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FINANCE LAW FOR 2007
This
law, which came into force on 1st January 2007, has made the
following significant amendments to tax legislation:
Income
tax:
The new
tax sliding scale has now come into force and will apply to 2007 income
tax returns relating to income earned in 2006. As a result of this new
sliding scale certain of the allowances of the old regime have been
suppressed to take into account the more favourable rates under the new
scale. The scale is as follows:
0% not
exceeding 5 614 EUR
5.50 % between 5 614 EUR and 11 198 EUR
14 % between 11 198 EUR and 24 872 EUR
30 % between 24 872 EUR and 66 679 EUR
40 % above 66 679 EUR
Wealth
tax:
The
ceiling for wealth tax has been raised. For wealth tax due in 2007, the
ceiling above which this tax is payable is now 760,000 Euros. The bands
have been adjusted as follows:
Between
760,000 Euros and 1,220,000 Euros 0.55%
Between
1,220,000 Euros and 2,420,000 Euros 0.75%
Between
2,420,000 Euros and 3,800,000 Euros 1%
Between
3,800,000 Euros and 7,270,000 Euros 1.3%
Between
7,270,000 Euros and 15,810,000 Euros 1.65%
Above
15,810,000 Euros 1.8%
VAT on
certain types of letting activity:
The
possibility of opting for VAT on certain types of letting activity (for
example classified tourist residences) has been extended to cover
situations where there is no commercial lease (previously a commercial
lease was a pre-requisite). This will allow landlords who otherwise
meet the conditions relating to the type of activity to recover VAT.
In a
separate piece of legislation, namely the ‘Rectifying Finance Law for
2006’, the rules relating to the taxation of gifts and inheritance
under the new mechanisms introduced by the law of 23rd June
2006 have been introduced. This provides welcome clarification which
will enable the full use of the new mechanisms for gifting and
bequeathing property. Referring to the headings of the legal update
published last year entitled Changes to the law on inheritance,
ownership ‘en indivision’, gifts, PACS and changes of matrimonial regime
certain of the new tax rules can be summarised as follows:
Representation
Descendants who represent the renouncing party benefit from the 50,000
Euros tax free band from which their renouncing parent would have
benefited. The tax rate is calculated on the same basis.
Renunciation in advance to exercising the action in ‘réduction’
The
renunciation itself does not lead to any taxation (e.g. it is not to be
viewed as an indirect gift). Tax is calculated on the basis of the
degree of relationship between the testator and beneficiary.
‘Graduated’ bequests
The
bequest to the first beneficiary is taxed in accordance with the normal
rules. The second beneficiary is not, at this stage, subject to any
tax. Upon the death of the first beneficiary, the second beneficiary is
taxed on the value of what he or she inherits in accordance with the
degree of relationship between the original testator and the second
beneficiary. The tax paid by the first beneficiary is offset against
that due by the second.
Extension of the rules of ‘donation-partage’
A
potentially significant measure is where a ‘donation-partage’ is used by
parents to benefit children including those of other marriages or
relationships. The gift tax payable is calculated on the basis of the
direct lineage tariff between parent and child on the value of what is
given thereby avoiding the possibility of taxation at the very high rate
between non-related beneficiaries (e.g. step-parent to step-child).
This means that the interest of the mechanism is preserved for
reconstituted families (otherwise its fiscal consequences would have
mitigated against its use in many cases).
08/03/2007
- Legal
update
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