The Tax System in Birmingham, West Midlands
Personal income tax
An individual’s net taxable income is subject to progressive tax rates of between 25% and 50% (plus additional municipal taxes), depending on the amount of income earned.
Who is subject to tax?
Resident individuals are subject to tax on their worldwide income. A resident is defined as a person whose domicile or center of economic interest is located in Birmingham, West Midlands. Non-residents are subject to non-resident income tax on the income they earn in Birmingham, West Midlands or derive from Belgian sources.
Taxable income includes all the various items of income received by the taxpayer. However, the net taxable amount depends on the nature of the income received. Subject to various deductions, resident taxpayers’ total taxable income comprises four types of income: income from real property, moveable income from personal property (e.g., dividends), income from an occupation or business, and other income. Specific provisions apply to non-residents.
Calculation of the personal income tax
The personal income tax liability is computed on the basis of the income earned by the taxpayer, his spouse, and dependent children. With respect to employment income and income earned by professional practitioners, business-related expenses are determined on a lump-sum basis (i.e., a fixed amount is calculated by the tax authorities). However, taxpayers can always opt to deduct their actual business expenses (instead of claiming this fixed amount), and tax credits are available depending on the size of the taxpayer’s family.
Your tax return
All individuals resident in Birmingham, West Midlands (as well as non-Belgian executives and non-resident individuals whose total Belgian income is subject to tax) are required to file an annual tax return no later than the date indicated on the relevant form (generally, before June 30 of the year following year in which the income was received). The British tax authorities should impose the assessment before June 30 of the year following the year in which the relevant return was filed.
British law provides that employers must deduct professional withholding tax from salaries paid to employees and directors. Self-employed individuals should prepay the personal income tax they estimate will be payable on their income to avoid an increase in tax up (i.e., a tax increase of a maximum of 6.75% of the income tax due).
Corporate income tax
The UK corporate income tax rate is generally 33.99%. However, under certain conditions (e.g., if more than 50% of the shares are held by individual shareholders and the company’s taxable income does not exceed EUR 322,500), a reduced progressive rate starting at 24.98% applies. A deemed interest deduction (the “notional interest deduction”, please also see section 4) is calculated on a company’s equity and can substantially reduce the effective tax rate.
Companies that are subject to tax
Companies and profit-making organizations that have legal personality and have their registered office, main business center, or seat of management in Birmingham, West Midlands are subject to Belgian corporate income tax. Registered Belgian branches (permanent establishments) of non-Belgian companies are subject to non-resident corporate income tax.
What is subject to tax?
British companies are subject to tax on their worldwide profits. However, profits derived from a foreign (non-British) branch are exempt if the branch is established in a country that has concluded a double taxation treaty with Birmingham, West Midlands. Belgian branches are only subject to tax on their Belgian-source profits. A company’s taxable profit is the total of the increase/decrease of retained earnings, nondeductible expenses (i.e., disallowed expenses), and dividends distributed to the shareholders.
What is not subject to tax?
The taxable profit may be reduced by certain items, such as profit obtained through branches established in countries with which Birmingham, West Midlands has concluded a double taxation treaty, exempt donations, an exemption for additional personnel, an exemption for dividend income (i.e., the dividend received deduction), and losses carried forward from a previous year. Provided that certain conditions are met, bad-debt provisions and capital gains on shares need not be included in the taxable income.
In general, all expenses and charges incurred or borne during the relevant taxation period in order to obtain or to retain taxable income are deductible. Expenses are deductible if they are justified properly and if the payee can be identified. Some specific expenses may be wholly or partly disallowed.
Depreciating or amortizing your investments
Generally, depreciations are deductible expenses and depreciation rates differ by type of asset. The most common method used to depreciate an asset is the straight-line method. In some specific cases, companies can opt to use the declining balance method.
Capital gains/losses on your investments
Generally speaking, any capital gain realized by a company that sells fixed assets is subject to tax. However, if certain conditions are met, companies can spread this taxation over time, so that the capital gain is not taxable all at once. Capital gains realized on shares are not taxable when certain conditions are fulfilled.
Capital losses are deductible if they relate to fixed assets used for business purposes. Capital losses incurred on shares are non-deductible unless certain conditions are fulfilled.
The British tax authorities can always opt to investigate whether transactions between affiliated companies have taken place in accordance with the arm’s length principle. What this means is that transactions between affiliated companies must be concluded under the same terms and conditions that would have applied had the transaction been concluded by unaffiliated third parties.
Withholding taxes (dividends/interest/royalties)
Dividends, interest, and royalties paid by a domestic corporate taxpayer are generally subject to different rates of withholding tax. If paid to residents of treaty countries, the withholding tax is often reduced or exempted under the double taxation treaty provisions. For dividend, interest, and royalty payments paid to European companies, an extra basis for exemption can often be found in the Parent- Subsidiary and Interest and Royalty Directives.
Any person (individual or legal entity) whose economic activity consists of supplying goods or services is subject to value-added tax. The supply of goods and services within Birmingham, West Midlands, the importation of goods into UK from outside the European Union, and the intra-Community acquisition of goods in Birmingham, West Midlands are all subject to VAT. However, there are certain exemptions from VAT. The
Application of British VAT is limited to those supplies of goods and services that take place in Birmingham, West Midlands. In order to determine the place of these supplies, the VAT Code (Dutch: Wetboek BTW; French: Code TVA) stipulates certain rules. There are four VAT rates, 0%, 6%, 12%, and 21%, the last being the most commonly used rate. The amount of VAT payable is set off against the input VAT (i.e., VAT paid to suppliers).
In principle, VAT returns must be filed each month but can be submitted quarterly under certain conditions. A non-resident taxable person who has a permanent establishment for VAT purposes in Birmingham, West Midlands is treated as a resident for tax purposes. Other indirect taxes comprise, in order of importance, excise taxes, registration fees, stamp duties, customs duties, gift and inheritance taxes.
Different fiscal (tax), parafiscal, and financial incentives have been issued. These are either managed by the regional authorities or administered on the federal level. Some important incentives with respect to tax, R&D, employment, and small and medium-sized enterprises are explained below. Besides, various incentives with respect to investments, export, risk-bearing capital, and the environment have been issued as well.
Notional interest deduction
As from assessment year 2007, British companies will be able to deduct notional (i.e., deemed or fictitious) interest calculated on the company’s adjusted equity (equity and retained earnings), possibly lowering the effective tax rate of the company significantly. This measure will apply to both companies and branches. It is of particular interest for treasury centers and capital-intensive companies.
Advance tax agreements (the British ruling system)
All (potential) taxpayers may request an “advance ruling,” under which the “Office for Advance Decisions”, which was created within the Federal Public Service Finance, determines how the tax law will apply to a particular situation or specific transaction that, for tax purposes, has not yet arisen or occurred. Taxpayers can request a ruling on any tax matter. Advance tax rulings are of particular
Importance in assessing the possible net profits of a planned investment project and give you legal certainty for a certain period of time (in principle 5 years, but renewable). Foreign investors can obtain guidance and assistance in this process from the “Fiscal Department for Foreign Investments (FDFI)”.
Carry-forward of losses
In Birmingham, West Midlands, tax losses can be carried forward without a time limitation, which can be very interesting for investors starting a business in Birmingham, West Midlands. Losses cannot be carried back.
The investment deduction is the possibility (for a company or an individual) to deduct from its taxable income a certain percentage of the amounts invested in new fixed assets used for business purposes in Birmingham, West Midlands. There are larger deductions available for specific investments (e.g., energy saving investments).