Cyprus

Cyprus: Cyprus introduced a reduced VAT rate of 3% for selected goods and services and added new goods to 0% VAT rate with effect from July 21, 2023. 

Cyprus published a law introducing a new reduced VAT rate of 3% for certain supplies (previously taxed at 5%), effective from July 21, 2023. This includes books, newspapers, special equipment for disabled individuals, orthopedic goods, street cleaning services, waste recycling, and debut-performance tickets for theatrical, musical, dance, or classical plays. 

Additionally, it has extended the zero VAT rate to certain items used by physically disabled people, such as typewriters with braille characters and armchair vehicles for disabled people, etc. 

Implication:

Businesses may take note of it and apply the correct VAT rate on the relevant supplies.

France

France: French Supreme Court overrules earlier ruling warranting significant changes to paid leave entitlements for employees.

On September 13, 2023, the French Supreme Court overruled earlier decisions that warrant significant changes to the paid leave entitlements of employees who are absent from work due to sickness, work-related accidents, or parental leave. This would result in better alignment of French law with European law, which provides greater protection for employees. The key implications of these decisions for companies are as follows:

• Employees on sick leave: Employees on sick leave, regardless of the cause, will now be entitled to accrue paid leave during their absence. Employers should not deny paid leave to employees on sick leave based on the provisions of the French Labor Code.
• Work-related accidents and occupational diseases: The calculation of paid leave entitlement for employees with work-related accidents or occupational diseases cannot be restricted to the first year of absence. This means that employees will be entitled to accrue paid leave beyond the initial year of absence.
• Statute of limitations: The statute of limitations for entitlement to paid leave provides for a limitation period of three years. The limitation period can start only when the employer allows the employee to take paid leave. Employers should ensure that they provide employees with the chance to exercise their right to take paid leave to avoid any potential claims.
• Parental leave: Any accrued paid leave at the start of parental leave must be carried forward and granted when the employee returns to work.

Implication: 

Employers should review their policies and practices to ensure compliance with the law laid down by the Supreme Court on paid leave accrual during sick leave.

France: Finance bill for 2024 released.

On September 27, 2023, the French Government introduced the Finance Bill for 2024 before the National Assembly. The following are the key highlights of the bill:

• In order to implement OECD’s BEPS 2.0 GLoBE proposals, France proposes to transpose the EU Minimum Taxation Directive into law whereby multinational groups with consolidated revenue over EUR 750 million during at least two of the last four fiscal years are liable to minimum taxation @ 15%. The proposals will bring in a top-up tax which will apply when the effective tax rate for the multinational group constituent entity is below 15%, effective from FYs starting on or after December 31, 2023. Further it is proposed to introduce the Undertaxed Profit Rule effective from December 31, 2024. The Bill also proposes to introduce French qualified domestic minimum top-up tax equal to the difference between 15% and effective tax rate of constituent entity in France.
• The Business Contribution on Added Value (“CVAE”) tax rate will gradually decrease from 0.28% in 2024 to 0.19% in 2025 and 0.09% in 2026. The complete abolishment of CVAE will take place in 2027. Earlier it was proposed to be abolished by 2024.
• A tax credit of 20% is proposed for green industry on investments in tangible or intangible assets, with a total credit capped at EUR 150 million per fiscal year. The credit would be available for companies establishing facilities related to batteries, wind turbines, heat pumps, etc. Eligibility criteria include a commitment to operate investments for at least five years. Companies can submit a request for a ruling from September 27, 2023, on which decisions are expected to be given by December 31, 2025.
• It is proposed that promoting instruments that facilitate tax fraud will be considered an autonomous criminal offense, punishable with imprisonment up to 5 years and a fine of EUR 500,000 for individuals and EUR 2.5 million for legal entities.
• It is proposed to lower the revenue/gross-asset threshold for applicability of the transfer pricing documentation requirement from EUR 400 million to EUR 150 million. Transfer pricing documentation will become binding on the taxpayer, and the minimum fine for non-submission or partial submission of documentation will increase from EUR 10,000 to EUR 50,000. The statute of limitations for the transfer of certain intangibles will also be extended to six years.

These proposals are subject to parliamentary discussion and potential amendments, with a final vote expected by December 2023

Implication:

The French Government’s draft Finance Bill for 2024 contains a number of significant changes that will have a broad impact on both multinational corporations and domestic businesses. Companies need to closely monitor these changes and adjust their strategies accordingly.

India

India: The Ministry of Corporate Affairs mandates the appointment of designated persons for significant beneficial owner compliance; and non-small private companies to mandatorily dematerialize securities.

The Ministry of Corporate Affairs (“MCA”) has introduced two major amendments vide notification dated October 27, 2023. The MCA has issued the Companies (Management and Administration) Second Amendment Rules, 2023, and the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 to introduce the appointment of a designated person for carrying out the Significant Beneficial Owner (“SBO”) compliance and dematerialization of securities of non-small private companies, respectively.

• Appointment of a person to comply with the SBO provisions:

In accordance with the amended rules, every company must appoint a person (designated person) for compliance of SBO provisions. Such a designated person can be a company secretary, key managerial personnel (“KMP”), or every director (when there is no company secretary or KMP) from the company. Until the appointment of such a person, any existing persons from the above-stated list could be deemed to be the designated person. Such a person is responsible for furnishing and extending cooperation in providing necessary information to the Registrar of Companies (ROC) or any other authorized officer. Every company is under obligation to give details of the designated person in the Annual Return as well as inform the change in the designated person, if any, through E-form GNL-2.

• Mandatory dematerialization of securities of the non-small private companies:

As per the amended rules, the non-small private companies are required to mandatorily convert the physical securities into demat form as per the provisions of the Depositories Act, 1996 within 18 months from the closure of the financial year 2022-23 (i.e., on or before September 30, 2024). Earlier this requirement applied only to public companies.

As per the amended rules, after September 30, 2024:

• every non-small private company before offering any securities should ensure that the entire holding of the securities of the directors, promoters, and the KMP is dematerialized;
• in case of transfer or issue of securities, the transferor, or the subscriber respectively, should ensure that the securities are in demat form (in both cases).

This amended rule does not apply to government companies.

Please note that small companies are those companies whose paid-up capital and turnover are not more than INR 40 million and INR 400 million, respectively. The concept does not apply to a holding company, subsidiary company, or a company registered under section 8 of the Companies Act, 2013 or a company or body corporate governed by any special act.

The above provisions apply to private companies which do not qualify as small companies.

Implication:

Private companies should evaluate the applicability of the new dematerialization requirement. Companies should take note of the new requirement of appointment of a designated person for SBO compliance and arrange to comply with it.

Ireland

Ireland: Ireland introduces five days of paid leave for domestic violence, effective from November 27, 2023.

The Government of Ireland introduced domestic violence leave provisions by amending the ‘Work-Life Balance and Miscellaneous Provisions Act 2023’. Ireland is one of the first countries in the European Union to introduce paid domestic violence leave for employees. Accordingly, effective from November 27, 2023, all employers are mandated to provide up to five days of paid leave within 12 months for employees who are subjected to violence, threatening, or otherwise abusive behavior by a current or previous intimate partner, a close relative, or a close friend. There is no requirement of completion of certain years of employment to avail the leave and during the leave, employees are entitled to receive their regular pay.

Employers are required to manage domestic violence leave with utmost sensitivity and cannot insist on providing advance notice or supporting evidence to the employees affected by domestic violence. Employees seeking domestic violence leave are safeguarded against penalization under the Parental Leave Acts, encompassing dismissal and adverse treatment. Additionally, employers are obligated to keep records of domestic violence leave, including the employment period and leave dates for each employee, with a requirement to retain these records for three years.

Implication: 

Employers will need to update their leave policy in accordance with the newly introduced leave provisions.

Lithuania

Lithuania: Lithuania budget for 2024 – Highlights 

On October 5, 2023, Lithuania presented the budget for 2024 to the Parliament. The provisions will generally apply from January 1, 2024. 

The key highlights of the budget are as follows:

• The minimum monthly wage will increase by 10% to EUR 924 from EUR 840. 
• The monthly tax-exempt income threshold for employment income of resident individuals will increase by 20% to EUR 747 from EUR 625. 
• The current corporate tax incentives for investment projects to be extended for a further period of five years i.e., until the end of 2028.

Implication:

The businesses should consider the budget changes, monitor further developments, and adopt the same, as applicable.

Malaysia

Malaysia: Highlights of Budget 2024.

The Malaysian Prime Minister and the Finance Minister presented the budget for the year 2024 in the Parliament on October 13, 2023. 

The key highlights of the budget are as follows:

The tax proposals listed below are applicable for the year of assessment (“YA”) 2024 unless specified otherwise.

For Employers/Companies 

• The rate of service tax will increase from 6% to 8% effective March 1, 2024. The services within the scope of service tax will additionally include delivery services (excluding delivery of food and beverage), brokerage and underwriting services for non-financial services, karaoke center services and logistics services. Service tax on food and beverage services, telecommunication services, vehicle parking space services, and logistics services will continue to remain at 6%.
• It is proposed to implement the Global Minimum Tax and Domestic Top-up Tax for the companies having an annual turnover of EUR 750 million from the year 2025 in line with BEPS Project 2.0.
• It is proposed to charge the capital gains tax on the disposal of unlisted shares of local companies. If the share acquisition date is before March 1, 2024, then the taxpayer has the option to pay the capital gains tax at the rate of 10% of the net profit of the shares or 2% of the gross sales value.  For shares acquired after March 1, 2024, the tax rate applicable is 10% of the gains. 
• Initial capital allowances on the purchase of information and communication technology (“ICT”) equipment and computer software packages will be revised from YA 2024 to 40% (earlier 20%). 
• The implementation of e-invoicing is postponed from June 2024 to August 2024 for businesses with an annual turnover of more than RM 100 million. For other taxpayers, it will be implemented from July 2025 (earlier timeline was January 2025).
• Tax deduction of up to RM 50,000 will be allowed on Environmental, Social, and Governance expenses for micro, small, and medium enterprises from YA 2024 to YA 2027. Expenses can be related to ESG reporting, preparation of transfer pricing documentation, implementation of e-invoicing, etc.
• Budget also announces various other incentives like tax incentives for carbon projects, green investment projects, reinvestment incentives, incentives for the hotel industry, tourism industry, logistics industry, technology, and innovation sector, etc.

For Individuals

• The tax exemption for women returning to work after at least a 2-year break will be extended to December 2028 from December 2027. Application for exemption should be made between January 1, 2024, and December 31, 2027.
• Tax benefits for the returning expat program will be extended to cover applications received between January 1, 2024, to December 31, 2027. Benefits include a 15% tax rate for employment income for 5 consecutive years of assessment and excise duty exemption on completely knocked down vehicles.
• Income-tax exemption for child-care allowance of employees or expenses incurred by the employer on childcare will increase from RM 2,000 to RM 3,000 per year.
• Increase in the salary ceiling for social security contributions from RM 5,000 per month to RM 6,000 per month.
• New Employees Provident Fund (“EPF”) Flexible Account will be introduced to allow accessibility to members at any point in time.

Netherlands

Netherlands: The change to Dutch VAT grouping rules takes effect on January 1, 2024.

Effective January 1, 2024, foreign establishments within the European Union (“EU”) will no longer be allowed to be included in a Dutch VAT Group. This change will have significant implications, particularly in the financial sector, for the VAT treatment of transactions between entities within a Dutch group that have foreign establishments.

As a result of this change, both the Dutch VAT group and any foreign establishment will be considered as separate taxable entities for VAT purposes. Consequently, transactions between the Dutch VAT group and foreign establishments will be subject to VAT and require taxation, unless an exemption is available, or the place of supply is outside the European Union (“EU”).

Implication:

Businesses should assess the impact of the change in Dutch VAT grouping rules on VAT liability and compliances and adjust their systems accordingly.

Sweden

Sweden: Budget 2024 Highlights

On September 20, 2023, the Swedish Government presented the budget for 2024 to the Parliament. The budget bill is still in the discussion phase and will be effective at a later date, once approved.

The key highlights of budget 2024 are as under:

• Extension of tax relief provided for foreign experts, researchers, etc. moving to Sweden for work from five years to seven years. The extended duration will apply to entries into Sweden after March 31;
• Removal of reduced contributions towards employer’s social security fund for employees aged 15 to 18 from January 1, 2024.
• Tax reduction for low and medium-income earners from January 1, 2024.
• Increased turnover threshold for VAT from SEK 80,000 to SEK 120,000 from January 1, 2025. 
• Abolished tax on plastic carrier bags from November 1, 2024; and
• Reduced excise tax on petrol and diesel from January 1, 2024.

Implication:

Businesses should monitor the developments related to budget proposals and implement budget changes in the policies, as applicable.

United Kingdom

United Kingdom: Autumn Statement 2023: Key Highlights.

On November 22, 2023, the UK Chancellor of the Exchequer, Mr. Jeremy Hunt, presented the Autumn Statement before the UK Parliament. The following are the highlights of the proposals presented in the Autumn Statement.

Measures relevant for employers/individuals:

• National Insurance Contributions (“NICs”):

From January 6, 2024, the Employee’s Class 1 NIC main rate will be reduced from 12% to 10%. No reduction is proposed in the employer’s NI contribution. The following table summarizes the changes:

Timeline	Rates for Employer	Main rates for Employee (below Upper Earnings Limit)	Additional rate for Employee (above Upper Earnings Limit)
Prior to January 6, 2024	13.80%	12%	2%
Effective from January 6, 2024,	13.80%	10%	2%

Various ceilings and limits for the applicability of NIC remain unchanged.

• National Minimum Wage (“NMW”)/National Living Wage (“NLW”): Effective from April 1, 2024, the NMW/NLW rates will increase. Individuals aged 21 and above will receive GBP 11.44 per hour.
• Self-Assessment and PAYE: Starting from 2024-25, individuals with income taxed only through the PAYE system will not be required to file a self-assessment return. There are certain exceptions to this treatment.
• Data collection via Real Time Information (“RTI”): Legislation will be introduced in the Autumn Finance Bill 2023 to require employers, company directors, and self-employed individuals to provide new or improved data to the UK tax authority HMRC. From an employer’s perspective, this requires providing more detailed information on employee hours paid via RTI reporting. These changes will come into effect from April 2025.
• Off-payroll working rules: These rules, also known as IR-35 rules aim to ensure that contractors pay the same amount of income tax and NIC as employees if they meet certain conditions. Effective April 6, 2024, the changes will be legislated whereby HMRC will be able to offset deemed employer’s PAYE liability against taxes already paid by a worker (contractor) and their intermediary where an error has been made in applying off-payroll working rules and the contractor is deemed to be an employee under these rules.
• Pensions: Workers will now have the right to nominate the pension pot to which their employer contributes, known as a “pot for life.” A call for evidence will be conducted to explore these proposals in more detail. Additionally, legislation will be introduced in the Autumn Finance Bill 2023 to abolish the Lifetime Allowance, effective from April 6, 2024. It is the total amount one can accumulate as pension savings without incurring a tax liability and any benefit beyond it is subject to tax charge. The lifetime allowance tax charge was earlier removed in April 2023 and a new system is likely to be introduced.
• State pension: The UK government has announced an 8.5% increase in the state pension, effective from April 6, 2024. This increase will bring the new full-state pension to GBP 221.20 per week.

Measures relevant for business:

• Capital allowances: The UK government has confirmed that full expensing will be made permanent.  Thus, businesses can claim upfront relief for the full cost of qualifying new plants and machinery (other than cars or assets acquired for leasing). Additionally, the 50% first-year allowance will continue to be available for special rate plans and machinery. The existing rules were applicable until April 1, 2026, but this end date will be removed by the Autumn Finance Bill 2023.
• Research & Development (“R&D”) tax relief:

• The Small and Medium-sized Enterprises (“SMEs”) scheme and Research and Development Expenditure Credit (“RDEC”) schemes will be merged into a single simplified scheme from April 1, 2024. This will provide an above-the-line (before tax credit) expenditure credit at a rate of 20%. The notional tax rate applied to loss-making taxpayers will be lowered from 25% (as per the REDC scheme) to the small profits rate of 19%. 
• To further support loss making SMEs which are heavily invested in R&D, the UK government has announced a reduction in the intensity threshold for additional support. Effective from April 1, 2024, the intensity threshold will be lowered from 40% to 30%, making it easier for more SMEs to qualify for enhanced support. The government will also introduce a one-year grace period, so that companies that dip under the 30% qualifying R&D expenditure threshold will continue to receive relief for 1 year.

• Adoption of OECD/G20 Global Minimum Tax Regime (BEPS Pillar 2): The UK will implement Multinational Top-up Tax (“MTT”) and Domestic Top-up Tax (“DTT”), effective from accounting periods beginning on or after December 31, 2023, to ensure multinational enterprises are subject to a minimum 15% effective tax rate. Technical amendments reflecting recent guidance will be included in the Autumn Finance Bill 2023. Further, the government will introduce the Undertaxed Profits Rule for accounting periods beginning on or after December 31, 2024, with legislation included in an upcoming Finance Bill. This initiative aims to ensure that companies pay their fair share of tax and to prevent tax avoidance.
• Investment Zones and freeports: Legislation will be introduced to extend incentives and tax reliefs for investment zones and freeports from 5 to 10 years. Details of confirmed investment zones will be announced, to confirm all zones by summer 2024. Businesses in Freeport normally enjoy reliefs such as certain building and structure allowances, employer NIC relief, etc.
• Business rates: The small business multiplier will be frozen, and the 75% discount on rates for the retail, hospitality, and leisure industry (up to a GBP 110,000 discount) will be extended for another year. Changes will take effect from April 1, 2024, in England. 
• Enterprise Investment Scheme (EIS) and Venture Capital Trusts (“VCT”): Both schemes will be extended to 2035. These initiatives aim to encourage investment in small and growing businesses.

Implication:

Employers should take note of revisions in NIC rates and minimum wages and adjust their payroll procedure accordingly. Additionally, businesses should proactively assess their capital expenditure plans to take advantage of permanent full expensing benefits. Companies eligible for R&D benefits should assess the impact of changes in the R&D incentive regime on their profitability.

Shan & Co © (Nucleus is an affiliate of Shan & Co)