By Decree Nos. 2006/11449 and 2006/11447, published in the Official Gazette of 29 December 2006 and of 30 December 2006 respectively, the Council of Ministers has reduced the income withholding tax rates, as described below.
Accordingly, the new income withholding tax rates are as follows:
|-||income withholding taxes applied to professional income derived by resident and non-resident individuals, as well as non-resident companies, is reduced from 22% to 20%;|
|-||income withholding tax rate applied to the remunerations paid to resident and non-resident individuals, and resident and non-resident companies, providing construction services where the duration of such services is longer than 1 calendar year is reduced from 5% to 3%;|
|-||income withholding tax rate applied to the proceeds from the sale of intellectual property rights derived by non-resident individuals and non-resident companies is reduced from 25% to 20%;|
|-||income withholding tax rate applied to royalties paid to resident and non-resident individuals, as well as to non-resident companies, is reduced from 22% to 20%; and|
|-||income withholding tax rate applied to rental income derived from immovable property by resident and non-resident individuals, as well as by non-resident companies, is reduced from 22% to 20%.|
The new rates apply from 1 January 2007.
Treasury Department and IRS announce amendments to Subpart F services income and Subpart F shipping income
The US Treasury Department and Internal Revenue Service (IRS) have announced that amendments will be made to the US regulations regarding the treatment of services income and shipping income under the controlled foreign corporation (CFC) rules of Subpart F of the US Internal Revenue Code (IRC). The announcement was made in IRS Notice 2007-13.
Subpart F services income
With regard to Subpart F services income (defined as foreign base company services income), the Treasury Department and IRS announced that they will amend the "substantial assistance" rules in the current regulations to permit assistance to the CFC by a related US person or persons without the creation of Subpart F service income provided that a new 80% cost threshold for such services is not exceeded.
Notice 2007-13 provides that the new test for Subpart F treatment will not be met unless the cost to the CFC of the services furnished by the related US person or persons equals or exceeds 80% of the total cost to the CFC of performing the services.
Notice 2007-13 states that taxpayers may apply the cost test either by demonstrating that the assistance provided, directly or indirectly, by related US persons is below the 80% cost threshold or, alternatively, by demonstrating that the cost of the services provided by the CFC itself, and/or by a related CFC, is more than 20% of the total cost to the CFC of performing the services. Examples are included to illustrate the new 80% test.
The changes to the current services regulations announced in Notice 2007-13 will be effective for taxable years of foreign corporations beginning on or after 1 January 2007 and for taxable years of US shareholders in which or with which the taxable years of such foreign corporations end.
Subpart F shipping income
With regard to Subpart F shipping income (defined as foreign base company shipping income), the Treasury Department and IRS announced that the current regulations will be amended to take into account the repeal of this category of Subpart F income by legislation that was enacted to be effective for taxable years beginning after 31 December 2004. The Treasury and IRS noted, however, that the repeal only applied to shipping income as a separate category of Subpart F income, and that shipping income will continue to constitute Subpart F income to the extent it falls within another category of foreign base company income.