RED EXPAT. Moving employees from Spain to the United Kingdom. Pablo Álvarez y María Teresa López 20 th September 2016

Transcription

1 RED EXPAT Moving employees from Spain to the United Kingdom Pablo Álvarez y María Teresa López 20 th September 2016

2 Agenda Introduction UK / Spanish Tax Systems The Example Assignment to the UK Local transfer to the UK Short Term Business Visitor to the UK

3 UK / Spanish Tax Systems 3

4 UK / Spanish Tax Systems Tax Year Spanish Tax Year Deadline to submit the tax return 20 th January / 30 th June 1 January 31 December UK Tax Year Deadline to submit the tax return 31 st January 6 April 5 April

5 UK / Spanish Tax Systems Employment income tax rates Income band ( ) UK Tax rate PA - Up to 11,000 0 % Up to 31, % 31, , % Over 150, % Personal allowance (PA) is only available for individuals whom entire income doesn t exceed 122,000 (for 2016/17). Between 100,000 and 122,000 the PA is reduced 1 per each 2 exceeding 100K. Income band ( ) Spanish Tax rates (Resident) Spanish Tax rates (Non resident / Resident EU) Up to 12, % 19% 12, , % 19% 20, , % 19% 35, , % 19% Over 60, % 19%

6 UK / Spanish Tax Systems UK Tax Residency - Statutory Residence Test Automatic Non- Residence Automatic Residence Sufficient Ties The individual is present in the UK for fewer than 16/46 days in the current tax year The individual works on a full time basis overseas Sufficient hours No significant break from overseas home Less than 30 UK workdays Present in the UK less than 91 days The individual is present in the UK for more than 183 days The individual meets the home test The individual works on a full time basis in the UK No significant break from UK work in a continuous period of 365 days Less than 25% of workdays spent overseas Family, Accommodation, 40 WD, 90 Days, UK days

7 UK / Spanish Tax Systems Spanish Tax Residency The individual is present in Spain for more than 183 days The centre of economic interests is located in Spain When family maintain the residency in Spain, the individual is presumed Spanish tax resident The tax residency position agreed will be for the whole tax year, i.e. from 1 st January to 31 st December.

8 UK / Spanish Tax Systems Split UK tax residency Started full time work abroad Partner of someone who started full time work abroad Ceased to have a home in the UK Leaving the UK Coming / Returning to the UK Started to full time work in the UK Ceased to full time work abroad Partner of someone who has ceased FTWA Started to have a home in the UK

9 UK / Spanish Tax Systems Interaction Article 4 Double Tax Agreement 1. Permanent home available 2. Centre of vital interests 3. Habitual abode 4. Citizenship 5. Mutual agreement Getting Certificates of Tax Residency in the UK under the DTA Due to the difference between both tax years and the fact that the Spanish tax residency can t be split, it s strongly suggested to ensure whether an individual is UK tax resident before treating an individual as non-spanish tax resident. The interaction between the offices from the relevant tax provider is essential.

10 UK / Spanish Tax Systems Domicile Domicile: Country in which the long term, permanent home is located. Domicile of origin Domicile of choice Key points The country of domicile will determine the way the individual is taxed into the UK.

11 UK / Spanish Tax Systems Bases of taxation Non-tax resident United Kingdom UK sourced income Spain Spanish sourced income Arising basis Worldwide income Ordinary resident Worldwide income Tax Resident Remittance basis / Deemed remittance basis UK sourced income + remitted income Special tax regime Worldwide employment income 11

12 The Example 12

13 The Example Personal information Juan Cambados. Married with María Bayona The couple has one child: Xavi Cambados He is a Country Manager at RED EXPAT Spain and is currently agreeing with the Company the conditions of his future move overseas. Home country: Spain Host country: UK We ll analyse three different scenarios that Juan and the HR Director from RED EXPAT might discuss on their negotiations. 13

14 The Example Assignment cycle 1. Assignment Planning 2. Pre-departure Services 3. Move to the host country 4. Payroll implementation 5. On-going assignment admin. 6. Year end Tax return preparation 7. Repatriation 8. Post Assignment Services

15 Assignment to the UK

16 Assignment to the UK Scenario Assignment information Assignment period: 16/02/ /02/2018 The employee s assignment is under the Tax Equalisation Policy. Juan will work 10% of his time back to Spain. His family will move with him to the UK. Compensation Details: Base Salary: 70, Bonus: 15,000 19,000 Relocation benefits Tax return preparation services Split payroll 50/50

17 Assignment to the UK Employee implications Spanish Domestic Rules UK Domestic Rules Double Tax Treaty Tax Residency position Non-tax resident Tax Resident Split year. 16/2/ /04/2016 Domicile N/A Non UK Domiciled N/A Employment income taxation Workdays Arising or Remittance basis QTEs ** Forms to complete Form 030 Forms 64-8 & SA1 N/A Treaty resident in the UK from 16/02/2016. Foreign tax credit claim, in case of double taxation Deadline to submit the tax return 20/01/ /01/2017 N/A ** A further analysis is required and we ll look at this in the following slide.

18 Assignment to the UK Qualifying travel and subsistence relief Temporary workplace Available for assignments for a period less than 24 months. The relief is withdrawn (not retrospectively) from the date it s expected the employee will spend more than 24 months (i.e. when an extension letter is signed). From that date the workplace is considered as permanent. Relief For certain expenses associated with the performance of the duties of employment at that workplace Available for both inbounds and outbounds considered UK tax residents. Expenses allowed Cost of travel to the temporary workplace. Accommodation Rent expenses Food and non-alcoholic drinks Restrictions according to the family members moved with the employee. Claim Via tax return HMRC has 12 months after the Tax Return is filed to enquire into the return. The documentation related needs to be kept by at least 12 months.

19 Assignment to the UK Employer implications S p a I n Maintain payroll for payment delivery purposes (50%) Subject to tax the workdays back in Spain and declare that amounts through Form 216 on a monthly/quarterly basis. U K Application for a Modified PAYE arrangement under an Employment Procedures Appendix 6. This is a relaxed shadow payroll system allowed by HMRC for tax equalised employees assigned to the UK.

20 Local transfer to the UK

21 Local transfer to the UK Scenario Transfer information Date of transfer: 01/09/2016 The employee is responsible of his own taxes in both countries. Juan s role will be fully based in the UK. His family will move with him to the UK. Compensation Details: Base Salary: 120, Bonus: 20, Net relocation benefits Tax return preparation services Paid only from UK payroll into a UK bank account

22 Local transfer to the UK Employee implications Spanish Domestic Rules UK Domestic Rules Double Tax Treaty Tax Residency position Tax Resident Tax Resident Split year. 01/09/ /04/2017 Domicile N/A Non UK Domiciled N/A Employment income taxation Worldwide income. 7.p) available Remittance basis Forms to complete Form 030 Forms 64-8 & SA1 N/A Treaty resident in the UK from 01/09/2016. UK foreign tax credit claim, in case of double tax Deadline to submit the tax return 30/06/ /01/2018 N/A

23 Local transfer to the UK Employer implications S p a I n Remove Spanish payroll from 1 st September 2016 In 2017, declare through the Form 216 any trailing income to be taxed in Spain as a non resident. Set up the UK payroll as any other UK employee. U K Apply Pay As You Earn (PAYE) withholding taxes based on the Tax Code issued by HMRC: 1060L is the current tax code for most people

24 Short Term Business Visitor (STBV)

25 Short Term Business Visitor (STBV) Scenario Assignment information His family will stay and Juan will be commuting between Spain and the UK; 20% UK workdays, approximately. The employee is responsible of his own taxes in both countries. Compensation Details: Base Salary: 150, Bonus: 30, Temporary accommodation Tax return preparation services Paid only from Spanish payroll into a Spanish bank account

26 Short Term Business Visitors (STBV) Employee implications Spanish Domestic Rules UK Domestic Rules Double Tax Treaty Tax Residency position Tax Resident Non-tax resident Treaty resident in Spain Domicile N/A Not relevant N/A Employment income taxation Worldwide income. 7.p) available Workdays** Forms to complete N/A Forms 64-8 & SA1 N/A Art. 15 FTC, if double tax Deadline to submit the tax return 30/06/ /01/2018 N/A ** A further analysis is required and we ll look at this in the following slides.

27 Short Term Business Visitors (STBV) UK workdays UK domestic rules Perform of core job tasks while in the UK, which are of equal importance to his job tasks overseas. Substantive Taxable in the UK A workday is a day where an individual spends at least 3 hours working in the UK Director duties are always treated as substantive Duties are ancillary or subordinate to their overseas duties Merely incidental Non taxable in the UK

28 Short Term Business Visitors (STBV) UK workdays DTA Interpretation of Article 15 DTA Economic employer: - Where is his team based? - Where is based the person who Juan reports to? - Who bears the risks and rewards for the work performed by him 60-day Rule: On the basis the employee doesn t stay more than 60 days in the UK within a 12 month period, HMRC understands the UK entity is not the real economic employer.

29 Short Term Business Visitors (STBV) Employer implications Is the STBV carrying out substantive duties in the UK entity? Yes Is the STBV employed by, paid by or working for the UK entity? Yes Is the STBV resident in a country with which the UK has a comprehensive DTT? Yes Does the UK entity operate as the economic employer for the STBV s UK duties? Yes Is the STBV expected to be present in the UK for < 60 days (including linked periods)? Yes If the relevant conditions are met, the STBV will be exempt from UK tax and can be included in any relevant STBV agreement, as appropriate No No No No No No tax due, and no reporting required The UK entity is not required to operate PAYE but the STBV may need to file a tax return. The PE risk should be considered The UK entity is required to operate PAYE from day 1. The STBV is not exempt from UK tax If the relevant conditions are met, the STBV will be exempt from UK tax and can be included in any relevant STBV agreement, as appropriate The UK entity is required to operate PAYE from day 1. The STBV is not exempt from UK tax This flowchart assumes that: the STBV is not resident for UK tax purposes the duties performed in the UK are substantive rather than merely incidental to the main duties performed outside of the UK 2016 Deloitte LLP. All rights reserved 29

30 Short Term Business Visitors Employer implications Short Term Business Visitor Agreement Appendix 4 Employers are required to have a robust tracking mechanism in order to track STBVs to the UK. An STBV Agreement is now mandatory to support PAYE exemption. Demonstrates efforts to track visitors to the UK and provides framework to assess whether PAYE is due. From 2015/16 HMRC have agreed that employers can cover all STBV taxable income on a single end of year payroll entry rather than having to deduct PAYE on a monthly basis Different levels of reporting requirements for visitors with 1-30, 31-60, and days. Annual report filing required by May 31 following end of tax year. Historically it was not essential to have an STBV agreement, however this has now changed where HMRC now insist on the operation of PAYE from day 1 unless an agreement is in place certifying that tax will not be due by virtue of the double taxation treaty Deloitte LLP. All rights reserved 30

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