are VAT-exempt. The low VAT rate of 6 per cent applies to the supply of, for example, food, (non-alcoholic) drinks, medicines, books, daily newspapers and magazines, and to services such as passenger transport, hairdressing and the letting of holiday homes. On Budget Day, an increase of the 6 per cent VAT rate to 9 per cent was announced for certain goods.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

If an individual taxpayer in the Netherlands transfers wealth into a trust, a foundation or a similar vehicle without receiving ownership or profit sharing rights in return, the transferred assets and liabilities will continue to be attributed to the individual taxpayer for income, gift- and inheritance tax purposes under ‘APV’ regulation. The attribution is effective if the transfer was done for personal or family reasons.

10 How are charities taxed in your jurisdiction?

Gifts and inheritances to qualifying charities are exempt from gift and inheritance tax. Furthermore the individual taxpayer under conditions is allowed a deduction of certain gifts for income tax purposes.

To benefit from this tax treatment, the charity needs to be recognised as supporting the public interest: algemeen nut beogende instelling. For this purpose the charity needs to meet certain strict conditions. The most important condition requires that at least 90 per cent of the actual activities of the charity support the public interest.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Although Dutch law does not have a trust concept of its own, foreign trusts are recognised in the Netherlands, as the Netherlands is a party to the Hague Conference on Private International Law (HCCH) Convention on the Law Applicable to Trusts and on their Recognition of 1 July 1985 (the Hague Trust Convention).

Generally speaking, trust assets are not affected by succession and forced heirship rules. However, it is theoretically possible that the settlement of assets into trust is regarded as a gift that harms forced heirship entitlements. This could result in a claim of a forced heir to the trust assets. Under the Hague Trust Convention, a trust may not need to be recognised if it harms forced heirship entitlements.

12 Does your jurisdiction recognise private foundations?

Foundations are recognised in the Netherlands. This also applies to foundations governed by the laws of another jurisdiction. A foundation under Dutch law is a legal entity with two main characteristics:

• the foundation does not have any members or shareholders; and

• the foundation’s aim is to realise a goal, as defined in its articles of association, by using capital designated for that purpose.

Foundations are legal entities mainly associated with activities other than businesses (eg, charitable, cultural and social activities). A foundation may stipulate its own goal (as long as such a goal does not contravene the law). Its goal is not necessarily limited to charitable purposes and may also include commercial activities.

The only mandatory corporate body of a foundation is its board. The foundation being a legal entity of its own means that, in principle, the liability of persons involved with it (as board members or otherwise) is limited.

A foundation is to be incorporated through the execution of a notarial deed by a Dutch civil-law notary, which must contain the articles of association of the foundation. The foundation and its board members must be registered with the Trade Register of the Dutch Chamber of Commerce.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Same-sex couples can enter into a registered civil partnership or marriage. In relation to property law, succession law and tax law, same-sex couples are treated in exactly the same way as heterosexual couples.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Couples, both heterosexual and same-sex, may enter into a registered civil partnership. For property law, succession law and tax law, a registered civil partnership has the same legal consequences as a marriage.

Succession

15 What property constitutes an individual’s estate for succession purposes?

For succession purposes, an individual’s estate consists of the property the individual has legal ownership of. Whether beneficial ownership is eligible for inheritance depends on the arrangements made between the legal owner and the beneficial owner. In principle, the usufruct of property ends upon the death of the usufructuary. Co-owners can agree upon an accrual clause, as a result of which the share of a co-owner in the jointly owned property accrues to the other co-owners upon death.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

A spouse requires the other spouse’s consent for gifts during lifetime, with the exception of usual, non-excessive gifts. Certain gifts need to be taken into account in calculating the children’s statutory share (see question 17). Agreements disposing of (a proportionate part of) an estate that has not yet devolved are null and void.

17 To what extent do individuals have freedom of disposition over their estate on death?

The basic principle is an individual’s freedom to dispose of his or her estate. There are no forced heirs. However, children as well as disinherited spouses and registered civil partners do have a number of statutory rights.

The children of the deceased are entitled to 50 per cent of the share that they would have received on intestacy (see question 18). Therefore, 50 per cent of the estate can be freely distributed. The children’s statutory shares take effect as claims against their deceased parent’s estate. The children can recover their claims from estate assets. If these are insufficient to recover the entire claim, the children can recover their claims from the gifts that were made by the deceased within five years preceding his or her death and if the intention of the gift was to infringe the children’s statutory rights.

The children can recover their claims from trust assets if the trust settlement is considered a donation by the deceased.

Children can collect their statutory share six months after the parent’s death. However, the parent’s will may contain a provision that the children can only claim their statutory share after the death of their parent’s:

• surviving spouse or registered partner; or

• life partner with whom the parent entered into a notarial co-habitation agreement.

This provision also applies when the surviving spouse or partner is not a parent of the children but a step-parent.

If a couple is married in the statutory full community of property under Dutch law, the estate consists of half of the total assets of the spouses, except for any private property, for instance, as a result of an exclusion clause stipulated by a donor or testator from which the individual received a donation, legacy or inheritance.

A disinherited spouse or registered partner has a number of statutory rights. For example, he or she can claim:

• the usufruct of the family home and household effects; and

• the usufruct of other estate assets if he or she, when considering all circumstances, needs this for his or her maintenance.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If there is no will, the intestacy rules apply. These provide that the deceased’s spouse (or registered partner) and children inherit equal shares in the estate. However, the children do not immediately receive this share. Rather, the deceased’s spouse or registered partner receives, by right, all assets of the estate and must discharge all liabilities: the statutory division.

The children receive a claim equal to the value of their share. However, this claim can only be collected after:

• the death of the deceased parent’s spouse or registered partner; or

• another event stipulated in the deceased’s will (such as remarriage of the surviving spouse or partner).

Stepchildren and cohabitants are not entitled to a share of the deceased’s estate, in the absence of a will.

If the deceased is not married or registered as a civil partner and has no children, his or her parents and brothers and sisters will inherit his or her estate. In principle they will each inherit an equal share, with the provision that a parent is entitled to at least a quarter share of the child’s estate.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

The determining factor for a child’s legal position is whether legal familial ties exist between the child and the deceased.

Legal familial ties arise between the child and his or her mother as a result of birth or adoption.

Legal familial ties between the child and his or her father arise as a result of:

• birth of the child within wedlock or during a registered civil partnership;

• formal recognition of the child by the father;

• judicial establishment of paternity; or

• adoption.

As long as a child has legal familial ties with a parent, regardless of the way these arose, the child is an intestate heir and is entitled to a statutory share.

Natural children (ie, biological) and stepchildren are not intestate heirs and are not entitled to a statutory share. However, they may be appointed as beneficiaries in the will.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

On 17 August 2015, the EU Succession Regulation (Brussels IV) came into force, also applying to the Netherlands. Under the Regulation, as a default rule, the whole of the succession to an individual is governed by the law of his or her last habitual residence. An individual may, however, designate the law of a state he or she possesses nationality of to govern the whole of his or her succession. Under the Regulation, no distinction is made in the succession of movable and immovable property.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

Generally, a will is made in the form of a deed, prepared and executed by a Dutch civil-law notary. A holographic will (that is a will, handwritten by the testator) is also possible, although very uncommon. This type of will must be deposited by a Dutch civil-law notary. In a deed of deposit the testator must declare, among other things, that his or her holographic will both meets the statutory standards and is deposited by the civil-law notary executing the deed.

Dispositions of clothing, personal objects, jewellery, furniture and specific books can be made in a codicil that needs to be handwritten, dated and signed by the testator.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

The Netherlands is party to the HCCH Convention on the Conflicts of Law Relating to the Form of Testamentary Dispositions 1961 (the Hague Testamentary Dispositions Convention). Under the Convention, a will made in another jurisdiction is recognised as valid if its form complies with the internal law of:

• the place where the testator made it;

• the country of the testator’s nationality, domicile or habitual residence (either at the time when he or she made the will or at the time of his or her death); or

• the place where the assets are located (for immovable property).

The declaration of inheritance (see question 24), inter alia, refers to the formal validity of the foreign will.

23 Who has the right to administer an estate?

If the deceased has appointed an executor with the authority to administer the estate, the executor represents the heirs during administration. The executor can sell the deceased’s assets if there are insufficient funds to discharge all liabilities, including legacies. In all other cases, the executor requires the heirs’ unanimous consent to dispose of the assets. The deceased can limit the executor’s authority. For example, the executor may be responsible only for handling the funeral or the payment of a specific legacy. Once the executor completes his or her task, he or she must submit an account of the estate administration.

If the deceased has expressly authorised the executor to act as a settlement administrator, the executor can dispose of the estate without the heirs’ consent.

If no executor or settlement administrator has been appointed, the heirs jointly administer the estate.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

The deceased’s estate passes directly to the heirs, unless the deceased provides otherwise. Usually a declaration of inheritance, prepared and executed by a Dutch civil-law notary, is required to prove entitlement to the estate.

The testator may appoint an executor or settlement administrator (see question 23).

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

A beneficiary can challenge a will on the following grounds:

• the testator’s incapacity; or

• forbidden provisions (eg, a provision for the benefit of a medical doctor during the treatment of the deceased or to a clergyman while ministering the deceased).

Children and disinherited spouses and registered partners have a number of statutory rights (see question 17).

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Children are legally represented by their parents or a guardian during their minority (until they reach the age of 18). The parents (or a guardian) need a sub-district court’s authorisation for certain legal acts (listed in the Civil Code) that significantly affect the minor’s property, such as donations on behalf of the minor.

A minor can own assets. These assets are managed by the administrator of the assets, generally the minor’s parents or a guardian. In a will, a testator can appoint someone other than the minor’s parent or guardian as an administrator of the assets acquired from the estate. This provision can also be made in the case of a donation.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual attains full legal capacity at the age of 18. A will can be made after attaining the age of 16.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

If a person is put under legal restraint by a sub-district court, the court appoints a legal guardian to represent him or her. A sub-district court can impose an administrator for the adult’s property if the adult cannot administer his or her own property. The administrator manages the property.

A power of attorney, given before the loss of capacity, remains valid. Foreign powers of attorney are normally recognised, but a notarial power of attorney is required for certain legal acts, such as providing a mortgage over Dutch immovable property.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Foreign nationals who wish to reside in the Netherlands for more than three months require a residence permit. An application must be filed with the Immigration and Naturalisation Service (IND). Most foreign nationals need to apply for a regular provisional residence permit (MVV) before entering the Netherlands. For a stay of less than three months, no residence permit or MVV is required. In such cases a visa will suffice. For EU (except for Romanian and Bulgarian) nationals, EER nationals and Swiss nationals, specific rules apply. These persons do not require a residence permit.

Employers are required to obtain work permits before hiring employees from outside the EU. In most cases the employer is required to demonstrate that no qualified Dutch or EU nationals are available to fill the vacancy. The maximum length of a work permit is three years.

Work permits are not required for employees qualifying as ‘highly skilled migrants’ or ‘knowledge migrants’ and for certain scientific researchers.

A foreign national must register with the local municipal authority if he or she remains in the Netherlands for longer than four months.

Certain professions may only be practised in the Netherlands if the employee has the correct certificate.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

For a stay of less than three months, no residence permit or MVV is required. In such a case a visa will suffice. Foreign nationals who wish to reside in the Netherlands for more than three months require a residence permit (see question 29).

31 Is there a visa programme targeted specifically at high net worth individuals?

Work permits are not required for employees qualifying as highly skilled or knowledge migrants and for certain scientific researchers. They do, however, require a residence permit. There is a specific visa programme for foreign investors who invest at least €1.25 million in the Dutch economy, who may apply for a regular temporary residence permit. A provisional residence permit is issued for a stay longer than three months.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

The employer who has an agreement (recognised sponsorship) with the IND to apply the highly skilled or knowledge migrant procedure can also submit an application on behalf of family members who wish to travel to the Netherlands with a highly skilled or knowledge migrant (at the same time as submitting the application for the highly skilled or knowledge migrant).

A spouse of a highly skilled or knowledge migrant does not require a work permit. The same applies to children of a highly skilled or knowledge migrant.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

For a highly skilled or knowledge migrant, the residence permit is granted for the same duration as the employment contract, with a maximum of five years. The residence permit for a stay as a foreign investor will initially be issued for a maximum period of one year. It is possible to extend this stay for another five years if the applicant complies with certain requirements.

These programmes do not give an individual the right to reside permanently or indefinitely in the Netherlands.

In general, a residence permit can be granted for an indefinite period. After five years of uninterrupted residence in the Netherlands with a Dutch residence permit for a definite period, it is possible to request a residence permit for an indefinite period. If an applicant complies with all EU requirements, then the inscription ‘EU long-term resident’ will be put on his or her residence permit. In the case of non-compliance with EU requirements, an applicant will be tested on conformity with the national grounds for application for an indefinite period residence permit.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

The aforementioned programmes (focused on highly skilled or knowledge migrants and foreign investors) do not provide for a specific possibility to obtain Dutch nationality.

In general, if a foreign national who has attained the age of majority wants to acquire (or regain) Dutch nationality, there are two alternative routes to follow: the option procedure or naturalisation.

For the option procedure, one must state his or her wish to become a Dutch national by filing a declaration obtainable from the town hall. If all conditions are fulfilled, the mayor will confirm that the applicant has become a Dutch national. The option procedure is the fastest and easiest way of acquiring Dutch nationality, taking about three months to complete. It costs much less than naturalisation and there is no need to submit proof of civic integration. However, not everyone qualifies for this procedure. One may qualify after living in the Netherlands for a certain period of time or if one is a former Dutch national.

The naturalisation process takes up to one year. If a person fulfils all conditions, he or she can start the procedure by filing an application form at the town hall. Official documents need to be presented, such as a passport or residence permit, and if applicable a marriage certificate and a child’s birth certificate, along with a civic integration certificate.

The application will be submitted to the municipality. The IND will then consider the application.

Update and trends

As per 1 January 2018 there were significant changes in the default matrimonial property regime under Dutch law.

For marriages entered into prior to 1 January 2018, the default matrimonial property regime was a full community of property, including all property, either acquired before or during the marriage, even property acquired by inheritance, legacy or gift. A testator or donor can provide under an exclusion clause that an inheritance portion, legacy or donation is the recipient’s private property, and therefore will not form part of the community of property.

For marriages concluded on or after 1 January 2018, a limited community of property regime applies. From this community of property, all property individually acquired prior to the marriage is excluded, as well as all property acquired by inheritance, legacy or gift is excluded. Under the new regime, a testator or donor may provide under an inclusion clause that an inheritance portion, legacy or donation will form part of the community of property the recipient is involved in.

Dirk-Jan Maasland

dirk.jan.maasland@loyensloeff.com

Jules de Beer

jules.de.beer@loyensloeff.com

Fred. Roeskestraat 100

1076 ED

Amsterdam

Netherlands

Tel: +31 20 578 57 85

Fax: +31 20 578 58 00

www.loyensloeff.com

Panama

Juan F Pardini, Eduardo Achurra and Juan R Sevillano

Pardini & Asociados

Tax

1 How does an individual become taxable in your jurisdiction?

Residents and non-residents of Panama are subject to taxation.

Panama tax law is based on the territoriality principle whereby, all foreign source income is exempted, but income and revenue produced within Panama are subject to Panamanian tax.

In other words, income tax is levied on all revenue produced within the boundaries of Panama, irrespective of where the income is received and of the domicile or residence of the taxpayer. Activities that take place outside of Panama are considered foreign source income and not liable to tax.

2 What, if any, taxes apply to an individual’s income?

Based upon our previous answer, an individual’s income generated from salaries, business investment or commercial activities within Panama will be subject to income tax or taxes (capital gain, VAT, dividend, interests, etc).

Income tax chart

Taxable income

Tax rate

Up to US$11,000

0%

From 11K up to US$50,000

15% for the exceeding of US$11,000 up to 50,000

More than 50,000

US$5,850 for the first 50,000 and a rate of 25% for any amount above of US$50,000

3 What, if any, taxes apply to an individual’s capital gains?

Capital gains derived from the sale of securities and negotiable instruments are subject to a 10 per cent tax. The purchaser must withhold 5 per cent of the sales price as an advance payment of income tax and remit that amount to the tax authorities.

Profits from the sale or transfer of real property are considered capital gains. If the transaction giving rise to the gain is part of the taxpayer’s ordinary business activities, the gain is subject to the corporate tax rate; if the transaction is not part of the taxpayer’s ordinary business activities, the gain is tax at a reduced rate of 10 per cent. However, in the latter case, the purchase must withhold 3 per cent of the higher of the purchaser price or the ratable value of the property as an advance payment of tax.

4 What, if any, taxes apply if an individual makes lifetime gifts?

In Panama, there are no taxes applicable to lifetime gifts.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

In Panama, there are no succession taxes.

6 What, if any, taxes apply to an individual’s real property?

In accordance with Panama’s tax legislation (updated in 2017), individuals owning real property are subject to pay property taxes every year – see with the following chart.

Property tax chart – main family property

Property value

Tax rate

US$0 to US$120,000

Exempted

US$120,000 to US$700,000

0.5%

US$700,000 and above

0.7%

Second properties and commercial real estate

Property value

Tax rate

US$0 to US$30,000

Exempted

US$30,000 to US$250,000

0.6%

US$250,000 to US$500,000

0.8%

US$500,000 and above

1.0%

It is quite important to note that any property tax exemptions granted prior to the new property tax legislation will be honoured in accordance with the time frame awarded.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Import duties, value added tax or luxury could apply for the import of goods.

VAT at 7 per cent is the general basis; however, some products are subject to 10 per cent or even up to 15 per cent VAT:

• import duties are based on the goods;

• luxury tax – zero up to 25 per cent;

• taxes are calculated on CIF value; and

• import of goods up to US$100 are exempted from VAT and duties.

8 What, if any, other taxes may be particularly relevant to an individual?

Residents and non-residents of Panama are subject to indirect taxes, which are related to the consumption of goods or use of services.

VAT is normally 7 per cent and it is applied to several goods and services.

Luxury tax may apply to several goods such as cigarettes and tobacco, liquor, jewellery, vehicles and others. The applicable rate will vary upon the goods or services.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Asset-holding vehicles including trusts, corporations or foundations are not taxable as long as they do not generate income and revenues within Panama. If such vehicles produce income and revenue within Panama, then they will be taxable at the corporate rate of 25 per cent from net revenue.

10 How are charities taxed in your jurisdiction?

Charities officially registered as non-profit entities before the Ministry of Government and the Tax Office will not be subject to taxation on income received from donations.

Donors to officially registered charities will be able to deduct any donation performed.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Panama law caters for all the main types of trust normally found in traditional common law jurisdictions, such as:

• discretionary trusts

• fixed interest trusts

• charitable trusts

• investment trusts

• real estate trusts; and

• others.

One of the basic features of taxation of trusts in Panama is that, unlike in many other Latin American countries, where in the case of trusts with settlors as beneficiaries the taxpayer is the settlor-beneficiary him or herself, in all cases in Panamanian trusts the taxpayer is deemed to be the trustee in his or her capacity as such, an obligation limited to the tax liability generated by the trust fund and to the extent of the trust fund itself, in accordance with the principle that the trust is a separate patrimony from that of the trustee.

The territorial tax system immediately assures the settlor that no income other than that generated within Panama, and only from non-exempt sources, will be taxed. Panama law expressly provides that, once a beneficiary has received trust property from a trust intended to have effect after the death of the settlor, all income deriving from such transfer is income tax exempt in Panama, making an excellent case for looking into suitable residence arrangements either in Panama itself, or in a country where foreign source income is only taxed on remittances.

It should be pointed out that there is no estate tax, succession tax, or any kind of forced heirship legislation in Panama or recognition of foreign forced heirship rulings. Once an individual has transferred property into a Panama trust structure during his or her lifetime, no one can claim any rights over that property by way of right of inheritance unless they are named beneficiaries of the trust.

Panama’s trust law also allows settlors to establish trusts governed by a foreign law, and foreign trusts are fully recognised. Panama is a signatory to the Treaty of Bustamante. Panama is not a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition; however, the Trust Law complies with the trust concepts expressed therein. Panama law ensures that rules such as forced heirship do not apply. A properly executed foreign trust will be recognised and enforced in Panama, provided that the settlor and the trustee agree to abide by the formalities and requirements of Panama law. The trustee individually can make this statement, if so authorised by the trust deed. Accordingly, foreign investors seeking to use a Panama trust to streamline their assets or organise their estate need not worry about the Panama public policy rules.

12 Does your jurisdiction recognise private foundations?

Foundations fully own the assets contributed to them and are managed by a foundation board or council. The founder of the foundation (the person establishing the foundation) normally establishes the foundation for a particular purpose. The organs of the foundation are strictly bound to this purpose. The founder decides the beneficiaries of the foundation and to which benefits the beneficiaries are entitled. All the intentions of the founder are written down in the by-laws of the foundation. The foundation board is entitled to distribute assets to the beneficiaries of the foundation, based on the by-laws of the foundation. The founder can also appoint an adviser or guardian to control the foundation board.

Significant advantages are offered by the Panama Private Interest Foundation. The following are some highlights:

• total exemption of taxes in Panama, including, without limitation, income tax, wealth tax, real estate tax, inheritance tax, sales and transfer tax and others;

• there is no legal requirement to disclose the name of the real founder, beneficiary or protector;

• there is no requirement to file any annual tax return or financial statement;

• there is no obligation to hold an annual meeting of the foundation council, the founders or the protectors;

• there is no legal requirement of maximum authorised capital;

• the payment of the foundation capital is not required for the incorporation of the foundation and there is no maximum time or deadline to make such contribution;

• there is no limitation in respect of perpetuities, accumulation of capitals and other restrictions which are required in similar structures in other jurisdictions, such as the Anglo-Saxon or common law trust;

• the private interest foundation can engage in any business or civil transactions (only in exceptional cases) in part of the world and in any currency;

• the founders, members of the foundation council, beneficiaries and protectors may be individuals or corporations of any nationality;

• the members of the foundation council need not be founders;

• the founders, the protectors and the members of the foundation council may be beneficiaries of the foundation;

• there is no limitation on the maximum permitted number of founders, members of the foundation council, beneficiaries or protectors;

• the founders and the members of the foundation council may hold their meetings in any country and may be represented by proxy;

• the foundation’s books and accounting books may be maintained in Panama or abroad;

• the foundation charter can be signed by an attorney in fact or by a trustee without the need to disclose the name of the founder; and

• private interest foundations incorporated in other countries can be redomiciled or continue existing as Panama private interest foundations and vice versa following a simple continuation procedure.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Panama has not yet recognised any form of legalised relationship status for same-sex couples.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Panamanian law does not recognise any type of legalised union among heterosexual couples other than marriage. There are many forms to acquire a marriage status, such as a common law marriage, although this one does not produce any legal effects, unless the couple request the recognition of their common law marriage, before the authorities, which will immediately transform the status from single to married, therefore, still constituting the same type of legal marriage relationship duly recognised by law.

Succession

15 What property constitutes an individual’s estate for succession purposes?

Any assets located in Panama, whether registered or non-registered, in the possession of a person, and whether included in the person’s will or not, are subject to be inherited through a succession process.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

During their lifetime, adults are entitled to dispose of their assets, as long as they have complete control over them, in any way they find suitable for their conditions, without any boundaries that might limit their will.

17 To what extent do individuals have freedom of disposition over their estate on death?

As long as a person prepares a will in time and through the valid means recognised by the law, in principle, the freedom of disposition of a person’s estate is total in Panama.

Nonetheless, there are some variables that can limit their will to secure some interests. A person may be limited in disposing a part of the estate in those cases where the testator has an underage child or an adult son or daughter who is under 25 and is still completing education, or an adult son or daughter who is incapable of sustaining him or herself owing to a medical condition, in order to provide them enough funds to cover financial support or their needs.

In any of the previously mentioned cases, the will can be approved, although if a person appears before a judge after the death of the testator claiming support for a child under these conditions, the judge will limit the estate of the deceased and ensure the provision of sufficient funds from the estate to cover the child’s support.

On the other hand, if the deceased does do not leave a will, a judge, after submitting a motion, will dispose of the deceased’s estate in favour of his or her legally recognised married partner and recognised sons or daughters.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If an individual dies in Panama without leaving valid instructions for the disposition of the estate, after the submitting of a motion a judge will dispose of the deceased’s estate in favour of the deceased’s legally recognised married partner and recognised sons or daughters in equal parts. If there is no wife or sons, it will go to their closest ascendants. If there are no ascendants alive, the estate will go to the closest relative. If there are no relatives, the assets will be transferred to the government.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

If an individual dies without leaving valid instructions for the disposition of the estate, there is no difference between adopted or illegitimate children among natural legitimate children. But if the individual did not prepare a valid will, the law will not recognise the rights of an illegitimate or unrecognised son. Properly registered adopted children will always be treated as a natural legitimate child.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

The Civil Code is the statute that governs the distribution of an individual’s estate regardless of the type of property within it. Nonetheless, the location of the assets determines the applicable law, therefore lex situs governs all matters in Panama relative to the estate.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

There are three types of will valid in Panama. The simplest one is a handwritten sheet of paper signed by the individual. The only formality required for this type of will is that it has to be written and signed by a person of legal age and it has to include the date on which it was signed.

The most commonly used type of will is a deed drafted by a Panamanian lawyer, properly notarised by a Panamanian notary.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign notarised wills are recognised under Panamanian law. As long as the will complies with the formalities established by the law of the country in which it was rendered and the document is legalised by apostille under the Hague Convention or by a legalisation process at the Consulate of Panama, the document will be valid and executable in Panama.

23 Who has the right to administer an estate?

According to Panama law, a testator has the authority to designate a person to administer the estate. If there is no determination on the will, the court will appoint an administrator of the estate.

The only limitation, according to our law, is that the administrator must be a person of age, capable of undertake legal obligations.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

The only way to pass title over the deceased’s assets is through a judicial process before a Panama court.

Depending on the successor’s age and conditions, commonly there are no administrators, unless there are under age child or persons with limited capabilities that might not be able to freely dispose of their assets.

Normally, the assets remain under the same conditions, while heirs go through the process before the court until the judge renders a judgment recognising their rights as successors.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Within the required judicial process, there is a phase, in which disappointed heirs, beneficiaries or even creditors are able to show up before the court and submit a motion supporting their claimed right.

This phase begins with a public announcement that the deceased’s succession process has been opened, rendered by the court and published on a national journal by the heirs, for five consecutive days.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

In cases in which the one or more heirs are underage children, the court will appoint an administrator of their assets until they reach the age of 18. Most of the time, this administrator is the same living relative who retains custody of those children.

The rules for holding and managing the property of a minor are open to the testator’s will. If the deceased does not leave instructions, then the rules of the Panama Civil Code will apply.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual attains legal capacity for the purposes of holding and managing property at the age of 18.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

If a person losses the capacity to manage his or her affairs, a judge must declare him or her incompetent and appoint an administrator of his or her assets. Normally, this is decided in a custody process, in which a relative requests to be named custodian, and after the court’s judgment this person may gain administration powers over the assets.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Panama is visa-free for an extensive list of countries; nevertheless, the immigration authorities do have a list of citizens that require a travel visa for Panama as such countries are considered a massive migration risk or a threat to local economy.

Some citizens may have more restrictions than others.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

In general, a foreign national may stay in Panama up to six months. Nevertheless,for some citizenships the immigration authorities have limited the stay time to one month or up to three months.

31 Is there a visa programme targeted specifically at high net worth individuals?

There are few programmes that could be considered as targeted at high-net-worth individuals based upon the investment amount (ie, a person of means programme, free trade zone investor, large investor programme, second passport and others).

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Panama’s immigration regulations entitle the principal applicant to claim family members as dependents under the following rules:

• her or she is the principal applicant’s parents;

• he or she is the principal applicant’s spouse;

• they are principal applicant’s children up to 18 years old; and

• they are the principal applicant’s children between 18 and 25 years if such children are still under the economical protection of the applicant as well as attending university or a college.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Depending on the residency programme, the granting of permanent residency status could be in different stages.

There are two immigration residency programmes that grant immediate permanent residency status to the applicant, which are the retiree and the friendly nation programmes.

• Retiree – The principal applicant must be receiving from a government or private entity a lifetime pension of no less than US$1,000 per month.

• Friendly nation programme – The principal applicant must be from a citizenship considered as part of the friendly nation list and further comply in creating an economic link with Panama by means of setting up a business or purchasing a real estate. Unlike other programmes, there is no specific amount for the investment.

• Other programmes, such as the investor and some employment programmes, initially grant a two-year temporary residency status and further the right to apply for a permanent residency status.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

All permanent residency programmes (friendly nation, investors or employment) grant the applicant the right to apply for citizenship after seven years. However, the retiree programme is not included.

Juan F Pardini

pardini@padela.com

Eduardo Achurra

Juan R Sevillano

Plaza 2000 Tower, 10th Floor

50th Street

Panama City

Panama

Tel: +507 223 7222

Fax: +507 223 7535

www.pardinilaw.com

Poland

Sławomir Łuczak and Karolina Gotfryd

Sołtysiński Kawecki & Szlęzak

Tax

1 How does an individual become taxable in your jurisdiction?

There are two types of tax obligations in Poland: unlimited and limited.

Individuals with their place of residence in Poland are subject to the unlimited tax obligation, which means that they are taxed on their worldwide income, regardless of where the income is earned. A person passes the residence test for Poland when an individual is a person who is physically present in Poland for more than 183 days during a tax year or has a centre of personal or economic interests in Poland (centre of vital interests). The provisions of the relevant tax treaties should be taken into account while applying this rule.

The limited tax obligation arises when individuals do not have a place of residence in Poland, and they are taxed solely on their income derived from a Polish source. The concept of domicile is not recognised in Poland.

2 What, if any, taxes apply to an individual’s income?

Personal income tax (PIT) is paid by individuals. A progressive income tax scale is applied to individuals in Poland. Tax rates vary depending on income earned, defined as: ‘the total revenue minus tax deductible costs, earned in a given taxable year’.

The Polish tax bands are relatively low: 18 per cent and 32 per cent. When taxpayers earn less than 85,528 zlotys during the fiscal year, they are in the first tax band, and if more than 85,528 zlotys they are in the second band. It is worth stressing that according to statistics, only approximately 3 per cent of taxpayers pay the higher tax band of 32 per cent. Most wealthy taxpayers optimise their profits using regulations intended for natural persons conducting a business activity. These individuals are taxed according to the tax scale; however, at their request, they may tax their income at a 19 per cent flat-rate tax rate that is dedicated to natural persons conducting a business activity. It may be assumed that the most affluent Polish taxpayers are self-employed in Poland for tax purposes.

PIT is imposed on different sources of income such as:

• a labour-based relationship and an employment relationship, including a cooperative employment relationship;

• retirement or disability pension;

• personal services;

• non-agricultural business activity;

• special departments of agricultural production;

• lease, sublease, tenancy, subtenancy and other similar agreements;

• monetary capital and property rights;

• paid disposal of, among other things, real property or parts thereof, and real property interests;

• movables;

• activity conducted through controlled foreign company; and

• other sources.

A taxpayer’s personal and family situation may be taken into account in the tax system, especially in income taxes, in the form of reliefs and tax exemptions. Poland, like most other EU countries, provides various tax credits such as: internet tax credit, tax credit for an individual retirement security account, and a tax credit for charitable donations. Since the Polish tax system favours families in many tax respects, a large part of tax credits concerns a taxpayer’s personal situation. Therefore, Polish income tax provides for a child tax credit, joint taxation (with children) of single parents, and joint taxation of spouses; with the aim of ensuring a family has a reduced financial burden.

3 What, if any, taxes apply to an individual’s capital gains?

Income on capital gains is subject to personal income tax at a flat rate of 19 per cent. Such income is not aggregated with income taxable pursuant to general Polish income tax rules. Income on capital gains should be calculated separately in an annual tax return.

It is noteworthy that according to Polish law, gains derived from the sale of real property are treated as separate income from capital gains.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Lifetime gifts are taxable in accordance with transfer upon death under the Polish Inheritance and Gift Tax Act (the answer to that question is provided in more detail in question 5).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Natural persons are the only taxpayers of inheritance tax. Inheritance tax is imposed on acquisition as a result of inheritance of property (movable and immovable) located in Poland, and property rights exercised in Poland, including money. Tax is also applied to the acquisition of property located outside of Poland and rights exercised abroad when at the time of the decedent’s death, the beneficiary was a Polish national or had a permanent place of residence in Poland. If neither the decedent nor the beneficiary were Polish citizens or had a permanent residence in Poland at the moment of death, inheritance tax is not levied.

Payers of inheritance tax are grouped into three categories depending on their relationship with the testator as follows:

• the first group consists of: the spouse, descendants (children, grandchildren, etc), ascendants (parents, grandparents, etc), son-in-law, daughter-in-law, siblings, stepfather, stepmother, stepchildren and parents-in-law.

• the second includes: descendants of siblings (niece, nephew, etc), siblings’ spouses, siblings of spouses’ spouses, the spouse’s siblings’ spouses, other descendants’ spouse’s siblings of parents (aunties, uncles, etc), and the stepchildren’s descendants and spouses.

• finally, the third group comprises other acquiring parties, including unrelated parties.

Determining the base and the rate of Polish inheritance tax depends on the specific tax group to which the testator belongs and on the minimum tax-exempt amount. Currently, tax-exempt amounts are as follows:

• for acquirers from tax group 1: 9,637 zlotys;

• for tax group 2: 7,276 zlotys; and

• for tax group 3: 4,902 zlotys.

Tax on inheritance applies to the acquisition of ownership of assets over the tax-free amount.

The table below presents the rates of Polish inheritance tax.

Taxable base

Tax scale

Above

Up to

(1) from acquirers in group I

–

10,278 zloty

3%

10,278 zlotys

20,556 zloty

308.30 zlotys + 5% of the surplus over 10,278 zlotys

20,556 zlotys

–

822.20 zlotys + 7% of the surplus over 20,556 zlotys

(2) from acquirers in group II

–

10,278 zlotys

7%

10,278 zlotys

PLN 20,556 zlotys

719.50 zlotys + 9 per cent of the surplus over 10,278 zlotys

20,556 zlotys

–

1,644 zlotys + 12 per cent of the surplus over 20,556 zlotys

(3) from acquirers in group III

–

10,278 zlotys

12 per cent

10,278 zlotys

20,556 zlotys

1,233.40 zlotys + 16 per cent of the surplus over 10,278 zlotys

20,556 zlotys

–

2,877.90 zlotys + 20 per cent of the surplus over 20,556 zlotys

The taxpayer has 14 days from the day the decision of the revenue office determining the tax rate has been delivered to pay the inheritance tax (unless the notary collected it earlier).

Poland is unique among tax jurisdictions across the world for exempting the testator’s immediate family members from inheritance tax. Such a solution aims to allow a family to accumulate wealth across generations, and therefore the provisions of inheritance tax give preference to the family. The beneficiaries need to report the acquisition to the competent head of their tax office within six months from the day the tax obligation has arisen.

6 What, if any, taxes apply to an individual’s real property?

Real estate tax (RET) is a local tax, which is classified in the wealth tax group. RET is levied on buildings or their parts, lands and constructions by the local tax authorities. Tax on a building or plot of land is calculated separately for each area. For fixed installations or constructions, the book value is taken into account.

Natural persons are RET taxpayers when they are owners, freeholders or usufructuaries of the real property, or they are dependent holders of real estate being in the ownership of the state treasury or municipalities.

Each local authority sets its own tax rate that is binding within their jurisdictions only. The maximum rates are specified in the RET Act. Real estate tax is an annual tax; however, taxpayers should pay instalments proportionate to the duration of the tax obligation. Moreover, they should submit information on the real property within a specified period.

Some properties are exempted from RET such as: sheltered workshops, research institutes, and entrepreneurs with a ‘research and development centre’ status.

The sale of real property is subject to 19 per cent income tax.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

When an individual imports or exports assets other than cash for personal use and enjoyment, no specific taxes will be imposed. However, when the purchase is carried out within the scope of the entrepreneur’s business activity, it may trigger VAT and customs duty.

8 What, if any, other taxes may be particularly relevant to an individual?

Poland, as the EU member, is obliged to implement EU Directive 2016/1164 (ATAD). One of tool against tax avoidance provided in ATAD is exit tax. ATAD on very general level shapes exit taxation, leaving member states to decide about specifics.

According to ATAD, a taxpayer shall be subject to tax (tax rate to be decided by a given EU member country) at an amount equal to the market value of the transferred assets, at the time of exit of the assets, less their value for tax purposes. Exit taxation should be imposed in the case of transfer of assets, tax residence or business carried by permanent establishment from one member state to another member state or third country, when those assets are no longer taxed in that member state.

According to ATAD, the exit taxation should be introduced no later than 31 December 2019 and enter into force no later than 1 January 2020. However, member states may introduce exit taxation earlier. Unfortunately, Poland representatives announced that Polish exit tax will be introduced since 1 January 2019.

According to the official draft of the legislation, the Polish exit tax will be imposed on:

• CIT payers (corporations) – the tax will be due when the value of the transferred business or its parts exceeds 2 million zloty and it will be equal to 19 per cent from surplus over that threshold,

• PIT payers (individuals being Polish tax residents) who have lived in Poland for at least five years – the tax will cover revenues related to business operations, but also shares and stocks, securities, derivative instruments and investment funds; the aforementioned 2 million zloty threshold will also apply. There will be two tax rates: 3 per cent and 19 per cent (ie, if the tax law permits reducing the market value of an asset by costs of its acquisition, the 19 per cent rate is applied). If the taxpayer has no right to deduct acquisition costs, 3 per cent rate is applied.

• the exit tax will also apply in case of free handover or transfer of assets to the entity other than a company or cooperative (eg, family foundation, trust).

This means that individual taxpayers will be liable for the exit tax if they transfer assets both related to their business and assets that are not linked with business activity. However, in a limited scope (only the following assets will be taxed with exit tax: all rights and obligations in a company that is not a legal person, shares in the company, shares and other securities, derivative, financial instruments and participation units in capital funds). Exit tax applies to transfers of the above-mentioned assets only when a taxpayer has been a Polish tax resident for at least five years in the 10-year period preceding the change of the tax residence.

Taxpayers will be obliged to submit a declaration and pay tax until the seventh day of the month following the month in which the total market value of the transferred assets exceeded 4 million zloty. Under certain conditions, taxpayers may be able to apply for payment in instalments for a period not exceeding five years.

VAT is a broad-based tax levied on the supply of goods and services in Poland. The rate depends on the nature of the goods or the services rendered. The standard rate is 23 per cent and it is charged on most goods and services. A reduced rate of 8 per cent or 5 per cent is imposed on supplies such as: certain food, medicines and certain transport services. A zero per cent rate applies to the intra-community supply of goods, exports of goods, some international transportation and related services.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts and private foundations are unknown to the Polish legal system, and therefore they are not used in Poland. Until 2017, optimisation structures in Poland had been established by using closed-end funds. However, from January 2017 the taxation of the investment funds has been changed. The new provisions have repealed the existing regulations constituting a basis for exemption from corporate income tax for Polish closed-end investments funds (CIF) and foreign collective investment institution of a closed type.

In practice, this means that profits of these funds are subject to the standard income tax of 19 per cent if derived from the following:

• participation in Polish or foreign tax partnership;

• interest on loans granted to such entities;

• interest on equity contributions to such entities;

• donations and fully and partially free-of-charge performances of such entities; or

• securities issued by these entities and from the sale of participation in such entities.

The above-mentioned exclusions from the CIT exemption aim at the elimination of tax optimisation schemes involving Polish CIF that has been a part of the chain of tax transparent vehicles, including the Luxembourg special limited partnership.

However, it should be noted that some types of CIF’s income are still exempt within specific exemption and considering above exclusions (eg, income from real property directly owned by CIF).

Polish open-end funds and special open-end funds (not applying the policies of closed-end funds) may benefit from full tax exemption without any limitations.

As for funds from the European Union or European Economic Area there is CIT exemption for them when:

• they are subject to income tax in the state where they have their registered office on all of their income, wherever obtained;

• the only subject of their activity is collective investment of funds raised through a public offering of participation units in securities and money-market instruments;

• they operate pursuant to a licence from the competent financial market regulator in the state where they have their registered office;

• their activity is subject to direct supervision by the competent financial market regulator of the state where they have their registered office;

• they have a depository holding the fund’s assets; or

• they are managed by entities operating pursuant to a licence from the competent financial market regulator of the state where such entities have their registered office.

The above eligibility for CIT exemption will only be applicable in cases when foreign funds operate in a country with which Poland has concluded a double tax treaty or other international agreement allowing Polish tax authorities to receive tax information from the tax authorities of the investment funds.

The CIT exemption is not applicable to collective investment undertakings when:

• they operate in the form of a closed-type collective investment undertaking or are an open-type collective investment undertaking operating under the investment rules and restrictions applicable to closed-type collective investment undertakings; or

• under their founding documents their participation units are not offered through a public offering or admitted to regulated trading or an alternative trading system and can also be acquired by natural persons only if they make a one-time acquisition of participation units of no less than €40,000.

10 How are charities taxed in your jurisdiction?

Polish law provides for two primary forms of not-for-profit, non-governmental organisations (NPOs): associations and public foundations. Polish NPOs may apply for public benefit organisation (PBO) status.

PBOs are exempt from paying taxes (such as: CIT, real estate tax, transfer tax, etc) devoted to their statutory goals. Associations and foundations that do not acquire PBO status are exempt from paying CIT under the condition that their statutory objectives fall within particular categories such as: science, education, culture, sports, environmental protection, support for technical infrastructure in rural areas, healthcare, social care, religious worship, the occupational and social rehabilitation of the disabled, and charity.

The NPOs will be obliged to pay tax on unrelated business income. In addition, foundations and associations are not subject to inheritance and gift tax in Poland.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Not applicable.

12 Does your jurisdiction recognise private foundations?

Not applicable.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Same-sex marriages are unknown to the Polish legal system; therefore, the people in such relationships are not privileged in scope of succession and taxes.

Homosexuals are not subject to intestate succession. However, there are no obstacles to prevent either party in such a relationship from drawing up a will that decides who will receive a party’s estate. Nevertheless, a person in a same-sex relationship can receive the right to a tenancy from the deceased partner. This was confirmed by the Supreme Court in its resolution, in which it was held that the person of the same sex who is connected through emotional, physical and economic ties with the tenant, may receive the right to the tenancy from the deceased partner just as a wife or a cohabiting partner can.

Both income tax and gift and inheritance tax preclude the more favourable treatment of people in a same-sex relationship. This means that people in such relationship may not benefit either from: the joint-taxation of spouses for income tax purposes, or the exemption from gift and inheritance tax. Gift and inheritance tax is levied on a person in a same-sex relationship at the highest amount, since these people are classified in the third tax group and they are treated as other acquiring parties.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

No. Poland does not provide any regulations of legal relationship for heterosexual couples other than marriage. Individuals in such relationships do not enjoy any tax and succession benefits. They are treated as single and unprivileged taxpayers.

Succession

15 What property constitutes an individual’s estate for succession purposes?

An individual’s estate for succession purposes includes all the decedent’s property rights and obligations of a civil law character.

An estate may consist of the right of ownership in immoveable property or moveable property (including among others: perpetual usufruct, lien and mortgage, and the cooperative right of ownership to the premises).

It should be noted that both autonomous possession and dependent possession may be included in the individual’s estate.

Also, receivables resulting from concluded contractual relations or unjust enrichment constitute an individual’s estate.

Moreover, heirs acquire the rights of the testator connected with the work performed by the testator. This means that the estate relates to property claims to which the worker is entitled due to an employment relationship (eg, the outstanding remuneration for work which the testator has undertaken).

The decedent’s securities (cheques and bills) and copyrights are inheritable.

However, the decedent’s rights and obligations that are personal in nature (eg, support duty) are excluded from the estate. It should be noted that decedent’s debt is also inheritable.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

In general, mutual wills and contracts of inheritance are forbidden under Polish law. There is only one exception to this rule (ie, a contract of renunciation of inheritance), in which a person who is a statutory heir renounces the statutory inheritance after the death of the testator. This agreement should be concluded in the form of a notarial deed. Unless otherwise agreed, the renunciation of inheritance includes also descendants of the person who renounces the estate.

The testator may dispose its estate during its lifetime in the form of legal donations. Such legal donations may take the form of a disposal of all or a large part of estate’s assets accumulated over the life of the testator.

Moreover, if the decedent was married at the time of the death and a marital property regime was set out between spouses, the decedent’s estate consists of its separate property and its share of the community property. The other half passes automatically to the surviving spouse as the surviving spouse’s share of the marital property.

17 To what extent do individuals have freedom of disposition over their estate on death?

The guiding principle of Polish succession law is the testament’s freedom. It means that the testator has the right to withdraw from statutory succession and it may dispose freely its own estate on death.

Nevertheless, Polish succession law protects the closest relatives of a decedent by forced share. Only descendants, a surviving spouse and the decedent’s parents have the right to a statutory portion (ie, these heirs that would have inherited statutorily in the absence of a will). The forced share takes the form of a financial claim directed to a testamentary heir and is equivalent to one-half or two-thirds of the share that would have been received by a claimant under statutory rules. A claim for a forced share should be brought to a court within three years from the date of the estate’s opening.

Polish succession law protects the testator’s testamentary freedom in such a way that a will is invalid if it was concluded in a state excluding conscious or free decision-making or the testator expresses its intent under the influence of error or threat. Two other important principles affect the interpretation of a will. First, a will should be interpreted in a manner as to ensure that the testator’s intentions are satisfied at the maximum level. Second, if a will may be interpreted in various ways, the interpretation should reflect the testator’s binding dispositions.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

Statutory succession should be applied when no (valid) testament exists or the persons, who were appointed as heirs in the testament, disclaimed the testament, or they are unable to become heirs. There are four groups of heirs under Polish succession law. The range of these entities is determined by family ties such as: blood ties, marriage or adoption.

In the first group, the surviving spouse and descendants will inherit. Here, the principle that children and a spouse inherit in equal parts applies; however, the spouse’s share cannot be less than one-quarter of the entire estate.

In the second group, in the absence of descendants, the spouse and decedent’s parents will inherit. In this case, the inheritance attributable to the spouse must correspond to half of the decedent’s estate. If the decedent’s parents have died, the inheritance attributable to this parent goes to the decedent’s siblings or, if the decedent’s siblings have died, their children.

The third group of heirs is entitled to the succession solely when there are no heirs in the first two groups. This category includes: the decedent’s grandparents or, if they are also deceased, their children.

The fourth group consists of children of the decedent’s spouse whose parents were not alive when the estate is opened. Last of all, the municipality in which the decedent last resided will inherit, or if the decedent’s residence cannot be determined or it is located abroad, the State Treasury.

Here, it should be indicated that the sequence of the inheritance and the range of the entities entitled to the succession presented above is a result of amendments to the Polish succession law from 2009. So far, provisions in the scope of statutory succession have been rigorous and have prevented grandparents and their descendants from succession. Another key change is the testator’s stepchildren’s entitlement to the succession; however, they inherit only when their parents have passed away. The amendment was designed to strengthen family ties and to limit the municipality’s and state treasury’s access to the succession in a situation where a member of the testator’s family is still alive.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Adopted and illegitimate children are treated the same as natural legitimate children under Polish succession law.

Children adopted in a full manner inherit on the same terms as the testator’s own children. They do not inherit from their biological parents and their relatives. It should be noted that when the spouse adopts the other spouse’s child (eg, from the previous relationship) the above rule is not applied.

In the case of a partial adoption (eg, someone from the family takes care of a child), the adopted child will always inherit from its adopter, but not from the adopter’s family (ie, other children, spouse or parents). This is because partial adoption creates a bond only between the adopter and the adopted child.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Key changes have been introduced in the area of international succession. The European Union’s Succession Regulation, Regulation (EU) No. 650/2012, came into force in 17 August 2015, which is a binding act for 25 EU countries (with the exception of Denmark, Ireland and the United Kingdom). Under the new regulation, the decedent’s habitual residence at the time of its death is relevant to determine the proper succession law.

Until 17 August 2015, the applicable succession law was that of the testator’s nationality and in the case of real property, the country where the property was located. This means that Polish courts have had jurisdiction to rule on the succession when the decedent had Polish citizenship at the time of death, the decedent’s habitual abode was in Poland or the decedent’s property or assets were held in Poland.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

To make a valid will in Poland, a testator should be a person over 18 years old with full legal capacity, who prepares the will personally. The will may be revoked at any time.

The testator may express its last will through one of three ordinary forms of will.

The first is the simplest and the most popular; the will should be written entirely by the hand of the testator, who must sign and date it.

The second may be made in the form of a notarial deed. This type of a testament is the safest, since it is more difficult to give rise to contestation of the validity of a testament prepared in a notarial deed. Moreover, a testament drawn up as a notarial deed assures that the testament’s substance precisely reflects the testator’s intention.

The last type of ordinary will is not widely used. It is based on making a will by declaring its content orally before a local government officer in the presence of two witnesses. The document needs to be signed by the testator, the local government officer, and the witness.

The Polish Civil Code provides also three types of special wills:

• first is a nuncupative will, which may be prepared only when the testator is unable to make a testament in an ordinary form or is in immediate danger of death;

• second, the will of a soldier, which may be prepared only during a time of war or mobilisation; and

• third, in certain situations, while travelling, a testament may be prepared on a Polish ship or plane. The testator should make an oral declaration to the captain of the ship or the plane or his deputy in the presence of two witnesses.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Yes. Foreign wills are recognised in Poland. Under article 27 of the European Union’s Succession Regulation, a will is valid when it complies with the law of the state where the testator made the will, the testator’s nationality, the testator’s residence or habitual abode or the location of the assets (in the case of real property). If the will is valid under the above-mentioned conditions, the will is also valid under Polish law.

23 Who has the right to administer an estate?

A testator may appoint an executor of the will to ensure that all the testamentary provisions will be properly conducted; nevertheless, this institution is not widely exercised in Polish succession law. Under Polish civil law, the executor may be an adult natural person with full legal capacity, who cannot be treated as a fiduciary or a trustee. No legal education is required. The testator may appoint the executor in his will. The testator may appoint more than one executor, which means that the powers of each executor of the will may relate to different parts of the testator’s estate. The executor of the will is a party to all proceedings concerning the rights and duties of persons involved in the process of managing the division of the estate.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

The acquisition of the title to a decedent’s assets does not require the completion of any formalities. This means that an heir is not obliged to submit a declaration on the acceptance or rejection of an estate. However, for practical reasons, the heir should request for confirming inheritance acquisition in the court. When heirs do not do anything within the prescribed time limit, they are deemed to have accepted the inheritance and are liable for debts to the assets of inheritance (acceptance with benefit of inventory).

The executor of the will is primarily an administrator of the estate and it is responsible for custody of the estate. Moreover, the scope of the executor’s responsibilities includes payment of the debts under the succession, execution of the legacies and the handover of the ownership of succession property to the heirs pursuant to the testator’s will and the Polish Civil Code. When the testator appoints the executor, until the distribution of the estate, the heirs are deprived of the right to dispose of the estate’s assets. In particular, they may not sell succession property, but they may dispose their share in the estate.

The executor of the will may sue and be sued on matters arising in connection with the administration of the estate, debts under the succession, and the rights regarding the estate. The executor is entitled to remuneration due to the performed function.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Heirs and beneficiaries may challenge the validity of a will before a civil court. They may claim that a given testamentary disposition is invalid on the grounds that it was made:

• in a state precluding conscious or free decision-making and expression of intent;

• under the influence of an error, justifying the supposition that if the testator had not acted under the influence of an error, the testator would not have made a will of that content; or

• under the influence of a threat.

It should be noted that the invalidity of a will for the above-mentioned reasons cannot be relied on after three years have passed from the day on which the person having an interest therein learns of the cause of the invalidity and, in any case, after 10 years have passed from the opening of the succession.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

A statutory representative is responsible for holding and managing the property of a minor. In most cases, a statutory representative will be one of the parents.

When none of the parents may represent the child, the guardianship court appoints a guardian for a child. In the case when parental custody is suspended, limited or deprived by the court, the court appoints a custodian to represent the minor.

It is a basic rule that a legal act performed through a representative within the limits of its authorisation, produces a direct effect for the minor. The consent of the statutory representative is required when a person with a limited capacity for legal acts (ie, minor) assumes an obligation or disposes of its right.

Nevertheless, when a child executes a contract of a type commonly executed in minor current day-to-day matters, this contract becomes valid at the moment it is performed, unless it causes serious harm to that person. A minor may, without the consent of his or her statutory representative, dispose of its earnings (such as scholarships or casual seasonal work) unless the guardianship court rules otherwise for good cause. Also, when the statutory representative of a minor gives him specific property items for unrestricted use, that child acquires full capacity for legal acts concerning these property items. According to the law, legal acts for which the consent of the statutory representative is insufficient constitute an exception.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

According to Polish civil law, full capacity for legal acts is acquired at the moment of becoming an adult (18 years old).

Minors who have reached 13 years of age and persons who are partially legally incapacitated have limited capacity for legal acts. Nevertheless, when a person who does not have capacity for legal acts executes a contract of a type commonly executed in minor current day-to-day matters, this contract becomes valid at the moment it is performed unless it causes serious harm to that person. A minor may, without the consent of his or her statutory representative, dispose of his or her earnings unless the guardianship court rules otherwise for good cause.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Under Polish civil law, there are two cases when someone may lose their capacity: full or partial legal incapacitation.

A person may be fully legally incapacitated, when the person has reached 13 years of age and is incapable of controlling his or her behaviour due to mental illness, mental retardation or other mental disorder such as alcoholism or drug addiction. A guardian is appointed for that person unless the person is still under parental authority.

A partial legal incapacitation may arise when an adult (a person, who has reached 18 years of age) requires assistance to manage their affairs due to mental illness, mental retardation or other mental disorder, in particular alcoholism or drug addiction. A curator is appointed for an individual who is partially legally incapacitated.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Poland is part of the Schengen area, a zone without controls on internal borders that comprises 28 countries. Third-country nationals may enter Poland if they are in possession of a valid travel document and a visa (if required).

Citizens of the following countries are not required to be in possession of a visa when entering Poland for fewer than 90 days:

• EU countries and candidate countries for EU accession (ie, Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia); and

• for holders of biometric passports: Andorra, Antigua Barbuda, Argentina, Australia, Bahamas, Barbados, Brazil, Brunei, Canada, Chile, Costa Rica, El Salvador, Guatemala, Honduras, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Macao, Malaysia, Mauritius, Mexico, Monaco, New Zealand, Nicaragua, Norway, Panama,v Paraguay, Saint Kitts and Nevis, San Marino, Seychelles, Singapore, South Korea, Switzerland, Taiwan (for holders of passports that include an identity card number), the United States, Uruguay, the Vatican and Venezuela.

This means that foreigners from countries such as Russia, Belarus, Ukraine, Georgia, Turkey, India or Vietnam should provide a visa before entering Poland’s territory. Council Regulation (EC) No. 539/2001 includes a list of third countries whose nationals must possess valid visas.

There are three types of visas in Poland:

• a transit airport visa for citizens from: Afghanistan, Bangladesh, Democratic Republic of the Congo, Eritrea, Ethiopia, Ghana, Iran, Iraq, Nigeria, Pakistan, Sudan or Sri Lanka, who do not intend to leave the international transit area of the airport while travelling by air from a third state to another third state with a stopover at an airport in the Schengen area (in the territory of the Republic of Poland);

• the Schengen C-type visa, the most common type of visa, which is valid for stays of no more than 90 days per period of 180 days. The unified Schengen visa entitles the holder to stay in the territory of all Schengen states or only in the territory of Poland. Uniform visas are issued for travellers going to Poland for reasons of tourism, visiting, carrying out economic or cultural activities, participation in international conferences or sport events, business, education, etc. The visa permits a continuous stay in the territory of the Republic of Poland or multiple consecutive periods of stay not exceeding 90 days jointly within the period of 180 days; and

• the last type of visa, the national D-type visa, is for foreigners who intend to stay in the territory of Poland for a total of more than 90 days (at least 91 days) during one or more visits within a half-year period calculated from the date of first entry.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

See question 29.

31 Is there a visa programme targeted specifically at high net worth individuals?

No. Poland does not provide such a programme.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Not applicable.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Not applicable.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Not applicable.

Sławomir Łuczak

slawomir.luczak@skslegal.pl

Karolyna Gotfryd

karolina.gotfryd@skslegal.pl

Ul Jasna 26

00-054 Warsaw

Poland

Tel: +48 22 608 7056

Fax: +48 22 608 7070

www.skslegal.pl

Singapore

Ronald Choo and Samantha Ng

Ronald Choo LLC

Tax

1 How does an individual become taxable in your jurisdiction?

An individual’s income that has its source in Singapore is chargeable to income tax in Singapore. Singapore does not have any capital gains, inheritance or gift taxes.

Generally, an individual’s income that arises outside of Singapore (except income from employment overseas that was incidental to employment in Singapore) may be remitted to Singapore without being taxed.

An individual may be resident or non-resident for income tax purposes. The tax treatment (eg, applicable tax rates, exemptions from income tax and availability of personal reliefs) may differ depending on the residency of the individual.

An individual will be treated as a tax resident in Singapore if he or she is a:

• Singapore citizen or Singapore permanent resident who resides in Singapore except for temporary absences; or

• foreigner who has stayed or worked in Singapore for 183 days or more in the previous year of assessment.

2 What, if any, taxes apply to an individual’s income?

Resident individuals are subject to tax at the graduated tax rates specified in Part A of the Second Schedule to the Income Tax Act (Cap 134):

Chargeable income

Income tax rate (%)

First S$20,000

0

Next S$10,000

2

Next S$10,000

3.5

Next S$40,000

7

Next S$40,000

11.5

Next S$40,000

15

Next S$40,000

18

Next S$40,000

19

Next S$40,000

19.5

Next S$40,000

20

Any income in excess of S$320,000

22

Non-resident individuals are subject to tax on their employment income in Singapore at a rate of 15 per cent or at the applicable resident tax rates (whichever results in a higher tax liability). Non-resident individuals are subject to tax on all other Singapore-sourced income at the rate of 22 per cent.

3 What, if any, taxes apply to an individual’s capital gains?

There is no capital gains tax in Singapore.

4 What, if any, taxes apply if an individual makes lifetime gifts?

There is no gift tax in Singapore.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

There is no estate duty imposed for deaths that occurred on or after 15 February 2008.

6 What, if any, taxes apply to an individual’s real property?

Stamp duty

Stamp duty may be payable by both the buyer and the seller on documents executed for the sale and purchase of real property in Singapore. Stamp duty is computed based on the transacted price or the market value of the property, whichever is higher. The rate of the buyer’s stamp duty varies depending on whether the property is residential or non-residential, the nationality of the buyer and whether the buyer already owns other real properties in Singapore.

The rate payable by buyers who are Singapore citizens and permanent residents of Singapore is up to 19 per cent for residential property and 3 per cent for non-residential property. The rate payable by buyers who are not citizens or permanent residents of Singapore is up to 24 per cent for residential property and 3 per cent for non-residential property.

The rate of stamp duty payable by a seller varies depending on the length of time that the property was held by such seller and whether the property transferred is residential or non-residential in nature. The rate payable by sellers for residential properties is up to 12 per cent and the rate payable by sellers for industrial properties is up to 15 per cent.

Property tax

Property tax is payable annually by the owner of the property. It is computed by reference to the Annual Value of the property, which is the estimated annual rent that could be earned with the property. The rate of property tax for residential properties is dependent on whether the owner is in occupation of the property. For ‘owner-occupied’ residential properties, the rate is a progressive zero to 6 per cent and for ‘non-owner occupied’ residential properties it is a progressive 10 to 20 per cent.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Singapore is generally a free port and an open economy. While most imports into Singapore are duty-free, Singapore levies high excise taxes on distilled spirits and wine, tobacco products, motor vehicles and petroleum products.

8 What, if any, other taxes may be particularly relevant to an individual?

Goods and Services Tax (GST) is chargeable on all goods and services supplied in Singapore (except certain exempted supplies). The rate of GST is currently 7 per cent and is set to increase to 9 per cent sometime between 2021 to 2025.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Generally, the trustee will be assessed for tax on the income of the trust at the rate of 17 per cent. Where a trustee can prove that a beneficiary is entitled to a share of the trust income and the beneficiary is a resident of Singapore, it may be possible that the trustee will not be taxed while the beneficiary will be taxed on his or her corresponding share of trust income at the rate applicable to him or her.

10 How are charities taxed in your jurisdiction?

Charities registered with the Commissioner of Charities in Singapore enjoy exemption from income tax.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts, whether governed by the laws of Singapore or other jurisdictions, are recognised in Singapore. Singapore law allows for the establishment of a variety of trusts including discretionary trusts, fixed interest trusts and charitable purpose trusts. The main legislation applicable to trusts is the Trustees Act (Cap 337). Section 90(5) of the Trustees Act recognises the validity of a reservation of investment powers by the settlor.

12 Does your jurisdiction recognise private foundations?

Singapore law does not provide for the establishment of private foundations.

There is no specific legislation recognising private foundations established outside of Singapore. However, the courts of Singapore may, depending on the circumstances of a particular foundation, treat a foreign foundation as a type of company or other legal entity.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Singapore does not recognise a marriage between persons of the same sex. Section 12(1) of the Women’s Charter (Cap 353) expressly stipulates that any marriage (whether solemnised in Singapore or elsewhere) between persons who are not of the opposite sex at the date of the marriage shall be void.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Singapore law does not provide for the establishment of or the recognition of legal relationships for heterosexual couples apart from marriage.

Succession

15 What property constitutes an individual’s estate for succession purposes?

Generally, any right or interest (either in law or in equity) in any property (whether real or personal) will constitute an individual’s estate in Singapore. Certain types of assets (for example, real property or bank accounts) may sometimes be held on joint tenancy and, if so, the interest of a deceased joint tenant does not form part of his or her estate but vests in the surviving joint tenant.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Generally, Singapore law does not restrict an individual’s freedom to make dispositions during his or her lifetime.

17 To what extent do individuals have freedom of disposition over their estate on death?

A Muslim person who is domiciled in Singapore may only dispose of his estate in accordance with the laws of the school of Muslim law professed by him (section 111(1) of the Administration of Muslim Law Act (Cap 3)).

Singapore does not otherwise stipulate or provide for a forced heirship regime.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

Where the deceased was a Muslim domiciled in Singapore, his estate will be distributed according to Muslim law (section 112(1) of the Administration of Muslim Law Act (Cap 3)). Otherwise, where Singapore law is applicable to the distribution of the assets of a person who died intestate, the rules are set out in section 6 of the Intestate Succession Act (Cap 146).

Where the deceased leaves a surviving spouse and has no surviving issue or parent, the spouse will be entitled to the whole of the estate.

Where the deceased leaves a surviving spouse and any surviving issue:

• the spouse shall be entitled to half of the estate; and

• the children of the intestate and the descendants of any children who are deceased shall be entitled to equal portions per stirpes of the remaining half of the estate.

Where the deceased leaves a surviving spouse and surviving parent or parents and no surviving issue:

• the spouse shall be entitled to half of the estate; and

• the parents to the other half of the estate (in equal shares if there is more than one parent).

Where the deceased leaves siblings and has no surviving spouse, descendants or parents, the surviving siblings and any deceased sibling who leaves children shall share the estate in equal portions. Where a sibling is deceased, the children of such deceased sibling will share in equal parts the portion of the estate that their parent would otherwise have been entitled to receive.

Where the deceased leaves grandparents and has no surviving spouse, descendants, parents, siblings, nieces or nephews, the grandparents shall be entitled to the whole of the estate.

Where the deceased leaves uncles and aunts and has no surviving spouse, descendants, parents, siblings, nieces, nephews or grandparents, the uncles and aunts shall be entitled to the whole of the estate in equal shares.

Where the deceased leaves no surviving spouse, descendants, parents, siblings, nieces, nephews, grandparents, uncles or aunts, the Singapore government shall be entitled to the whole of the estate.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Generally, where a deceased dies without leaving a valid will, only the legitimate children and children who are recognised under Singapore law as legitimised or adopted may share in the distribution of his estate. Illegitimate children will not be considered in the distribution of an estate save for certain exceptional circumstances.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

The law of the place in which the property is situated governs the distribution of immovable property. The law of domicile of the individual governs the distribution of movable property.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

In Singapore, a will must be made in writing and signed, at the end or foot of the will, by the testator or by some other person in his or her presence and under his or her direction. This signature must be attested to by two or more witnesses, who must both be present at the time the will is signed by (or on behalf of) the testator. Each witness must also sign the will in the presence of the testator.

If any witness to the will (or spouse of such witness) is a beneficiary under the will, the bequest to such witness or his or her spouse is void but the will remains valid.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign wills are recognised in Singapore provided they were executed in compliance with the law of the country in or of which the testator was domiciled, habitually resident or a national either at the time of the execution of the will or the date of the testator’s demise.

A grant of probate of the foreign will has to be obtained from the Singapore court to administer property of the deceased in Singapore.

However, if the deceased was domiciled in a country of the Commonwealth or in Hong Kong and a grant has been issued in that country, an application may be made for the foreign grant to be re-sealed in Singapore. The foreign grant, if resealed by the Singapore court, will have the same force and effect as if probate was granted by the Singapore court.

23 Who has the right to administer an estate?

The personal representatives of a deceased have the right to administer the deceased’s estate.

Where the deceased has left a valid will, the executor named in the will is the personal representative.

Where the deceased died intestate, the personal representatives will be the administrators appointed by the court to administer the estate of the deceased.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Where the deceased left a valid will, his or her estate vests in the executor named in the will upon the death of the deceased.

Where the deceased dies intestate, the estate vests in the Public Trustee until letters of administration are granted by the Singapore court, at which point the estate vests in the administrators appointed under the letters of administration.

The grant of probate or letters of administration (as the case may be) enable the personal representatives to gather in, deal with and distribute the estate to the heirs of the deceased.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Under the Inheritance (Family Provision) Act (Cap 138), certain persons may make a claim for reasonable financial provision to be made from the estate of a deceased (who died domiciled in Singapore) if the deceased’s will or the rules of intestacy do not make reasonable provision for them. The persons who may be eligible to make such a claim are:

• the spouse of the deceased (who has not remarried);

• a daughter of the deceased who:

• has not been married; or

• is incapable of maintaining herself owing to some mental or physical disability; and

• a son of the deceased who:

• is an infant; or

• is incapable of maintaining himself owing to some mental or physical disability.

Claims under the Inheritance (Family Provision) Act must be made within six months of the grant of representation being taken out.

In addition, any person with a potential interest in the deceased’s estate may bring an action to challenge the validity of a will on the grounds that the deceased lacked testamentary capacity, or did not know or approve of the contents of the will, or was subject to duress or undue influence, or that the will was forged or on any other ground or vitiating factor that may cause the will or its execution to be invalid.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

In Singapore, a minor has no capacity to contract and cannot hold legal title to land. Often, the terms of a will expressly provide for the interests of minors to be held in trust for them until they attain majority. Otherwise, the gifts and bequests made to a minor may be held in bare trusts for them (commonly by the guardians of the minor) until they attain majority.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

In general, an individual must be at least 21 years of age to have legal capacity to hold and manage immovable property.

Minors may hold title to movable property, but only persons who are at least 18 years of age may enter into the contracts that would normally be required in connection with the management of movable property.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

If someone loses capacity to manage their affairs, the affairs of such individual will be managed by his or her validly appointed attorney or a deputy appointed by the courts.

A person (donor) may make a lasting power of attorney at any time while he or she still has full mental capacity. The provisions of the lasting power of attorney will state the scope of authority granted to the attorney. Typically, the decisions that an attorney may be empowered to make relate to the financial affairs of the donor, lifestyle and welfare of the donor, health and medical treatment (subject to certain limits) or any combination of these. A lasting power of attorney must be registered with the Office of the Public Guardian.

Where an application is made for the appointment of a deputy over the affairs of a person who lacks capacity, the court has a very wide discretion and will hear evidence from the applicant party, any opposing parties, the immediate family and any interested person regarding the suitability of the individuals proposed as deputies for the person lacking capacity.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Whether a visa is required depends on the nationality of the visitor.

Visas are required for nationals of countries that are mentioned in the list of Assessment Level 1 Countries and Assessment Level 2 Countries published by the Immigration and Checkpoints Authority (ICA).

Assessment Level 1 Countries include Georgia, India, People’s Republic of China, Democratic People’s Republic of Korea, Commonwealth of Independent States (Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan) and holders of Hong Kong Document of Identity and Macau Special Administrative Region Travel Permit.

Assessment Level 2 Countries include Afghanistan, Algeria, Bangladesh, Egypt, Iran, Iraq, Jordan, Kosovo, Lebanon, Libya, Mali, Morocco, Nigeria, Pakistan, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, Yemen, and holders of Palestinian Authority Passport, Temporary Passport issued by the United Arab Emirates and Refugee Travel Document issued by Middle-East countries.

Nationals from countries not mentioned in Assessment Level 1 Countries and Assessment Level 2 Countries holding a passport that is valid for at least six months may visit Singapore without obtaining a visa.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Generally, a visitor, holding the relevant visa, may enter Singapore for a period of up to 30 days. This period may be extended upon application being made to the ICA.

Nationals of Australia, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Korea, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, the United Kingdom and the United States are generally allowed to stay for a maximum of 90 days.

31 Is there a visa programme targeted specifically at high net worth individuals?

The Singapore Economic Development Board (EDB) administers a programme known as the Global Investors Programme (GIP). The purpose of GIP is to encourage foreign investors and entrepreneurs to set up a new business or expand existing business operations in Singapore.

The applicant must possess at least three years of entrepreneurial and business track record in one or more of the industries approved for promotion by the EDB. The applicant must produce audited financial statements showing that the applicant’s company turnover meets minimum thresholds.

The applicant must also submit a detailed five-year business or investment plan with projected employment and annual financial projections.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Successful applicants under GIP would be entitled to bring with them their spouse and any unmarried children below 21 years old as at the date of the application.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

A successful applicant under GIP will normally be granted permanent resident status for five years. There will be regular reviews and the applicant is required to fulfil the milestones and targets outlined in the applicant’s business plan. After five years, there will be a review of his or her GIP status and along with it, the permanent resident status of the investor.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

A successful applicant under GIP is not automatically entitled to citizenship.

Ronald Choo

ronald.choo@rclegal.sg

Samantha Ng

samantha.ng@rclegal.sg

20 McCallum Street

Tokio Marine Centre

#19-01

Singapore 069046

Tel: +65 68 23 8280

Fax: +65 68 23 8201

https://www.rclegal.sg

Spain

Ernesto Lacambra and Marc Montserrat

Cases & Lacambra

Tax

1 How does an individual become taxable in your jurisdiction?

The Spanish Personal Income Tax Act sets forth two rules and a presumption to consider an individual as tax resident in Spain.

The permanence test applies when the individual stays more than 183 days per calendar year in Spain. Occasional absences shall be considered to calculate the period of residence, except when individuals prove they have their tax residence in another country.

In other words, to determine the period spent in the Spanish territory, sporadic absences would be computed as time spent in Spain unless the individual could prove its tax residence in other country. In the case of countries or territories classified as tax havens according to the Spanish legislation, the Spanish tax authorities may request proof of residence in the tax haven for 183 days per calendar year.

The centre of economic interest test applies when the main or central place of business of the individual is directly or indirectly located in Spain.

Finally, unless there is evidence to the contrary, an individual shall be deemed to be a resident of Spain if, in accordance with the aforementioned criteria, his or her legally non-separated spouse and dependent minor reside in Spain (presumption applicable).

The main direct taxes to individuals with tax residence in Spain are personal income tax, wealth tax and inheritance and gift tax.

Personal income tax includes the individual’s worldwide income: employment income, salary as member of a board of directors, dividends, capital gains, interests, rental income, etc. The Spanish Personal Income Tax Act applies and allowance is dependent on the personal and family status of the individual.

In Spain, wealth tax subjects to taxation the individual’s worldwide net assets (assets minus liabilities). However, the Wealth Tax Act foresees an exemption of €300,000 for permanent domicile, and €700,000 on net assets. However, it is important to mention that wealth tax is partially transferred to the autonomous regions of Spain, which have the right to regulate exemptions and tax rates (ie, exemption on family business). As a consequence, the final taxation on wealth tax may vary depending on the autonomous region where the individual is tax resident.

Inheritance and gift tax are also partially transferred to the autonomous region of Spain and the final taxation substantially changes depending on the tax residence of the individual and the beneficiaries.

2 What, if any, taxes apply to an individual’s income?

Residents

Spanish personal income tax distinguishes income allocated to the savings tax base and the general tax base. The main difference resides with the tax rates (19, 21 and 23 per cent for the savings tax base, and progressive tax rates limited to 48 per cent for the general tax base).

Dividends, interests and capital gains will be generally allocated to the savings tax base. Employment income, business activities as an individual, rental income and deemed income will be allocated to the general tax base.

Non-residents

Generally, non-resident income tax will apply to dividends, interest and capital gains at 19 per cent tax rate, and 24 per cent tax rate to any other sort of income (employment income, deemed income, rental income, etc). If the non-resident resides in the EU, 19 per cent withholding tax will also apply to rental income and deemed income.

3 What, if any, taxes apply to an individual’s capital gains?

Tax-resident individuals will be subject to personal income tax on capital gains at 19 per cent: the first €6,000, 21 per cent up to €50,000, and the exceeding amount to 23 per cent. Non-resident individuals will be subject to non-resident income tax at 19 per cent tax rate.

For both resident and non-resident individuals, capital gains will be assessed on the difference between the market value of the asset transferred, and its acquisition cost. Depending on the asset being transferred, the market value and the acquisition cost will be adjusted for taxes and expenses incurred by the transferor.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Lifetime gifts will be subject to inheritance and gift tax and, under certain circumstances, to personal income tax at the donor’s level for the difference between the market value of the gift and its acquisition cost.

The beneficiary of a lifetime gift will be subject to inheritance and gift tax in accordance with the taxation of the autonomous region of his or her residence (which generally rises up to approximately 34 per cent for lifetime gifts equal to or greater than approximately €779,000). However, such tax rates can be reduced depending on each Spanish autonomous region. For instance, in Catalonia, gifts could be taxed from 5, 7 to 9 per cent if the lifetime gift is formalised in a public deed and it is between descendants, or be effectively exempt in another autonomous region (ie, Madrid).

If the beneficiary of the lifetime gift is not tax resident in Spain, the state legislation will apply, which foresees tax rates up to 34 per cent. If the beneficiary is tax resident in the EU or EEA, the taxpayer will be entitled to apply the state or autonomic legislation. Nevertheless, the Spanish Supreme Court pronounced in favour of allowing non-residents in the EU or EEA to apply for the autonomous region’s legislation.

Notwithstanding the above, if the lifetime gift is a property, the legislation of the autonomous region where the asset is located will apply. Under certain circumstances, if such property is donated to constitute the permanent domicile of the beneficiary, exemptions would apply.

The donor will include in his or her personal income tax any capital gains derived from the difference between the market value of the gift, and its acquisition cost (cash donations are not subject to personal income tax).

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

As a general rule, inheritances will be subject to inheritance and gift tax. The taxable event of inheritance and gift tax is regulated by the state legislation. However, autonomous regions have the right to legislate in terms of exemptions, allowances and tax rates. Consequently, inheritance and gift tax may substantially differ depending on the autonomous region.

Residents

An autonomous region’s legislation of residence of the deceased will apply. If the autonomous region has not legislated in this regard, tax rates usually range from 7.65 per cent up to 34 per cent for inheritances equal to or greater than €797,555. If the deceased was tax resident in Spain but the beneficiaries tax resident in the EU or EEA, they would have the right the choose between the state legislation or the autonomous region’s legislation. If the beneficiary is not tax resident in Spain, the EU or EEA, the state legislation would apply.

Certain exemptions and allowances will apply on succession as explained below.

6 What, if any, taxes apply to an individual’s real property?

The mere direct ownership of a property in Spain by an individual involves payment of the following taxes: wealth tax with an exemption from €300,000 (permanent domicile), plus up to €700,00o as general allowance, real estate tax, personal income tax on deemed income for the mere ownership of the property, rental income and other minor local taxes.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Taxes will differ depending on the asset because the Spanish tax system foresees special taxes for boats, cars and paintings, among others. In addition, VAT may also apply to the transfer of ownership of such assets at 21 per cent general tax rate (lower rates may apply depending on the asset).

8 What, if any, other taxes may be particularly relevant to an individual?

For an individual who plans to invest in Spain the most relevant taxes would be related to real estate investments. As an example, if an individual acquires a residential property, VAT (10 per cent) would apply if the property is brand new, and transfer tax if the property is not brand new. In this regard, transfer tax is partially regulated by autonomous regions (tax rates range from 6 per cent to 11 per cent).

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts are not recognised under Spanish law.

In Spain, it is very common to set up Spanish holding companies in order to invest in different companies, real estate or other investments. In this regard, investing or holding assets through a holding company allows the applicability of two different tax allowances if certain requirements are met:

• Spanish holding tax (ETVE). Participation exemption on dividends and capital gains if certain requirements are met (holding at least 5 per cent of the subsidiary, one-year holding or maintenance, among others).

• 95 per cent or 100 per cent family business allowance. If certain requirements are met, the mere ownership and transfer of shares of a holding company (or any Spanish company) will benefit from a 95 per cent tax allowance on inheritance and gift tax and 100 per cent on wealth tax.

10 How are charities taxed in your jurisdiction?

In Spain charities could be organised under different legal forms, the most common being associations and foundations.

Both types of charities pursue a general interest and are based on non-profit principles. These entities will be subject to 10 per cent corporate income tax rate but income derived from their donors or from assets will be tax exempt if certain requirements are met.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

No. Trusts are not recognised in the Spanish legal system and their legal and tax treatment is directly applicable to individuals.

12 Does your jurisdiction recognise private foundations?

The Spanish legal system recognises different legal forms equivalent to foreign private foundations (such as foundations, associations or federations, among others).

In this regard, a special tax regime is foreseen applicable to non-profit entities that carry out public interest activities. This tax regime allows these entities to benefit from a full exemption on income or gains derived from its assets or donations from third parties. Any other income will be taxed at 10 per cent corporate income tax.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

The Spanish legal system confers same-sex marriages the same legal status as opposite sex marriages. Civil unions are also recognised as form of legal union such as marriage.

Although civil unions equal marriage in many aspects, they have a specific legal status in certain areas such as succession and tax (ie, the possibility to be taxed jointly, alimony, widowhood pension, etc). These aspects are often regulated by each autonomous community.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

There are no other forms of legal relationship for heterosexual and homosexual individuals other than marriages or civil unions.

Succession

15 What property constitutes an individual’s estate for succession purposes?

All assets and rights under an individual’s legal ownership.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

Individuals have full freedom of disposition of their estate during their lifetime as long as the ‘right of food’ is respected. This right consists of the obligation that any individual has towards his or her relatives in certain circumstances (health, survival, scholarship in case of underage descendants, etc).

However, if the beneficiaries have applied for a 95 per cent tax allowance on the succession of the family business, a 10-year holding period could apply to maintain such tax benefit.

17 To what extent do individuals have freedom of disposition over their estate on death?

Each autonomous region of Spain has the right to legislate on different matters of the Civil Code. One of these matters is succession.

In this regard, the Spanish Civil Code foresees at least one-third of non-disposal of the deceased (forced heirship). Such non-disposal estate is allocated to the descendants of the deceased and, in some occasions, the survivor spouse has the right of usufruct on different assets.

However, in certain autonomous regions the Spanish Civil Code does not apply because a regional civil code is in place. As an example, in the Catalan Civil Code it is foreseen that non-disposal assets of the deceased will be 25 per cent of the inheritance, instead of one-third foreseen in the Spanish Civil Code.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

In Spain, if an individual dies without leaving valid instructions for the disposition of the estate, the legislation foreseen in the autonomous region of his or her residence will apply. The applicable legislation usually allocates the estate to the descendants of the deceased. If the deceased does not have any descendants, the estate is allocated to his or her parents, spouse, brothers or sisters, nephews or nieces.

It is also very common that the estate is allocated to the descendants of the deceased with the right of use (usufruct) in favour of the spouse.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Yes. They are considered as natural legitimate children with the same rights.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

Since the entering into force of EU Regulation 650/2012, the applicable legislation in terms of distributing an individual’s estate will be determined by the habitual residence of the deceased.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

The beneficiaries of a will should proceed to appear before notary and sign a public deed in which they accept to receive the assets and liabilities. When liabilities are predictable, it is advisable to accept under a precedent condition of previous assessment of liabilities. If the liabilities turn out to be higher than the assets, the heirs can waive the will.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

The beneficiaries of a will should proceed to legalise foreign wills in order to be valid for Spanish legal purposes. It will normally be necessary to obtain a sworn translation of the will to execute if before a Spanish notary.

23 Who has the right to administer an estate?

The deceased has the right to appoint an executor of the estate to distribute it in accordance with the deceased’s will and to fulfil the remaining duties and obligations. If the deceased has not appointed an executor, the said beneficiaries of the will should commonly agree to distribute it or, in absence of agreement, appoint an executor. If the beneficiaries do not reach an agreement to appoint such executor, they are entitled to request a judiciary executor.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

In most inheritances, the notary executes the will of the deceased and the beneficiaries sign the title deed of acceptance of the inheritance in accordance with the provisions set out in the will. Later, the beneficiaries submit the title deed of acceptance of the inheritance to register before banks, property registry and corporate registry their ownership of the assets.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Yes. Disappointed heirs or beneficiaries may file a claim against an estate in order to exercise the rights they are entitled to (ie, the payment of the non-disposed estate to certain beneficiaries, disagreement with the reasons argued by the deceased to disappoint heirs or challenge the testator’s disability).

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

As a general rule, the management of the property of a minor would be entrusted to their parents or legal representatives, who are bound by the general rules of guard and custody.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

Legal capacity for patrimonial purposes is granted when individuals reach legal age (18 years old in Spain). However, if the underage person is 16 and develops his or her own professional activity, he or she will be able to hold assets and rights derived from such activity.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

After the loss of legal capacity, the custody and protection of the incapacitated person may be guaranteed through the appointment of a guardian, curator or custodian. The appointment procedure requires a judge to approve the custody, usually involving a hearing with the closest relatives of the person concerned. Once appointed, management must be carried in the best interest of the incapacitated person, and except for some specific powers that would be require a judge’s authorisation, it would be performed under the criteria of the guardian, curator or custodian.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Spain does not request visas from EU and EEA jurisdictions, most Latin American jurisdictions, and jurisdictions such as Israel, Singapore, the United States or South Korea, among others.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

A tourist visa in Spain lasts 90 days from the date of arrival.

31 Is there a visa programme targeted specifically at high net worth individuals?

In 2013, Spain passed its own Golden Visa programme, which allows qualified investors to reside in Spain for a one-year period renewable for two years and, ultimately, for five years.

It is required to carry out a qualified investment in Spain: €500,000 in real estate, €1 million in bank deposit, securities or investment funds, or €2 million in Spanish public debt.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

The scope of the golden visa includes relatives of the applicant. The spouse and offspring under 18 may apply, jointly and simultaneously or subsequently, for the authorisation and the visa. This scope has been extended to the partner of the applicant, children of legal age economically dependent who are not married, and ascendants economically dependent on the applicant.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Having obtained a residence visa for a one-year period, the applicant may apply for a residence authorisation for at least two renewable years, which may be extended for another five years.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

The Golden Visa does not permit Spanish citizenship. However, among other channels, the Spanish Civil Code allows individuals to obtain Spanish citizenship under the following circumstances: 10 years of residence, or two years of residence for individuals from Ibero-American jurisdictions including Andorra, Philippines, Equatorial Guinea, Portugal and individuals with Sephardic ancestors.

Individuals who reside in Spain or who currently hold investments in Spain will be subject to relevant taxes such as wealth tax, inheritance and gift tax or personal income tax. In addition, taxation and succession is quite complex depending on the legislation of different autonomous regions of Spain.

However, the Spanish legal system foresees different tax planning alternatives to reduce the tax burden to invest as an individual.

If certain requirements are met, individuals are entitled to apply for family business exemptions on wealth tax and relevant allowances on inheritance and gift tax. Family business exemptions and allowances requirements may vary depending on the autonomous region where the shareholders or beneficiaries are located.

In addition, Spanish holding companies could be incorporated to channel inbound and outbound investments. Under certain conditions, Spanish holding companies will be entitled to apply for the participation exemption on dividends and capital gains.

Ernesto Lacambra

ernesto.lacambra@caseslacambra.com

Marc Montserrat

marc.montserrat@caseslacambra.com

Avenida Pau Casals 22

Barcelona 08021

Spain

Tel: +34 93 611 92 32

Paseo de la Castellana 8, 5º

Madrid 28046

Spain

Tel +34 91 061 24 50

www.caseslacambra.com

Switzerland

Natalie Peter and Claude Blum

Blum & Grob Attorneys at Law Ltd

Tax

1 How does an individual become taxable in your jurisdiction?

An individual is considered resident in Switzerland if he or she takes up residence there with the intention of permanently staying, even if the residence is limited to a certain period of time.

A resident individual is subject to unlimited taxation in Switzerland on his or her worldwide income and assets.

An individual can also be subject to unlimited taxation if he or she 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.

Individuals resident outside Switzerland may be subject to limited taxation if they have economic ties to Switzerland (eg, real property, business premises).

2 What, if any, taxes apply to an individual’s income?

An individual is subject to income tax on a federal, a cantonal and a communal level. While the tax rates are the same on a federal level, they vary substantially between cantons, and even within a canton, between communities. The income tax rates are progressive and, particularly for average salaries, modest by international standards. The top rates are comparable with rates of other jurisdictions, but they are applicable on comparatively much higher taxable income.

As an example, tax rates for a taxable income of 100,000 Swiss francs, of a family with two children, vary from 1.32 per cent to 11.63 per cent, and for a taxable income of 250,000 Swiss francs, between 10.35 per cent and 26.33 per cent.

The same income tax rates apply to all types of income. Thus, for federal as well as cantonal and communal taxes, all taxable income such as employment income, investment income (except capital gains), rental income, pensions, and alimony payments, are added up in order to determine and apply the respective applicable tax rate.

Some income from foreign sources is exempt from taxation (typically rental income from property abroad or some employment income), if an applicable double taxation agreement exists between Switzerland and the relevant country.

On the federal level as well as in most cantons (except Zurich, Basel Stadt, Basle Landschaft, Appenzell Ausserrhoden and Schaffhausen), foreign individuals taking up residence in Switzerland for the first time, or after an absence of more than 10 years, may opt for what is known as a ‘lump sum taxation’, provided they have no gainful activity in Switzerland. Under this regime, the taxable income is predetermined based on the worldwide cost of living. In most cantons, the minimum taxable income is, however, fixed at 400,000 Swiss francs or higher.

3 What, if any, taxes apply to an individual’s capital gains?

Capital gains realised from the sale of private movable assets are exempt from income taxation. As a consequence, realised losses are not deductible.

Gains realised on the sale of real estate located in Switzerland are subject to a separate capital gains tax on a cantonal and communal level. In order to avoid speculation, the tax is increased for short holding periods. On the other hand, the applicable tax rate is reduced to up to 50 per cent if the taxpayer held his or her property for 20 years or longer.

If a taxpayer is frequently trading securities or buying and selling real estate, capital gains realised may qualify as income from self-employment. These gains would then be subject to the ordinary income tax rates, in addition to social security contributions.

4 What, if any, taxes apply if an individual makes lifetime gifts?

Gifts made by a resident in Switzerland are typically subject to gift tax in the canton of his or her residence. Only the cantons of Schwyz and Lucerne do not impose any gift taxes.

It is important to note that the donee is the taxpayer, not the donor. The latter is jointly liable to the gift tax. If the donor bears the gift tax, such payment qualifies as another gift to the donee, resulting in gift tax on the gift tax paid.

While gifts to spouses and to civil partners are exempt from gift tax in all cantons, gifts to descendants are exempt in most of the cantons, except Vaud, Neuchâtel and Appenzell Innerrhoden.

The canton of Geneva has a special rule for lump-sum taxpayers: gifts from a lump-sum taxpayer in Geneva are never tax-free, even if the donees are the descendants, the spouse or the civil partner of the donor.

The tax-free amounts are typically low, and the tax rates are progressive, reflecting the relationship between the donor and the recipient. Various gifts over the years are added up, and the possibly higher tax rate is applied to the entire gift. The rates vary from zero to over 50 per cent.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

Inheritance tax is levied on a cantonal level only. The canton of Schwyz is the only canton not levying any inheritance tax. Like gift tax, spouses, civil partners and descendants are typically exempt from inheritance tax.

The tax rates are the same as the gift tax rates (see question 4), reflecting the relation between the deceased and his or her heirs. Taxpayers are the heirs based on their relation to the deceased and the size of their bequest, not the estate. The rates vary from zero to over 50 per cent.

6 What, if any, taxes apply to an individual’s real property?

Real estate is always taxed in the canton where it is located. Thus, an individual resident in another canton is subject to limited taxation in the canton where the real estate is located.

If the taxpayer is living in his or her own property, a notional rental value has to be taken into account when determining the taxable income. The notional rental income is typically calculated in relation to the tax value of the property, and is lower than the rent that could be received if rented out. Mortgage interest and maintenance costs are deductible.

The same notional rental value has to be included for holiday homes, even if those homes are located outside Switzerland. In the latter case, neither the notional rental value nor the tax value will be taxed in Switzerland. These values are only taken into account for determining the applicable tax rate.

If the property is rented out, the net income received after debt interest and maintenance costs is subject to income tax at the rates of the worldwide income in the canton where the property is located.

If the property is sold, the special capital gains tax applies as outlined in question 3.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

If a person is importing goods for his or her own personal use or as gifts, no tax applies up to a value of 300 Swiss francs per day and person, including children. However, if the duty-free limit of 300 Swiss francs is exceeded, value added tax of 8 per cent is payable on the entire amount.

Special rules and lower duty-free limits apply to alcoholic beverages, tobacco and certain agricultural products such as meat, milk and cream, fruit, vegetables, oils and fat products that exceed certain maximum quantities.

8 What, if any, other taxes may be particularly relevant to an individual?

Unlike most other jurisdictions, Switzerland applies a net wealth tax on an individual’s worldwide assets net of any debts, including mortgages, loans and private borrowings. There is no wealth tax at federal level, but there is at cantonal and communal levels.

The applicable tax rates are progressive and vary again from canton to canton, and within cantons, between communities. The range is between 0.1 per cent and 1 per cent of the taxable net assets.

Taxable assets include the fair market value of bankable assets, the tax value of real estate, gold, cars, airplanes, boats, horses, art or jewellery collections (in some cantons even one piece of art if the value exceeds a certain threshold) and life insurance.

On the federal level, value added tax (VAT) is levied. The standard rate is 8 per cent. However, tax on food and drinks (excluding alcohol), medication and printed products, is subject to a lower tax of 2.5 per cent. Hotel services are subject to 3.8 per cent VAT.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

The taxation of trusts in Switzerland depends on whether the trust is a revocable or an irrevocable discretionary or fixed interest trust. Neither the trust nor a Swiss resident trustee is ever taxable. Depending on its nature, the trust assets and the respective income can be attributed for tax purposes to the beneficiary or the settlor in certain cases:

• a revocable trust is transparent for tax purposes; therefore, the assets and income are attributed to the settlor for income and wealth tax purposes;

• the Swiss resident beneficiary of a fixed interest trust has to include the distribution as well as the capital value of his claim in his personal tax return;

• a Swiss resident settlor, taxed under the ordinary regime, is considered not to have disposed of his or her assets when settling an irrevocable discretionary trust. The assets as well as the income thereof will remain taxable in his or her hands; and

• a foreign resident settlor settling an irrevocable discretionary trust is only considered to have disposed of his or her assets if he is not a beneficiary himself or herself, and has not retained any powers, such as power to amend the trust documents, or power to add or remove beneficiaries, trustees or protectors.

10 How are charities taxed in your jurisdiction?

Swiss resident charities are typically exempt from profits and wealth tax, on the federal level, as well as on the cantonal and communal levels. Certain criteria have to be met in order to receive an exemption status. In particular, charities have to pursue public or charitable purposes that are in the interests of Switzerland. Profits have to be exclusively and irrevocably devoted to these particular interests. Charities can have activities in Switzerland or abroad. However, some cantons only grant an exemption from taxation if the activity is limited to certain Third-World countries.

Donations of individuals and entities to tax-exempt charities in Switzerland are, in general, deductible for income tax purposes up to 20 per cent of the taxable income of a taxpayer.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Switzerland, as a civil law jurisdiction, has no tradition with trusts and does not directly provide for trusts in its laws. Even though Swiss courts have recognised foreign trusts for a long period of time, Switzerland ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition (the Trust Convention), with legal effect as of 1 July 2007. Since then, Switzerland recognises trusts that have been validly established according to the applicable law. As a consequence, the Swiss Private International Law, as well as the Federal Debt Enforcement and Bankruptcy Act, was amended in order to provide for internal rules. Although Swiss law still does not provide for trusts, the amendments in the federal law introduced predictable rules on the registration of trust property in Switzerland, and allow for the recognition of foreign court orders relating to trusts. The Trust Convention and the amendments further clarify that trust property is separate from the personal assets of a trustee.

12 Does your jurisdiction recognise private foundations?

In Switzerland, the landscape is largely predominated by Swiss charitable foundations that pursue a non-profit objective. Less common are Swiss family foundations that, pursuant to article 335, paragraph 1 of the Swiss Civil Code (SCC), are only permitted to cover the costs of education, endowment to family members, or similar objectives. Swiss family foundations are not permitted to pursue further-reaching objectives. In particular, ‘maintenance foundations’ that are intended to bring about a higher living standard, or greater prestige for the family, are not permitted.

Swiss foundations that impermissibly benefit the members of a family are void from the very outset, even if they are registered in the Commercial Register. They must, however, be declared void and therefore non-existent in court proceedings. A foundation that is illegal or immoral from the outset would be declared non-existent, which would lead to a return of any relevant assets to the founder or the founder’s legal successors.

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

Same-sex couples can register their partnership and therewith achieve almost the same rights and obligations as those of spouses. However, unlike spouses, civil partners are neither allowed to adopt children, nor to benefit from assisted reproductive technology. For tax and inheritance purposes, the registered same-sex couples are treated in the same way as spouses.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Up until now, heterosexual couples who do not wish to get married are left to organise their affairs in bilateral agreements. Owing to the number of couples choosing not to marry, the introduction of new legislation is occasionally discussed. It is uncertain, however, whether such legislation will ever pass, or even be proposed.

Succession

15 What property constitutes an individual’s estate for succession purposes?

Upon the death of an individual, the heirs acquire the worldwide estate in its entirety by operation of Swiss law. The estate consists of all moveable and immoveable assets owned by the deceased at the time of his or her death, as well as limited rights in rem or claims. In order to determine the net estate value to be divided among all the beneficiaries, liabilities such as outstanding debts, funeral expenses, administrative costs and taxes are deducted from the gross estate value.

If the deceased leaves a surviving spouse, the dissolution of the property regime needs to be taken care of in order to determine the estate of the deceased. According to Swiss law, the ordinary marital property regime is the sharing of acquired property regime. By way of marriage contract, the spouses can also agree on a different regime, such as the separation of assets or the joint property regime. The ordinary regime includes the acquired property of each spouse and the individual property of each spouse.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

In general, there are no restrictions during an individual’s lifetime. However, if the deceased individual violates the compulsory share of a protected heir (forced heirship), owing to dispositions during his or her lifetime, this heir may file, within a certain period of time, a claim for abatement.

During marriage, each spouse manages and uses his or her acquired property, and his or her individual property, at his or her sole discretion. If, however, the spouses are co-owners of an asset, they each have a right of pre-emption against any third party acquiring the share of the other spouse. Moreover, donations without compensation made by the deceased spouse within the five years prior to the dissolution of the marital property regime, and without consent of the other spouse, are virtually added to his or her property acquired during marriage. Customary gifts are excluded.

17 To what extent do individuals have freedom of disposition over their estate on death?

The deceased is free to dispose of his or her estate up to the free quota only. Legal heirs closely related to the testator, such as descendants, parents, spouses or registered partners, are entitled to receive a compulsory share of the estate (force heirship).

The mandatory portions are as follows:

• for a descendant of the deceased: three-quarters of his or her statutory portion;

• for each parent of the deceased: one-half of their statutory portion; and

• for the surviving spouse or the registered partner of the deceased: one-half of his or her statutory portion.

Under certain conditions, each protected heir may bring a claim that his or her compulsory portion is not satisfied owing to testamentary dispositions or dispositions made by the deceased inter vivos.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

In the case of intestacy, Swiss law provides that the closest relatives (descendants, parents and grandparents) and the surviving spouse or registered partner are statutory heirs. The closest statutory heirs are the deceased’s descendants. They inherit in equal parts. Predeceased children are replaced by their descendants in all degrees per stirpes.

If the deceased leaves no issue, the estate passes to the parental line. Each parent inherits one-half of the estate. Predeceased parents are replaced by their issue in all degrees per stirpes. Where there is no issue on one side, the entire estate passes to the heirs on the other side.

If there are neither descendants nor heirs in the parental line, the estate passes to the line of the grandparents.

Surviving spouses and registered partners are entitled to one-half of the estate if they have to share the estate with the deceased’s issue. If there are no descendants, the surviving spouse or registered partner inherits three-quarters of the estate, whereas the deceased’s parents inherit one-quarter. If the deceased neither leaves descendants nor parents, the surviving spouse or registered partner inherits the entire estate.

Where the deceased leaves no statutory heirs at all, the estate passes to the state authority of the canton or community of the decedent’s last residence.

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

Once the parent-child relationship is established, there are no differences in the treatment of the deceased’s descendants, irrespective of whether the child’s parents were married or not at the time of birth.

Between child and mother, the parent-child relationship is created by birth. The paternity is either created by assumption, or paternity acknowledgment, or judgement. It is presumed that the husband is the father of a child born during marriage.

An adopted child acquires the legal status of a natural child. Therefore, there is no difference in succession rights of adopted children, compared to natural children of the deceased person.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

The governing law regarding the distribution of an individual’s estate is determined by applying the Swiss Federal Act on International Private Law. This act provides that the estate of a person with last residence in Switzerland is subject to substantive Swiss succession law.

However, a foreign national residing in Switzerland may, by last will or inheritance contract, subject his or her estate to his or her national law. Such disposition shall become void if, at the time of death, the individual is no longer a national of that country or has become a Swiss national.

The estate of a person with last residence abroad is subject to the law to which the provisions of the applicable conflict law of that country refer.

The mentioned provisions apply irrespective of whether the estate consists of moveable or immoveable property or whether it consists of an asset which is co-owned or jointly owned. Co-ownership occurs if several persons own a share of an object that is physically undivided. To the contrary, joint ownership is the consequence of a pre-existing statutory or contractual relationship, such as a simple partnership or a community of heirs, and is exercised collectively.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

Anyone who has the capacity to make rational judgements and is at least 18 years of age can, within the limits prescribed by law, draw up a will.

The testator may establish his or her will in the form of a public deed, or in holographic form or, in extraordinary circumstances, in oral form.

A will by public deed is drawn up in the presence of two witnesses by a public official, notary public or other person authorised under cantonal law.

A will in holographic form must be written by the decedent by hand, from beginning to end, and must be signed. Furthermore, the holographic will must include an indication of the day, the month and the year of its execution.

A last will may be drawn up in oral form if the deceased person was not able to use the form of public deed or holographic form due to exceptional circumstances, such as imminent death, a car or aeroplane accident, an epidemic or war. For that purpose, the testator must declare his or her last will to two witnesses. As a consequence, the witnesses must write down the last will and notify the court.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Swiss private international law provides that the form of a will is governed erga omnes by the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions.

According to the Convention, the form of a testamentary disposition is valid if its form complies with the internal law of:

• the country where the testator made the will;

• a nationality possessed by the testator, either at the time of making the disposition, or at the time of death;

• the country in which the testator had his or her domicile, either at the time of making the disposition or at the time of death;

• the country in which the testator had his or her habitual residence, either at the time of making the disposition or at the time of death; or

• as far as real estate is concerned, the state where it is situated.

As long as one of the aforementioned criteria is fulfilled, foreign wills are recognised by Swiss courts as formally valid.

23 Who has the right to administer an estate?

In general, unless the deceased appointed an executor in his or her will or an official administrator or a common representative has been appointed by the competent authority, the heirs themselves administer the estate of the deceased. Such administration always requires anonimous decisions.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

Based on the principle of universality of succession, upon the death of an individual, the heirs become the legal owners of the deceased’s estate in its entirety. All assets and liabilities automatically pass to the heirs directly and immediately on the day of death. Where there are several heirs, they form what is known as a community of heirs until the estate is wholly divided among them. As a consequence, a joint ownership is formed, which means that all heirs are collectively entitled to the entire estate. However, any dispositions over the estate require unanimous approval of all heirs. In addition, the estate is jointly administered by the heirs if no executor, administrator or common representative has been appointed.

No heir has the duty to remain in the community of heirs and may request the division of the estate at any time. If the heirs cannot agree on the division of the estate, an action for partition must be filed with the competent court.

The heirs can freely agree on the method of division, unless ordered differently by the testator. If the latter made no provisions, the heirs form as many portions or lots as there are heirs or stirpes. The aim of the estate division is to liquidate the community of heirs and to distribute the assets to the individual heirs.

As a part of the partition procedure, the statutory heirs are mutually obliged to place into hotchpot any assets, gifts or grants received from the deceased during his or her lifetime, unless the deceased expressly disposed otherwise.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

An heir is usually disappointed by dispositions exceeding the free quota or invalid testamentary dispositions.

Whoever leaves descendants, parents, a surviving spouse or a registered partner may dispose of his or her assets up to their compulsory share (see question 17). However, within the free quota the testator can freely dispose of his or her estate. Only if the decedent is not survived by any such heirs, he or she may dispose of his or her entire estate. If the protected heirs do not receive the amount of the mandatory portion stated by the law, they have the possibility to enforce the protected heirship rights. Heirs may file a claim with the court for proportionate reduction of testamentary dispositions or dispositions inter vivos. The action in abatement is brought against the person benefiting from the testamentary disposition or the dispositions inter vivos (and not against the estate itself). Neither the testamentary provisions nor the dispositions inter vivos are automatically void, which means that the right of receiving the mandatory portion of the estate needs to be actively claimed at court.

Alternatively, or in addition, heirs can claim that a given testamentary disposition is null and void due to the incapacity of the testator at the time of its execution, lack of free will, illegality or immorality. The action for annulment may be brought by any interested heir or legatee against the person benefiting from the testamentary disposition.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

As long as the parents have custody of the child, the parents have the right and the duty to administer the child’s property.

However, the child that has capacity to consent manages and enjoys the benefits of all fruits of his or her own labour, and of those of his or her assets that are released by his or her parents for use in the child’s professional or business activities.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

A person reaches full legal age at 18 years. On termination of parental custody or the parents’ management, the parents must hand over the child’s property, together with a final statement of account to the adult child or to the child’s legal representative.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

The adult protection authority shall order a measure when the person in need is no longer capable of judgement, he or she has failed to make any or sufficient private arrangements for his or her own care and the statutory measures are insufficient.

The adult protection authority shall establish a deputyship if an adult:

• due to a learning disability, a mental disorder or a similar inherent debility is wholly or partially unable to manage his or her own affairs; or

• due to a temporary loss of the capacity of judgement or temporary absence, is neither able to take care of matters that must be dealt with, nor has appointed a representative.

The deputyship shall be established at the request of the person concerned (the client) or a closely associated person or ex officio. Since 1 January 2013, child and adult protection law allows a legally competent person to establish an advance directive setting out their wishes and instructions in the event of becoming incapacitated.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Whether or not a foreign national requires a visa to visit Switzerland depends on the citizenship of such person. A basic distinction can be made between nationals of a Schengen state and those of other countries (third-state nationals):

Schengen states include all members of the European Union (except Bulgaria, Croatia, Cyprus, Ireland, Romania and the United Kingdom), the European Free Trade Association (EFTA) states (Norway, Iceland and Switzerland, as well as associated small states such as Monaco and Liechtenstein). Nationals of a Schengen state do not need a visa to visit Switzerland, provided their stay will not exceed a total of 90 days within a period of six months, and the purpose of the visit is for tourism or another accepted purpose, such as for participation in a sporting event. However, anyone may be questioned by border guards about the purpose of his or her visit and financial means.

For third-state nationals, it depends whether Switzerland has entered into a short-stay visa waiver agreement with the relevant country. Third-state nationals holding a residence permit issued by a Schengen country do not need a visa since this is considered to be equivalent to a visa. As an overview, a comprehensive list has been published on the website of the State Secretariat for Migration, detailing the visa requirements for each nationality. There are some exceptions where no visa will be needed. For example, nationals of the United Kingdom and the United States do not need a visa to visit Switzerland, provided the stay will not exceed a total of 90 days within a period of six months, and that the purpose of the visit is touristic.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Nationals of a Schengen state may stay in Switzerland without a visa for up to 90 days within a period of six months, provided that the purpose of the visit is touristic or, for example, for the participation in a sporting event. For a stay in Switzerland exceeding 90 days, a residence permit is required.

For third-state nationals the duration of visa varies from state to state but is in general also limited to 90 days within a certain time of period.

There is, in exceptional cases, the possibility of a national visa for individuals who wish to stay more than 90 days. These visas are typically issued to individuals wishing to work or study in Switzerland and for the purposes of family reunification or lengthy medical treatment.

31 Is there a visa programme targeted specifically at high net worth individuals?

There is no specific programme in Switzerland targeted specifically at high net worth individuals. However, there are some rules that may be of interest to them. For example, individuals who wish to stay in Switzerland for more than 90 days may obtain a national visa if they have sufficient financial means. In general, high net worth individuals will be in a better starting position to fulfil the requirements for staying in Switzerland.

Nationals from EU and EFTA states without any gainful employment, such as retirees, are entitled to a residence permit B if they can prove that they have sufficient financial means and adequate health and accident insurance. The residence permit is valid for five years.

For nationals of non-EU and non-EFTA states, stricter rules apply. There are special provisions for students, retirees or for individuals seeking lengthy medical treatment. For example, retirees who have reached the age of 55 and demonstrate ‘special personal ties with Switzerland’ may be granted a residence permit B, provided they possess the required financial means. In addition, they must not have any gainful employment in Switzerland or abroad, apart from the management of their own assets. The condition ‘special personal ties with Switzerland’ is fulfilled if the retiree can demonstrate that he or she frequently stays in Switzerland, or if there are close ties to relatives in Switzerland. Additionally, the Foreign Nationals Act allows the cantons to grant permit B if there are important public interests, such as substantial fiscal interests of the canton. Thus, some cantons grant a permit B to a non-EU and non-EFTA national if he or she agrees to pay substantial amounts in taxes. It should be noted that these amounts vary from canton to canton, and can be as high as 1 million Swiss francs per year.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

If an individual is granted a permit B, he or she can usually bring his or her family members to Switzerland.

For EU and EFTA nationals holding a Swiss residence, the apartment must be large enough to accommodate the family members. Furthermore, proof of adequate financial means to cover the living expenses of all family members is necessary.

EU and EFTA nationals holding a Swiss residence permit may bring to Switzerland:

• spouses;

• children who are under the age of 21 or financially dependent on the EU or EFTA citizen; and

• parents and grandparents, provided that they are financially dependent on the EU or EFTA citizen.

Under the family reunification programme, third-country nationals holding a settlement permit C may bring spouses or registered partners as well as children under the age of 18, provided they are all living in the same household, to Switzerland. Third-country nationals holding a residence permit B are not entitled to bring family members to Switzerland at all. However, as an exception, the cantonal migration office may grant family reunification under the same conditions outlined above.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

High net worth individuals must follow the same rules to reside permanently or indefinitely in Switzerland as anyone else. A distinction is made between nationals of EU-17, EFTA and other states.

In the case of nationals of EU-17 (except Cyprus and Malta) and EFTA, settlement permits C are granted pursuant to the applicable agreement after five years’ regular and uninterrupted residence in Switzerland. There are no such treaties for Cyprus, Malta, the EU-8 member states, Bulgaria and Romania. Therefore, for these and all other states without a treaty, a settlement permit C is generally granted after 10 years of regular and uninterrupted residence in Switzerland.

Even though the settlement permit is permanent, in practice, it is issued for the duration of five years and can be extended for another five years.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

There is no special programme for high net worth individuals to obtain citizenship or nationality. Generally, individuals with no direct blood ties to Switzerland, through either birth or marriage, must live in Switzerland for at least 10 years before they can apply for citizenship. It should be noted that years spent in Switzerland between the ages of 10 and 20 years count for double. In order to obtain citizenship, it is conditional that the applicant is well integrated, familiar with the customs and traditions of Switzerland and does not pose any threat to internal or external security. Additionally, cantons and communities may have further requirements that must be met.

Natalie Peter

n.peter@blumgrob.ch

Claude Blum

c.blum@blumgrob.ch

Neumühlequai 6

8021 Zurich

Postfach

Switzerland

Tel: +41 58 320 00 00

Fax: +41 58 320 00 01

www.blumgrob.ch

United States

Stephen K Vetter and Eric Dorsch

Kozusko Harris Duncan

Tax

1 How does an individual become taxable in your jurisdiction?

The US imposes a tax on income (income tax) and a tax on the transfer of wealth under the gift, estate and generation skipping transfer tax regimes (collectively, transfer taxes). The determination of whether an individual is resident in the US for income tax or for transfer taxes is based on different standards, with the result that each category must be analysed separately.

Income tax

Non-resident aliens (NRAs) that are not considered resident in the US for income tax purposes are subject to federal income tax on their US-source fixed and determinable income (eg, US-source interest, rent and dividends), and their income effectively connected with a US trade or business. The tax on an NRA’s fixed and determinable income is collected through withholding, commonly referred to as the withholding tax. An NRA with effectively connected income must file a US income tax return.

US citizens and income tax residents are subject to federal income tax on their worldwide income.

Non-citizens are deemed to be income tax residents, and therefore subject to taxation on their worldwide income, if:

• they are lawful permanent residents of the US (ie, green card holders); or

• they meet the substantial presence test. Under the substantial presence test, an individual is US income tax resident if he or she is present in the US at least 31 days in the current year and at least a total of 183 days over the prior three years, counting each day in the current year as one day, each day in the prior year as one-third of a day and each day in the second year prior as one-sixth of a day. Partial days count as one day, but days spent in the US as a student, teacher or in transit generally do not count for the purposes of the substantial presence test. An individual who would otherwise meet the substantial presence test but has spent fewer than 183 days in the US in the current year may still be deemed not to be a US income tax resident if he or she has a closer connection to another jurisdiction.

Finally, individuals who are US income tax residents may qualify under a relevant income tax treaty to file non-resident income tax returns.

Transfer taxes

Individuals who are resident for US transfer tax purposes are subject to tax on the gratuitous transfer of their worldwide assets. Non-residents are only subject to US transfer tax on the gratuitous transfer of US situs assets.

An individual is deemed to be a resident of the US for transfer tax purposes if he or she is a US citizen or domiciliary. Unlike income tax residency, domicile is a facts and circumstances test. Courts consider a number of factors in determining an individual’s domicile, including, but not limited to, location of family, location of businesses, location of homes, jurisdiction of driver’s licence, membership in civic organisations and clubs, location of bank accounts, and voter registration.

US situs assets are defined differently for US gift and estate tax purposes. Generally, US real property and tangible personal property located in the US constitute US situs property for gift tax purposes. For estate tax purposes, the definition is extended to include US intangible personal property (eg, stock of US corporations).

2 What, if any, taxes apply to an individual’s income?

As described in question 1, an income tax resident is subject to federal income tax on his or her worldwide income. Income tax is applied on a graduated rate schedule ranging from 10 per cent to 37 per cent. As described in question 3, capital gains may be eligible for preferred tax rates. Individuals are also entitled to various exemptions, deductions and credits, including deductions for charitable gifts and credits for foreign taxes paid.

As mentioned in question 1, the tax on a non-resident alien’s US-source interest, rent and dividends is generally collected through a 30 per cent withholding at the source. A non-resident alien’s income effectively connected with a US trade or business is subject to tax on the same terms as a US income tax resident.

3 What, if any, taxes apply to an individual’s capital gains?

Long-term capital gains, gains from the sale of assets held more than one year, of US income tax residents are generally eligible for a preferred tax rate: 15 per cent for some taxpayers, but 20 per cent for those taxpayers in the highest bracket. In addition, the net investment income tax may apply an additional 3.8 per cent tax on the gains from assets held for investments for those taxpayers with income above a certain threshold, currently US$250,000 for a married couple. Capital gains from the sale of assets held for less than one year are taxed at ordinary income tax rates.

Non-resident aliens are not generally subject to tax on capital gains unless such gains are effectively connected with a US trade or business. Further, NRAs are not subject to the net investment income tax. NRAs who are subject to capital gains tax may take advantage of the preferred capital gains rate.

4 What, if any, taxes apply if an individual makes lifetime gifts?

The US applies a gift tax to all gratuitous lifetime transfers from a US citizen or gift tax resident. A US citizen or gift tax resident is entitled to a unified lifetime estate and gift tax credit currently equal to a US$11.18 million exemption (this is the amount for 2018 but is indexed for inflation). In addition, gifts of up to US$15,000 per year per donee and certain gifts for educational and medical expenses are excluded from the gift tax.

Gratuitous transfers from individuals who are not US gift tax residents are not subject to the US gift tax unless the transferred property is a US situs asset; US real estate and tangible personal property located in the US.

Gifts to spouses who are US citizens are exempt from the gift tax. Gifts to non-citizen spouses of less than US$152,000 per year (this is the amount for 2018, but is indexed for inflation) are excluded from the US gift tax. Transfers to charity may also qualify for a deduction from the US gift tax.

The gift tax is currently assessed at a maximum rate of 40 per cent.

5 What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

The US applies an estate tax to a US citizen’s or estate tax resident’s worldwide assets. A US estate tax resident is a person who is domiciled in the US. As discussed in question 4, the unified estate and gift tax credit applies to a US citizen or estate tax resident’s estate, currently US$11.18 million.

The estate of a non-US estate tax resident is only subject to US estate tax on US situs assets. US situs assets, for estate tax purposes, includes US real property, tangible personal property located in the US and intangible property located in the US; intangible property located in the US includes stock of US corporations. A non-US estate tax resident is entitled to a US estate tax credit equal to US$60,000 exemption (this amount is not indexed for inflation).

Transfers at death to a US citizen spouse are not subject to the US estate tax. Transfers to a non-citizen spouse are subject to the US estate tax unless the transfer is made to a qualifying domestic trust. Transfers to charity, whether US or foreign, may qualify for a charitable deduction.

The estate tax is imposed at a maximum rate of 40 per cent. The US also imposes an additional tax on lifetime and testamentary transfers to individuals more than one generation removed from the transferor, called the generation-skipping transfer tax (GST). Transfers by non-gift and estate tax residents are currently only subject to the GST tax if the transfer would have been subject to US gift or estate tax.

6 What, if any, taxes apply to an individual’s real property?

Gains from the sale of real property by a US citizen or income tax resident may be subject to federal and state income tax. Generally, gains from the sale of real property will be treated as capital gains and may be eligible for a preferred tax rate. In addition, up to US$250,000 (US$500,000 if married) of gains from the sale of a principal residence may be excluded from income.

Gains from the sale of real property by a non-resident alien may also be subject to federal and state income tax. The Foreign Investment in Real Property Tax Act imposes a federal withholding tax regime on the gross proceeds, not gain, from the sale of US real property by NRAs.

Many states impose a tax on sales or transfers of real property. In addition, many state and local jurisdictions impose an annual property tax.

7 What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

The US imposes a duty on the importation of personal use goods by residents and non-residents. Residents generally are entitled to a personal exemption on the importation of goods acquired while travelling abroad; however, the amount of the exemption varies depending on the location of travel. In addition, household effects generally are not subject to duty. There is generally no tax or duty levied on the exportation of personal use goods.

8 What, if any, other taxes may be particularly relevant to an individual?

The US imposes GST on gratuitous lifetime and testamentary transfers to persons who are more than one generation removed from the transferor. The GST tax is imposed at the same rate as the gift and estate tax.

The US imposes an ‘exit tax’ on certain US citizens or long-term residents who expatriate from the US. In broad terms, the exit tax treats the covered expatriate as having sold all of his or her assets on the day before expatriation and imposes a tax on the deemed gain from such sale, less an exemption amount. In addition, the US imposes an inheritance tax on US persons who receive gifts from covered expatriates. This inheritance tax is imposed at the highest gift tax rate.

Many states and localities impose a state or local income tax, sales tax or real estate transfer tax.

9 What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Trusts are either treated as separate taxpaying entities (non-grantor trusts) or are disregarded as separate entities from their creators (grantor trusts).

A trust is a grantor trust if the creator of the trust retains sufficient control over it (eg, the power to revoke, the power to control distributions). In the case of a grantor trust, the settlor is treated as earning the trust’s income. The amount of tax actually owed by the settlor depends on whether the settlor is a US person (citizen or resident). A settlor who is a US person will be taxed on the worldwide income of the grantor trust. A non-resident, non-citizen settlor will be taxed only on US-source fixed-determinable income and income effectively connected with a US trade or business earned by the grantor trust.

A non-grantor trust, on the other hand, may itself be taxable on recurrent income or may be entitled to a deduction for income distributed to the beneficiaries. The amount of tax owed by the trust depends on whether the trust is foreign or domestic. A beneficiary who is a US person is generally required to report as income the amount of the income earned by the non-grantor trust and distributed to the US person. A non-resident, non-citizen beneficiary will generally be taxed only on US-source fixed-determinable income and income effectively connected with a US trade or business distributed by the non-grantor trust to the non-resident, non-citizen beneficiary.

Under the two-part test for US federal income tax purposes, a trust must satisfy both the court test and the control test to be a domestic trust; otherwise it is a foreign trust. A trust satisfies the control test if one or more US persons have the authority to control all substantial decisions of the trust.

A trust satisfies the court test if a court within the United States is able to exercise primary supervision over the administration of the trust. Distributions from a foreign non-grantor trust to a US beneficiary may be subject to the ‘throwback’ tax regime. If the throwback tax applies, income will be taxed at the ordinary income tax rates plus an additional interest charge.

10 How are charities taxed in your jurisdiction?

In general, charities that have registered as tax-exempt entities are not subject to US income tax. However, the US does impose an income tax on a charity’s business income that is unrelated to its purposes. Contributions to qualified charities are eligible for an income tax deduction.

Trusts and foundations

11 Does your jurisdiction recognise trusts?

Trusts are recognised and widely used in the US. When a trust is created, a settlor separates the legal title from the equitable title to property. The settlor conveys the legal title to a trustee, and the equitable title to a beneficiary or beneficiaries. The settlor may also be a trustee, a beneficiary, or one of several trustees or beneficiaries. The trustee takes title to property only for the purpose of protecting or conserving it for the beneficiaries of the trust. The beneficiaries, however, are usually not the creators of the trust, and as such do no more than accept the benefits of the trust. The trustee, while holding title, is obligated to deal with trust property solely in the beneficiaries’ best interest. The beneficiaries, on the other hand, while being the beneficial owners of the property, do not have title to the property itself, and are not able to transfer or otherwise deal with trust property.

Trusts governed by the laws of other jurisdictions are recognised in the US.

12 Does your jurisdiction recognise private foundations?

In US custom and practice, foundations formed as non-profit corporations, along with charitable trusts, are the favoured vehicles for managing assets set aside for charitable purposes by a particular individual or subsequent third-party contributors. Since these organisations are usually established to be exempt from income taxes and to provide tax benefits to their contributors, the US tax rules govern a foundation’s permitted activities (the purpose may be broad, such as ‘educational’, but the operations must comply with these purposes) and such entities may not be used to benefit individuals, engage in self-dealing with their major contributors, nor be used to transfer wealth from one generation to another.

A foreign private foundation may qualify as a private foundation under the Internal Revenue Service (IRS) rules as long as it complies with the requirements of section 501(c)(3).

Same-sex marriages and civil unions

13 Does your jurisdiction have any form of legally recognised same-sex relationship?

In 2015, the US Supreme Court ruled that all US states must licence and recognise same-sex marriages. Accordingly, same-sex marriages are recognised in every US state. As a matter of federal constitutional law, individuals in same-sex marriages are treated the same as individuals in heterosexual marriages for all tax and succession purposes.

14 Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage?

Many US states also recognise civil unions or domestic partnerships. The rules for establishing such relationships vary depending on the particular jurisdiction but generally involve registering with a state agency. These types of relationships are generally available to both same-sex and heterosexual couples.

While some states recognise these types of relationships for certain tax and succession purposes, the US federal government does not and individuals in a domestic partnership are still required to file individual tax returns.

Finally, some US states recognise common law marriage, an informal marriage established through habit and time. Common law marriage does not require any formal steps.

Succession

15 What property constitutes an individual’s estate for succession purposes?

An individual’s estate for succession purposes consists of all those assets owned directly, and in some cases indirectly, by the individual. In addition to assets held directly by an individual, assets held in a trust over which the individual has a lifetime or testamentary general power of appointment may be considered part of the individual’s estate. Property owned through certain legal relationships, such as a joint tenancy with rights of survivorship or a tenancy by the entirety, will not be considered part of an individual’s estate.

16 To what extent do individuals have freedom of disposition over their estate during their lifetime?

An individual is generally free to dispose of his or her estate during his or her lifetime. However, in some community property states, an individual may not dispose of community property without consent of the spouse.

17 To what extent do individuals have freedom of disposition over their estate on death?

An individual is generally free to dispose of his or her assets at death. However, many states utilise a concept known as ‘elective share’ that protects a spouse’s interests at death. It is a statutory right giving the surviving spouse a fractional share of the deceased spouse’s estate, usually ranging from one-half to one-third depending on the state and the number and percentage of surviving children or other related persons. The elective share right includes real and personal property, and applies to husbands and wives. In addition, many states provide that minor children have a right to a certain amount of the estate. In community property states, a spouse can generally only dispose of one-half of the community property. Furthermore, certain ownership relationships, such as tenancy by the entirety and payable at death bank accounts, eliminate an individual’s ability to dispose of such property at death.

18 If an individual dies in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If an individual dies without a valid will, the individual’s estate will be disposed of pursuant to the intestate succession rules of the jurisdiction of the individual’s domicile at death. Each US state has different intestate succession laws, but the rules generally provide that the individual’s estate will go to his or her closest relatives. For instance, in New York the intestate succession rules provide that a surviving spouse will receive US$50,000 plus one-half of the remaining assets, and that the descendants will receive one-half of the remaining assets. Note that certain assets are not included in the individual’s estate for intestate succession purposes (eg, life insurance proceeds, certain retirement assets and assets held in trust).

19 In relation to the disposition of an individual’s estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

An individual can generally leave his or her property to anyone he or she wants, subject to qualifications discussed in question 16. Adopted children are generally treated the same as natural-born children. However, ‘illegitimate’ children may be treated differently in some states. If a parent of an illegitimate child dies without a will, most states do not protect the child’s right of inheritance as strongly as if the child were born to married parents or otherwise legally legitimated. For example, in some states, in the absence of a will or trust, the child can fully inherit from the mother but not from an unmarried father. In light of these differences, many states provide for a legal paternity statement, which can eliminate some of the differences.

20 What law governs the distribution of an individual’s estate and does this depend on the type of property within it?

For most of a decedent’s property, the law of his or her state of domicile will govern. However, the distribution of certain property (eg, real property and tangible personal property) will be governed by the law of the state where the property is located. Under these rules, an individual’s estate will often be subject to multiple probate proceedings, one in his or her state of residence and then ancillary probate proceedings in the jurisdictions where his or her other property is located, for instance in the jurisdiction of the vacation home.

For a non-US decedent, original probate will generally be required in his or her home jurisdiction. Ancillary probate proceedings will then be required in the US states where his or her property is located. Generally, these ancillary probate proceedings will require the appointment of a US administrator or executor.

21 What formalities are required for an individual to make a valid will in your jurisdiction?

The most common form of will in the US is a formal written will often called a non-holographic will. Each state has different requirements for executing a non-holographic will, but most states have at least the following requirements:

• the testator is of sound mind;

• the testator is at least 18;

• the testator signs the will at the end; and

• the execution of the will is in the presence of two disinterested witnesses.

In addition to non-holographic wills, certain states permit holographic, also known as handwritten, wills and oral wills. The formalities required for these types of wills are not as rigorous.

22 Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign wills are recognised in the United States. Each state has different requirements for admitting a foreign will for probate. Generally, probate courts will require a copy of the foreign will, a certified translation of the foreign will by a qualified translator and an affidavit from the qualified translator.

23 Who has the right to administer an estate?

The person named in the decedent’s will as the estate’s executor (alternatively called the administrator or the personal representative) administers the estate. If there is no one named in a will or the named individual is unable to serve, state law will dictate who serves as executor. The probate court will issue letters testamentary (or similar such documents) empowering the executor to act on behalf of the estate. The executor acts in a fiduciary capacity and has broad powers to administer and distribute the estate.

24 How does title to a deceased’s assets pass to the heirs and successors? What are the rules for administration of the estate?

With respect to assets included in the probate estate, upon distribution from the estate, the executor transfers title of the assets to the heirs. Title to certain assets that are not included in the probate estate (eg, joint tenancy property, community property or pay on death accounts) transfer as a matter of law. Finally, title to assets held in trust is transferred by the trustee of the trust.

25 Is there a procedure for disappointed heirs and beneficiaries to make a claim against an estate?

Disappointed heirs can raise their objections in the probate proceedings. However, some form of waiver and consent is generally required in all jurisdictions in order to receive a distribution from the estate.

Capacity and power of attorney

26 What are the rules for holding and managing the property of a minor in your jurisdiction?

Minors generally do not have the legal capacity to own property or open bank accounts. Most states have adopted the Uniform Transfers to Minors Act and the Uniform Gifts to Minors Act. These laws permit the creation of accounts for the benefit of the minor with a guardian or custodian acting on behalf of the minor until the minor reaches the age of majority, generally age 21 for the purposes of these accounts.

27 At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

Generally, when an individual reaches the age of 18, he or she attains legal capacity to manage property.

28 If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

Prior to losing capacity, an individual may execute a financial power of attorney authorising an agent to manage his or her financial affairs. If an individual becomes incapacitated without having executed a financial power of attorney, a court can appoint a guardian to manage the individual affairs.

Immigration

29 Do foreign nationals require a visa to visit your jurisdiction?

Generally, foreign nationals need a visa to visit the US. However, citizens of countries that participate in the Visa Waiver Program do not need a visa to visit the US. Most European countries participate in the Visa Waiver Program.

30 How long can a foreign national spend in your jurisdiction on a visitors’ visa?

Foreign nationals can generally spend up to six months in the US on a tourist visa. Citizens from countries participating in the Visa Waiver Program can generally spend up to 90 days in the US.

31 Is there a visa programme targeted specifically at high net worth individuals?

The employment-based fifth preference visa (EB-5) programme provides a means for individuals who make certain investments in the US to obtain a visa and permanent residency. In order to qualify for the programme, the foreign national must invest at least US$1 million (less in certain locales in the US) in a new commercial enterprise that generates at least 10 new full-time jobs.

32 If so, does this programme entitle individuals to bring their family members with them? Give details.

Spouses and unmarried children under the age of 21 of the investor may also obtain a visa and permanent residency under the EB-5 programme.

33 Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

A participant in the EB-5 programme is initially granted conditional permanent residency (a green card). After two years, if the applicant has complied with the requirements of the programme, the participant is granted full permanent residency.

34 Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

Five years after having initially been granted conditional permanent residency, an EB-5 participant may apply for US citizenship. In order to qualify for naturalisation, as of the date of filing the green card holder must:

• be at least 18;

• have lived within the state for at least three months;

• have had continuous residence in the United States as a green card holder for at least five years immediately preceding the date of filing the application;

• be physically present in the United States for at least 30 months out of the five years immediately preceding the date of filing the application;

• reside continuously within the United States from the date of application for naturalisation up to the time of naturalisation;

• be able to read, write and speak English and have knowledge and an understanding of US history and government (civics); and

• be a person of good moral character, attached to the principles of the Constitution of the United States, and well disposed to the good order and happiness of the United States during all relevant periods under the law.

Stephen K Vetter

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Eric Dorsch

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