Chinese Desk newsletter November 2013

Chinese Desk Newsletter November 2013

New Criteria on portfolio dividends (Germany)

Two important tax laws have been introduced recently, which could have impact on international companies. One of them relates to the taxation of portfolio dividends paid to an EU resident company.

Dividends are subject to German withholding tax of 25%, although nationally there is a participation exemption. Usually a tax reduction of 10 – 15% can be granted by the German authority if there is no other reduction available.

The new German law illustrates that this tax reduction shall no longer granted once the shareholding is less than 10% at the beginning of the calendar year. The new rule will be applied retroactively to the beginning of the calendar year.

The portfolio dividends no long match the 10% criteria will be subject to corporate tax and not to the trade tax as before.

Short term capital gains (shares) will become taxable in taxation year 2014 (Belgium)

Under the “old” tax legislation (net) capital gains realized by a Belgian company or Belgian branch on shares were 100% tax exempt provided the so-called taxation condition was met without any minimum holding-period or participation level requirements. If not, the normal rate of 33% (plus 3% surcharge) applies. The taxation condition is that the shares should represent the capital of a company which is subject to a “normal” tax regime.

Under the new rules, a minimum uninterrupted holding period of one year is introduced. If the capital gain is realized before the minimum holding period of one year is reached, the capital gain is taxed at a separate rate of 25%.

One could state that the principle tax exemption has been replaced by a principle tax levy if the minimum holding period is not honored. For clients whose treasury management looks for short term investments, this is an important new element. The net, after-tax return or potential return of short term investment in shares will be eroded as of now…