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Fact book
Go East … – but how far?*
*connectedthinking
Fact book
Go East … – but how far?
Publisher: PricewaterhouseCoopers
Handling: Strandvejen 44, 2900 Hellerup
Production: M&C 021307
Printers: Trykbureauet
Issue: 1000
ISBN: 87-91837-05-7
© 2007 PricewaterhouseCoopers. PricewaterhouseCoopers refers to
the Danish firm of PricewaterhouseCoopers and the other member
firms of PricewaterhouseCoopers International Limited, each of which
is a separate and independent legal entity.
connectedthinking is a trademark of PricewaterhouseCoopers LLP.
Connected Thinking is about working together to bring world-class
thinking to all clients and drawing on our collective knowledge to
benefit all parts of their organisations. It’s about stretching each other
to bring new perspectives that challenge the basis of our thoughts
and solutions.
This book has been prepared as a guide to factual information about
15 different countries in the world. It does not cover exhaustively the
subjects it treats, but is intended as a brief overview of important
conditions in the countries when dealing with globalisation.
When specific problems occur in practise, it will often be
necessary to refer to the laws, regulations and decisions of the
country and to obtain appropriate accounting and legal advice.
PricewaterhouseCoopers shall accept no liability for losses suffered
by any party due to actions taken on the basis of information in this
book. Therefore, the reader should not act on the basis of this book
without seeking professional advice
Fact book
Go East … – but how far?
In today’s world, globalisation plays an important part for companies and their way to
success. However, the road to globalisation is not always easy.
This fact book gives an overview of a number of facts which must be taken into consideration when doing business abroad. It deals with 15 countries e.g. Brazil, India, Russia and
China and focuses on factual background information about the country, the government,
taxation, the people and the economy. Information which we believe plays an important
role when companies are to decide which country they wish to do business in.
Being the largest international accounting and consulting company in the world, with
some 140.000 partners and employees operating from offices around the world, we
have an extensive knowledge and experience of globalisation processes. And we are
always ready to help you in any challenges that you met.
If you have any questions or comments regarding this fact book, please contact:
Karin Lademann
Kent Hedegaard
Poul Spencer Poulsen
Bjørn Jakobsen
+45 3945 9417
+45 3945 3155
+45 9611 1825
+45 9615 4935
Contents
Brazil ................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
China ................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Czech Republic.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Estonia .............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
India ................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Latvia................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Lithuania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Malaysia .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Mexico .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Poland .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Romania .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Russian Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Slovenia ............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Ukraine .............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Vietnam ............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Background ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
People.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Government ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Economy ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Taxation ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Big Mac Index .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Brazil
Brazil
Background
Following three centuries under the rule of Portugal, Brazil became an independent
nation in 1822 and a republic in 1889. By far the largest and most populous country in
South America, Brazil overcame more than half a century of military intervention in the
governance of the country when in 1985 the military regime peacefully ceded power to
civilian rulers. Brazil continues to pursue industrial and agricultural growth and development of its interior. Exploiting vast natural resources and a large labor pool, it is today
South America’s leading economic power and a regional leader. Highly unequal income
distribution remains a pressing problem.
Climate: Mostly tropical, but temperate in south.
Terrain: Mostly flat to rolling lowlands in north; some plains, hills, mountains, and narrow coastal belt.
Natural resources: Bauxite, gold, iron ore, manganese, nickel, phosphates, platinum,
tin, uranium, petroleum, hydropower, timber.
Environment – current issues: Deforestation in Amazon Basin destroys the habitat
and endangers a multitude of plant and animal species indigenous to the area; there is
7
Brazil
lucrative illegal wildlife trade; air and water pollution in Rio de Janeiro, Sao Paulo, and
several other large cities; land degradation and water pollution caused by improper mining activities; wetland degradation; severe oil spills.
Environment – international agreements: Party to: Antarctic-Environmental Protocol,
Antarctic-Marine Living Resources, Antarctic Seals, Antarctic Treaty, Biodiversity,
Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species,
Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping,
Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94,
Wetlands, Whaling.
Signed, but not ratified: None of the selected agreements.
People
Population: 188,078,227.
Note: Brazil conducted a census in August 2000, which reported a population of
169,799,170; that figure was about 3.3% lower than projections by the US Census
Bureau, and is close to the implied underenumeration of 4.6% for the 1991 census;
estimates for this country explicitly take into account the effects of excess mortality
due to AIDS; this can result in lower life expectancy, higher infant mortality and death
rates, lower population and growth rates, and changes in the distribution of population by age and sex than would otherwise be expected (July 2006 est.).
Median age:
Total: 28.2 years.
Male: 27.5 years.
Female: 29 years (2006 est.).
Population growth rate: 1.04% (2006 est.).
Net migration rate: -0.03 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Brazilian(s). Adjective: Brazilian.
Ethnic groups: White 53.7%, mulatto (mixed white and black) 38.5%, black 6.2%,
other (includes Japanese, Arab, Amerindian) 0.9%, unspecified 0.7% (2000 census).
Religions: Roman Catholic (nominal) 73.6%, Protestant 15.4%, Spiritualist 1.3%,
Bantu/voodoo 0.3%, other 1.8%, unspecified 0.2%, none 7.4% (2000 census).
Languages: Portuguese (official), Spanish, English, French.
Literacy: Definition: Age 15 and over can read and write.
Total population: 86.4%.
Male: 86.1%.
Female: 86.6% (2003 est.).
8
Brazil
Government
Government type: Federative republic.
Capital: Brasilia.
Administrative divisions: 26 states (estados, singular – estado) and 1 federal district
(distrito federal); Acre, Alagoas, Amapa, Amazonas, Bahia, Ceara, Distrito Federal,
Espirito Santo, Goias, Maranhao, Mato Grosso, Mato Grosso do Sul, Minas Gerais,
Para, Paraiba, Parana, Pernambuco, Piaui, Rio de Janeiro, Rio Grande do Norte, Rio
Grande do Sul, Rondonia, Roraima, Santa Catarina, Sao Paulo, Sergipe, Tocantins.
Independence: 7 September 1822 (from Portugal).
Constitution: 5 October 1988.
Legal system: Based on Roman codes; has not accepted compulsory ICJ jurisdiction.
Suffrage: Voluntary between 16 and 18 years of age and over 70; compulsory over 18
and under 70 years of age. Note: Military conscripts do not vote.
Executive branch: Chief of state: President Luiz Inacio Lula da Silva (since 1 January
2003); Vice President Jose Alencar (since 1 January 2003). Note: The president is both
the chief of state and head of government.
Head of government: President Luiz Inacio Lula da Silva (since 1 January 2003); Vice
President Jose Alencar (since 1 January 2003) .
Cabinet: Cabinet appointed by the president.
Elections: President and vice president elected on the same ticket by popular vote for
a single four-year term; election last held 1 October 2006 with runoff 29 October 2006
(next to be held 3 October 2010 and, if necessary, 31 October 2010).
Election results: Luiz Inacio Lula da Silva (PT) reelected president – 60.83%, Geraldo
Alckmin (PSDB) 39.17%.
Legislative branch: Bicameral National Congress or Congresso Nacional consists of
the Federal Senate or Senado Federal (81 seats; 3 members from each state and federal
district elected according to the principle of majority to serve eight-year terms; one-third
elected after a four-year period, two-thirds elected after the next four-year period) and
the Chamber of Deputies or Camara dos Deputados (513 seats; members are elected
by proportional representation to serve four-year terms).
Elections: Federal Senate – last held 1 October 2006 for one-third of the Senate (next to
be held October 2010 for two-thirds of the Senate); Chamber of Deputies – last held 1
October 2006 (next to be held October 2010).
Election results: Federal Senate – percent of vote by party – N/A%; seats by party – PFL
6, PSDB 5, PMDB 4, PTB 3, PT 2, PDT 1, PSB 1, PL 1, PPS 1, PRTB 1, PP 1, PCdoB 1;
total seats following election – PFL 15, PMDB 15, PSDB 13, PT 10, PDT 5, PTB 4, PSB 3,
PL 3, PCdoB 2, PRB 1, PPS 1, PRTB 1, PP 1, PSOL 1; Chamber of Deputies – percent of
vote by party – N/A%; seats by party – PMDB 89, PT 83, PFL 65, PSDB 65, PP 42, PSB
27, PDT 24, PL 23, PTB 22, PPS 21, PCdoB 13, PV 13, PSC 9, other 17.
9
Brazil
Judicial branch: Supreme Federal Tribunal (11 ministers are appointed for life by the
president and confirmed by the Senate); Higher Tribunal of Justice; Regional Federal
Tribunals (judges are appointed for life); Note: Though appointed “for life,” judges, like all
federal employees, have a mandatory retirement age of 70.
International organization partipation: AfDB, BIS, CAN (associate), CSN, FAO, G-15,
G-24, G-77, IADB, IAEA, IBRD, ICAO, ICC, ICCt, ICRM, IDA, IFAD, IFC, IFRCS, IHO,
ILO, IMF, IMO, Interpol, IOC, IOM, IPU, ISO, ITU, ITUC, LAES, LAIA, Mercosur, MIGA,
MINUSTAH, NAM (observer), NSG, OAS, OPANAL, OPCW, PCA, RG, UN, UN Security
Council (temporary), UNCTAD, UNESCO, UNHCR, UNIDO, UNITAR, UNMIL, UNMIS,
UNMOVIC, UNOCI, UNWTO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WTO.
Diplomatic representation in Denmark:
Diplomatic representation in Brazil:
Embassy of Brrazil
Kastelsvej 19, 3
2100 Copenhagen Ø
Denmark
Telephone: +45 3920 6478
Telefax: +45 3927 3607
Embassy of Denmark
SES – Avenida das Nações
Q. 807, lote 26
70200-900 Brasília – DF
Brazil
Telephone: +55 61 3445 3443
Telefax: +55 61 3445 3509
Office hours: Monday-Friday 09.00-13.00 and
14.00-17.00
E-mail: [email protected]
E-mail: [email protected]
Website: www.brazil.dk
Economy
Economy – overview: Characterized by large and well-developed agricultural, mining,
manufacturing, and service sectors, Brazil’s economy outweighs that of all other
South American countries and is expanding its presence in world markets. From
2001-03 real wages fell and Brazil’s economy grew, on average only 2.2% per year, as
the country absorbed a series of domestic and international economic shocks. That
Brazil absorbed these shocks without financial collapse is a tribute to the resiliency
of the Brazilian economy and the economic program put in place by former President
Cardoso and strengthened by President Lula da Silva. Since 2004, Brazil has enjoyed
continued growth that yielded increases in employment and real wages. The three
pillars of the economic program are a floating exchange rate, an inflation-targeting
regime, and tight fiscal policy, initially reinforced by a series of IMF programs. The currency depreciated sharply in 2001 and 2002, which contributed to a dramatic current
account adjustment; from 2003 to 2006, Brazil ran record trade surpluses and recorded its first current account surpluses since 1992. Productivity gains – particularly
in agriculture – also contributed to the surge in exports. While economic management
has been good, there remain important economic vulnerabilities.
10
Brazil
The most significant are debt-related: the government’s largely domestic debt
increased steadily from 1994 to 2003 – straining government finances – before falling
as a percentage of GDP beginning in 2003. Brazil improved its debt profile in 2006 by
shifting its debt burden toward real denominated and domestically held instruments.
Lula da Silva restated his commitment to fiscal responsibility by maintaining the country’s primary surplus during the 2006 election. Following the inauguration of Lula da
Silva’s second term, he announced a package of further economic reforms to reduce
taxes and increase public investment. Another challenge is maintaining economic
growth over a period of time to generate employment and make the government debt
burden more manageable.
GDP (purchasing power parity): $1.616 trillion (2006 est.).
GDP – real growth rate: 2.8% (2006 est.).
GDP – per capita: $8,600 (2006 est.).
GDP – composition by sector:
Agriculture: 8%.
Inndustry: 38%.
Services: 54% (2006 est.).
Labor force: 96.34 million (2006 est.).
Unemployment rate: 9.6% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 0.7%.
Highest 10%: 31.27% (2002).
Distribution of family income – Gini index: 56.7 (2005).
Inflation rate (consumer prices): 3% (2006 est.).
Investment (gross fixed): 20.2% of GDP (2006 est.).
Budget:
Revenues: $244 billion.
Expenditures: $219.9 billion; including capital expenditures of $NA (FY07 est.).
Exports: $137.5 billion f.o.b. (2006 est.).
Exports – commodities: Transport equipment, iron ore, soybeans, footwear, coffee, autos.
Exports partners: US 19.2%, Argentina 8.4%, China 5.8%, Netherlands 4.5%,
Germany 4.2% (2005).
Imports: $91.4 billion f.o.b. (2006 est.).
11
Brazil
Imports – commodities: Machinery, electrical and transport equipment, chemical
products, oil, automotive parts, electronics.
Imports – partners: US 17.5%, Argentina 8.5%, Germany 8.4%, China 7.3%, Japan
4.6% (2005).
Currency (code): Real (BRL).
Exchange rates: Reals per US dollar – 2.1761 (2006), 2.4344 (2005), 2.9251 (2004),
3.0771 (2003), 2.9208 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: Federal income tax is paid at the rate of 15% on taxable
income. Corporate income tax is generally computed on the basis of annual taxable
income. For tax purposes the company’s year-end is December 31. A different year-end
for corporate purposes is irrelevant.
Surcharge: Taxpayers are also subject to a surcharge of 10% on annual taxable income
in excess of R$240,000 (approximately US$110,000).
Social contribution : All legal entities are subject to a social contribution to the federal
government at the rate of 9%, which is not deductible for income tax purposes. The tax
basis is the profit before income tax, after some adjustments. Whenever the tax basis is
negative (loss), it may be carried forward without any time limitation. However, the negative basis compensation may not reduce the tax basis by more than 30% of its amount
prior to the compensation itself.
Corporate residence: A corporation is considered resident in Brazil if it has been
incorporated in Brazil, and its tax domicile is where its head office is located.
Foreign income: Brazilian resident companies are taxed on worldwide income. Foreign
branch profits and foreign subsidiary profits are taxed at the date of the financial statements in which the profits are calculated, regardless of remittance. Double taxation
could be avoided by means of foreign tax credits.
Branch income: Profits of branches of foreign corporations are taxable at the normal
rates applicable to local corporations.
Tax administration: N/A.
Withholding taxes: Profits/ dividends distributed to resident or nonresident beneficiaries (individuals and/or legal entities) relating to periods beginning on or after January
1, 1996 are not subject to withholding income tax. Profits/dividends distributed from
earnings and profits relating to periods ended up to December 31, 1995 are subject
to withholding income tax at the rate of either 25% or 15%, depending on the year to
which they relate and residence status of the recipient.
12
Brazil
The withholding tax rate applicable to payments for services rendered by nonresident
companies or individuals is generally 15% but can be increased to 25% in certain cases.
Payments for services, royalties and interest to nonresident companies located in a tax
haven jurisdiction are subject to withholding income tax at the rate of 25%. Dividends
paid out of profits generated as from January 1, 1996 to nonresident companies located
in a tax haven jurisdiction are not subject to Brazilian withholding income tax. Brazil has
enacted a “black list” of tax haven jurisdictions.
Certain types of income paid by Brazilian companies to nonresident recipients are
subject to withholding tax as follows.
Dividends(1)
Interest
Royalties
%
%
%
Nontreaty
0
15(2)
15(2)
Tax Haven
0
25
25
Treaty(2):
Denmark
25
15
25, 15
Recipient
Nonresident companies
and individuals
Notes:
1. Note that the remittance of dividends is not subject to taxation in Brazil, since January 1,
1996.
2. Treaty rates in excess of those in force for nontreaty countries are automatically reduced.
Additional Information:
• Brazil has been negotiating tax treaties with Romania, Switzerland, the United Kingdom, the
United States and Venezuela.
• The treaty concerned should be consulted to confirm that the tax reduction is applicable in
each case.
Individual taxes: Territoriality and residence: Residents of Brazil are taxed on their
worldwide income, and nonresidents are taxed exclusively at source on their Braziliansource income. The source of income is determined by the place where the income
payer is located, irrespective of where the work is performed.
Work permits and special visas are required for any alien intending to live and/or work
in Brazil, whether for a short or a long period. Two types of visa may be granted in connection with work permits.
1. Permanent visas – holders of permanent visas are considered residents as from the
date of arrival in Brazil.
2. Temporary visas (valid only for up to two years) – holders of temporary visas are also
considered residents as from the date of arrival in Brazil, as long as they have an
employment contract in Brazil. Otherwise, they will become tax residents as of their
184th day of presence in Brazil within any given 12-month period.
13
Brazil
Gross income: Employee gross income: Taxable compensation includes everything that
is either directly or indirectly connected with the work and/or assignment remuneration
package, including salary, premiums, bonuses, allowances of any kind, tax reimbursements, club dues, and company-owned car.
Capital gains and investment income : In general, capital gains and investment income
are computed as taxable income. However, in some circumstances certain transactions
are tax-free or are taxed exclusively at source at lower rates.
Nontaxable income: Among other items of less importance, the following are free from
any income tax:
1. Board, transportation and special work uniforms or clothing supplied by the employer free of any charge or the difference between the amount charged and their
market values.
2. Per diem allowances to cover room and board for working outside the county in
which the company or office is based or in which the work is normally performed.
3. Labour indemnities, limited to the legal amounts, including indemnities for labour
accidents.
4. Contributions made by the employer to private social security programs in favour of
the employee.
5. Reimbursement of relocation costs when moving to a different county at the request
of the employer.
Tax rates: The following monthly tax table is applicable to income tax with respect to
monthly income earned up to January 2006.
Net Taxable Income
Over
Not over
Tax rate %
Amount to be deducted
0
R$ 1,164
–*
–
R$ 1,164
R$ 2,326
15
R$ 175
27.5
R$ 465
R$ 2,326
Exempt.*
The tax table below is applicable to income tax payable in 2006 with respect to monthly
income earned as from February 2006 to December 2006:
Net Taxable Income
Over
Not over
Tax rate %
Amount to be deducted
0
R$ 1,257
–*
–
R$ 1,257
R$ 2,512
15
R$ 189
27.5
R$ 503
R$ 2,512
Exempt.*
14
Brazil
The Brazilian Tax Authorities have issued on December 29, 2006 a new monthly tax
table applicable to income tax payable during tax year 2007, as follows:
Net Taxable income
Over
Not over
Tax rate %
Amount to be deducted
0
R$ 1,313
–*
–
R$ 1,313
R$ 2,625
15
R$ 197
27.5
R$ 525
R$ 2,625
Exempt.*
Note: These rates apply to all types of tax returns, i.e., married individuals filing jointly or
separately and single taxpayers.
For more information
www.pwc.com/br
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
15
China
China
Background
For centuries China stood as a leading civilization, outpacing the rest of the world in
the arts and sciences, but in the 19th and early 20th centuries, the country was beset
by civil unrest, major famines, military defeats, and foreign occupation. After World War
II, the Communists under Mao Zedong established an autocratic socialist system that,
while ensuring China’s sovereignty, imposed strict controls over everyday life and cost
the lives of tens of millions of people. After 1978, his successor Deng Xiaoping and
other leaders focused on market-oriented economic development and by 2000 output
had quadrupled. For much of the population, living standards have improved dramatically and the room for personal choice has expanded, yet political controls remain tight.
Climate: Extremely diverse; tropical in south to subarctic in north.
Terrain: Mostly mountains, high plateaus, deserts in west; plains, deltas, and hills in east.
Natural resources: Coal, iron ore, petroleum, natural gas, mercury, tin, tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, uranium,
hydropower potential (world’s largest).
17
China
Environment – current issues: Air pollution (greenhouse gases, sulfur dioxide particulates) from reliance on coal produces acid rain; water shortages, particularly in the north;
water pollution from untreated wastes; deforestation; estimated loss of one-fifth of
agricultural land since 1949 to soil erosion and economic development; desertification;
trade in endangered species.
Environment – international agreements: Party to: Antarctic-Environmental Protocol,
Antarctic Treaty, Biodiversity, Climate Change, Climate Change-Kyoto Protocol,
Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Marine
Dumping, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber
94, Wetlands, Whaling.
Signed, but not ratified: None of the selected agreements.
People
Population: 1,313,973,713 (July 2006 est.).
Median age:
Total: 32.7 years.
Male: 32.3 years.
Female: 33.2 years (2006 est.).
Population growth rate: 0.59% (2006 est.).
Net migration rate: -0.39 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Chinese (singular and plural). Adjective: Chinese.
Ethnic groups: Han Chinese 91.9%, Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu,
Mongol, Buyi, Korean, and other nationalities 8.1%.
Religions: Daoist (Taoist), Buddhist, Christian 3%-4%, Muslim 1%-2%.
Note: Officially atheist (2002 est.).
Languages: Standard Chinese or Mandarin (Putonghua, based on the Beijing dialect),
Yue (Cantonese), Wu (Shanghaiese), Minbei (Fuzhou), Minnan (Hokkien-Taiwanese),
Xiang, Gan, Hakka dialects, minority languages (see Ethnic groups entry).
Literacy: Definition: Age 15 and over can read and write.
Total population: 90.9%.
Male: 95.1%.
Female: 86.5% (2002).
18
China
Government
Government type: Communist state.
Capital: Beijing.
Administrative divisions: 23 provinces (sheng, singular and plural), 5 autonomous
regions (zizhiqu, singular and plural), and 4 municipalities (shi, singular and plural).
Prrovinces: Anhui, Fujian, Gansu, Guangdong, Guizhou, Hainan, Hebei, Heilongjiang,
Henan, Hubei, Hunan, Jiangsu, Jiangxi, Jilin, Liaoning, Qinghai, Shaanxi, Shandong,
Shanxi, Sichuan, Yunnan, Zhejiang; (see Note on Taiwan).
Autonomous regions: Guangxi, Nei Mongol, Ningxia, Xinjiang, Xizang (Tibet).
Municipalities: Beijing, Chongqing, Shanghai, Tianjin.
Note: China considers Taiwan its 23rd province; see separate entries for the special
administrative regions of Hong Kong and Macau.
Independence: 221 BC (unification under the Qin or Ch’in Dynasty); 1 January
1912 (Manchu Dynasty replaced by a Republic); 1 October 1949 (People’s Republic
established).
Constitution: Most recent promulgation 4 December 1982.
Legal system: Based on civil law system; derived from Soviet and continental civil code
legal principles; legislature retains power to interpret statutes; constitution ambiguous
on judicial review of legislation; has not accepted compulsory ICJ jurisdiction.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President HU Jintao (since 15 March 2003); Vice
President Zeng Qinghong (since 15 March 2003).
Head of government: Premier Wen Jiabao (since 16 March 2003); Executive Vice
Premier Huang Ju (since 17 March 2003), Vice Premiers Wu Yi (17 March 2003), Zeng
Peiyan (since 17 March 2003), and Hui Liangyu (since 17 March 2003) .
Cabinet: State Council appointed by the National People’s Congress (NPC).
Elections: President and vice president elected by the National People’s Congress for
a five-year term (eligible for a second term); elections last held 15-17 March 2003 (next
to be held in mid-March 2008); premier nominated by the president, confirmed by the
National People’s Congress.
Election results: Hu Jintao elected president by the 10th National People’s Congress
with a total of 2,937 votes (four delegates voted against him, four abstained, and 38 did
not vote); Zeng Qinghong elected vice president by the 10th National People’s Congress
with a total of 2,578 votes (177 delegates voted against him, 190 abstained, and 38 did
not vote); two seats were vacant.
Legislative branch: Unicameral National People’s Congress or Quanguo Renmin
Daibiao Dahui (2,985 seats; members elected by municipal, regional, and provincial
people’s congresses to serve five-year terms).
19
China
Elections: Last held December 2002-February 2003 (next to be held late 2007
– February 2008).
Election results: Percent of vote – N/A; seats – N/A.
Judicial branch: Supreme People’s Court (judges appointed by the National People’s
Congress); Local People’s Courts (comprise higher, intermediate, and local courts);
Special People’s Courts (primarily military, maritime, and railway transport courts).
International organization participation: AfDB, APEC, APT, ARF, AsDB, ASEAN
(dialogue partner), BCIE, BIS, CDB, EAS, FAO, G-24 (observer), G-77, IAEA, IBRD, ICAO,
ICC, ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM (observer),
IPU, ISO, ITU, LAIA (observer), MIGA, MINURSO, MONUC, NAM (observer), NSG, OAS
(observer), OPCW, PCA, PIF (partner), SAARC (observer), SCO, UN, UN Security Council,
UNCTAD, UNESCO, UNHCR, UNIDO, UNIFIL, UNITAR, UNMEE, UNMIL, UNMIS,
UNMOVIC, UNOCI, UNTSO, UNWTO, UPU, WCO, WHO, WIPO, WMO, WTO, ZC.
Diplomatic representation in Denmark:
Danish representation in China:
Embassy of People’s Republic of China
Øregårds Allé 25
2900 Hellerup
Denmark
Telephone: +45 3946 0889
Telefax: +45 3962 5484
Embassy of Denmark
San Li Tun, Dong Wu Jie 1
Beijing 100600
People’s Republic of China
Telephone: +86 (10) 8532 9900
Telefax: +86 (10) 8532 9999
Office hours: Monday-Friday 09.00-12.00 and
14.00-16.30
Office hours: Monday-Friday 09.00-17.00
E-mail: [email protected]
E-mail: [email protected]
Website: www.chinaembassy.dk
Visa: Monday-Thuesday 09.00-11.00
Telepphone: +86 (10) 8532 9937
Telefax: +86 (10) 8532 9936
Economy
Economy – overview: China’s economy during the last quarter century has changed
from a centrally planned system that was largely closed to international trade to a more
market-oriented economy that has a rapidly growing private sector and is a major
player in the global economy. Reforms started in the late 1970s with the phasing out of
collectivized agriculture, and expanded to include the gradual liberalization of prices,
fiscal decentralization, increased autonomy for state enterprises, the foundation of a
diversified banking system, the development of stock markets, the rapid growth of the
non-state sector, and the Office hoursing to foreign trade and investment. China has
generally implemented reforms in a gradualist or piecemeal fashion, including the sale
of equity in China’s largest state banks to foreign investors and refinements in foreign
exchange and bond markets in 2005.
20
China
The restructuring of the economy and resulting efficiency gains have contributed to a
more than tenfold increase in GDP since 1978. Measured on a purchasing power parity
(PPP) basis, China in 2006 stood as the second-largest economy in the world after the
US, although in per capita terms the country is still lower middle-income and 130 million
Chinese fall below international poverty lines. Economic development has generally
been more rapid in coastal provinces than in the interior, and there are large disparities
in per capita income between regions.
The government has struggled to:
a. Sustain adequate job growth for tens of millions of workers laid off from state-owned
enterprises, migrants, and new entrants to the work force;
b. Reduce corruption and other economic crimes; and
c. Contain environmental damage and social strife related to the economy’s rapid
transformation.
From 100 million to 150 million surplus rural workers are adrift between the villages
and the cities, many subsisting through part-time, low-paying jobs. One demographic
consequence of the “one child” policy is that China is now one of the most rapidly aging
countries in the world. Another long-term threat to growth is the deterioration in the
environment – notably air pollution, soil erosion, and the steady fall of the water table,
especially in the north. China continues to lose arable land because of erosion and economic development. China has benefited from a huge expansion in computer Internet
use, with more than 100 million users at the end of 2005.
Foreign investment remains a strong element in China’s remarkable expansion in world
trade and has been an important factor in the growth of urban jobs. In July 2005, China
revalued its currency by 2.1% against the US dollar and moved to an exchange rate
system that references a basket of currencies. In 2006 China had the largest current account surplus in the world – nearly $180 billion. More power generating capacity came
on line in 2006 as large scale investments were completed.
Thirteen years in construction at a cost of $24 billion, the immense Three Gorges Dam
across the Yangtze River was essentially completed in 2006 and will revolutionize
electrification and flood control in the area. The 11th Five-Year Program (2006-10), approved by the National People’s Congress in March 2006, calls for a 20% reduction in
energy consumption per unit of GDP by 2010 and an estimated 45% increase in GDP
by 2010. The plan states that conserving resources and protecting the environment
are basic goals, but it lacks details on the policies and reforms necessary to achieve
these goals.
GDP (purchasing power parity): $10 trillion (2006 est.).
GDP – real growth rate: 10.5% (official data) (2006 est.).
GDP – per capita (PPP): $7,600 (2006 est.).
21
China
GDP – composition by sector:
Agriculture: 11.9%.
Industry: 48.1%.
Services: 40%.
Note: Industry includes construction (2006 est.).
Labor force: 798 million (2006 est.).
Unemployment rate: 4.2% official registered unemployment in urban areas in 2005;
substantial unemployment and underemployment in rural areas (2005).
Household income or consumption by percentage share: Lowest 10%: 1.8%.
Highest 10%: 33.1% (2001).
Distribution of family income – Gini index: 44 (2002).
Inflation rate (consumer prices): 1.5% (2006 est.).
Investment (gross fixed): 44.3% of GDP (2006 est.).
Budget:
Revenues: $446.6 billion.
Expenditures: $489.6 billion; including capital expenditures of $NA (2006 est.).
Exports: $974 billion f.o.b. (2006 est.).
Exports – commodities: Machinery and equipment, plastics, optical and medical
equipment, iron and steel.
Exports – partners: US 21.4%, Hong Kong 16.3%, Japan 11%, South Korea 4.6%,
Germany 4.3% (2005).
Imports: $777.9 billion f.o.b. (2006 est.).
Imports – commodities: Machinery and equipment, oil and mineral fuels, plastics, optical and medical equipment, organic chemicals, iron and steel.
Imports – partners: Japan 15.2%, South Korea 11.6%, Taiwan 11.2%, US 7.4%,
Germany 4.6% (2005).
Currency (code): Yyuan (CNY); Note: Also referred to as the Renminbi (RMB).
Exchange rates: Yuan per US dollar – 7.97 (2006), 8.1943 (2005), 8.2768 (2004), 8.277
(2003), 8.277 (2002).
Fiscal year: Calendar year.
22
China
Taxation
Taxes on corporate income: The standard corporate income tax and local corporate
income tax rates are 30% and 3% respectively.
Corporate residence: Foreign enterprises are taxed on profits earned from trade or
business activities carried out through an establishment or place of business in China.
Foreign investment enterprises, as Chinese-incorporated companies, are taxed on their
worldwide income.
Foreign income: The worldwide income of a foreign investment enterprise and its
branches both within and outside China is taxable. A foreign tax credit is allowed for income taxes paid on foreign-source income. For foreign enterprises with an establishment
or a place of business in China, foreign income effectively connected with the establishment or place of business is taxable, with deduction of foreign taxes paid as expenses.
In addition, transfer pricing will be subject to stringent review by the tax bureaus.
Recently, joint efforts from tax bureaus of different provinces have been taken to target
investment of multinational enterprises.
Branch income: A branch is taxed under the normal provisions of the income tax law at
the branch level. There is no further tax upon remittance of branch profits.
Tax administration: Returns: The tax year commences on January 1 and ends on
December 31. Enterprises are required to file their income tax returns and final accounting statements within four months after the end of the tax year, together with an
audit certificate of a registered public accountant in China. Information on related party
transactions must be filed with the annual tax return.
Payment of tax: Enterprises are required to pay provisional taxes on a quarterly basis
within 15 days after the end of each quarter. Three options are available to the taxpayer
in computing the provisional tax:
1. Actual quarterly profits,
2. one quarter of the taxable income of the preceding year, or
3. other formulas approved by the local tax authorities.
The final settlement must be made within five months after the end of each tax year.
Withholding taxes: No withholding tax is levied on business profits remitted overseas
as dividends to foreign investors by foreign investment enterprises.
Corporations resident in nontreaty countries: Subject to the exception noted above for
dividends from foreign investment enterprises, foreign enterprises without establishments in China will be subject to a concessionary rate of withholding tax at 10%
on gross income from interest, lease of property, royalties, and other China-source
nonbusiness income, with the following exceptions:
23
China
1. Withholding tax on proprietary technology usage fees may be exempt, subject to
approval.
2. A temporary exemption from withholding tax applies to dividends/gains generated
from China B shares.
3. Dividends from China enterprises other than foreign investment enterprises are subject to a statutory rate of 20% withholding tax.
Corporations resident in treaty countries: Withholding taxes are as follows (as at 1
January 2007).
Dividends
Interest
Royalties
%
%
%
10
10
10, 7
Denmark
Source: State Administration of Taxation, China
Individual Taxes: Territoriality and residence: Individuals who have a “place of abode” in
China are subject to individual income tax on their worldwide income. For this purpose,
“individuals having a place of abode” in China means those who maintain a place of
residence in China because of their legal residence status, family, or economic ties.
Individuals who do not have a “place of abode” in China are taxed in accordance with
their length of residency in China, as follows:
1. Nonresidents or resident foreign expatriates who reside in China for less than one
year will be taxed only on their China-source income.
2. Foreign expatriates who reside in China for more than one year but not more than
five years will be subject to tax on both their China-source income and their foreignsource income. However, upon application to and approval from the tax authorities,
the taxation of foreign-source income can be limited to that received from Chinese
enterprises, Chinese establishments, Chinese economic organizations, and Chinese
individuals.
3. Foreign expatriates who reside in China for more than five consecutive years will be
subject to tax on their worldwide income from the sixth year onward.
4. Foreign expatriates who travel in China and derive income from an overseas employer with no permanent establishment in China will be tax exempt if they do not
physically stay in China, consecutively or cumulatively, for more than 90 days in a
calendar year. The 90-day test is extended to 183 days if the individual is a tax resident of a country/region that has executed a taxation treaty/arrangement with China.
Gross income: Employee gross income: Salaries or wages of an individual include
basic salary, bonus, foreign service premium, area allowance, cost-of-living allowance,
housing allowance in excess of actual rental, local tax reimbursement, insurance and
pension contributions, stock benefits, other cash benefit, and other benefits in kind
discharging personal liabilities.
24
China
Other individual income: Taxable income also includes compensation for personal
services, income from the publication of articles, royalties, interest, dividends, incidental
income, and rentals. For individual who receives dividend income from listed companies, he/she are entitled to a 50% reduction of individual income tax since 13 June
2005. Exemption is also available to expatriates for dividend received from B shares.
Capital gains: Capital gains are treated as “other income” (see above) and are subject to
tax in the same manner.
Real property gains tax, business tax and income tax: Individuals are also subject to a
real property tax, the rate of which ranges from 30% to 60% on gains from transfer, a
business tax at 5% on gross/net sales proceeds and an income tax on gains from the
transfer of real properties. However, where an individual transfers the home (ordinary
residential apartment), real property tax and business tax may be exempted after fulfilling certain conditions.
Tax rates:
Monthly taxable income
Not grossed up
Grossed up
Tax Rate
Quick deduction
RMB
RMB
%
RMB
0–500
0–475
5
0
501–2,000
476–1,825
10
25
2,001–5,000
1,826–4,375
15
125
5,001−20,000
4,376–16,375
20
375
20,001–40,000
16,376–31,375
25
1,375
40,001–60,000
31,376–45,375
30
3,375
60,001–80,000
45,376–58,375
35
6,375
80,001–100,000
58,376–70,735
40
10,375
Over 100,000
Over 70,735
45
15,375
Where an individual’s income tax liability is borne by the employer, the tax liability is calculated
on an infinite gross-up basis (i.e., tax on tax).
25
China
Other income categories: A flat rate of 20% is applied on all other categories of
income, that is, those included under “Other individual income” and “Capital gains” (see
“Gross income”). For independent contractors, if the income received for services performed is deemed to be too high, an additional tax will be assessed. For this purpose, a
quantitative test will apply. In addition, a 30% tax reduction will be applicable to income
from the publication of articles.
For more information
www.pwc.com/cn
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
26
Czech Republic
Czech Republic
Background
Following the First World War, the closely related Czechs and Slovaks of the former
Austro-Hungarian Empire merged to form Czechoslovakia. During the interwar years,
the new country’s leaders were frequently preoccupied with meeting the demands of
other ethnic minorities within the republic, most notably the Sudeten Germans and
the Ruthenians (Ukrainians). After World War II, a truncated Czechoslovakia fell within
the Soviet sphere of influence. In 1968, an invasion by Warsaw Pact troops ended the
efforts of the country’s leaders to liberalize Communist party rule and create “socialism
with a human face”. Anti-Soviet demonstrations the following year ushered in a period of
harsh repression. With the collapse of Soviet authority in 1989, Czechoslovakia regained
its freedom through a peaceful “Velvet Revolution”. On 1 January 1993, the country
underwent a “velvet divorce” into its two national components, the Czech Republic and
Slovakia. The Czech Republic joined NATO in 1999 and the European Union in 2004.
Climate: Temperate, cool summers, cold, cloudy, humid winters.
Terrain: Bohemia in the west consists of rolling plains, hills, and plateaus surrounded by
low mountains; Moravia in the east consists of very hilly country.
Natural resources: Hard coal, soft coal, kaolin, clay, graphite, timber.
27
Czech Republic
Environment – current issues: Air and water pollution in areas of northwest Bohemia
and in northern Moravia around Ostrava present health risks; acid rain damaging
forests; Efforts to bring industry up to EU code should improve domestic pollution.
Environment – international agreements: Party to: Air Pollution, Air Pollution-Nitrogen
Oxides, Air Pollution-Persistent Organic Pollutants, Air Pollution-Sulfur 85, Air PollutionSulfur 94, Air Pollution-Volatile Organic Compounds, Antarctic Treaty, Biodiversity,
Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered
Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Ozone Layer
Protection, Ship Pollution, Wetlands, Whaling,
Signed, but not ratified: None of the selected agreements.
People
Population: 10,235,455 (July 2006 est.).
Median age:
Total: 39.3 years.
Male: 37.5 years.
Female: 41.1 years (2006 est.).
Population growth rate: -0.06% (2006 est.).
Net migration rate: 0.97 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Czech(s). Adjective: Czech.
Ethnic groups: Czech 90.4%, Moravian 3.7%, Slovak 1.9%, other 4% (2001 census).
Religions: Roman Catholic 26.8%, Protestant 2.1%, other 3.3%, unspecified 8.8%,
unaffiliated 59% (2001 census).
Languages: Czech.
Literacy: Definition: N/A.
Total population: 99%.
Male: 99%.
Female: 99% (2003 est.).
Government
Government type: Parliamentary democracy.
Capital: Prague.
28
Czech Republic
Administrative divisions: 13 regions (kraje, singular – kraj) and 1 capital city (hlavni
mesto); Jihocesky Kraj, Jihomoravsky Kraj, Karlovarsky Kraj, Kralovehradecky Kraj,
Liberecky Kraj, Moravskoslezsky Kraj, Olomoucky Kraj, Pardubicky Kraj, Plzensky Kraj,
Praha (Prague), Stredocesky Kraj, Ustecky Kraj, Vysocina, Zlinsky Kraj.
Independence: 1 January 1993 (Czechoslovakia split into the Czech Republic and
Slovakia).
Constitution: Ratified 16 December 1992, effective 1 January 1993.
Legal system: Civil law system based on Austro-Hungarian codes; Has not accepted
compulsory ICJ jurisdiction; legal code modified to bring it in line with Organization on
Security and Cooperation in Europe (OSCE) obligations and to expunge Marxist-Leninist
legal theory.
Suffrage: 18 years of age; Universal.
Executive branch: Chief of state: President Vaclav Klaus (since 7 March 2003).
Head of government: Prime Minister Mirek Topolanek (since 9 January 2007), Deputy
Prime Minister Petr Necas (since 9 January 2007), Deputy Prime Minister Jiri Cunek
(since 9 January 2007), Deputy Prime Minister Martin Bursik (since 9 January 2007), and
Deputy Prime Minister Alexandr Vondra (since 9 January 2007).
Cabinet: Cabinet appointed by the president on the recommendation of the prime minister.
Elections: president elected by Parliament for a five-year term (eligible for a second
term); last successful election held 28 February 2003 (after earlier elections held 15
and 24 January 2003 were inconclusive; next election to be held January 2008); prime
minister appointed by the president.
Election results: Vaclav Klaus elected president on 28 February 2003; Vaclav Klaus
142 votes, Jan Sokol 124 votes (third round; combined votes of both chambers of
parliament).
Legislative branch: Bicameral Parliament or Parlament consists of the Senate or Senat
(81 seats; members are elected by popular vote to serve six-year terms; One-third
elected every two years) and the Chamber of Deputies or Poslanecka Snemovna (200
seats; Members are elected by popular vote to serve four-year terms).
Elections: Senate – last held in two rounds 20-21 and 27-28 October 2006 (next to be
held October 2008); Chamber of Deputies – last held 2-3 June 2006 (next to be held by
June 2010).
Election results: Senate – percent of vote by party – N/A; Seats by party – ODS 41,
CSSD 12, KDU-CSL 10, others 15, independents 2; Chamber of Deputies – percent
of vote by party – ODS 35.4%, CSSD 32.3%, KSCM 12.8%, KDU-CSL 7.2%, Greens
6.3%, other 6%; seats by party – ODS 81, CSSD 74, KSCM 26, KDU-CSL 13, Greens 6.
Judicial branch: Supreme Court; Constitutional Court; chairman and deputy chairmen
are appointed by the president for a 10-year term.
29
Czech Republic
International organization partipation: ACCT (observer), Australia Group, BIS, BSEC
(observer), CE, CEI, CERN, EAPC, EBRD, EIB, ESA (cooperating state), EU, FAO, IAEA,
IBRD, ICAO, ICC, ICCt (signatory), ICRM, IDA, IEA, IFC, IFRCS, ILO, IMF, IMO, Interpol,
IOC, IOM, IPU, ISO, ITU, ITUC, MIGA, MONUC, NAM (guest), NATO, NEA, NSG, OAS
(observer), OECD, OIF (observer), OPCW, OSCE, PCA, UN, UNCTAD, UNESCO, UNIDO,
UNITAR, UNMEE, UNMIL, UNOMIG, UNWTO, UPU, WCL, WCO, WEU (associate),
WFTU, WHO, WIPO, WMO, WTO, ZC.
Diplomatic representation in Denmark:
Danish representation in Czech Republic:
Embassy of Czech Republic
Ryvangs Allé 14-16
2100 Copenhagen Ø
Denmark
Telephone: +45 3910 1810
Telephone: +45 3929 1664 (Visa section)
Telefax: +45 3929 0930
Embassy of Denmark
P.O. Box 25,
Maltézské námestí 5
118 01 Prague 1,
Malá Strana
Czech Republic
Telephone: +420 257 531 600
Telefax: +420 257 531 410
Office hours: 08.00-12.00 and 13.00-16.00.
Consular hours: 10.00-11.00.
Office hours: Monday-Thursday 09.00-16.00
Friday: 09.00-15.30
E-mail: [email protected]
E-mail: [email protected]
Website: www.czechembassy.dk/
Public Service department:
Office hours: Monday.-Friday: 09.00-12.00
Economy
Economy – overview: The Czech Republic is one of the most stable and prosperous
of the post-Communist states of Central and Eastern Europe. Growth in 2000-05
was supported by exports to the EU, primarily to Germany, and a strong recovery of
foreign and domestic investment. Domestic demand is playing an ever more important
role in underpinning growth as interest rates drop and the availability of credit cards
and mortgages increases. The current account deficit has declined to around 3% of
GDP as demand for Czech products in the European Union has increased. Inflation
is under control. Recent accession to the EU gives further impetus and direction
to structural reform. In early 2004 the government passed increases in the Value
Added Tax (VAT) and tightened eligibility for social benefits with the intention to bring
the public finance gap down to 4% of GDP by 2006, but more difficult pension and
healthcare reforms will have to wait until after the next elections. Privatization of the
state-owned telecommunications firm Cesky Telecom took place in 2005. Intensified
restructuring among large enterprises, improvements in the financial sector, and effective use of available EU funds should strengthen output growth.
GDP (purchasing power parity): $221.4 billion (2006 est.).
30
Czech Republic
GDP – real growth rate: 6.2% (2006 est.).
GDP – per capita: $21,600 (2006 est.).
GDP – composition by sector:
Agriculture: 2.8%.
Industry: 37.8%.
Services: 59.4% (2006 est.).
Labor force: 5.31 million (2006 est.).
Unemployment rate: 8.4% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 4.3%.
Highest 10%: 22.4% (1996).
Distribution of family income – Gini index: 27.3 (2003).
Inflation rate (consumer prices): 2.7% (2006 est.).
Investment (gross fixed): 26.2% of GDP (2006 est.).
Budget:
Revenues: $57.88 billion.
Expenditures: $62.53 billion; including capital expenditures of $NA (2006 est.).
Exports: $89.34 billion f.o.b. (2006 est.).
Exports – commodities: Machinery and transport equipment 52%, chemicals 5%, raw
materials and fuel 9% (2003).
Exports partners: Germany 33.5%, Slovakia 8.7%, Austria 5.5%, Poland 5.5%, France
5.3%, UK 4.6%, Italy 4.3% (2005).
Imports: $87.7 billion f.o.b. (2006 est.).
Imports – commodities: Machinery and transport equipment 46%, raw materials and
fuels 15%, chemicals 10% (2003).
Imports – partners: Germany 30%, Russia 5.7%, Slovakia 5.4%, China 5.1%, Poland
5%, Italy 4.8%, France 4.5%, Netherlands 4% (2005).
Currency (code): Czech koruna (CZK).
Exchange rates: Koruny per US dollar – 22.3072 (2006), 23.957 (2005), 25.7 (2004),
28.209 (2003), 32.739 (2002).
Fiscal year: Calendar year.
31
Czech Republic
Taxation
Taxes on corporate income: The rate of corporate income tax for 2006 is 24%.
Corporate income tax applies to the profits of all companies, including branches of
foreign companies. Corporate partners in general partnerships and corporate general
partners in a limited partnership are subject to corporate income tax on their share of
the profits in the partnership.
Corporate residence: A company is resident in the Czech Republic if it is registered or
has its place of management there.
Foreign income: Companies resident in the Czech Republic are taxed on their worldwide income. A Czech corporation is taxed on foreign branch income when earned and
on foreign dividends when received. Dividends received from abroad, if not exempt
under the Parent/SubsidiaryDirective, are included in a separate corporate income tax
base of the recipient and are subject to a 15% flat special corporate income tax rate.
Tax administration: Returns: A corporation can opt for a calendar year or an accounting year as its fiscal year. Returns must be filed within three months of the end of the
tax period. A three-month extension of the filing deadline is available to a taxpayer
represented by a registered tax advisor. This three-month extension is automatically
granted subject to a Czech statutory audit.
In some special cases returns must also be filed after an accounting period that is not
considered to be a tax period. In these cases, the filing deadline is shorter, usually one
month, and may be extended only with the approval of the Financial Office.
Payment of tax: Tax payments are due on the same day as the filing deadline.
A company is obliged to make corporate income tax advances if its last known tax liability
exceeded CZK 30,000. The advance period starts on the day following the statutory date
for filing the corporate income tax return.
Upon filing a tax return, reconciliation is made between the advances paid and the
actual liability. Any outstanding amount must be paid on the date the tax return is due.
Any overpayment will be refunded upon request or can be credited against future tax
liabilities.
32
Czech Republic
Withholding taxes:
Dividends (1)
Interest(2)
Royalties (3)
%
%
%
Recident corporations
15
15
0
Resident individuals
15
15
0
Non-treaty:
Corporations
Individuals
15
15
15
15
1/25(4)
1/25(4)
Treaty:
Denmark
15
0
0/5
Recipient
Non-resident corporations,
individuals
Notes:
1. The lower rate applies mostly to cultural royalties.
2. The lower rate applies to lease contracts under which the lessee has the right to purchase
the leased asset at the end of the lease period, provided the lease is of a certain minimum
duration.
3. The lower rate applies if the recipient is a company that owns at least a certain amount of
the capital or a certain amount of the voting shares of the company paying the dividend
directly (mostly 25%).
4. The lower rate applies mostly in situations when the interest is received by the government
or a state-owned institution or is paid by the government.
Arrangements regarding double taxation involving the former Soviet Republics, except the
Baltic republics, Belarus, Kazakhstan, Moldova, Russia, Uzbekistan and Ukraine, continue to
be governed by the CMEA (COMECON) multilateral tax treaties for legal entities and physical
persons. These treaties provide for a nil rate of withholding on dividends, interest and royalties.
As a part of the Czech Republic’s economic plan, it is working toward double taxation agreements with countries that are or will be its most important trading partners.
Individual taxation: Territoriality and residence: Czech tax residents are generally
subject to Czech income tax on their worldwide income. Non-tax residents are generally
taxed only on income which is considered Czech-source income.
Non-residents present in the Czech Republic for less than 183 days in any twelvemonth period and working for a foreign employer with no taxable presence in the Czech
Republic are not subject to Czech income tax on income from work performed in the
Czech Republic (Czech-source income).
The following individuals are subject to Czech tax on Czech-source income, irrespective
of the number of days of physical presence in the country:
• All employees of a Czech company, including all branches.
33
Czech Republic
• Expatriate assignees whose salary costs are borne directly by or recharged to a
Czech entity (or a permanent establishment).
• Statutory representatives or members of the Board of Directors or Supervisory Board
of Czech companies.
• Private entrepreneurs.
Gross income: Employee gross income: The gross income of employees includes all
wages, salaries and bonuses paid and any benefits in kind (subject to minor exceptions)
received as a result of employment. Benefits in kind are valued in principle at Office
hours-market values, although a fixed rate of 12% per annum of the purchase price is
applied to cars provided by the employer unless the employee makes no private use
of the car. The reimbursement of travel expenses in excess of fairly low statutory limits
is also a taxable benefit to the employee. Certain non-monetary educational, sporting
and health benefits are nontaxable. Accommodation provided by an employer as a
non-monetary benefit is not taxable if arrangements are properly structured. An accommodation allowance is taxable.
Non-resident directors’ fees and fees payable to non-resident members of other statutory bodies of Czech companies are subject to a withholding tax of 25%. No further
tax is payable on this income. When paid to tax residents, directors’ fees and fees to
members of other statutory bodies of Czech companies are taxed under the payroll
administration, using the progressive tax rates.
Capital gains and investment income: There is no separate capital gains tax in the
Czech Republic.
Gains on property are exempt if the individual has owned the property for longer than
the specified time limit. The main time limits are as follows:
• Shares in a joint stock company or a fund 6 months
• Shares in other companies 5 years
• Real estate 2 years (your residence), 5 years (other cases)
• Cars, ships and planes 1 year.
Note: The above applies to gains on property that do not form part of the individual’s business property. Gains on business property are taxed based on principles similar to those
that apply for companies; other forms of relief are available for own residential premises.
34
Czech Republic
Tax rates: The 2006 tax rates are as follows:
Income brackets (in CZK)
up to 121,200
12%
121,201 – 218,400
14,544 + 19% for the amount above 121,200
218,401 – 331,200
33,012 + 25% for the amount above 218,401
above 331,200
61,212 + 32% for the amount above 331,200
For more information
www.pwc.com/cz
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries: (www.taxsummaries.pwc.com)
35
Estonia
Estonia
Background
After centuries of Danish, Swedish, German, and Russian rule, Estonia attained
independence in 1918. Forcibly incorporated into the USSR in 1940 – an action never
recognized by the US – it regained its freedom in 1991, with the collapse of the Soviet
Union. Since the last Russian troops left in 1994, Estonia has been free to promote
economic and political ties with Western Europe. It joined both NATO and the EU in
the spring of 2004.
Climate: Maritime, wet, moderate winters, cool summers.
Terrain: Marshy, lowlands; flat in the north, hilly in the south.
Natural resources: Oil shale, peat, phosphorite, clay, limestone, sand, dolomite, arable
land, sea mud.
Environment – current issues: Air polluted with sulfur dioxide from oil-shale burning
power plants in northeast; however, the amount of pollutants emitted to the air have
fallen steadily, the emissions of 2000 were 80% less than in 1980; the amount of unpurified wastewater discharged to water bodies in 2000 was one twentieth the level of 1980;
in connection with the start-up of new water purification plants, the pollution load of
37
Estonia
wastewater decreased; Estonia has more than 1,400 natural and manmade lakes, the
smaller of which in agricultural areas need to be monitored; coastal seawater is polluted
in certain locations.
Environment – international agreements: Party to: Air Pollution, Air Pollution-Nitrogen
Oxides, Air Pollution-Sulfur 85, Air Pollution-Volatile Organic Compounds, Antarctic
Treaty, Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Endangered
Species, Hazardous Wastes, Ship Pollution, Ozone Layer Protection, Wetlands.
Signed, but not ratified: None of the selected agreements.
People
Population: 1,324,333 (July 2006 est.).
Median age:
Total: 39.3 years.
Male: 35.8 years.
Female: 42.6 years (2006 est.).
Population growth rate: -0.64% (2006 est.).
Net migration rate: -3.2 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Estonian(s). Adjective: Estonian.
Ethnic groups: Estonian 67.9%, Russian 25.6%, Ukrainian 2.1%, Belarusian 1.3%,
Finn 0.9%, other 2.2% (2000 census).
Religions: Evangelical Lutheran 13.6%, Orthodox 12.8%, other Christian (including
Methodist, Seventh-Day Adventist, Roman Catholic, Pentecostal) 1.4%, unaffiliated
34.1%, other and unspecified 32%, none 6.1% (2000 census).
Languages: Estonian (official) 67.3%, Russian 29.7%, other 2.3%, unknown 0.7%
(2000 census.).
Literacy: Definition: Age 15 and over can read and write.
Total population: 99.8%.
Male: 99.8%.
Female: 99.8% (2003 est.).
Government
Government type: Parliamentary republic.
Capital: Tallinn.
38
Estonia
Administrative divisions: 15 counties (maakonnad, singular – maakond): Harjumaa
(Tallinn), Hiiumaa (Kardla), Ida-Virumaa (Johvi), Jarvamaa (Paide), Jogevamaa (Jogeva),
Laanemaa (Haapsalu), Laane-Virumaa (Rakvere), Parnumaa (Parnu), Polvamaa
(Polva), Raplamaa (Rapla), Saaremaa (Kuressaare), Tartumaa (Tartu), Valgamaa (Valga),
Viljandimaa (Viljandi), Vorumaa (Voru).
Note: Counties have the administrative center name following in parentheses.
Independence: 20 August 1991 (from Soviet Union).
Constitution: Adopted 28 June 1992.
Legal system: Based on civil law system; no judicial review of legislative acts; accepts
compulsory ICJ jurisdiction, with reservations.
Suffrage: 18 years of age; Universal for all Estonian citizens.
Executive branch: Chief of state: President Toomas Hendrik Ilves (since 9 October 2006).
Head of government: Prime Minister Andrus Ansip (since 12 April 2005).
Cabinet: Council of Ministers appointed by the prime minister, approved by Parliament.
Elections: President elected by Parliament for a five-year term (eligible for a second
term); if a candidate does not secure two-thirds of the votes after three rounds of balloting in the Parliament, then an electoral assembly (made up of Parliament plus members
of local governments) elects the president, choosing between the two candidates with
the largest percentage of votes; election last held 23 September 2006 (next to be held
fall of 2011); prime minister nominated by the president and approved by Parliament.
Election results: Toomas Hendrik Ilves elected president on 23 September 2006 by a
345-member electoral assembly; Ilves received 174 votes to incumbent Arnold Ruutel’s
162; remaining 9 ballots left blank or invalid.
Legislative branch: Unicameral Parliament or Riigikogu (101 seats; members are
elected by popular vote to serve four-year terms).
Elections: Last held 2 March 2003 (next to be held March 2007).
Election results: Percent of vote by party – Center Party of Estonia 25.4%, Res Publica
24.6%, Estonian Reform Party 17.7%, Estonian People’s Union 13%, Pro Patria Union
(Fatherland League) 7.3% People’s Party Moodukad 7%; seats by party – Res Publica
26, Center Party 20, Reform Party 19, Estonian People’s Union 13, Pro Patria Union 7,
Social Democrats (formerly People’s Party Moodukad) 6, non-affiliated (Social Liberals
and independents) 10.
Judicial branch: National Court (chairman appointed by Parliament for life).
International organization partipation: Australia Group, BA, BIS, CBSS, CE, EAPC,
EBRD, EIB, EU, FAO, IAEA, IBRD, ICAO, ICCt, ICRM, IFC, IFRCS, IHO, ILO, IMF, IMO,
Interpol, IOC, IOM, IPU, ISO (correspondent), ITU, ITUC, MIGA, NATO, NIB, NSG, OAS
(observer), OPCW, OSCE, PCA, UN, UNCTAD, UNESCO, UNTSO, UPU, WCO, WEU
(associate partner), WHO, WIPO, WMO, WTO.
39
Estonia
Diplomatic representation in Denmark:
Danish representation in Estonia:
Embassy of Estonia
Aurehøjvej 19
2900 Hellerup
Denmark
Telephone: +45 3946 3070
Telefax: +45 3946 3076
Ambasada Danii
ul. Rakowiecka 19
02-517 Warszawa
Telephone: +48 (22) 565 2900
Telefax: +48 (22) 565 2970
E-mail: [email protected]
Office hours: Monday-Friday 08.30-17.00
E-mail: [email protected]
Website: www.estemb.dk
Economy
Economy – overview: Estonia, as a new member of the World Trade Organization and
the European Union, has transitioned effectively to a modern market economy with
strong ties to the West, including the pegging of its currency to the euro. The economy
benefits from strong electronics and telecommunications sectors and is greatly influenced by developments in Finland, Sweden, and Germany, three major trading partners.
The current account deficit remains high; however, the state budget is essentially in
balance, and public debt is low.
GDP (purchasing power parity): $26 billion (2006 est.).
GDP – real growth rate: 9.2% (2006 est.).
GDP – per capita: $19,600 (2006 est.).
GDP – composition by sector:
Agriculture: 3.4%.
Industry: 28%.
Services: 68.6% (2006 est.).
Labor force: 673,000 (2006 est.).
Unemployment rate: 5.8% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 1.9%.
Highest 10%: 28.5% (2000).
Distribution of family income – Gini index: 33 (2003).
Inflation rate (consumer prices): 4.4% (2006 est.).
40
Estonia
Investment (gross fixed): 32.4% of GDP (2006 est.).
Budget:
Revenues: $5.994 billion.
Expenditures: $5.718 billion; including capital expenditures of $NA (2006 est.).
Exports: $9.68 billion f.o.b. (2006 est.).
Exports – commodities: Machinery and equipment 33%, wood and paper 15%,
textiles 14%, food products 8%, furniture 7%, metals, chemical products (2001).
Exports partners: Finland 26.3%, Sweden 13.2%, Latvia 8.8%, Russia 6.5%, Germany
6.2%, Lithuania 4.6% (2005).
Imports: $12.03 billion f.o.b. (2006 est.).
Imports – commodities: Machinery and equipment 33.5%, chemical products 11.6%,
textiles 10.3%, foodstuffs 9.4%, transportation equipment 8.9% (2001).
Imports – partners: Finland 19.7%, Germany 13.9%, Russia 9.2%, Sweden 8.9%,
Lithuania 6%, Latvia 4.7% (2005).
Currency (code): Estonian kroon (EEK).
Exchange rates: Krooni per US dollar – 12.473 (2006), 12.584 (2005), 12.596 (2004),
13.856 (2003), 16.612 (2002).
Note: The krooni is pegged to the euro.
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: All undistributed corporate profits are tax exempt. This
exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties)
types of income, as well as capital gains from sale of all types of assets, including shares,
securities and immovable property. This tax regime is available to Estonian companies
and permanent establishments of foreign companies that are registered in Estonia.
The moment of taxation of corporate profits is postponed until the profits are distributed
as dividends or deemed profit distributions, such as transfer pricing adjustments,
expenses and payments that do not have a business purpose, fringe benefits, gifts,
donations and representation expenses.
Distributed profits are generally subject to 22% corporate income tax (22/78 on the net
amount of profit distribution). For example, a company that has profits of 100 available
for distribution can distribute dividends of 78, on which it has to pay corporate income
41
Estonia
tax of 22. The income tax rates are reduced from 22/78 in 2007 to 21/79 in 2008 and to
20/80 in 2009.
From the Estonian perspective, this tax is considered as a corporate income tax and
not a withholding tax, so the tax rate is not affected by an applicable tax treaty. Certain
distributions are exempt from such tax (see “Inter-company dividends”).
The existing dividend taxation system is not fully in line with the EU Parent-Subsidiary
Directive (90/435/EEC). Estonia has a transitional period ending on 31 December 2008
to amend its present dividend taxation system, which may therefore change by 1
January 2009.
Corporate residence: A legal entity is considered resident in Estonia for tax purposes
if it is established under Estonian law and there is no management and control test
for this purpose. All tax treaty tie-breakers for legal entities are based on competent
authority procedure. Estonian general partnerships and limited partnerships have legal
personality and are therefore considered residents in Estonia for tax purposes.
A permanent establishment (including a branch registered in the Commercial Register)
of a foreign entity is deemed to be a non-resident taxpayer.
Branch income: Registered permanent establishments of non-residents, in a similar
manner as resident companies, are subject to corporate income tax only in respect of
profit distributions, both actual and deemed, as defined in domestic law.
Transactions and dealings between a head office and its permanent establishment(s)
should be conducted on arm’s-length terms. Thus, such profits should be attributed to
a permanent establishment of a non-resident taxpayer that the permanent establishment would be expected to make if it were a distinct and separate taxpayer engaged
in the same or similar activities under the same of similar conditions and dealing wholly
independently with its head office.
Tax administration: Tax return: The period of taxation is a calendar month. The combined
corporate income tax and payroll tax return (form “TSD” with appendices) must be
submitted to the local tax authorities by the 10th day of the month following a taxable
distribution or payment. Tax returns can be filed in an electronic form over the Internet.
Payment of tax: Corporate income tax and payroll taxes must be remitted to the local
tax authorities by the 10th day of the month following a taxable distribution or payment.
No advance corporate income tax payments are required.
Withholding taxes: Withholding agents must withhold income tax from certain payments.
Withholding agents include resident legal entities, resident individuals registered as sole
proprietorships or acting as employers and non-residents having a permanent establishment or acting as employers in Estonia. The tax must be reported and paid by the 10th
day of the month following the payment. Income tax is not withheld from payments to
resident companies, registered sole proprietorships and registered permanent establishments of foreign companies. Payments subject to withholding tax include the following:
42
Estonia
1. Dividends paid to non-resident legal entities which own less than 15% shareholding
in the distributing company, are subject to 22% withholding tax under domestic law,
but reduced rates may be available under double tax treaties. Dividends paid to “tax
haven” entities are always subject to 22% withholding tax. There is no withholding
tax on dividend distributions to corporate shareholders having at least 15% shareholding in the distributing company and to individual shareholders.
2. There is no withholding tax on interest payments to non-residents on the condition
that the interest charged does not significantly exceed the arm’s length rate at the
time the debt is incurred and the interest payments are made. 22% Estonian withholding tax will thus apply only to the part of interest that significantly exceeds the
arm’s-length amount.
3. Royalties (including payments for the use of industrial, commercial or scientific
equipment) paid to non-residents are generally subject to 15% withholding tax
under domestic law, but reduced rates may be available under double tax treaties.
Certain royalty payments to associated EU and Swiss companies that meet certain
conditions are exempt from withholding tax.
4. Rental payments to non-residents for the use of immovable property located in
Estonia and movable property subject to registration in Estonia (excluding payments
for the use of industrial, commercial or scientific equipment) are subject to 22%
withholding tax under domestic law, but double tax treaties may exempt payments
for the use of movable property from withholding tax.
5. Royalties and rental payments to resident individuals are subject to 22% withholding tax.
6. Payments to non-resident companies for services provided in Estonia, including management and consultancy fees, are subject to 15% withholding tax under
domestic law, but exemption may be available under double tax treaties. Service fee
payments to “tax haven” entities are always subject to 22% withholding tax.
7. Salaries, directors’ fees and service fees paid to individuals are subject to 22%
withholding tax under domestic law, but double tax treaties may exempt service fee
payments to non-resident individuals from withholding tax.
8. Payments for the activities of non-resident artistes or sportsmen carried out in Estonia are subject to 15% withholding tax.
9. Certain pensions, insurance benefits, scholarships, prizes, lottery winnings, alimony,
etc. paid to non-residents and resident individuals are subject to 22% withholding
tax under domestic law.
For non-residents, who do not have a permanent establishment in Estonia, the tax withheld
from the above payments at domestic or treaty rates constitutes final tax as regards their
Estonian source income and they do not have any tax reporting requirements in Estonia.
For certain types of Estonian source income, non-residents are liable under Estonian
domestic law to self assess Estonian tax and submit a tax return to the Estonian tax
authorities. Such types of income include:
• Taxable capital gains;
• Profits derived from business conducted in Estonia without a registered permanent
establishment;
• Other items of income from which tax was not withheld but should have been withheld.
43
Estonia
Estonia has effective tax treaties with Armenia, Austria, Belarus, Belgium, Canada, the
People’s Republic of China, Croatia, the Czech Republic, Denmark, Finland, France,
Germany, Hungary, Iceland, the Republic of Ireland, Italy, Kazakhstan, Latvia, Lithuania,
Malta, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia,
Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, the United Kingdom, and the
United States of America. Treaties have also been concluded with Georgia, Greece,
Luxembourg, Russia and Singapore, but these are not yet effective.
The following withholding tax rates apply to dividends, interest and royalties paid to a
recipient beneficial owner resident in a tax treaty country. The lower of the domestic or
the treaty rate is given.
Recipient
Dividends (1)
Interest(2)
Royalties(3)
%
%
%
0/22(1)
0/22(2)
0/15(3)
0/15
0/22
0/5/10(4)
Recident corporations
Resident individuals
Non-resident corporations, individuals
Non-treaty:
Corporations
Individuals
Treaty:
Denmark
Notes:
1. The rate is nil for all individual shareholders and for these corporate shareholders (except
”tax haven” entities) that own at least 15% of the shares or voting rights in an Estonian
company.
2. The rate is nil on the condition that the interest paid to a non-resident does not significantly
exceed the arm’s length rate at the time the debt is incurred and the interest payments are
made. Estonian withholding tax at the domestic rate of 22% will thus apply only to the part
of interest that significantly exceeds the arm’s-length amount and this withholding tax cannot be reduced under tax treaties.
3. The rate is nil for arm’s-length royalties paid to an associated EU or Swiss company if certain
conditions are met.
4. The lower 5% rate applies to royalties paid for the use of industrial, commercial or scientific
equipment.
Individual taxes: Territoriality and residence: An individual who is a resident of Estonia
is liable to tax on worldwide income, irrespective of the origin of the income. Non-residents are taxed on their Estonian-source income. Individuals are considered residents
of Estonia if they have a permanent residence in Estonia, or if their stay in Estonia
during any 12-month period exceeds 182 days, or if they are Estonian public servants
who are sent abroad on assignment.
44
Estonia
If the tie-breaker article in a double tax treaty allocates the residence of a dual-resident
individual to a foreign country (most often if the home and family of the individual remain
abroad during an assignment to Estonia), then the individual will be taxed as a non-resident in Estonia regardless of the above-mentioned Estonian domestic rule.
Gross income: Gross income and exclusions: The gross income of resident individuals includes their worldwide income from all sources, irrespective of the origin of the
income. This includes both active income, such as employment and business income,
as well as passive income, such as capital gains, rents and royalties, interest, dividends,
certain insurance proceeds, etc.
In general, individual taxpayers are taxed on cash basis. Exceptionally, the Estonian CFC
(anti-deferral) rules attribute undistributed profits of foreign “tax haven” companies to
resident individual taxpayers if such companies are controlled by Estonian residents. Most
items of personal income are taxed on gross basis, mainly through withholding at source,
whereas business income and capital gains are taxed on a net basis on certain conditions.
For resident individuals, there exist numerous items of tax exempt income (excluded
from gross income). Some of the more important items of tax exempt income include
qualifying foreign employment income, domestic dividends, qualifying foreign dividends,
qualifying bank interest and certain qualifying capital gains.
Employment income: Employment income is taxed on a gross basis and includes salaries, fees for personal services and directors’ fees. In general, fringe benefits are only
taxable at employer level and are not included in the gross income of an employee.
For resident individuals, foreign source employment income is exempt from Estonian
income tax if the following two conditions are met:
• The individual is present in a foreign country for employment purposes for more than
182 days during any 12-month period; and
• foreign employment income is taxable in the foreign country and this can be substantiated by written documentation which has to indicate the amount of the related
foreign income tax (even if this is zero).
Non-resident individuals are liable to Estonian income tax on Estonian source employment income. This is deemed to arise if the location of performing personal services
is in Estonia and the remuneration is paid by an Estonian employer (including nonresidents having a permanent establishment or acting as employers in Estonia), or if the
individual has been present in Estonia for employment purposes for more than 182 days
during any 12-month period. Directors’ fees paid by Estonian companies are always
taxable in Estonia.
Capital gains and investment income: Capital gains from the sale or exchange of assets
are generally taxed on a net basis as part of ordinary income but capital losses can only
be offset against capital gains. Certain qualifying capital gains are exempt from income
tax, such as the gain from the sale of personal residence.
45
Estonia
Rents and royalties generated from the use of certain assets are generally taxed on a
gross basis as part of ordinary income, unless the taxpayer elects for net basis taxation
as part of business income.
Investment income is generally taxed on a gross basis as part of ordinary income. This
may include for example certain foreign dividends, interest and insurance proceeds.
Domestic dividends are tax exempt for resident individuals. Foreign dividends are tax
exempt provided that either the underlying profits out of which dividends are paid
have been subject to foreign income tax or if income tax was withheld from dividends
received. Interest paid by EEA (incl. Estonian) banks or EEA branches of non-EEA banks
to resident individuals is also exempt from income tax.
For non-resident individuals, dividends and arm’s length interest from Estonian sources
are exempt from Estonian income tax, whereas rents and royalties are generally subject
to withholding tax at source.
Certain capital gains realised by non-residents form part of their Estonian source
income, for which they are liable for self-assessing Estonian tax and submitting a tax
return to the Estonian tax authorities. For example, this applies to capital gains linked
with immovable property located in Estonia.
Tax rates: The flat income tax rate for resident individuals is 22%. Certain pensions are
subject to 10% income tax.
The flat income tax rate is further reduced from 22% in 2007 to 21% in 2008 and to
20% in 2009.
For more information
www.pwc.com/ee
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com/)
46
India
India
Background
The Indus Valley civilization, one of the oldest in the world, dates back at least 5,000
years. Aryan tribes from the northwest infiltrated onto Indian lands about 1500 B.C.;
their merger with the earlier Dravidian inhabitants created the classical Indian culture.
Arab incursions starting in the 8th century and Turkish in the 12th were followed by
those of European traders, beginning in the late 15th century. By the 19th century,
Britain had assumed political control of virtually all Indian lands. Indian armed forces in
the British army played a vital role in both World Wars. Nonviolent resistance to British
colonialism led by Mohandas Gandhi and Jawaharlal Nehru brought independence
in 1947. The subcontinent was divided into the secular state of India and the smaller
Muslim state of Pakistan. A third war between the two countries in 1971 resulted in
East Pakistan becoming the separate nation of Bangladesh. Despite impressive gains
in economic investment and output, India faces pressing problems such as the ongoing
dispute with Pakistan over Kashmir, massive overpopulation, environmental degradation, extensive poverty, and ethnic and religious strife.
Climate: Varies from tropical monsoon in south to temperate in north.
Terrain: Upland plain (Deccan Plateau) in south, flat to rolling plain along the Ganges,
deserts in west, Himalayas in north.
47
India
Natural resources: Coal (fourth-largest reserves in the world), iron ore, manganese,
mica, bauxite, titanium ore, chromite, natural gas, diamonds, petroleum, limestone,
arable land.
Environment – current issues: Deforestation; soil erosion; overgrazing; desertification;
air pollution from industrial effluents and vehicle emissions; water pollution from raw
sewage and runoff of agricultural pesticides; tap water is not potable throughout the
country; huge and growing population is overstraining natural resources.
Environment – international agreements: Party to: Antarctic-Environmental Protocol,
Antarctic-Marine Living Resources, Antarctic Treaty, Biodiversity, Climate Change,
Climate Change-Kyoto Protocol, Desertification, Endangered Species, Environmental
Modification, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Ship
Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands, Whaling.
Signed, but not ratified: None of the selected agreements.
People
Population: 1,095,351,995 (July 2006 est.).
Median age:
Total: 24.9 years.
Male: 24.9 years.
Female: 24.9 years (2006 est.).
Population growth rate: 1.38% (2006 est.).
Net migration rate: -0.07 migrant(s)/1,000 population (2006 est.).
Degree of risk: High.
Food or waterborne diseases: Bacterial diarrhea, hepatitis A and E, and typhoid fever
vectorborne diseases: dengue fever, malaria, and Japanese encephalitis are high risks
in some locations.
Animal contact disease: Rabies.
Note: highly pathogenic H5N1 avian influenza has been identified among birds in this
country or surrounding region; it poses a negligible risk with extremely rare cases possible among US citizens who have close contact with birds (2007).
Nationality: Noun: Indian(s). Adjective: Indian.
Ethnic groups: Indo-Aryan 72%, Dravidian 25%, Mongoloid and other 3% (2000).
Religions: Hindu 80.5%, Muslim 13.4%, Christian 2.3%, Sikh 1.9%, other 1.8%,
unspecified 0.1% (2001 census).
48
India
Languages: English enjoys associate status but is the most important language for
national, political, and commercial communication; Hindi is the national language and
primary tongue of 30% of the people; there are 14 other official languages: Bengali,
Telugu, Marathi, Tamil, Urdu, Gujarati, Malayalam, Kannada, Oriya, Punjabi, Assamese,
Kashmiri, Sindhi, and Sanskrit; Hindustani is a popular variant of Hindi/Urdu spoken
widely throughout northern India but is not an official language.
Literacy: Definition: Age 15 and over can read and write.
Total population: 59.5%.
Male: 70.2%.
Female: 48.3% (2003 est.).
Government
Government type: Federal republic.
Capital: New Delhi.
Administrative divisions: 28 states and 7 union territories; Andaman and Nicobar
Islands, Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chandigarh Chhattisgarh,
Dadra and Nagar Haveli, Daman and Diu, Delhi, Goa, Gujarat, Haryana, Himachal
Pradesh, Jammu and Kashmir, Jharkhand, Karnataka, Kerala, Lakshadweep, Madhya
Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Orissa, Puducherry,
Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttar Pradesh, Uttaranchal, West Bengal.
Independence: 15 August 1947 (from UK).
Constitution: 26 January 1950; Amended many times.
Legal system: Based on English common law; judicial review of legislative acts; accepts compulsory ICJ jurisdiction, with reservations; Separate personal law codes apply
to Muslims, Christians, and Hindus.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President A.P.J. Abdul Kalam (since 25 July 2002);
Vice President Bhairon Singh Shekhawat (since 19 August 2002).
Head of government: Prime Minister Manmohan SINGH (since 22 May 2004).
Cabinet: Cabinet appointed by the president on the recommendation of the prime minister.
Elections: President elected by an electoral college consisting of elected members of
both houses of Parliament and the legislatures of the states for a five-year term (no term
limits); election last held July 2002 (next to be held 18 July 2007); vice president elected
by both houses of Parliament for a five-year term; election last held 12 August 2002
(next to be held August 2007); prime minister chosen by parliamentary members of the
majority party following legislative elections; election last held April – May 2004 (next to
be held May 2009).
49
India
Election results: Abdul Kalam elected president; percent of electoral college vote
– 89.6%; Bhairon Singh Shekhawat elected vice president; percent of Parliament vote
– 59.8%.
Legislative branch: Bicameral Parliament or Sansad consists of the Council of States
or Rajya Sabha (a body consisting of not more than 250 members, up to 12 of whom
are appointed by the president, the remainder are chosen by the elected members of
the state and territorial assemblies; members serve six-year terms) and the People’s
Assembly or Lok Sabha (545 seats; 543 elected by popular vote, 2 appointed by the
president; members serve five-year terms).
Elections: People’s Assembly – last held 20 April through 10 May 2004 (next must be
held before May 2009).
Election results: People’s Assembly – percent of vote by party – N/A; seats by party
– INC 147, BJP 129, CPI(M) 43, SP 38, RJD 23, DMK 16, BSP 15, SS 12, BJD 11, CPI
10, NCP 10, JD(U) 8, SAD 8, PMK 6, JMM 5, LJSP 4, MDMK 4, TDP 4, TRS 4, independent 6, other 29, vacant 13; Note – party seat composition as of December 2006.
Judicial branch: Supreme Court (one chief justice and 25 associate justices are
appointed by the president and remain in office until they reach the age of 65 or are
removed for “proved misbehavior”).
International organization partipation: AfDB, ARF, AsDB, ASEAN (dialogue partner),
BIMSTEC, BIS, C, CERN (observer), CP, EAS, FAO, G- 6, G-15, G-24, G-77, IAEA,
IBRD, ICAO, ICC, ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM
(observer), IPU, ISO, ITU, ITUC, MIGA, MONUC, NAM, OAS (observer), ONUB, OPCW,
PCA, PIF (partner), SAARC, SACEP, SCO (observer), UN, UNCTAD, UNDOF, UNESCO,
UNHCR, UNIDO, UNIFIL, UNMEE, UNMIS, UNMOVIC, UNOCI, UNOMIG, UNWTO,
UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WTO.
50
India
Danish diplomatic representation in Denmark:
Diplomatic representation in India:
Embassy of India
Vangehusvej 15
2100 Copenhagen Ø
Denmark
Telephone: +45 3918 2888
Telefax: +45 3927 0218
Embassy of Denmark
11 Aurangzeb Road
New Delhi 110011
Telephone: +91 11 4209 0700
Telefax:: +91 11 2379 2019, +91 11 2379 2891
Office hours: Monday-Friday 09.00-13.00 and
13.30-17.30
Office hours: Monday-Thursday 09.00 am to
04.30 pm and Friday 09.00 am to 04.00 pm.
E- mail: [email protected]
E-mail: [email protected]
Website: www.indian-embassy.dk
Visa Section
Telephone for visa enquiry:
+91 11 42090751/52/53
Submission of Applications: Mon, Wed, Thur
10.00 am to 01.00 pm.
Telephone hours for visa enquiry and appointment: Mon, Wed, Thur 03.00 pm to 04.00 pm.
Collection of passports: Mon-Fri 10.00 am to
01.00 pm.
Economy
Economy – overview: India’s diverse economy encompasses traditional village farming,
modern agriculture, handicrafts, a wide range of modern industries, and a multitude of
services. Services are the major source of economic growth, accounting for more than
half of India’s output with less than one quarter of its labor force. About three-fifths of
the work force is in agriculture, leading the UPA government to articulate an economic
reform program that includes developing basic infrastructure to improve the lives of the
rural poor and boost economic performance. The government has reduced controls on
foreign trade and investment. Tariffs averaged 12.5% on non-agricultural items in 2006.
Higher limits on foreign direct investment were permitted in a few key sectors, such as
telecommunications. However, tariff spikes in sensitive categories, including agriculture,
and incremental progress on economic reforms still hinder foreign access to India’s vast
and growing market. Privatization of government-owned industries remained stalled
in 2006, and continues to generate political debate; populist pressure from within the
UPA government and from its Left Front allies continues to restrain needed initiatives.
The economy has posted an average growth rate of more than 7% in the decade since
1996, reducing poverty by about 10 percentage points. India achieved 8.5% GDP
growth in 2006, significantly expanding manufacturing. India is capitalizing on its large
numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Economic expansion has helped New
51
India
Delhi continue to make progress in reducing its federal fiscal deficit. However, strong
growth – more than 8 percent growth in each of the last three years – combined with
easy consumer credit and a real estate boom is fueling inflation concerns. The huge and
growing population is the fundamental social, economic, and environmental problem.
GDP (purchasing power parity): $4.042 trillion (2006 est.).
GDP – real growth rate: 8.5% (2006 est.).
GDP – per capita: $3,700 (2006 est.).
GDP – composition by sector:
Agriculture: 19.9%.
Industry: 19.3%.
Services: 60.7% (2005 est.).
Labor force: 509.3 million (2006 est.).
Unemployment rate: 7.8% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 3.5%.
Highest 10%: 33.5% (1997).
Distribution of family income – Gini index: 32.5 (2000).
Inflation rate (consumer prices): 5.3% (2006 est.).
Investment (gross fixed): 29.2% of GDP (2006 est.).
Budget:
Revenues: $109.4 billion.
Expenditures: $143.8 billion; including capital expenditures of $15 billion (2006 est.).
Exports: $112 billion f.o.b. (2006 est.).
Exports – commodities: Textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures.
Exports partners: US 16.7%, UAE 8.5%, China 6.6%, Singapore 5.3%, UK 4.9%,
Hong Kong 4.4% (2005).
Imports: $187.9 billion f.o.b. (2006 est.).
Imports – commodities: Crude oil, machinery, gems, fertilizer, chemicals.
Imports – partners: China 7.3%, US 5.6%, Switzerland 4.7% (2005).
Currency (code): Indian rupee (INR).
52
India
Exchange rates: Indian rupees per US dollar – 45.5 (2006), 44.101 (2005), 45.317
(2004), 46.583 (2003), 48.61 (2002).
Fiscal year: 1 April – 31 March.
Taxation
Taxes on corporate income: Income tax: The fiscal year for tax purposes must end
on March 31. The rate applicable to an Indian company for fiscal year 2005-2006 is
33.66% (including surcharge of 10% and education cess of 2%). Foreign companies are
taxed at the rates cited under “Withholding taxes”.
Minimum Alternative Tax (MAT): Companies are liable to pay tax on their adjusted book
profits where the tax liability of the year is less than 10% of the adjusted book profits.
In such cases, the tax liability is fixed at 10% (plus applicable surcharge and education
cess) of the adjusted book profits of the company.
Sick companies are not subject to MAT. Export profits of undertakings set up in freetrade zones, Special Economic Zones (SEZ), Export Processing Zones (EPZ), Software
Technology Parks (STP) and 100% Export Oriented Undertakings, are exempt from MAT
on income entitled to tax holiday.
Corporate residence: A company is resident if it is an Indian company or if during
the relevant year the control or management of its affairs is situated wholly in India. A
company that does not fulfill either of these conditions is a non-resident.
Foreign income: A resident company is taxed on its worldwide income. A non-resident
company is taxed only on income that is received in India or that accrues or is deemed
to accrue in India. This is subject to any favourable tax treaty provision. Double taxation
of foreign income is avoided through treaties that generally provide for deduction of the
lower of foreign tax or Indian tax on the double taxed income from tax payable in India
in the case of residents. Similar relief is allowed unilaterally where no treaties exist.
Branch income: Branches of foreign companies are taxed on their income that is
received in India or that accrues or arises in India at the rates applicable to foreign companies (see “Withholding taxes”). There is no withholding tax on remittance of profits to
the Head Office.
Tax administration: Accounts for tax purposes must be made up to March 31. The
return must be filed, in the case of companies, by the following October 31. Self-assessment is necessary.
Quarterly Withholding Tax Returns: Tax is payable in advance in specified installments in
the financial year (April to March) immediately preceding the fiscal year in respect of the
income of the accounting year ending March 31. Any balance of tax due on the basis of
the return must be paid on a self-assessment basis before filing the return.
53
India
FBT Payment: FBT is payable in advance at 30% (plus applicable surcharge & education cess) of the value of fringe benefits paid or payable for every quarter year within the
financial year beginning April 1 to following March 31.
Stock dividends: Stock dividends (bonus shares) may be distributed and are not taxed
at the time of receipt in the hands of the recipient shareholders.
Withholding taxes: Resident companies: For resident companies, interest is subject
to a 22.44% rate. Professional and technical service fees are subject to a 5.61% rate.
For other residents, specified types of interest are subject to a 10.2% rate (if interest
amount > Rs.1,000,000 the withholding tax rate is 11.22%), and non-specified types of
interest are subject to a 20.4% rate (if interest amount > Rs.1,000,000, the withholding
tax rate is 22.44%).
For non-resident companies, the rates are as follows:
Special rates
Withholding(1)
%
In the case of foreign financial institutions:
1. (a) Dividends (see note 1) and Long-term capital gains from specified
foreign currency units held by offshore funds and
2. (b) interest and long-term capital gains from bonds or shares issued
abroad by Indian companies in accordance with government guidelines
and acquired in foreign currency(2)
Dividends/interest(3)
• Short-term capital gains(4)
• Long-term capital gains
Nil/20
30
10
General rates:
• Dividends (portfolio/substantial holding)(3)
• Interest on foreign currency loans and debts
• Royalties and technical service fees(5)
• Long-term capital gains(6)
• Other income
Nil
20
20/10
20
40
•
Notes:
1. % to be increased by surcharge and Education Cess to compute affective rate.
2. Income from units of specified mutual funds is free from tax in the hands of the unit-holders.
3. Dividends received from Indian companies are tax free in the hands of the shareholder.
4. Short term capital gains shall be taxable @ 10% if they have been subjected to STT.
5. A reduced rate of 10% applies under government-approved agreements or agreements in
accordance with declared government policy made on or after June 1, 2005.
6. Long term capital gain on transfer of shares through stock exchange in listed companies or
units of an equity oriented fund, are exempt from tax if they have been subjected to STT.
Other non-residents: Any income is subject to a 30% rate (plus applicable surcharge
and education cess) or to tax at rates applicable to individuals, whichever is higher (or
54
India
lower treaty rates mentioned below); however, in the case of nonresident Indians the
rate is 20% on investment income and 10% on long-term capital gains arising upon the
sale of specified assets purchased in foreign currency.
Treaty rates: Some tax treaties provide for lower withholding rates from certain types of
income, as follows:
Recipient
Dividends(1)
%
Denmark
(i)
15% ; 25% in
other cases
Interest(2)
Royalties(3)
%
%
(k)
10% ; 15%
in other cases
20%
Fee for technical services(m)
20%
Notes:
i. If at least 25% of capital is owned by the beneficial owner (company) of the company-paying
dividend
k. If paid on a loan granted by a bank / financial institution.
Individual Taxation: There has been a significant amendment to the taxation of perquisites provided to employees consequent to the introduction of “Fringe benefits tax”
(FBT) with effect from April 1, 2005. Under this regime, an employer is liable to pay FBT
at 30% (plus applicable surcharge and education cess) on the value of fringe benefits
provided or deemed to have been provided by an employer to its employees. For
this purpose, the value of fringe benefits provided/ deemed to have been provided is
calculated based on specified rules. Where FBT is payable by an employer, no personal
tax on the fringe benefits is payable by the employee.
Territoriality and residence: Residents are taxed on their worldwide income. Non-residents are taxed only on income that is received in India or that accrues or is deemed to
accrue in India. (A person not ordinarily resident is taxed like a non-resident but is also
liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India).
A person is resident if present in India (a) for 182 days in a year or (b) for 60 days in a
year and 365 days during the preceding four years. Individuals fulfilling neither of these
conditions are non-residents. A resident who has been in India for a period of 729 days
or less during the preceding seven years or who has been a non resident in India in nine
out of ten preceding years would qualify as not ordinarily resident in India for that tax
year. In effect, a new comer to India remains not ordinarily resident for the first 2-3 years
of stay in India. (The rules are slightly more liberal for persons of Indian origin residing
abroad and visiting India or for Indian citizens leaving India for employment abroad.)
Gross income: An individual’s entire remuneration (including benefits in kind valued
as per the tax rules) received from an employer is taxable. Concessional treatment is
accorded to housing benefit, reimbursement of medical expenses and certain retirement benefits etc.
55
India
A foreign employee of a foreign enterprise who is not present in India for more than
90 days in a year is not taxed on remuneration received from the foreign employer for
services performed in India, provided the foreign enterprise is not engaged in any trade
or business in India and provided the remuneration is not deductible in computing the
employer’s taxable income in India. In a treaty situation, the 90 days’ period gets usually
replaced by 183-days.
Tax rates: Income tax is calculated at graduated rates.
Tax rates effective April 01, 2005 i.e. for FY 2005-06 are given below.
In case of an individual other than resident senior citizens, resident women:
Taxable income
Tax rate
Upto Rs.100,000
Nil
Above Rs.100,000 but not above Rs. 150,000
10% of excess of Rs.100,000
Above Rs.150,000 but not above Rs. 250,000
Rs.5,000 + 20% of excess of Rs.150,000
Above Rs.250,000
Rs.25,000 + 30% of excess of Rs. 250,000
In case of an individual being a woman resident in India:
Taxable income
Tax rate
Upto Rs.135,000
Nil
Above Rs.135,000 but not above Rs. 150,000
10% of excess of Rs.100,000
Above Rs.150,000 but not above Rs. 250,000
Rs.1,500 + 20% of excess of Rs. 150,000
Above Rs.250,000
Rs.21,500 + 30% of excess of Rs. 250,000
In case of resident senior citizens:
Taxable income
Tax rate
Upto Rs. 185,000
Nil
Above Rs. 185,000 but not above Rs. 250,000
20% of excess of Rs.1 85,000
Above Rs.250,000
Rs.13,000 + 30% of excess of Rs. 250,000
56
India
Surcharge of 10% on tax is levied if the income exceeds Rs. 1,000,000. Further, education
cess at 2% the tax including surcharge will be levied (irrespective of the level of income).
For more information
www.pwc.com/in
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
57
Latvia
Latvia
Background
After a brief period of independence between the two World Wars, Latvia was annexed
by the USSR in 1940 – an action never recognized by the US and many other countries.
It reestablished its independence in 1991 following the breakup of the Soviet Union.
Although the last Russian troops left in 1994, the status of the Russian minority (some
30% of the population) remains of concern to Moscow. Latvia joined both NATO and the
EU in the spring of 2004.
Climate: Maritime; wet, moderate winters.
Terrain: Low plain.
Natural resources: Peat, limestone, dolomite, amber, hydropower, wood, arable land.
Environment – current issues: Latvia’s environment has benefited from a shift to
service industries after the country regained independence; the main environmental
priorities are improvement of drinking water quality and sewage system, household,
and hazardous waste management, as well as reduction of air pollution; in 2001, Latvia
closed the EU accession negotiation chapter on environment committing to full enforcement of EU environmental directives by 2010.
59
Latvia
Environment – international agreements: Party to: Air Pollution, Air PollutionPersistent Organic Pollutants, Biodiversity, Climate Change, Climate Change-Kyoto
Protocol, Endangered Species, Hazardous Wastes, Law of the Sea, Ozone Layer
Protection, Ship Pollution, Wetlands.
Signed, but not ratified: none of the selected agreements.
People
Population: 2,274,735 (July 2006 est.).
Median age:
Total: 39.4 years.
Male: 36.3 years.
Female: 42.4 years (2006 est.).
Population growth rate: -0.67% (2006 est.).
Net migration rate: -2.26 migrant(s)/1,000 population (2006 est.).
Ethnic groups: Noun: Latvian(s). Adjective: Latvian.
Religions: Lutheran, Roman Catholic, Russian Orthodox.
Languages: Latvian (official) 58.2%, Russian 37.5%, Lithuanian and other 4.3% (2000
census).
Literacy: Definition: Age 15 and over can read and write.
Total population: 99.8%.
Male: 99.8%.
Female: 99.8% (2003 est.).
Government
Government type: Parliamentary democracy.
Capital: Riga.
Administrative divisions: 26 counties (singular – rajons) and 7 municipalities:
Aizkraukles Rajons, Aluksnes Rajons, Balvu Rajons, Bauskas Rajons, Cesu Rajons,
Daugavpils, Daugavpils Rajons, Dobeles Rajons, Gulbenes Rajons, Jekabpils Rajons,
Jelgava, Jelgavas Rajons, Jurmala, Kraslavas Rajons, Kuldigas Rajons, Liepaja, Liepajas
Rajons, Limbazu Rajons, Ludzas Rajons, Madonas Rajons, Ogres Rajons, Preilu Rajons,
Rezekne, Rezeknes Rajons, Riga, Rigas Rajons, Saldus Rajons, Talsu Rajons, Tukuma
Rajons, Valkas Rajons, Valmieras Rajons, Ventspils, Ventspils Rajons.
60
Latvia
Independence: 18 November 1918 (from Soviet Russia).
Constitution: 15 February 1922; restored to force by the Constitutional Law of the
Republic of Latvia adopted by the Supreme Council on 21 August 1991; multiple
amendments since.
Legal system: Based on civil law system.
Suffrage: 18 years of age; universal for Latvian citizens.
Executive branch: Chief of state: President Vaira Vike-Freiberga (since 8 July 1999).
Head of government: Prime Minister Aigars Kalvitis (since 2 December 2004).
Cabinet: Council of Ministers nominated by the prime minister and appointed by the
Parliament.
Elections: president reelected by Parliament for a four-year term (no term limits); election last held 20 June 2003 (next to be held by July 2007); prime minister appointed by
the president.
Election results: Vaira Vike-Freiberga reelected president; parliamentary vote – Vaira
Vike-Freiberga 88 of 94 votes cast.
Legislative branch: Unicameral Parliament or Saeima (100 seats; members are elected
by proportional representation from party lists across five districts through direct, popular vote to serve four-year terms).
Elections: last held 7 October 2006 (next to be held October 2010).
Election results: percent of vote by party – TP 19.5%, ZZS 16.7%, JL 16.4%, SC
14.4%; LPP/LC 8.6%; TB/LNNK 7%; PCTVL 6%; seats by party – TP 23, ZZS 18, JL
18, SC 17, LPP/LC 10, TB/LNNK 8, PCTVL 6.
Judicial branch: Supreme Court (judges’ appointments are confirmed by Parliament);
Constitutional Court (judges’ appointments are confirmed by Parliament).
International organization partipation: Australia Group, BA, BIS, CBSS, CE, EAPC,
EBRD, EIB, EU, FAO, IAEA, IBRD, ICAO, ICCt, ICRM, IDA, IFC, IFRCS, IHO, ILO, IMF,
IMO, Interpol, IOC, IOM, IPU, ISO (correspondent), ITU, ITUC, MIGA, NATO, NIB, NSG,
OAS (observer), OPCW, OSCE, PCA, UN, UNCTAD, UNESCO, UNWTO, UPU, WCO,
WEU (associate partner), WHO, WIPO, WMO, WTO.
61
Latvia
Diplomatic representation in Denmark:
Danish representation in Latvia:
Embassy of Latvia
Rosbæksvej 17
2100 Copenhagen Ø
Denmark
Telephone: +45 3927 6000
Telefax: +45 3927 6173
Embassy of Denmark
Pils iela 11
LV-1863 Riga
Letland
Telephone: +371 722 6210
Telefax: +371 722 9218, +371 782 0234
Office hours: Monday-Friday 08.30-17.00,
Consulate dep.: Monday-Thursday 10.0012.00
E-mail: [email protected]
E-mail: [email protected]
Economy
Economy – overview: Latvia’s economy experienced average GDP growth of more
than 7.0% over the past several year. In 2005 it reached 10.2% real GDP growth. The
majority of companies, banks, and real estate have been privatized, although the state
still holds sizable stakes in a few large enterprises. Latvia officially joined the World
Trade Organization in February 1999. EU membership, a top foreign policy goal, came in
May 2004. The current account deficit – 24.2% as of the end of the third quarter of 2006
– and inflation remain major concerns.
GDP (purchasing power parity): $35.08 billion (2006 est.).
GDP – real growth rate: 10.2% (2006 est.).
GDP – per capita: $15,400 (2006 est.).
GDP – composition by sector:
Agriculture: 3.7%.
Industry: 26.3%.
Services: 70% (2006 est.).
Labor force: 1.136 million (2006 est.).
Unemployment rate: 6.5% (December 2006 est.).
Household income or consumption by percentage share: Lowest 10%: 2.8%.
Highest 10%: 26.1% (1998).
Distribution of family income – Gini index: 35 (2003).
Inflation rate (consumer prices): 6.8% (December 2006 est.).
62
Latvia
Investment (gross fixed): 31.4% of GDP (2006 est.).
Budget:
Revenues: $6.172 billion.
Expenditures: $6.45 billion; including capital expenditures of $NA (2006 est.).
Exports: $6.98 billion f.o.b. (2006 est.).
Exports – commodities: Wood and wood products, machinery and equipment, metals,
textiles, foodstuffs.
Exports partners: Lithuania 11%, Estonia 10.8%, Germany 10.2%, UK 10.2%, Russia
7.9%, Sweden 7.8%, Denmark 5.3%, Poland 5.3% (2005).
Imports: $10.33 billion f.o.b. (2006 est.).
Imports – commodities: Machinery and equipment, chemicals, fuels, vehicles.
Imports – partners: Germany 13.9%, Lithuania 13.6%, Russia 8.6%, Estonia 7.9%,
Poland 6.4%, Finland 5.9%, Belarus 5.8%, Sweden 5.1% (2005).
Currency (code): Latvian lat (LVL).
Exchange rates: Lati per US dollar – 0.5597 (2006), – 0.5647 (2005), 0.5402 (2004),
0.5715 (2003), 0.6182 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: The rate of corporate income tax is 15%. There are no
local taxes on corporate income.
Corporate residence: A company is resident in Latvia if it is incorporated there.
Foreign income: Resident companies are taxed on their worldwide income. Tax paid
abroad on income included in the taxable base is allowed as a credit against the corporate income tax charged for the year. However, the credit may not exceed the Latvian
tax attributable to the income taxed abroad.
Branch income: As a general rule, branches are taxed similar to companies, with certain adjustments made for payments to head office. corporate income tax also applies
to branches.
Tax administration: Returns: The fiscal year is normally based on the calendar year,
although companies may opt for different dates for commencing and ending their fiscal
63
Latvia
year, which may not exceed 12 months, except for the first year of trading, which may
last up to 18 months. Tax returns are filed annually, together with the annual accounts.
CIT is usually paid in monthly instalments by the 15th day of each month and a final adjustment is made when the annual tax return is filed. Monthly CIT instalments are based
on the tax liability in the previous fiscal year and adjusted by the consumer price index.
A company may choose quarterly instalments if its monthly advances in the previous
period were less than LVL 500. For a new company the advance payments are voluntary
during the first 12 months of operation.
Withholding taxes:
Dividends(1)
Interest(2)
Royalties(3)
Rentals*
%
%
%
%
%
%
Related Latvian
companies using
certain CIT reliefs
–
5 / 10
5 / 15
5
10
2
Resident
individuals
–
25(7)
25
– / 25(11)
25
– / 25(6)
Non-resident
companies
10(13)
– / 5 / 10
5 / 10
5
10
2
Companies in
tax havens(10)
10
5 / 15
15
15
15
15
Non-resident
individuals
10
5 / 25(7;10)
10 / 25(5)
25(11)
25
–
10/5
-/5/10
5/10
5
–
2
Recipient
Manage- Disposal of
ment fees(4) real estate
Recident
corporations
Treaty:
Denmark
*of industrial, commercial or scientific epuipment and real estate.
Notes:
1. 5% applies if the beneficial owner is a company that holds directly at least 20% of share
capital. Under most of the double tax treaties the 25% requirement is fulfilled if the
shareholder has 25% of share capital. The treaties with Estonia and Lithuania prescribe a
25% holding of share capital and voting power. Although some treaties prescribe 15% on
dividends, Latvian legislation applies a maximum rate of 10%, which is the highest rate applicable to dividends paid to all countries.
2. 10% applies if the recipient is a related party. 5% applies if payment is made by a Latvianregistered commercial bank to a related party.
3. 15% or 10% applies to royalties for literary or artistic works, including movies, videos and
recordings.
64
Latvia
(continued)
4. Treated as part of business profits. 0% if a permanent establishment is not created.
5. 25% applies to royalties for scientific, literary or artistic work, patents and industrial
designs. 10% applies to royalties for copyright in literary or works of art, including cinema
films, video films or sound recordings.
6. 25% applies to real estate held less than 12 months.
7.
10.
11.
13.
0% applies when banks pay interest on deposits to individuals.
15% applies to all payments to companies located in tax havens with the following exceptions:
The rate of 25% applies to individuals not registered as self-employed.
10% need not be withheld if a dividend is paid to an EU company resident in another Member State holding, for at least two years without interruption, at least 20% of share capital
and voting power in the company paying the dividend. The 20% requirement applies from 1
January 2005 to 31 december 2006.
Individual Taxation: Significant developments: The most essential changes include
the government consensus to reduce the personal income tax rate gradually from 25%
currently to 15% in 2009.
Amendments to the National Social Insurance Act (in line with the EEC Regulation) state
that from 1 January 2006 another Member State’s employer will be able to agree with
a person governed by Latvian legislation about what status this person will have for his
NSI contributions. Under section 6(17) of the Act, another Member State’s employer
is required to notify the State Revenue Service of the NSI contribution status: ‘local
employee with foreign employer’ or ‘employee’. If an employee agrees to register as ‘local employee with foreign employer’, he will be personally responsible for filing quarterly
reports and paying NSI contributions at 33.09% of his pay.
As regards the calculation of wages and salaries, as well as other statutory compensation, it is useful to remember that employment income subject to NSI contributions
has been capped at LVL 20,700, with a monthly personal allowance of LVL 32, a
monthly allowance of LVL 22 for each registered dependant and the minimum gross
monthly pay of LVL 90.
Territoriality and residence: Latvian residents are liable to Latvian income tax on their
worldwide income.
Non-residents are liable to income tax on their Latvian-source income. Persons satisfying one of the following conditions are considered resident in Latvia:
1. Individuals having their permanent place of residence in Latvia;
2. Individuals present in Latvia for 183 days or more during any 12-month period; or
3. Latvian citizens employed abroad by the Republic of Latvia.
Gross income: Employee gross income: Gross income includes salary, bonuses, gifts
from employer, benefits-in-kind, etc. Benefits include accommodation allowances,
private use of company car, relocation allowance, etc. Reimbursed relocation costs
65
Latvia
associated with secondments to Latvia and contributions to approved pension schemes
are not taxable.
Capital gains and investment income: For Latvian residents, dividends received from
Latvian companies (out of taxed income) and from companies resident in another EU
member state, except when income tax relief is applied in the year that the dividend is
declared or the preceding year, are tax exempt, as is interest received from Latvian and
EU registered banks and credit institutions. Other dividend and interest income received
is fully taxable, and foreign tax paid may be credited against the Latvian tax liability.
Generally, there is no tax on income from the sale of personal property, with the exception of real estate held for less than 12 months before its sale. if an individual buys and
sells enough personal property to be regarded as carrying on a trade or business, any
gains will be taxed. Shares are considered personal property.
Tax rates: Personal income tax is levied at a flat rate of 25%.
For more information
www.pwc.com/lv
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
66
Lithuania
Lithuania
Background
Independent between the two World Wars, Lithuania was annexed by the USSR in 1940
– an action never recognized by the US. On 11 March 1990, Lithuania became the first
of the Soviet republics to declare its independence, but Moscow did not recognize this
proclamation until September of 1991 (following the abortive coup in Moscow). The last
Russian troops withdrew in 1993. Lithuania subsequently restructured its economy for
integration into Western European institutions; it joined both NATO and the EU in the
spring of 2004.
Climate: Transitional, between maritime and continental; wet, moderate winters and
summers.
Terrain: Lowland, many scattered small lakes, fertile soil.
Natural resources: Peat, arable land, amber.
Environment – current issues: Contamination of soil and groundwater with petroleum
products and chemicals at military bases.
67
Lithuania
Environment – international agreements: Party to: Air Pollution, Air Pollution-Nitrogen
Oxides, Air Pollution-Persistent Organic Pollutants, Biodiversity, Climate Change,
Climate Change-Kyoto Protocol, Endangered Species, Hazardous Wastes, Law of the
Sea, Ozone Layer Protection, Ship Pollution, Wetlands.
Signed, but not ratified: none of the selected agreements.
People
Population: 3,585,906 (July 2006 est.).
Median age:
Total: 38.2 years.
Male: 35.7 years.
Female: 40.8 years (2006 est.).
Population growth rate: -0.3% (2006 est.).
Net migration rate: -0.71 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Lithuanian(s). Adjective: Lithuanian.
Ethnic groups: Lithuanian 83.4%, Polish 6.7%, Russian 6.3%, other or unspecified
3.6% (2001 census).
Religions: Roman Catholic 79%, Russian Orthodox 4.1%, Protestant (including
Lutheran and Evangelical Christian Baptist) 1.9%, other or unspecified 5.5%, none
9.5% (2001 census).
Languages: Lithuanian (official) 82%, Russian 8%, Polish 5.6%, other and unspecified
4.4% (2001 census).
Literacy: Definition: Age 15 and over can read and write.
Total population: 99.6%.
Male: 99.7%.
Female: 99.6% (2003 est.).
Government
Government type: Parliamentary democracy.
Capital: Vilnius.
Administrative divisions: 10 counties (apskritys, singular – apskritis); Alytaus, Kauno,
Klaipedos, Marijampoles, Panevezio, Siauliu, Taurages, Telsiu, Utenos, Vilniaus.
68
Lithuania
Independence: 11 March 1990 (independence declared from Soviet Union); 6 September
1991 (Soviet Union recognizes Lithuanian independence).
Constitution: Adopted 25 October 1992.
Legal system: Based on civil law system; legislative acts can be appealed to the
constitutional court.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President Valdas Adamkus (since 12 July 2004).
Head of government: Prime Minister Gediminas Kirkilas (since 4 July 2006).
Cabinet: Council of Ministers appointed by the president on the nomination of the prime
minister.
Elections: president elected by popular vote for a five-year term (eligible for a second
term); election last held 13 and 27 June 2004 (next to be held June 2009); prime minister appointed by the president on the approval of the Parliament.
Election results: Valdas Adamkus elected president; percent of vote – Valdas Adamkus
52.2%, Kazimiera Prunskiene 47.8%; Gediminas Kirkilas approved by Parliament 85-13,
with five abstentions.
Legislative branch: Unicameral Parliament or Seimas (141 seats, 71 members are
directly elected by popular vote, 70 are elected by proportional representation; members serve four-year terms).
Elections: last held 10 and 24 October 2004 (next to be held October 2008).
Election results: percent of vote by party – Labor 28.6%, Working for Lithuania (Social
Democrats and Social Liberals) 20.7%, TS 14.6%, For Order and Justice (Liberal
Democrats and Lithuanian People’s Union) 11.4%, Liberal and Center Union 9.1%,
Farmers and New Democracy Union 6.6%, other 9%; seats by faction – Labor 29,
Homeland Union 26, Social Democrats 23, Civil Democracy (split from Labor) 11,
Liberal Movement (formerly Liberal Political Group) 11, National Farmer’s Union (formerly Farmers and New Democracy Union) 11, Social Liberal 10, Liberal Democrats 9,
Liberal and Center Union 8, independents 3 (as of late-July 2006).
Judicial branch: Constitutional Court; Supreme Court; Court of Appeal; judges for all
courts appointed by the President.
International organization partipation: ACCT (observer), Australia Group, BA, BIS,
CBSS, CE, EAPC, EBRD, EIB, EU, FAO, IAEA, IBRD, ICAO, ICC, ICCt, ICRM, IFC,
IFRCS, ILO, IMF, IMO, Interpol, IOC, IOM, IPU, ISO (correspondent), ITU, ITUC, MIGA,
NATO, NIB, NSG, OIF (observer), OPCW, OSCE, PCA, UN, UNCTAD, UNESCO, UNIDO,
UNWTO, UPU, WCL, WCO, WEU (associate partner), WHO, WIPO, WMO, WTO.
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Lithuania
Diplomatic representation in Denmark:
Danish reprensentation in Lithuania:
Embassy of Lithuania
Bernstorffsvej 214
2920 Charlottenlund
Denmark
Telephone: +45 3963 6207
Telefax: +45 3963 6532
Embassy of Denmark
Pils iela 11
LV-1863 Riga
Letland
Telephone: +371 722 6210
Telefax: +371 722 9218, +371 782 0234
Office hours: Monday-Friday 09.00-13.00 and
14.00-16.00
Consulate dep.: 10.00-12.00
E-mail: [email protected]
E-mail: [email protected]
Website: www.lit-embassy.dk
Economy
Economy – overview: Lithuania, the Baltic state that has conducted the most trade
with Russia, has grown rapidly since rebounding from the 1998 Russian financial
crisis. Unemployment fell to 3.7% in 2006, while wages grew 17.6%, contributing
to rising inflation. Exports and imports continue to grow strongly, and the current
account deficit rose to more than 10% of GDP in 2006. Trade has been increasingly
oriented toward the West. Lithuania has gained membership in the World Trade
Organization and joined the EU in May 2004. Privatization of the large, state-owned
utilities is nearly complete. Foreign government and business support have helped in
the transition from the old command economy to a market economy, but foreign direct
investment declined in 2006.
GDP (purchasing power parity): $54.03 billion (2006 est.).
GDP – real growth rate: 7.4% (2006 est.).
GDP – per capita: $15,100 (2006 est.).
GDP – composition by sector:
Agriculture: 5.5%.
Industry: 33.3%.
Services: 61.2% (2006 est.).
Labor force: 1.617 million (2006 est.).
Unemployment rate: 3.7%.
Note: Based on survey data, official registered unemployment of 5.7% (2006 est.).
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Lithuania
Household income or consumption by percentage share: Lowest 10%: 3.2%.
Highest 10%: 24.9% (2000).
Distribution of family income – Gini index: 32.5 (2003).
Inflation rate (consumer prices): 3.8% (2006 est.).
Investment (gross fixed): 23% of GDP (2006 est.).
Budget:
Revenues: $9.415 billion.
Expenditures: $9.761 billion; including capital expenditures of $N/A (2006 est.).
Exports: $14.64 billion f.o.b. (2006 est.).
Exports – commodities: Mineral products 23%, textiles and clothing 16%, machinery
and equipment 11%, chemicals 6%, wood and wood products 5%, foodstuffs 5% (2001).
Exports partners: Russia 10.4%, Latvia 10.2%, Germany 9.4%, France 7.1%, Estonia
5.9%, Poland 5.5%, Sweden 5%, US 4.7%, UK 4.7%, Denmark 4.3% (2005).
Imports: $18.25 billion f.o.b. (2006 est.).
Imports – commodities: Mineral products, machinery and equipment, transport equipment, chemicals, textiles and clothing, metals.
Imports – partners: Russia 27.9%, Germany 15.1%, Poland 8.3% (2005).
Currency (code): Litas (LTL).
Exchange rates: Litai per US dollar – 2.7498 (2006), 2.774 (2005), 2.7806 (2004),
3.0609 (2003), 3.677 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: The standard corporate income tax (hereinafter – “CIT”)
tax rate is 15%. However, in 2007 taxable profits will be also subject to social tax at the
rate 3% (4% was in 2006).
Exemptions: The following types of income are exempt from CIT:
1. Insurance indemnity not in excess of the value of lost property or other losses or
damages; the refunded part of insurance premiums in excess of the premiums
deducted from income in accordance with the procedure established; a part of in-
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Lithuania
surance indemnity in excess of the premiums deducted from income in accordance
with the procedure established.
2. Proceeds of a bankrupt company received from sale of its property.
3. Balance of the formation fund of an insurance company as prescribed by the Law on
Insurance.
4. Investment income of investment companies with variable capital acting in accordance with the Law on Collective Investment, except for dividends and other
distributable profits, as well as life insurance payments received by insurance
companies provided the term of the life insurance policy is valid for not less than
10 years or at the date of the receipt of the insurance benefit the recipient has
reached the pension age in accordance with the Additional Law on Pensions, as
well as insurance investment income of insurance companies except for dividends
and other distributable profit.
5. Pension contributions made to personal accounts of the participants in pension
programs held by Pension Funds which operate under the Law on Pension Funds
and investment income received by such Funds, life insurance premiums received
by investment companies with variable capital and private (closed) investment funds
operating under the Law on Investment Funds, income from investment and pension
insurance premiums received by insurance companies when the duration of the
insurance policy is at least 10 years as well as insurance investment income gained
by insurance companies.
6. Income derived by health care institutions for their services that are financed from
the funds of the Compulsory Health Insurance Fund.
7. Income derived from revaluation of fixed assets and securities as established by
laws and regulations.
8. Default interest except for that received from foreign companies registered or otherwise organized in tax-haven territories or residents of such territories.
9. All or a part of the profit gained from legal entities of unlimited civil liability who are
payers of the profits tax and whose income is subject to the profits tax under the
Law or to a similar tax under respective statutes of foreign countries with certain
exceptions.
10. Fees collected by seaports and airports, charges for air traffic navigation services
and funds collected from the lease of seaport-owned land.
11. Results arising from adjustments made for the previous tax periods as prescribed by
the Law on Accounting.
12. Indemnification for damages received by the company with certain exceptions.
13. Compensations received according to the Lithuanian programs of the EU financial
support relating to taking fishing ships for scrap.
14. Capital gains derived from the transfer of shares in a company incorporated in
European Economic Area or in a country with which Lithuania has a valid Double
Taxation Treaty provided that: (1) the Lithuanian holding company holds more than
25% of coting shares for a continuous period of at leas 2 years; and (2) the company
whose shares are being sold is a payer of CIT or an equivalent tax.
Local taxes: There are no local or municipal CIT.
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Lithuania
Corporate residence: A company is resident in Lithuania if it is incorporated there.
A foreign company is deemed to have a permanent establishment (PE) in Lithuania in
cases where:
1. It permanently carries out commercial activities in Lithuania in whole or in part.
2. It carries out its permanent activities through a dependent representative (agent).
3. It uses a building site or construction, assembly or equipment objects; or
4. It permanently uses equipment, including drilling installations and ships, for exploration or extraction of natural resources.
A PE must register as a taxpayer with the Tax Authorities in the territory where its activities are carried out. Its profits are subject to the corporate income tax at the rate of 15%
as well as temporary social tax at the rate of 3% in 2007 (4% was in 2006).
According to domestic law, where there is a Double Taxation Treaty, the provisions of
the treaty shall govern.
Foreign income: If a Lithuanian legal person derives profit subject to taxation abroad
the tax paid abroad may be deducted from the calculated corporate profit tax according
to the domestic legislation. In accordance with the regulations, the amount deducted
from corporate profit tax may not exceed that part of the tax calculated in Lithuania that
is attributed to the profit received in the foreign state. In case there is a valid Double
Taxation Treaty with the country in question, the provisions of the Treaty regarding
avoidance of double taxation shall apply.
Branch income: A branch of a foreign company is defined as a structural subunit of a
foreign company, which has an establishment in Lithuania and which is entitled to engage in commercial activities in Lithuania, conclude contracts and undertake obligations
according to the power of attorney issued to the branch by its founder. A branch does
not have the status of a legal person. It is taxed in the same manner as a PE.
Tax administration: Returns: Corporate income tax return must be submitted by the
first day of the tenth month of the following tax period (October 1 for companies using
the calendar year).
If corporate profit tax is calculated on the basis of activity results for the previous year,
the advance corporate income tax return for the first nine months of the tax period is to
be submitted by the last day of the first month (usually January) of the tax period. The
return for the remaining months of the tax period is to be submitted by the last day of
the tenth month (usually October) of the tax period. If the taxpayer has chosen to pay
the advance amount on the basis of the projected amount of corporate profit tax for the
current year, the return must be submitted not later than the last day of the first month
of the tax period.
Withholding tax on payments other than dividends: A tax-withholding entity must submit
to the tax authorities a special form of a return reporting the amounts paid and taxes
withheld during the calendar month no later than 15 days after the end of the month in
which the amounts were paid.
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Lithuania
Withholding tax on dividends: A tax-withholding entity must submit to the tax authorities a special form of a return reporting the dividends paid and tax withheld within 10
calendar days after the end of the month of the dividend payment.
Payment of tax: Corporate income tax: Based on the activity results for the previous
year, the advance amount of corporate income tax for the first nine months of the tax
period is calculated on the basis the actual corporate income tax amount for the tax
period preceding the previous tax period. For example, the corporate income tax for the
first nine months of 2005 would be calculated on the basis of the appropriate portion
of the actual amount of corporate income tax for 2003. The advance amount for the
remainder of the tax period is based on of the actual amount of corporate income tax
for the previous period, e.g., tax for the last three months of 2005 would be based on
the appropriate portion of the actual amount of corporate income tax for 2004. Thus,
the advance corporate income tax amount for each quarter would be equal to 1/4 of the
actual tax amount calculated for the tax periods discussed.
The taxpayer may choose to pay the advance amount based on the projected amount
of corporate income tax calculated for the current year. The advance tax (1⁄4 of the
advance corporate profit tax) must be paid no later than the last day of the respective
quarter, and for the last quarter by the 25th day of the last month of the quarter.
If the amount of tax indicated in the return exceeds the amount actually paid during the
tax period, the taxpayer is obliged to transfer the additional amount by the working day
following the day of the deadline for submission of the return. Overpaid tax is refunded
in accordance with the Law on Tax Administration.
Withholding tax on payments other than dividends: Withholding tax is to be calculated,
withheld and remitted by a Lithuanian company or a permanent establishment of a
foreign corporation no later than the return submission deadline.
Withholding tax on dividends: Withholding tax is to be calculated, withheld and remitted
by a Lithuanian company that pays dividends within ten calendar days after the end of
the month of the payment.
Withholding taxes: Domestic legislation: The following income of a foreign entity in
Lithuania received other than through a permanent establishment, is deemed to be
Lithuanian-source income:
1. Interest, except for: interest on Government securities issued on international financial markets, interest accumulated and paid on deposits and interest on subordinated loans which meet the criteria established by legal acts adopted by the Bank of
Lithuania;
2. Income from distributed profit;
3. Royalties, including fees received for neighbouring rights;
4. Income received for the transfer or assignment under the licensing contract of a right
to use an object of industrial property, a franchise;
5. Income received in consideration for the information provided about industrial, commercial or scientific know-how;
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Lithuania
6. Income from sale, transfer (with a title) or lease of immovable property located in
Lithuania;
7. Indemnities received for the infringement upon copyrights or neighbouring rights.
Withholding tax is levied on the above income at a rate of 10%, except for dividends,
which are taxed at a rate of 15%.
Offshore companies: Target territory (Offshore) means a foreign country or territory
which is included into the list of offshore territories established by the Minister of
Finance and satisfying at least two of the following criteria:
1. Similar tax rate in such territory is below 75% of that set in the Lithuanian Law on
Profits Tax;
2. In such territory different rules of levying a similar tax are applied, depending on
the country where the parent company (controlling entity) is registered or otherwise
organized;
3. In such territory different rules of levying a similar tax are applied, depending on the
country where the business is carried out;
4. The company (i.e. the controlled taxable entity) has entered into agreement with
the tax administrator of that territory with regard to the application of a tax rate or
tax base;
5. There is no effective exchange of information in such territory;
6. There is no financial and administrative transparency in such territory, the tax administration rules are not quite clear and the application thereof is not communicated to
tax administrators of other countries.
A list of 58 offshore territories has been published. With certain exceptions specified in
the law, all payments to offshore companies or their branches for any kind of work or
services, commodities, interest on funding, insurance premiums, guarantees, etc., are
non-deductible for profits tax purposes unless the Lithuanian entity provides evidence
to the State Tax Authorities that:
1. The payments are related to usual activities of the paying and the receiving business
entities;
2. The receiving foreign business entity manages the property necessary to carry out
such usual activities;
3. There is a connection between the payment and the economically grounded business operation.
Tax treaties: Where a treaty for the avoidance of double taxation and prevention of fiscal
infringement with the country in question contradicts the local regulations, the treaty
provisions prevail. Lithuania has now signed 44 Double Taxation Treaties (41 of them are
valid and 3 – to be ratified) with foreign countries.
Reduction of or exemption from withholding taxes under a double taxation avoidance
treaty may be obtained if a special residence certificate (request for a reduction or
exemption from the Lithuanian withholding tax withheld at source (Form DAS–1)) is
completed and approved by the tax authorities before a taxable payment is transferred.
If a payment that would have been subject to a tax treaty has already been made and
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Lithuania
withholding tax at the local rate was withheld, it is possible to obtain an appropriate refund (reduction) by completing a special claim for a refund of the Lithuanian tax withheld
at source (Form DAS–2) and getting the approval of the tax authorities.
In addition, the tax authorities may require completion of a special certificate giving
information about income received and taxes paid in Lithuania (Form DAS–3).
Dividends, interest, royalties: Foreign corporations are subject to withholding tax on
loan interest generated from Lithuanian companies and PEs of foreign corporations
at a rate of 10%. Withholding tax is not applied on Government securities issued on
international financial markets, interest accumulated and paid on deposits, and interest
on subordinated loans which meet the criteria established by legal acts adopted by the
Bank of Lithuania.
Dividends paid out are subject to withholding tax at the rate of 15%, unless the participation exemption applies. However, this relief is not applied if the foreign entity (recipient) is
registered or otherwise organised offshore, as specified by the Ministry of Finance.
Lithuania’s Double Taxation Treaties include provisions for withholding taxes on dividends, interest and royalties.
Individual Taxation: Significant developments: The tax reform in 2006 has resultes in
reduction of personal income tax rates from 33% to 27% starting from 1 July 2006 (the
rate will be reducet to 24% as of 1 January 2008).
From 1 January 2006 a new tax on real estate used by individuals for commercial
purposes apply. The real estate tax rate will range from 0,3% up to 1% starting from 1
January 2007 (1% was in 2006). Legal entities leasing real estate from individuals will be
obliged to withhold this tax.
Territoriality and residence: The following income received by a non-resident of Lithuania
is subject to Lithuanian personal income tax:
1. Income derived from individual activities carried out through a fixed base, as well
as income earned abroad that is attributed to that fixed base in Lithuania, where
the said income is related to the activities of a non-resident of Lithuania through the
fixed base in Lithuania.
2. Income from interest.
3. Income from distributed profit.
4. Income from the lease of immovable property located in Lithuania.
5. Royalties.
6. Employment related income or income arising from substantially similar relations.
7. Income from sporting activities, including income directly or indirectly related to
those activities irrespective of whether the payment is made directly to the sportsman concerned or a third party acting on behalf of and for that sportsman.
8. Income from performing activities, including income directly or indirectly related to
those activities irrespective of whether the payment is made directly to the performing artist concerned or a third party acting on behalf of and for that performing artist.
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Lithuania
9. Income from the sale or other transfer with a title of movable property if that object is
subject to legal registration in accordance with the local regulations and such object
is (or must be) registered in Lithuania, as well as income from the sale of immovable
property located in Lithuania.
The following individuals are considered residents of Lithuania:
1. Individual whose permanent place of residence during the tax period is in Lithuania, or
2. Individual whose personal, social or economic interests during the tax period may
be considered to be in Lithuania rather than in a foreign country, or
3. Individual who stays in Lithuania, continuously or intermittently, for 183 or more days
during the tax period, or
4. Individual who stays in Lithuania, continuously or intermittently, for 280 or more days
during a number of successive tax periods and who during one of such periods
stayed in Lithuania, continuously or intermittently, for 90 or more days, or
5. Individual who is a Lithuanian citizen and does not satisfy the criteria set out in
subparagraphs (3) and (4) of this paragraph where, however, such individual receives
his/her remuneration for work under an employment contract or any other substantially similar contract and has the costs of living in another country covered from the
state or municipal budgets of Lithuania.
Gross income: Employee gross income: Taxable monthly earnings in cash and kind
received from the principal workplace include wages, various additional payments such
as sickness and maternity benefits paid from social insurance, bonuses, incentive payments, taxable allowances and other similar payments, compensation upon discharge
from work, such as compensation for remaining vacation, gratuities and compensation
for unlawful dismissal from work.
Capital gains and investment income: Taxable income derived from the sale of property
is calculated as the difference between the purchase price and the acquisition price.
Tax rates: Currently, all income received by a Lithuanian resident is subject to personal
income tax at the rate of 27% (in general, employment-related income) or 15% (other
income). The basic monthly tax exempt amount (TEA) is LTL 290.
For more information
www.pwc.com/lt
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
77
Malaysia
Malaysia
Background
During the late 18th and 19th centuries, Great Britain established colonies and protectorates in the area of current Malaysia; these were occupied by Japan from 1942 to 1945. In
1948, the British-ruled territories on the Malay Peninsula formed the Federation of Malaya,
which became independent in 1957. Malaysia was formed in 1963 when the former
British colonies of Singapore and the East Malaysian states of Sabah and Sarawak on the
northern coast of Borneo joined the Federation. The first several years of the country’s
history were marred by Indonesian efforts to control Malaysia, Philippine claims to Sabah,
and Singapore’s secession from the Federation in 1965. During the 22-year term of Prime
Minister Mahathir bin Mohamad (1981-2003), Malaysia was successful in diversifying its
economy from dependence on exports of raw materials, to expansion in manufacturing,
services, and tourism.
Climate: Tropical; annual southwest (April to October) and northeast (October to February)
monsoons.
Terrain: Cooastal plains rising to hills and mountains.
Natural resources: Tin, petroleum, timber, copper, iron ore, natural gas, bauxite.
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Malaysia
Environment – current issues: Air pollution from industrial and vehicular emissions;
water pollution from raw sewage; deforestation; smoke/haze from Indonesian forest fires.
Environment – international agreements: Party to: Biodiversity, Climate Change,
Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous
Wastes, Law of the Sea, Marine Life Conservation, Ozone Layer Protection, Ship
Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands.
People
Population: 24,385,858 (July 2006 est.).
Median age:
Total: 24.1 years.
Male: 23.6 years.
Female: 24.8 years (2006 est.).
Population growth rate: 1.78% (2006 est.).
Net migration rate: 0 migrant(s)/1,000 population
Note: Does not reflect net flow of an unknown number of illegal immigrants from other
countries in the region (2006 est.).
Degree of risk: High.
Food or waterborne diseases: Bacterial diarrhea, hepatitis A, and typhoid fever.
Vectorborne diseases: Dengue fever and malaria are high risks in some locations (2007).
Nationality: Noun: Malaysian(s). Adjective: Malaysian.
Ethnic groups: Malay 50.4%, Chinese 23.7%, Indigenous 11%, Indian 7.1%, others
7.8% (2004 est.).
Religions: Muslim, Buddhist, Daoist, Hindu, Christian, Sikh; Note – in addition,
Shamanism is practiced in East Malaysia.
Languages: Bahasa Melayu (official), English, Chinese (Cantonese, Mandarin, Hokkien,
Hakka, Hainan, Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai.
Note: In East Malaysia there are several indigenous languages; most widely spoken are
Iban and Kadazan.
Literacy: Definition: Age 15 and over can read and write.
Total population: 88.7%.
Male: 92%.
Female: 85.4% (2002).
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Malaysia
Government
Government type: Constitutional monarchy.
Note: Nominally headed by paramount ruler and a bicameral Parliament consisting
of a nonelected upper house and an elected lower house; all Peninsular Malaysian
states have hereditary rulers except Melaka and Pulau Pinang (Penang); those two
states along with Sabah and Sarawak in East Malaysia have governors appointed by
government; powers of state governments are limited by federal constitution; under
terms of federation, Sabah and Sarawak retain certain constitutional prerogatives (e.g.,
right to maintain their own immigration controls); Sabah holds 25 seats in House of
Representatives; Sarawak holds 28 seats in House of Representatives.
Capital: Kuala Lumpur.
Administrative divisions: 13 states (negeri-negeri, singular – negeri) Johor, Kedah,
Kelantan, Melaka, Negeri Sembilan, Pahang, Perak, Perlis, Pulau Pinang, Sabah,
Sarawak, Selangor, and Terengganu; and one federal territory (wilayah persekutuan) with
three components, city of Kuala Lumpur, Labuan, and Putrajaya.
Independence: 31 August 1957 (from UK).
Constitution: 31 August 1957; amended 16 September 1963.
Legal system: Based on English common law; judicial review of legislative acts in
the Supreme Court at request of supreme head of the federation; has not accepted
compulsory ICJ jurisdiction; Islamic law is applied to Muslims in matters of family law
and religion.
Suffrage: 21 years of age; universal.
Executive branch: Chief of state: Paramount Ruler Sultan Mizan Zainal Abidin (since 13
December 2006).
Head of government: Prime Minister Abdullah bin Ahmad Badawi (since 31 October
2003); Deputy Prime Minister Mohamed Najib bin Abdul Razak (since 7 January 2004)
Cabinet: Cabinet appointed by the prime minister from among the members of
Parliament with consent of the paramount ruler.
Elections: paramount ruler elected by and from the hereditary rulers of nine of the states
for five-year terms; election last held 3 November 2006 (next to be held in 2011); prime
minister designated from among the members of the House of Representatives; following legislative elections, the leader of the party that wins a plurality of seats in the House
of Representatives becomes prime minister.
Election results: Sultan Mizan Zainal Abidin elected paramount ruler.
Legislative branch: Bicameral Parliament or Parlimen consists of the Senate or Dewan
Negara (70 seats; 44 appointed by the paramount ruler, 26 appointed by the state
legislatures) and the House of Representatives or Dewan Rakyat (219 seats; members
elected by popular vote to serve five-year terms).
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Malaysia
Elections: House of Representatives – last held 21 March 2004 (next must be held by
2009).
Election results: House of Representatives – percent of vote by party – BN 91%, DAP 5%,
PAS 3%, other 1%; seats by party – BN 199, DAP 12, PAS 6, PKR 1, independent 1.
Judicial branch: Federal Court (judges appointed by the paramount ruler on the advice
of the prime minister).
International organization partipation: APEC, APT, ARF, AsDB, ASEAN, BIS, C, CP,
EAS, FAO, G-15, G-77, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IDB, IFAD, IFC, IFRCS, IHO,
ILO, IMF, IMO, Interpol, IOC, IPU, ISO, ITU, ITUC, MIGA, MINURSO, MONUC, NAM,
OIC, OPCW, PCA, PIF (partner), UN, UNCTAD, UNESCO, UNIDO, UNMEE, UNMIL,
UNMIS, UNWTO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WTO.
Diplomatic representation in Scandinavia:
Danish diplomatic representation in Malaysia:
Embassy of Malaysia
Karlavägen 37
Box 26053
S-100 41 Stockholm
Sweden
Telephone: 00 46 (8) 791 76 90
Telefax: 00 46 (8) 791 87 60
Embassy of Denmark
Wisma Denmark, 22nd Floor
86 Jalan Ampang
50450 Kuala Lumpur
Telephone: +60 3 2032 2001
Telefax: +60 3 2032 2012
Office hours: Monday-Friday 09.00-16.00
Office hours: Monday-Friday 08.30-16.30
E-mail: [email protected]
E-mail: [email protected]
Economy
Economy – overview: Malaysia, a middle-income country, transformed itself from 1971
through the late 1990s from a producer of raw materials into an emerging multi-sector
economy. Growth was almost exclusively driven by exports – particularly of electronics.
As a result, Malaysia was hard hit by the global economic downturn and the slump in
the information technology (IT) sector in 2001 and 2002. GDP in 2001 grew only 0.5%
because of an estimated 11% contraction in exports, but a substantial fiscal stimulus
package equal to US $1.9 billion mitigated the worst of the recession, and the economy
rebounded in 2002 with a 4.1% increase. The economy grew 4.9% in 2003, notwithstanding a difficult first half, when external pressures from Severe Acute Respiratory
Syndrome (SARS) and the Iraq War led to caution in the business community. Growth
topped 7% in 2004 and 5% per year in 2005-06. As an oil and gas exporter, Malaysia
has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel forced Kuala Lumpur to reduce government subsidies, contributing
to higher inflation. Malaysia “unpegged” the ringgit from the US dollar in 2005 and the
currency appreciated 6% against the dollar in 2006. Healthy foreign exchange reserves
and a small external debt greatly reduce the risk that Malaysia will experience a financial
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Malaysia
crisis over the near term similar to the one in 1997. The economy remains dependent
on continued growth in the US, China, and Japan – top export destinations and key
sources of foreign investment.
GDP (purchasing power parity): $308.8 billion (2006 est.).
GDP – real growth rate: 5.5% (2006 est.).
GDP – per capita: $12,700 (2006 est.).
GDP – composition by sector:
Agriculture: 8.3%.
Industry: 48.1%.
Services: 43.6% (2006 est.).
Labor force: 10.73 million (2006 est.).
Unemployment rate: 3.5% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 1.4%
Highest 10%: 39.2% (2003 est.).
Distribution of family income – Gini index: 49.2 (1997).
Inflation rate (consumer prices): 3.8% (2006 est.).
Investment (gross fixed): 19.9% of GDP (2006 est.).
Budget:
Revenues: $31.63 billion.
Expenditures: $37 billion; including capital expenditures of $9.4 billion (2006 est.).
Exports: $158.7 billion f.o.b. (2006 est.).
Exports – commodities: Electronic equipment, petroleum and liquefied natural gas,
wood and wood products, palm oil, rubber, textiles, chemicals.
Exports partners: US 19.7%, Singapore 15.6%, Japan 9.3%, China 6.6%, Hong Kong
5.8%, Thailand 5.4% (2005).
Imports: $127.3 billion f.o.b. (2006 est.).
Imports – commodities: Electronics, machinery, petroleum products, plastics, vehicles,
iron and steel products, chemicals.
Imports – partners: Japan 14.6%, US 13%, Singapore 11.8%, China 11.6%, Taiwan
5.6%, Thailand 5.3%, South Korea 5%, Germany 4.5% (2005).
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Malaysia
Currency (code): Ringgit (MYR).
Exchange rates: Ringgits per US dollar – 3.67 (2006), 3.8 (2005), 3.8 (2004), 3.8 (2003),
3.8 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: Income tax: Income tax for resident and non-resident
companies is imposed on income accruing in or derived from Malaysia at the flat rate
of 28%. However, for resident companies with paid up capital from ordinary shares
of RM 2.5 million or less, the rate of tax is 20% on the first RM 500,000 of chargeable
income, and 28% on any income in excess of RM 500,000. Assessment of income is on
a current year basis. A company is taxed on income from all sources (whether business
or non-business) arising in its financial year ending in the calendar year which coincides
with that particular year of assessment. For example, a company that closes its accounts on June 30 of each year, is taxed on income earned during the financial year
ending on June 30, 2006 for the year of assessment (YA) 2006.
Self-assessment for companies was implemented from the year 2001. Under the
self-assessment system, companies are required to submit a return of income within
7 months from the date of closing of accounts. Particulars required to be specified in
the return include the amount of chargeable income and tax payable by the company.
An assessment is deemed to have been made on the company on submission of the
return. The return is deemed to be a notice of assessment that is deemed to be served
on the company on the date the return is submitted.
Petroleum income tax: Petroleum income tax is imposed at the rate of 38% on profits
from petroleum operations in Malaysia. No other taxes are imposed on income from
petroleum operations.
Corporate residence: A company is tax resident in Malaysia in a basis year if at any
time during the basis year, the management and control of its affairs are exercised in
Malaysia. Generally, management and control of a business is exercised at the place
where the company’s board meetings are held. Therefore, a single board meeting held
in Malaysia at which significant decisions are made is sufficient cause for a company to
be regarded as tax resident in Malaysia.
Foreign income: A Malaysian tax-resident corporation and a unit trust are not taxed
on their foreign-sourced income, regardless of whether such income is received in
Malaysia. However, income from the businesses of banking, insurance and air or sea
transport is assessable on a global basis, except for income attributable to an offshore
business activity of the branch or subsidiary of a Malaysian bank in Labuan which is
subject to tax under the legislation applicable to offshore entities in Labuan (Labuan
Offshore Business Activity Tax Act 1990). Relief from double taxation is available by
84
Malaysia
means of a bilateral credit if there is a tax treaty, or unilateral relief where there is no tax
treaty. The relief is restricted to the lower of Malaysian tax payable or foreign tax paid if
there is a treaty, or to one-half of the foreign tax paid if there is no treaty. Undistributed
income of foreign subsidiaries is not taxable.
Branch income: Tax rates on branch profits are the same as those on corporate profits.
No tax is withheld on transfer of profits to a foreign head office.
Tax Administration: Returns: Returns of income for the year 2006 will be issued to
companies as follows:
Accounting year-end in
Return form issued in
January, February, March 2006
April 2006
April, May, June 2006
July 2006
July, August, September 2006
October 2006
October, November, December 2006
January 2007
Returns are to be submitted within 7 months after the closing of accounts.
Payment of tax: Tax payable under an assessment upon submission of a return is due
and payable by the “due date”. The “due date” is defined as the last day on expiry of 7
months from the date on which the accounts are closed.
Companies are required to furnish estimates of their tax payable for a year of assessment
not later than 30 days before the beginning of the basis period. A revised estimate can be
submitted in the 6th and 9th months of the basis period for a year of assessment.
Companies are then required to pay tax by monthly installments (based on the estimates submitted) commencing from the second month of the company’s basis period
(financial year).
Stock dividends: A Malaysian corporation may distribute bonus shares tax free to
shareholders.
85
Malaysia
Withholding taxes: Corporations paying certain types of income are required to withhold tax as follows:
Dividends(1)
Interest(2)
Royalties(3)
%
%
%
Recident corporations
Nil
Nil
Nil
Resident individuals
Nil
Nil or 5
Nil
Nil
Nil or 15
10
Nil
Nil or 15
Nil or 10
Recipient
Non-resident
corporations, individuals
Non-treaty:
Corporations
Individuals
Treaty:
Denmark
Notes:
Restricted tax treaties dealing with taxation of specific transport operations in international traffic have also been signed with Argentina, Saudi Arabia and the United States.
1. Dividends are franked with (deemed to be paid net of) the tax paid by corporations. If any
dividend-paying corporation has not paid sufficient tax to cover the total tax deemed deducted from dividends, it must pay the balance of the tax to the tax authorities.
Malaysia at present has no withholding tax on dividends in addition to tax on the profits out
of which the dividends are declared. Some treaties provide for a maximum withholding tax
on dividends should Malaysia impose such a withholding tax in the future.
Because of its proximity, many Malaysian corporations also trade in Singapore and are taxed
there. The double taxation agreement between the two countries has special provisions for
the allocation and franking of dividends in such cases.
2. Interest on loans given to or guaranteed by the Malaysian government is exempt from tax.
Interest paid to a non-resident by a commercial or merchant bank operating in Malaysia is
also exempt from tax.
3. Approved royalty payments under certain treaty provisions are exempt from withholding tax.
Individual Taxation: Territoriality and residence: An individual, whether tax resident or
non-resident in Malaysia, is taxed on any income accruing in or derived from Malaysia.
The status of individuals as residents or non-residents determines whether or not they
can claim personal allowances and the benefit of graduated tax rates. Resident status
is determined by reference to the number of days an individual is present in Malaysia.
Generally, an individual who is in Malaysia for a period or periods amounting to 182
days or more in a calendar year will be regarded as a tax resident.
Basis of assessment: Assessment of income is on a current-year basis. An individual
is taxed on income from all sources of income for a year of assessment on a calendaryear basis.
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Malaysia
Gross income: An employee is taxed on employment income earned for work
performed in Malaysia, regardless of where payment is made. Employment income
includes salary, allowances, perquisites, benefits-in-kind, tax reimbursements, and rentfree accommodation provided by the employer.
Medical benefits, as well as childcare benefits provided by the employer, are not
taxable. Leave passages, restricted to one overseas trip, up to a maximum amount of
RM3,000 and three local trips per year, are also tax exempt in the hands of the employee. Cars or other household items provided for private use are valued at prescribed
rates that are lower than the actual cost incurred by the employer. Rent-free accommodation provided by the employer is valued at the lower of 30% of the employee’s total
cash remuneration or the actual rental value.
Short-term visiting non-resident employees are not subject to tax on income from employment exercised in Malaysia if the period of employment does not exceed 60 days in a
calendar year. If the period of employment straddles two calendar years, they are exempt
if the total period of their employment over the two years does not exceed 60 days.
Expatriates working in Operational Headquarters and Regional Offices in Malaysia are
taxed only on the portion of chargeable income attributable to the number of days they
are in Malaysia.
Tax rates: The following are the rates applicable to resident individual taxpayers.
Taxable income
Over (column 1)
Not over
Tax on column 1
Percentage on excess
RM 50,000
RM 70,000
RM 3,475
19
70,000
100,000
7,275
24
100,000
150,000
14,475
27
150,000
250,000
27,975
27
54,975
28
250,000
A non-resident individual is taxed at a flat rate of 28% on total taxable income.
For more information
www.pwc.com/my
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
87
Mexico
Mexico
Background
The site of advanced Amerindian civilizations, Mexico came under Spanish rule for three
centuries before achieving independence early in the 19th century. A devaluation of the
peso in late 1994 threw Mexico into economic turmoil, triggering the worst recession
in over half a century. The nation continues to make an impressive recovery. Ongoing
economic and social concerns include low real wages, underemployment for a large
segment of the population, inequitable income distribution, and few advancement
opportunities for the largely Amerindian population in the impoverished southern states.
Elections held in July 2000 marked the first time since the 1910 Mexican Revolution that
the opposition defeated the party in government, the Institutional Revolutionary Party
(PRI). Vicente FOX of the National Action Party (PAN) was sworn in on 1 December 2000
as the first chief executive elected in free and fair elections.
Climate: Varies from tropical to desert.
Terrain: High, rugged mountains; low coastal plains; high plateaus; desert.
Natural resources: Petroleum, silver, copper, gold, lead, zinc, natural gas, timber.
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Mexico
Environment – current issues: Scarcity of hazardous waste disposal facilities; rural to
urban migration; natural fresh water resources scarce and polluted in north, inaccessible
and poor quality in center and extreme southeast; raw sewage and industrial effluents
polluting rivers in urban areas; deforestation; widespread erosion; desertification;
deteriorating agricultural lands; serious air and water pollution in the national capital and
urban centers along US-Mexico border; land subsidence in Valley of Mexico caused by
groundwater depletion.
Note: The government considers the lack of clean water and deforestation national
security issues.
Environment – international agreements: Party to: Biodiversity, Climate Change,
Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous
Wastes, Law of the Sea, Marine Dumping, Marine Life Conservation, Ozone Layer
Protection, Ship Pollution, Wetlands, Whaling.
Signed, but not ratified: None of the selected agreements.
People
Population: 107,449,525 (July 2006 est.).
Median age:
Total: 25.3 years.
Male: 24.3 years.
Female: 26.2 years (2006 est.).
Population growth rate: 1.16% (2006 est.).
Net migration rate: -4.32 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Mexican(s). Adjective: Mexican.
Ethnic groups: Mestizo (Amerindian-Spanish) 60%, Amerindian or predominantly
Amerindian 30%, white 9%, other 1%.
Religions: Nominally Roman Catholic 89%, Protestant 6%, other 5%.
Languages: Spanish, various Mayan, Nahuatl, and other regional indigenous languages.
Literacy: Definition: Age 15 and over can read and write.
Total population: 92.2%.
Male: 94%.
Female: 90.5% (2003 est.).
90
Mexico
Government
Government type: Federal republic.
Capital: Mexico (Distrito Federal).
Administrative divisions: 31 states (estados, singular – estado) and 1 federal district
(distrito federal); Aguascalientes, Baja California, Baja California Sur, Campeche, Chiapas,
Chihuahua, Coahuila de Zaragoza, Colima, Distrito Federal, Durango, Guanajuato,
Guerrero, Hidalgo, Jalisco, Mexico, Michoacan de Ocampo, Morelos, Nayarit, Nuevo
Leon, Oaxaca, Puebla, Queretaro de Arteaga, Quintana Roo, San Luis Potosi, Sinaloa,
Sonora, Tabasco, Tamaulipas, Tlaxcala, Veracruz-Llave, Yucatan, Zacatecas.
Independence: 16 September 1810 (from Spain).
Constitution: 5 February 1917.
Legal system: Mixture of US constitutional theory and civil law system; judicial review
of legislative acts; accepts compulsory ICJ jurisdiction, with reservations.
Suffrage: 18 years of age; universal and compulsory (but not enforced).
Executive branch: Chief of state: President Felipe de Jesus Calderon Hinojosa
(since 1 December 2006); Note – the president is both the chief of state and head of
government.
Head of government: President Felipe de Jesus Calderon Hinojosa (since 1 December
2006).
Cabinet: Cabinet appointed by the president; Note – appointment of attorney general
requires consent of the Senate.
Elections: president elected by popular vote for a single six-year term; election last held
on 2 July 2006 (next to be held 1 July 2012).
Election results: Felipe Calderon elected president; percent of vote – Felipe Calderon
35.89%, Andres Manuel Lopez Obrador 35.31%, Roberto Maroza 22.26%, other
6.54%.
Legislative branch: Bicameral National Congress or Congreso de la Union consists of
the Senate or Camara de Senadores (128 seats; 96 are elected by popular vote to serve
six-year terms, and 32 are allocated on the basis of each party’s popular vote) and the
Federal Chamber of Deputies or Camara Federal de Diputados (500 seats; 300 members
are directly elected by popular vote to serve three-year terms; remaining 200 members are
allocated on the basis of each party’s popular vote, also for three-year terms).
Elections: Senate – last held 2 July 2006 for all of the seats (next to be held 1 July 2012);
Chamber of Deputies – last held 2 July 2006 (next to be held 5 July 2009).
Election results: Senate – percent of vote by party – N/A%; seats by party – PAN 52,
PRI 33, PRD 26, PVEM 6, CD 5, PT 5, independent 1; Chamber of Deputies – percent of
vote by party – N/A%; seats by party – PAN 206, PRD 127, PRI 103, PVEM 17, CD 17,
PT 12, other 15.
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Mexico
Judicial branch: Supreme Court of Justice or Suprema Corte de Justicia de la Nacion
(justices or ministros are appointed by the president with consent of the Senate).
International organization partipation: APEC, BCIE, BIS, CAN (observer), CDB, CE
(observer), CSN (observer), EBRD, FAO, G-3, G-6, G-15, G-24, IADB, IAEA, IBRD, ICAO,
ICC, ICCt, ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM, IPU,
ISO, ITU, ITUC, LAES, LAIA, NAFTA, NAM (observer), NEA, OAS, OECD, OPANAL,
OPCW, PCA, RG, UN, UNCTAD, UNESCO, UNHCR, UNIDO, UNITAR, UNMOVIC,
UNWTO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WTO.
Diplomatic representation in Denmark:
Diplomatic representation in Mexico:
Embassy of Mexico
Bredgade 65, 1. sal
1260 Copenhagen K
Denmark
Telephone: +45 3961 0500
Telefax: +45 3961 0512
Embajada de Dinamarca
Tres Picos 43
Col. Polanco
11580 Mexico D.F.
Telephone: +52 (55) 5255 3405
Telefax: +52 (55) 5545 5797
Office hours: Monday-Friday 09.00-16.00
E-mail: [email protected]
E-mail: [email protected]
Website: www.mexican-embassy.dk
Economy
Economy – overview: Mexico has a free market economy that recently entered the trillion dollar class. It contains a mixture of modern and outmoded industry and agriculture,
increasingly dominated by the private sector. Recent administrations have expanded
competition in seaports, railroads, telecommunications, electricity generation, natural
gas distribution, and airports. Per capita income is one-fourth that of the US; income
distribution remains highly unequal. Trade with the US and Canada has tripled since
the implementation of NAFTA in 1994. Mexico has 12 free trade agreements with over
40 countries including, Guatemala, Honduras, El Salvador, the European Free Trade
Area, and Japan, putting more than 90% of trade under free trade agreements. The
new Felipe Calderon administration that took office in December 2006 faces many of
the same challenges that former President Fox tried to tackle, including the need to
upgrade infrastructure, modernize the tax system and labor laws, and allow private
investment in the energy sector. Calderon has stated that his top priorities include
reducing poverty and creating jobs. The success of his economic agenda will depend
on his ability to garner support from the opposition.
GDP (purchasing power parity): $1.134 trillion (2006 est.).
GDP – real growth rate: 4.5% (2006 est.).
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Mexico
GDP – per capita: $10,600 (2006 est.).
GDP – composition by sector:
Agriculture: 3.9%.
Industry: 25.7%.
Services: 70.5% (2006 est.).
Labor force: 38.09 million (2006 est.).
Unemployment rate: 3.2% plus underemployment of perhaps 25% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 1.6%.
Highest 10%: 35.6% (2002)
Distribution of family income – Gini index: 54.6 (2000).
Inflation rate (consumer prices): 3.4% (2006 est.).
Investment (gross fixed): 20% of GDP (2006 est.).
Budget:
Revenues: $196.5 billion.
Expenditures: $196.2 billion; including capital expenditures of $NA (2006 est.).
Exports: $248.8 billion f.o.b. (2006 est.).
Exports – commodities: Manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton.
Exports partners: US 85.7%, Canada 2%, Spain 1.4% (2005).
Imports: $253.1 billion f.o.b. (2006 est.).
Imports – commodities: Metalworking machines, steel mill products, agricultural
machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles,
aircraft, and aircraft parts.
Imports – partners: US 53.4%, China 8%, Japan 5.9% (2005).
Currency (code): Mexican peso (MXN).
Exchange rates: Mexican pesos per US dollar – 10.899 (2006), 10.898 (2005), 11.286
(2004), 10.789 (2003), 9.656 (2002).
Fiscal year: Calendar year.
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Mexico
Taxation
Taxes on corporate income: Federal income tax: The federal corporate income tax rate
for 2007 is 28%.
There is a 21.43 income tax rate reduction in 2007 (i.e., an effective tax rate to 22% ) available to taxpayers engaged exclusively in agriculture, animal husbandry, fishing, or forestry.
Provisions designed to recognize the effects of inflation for tax purposes in the areas
of monetary assets and liabilities (annual monetary adjustment) and depreciable assets
are provided for in the law because of the economic effects of inflation, although the
rate thereof has been decreasing. Once a corporation has paid its income tax, after-tax
earnings (i.e., earnings arising from the after-tax earnings account, Cuenta de utilidad
fiscal neta, or CUFIN) may be distributed to the shareholders with no tax liability at the
corporate level and always without any income tax withholding.
Additionally, if a corporation makes a distribution out of earnings that for any reason
have not been subject to corporate income tax, such as book earnings not yet recognized for tax purposes, it will have to pay a corporate tax at the general corporate
income tax rate on distributed earnings (1.3889). The tax paid on dividends distributed
in the excess of the CUFIN can be credited against the corporate income tax of the
distributing company in the same tax year in which it was paid, or in the following two
tax years. The CUFIN of the tax years in which that credit is applied, will be reduced by
an amount equal to the grossed-up dividend distribution. All corporate entities, including associations of a civil nature, branches, and so on, unless specifically excepted as
nonprofit organizations, are subject to the rules applicable to corporations.
Financial system: The financial system is subject to certain reporting requirements to the
tax authorities. As from the second half of 2002, the financial system must comply with
additional reporting requirements regarding payments made to individual residents for
investments, investor identity information and the amount of interest paid.
On December 30, 2005, the new stock exchange Law was published in the Federal
Official Gazette; it took effect 180 calendar days after its publication, that is, on June
28, 2006.
Shares sold through the stock market: The sale of shares is exempt from income tax
when sold by individuals and residents abroad through authorized stock markets,
provided certain rules are satisfied.
Interest: Income tax withholding on interest paid by financial institutions to Mexican
resident investors is set in general terms at 0.5% (annual rate) of the invested capital.
Minimum tax: A minimum tax, also known as the asset tax, is payable at the rate of
1.25% since 2007 of the value on the assets of the following taxpayers: corporations,
unincorporated businesses, organizations of a civil nature not specifically exempted,
branches or other permanent establishments of foreign parties, and foreign residents
94
Mexico
who maintain assets used or to be transformed in Mexico. The tax supplements the
federal income tax, that is, it is payable and increases the overall tax burden only if it
exceeds regular income tax. This feature is achieved by allowing an amount equal to the
taxpayer’s regular income tax as a credit against its minimum 1.25% tax liability for the
current year. The Asset Tax Law previously allowed liabilities to be deducted from the
tax base for purposes of computing the Asset Tax. The new provision does not allow
any liabilities to be deducted from the Asset Tax base.
In addition to the above credit, the excess of annual income tax due over the minimum
tax due in each of the last three tax years may be credited against minimum tax for the
year. This excess is restated by inflation.
During the first four years of a company’s operations, minimum tax is generally not
payable.
The asset tax paid in the previous ten years (restated by inflation) may be recovered
in the year in which the income tax exceeds the asset tax for the current year, in an
amount equivalent to that excess.
There is an option that allows taxpayers to determine asset tax for the year based on
the tax due in the fourth preceding period (restated by inflation). Once the election is
made, taxpayers are required to continue determining asset tax under that option.
As for 2004 and until 2007, foreign residents who maintain inventories in Mexico under
Maquila (in-bond) programs, can consider their value, for purposes of calculating the minimum tax, only for the part involved in the production of merchandise for domestic sales.
State taxes: There are no state taxes on corporate net income.
Corporate residence: The federal tax code provides that corporations are deemed to
be residents of Mexico if the principal center of administration or the effective place
of management is located in Mexico. Under the Mexican income tax law, permanent
establishments (PEs) of nonresidents are generally treated under the same rules as resident entities with respect to income attributed to said PEs. See “branch income” below.
A definition of “tax resident” and “permanent establishment” in a tax treaty overrides
domestic law definitions, if the taxpayer is willing to apply the treaty.
When a Mexican resident company ceases to be a Mexican resident in terms of
the Mexican federal tax code or any tax treaty, it is deemed to be liquidated for tax
purposes. In such cases, a notification is required 15 days before the change, while the
income tax return must be filed before the Mexican tax authorities within 15 working
days following the date in which the change of tax residency takes place.
Foreign income: A Mexican corporation is taxed on foreign source income when
earned. Double taxation is reduced, or possibly avoided, by means of foreign tax
credits. However, the undistributed profits of a foreign subsidiary are not subject to
Mexican tax until dividends are paid, with the exception of companies with investments
95
Mexico
in entities located in a tax haven (“income subject to preferred tax regime”), in which
case income is generally taxable even if no distributions are received.
Branch income: Mexican branches of foreign corporations (i.e., PEs) are generally
subject to the same tax rules as Mexican corporations, with certain exceptions. For
example, branches may deduct pro rata allocations of home office expenses, provided
certain requirements are complied with (such as the existence of an applicable tax treaty and a comprehensive agreement for the exchange of tax information with Mexico),
but may not deduct remittances to their home offices, even when they are classified as
royalties, fees, commissions, services, or interest.
In general terms, on other remittances from branches or other PEs (including earnings,
except, of course, remittances representing a return to the home office of capital
invested in the branch), the general corporate tax rate applies, on a grossed-up basis,
unless the remittance arises from the CUFIN account balance.
The income tax law considers a PE to be any place in Mexico where business activities
or services are carried out or rendered by nonresidents, such as agencies, offices,
mining exploration sites, or any other place of exploration, extraction or exploitation
of natural resources, regardless of the length of time involved. A foreign insurance
company could also be considered as having a PE when it engages in activities consisting of insuring risk or collecting premiums in Mexico through a party other than an
independent agent, with the exception of reinsurance activities. Except in the cases of
sites used for the maintenance of display, storage or purchasing facilities or inventories
imported in-bond to be processed by a third party, short-term construction services,
and offices to carry out auxiliary or preliminary activities, information gathering or scientific research, a PE is generally deemed to exist and is taxed as a branch. Nonresidents
may also keep merchandise in bonded warehouses (including merchandise delivered for
importation into Mexico) without being considered to have a PE.
A nonresident is not considered to have a PE in Mexico derived from the legal or
economic relationships maintained with companies carrying out maquila operations
(maquiladoras) which normally process goods or merchandise maintained in Mexico
by the nonresident by using assets provided by the nonresident or any related party,
as long as certain requirements are met, such as the nonresident being a resident of a
country with which Mexico has a tax treaty in force, the maquiladora complying with the
transfer pricing provisions for related-party transactions established in the law and the
tax treaty provides the requirements to not create a PE.
Additionally, from 2004 to 2011, maquiladoras under shelter programs could be considered to not be a PE in Mexico, when assets of foreign residents are involved and certain
information with the Mexican tax authorities related to the gross revenues earned and
income taxes paid by its non-Mexican related party is duly filed.
The definitions of PE under tax treaties with other countries may differ from domestic
law definitions. Accordingly, each case should be carefully analyzed.
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Mexico
Tax administration: Returns: Corporate taxpayers are required to file annual income
tax returns and asset tax returns for the preceding calendar year by March 31, and/or
to pay any balance of tax shown as due at that time. Controlling (holding) companies
in the tax consolidation regime are required to file the annual consolidated tax return
within four months following the end of the preceding tax period (i.e., usually by April
30). Thereafter, the taxpayers are generally required to obtain the certification of this
tax compliance by an independent auditor and to file the related tax compliance
opinion by the end of May. This certification process covers all federal taxes other
than custom duties.
Employees’ profit sharing is due by May 31 of the following year.
Payment of tax: Corporate taxpayers are required to make estimated payments of
income tax on the 17th of each month on the basis of their estimated taxable income at
the end of the previous month, calculated principally by applying the profit factor to the
cumulative monthly gross income (the profit factor is determined by dividing the taxable
profit by gross income shown in the annual return for the preceding year, or, if no profit
factor is to be found in that annual return, the factor appearing in the year preceding
that must be used, and so on, up to five years, with certain adjustments). For this
purpose, gross income includes nominal income, excluding inflationary effects.
Definitive monthly VAT payments are required on the 17th of the immediately following
month.
Special procedures are provided for computing advance income tax payments, and
obtaining authorization to reduce the amounts of monthly advances after the sixth
month of the year. No advance payments or adjustments thereto are required in the first
year of operations.
Corporations and unincorporated businesses or individuals must also make monthly
estimated tax payments during their taxable year on account of the 1.25% minimum
tax on assets. Estimated advance payments are computed based on asset tax due in
the preceding annual tax period. Estimated income tax payments made as discussed
above are creditable against the estimated tax payments required on account of the
1.25% minimum tax on assets. No 1.25% minimum tax is generally payable during the
pre-operating period or the first four years of operations.
Information returns must be filed no latter than February 15 of each year, reporting on,
among others, the following activities conduced in the immediately preceding year:
1.
2.
3.
4.
5.
6.
Payments made to parties resident abroad.
Loans received from or guaranteed by nonresidents.
Transactions conducted through a business trust.
Parties from which the taxpayer withholds income tax.
Parties to which the taxpayer has made donations.
Parties to which the taxpayer has paid dividends, and the amount of said payments.
97
Mexico
7. Taxpayers making salary payments are also required to file information returns no
later than February 15 of each year reporting on salaries paid and on the salary
credit paid in the immediately preceding calendar year.
8. An annual information tax return must be filed on investments made or held in a
PTR. This must be done in February of the immediately following year.
9. An information return on transactions carried out with nonresident related parties
must be filed together with the corporate annual tax return (no later than March of
the following year).
Statute of limitations: In general, the right of the tax authorities to collect taxes, review
tax returns or claim additional tax expires five years after the date the respective return
is filed. However, in cases where the taxpayer has not secured a federal tax registration
number, has no accounting records, has failed to keep them for the required five-year
period, or has not filed a tax return, the statute of limitations expires in ten years.
Similarly, the period for claiming a refund of overpaid tax expires after five years.
Withholding taxes: Payments to Mexican residents: Payments to resident corporations
and permanent establishments in Mexico are generally not subject to withholding taxes.
Payments by resident corporations to resident individuals are subject to withholding tax
as follows:
Percentage of income
tax to be withheld
Wages, salaries and other remuneration
0-28
Fees:
Members of boards of directors and advisory boards
Other professional fees
28
10
Lease payments on real property
10
(1)
Interest on securities
0.5
Interest on nonqualified securities
20
Dividends
Nil
Misc. types of income of individuals, usually sporadic payments
20
Notes:
1. This withholding tax is calculated on the total amount of the capital invested.
Payments to nonresidents: Income tax must be usually withheld from payments to
nonresident corporations and individuals. In the case of non-tax treaty countries, the
statutory withholding rates are as noted below.
Income tax of 40%, with no deductions, must be withheld on most payments made to
foreign parties located in tax havens, in lieu of the tax provided in the domestic law for
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Mexico
non- tax haven residents. This is N/A in certain cases, such as on income not subject to
Mexican taxation in accordance with the regular provisions for income of nonresidents
from a source of wealth located in Mexico, income from dividends, gains distributed by
legal entities, and certain types of interest, including interest payments made to foreign
banks. In these cases, the regular provisions of the domestic law should be applied to
determine the income tax withholding.
Additionally, revenues for intermediation services, including commissions for brokerage,
agency, distribution, assignment or estimates and generally all income from the negotiation of third party interests, when paid to tax haven residents, are also subject to 40%
withholding tax.
Nonresidents’ wages and salaries are taxed on the basis of 12-month period earnings
as follows:
Taxable income(A)
From
To
%
0
Ps 125,900
Nil
Ps 25,901
1,000,000
15
1,000,001
Or higher
30
Notes:
(A) Limits in force at January 1, 2007.
The above mentioned rates are also applicable to retirement fund deliveries.
However, no tax is imposed when the compensation (wages, salaries, or fees other than
board fees) is paid by a nonresident of Mexico with no establishment in Mexico (even
if not subject to tax) to which the services relate, provided the individual remains in
Mexico for fewer than 183 days (consecutive or not) in any 12-month period.
The tax, when applicable, is withheld if the income is paid by a resident (or a nonresident with a permanent establishment in Mexico). Otherwise, the tax is generally payable
during the 15 following working days, by the party earning the Mexican-source income.
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Mexico
%
Professional fees for services rendered in Mexico
25
Lease payments:
25
Lease of real property
Lease of containers, airplanes, and ships authorized by the Mexican Government to be commercially exploited in the transportation of goods or persons.
5
Lease of personal property
25
Time-sharing services(1)
25
Charter agreements
10
Sales:
Real property located in Mexico(1)
25
(1, 2)
25
Shares of Mexican companies
Transfers of ownership of Mexican public debt by other than the original
creditors (intended to cover debt-for-equity swaps)(1)
25
Derivative transactions:
On capital(1)
25
3)
On debt Same rates applicable to interest
Interest(4):
Paid to foreign government financing entities, to duly registered foreign banks
and other entities that provide financing with funds obtained by issuing publicly traded debt instruments abroad, registered with the Ministry of Finance(5)
10
Interest on debt instruments placed abroad(6)
4.9
Other interest payments to foreign financial institutions(7)
4.9
Paid by Mexican financial institutions to residents abroad, other than those on
which the above mentioned lower rates may apply
21
Paid to foreign suppliers of machinery and equipment, to others to finance
purchases of such assets or inventory or working capital loans, if the lender
is duly registered
21
Paid to reinsurance entities
15
(8)
Other interest payments
28
Financial leases (on the portion deemed to qualify as interest or finance charge)
15
Dividends
Nil
100
Mexico
(Continued)
Royalties(9):
For the use of railroad cars
5
For the use of copyrights on scientific, literary or art works, including motion
pictures and radio and television recordings, as well as software and payments
for the transmission of video and audio signals via satellite, cable, optic fiber
and similar media(10)
25
On patents, invention or improvement certificates, trademarks, brand names,
and advertising(8, 10)
28
For the use of drawings or models, plans, formulas or procedures, and of
scientific, commercial and industrial equipment; on amounts paid for information regarding scientific, commercial and industrial experience; for technical
assistance(10)
25
Short-term construction, and the respective installation, maintenance, technical direction or supervision(11)
25
Reinsurance premiums
2
(1)
Income obtained by athletes and artists
25
Other income (forgiven debts, indemnifications, rights to participate in business, investments, etc)(8)
28
Notes:
1. The nonresident may elect to pay a tax of 28% in the case of time-sharing services, sale of
shares, sale of real property, activities of sportsmen and artists, and derivative stock and debt
transactions; and 40% in the case of the transfer of public debt), on the net tax profit, if certain
requirements are complied with and the nonresident has a resident legal representative (who/
which, in the case of time-sharing services, must keep the audited financial statements of the
taxpayer available for inspection by the tax authorities). No legal representative is required for
sales of real property by public deed. A tax opinion issued by a registered public accountant
is also required under this option in the case of the sale of shares. In the case of shares and
debt-for-equity swap transactions, this election is available only if the foreign taxpayer is not a
resident of a country classified as a tax haven or a country with a territorial tax system. In addition, there is an option to defer Mexican income tax arising from the sale of shares due to a
corporate reorganization within the same group, provided certain conditions are met.
2. The sale of shares through the Mexican Stock Exchange considered as available to the general investing public and government securities are exempt from tax withholding, provided
certain rules are satisfied.
3. This withholding rate is applicable on a net basis, that is, on the gain arising from the transaction. If the transaction were payable in kind, the applicable withholding rate would be 10%.
4. Interest payments to nonresidents are exempt from Mexican income tax when they are paid
on the following.
a. Loans to the federal government or to the Bank of Mexico (Central Bank); also on bonds
issued by said entities, to be acquired and paid abroad.
b. Loans for three or more years granted or guaranteed by duly registered financial entities
that promote exports through special financing.
c. Preferential loans granted or guaranteed by foreign financial entities to institutions
authorized to receive tax-deductible donations in Mexico, provided these institutions are
properly registered and use the funds for purposes consistent with their status.
101
Mexico
(Continued)
5. In 2007, 4.9% may be applied when the interest is paid to registered banks resident in countries with which Mexico has signed a tax treaty, such rate is extended for another year.
6. The 4.9% withholding rate applies provided the placement is handled through banks or
brokerage firms resident in a country with which Mexico has signed a tax treaty, and if there
is compliance with the information requirements established in the general rules issued by the
Ministry of Finance. If there is failure to comply with these requirements, the 10% withholding
rate applies. The 4.9% and 10% withholding rates mentioned in the preceding paragraphs do
not apply, and instead a 28% withholding is applicable to interest, when the direct or indirect
beneficiaries of the interest, either individually or jointly with related parties, receive more than
5% of the interest arising from the instrument in question, and are either (a) holders of more
than 10% of the voting shares of the issuing company, either directly or indirectly, either individually or jointly with related parties, or (b) business entities holding more than 20% of their
shares, either directly or indirectly, either individually or jointly with parties related to the issuer.
7. The 4.9% tax withholding rate is applicable to interest payments made to foreign financial
institutions in which the Mexican federal government or the Mexican Central Bank has a
capital participation.
8. Proceeds from the sale of most intangible property, even when the gains from the sale are
not subject to productivity, use or disposition, are treated as royalties, subject to Mexican
income tax withholding.
9. When the agreements involve a patent or an invention or improvement certificate (subject to
tax withholding at the general corporate rate) and other items qualifying as royalties (or technical assistance) subject to the 25% withholding rate, the tax must be calculated by applying
the rates applicable to the gross amount of the payment.
10.The nonresident taxpayer may elect to pay 28% tax on the net profit, if the taxpayer has a resident legal representative and so advises the customer, who then makes no withholding. When
the job lasts more than 183 days, the foreign taxpayer is deemed to have a permanent establishment for tax purposes and is taxed in the same manner as a local resident corporation.
The statutory withholding rates mentioned above may be reduced by applying tax treaty
provisions. During the last decade, Mexico has embarked on a policy of negotiating a
network of tax treaties with its principal trading and investment partners.
The tax rates specified in the treaties published in the Official Gazette as of January 1st,
2007 currently in force are as follows:
Dividends
Denmark
102
Portfolio
Substantial holdings
Interest
Royalties
%
%
%
%
15
0(7)
5, 15(8)
10
Mexico
(Continued)
Notes:
The applicable tax rates on dividends paid abroad in accordance with the tax treaties executed by
Mexico are detailed below; however, as previously mentioned, beginning in 2002, dividends paid
to parties resident abroad are no longer subject to withholding tax in Mexico under domestic law.
There are certain specific cases of interest paid to parties resident abroad that might be exempted in terms of certain tax treaties (e.g., interest paid to a pension fund or paid by a bank,
interest paid on certain loans granted or guaranteed by certain entities for exports under preferable conditions, etc.), which are not detailed in the information below.
Note that some of the tax treaties signed by Mexico contain a transitory tax rate on interest to
be applied during a certain period as from the date on which the tax treaty in question goes into
effect. For the purpose of the following information, only the tax rates on interest currently in
force are mentioned, and the transitory tax rates are only mentioned when the transitory period
has not yet elapsed.
7. This rate applies where the company that is the beneficial owner of the dividends (except for
civil partnerships) directly owns at least 25% of the capital of the company distributing dividends. In the case of Norway, the taxation is limited to the country of residence of the party
receiving the dividends, provided the above-mentioned substantial holding rule is satisfied.
8. The 5% withholding tax rate is applicable to interest paid to banks.
Individual Taxation: Territoriality and residence: Resident individuals are subject
to Mexican income tax on their worldwide income, regardless of their nationality.
Nonresidents, including Mexican citizens who can prove residence for tax purposes in a
foreign country, are taxed only on their Mexican-source income.
The federal Tax Code provides that a person is a resident for Mexican tax purposes
when he establishes a home in Mexico. If the individual has a home in another country,
then the individual is a resident in the country where he has his center of vital interests.
A person is considered to have his center of vital interests in Mexico if either
a. more than 50% of the person’s income comes from Mexican sources in the calendar year or
b. Mexico is the primary place of the person’s professional activities.
Mexican citizens are considered tax residents of Mexico until they acquire tax residency
in another country. A Mexican citizen who moves to a country that is considered a tax
haven by Mexico will remain a tax resident of Mexico until three years have passed after
filing the suspension notice mentioned below.
Notice of Termination of Tax Residency. By law, individual taxpayers are required to file
a notice of suspension of activities for termination of tax residency in Mexico within 15
days before terminating residency.
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Mexico
Gross income: Employee gross income: Income from personal services (earned
income) includes salaries, commissions, and allowances of all types, including those for
housing, living expenses, education, foreign service, tax reimbursements, and employer
profit-sharing distributions.
Fringe benefits such as “social welfare benefits” may be considered as totally or
partially exempt income if the employer satisfies certain eligibility requirements (e.g.,
non-discrimination). However, the exempt amount of social welfare benefits is limited
to the equivalent of one annual minimum wage (Ps 18,458 = Ps 50.57 x 365 for 2007)
once the employee’s salary (together with these benefits) exceeds the equivalent of
seven times the minimum wage. Under no circumstances will the social welfare benefits
be taxable if their amount, together with other regular compensation, does not exceed
seven times the minimum wage.
The use of an employer-provided automobile is usually not considered to represent
additional taxable income to the employee. However, the employer’s deductibility of
automobile costs and expenses is subject to certain limitations, concerning mainly the
maximum value of the vehicle. A per diem rate for business travel is treated as a taxable
allowance unless supported by third-party receipts for travel expenses that are limited
to lodging, meals, and transportation. Travel expenses are subject to certain maximum
deductibility limits for domestic and foreign travel and are deductible (and not imputed
as income to the employee) only when incurred outside a 50-kilometer radius from the
employer’s base.
Living expense reimbursements, including housing and rental allowances, are generally
taxable as compensation to the employee, even if paid directly to third parties.
Reimbursements of expenses of a spouse or dependents usually represent taxable
income to the employee.
Non-residents’ wages, salaries, and other remuneration for personal dependent services
rendered in Mexico are taxed on the basis of income received in a floating 12-month
period, as follows:
Cumulative income (Amounts in Mexican Pesos)
Over
Not over
%
0
125,900
Exempt.
125,900
1,000,000
15
1,000,000
And above
30
The rates are applied to the cumulative income as it is earned over a 12-month period,
whether or not the period coincides with a calendar year.
104
Mexico
The tax rate applicable to independent personal services performed by a non-resident
in Mexico is a flat 25%. Fees paid to non-resident members of boards of directors or
advisory boards (regardless of where the services are performed) are taxed at a flat 25%.
However, no tax is imposed when the compensation (paid to employees or independent professionals) is paid by a non-resident of Mexico who does not have in Mexico
any kind of establishment to which the services relate, provided that the individual
who receives the compensation is physically present in Mexico less than 183 days
(consecutive or not) in any 12-month period. A non-resident who has become subject
to the non-resident tax on service income continues to be subject to tax on his Mexican
source compensation until it is shown that the non-resident has been out of Mexico for
at least 183 consecutive days.
Under some circumstances, tax treaties exempt Mexican-source income paid by a nonresident of Mexico to a resident of a treaty country.
The tax, when applicable, is withheld if the income is paid by a resident (or a nonresident with a permanent establishment in Mexico). Otherwise, the tax is payable on
a monthly basis by the individual earning the Mexican-source income, generally by the
17th day of the following month.
Capital gains and investment income: Residents are required to include all worldwide
investment income received during the year in their annual returns. A few specific items
are tax exempt, and the more important ones are mentioned below.
Capital gains: Persons considered as tax residents of Mexico are taxed on their worldwide capital gains.
Gains on sales of securities through the Mexican Stock Exchange, are tax exempt.
Shares of Mexican companies traded abroad in authorised exchanges are also exempt
when determined by the Mexican Ministry of Finance to be placed among the general
investing public.
Gains from the sale of the taxpayer’s principal residence are exempt if certain requirements are met. In case the taxpayer sells more than one residence during the year, the
exemption is limited to the gain on the first principal residence that was sold.
In calculating the tax, gains on the disposition of real property or shares of capital stock
receive favourable income tax treatment in that historical costs (converted to pesos)
may be adjusted (increased) for inflation (on the basis of the number of months the
asset had been held). In the case of shares of capital stock of a privately held Mexican
corporation, the adjustment also includes amounts intended to partially cover net
retained earnings, whether capitalised or not. The resulting net gain for tax purposes is
taxed under a formula favourable to the taxpayer, depending on the number of years the
asset was held before sale.
105
Mexico
Interest: Interest from the Mexican banking system, except for certain exempt accounts
with small balances, is subject to withholding, and is includable in the annual tax return.
Except for certain transitional provisions, interest paid on most Mexican government
obligations is taxable.
Interest on bank accounts, bonds, and other debt obligations issued by non-residents
remains fully taxable, and includes adjustments for inflationary losses and exchange
gains and losses with respect to the principal.
Dividends: Resident individuals must include in taxable income dividends received from
Mexican corporations (grossed up for the corporate income tax paid by the corporation)
in their individual income tax returns and claim the underlying corporate income tax
paid as a credit against their personal tax liability. This “deemed paid” credit system
allows individual taxpayers to compute their tax on dividends at their own personal tax
rate, which may be lower than the corporate tax rate of 28% in 2007. (Note: For the
last several years, the corporate tax rate has stayed in step with the changes in the top
individual tax rate so that they have always been equal.)
Education Trust: An individual can set up a trust for educational purposes and the trust
income will not be taxable.
Tax Haven Investments: Taxable investment income includes income earned (even if
not distributed) by investments of any kind located in countries considered to be tax
havens, in proportion to the ownership percentage of the resident taxpayers. If the
taxpayer either does not have effective control of the administration of the tax haven investment or the total amount of the investments are maintained at less than Ps160,000,
the income does not have to be recognised until it is received.
Residents are also required to file a separate report with the tax authorities by February
28 of each year regarding their direct and indirect investments held during the previous
calendar year in countries considered to be tax havens. Failure to file the information
report is considered a felony.
Non-resident investors: Non-residents are subject to withholding taxes on Mexicansource interest income at rates varying from 0% to 28%, depending on several factors.
Generally, when a capital gain is subject to tax, the non-resident investor can elect to
pay either a flat of 25% of the gross proceeds or 28% of the net gain. Other types of
Mexican-source income (including rents and royalties) are also subject to withholding taxes when paid to a non-resident. In the case of dividends and other corporate
distributions, there is no tax withheld on the dividend, and no further tax is imposed
on the non-resident investor/shareholder. Non-residents are subject to Mexican tax on
gains arising from sales of real property located in Mexico (including shares of foreign
companies holding a significant amount of Mexican real property) or non-exempt sales
of shares of Mexican companies, regardless of where the sale takes place.
Tax Treaties: Tax treaties may reduce or eliminate tax withholding to non-residents,
and the treaty provisions should be analysed accordingly, depending on the country of
106
Mexico
residence of the individual receiving Mexican-source income. See our Corporate Taxes
Summary for details on treaty countries and rates.
Tax rates: Effective calendar year 2006 (last published).
Annual taxable income
(amounts in Mexican Pesos)
Basic tax
Not over
Tax on column 1
Percentage
on excess
0.01
5,952.84
0.00
3.00
5,952.85
50,524.92
178.56
10.00
50,524.93
88,793.04
4,635.72
17.00
88,793.05
103,218.00
11,141.52
25.00
103,218.01
And above
14,747.76
29.00
Over
(column 1)
Notes:
1. The above brackets are effective for calendar year 2006. The tax tables for 2007 have not yet
been published. However, the highest tax rate for 2007 will be 28% instead of 29%.
2. A tax rate reduction has been phased in by eliminating the highest tax brackets, leaving the
following as the highest tax rates:
Year
Highest marginal rate
%
2002
35
2003
34
2004
33
2005
30
2006
29
2007
28
3. As mentioned earlier, in addition to the low-income credit discussed below, an additional
credit on salary is allowed on a monthly basis, and the top low-income credit is allowed on
the annual return.
Low-income credit on annual return: A non-refundable credit of up to 50% of the tax
on low income. Since it is designed to reduce the tax burden of taxpayers whose
income is low, the credit is reduced proportionately for higher levels of income and
107
Mexico
phased out if the taxpayer is an employee who also receives tax-exempt fringe benefits from the employer. The credit is considered by the employer when calculating the
income tax withheld on salaries.
The calculation of the credit is made in two steps. First, the following table is used to
compute the preliminary amount of credit. Second, the preliminary credit is reduced if
the employer provides non-taxable fringe benefits to its employees. The amount of the
reduction is equal to the preliminary credit times a percentage, and the percentage is
equal to two times the percentage that non-taxable income is of total remuneration.
Thus, when the non-taxable portion reaches 50% of total remuneration, no credit is
allowed. This ratio is computed by the employer on a company wide basis (not for
each employee separately).
The following table shows the rates for computing the preliminary annual low-income
tax credit.
Lower limit
Upper limit
Credit on tax on lower limit
% of credit on marginal tax
0.01
5,952.84
0.00
50
5,952.85
50,524.92
89.28
50
50,524.93
88,793.04
2,318.04
50
88,793.05
103,218.00
5,570.28
50
103,218.01
123,580.20
7,373.88
50
123,580.21
249,243.48
10,326.36
40
249,243.49
392,841.96
24,903.24
30
For more information
www.pwc.com/mx
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
108
Poland
Poland
Background
Poland is an ancient nation that was conceived near the middle of the 10th century.
Its golden age occurred in the 16th century. During the following century, the
strengthening of the gentry and internal disorders weakened the nation. In a series of
agreements between 1772 and 1795, Russia, Prussia, and Austria partitioned Poland
amongst themselves. Poland regained its independence in 1918 only to be overrun
by Germany and the Soviet Union in World War II. It became a Soviet satellite state
following the war, but its government was comparatively tolerant and progressive.
Labor turmoil in 1980 led to the formation of the independent trade union ”Solidarity”
that over time became a political force and by 1990 had swept parliamentary elections
and the presidency. A ”shock therapy” program during the early 1990s enabled the
country to transform its economy into one of the most robust in Central Europe, but
Poland still faces the lingering challenges of high unemployment, underdeveloped
and dilapidated infrastructure, and a poor rural underclass. Solidarity suffered a major
defeat in the 2001 parliamentary elections when it failed to elect a single deputy to
the lower house of Parliament, and the new leaders of the Solidarity Trade Union
subsequently pledged to reduce the Trade Union’s political role. Poland joined NATO
in 1999 and the European Union in 2004. With its transformation to a democratic,
market-oriented country largely completed, Poland is an increasingly active member
of Euro-Atlantic organizations.
109
Poland
Climate: Temperate with cold, cloudy, moderately severe winters with frequent precipitation; mild summers with frequent showers and thundershowers.
Terrain: Mostly flat plain; mountains along southern border.
Natural resources: Coal, sulfur, copper, natural gas, silver, lead, salt, amber, arable land.
Environment – current issues: Situation has improved since 1989 due to decline in
heavy industry and increased environmental concern by post-Communist governments; air pollution nonetheless remains serious because of sulfur dioxide emissions
from coal-fired power plants, and the resulting acid rain has caused forest damage;
water pollution from industrial and municipal sources is also a problem, as is disposal
of hazardous wastes; pollution levels should continue to decrease as industrial establishments bring their facilities up to EU code, but at substantial cost to business and
the government.
Environment – international agreements: Party to: Air Pollution, Antarctic-Environmental Protocol, Antarctic-Marine Living Resources, Antarctic Seals, Antarctic Treaty,
Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification,
Endangered Species, Environmental Modification, Hazardous Wastes, Kyoto Protocol,
Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Wetlands.
Signed, but not ratified: Air Pollution-Nitrogen Oxides, Air Pollution-Persistent Organic
Pollutants, Air Pollution-Sulfur 94.
People
Population: 38,536,869 (July 2006 est.).
Median age:
Total: 37 years.
Male: 35.1 years.
Female: 39 years (2006 est.).
Population growth rate: -0.05% (2006 est.).
Net migration rate: -0.46 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Pole(s). Adjective: Polish.
Ethnic groups: Polish 96.7%, German 0.4%, Belarusian 0.1%, Ukrainian 0.1%, other
and unspecified 2.7% (2002 census).
Religions: Roman Catholic 89.8% (about 75% practicing), Eastern Orthodox 1.3%,
Protestant 0.3%, other 0.3%, unspecified 8.3% (2002).
Languages: Polish 97.8%, other and unspecified 2.2% (2002 census).
110
Poland
Literacy: Definition: Age 15 and over can read and write.
Total population: 99.8%.
Male: 99.8%.
Female: 99.7% (2003 est.).
Government
Government type: Republic.
Capital: Warsaw.
Administrative divisions: 16 provinces (wojewodztwa, singular – wojewodztwo);
Dolnoslaskie wojewodztwo, Kujawsko-Pomorskie wojewodztwo, Lodzkie wojewodztwo, Lubelskie wojewodztwo, Lubuskie wojewodztwo, Malopolskie wojewodztwo,
Mazowieckie wojewodztwo, Opolskie wojewodztwo, Podkarpackie wojewodztwo, Podlaskie wojewodztwo, Pomorskie wojewodztwo, Slaskie wojewodztwo,
Swietokrzyskie wojewodztwo, Warminsko-Mazurskie wojewodztwo, Wielkopolskie
wojewodztwo, Zachodniopomorskie wojewodztwo.
Independence: 11 November 1918 (independent republic proclaimed).
Constitution: Adopted by the National Assembly 2 April 1997, passed by national
referendum 25 May 1997, effective 17 October 1997.
Legal system: Mixture of Continental (Napoleonic) civil law and holdover Communist
legal theory; changes being gradually introduced as part of broader democratization
process; limited judicial review of legislative acts, but rulings of the Constitutional
Tribunal are final; court decisions can be appealed to the European Court of Justice in
Strasbourg; accepts compulsory ICJ jurisdiction, with reservations.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President Lech Kaczynski (since 23 December 2005).
Head of government: Prime Minister Jaroslaw Kaczynski (since 10 July 2006); Deputy
Prime Ministers Ludwik Dorn (since 23 November 2005), Roman Giertych (since 5 May
2006), Zyta Gilowska (since 22 September 2006), Andrzej Lepper (since 16 October 2006).
Cabinet: Council of Ministers responsible to the prime minister and the Sejm; the
prime minister proposes, the president appoints, and the Sejm approves the Council
of Ministers.
Elections: president elected by popular vote for a five-year term (eligible for a second
term); election last held 9 and 23 October 2005 (next to be held fall 2010); prime minister and deputy prime ministers appointed by the president and confirmed by the Sejm.
Election results: Lech Kaczynski elected president; percent of popular vote – Lech
Kaczynski 54%, Donald Tusk 46%.
Legislative branch: Bicameral legislature consisting of an upper house, the Senate
or Senat (100 seats; members are elected by a majority vote on a provincial basis to
111
Poland
serve four-year terms), and a lower house, the Sejm (460 seats; members are elected
under a complex system of proportional representation to serve four-year terms); the
designation of National Assembly or Zgromadzenie Narodowe is only used on those
rare occasions when the two houses meet jointly.
Elections: Senate – last held 25 September 2005 (next to be held by September 2009);
Sejm elections last held 25 September 2005 (next to be held by September 2009).
Election results: Senate – percent of vote by party – N/A%; seats by party – PiS 49, PO
34, LPR 7, SO 3, PSL 2, independents 5; Sejm – percent of vote by party – PiS 27%, PO
24.1%, SO 11.4%, SLD 11.3%, LPR 8%, PSL 7%, other 11.2%; seats by party – PiS
155, PO 133, SO 56, SLD 55, LPR 34, PSL 25, German minorities 2.
Note: Two seats are assigned to ethnic minority parties in the Sejm only.
Judicial branch: Supreme Court (judges are appointed by the president on the
recommendation of the National Council of the Judiciary for an indefinite period);
Constitutional Tribunal (judges are chosen by the Sejm for nine-year terms).
International organization partipation: ACCT (observer), Arctic Council (observer),
Australia Group, BIS, BSEC (observer), CBSS, CE, CEI, CERN, EAPC, EBRD, EIB, EU,
FAO, IAEA, IBRD, ICAO, ICC, ICCt, ICRM, IDA, IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol,
IOC, IOM, IPU, ISO, ITU, ITUC, MIGA, MINURSO, MONUC, NAM (guest), NATO, NSG,
OAS (observer), OECD, OIF (observer), OPCW, OSCE, PCA, UN, UNCTAD, UNDOF,
UNESCO, UNHCR, UNIDO, UNIFIL, UNMEE, UNMIL, UNMIS, UNOCI, UNOMIG,
UNWTO, UPU, WCL, WCO, WEU (associate), WFTU, WHO, WIPO, WMO, WTO, ZC.
Diplomatic representation in Denmark:
Danish representation in Polen:
Embassy of Poland – Trade department
Ryvangs Allé 46
2900 Hellerup
Denmark
Telephone: +45 3962 2633
Telefax: +45 3962 2554
Ambasada Danii
ul. Rakowiecka 19
02-517 Warszawa
Telephone: +48 (22) 565 2900
Telefax: +48 (22) 565 2970
E-mail: [email protected]
E-mail: [email protected]
Embassy of Poland – Consulate department
Richelieus Allé 10
2900 Hellerup
Denmark
Telephone: +45 3946 7720
Telefax: +45 3946 7788
Office hours: Monday-tuesday and ThursdayFriday: 10.00-13.00.
E-mail: [email protected]
Website: www.ambpol.dk
112
Poland
Economy
Economy – overview: Poland has steadfastly pursued a policy of economic liberalization since 1990 and today stands out as a success story among transition economies.
Even so, much remains to be done, especially in bringing down the unemployment rate
– still the highest in the EU despite recent improvement. The privatization of small- and
medium-sized state-owned companies and a liberal law on establishing new firms has
encouraged the development of the private business sector, but legal and bureaucratic
obstacles alongside persistent corruption are hampering its further development.
Poland’s agricultural sector remains handicapped by surplus labor, inefficient small
farms, and lack of investment. Restructuring and privatization of “sensitive sectors”
(e.g., coal, steel, railroads, and energy), while recently initiated, have stalled. Reforms
in health care, education, the pension system, and state administration have resulted in
larger-than-expected fiscal pressures. Further progress in public finance depends mainly
on reducing losses in Polish state enterprises, restraining entitlements, and overhauling
the tax code to incorporate the growing gray economy and farmers, most of whom pay
no tax. The previous Socialist-led government introduced a package of social and administrative spending cuts to reduce public spending by about $17 billion through 2007,
but full implementation of the plan was trumped by election-year politics in 2005. The
right-wing Law and Justice party won parliamentary elections in September, and Lech
Kaczynski won the presidential election in October 2005, running on a state-interventionist fiscal and monetary platform. Poland joined the EU in May 2004, and surging exports
to the EU contributed to Poland’s strong growth in 2004, though its competitiveness
could be threatened by the zloty’s appreciation. GDP per capita roughly equals that of
the three Baltic states. Poland benefited from nearly $23.2 billion in EU funds, which
were available through 2006. Farmers have already begun to reap the rewards of membership via booming exports, higher food prices, and EU agricultural subsidies.
GDP (purchasing power parity): $542.6 billion (2006 est.).
GDP – real growth rate: 5.3% (2006 est.).
GDP – per capita: $14,100 (2006 est.).
GDP – composition by sector:
Agriculture: 4.8%.
Industry: 31.2%.
Services: 64% (2006 est.).
Labor force: 17.26 million (2006 est.).
Unemployment rate: 14.9% (November 2006 est.).
Household income or consumption by percentage share: Lowest 10%: 3.1%.
Highest 10%: 26.7% (2002).
Distribution of family income – Gini index: 34.1 (2002).
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Poland
Inflation rate (consumer prices): 1.3% (2006 est.).
Investment (gross fixed): 19.2% of GDP (2006 est.).
Budget:
Revenues: $62 billion.
Expenditures: $71.25 billion; including capital expenditures of $NA (2006 est.).
Exports: $110.7 billion f.o.b. (2006 est.).
Exports – commodities: Machinery and transport equipment 37.8%, intermediate
manufactured goods 23.7%, miscellaneous manufactured goods 17.1%, food and live
animals 7.6% (2003).
Exports partners: Germany 28.2%, France 6.2%, Italy 6.1%, UK 5.6%, Czech
Republic 4.6%, Russia 4.4%, Netherlands 4.2% (2005).
Imports: $113.2 billion f.o.b. (2006 est.).
Imports – commodities: Machinery and transport equipment 38%, intermediate manufactured goods 21%, chemicals 14.8%, minerals, fuels, lubricants, and related materials
9.1% (2003).
Imports – partners: Germany 29.6%, Russia 8.7%, Italy 6.6%, Netherlands 5.9%,
France 5.7% (2005).
Currency (code): Zloty (PLN).
Exchange rates: Zlotych per US dollar – 3.11 (2006), 3.2355 (2005), 3.6576 (2004),
3.8891 (2003), 4.08 (2002), Note, zlotych is the plural form of zloty.
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: The corporate income tax (CIT) is the only tax levied on
the corporate income. The CIT rate is 19%.
The corporate income tax applies to all legal entities (including companies), companies
under organization and “organizational entities without corporate status” (with the
exception of partnerships), which run business activities. Partnerships are regarded as
“transparent entities”. It means that they are not taxpayers; instead, the income they
generate is allocated to the partners and taxed in their hands.
Further to the above rules, the CIT applies to companies with foreign participation. Such
companies can be set up as either limited liability companies or joint stock companies.
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Poland
(There is no limitation on the percentage of foreign participation.) Both types are subject
to the general corporate income tax rules including the 19% tax rate. The same rate
applies to branches of the foreign companies (please, see the “Branch income” section
for more information).
Corporate residence: A company is considered to be a resident if its registered office
or management are located in Poland. Polish residents are subject to tax on their worldwide income. Non-residents are taxed on their Polish-sourced income only.
The tax authorities’ right to tax a non-resident is further limited if the non-resident’s
home country concluded a Double Tax Treaties with Poland. If this is a case, the Polish
tax authorities are entitled to tax only such portion of the non-resident’s income, which
is derived through a “permanent establishment” located in Poland. The exceptions
relate to specific types of income such as royalties, interest, dividend and capital gains
that are taxed based on special Treaty rules.
Foreign income: A company is considered to be a resident if its registered office or
management are located in Poland. Polish residents are subject to tax on their worldwide income. Non-residents are taxed on their Polish-sourced income only.
The tax authorities’ right to tax a non-resident is further limited if the non-resident’s
home country concluded a Double Tax Treaties with Poland. If this is a case, the Polish
tax authorities are entitled to tax only such portion of the non-resident’s income, which
is derived through a “permanent establishment” located in Poland. The exceptions
relate to specific types of income such as royalties, interest, dividend and capital gains
that are taxed based on special Treaty rules.
Branch income: Foreign businesses are allowed, under certain conditions, to establish
their branch offices (exclusively within the scope of their “foreign” business activity) and
representative offices (exclusively with regard to promotion and advertising).
A branch office nearly always has permanent establishment (PE) status in Poland. Once
a branch is established, the foreign company pays corporate income tax at the standard
rate of 19% on the basis of income attributable to the operations of the Polish branch.
For this purpose, as well as for accounting purposes, a branch is obliged to keep accounting books that should include all the data necessary to establish the taxable base.
In this respect, general income determination rules relevant to Polish companies apply
to branches as well. In those few cases in which a branch can demonstrate, on the
basis of a Double Tax Treaty, that its business presence in Poland does not amount to a
permanent establishment, its profits are not subject to Polish corporate income tax.
Tax administration: CIT settlements: The annual corporate income tax return should be
submitted to the tax office within three months after the end of the tax year. The same
deadline applies to the settlement of the annual CIT liability. In financial terms the above
final settlement is not significant, since most of the annual liability is paid in advances
over the whole tax year. The CIT advances should be paid for each month by the 20th
day of the following month. Starting from 1 January 2007 their amounts no longer need
to be reported in additional monthly tax returns.
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Poland
Another reform introduced as of 1 January 2007 relates to entities which started business activities (except companies organised as a result of certain transformations)
and entities, whose gross sales revenue (i.e. including VAT) in the prior tax year did not
exceed EUR 800,000. Taxpayers in both these categories will be entitled to opt to make
advance settlements on a quarterly basis (instead of the monthly basis).
VAT settlements: Similarly to the CIT, the VAT reporting period is a month. VAT returns
should be submitted by the 25th day of the following month. An exception has been
made for “small taxpayers” (as defined in the VAT Law), who may report quarterly and
should submit VAT returns by the 25th day of the month following the last month of
the quarter being reported. Payment of the VAT due should be made within the same
deadline as the one provided for filing the monthly (or quarterly) VAT return.
Finally, businesses, which are involved in intra-community acquisitions or supplies of
goods (cross border sale transactions within the EU), are obliged to submit additional
quarterly VAT returns reporting these particular transactions.
Withholding taxes: In 2007, the general withholding tax (WHT) rate for dividends has
remained at 19% (as it was in 2006). Some other types of income, such as income from
investing in companies, including income from the redemption of shares and income
resulting from the liquidation of a company, are taxed with the same 19% rate. The
general withholding tax rate on interest and royalties paid to non-residents is 20% (i.e.
this rate has also remained unchanged as compared to 2006). The above WHT rates
may be reduced by Double Tax Treaties (please, see below).
There is also 20% withholding tax on payments made to non-residents as a consideration for intangible supplies (such as consulting services). However, if a payment is made
to a country which has a Double Tax Treaty with Poland, this tax can be avoided if
certain minimal administrative formalities are completed.
Special treatment – EU directives: Apart from the above, dividends, royalties and
interest paid to numerous European countries receive special treatment based on the
CIT provisions, which implement the relevant EU directives.
Dividends paid to corporate residents of EU countries as well as Iceland, Liechtenstein,
Norway and Switzerland are exempt from withholding tax subject to certain conditions
specified in the CIT. The basic requirement is that the foreign beneficiary should hold at
least 15% of the shares in the Polish company for at least two years (with respect to the
Swiss shareholders, the minimum shareholding is 25%). The described exemption also
applies to income resulting from the redemption of shares or the liquidation of a company.
When joining the EU Poland was granted a transitional period for removing the withholding tax on interest and royalty payments paid by Polish corporate residents to associated
EU companies. Currently, the withholding tax rate on these payments is 10%. From 1 July
2009, it will be reduced to 5%. Starting from 1 July 2013, the full exemption will apply. In
general, the transitional rules, as well as the full exemption after 1 July 2013 only apply to
interest and royalty payments between associated companies (parent-subsidiary relationships or sister-sister relationships) in which capital involvements are significant.
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Poland
Treaty rates: In those cases where EU special rules do not apply, Polish companies
are required to withhold tax on payments of dividends, interest and royalties based on
general CIT Law provisions modified by the Double Tax Treaties. Please, see below the
withholding tax rates as provided in the Treaties concluded by Poland. However, we
would like to stress that the table below shows only such rates, which result from general Treaty provisions. It shall be notet that the Treaties themselves sometimes include
special provisions (applicable in special circumstances or to special entities) providing
for the rates that are lower than the ones listed below.
Recipient
Non-treaty:
Corporations
Individuals
Treaty:
Denmark
Dividends
Interest
Royalties
%
%
%
19
20
20
15
5
5
Individual Taxation: Territoriality and residence: New definition of a resident was
introduced with the effect as of 1 January 2007. Starting from that date a resident is a
person who:
1. Has a centre of personal or business interests (a life interest centre) in the territory of
Poland, or
2. Spends more than 183 days in a fiscal year in the territory of Poland.
From that practical point of view, the most important difference, as compared to the
2006 definition, is the second premise (183-days stay in Poland). As a result of this
newly introduced definition element, much more expatriates will be regarded as Polish
residents compared to the past.
Taxation of residents and non-residents: Polish tax residents pay Polish personal
income tax on their worldwide income. Non-residents are subject to Polish tax on their
Polish-sourced income only. In many cases, non-residents can benefit from a 20% flat
tax rate calculated on their revenues (i.e. with no deduction of costs). The above flat tax
applies to various sources of income, including management fees (but not to employment contracts). The above general rules, resulting from the Polish domestic legislation,
may be modified by the applicable Double Tax Treaties.
Gross income: Overall income: Personal income tax (PIT) is levied on individual’s overall income. The taxable base is calculated as sum of income generated from all taxable
sources subject to a number of exceptions (some sources are taxed separately and left
outside the overall income calculation).
Income from a particular source is defined as surplus of revenue from such source over
the tax-deductible costs related to the same source. If within one source of income taxdeductible costs exceeds revenue the result is tax loss. Annual loss generated within a
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source of income cannot be set off against income generated from other sources. Instead
of this, a taxpayer is entitled to make a carry-forward by deducting such loss over the
next five years from income derived from the same source; however, in any particular year,
the taxpayer can deduct no more than 50% of the loss subject to the carry-forward.
Employee income: Employee revenue includes basic pay, overtime pay, supplemental
pay, awards and bonuses, compensation for unused holiday or vacation time, all other
monetary amounts, and benefits in kind, as well as all other services obtained for free
from the employer.
Special rules for non-residents: Specified types of income, if gained by non-residents,
are subject to special treatment. Namely, they are taxed at a flat rate of 20% calculated
on revenue (cost deductions are not allowed) unless a double tax treaty between Poland
and the individual’s country of residence provides otherwise. These types of earnings
include the following:
1. Revenue from copyrights and other intellectual property such as trademarks, patents and designs including revenue from sale of the rights in question;
2. Income from transfer of technology and know-how;
3. Remuneration for leasing industrial, commercial or scientific equipment;
4. Income from independent work in the fields of art, literature, science, education,
journalism, and sport including income from participation in artistic, scientific and
cultural competitions;
5. Income from work commissioned by national or local authorities or administrative
bodies, courts, prosecutors;
6. Income received as fees for membership in boards of directors, supervisory boards,
committees, and other decision-making bodies of legal entities;
7. Income from rendering personal services based on the agreement with a legal
person or other entity as long as these services are not rendered within the scope of
independent business activity, i.e., they are not offered to the public;
8. Income received from activities performed personally under management or similar
contracts.
Transfer of real property: Transfer of real property, if made within the scope of regular
business activity is taxed on general rules. Consequently, it is added to other business
income and taxed based on the progressive scale, or the 19% flat rate (please, see the
“Tax rates” Section).
However, special rules apply if the transfer of property is made outside the scope of
business activity. Namely, the transaction is taxed separately and the relevant income
is not added to the income from other sources. These special rules were reformed with
the effect from 1 January 2007. Based on the provisions, which apply from this date
onwards the tax is levied on income from the real estate disposal (revenue reduced by
costs). Based on the old provisions, which were applicable through 31 December 2006,
the tax was levied on revenue. It shall be noted, however, that the old rules still apply to
sale of real property acquired before 1 January 2007. Therefore, we describe below both
the old rules and the new ones.
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As mentioned above, if a sale transaction concerns real property acquired before 1
January 2006 the PIT is levied on revenue. The relevant tax rate is 10%. This tax is
subject to a number of exemptions. For example, the transaction shall not be taxed with
PIT if the sale is made after the lapse of five years after the end of the tax year, when
the property in question was purchased. Furthermore, a seller may avoid the 10% tax if
he/she spends the relevant proceeds on purchasing another real property for personal
accommodation purposes; the purchase should be made within 2 years after the sale
subject to the exemption.
If the real property was purchased from 1 January 2007 onwards, the subsequent
disposal is taxed with 19% rate calculated on income. The income equals the difference
between the revenue on sale and the cost of earning that revenue, increased by the
overall amount of depreciation allowances (if any) made on the property in question
before the disposal. Revenues earned from the disposal of residential real estate are
exempt from taxation if the taxpayer was registered for permanent residency in the
relevant building or flat for at least 12 months prior to the disposal date.
Transfer of shares: Transfer of shares is taxed with separate 19% tax calculated on the
income (revenue less expenses on acquisition). The income is not added to income
from other sources.
Dividens and interest: Income from dividends paid by joint-stock companies and limited
liability companies is not added to individual’s overall income. Instead, it is subject to
19% tax calculated on revenue (deductions are not available). The same rules apply to
interest on loans and savings.
The exception concerns the loans granted within the scope of regular business activities. If this is the case, the general PIT rules apply. Consequently, both the revenues and
the costs associated with such loans are taken into account while calculating the taxable base. Subsequently, income business activity is taxed according to the progressive
scale or the 19% flat rate (please, see the “Tax rates” Section).
Exempted income: More than 100 types of income are tax exempt. The most important
are the following:
1. Damages received on the basis of administrative law, civil law and other legal acts
(subject to numerous exceptions);
2. Receipts from property insurance and personal insurance claims (subject to some
exceptions).
3. Remuneration paid to individual businessmen out of the international aid funds
established by foreign financial institutions or other countries based on agreements
concluded between such institutions or countries and the Polish government;
4. Cash equivalents provided to employees when they need to use their own tools,
goods and equipment to perform work;
5. Reimbursement of an employee’s costs for relocation to another place of employment and reimbursement for the costs of settling in the new place (up to 200% of
the monthly salary due to the employee in the month of transfer);
6. Limited daily allowances and other amounts due to employees for the duration of
business trips.
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Poland
7. Additional pay granted to employees temporarily transferred to work away from
home and other benefits granted according to the principles and limits outlined in
the rules for state employees.
8. Value of expenses covered by an employer for employees staying in hotels for employees and in flats rented from private persons for the purpose of collective lodging
of employees.
9. Limited payments to employees who use their private cars for company business.
10. Income originating outside Polish territory if an agreement for the avoidance of double taxation signed by Poland and the foreign country provides for such exemption.
Tax rates:
Taxable income
Over
Not over
Tax on base
Percentage on excess
PLN 43,405
–
19% of the base minus
(Column 1)
0
PLN 572.54
PLN 43,405
PLN 85,528
PLN 85,528
PLN 7,674.41
30
PLN 20,311.31
40
No other surtaxes or additional taxes apply.
Business activities: Individuals running business activities (as sole traders or as partners
in partnerships) can opt for a flat 19% income tax rate, subject to certain conditions.
For more information
www.pwc.com/pl
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
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Romania
Romania
Background
The principalities of Wallachia and Moldavia – for centuries under the suzerainty of the
Turkish Ottoman Empire – secured their autonomy in 1856; they united in 1859 and a
few years later adopted the new name of Romania. The country gained recognition of
its independence in 1878. It joined the Allied Powers in World War I and acquired new
territories – most notably Transylvania – following the conflict. In 1940, Romania allied
with the Axis powers and participated in the 1941 German invasion of the USSR. Three
years later, overrun by the Soviets, Romania signed an armistice. The post-war Soviet
occupation led to the formation of a Communist “people’s republic” in 1947 and the
abdication of the king. The decades-long rule of dictator Nicolae Ceausescu, who took
power in 1965, and his Securitate police state became increasingly oppressive and
draconian through the 1980s. Ceausescu was overthrown and executed in late 1989.
Former Communists dominated the government until 1996 when they were swept from
power. Romania joined NATO in 2004 and the EU in 2007.
Climate: Temperate; cold, cloudy winters with frequent snow and fog; sunny summers
with frequent showers and thunderstorms.
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Romania
Terrain: Central Transylvanian Basin is separated from the Plain of Moldavia on the east
by the Carpathian Mountains and separated from the Walachian Plain on the south by
the Transylvanian Alps.
Natural resources: Petroleum (reserves declining), timber, natural gas, coal, iron ore,
salt, arable land, hydropower.
Environment – current issues: Soil erosion and degradation; water pollution; air pollution in south from industrial effluents; contamination of Danube delta wetlands.
Environment – international agreements: Party to: Air Pollution, Air PollutionPersistent Organic Pollutants, Antarctic Treaty, Biodiversity, Climate Change, Climate
Change-Kyoto Protocol, Desertification, Endangered Species, Environmental
Modification, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Ship
Pollution, Wetlands.
Signed, but not ratified: none of the selected agreements.
People
Population: 22,303,552 (July 2006 est.).
Median age:
Total: 36.6 years.
Male: 35.3 years.
Female: 37.9 years (2006 est.).
Population growth rate: -0.12% (2006 est.).
Net migration rate: -0.13 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Romanian(s). Adjective: Romanian.
Ethnic groups: Romanian 89.5%, Hungarian 6.6%, Roma 2.5%, Ukrainian 0.3%,
German 0.3%, Russian 0.2%, Turkish 0.2%, other 0.4% (2002 census).
Religions: Eastern Orthodox (including all sub-denominations) 86.8%, Protestant (various denominations including Reformate and Pentecostal) 7.5%, Roman Catholic 4.7%,
other (mostly Muslim) and unspecified 0.9%, none 0.1% (2002 census).
Languages: Romanian (official), Hungarian, German.
Literacy: Definition: Age 15 and over can read and write.
Total population: 98.4%.
Male: 99.1%.
Female: 97.7% (2003 est.).
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Romania
Government
Government type: Republic.
Capital: Bucharest.
Administrative divisions: 41 counties (judete, singular – judet) and 1 municipality
(municipiu); Alba, Arad, Arges, Bacau, Bihor, Bistrita-Nasaud, Botosani, Braila, Brasov,
Bucuresti (Bucharest), Buzau, Calarasi, Caras-Severin, Cluj, Constanta, Covasna,
Dimbovita, Dolj, Galati, Gorj, Giurgiu, Harghita, Hunedoara, Ialomita, Iasi, Ilfov,
Maramures, Mehedinti, Mures, Neamt, Olt, Prahova, Salaj, Satu Mare, Sibiu, Suceava,
Teleorman, Timis, Tulcea, Vaslui, Vilcea, Vrancea.
Independence: 9 May 1877 (independence proclaimed from the Ottoman Empire;
independence recognized 13 July 1878 by the Treaty of Berlin; kingdom proclaimed 26
March 1881); 30 December 1947 (republic proclaimed).
Constitution: 8 December 1991; revision effective 29 October 2003.
Legal system: Former mixture of civil law system and communist legal theory; is now
based on the constitution of France’s Fifth Republic.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President Traian Basescu (since 20 December 2004)
Head of government: Prime Minister Calin Popescu-Tariceanu (since 29 December
2004).
Cabinet: Council of Ministers appointed by the prime minister.
Elections: president elected by popular vote for a five-year term (eligible for a second
term); election last held 28 November 2004, with runoff between the top two candidates
held 12 December 2004 (next to be held November-December 2009); prime minister
appointed by the president with the consent of the Parliament.
Election results: percent of vote – Traian Basescu 51.23%, Adrian Nastase 48.77%.
Legislative branch: Bicameral Parliament or Parlament consists of the Senate or Senat
(137 seats; members are elected by direct, popular vote on a proportional representation basis to serve four-year terms) and the Chamber of Deputies or Camera Deputatilor
(332 seats; members are elected by direct, popular vote on a proportional representation basis to serve four-year terms).
Elections: Senate – last held 28 November 2004 (next expected to be held in November
2008); Chamber of Deputies – last held 28 November 2004 (next expected to be held
November 2008).
Election results: Senate – percent of vote by alliance/party – PSD-PUR 37.1%, PNL-PD
31.8%, PRM 13.6%, UDMR 6.2%; seats by party – PSD 44, PNL 30, PD 20, PRM
20, PC 11, UDMR 10, independents 2; Chamber of Deputies – percent of vote by alliance/party – PSD-PUR 36.8%, PNL-PD 31.5%, PRM 13%, UDMR 6.2%; seats by party
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Romania
– PSD 111, PNL 66, PD 45, PRM 34, ex-PRM (Ciontu Group) 12, UDMR 22, PC 20, PIN
(GUSA Group) 3, independent 1, ethnic minorities 18.
Judicial branch: Supreme Court of Justice (comprised of 11 judges appointed for
three-year terms by the president in consultation with the Superior Council of Magistrates,
which is comprised of the minister of justice, the prosecutor general, two civil society
representatives appointed by the Senate, and 14 judges and prosecutors elected by their
peers); a separate body, the Constitutional Court, validates elections and makes decisions regarding the constitutionality of laws, treaties, ordinances, and internal rules of the
Parliament; it is comprised of nine members serving nine-year terms, with three members
each appointed by the president, the Senate, and the Chamber of Deputies.
International organization partipation: ACCT, Australia Group, BIS, BSEC, CE, CEI,
EAPC, EBRD, ESA (cooperating state), EU (new member), FAO, G- 9, G-77, IAEA, IBRD,
ICAO, ICC, ICCt, ICRM, IFAD, IFC, IFRCS, ILO, IMF, IMO, Interpol, IOC, IOM, IPU, ISO,
ITU, ITUC, LAIA (observer), MIGA, MONUC, NAM (guest), NATO, NSG, OAS (observer),
OIF, OPCW, OSCE, PCA, SECI, UN, UNCTAD, UNESCO, UNHCR, UNIDO, UNMEE,
UNMIL, UNMIS, UNOCI, UNOMIG, UNWTO, UPU, WCL, WCO, WEU (associate partner), WFTU, WHO, WIPO, WMO, WTO, ZC.
Diplomatic representation in Denmark:
Danish diplomatic representation in Romania:
Embassy of Romania
Strandagervej 27
2900 Hellerup
Denmark
Telephone: +45 3940 7177
Telefax: +45 3962 7899
Royal Danish Embassy
Str. Dr. Burghelea nr. 3
024031 Bukarest
Office hours: Monday-Friday 09.00-15.00
E-mail: [email protected]
Telephone: +40 (21) 300 08 00
Telefax: +40 (21) 312 0358
E-mail: [email protected]
Website: www.romanianembassy.dk
Economy
Economy – overview: Romania began the transition from Communism in 1989 with
a largely obsolete industrial base and a pattern of output unsuited to the country’s
needs. The country emerged in 2000 from a punishing three-year recession thanks to
strong demand in EU export markets. Despite the global slowdown in 2001-02, strong
domestic activity in construction, agriculture, and consumption have kept GDP growth
above 4%. However, macroeconomic gains have only recently started to spur creation
of a middle class and address Romania’s widespread poverty, while corruption and red
tape continue to handicap the business environment. Romanian government confidence
in continuing disinflation was underscored by its currency revaluation in 2005, making
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Romania
10,000 “old” lei equal 1 “new” leu. The economy grew at 6.4% in 2006, the strongest
growth in the last decade. Romania joined the European Union on 1 January 2007, and
the IMF has praised the country’s recent reform efforts in preparation for EU accession.
GDP (purchasing power parity): $197.3 billion (2006 est.).
GDP – real growth rate: 6.4% (2006 est.).
GDP – per capita: $8,800 (2006 est.).
GDP – composition by sector:
Agriculture: 10.1%.
Industry: 34.7%.
Services: 55.2% (2006 est.).
Labor force: 9.33 million (2006 est.).
Unemployment rate: 6.1% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 2.4%.
Highest 10%: 27.6% (2003).
Distribution of family income – Gini index: 28.8 (2003).
Inflation rate (consumer prices): 6.8% (2006 est.).
Investment (gross fixed): 25% of GDP (2006 est.).
Budget:
Revenues: $36.89 billion.
Expenditures: $39.1 billion; including capital expenditures of $2.2 billion (2006 est.).
Exports: $33 billion f.o.b. (2006 est.).
Exports – commodities: Textiles and footwear, metals and metal products, machinery
and equipment, minerals and fuels, chemicals, agricultural products.
Exports partners: Italy 19.4%, Germany 14%, Turkey 7.9%, France 7.4%, UK 5.5%,
Hungary 4.1%, US 4.1% (2005).
Imports: $46.48 billion f.o.b. (2006 est.).
Imports – commodities: Machinery and equipment, fuels and minerals, chemicals,
textile and products, basic metals, agricultural products.
Imports – partners: Italy 15.5%, Germany 14%, Russia 8.3%, France 6.8%, Turkey
4.9%, China 4.1% (2005).
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Romania
Currency (code): Leu (ROL) is being phased out in 2006; “new” leu (RON) was introduced in 2005 due to currency revaluation: 10,000 ROL = 1 RON.
Exchange rates: Lei per US dollar – 2.84 (2006), 3 (2005), 3 (2004), 3 (2003), 3 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: The standard profit tax rate is 16%, for both Romanian
companies and foreign companies operating through a permanent establishment in
Romania.
The profit tax liability due from nightclubs and gambling operations cannot be less than
5% of the revenue obtained from such activities.
Micro-companies (turnover of up to EUR 100,000 and between 1 and 9 employees) are
taxed at 3% of revenue earned starting 1 January 2005.
The amounts are payable each quarter, by the 25th of the month following the quarter
for which the tax is paid.
Corporate residence: A company is considered resident in Romania if it was set up
under Romanian law, or has its place of effective management in Romania.
Foreign income: Resident companies are taxed on worldwide income, unless a double
tax treaty between Romania and the said state stipulates otherwise.
Branch income: Branch: A foreign company can set up a branch in Romania.
Profits derived by the branch are taxed at the standard profit tax rate of 16%.
Branches can only operate in the same field of activity as their parent companies.
Representative offices: Representative offices are often established as a first step to operating in Romania. A representative office can only undertake auxiliary or preparatory
activities, cannot trade in its own name and cannot engage in any contractual activity. A
representative office can only perform a limited range of activities without being considered a permanent establishment for profit tax purposes.
Representative offices are subject to a yearly flat tax of €4,000 (payable in local currency RON). It has to be paid in two instalments by 20 June and 20 December. If a
representative office is set up or closed down during a year, the tax due for that year is
pro-rated on the basis of the number of months the representative office operated in
that fiscal year.
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Romania
Tax administration: In Romania, the fiscal year is the calendar year.
Companies applying accounting regulations harmonized with International Accounting
Standards and in compliance with the European Directives have to file their 2005 annual
financial statements to the tax authorities within 150 days of year-end. Companies
applying simplified accounting regulations harmonized with the European Directives and
micro-companies have to file their 2005 annual financial statements within 120 days of
year-end. Companies that have not performed activities have to file their 2005 annual
financial statements to the tax authorities within 60 days of year-end.
New Accounting Regulations came into force on 1 January 2006. They comply with the
Fourth European Directive on the annual accounts of certain types of companies, and
govern the format and content of the annual financial statements, accounting principles,
valuation rules as well as the rules for preparing, approving, auditing and publishing
annual financial statements.
Annual profit tax returns should be submitted to the tax authorities together with annual
financial statements if the company has not chosen to submit the annual profit tax
return on 15 February. There are certain returns that should be submitted monthly (e.g.
the return on tax liabilities due to the consolidated general budget, the VAT return and
social security contribution returns).
Tax payment: Payment of profit tax and most local taxes should be made quarterly while
VAT, salary related contributions, and withholding tax should be paid monthly.
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Romania
Calendar year ending December 31, 2005 (In RON):
(in RON)
Net profit before tax
100,000
Less—Deductions:
Dividends received from
Romanian company
10,000
Deductible contribution to reserve fund (5% of profit)
5,000
15,000
85,000
Add—Nondeductible expenses:
Penalties
2,500
Protocol expenses over the
deductibility limit
2,500
Sponsorship expenses
1,500
6,500
Taxable income before offset of
losses brought forward
91,500
Less—Loss brought forward
10,000
Taxable income
13,040
Less:
Fiscal credit granted for sponsorship (assumed within legal limit)
Tax on profit paid from the beginning of the year
1,500
10,000
(10,500)
Payable tax on profit
2,540
Note:
Official exchange rate of the lei at January 1, 2006: US$1 = RON 3.0930
Withholding taxes: From 1 January 2006, a 16% domestic withholding tax rate is
levied on revenues such as dividends, interest, royalties, commissions and management
advisory services obtained from Romania by non-resident individuals and legal entities.
Revenues from gaming, however, continue to be taxed at 20%.
These rates can be reduced by the application of Double Tax Treaties. The more favourable treaty rates may be applied immediately if the beneficiary of the payment makes a
fiscal residence certificate available by the payment date.
Revenues obtained by non-residents from interest on demand deposits and current
accounts Office hoursed with banks or other credit institutions in Romania are exempt
128
Romania
from withholding tax if the interest rate is lower than or equal to the inter-bank interest
rate for one-month time deposits denominated in the same currency. Revenues from
interest on deposits in mutual benefit funds are also exempt.
Since 1 January 2005, the income from brokerage services supplied outside Romania is
not anymore subject to Romanian withholding tax.
Revenues from Romania obtained by non-residents from international transport and the
supply of ancillary services thereto are exempt from withholding tax.
If a contract stipulates net payments to the foreign party (and assuming withholding tax
would be due for the type of payment concerned), it is the view of the tax authorities
that the Double Tax Treaty provisions cannot be applied, even if a tax residence certificate is available.
After Romania joins the EU (envisaged for 1 January 2007), no dividend tax should be withheld from dividends paid to EU shareholders, where the beneficiary has held at least 25%
of the company’s share capital for two consecutive years on the date the dividend is paid.
Also, under the EU Savings Directive the revenues (i.e. interest) from savings received by
individual residents of the EU will be exempt from withholding tax. Under the EU Interest
and Royalties Directive, interest payments made to associated EU companies should no
longer be subject to withholding tax. However, Romania was granted a transitional period
until 1 January 2011. During that transitional period, the withholding tax rate on payments
of interest made to an associated company of another EU Member State or to an EU
Member State’s permanent establishment situated in another EU Member State, must not
exceed 10%. These provisions still need to be implemented in the Romanian law.
Individual Taxation: Territoriality and residence: The following criteria apply when
establishing the individuals’ taxable income in Romania:
1. Individuals domiciled in Romania are liable to tax on their world-wide revenues.
2. Romanian individuals without Romanian domicile are taxed on income obtained
from Romania through a fixed base in Romania or during a period of presence in
Romania of more than 183 days in any 12-month period, or if they have their centre
of vital interests in Romania.
Currently, foreign individuals are only taxed on income from activities in Romania or
Romanian source income, regardless of where the income is paid.
As of 2007, foreign individuals who have met one of the following conditions:
• spend more than 183 days in Romania each year;
• have their centre of vital interests in Romania
• for three consecutive years will be taxed in Romania on their world-wide income.
If certain conditions are met, individuals, residents of a Treaty country may be exempt
from individual income taxation under the regulations of the international conventions
for the avoidance of double taxation between Romania and their country of residence.
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Romania
Work permits: As of October 2005, the Law 203/1999 on work permits was amended by
Government Ordinance 130/2005 and the provisions of the new law came into force in
February 2006, when its application norms were released.
Under the new rules, foreign individuals need work visas and a specific type of work
permit in order to be employed / be assigned in Romania based on a local employment
contract / letter of assignment.
The work permit is granted by the Romanian Ministry of Labor, Social Solidarity and
Family based on the work visa. Under the new law, there are seven types of work
permits, as following:
• type A (for permanent workers)
• type B (for secondees)
• type C (for seasonal workers)
• type D (for trainees)
• type E (for professional athletes)
• type F (nominal)
• type G (for cross-border workers).
Work permits are generally valid for up to 12 months with possibility of extensions for
up to 12 month intervals (apart from work permit type B which cannot be extended) and
they are kept by the foreign individuals.
Work visas are not required in order to obtain a work permit for the following individuals:
• citizens of states with which Romanian has concluded mutual agreements for the
elimination of visas at border crossing (i.e. citizens of Republic of Moldova);
• foreign individuals exempted from long stay visa (i.e. citizen from EU, citizens from
•
•
•
•
EEA, Japanese, Americans, Canadians);
foreign citizens studying in Romania;
secondees;
foreign individuals that obtained a residency permit for family reunion;
family members of Romanian citizens.
Gross income: Employee gross income includes basic pay, overtime pay, supplementary
pay, awards and bonuses, compensation for unused holiday or vacation time, and all
other monetary amounts and benefits in kind, as well as other services obtained without
payment. The income for the month from each source is defined as the total amount of
revenues received during that month, irrespective of the period in which it was generated.
The flat personal income tax rate of 16% applies to income resulting from salaries;
income from independent activities; rental of real estate; agricultural activities (in
agricultural associations without legal personality); investment income; independently
organized art, entertainment or sports; prizes; and pensions.
The value of in-kind benefits is assessed and is taxed in the month they are received.
Tax settlement is made at the same time with payment of last salary rights pertaining to
the respective month.
130
Romania
Tax rates: As of January 2005, a flat personal income tax rate of 16% came into force.
Capital gains can be subject to 1% income tax under certain conditions (please see
“Gross Income” for further details.)
For more information
www.pwc.com/ro
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
131
Russian Federation
Russian Federation
Background
Founded in the 12th century, the Principality of Muscovy, was able to emerge from over
200 years of Mongol domination (13th-15th centuries) and to gradually conquer and
absorb surrounding principalities. In the early 17th century, a new Romanov Dynasty
continued this policy of expansion across Siberia to the Pacific. Under Peter I (ruled
1682-1725), hegemony was extended to the Baltic Sea and the country was renamed
the Russian Empire. During the 19th century, more territorial acquisitions were made in
Europe and Asia. Defeat in the Russo-Japanese War of 1904-1905 contributed to the
Revolution of 1905, which resulted in the formation of a parliament and other reforms.
Repeated devastating defeats of the Russian army in World War I led to widespread rioting in the major cities of the Russian Empire and to the overthrow in 1917 of the imperial
household. The Communists under Vladimir Lenin seized power soon after and formed
the USSR. The brutal rule of Iosif Stalin (1928-53) strengthened Communist rule and
Russian dominance of the Soviet Union at a cost of tens of millions of lives. The Soviet
economy and society stagnated in the following decades until General Secretary Mikhail
Gorbachev (1985-91) introduced glasnost (Office hoursness) and perestroika (restructuring) in an attempt to modernize Communism, but his initiatives inadvertently released
forces that by December 1991 splintered the USSR into Russia and 14 other independent republics. Since then, Russia has struggled in its efforts to build a democratic political system and market economy to replace the social, political, and economic controls of
133
Russian Federation
the Communist period. While some progress has been made on the economic front, and
Russia’s management of its windfall oil wealth has improved its financial standing, recent
years have seen a recentralization of power under Vladimir Putin and democratic institutions remain weak. Russia has severely disabled the Chechen rebel movement, although
sporadic violence still occurs throughout the North Caucasus.
Climate: Ranges from steppes in the south through humid continental in much of
European Russia; subarctic in Siberia to tundra climate in the polar north; winters vary
from cool along Black Sea coast to frigid in Siberia; summers vary from warm in the
steppes to cool along Arctic coast.
Terrain: Broad plain with low hills west of Urals; vast coniferous forest and tundra in
Siberia; uplands and mountains along southern border regions.
Natural resources: Wide natural resource base including major deposits of oil, natural
gas, coal, and many strategic minerals, timber.
Note: Formidable obstacles of climate, terrain, and distance hinder exploitation of
natural resources.
Environment – current issues: Air pollution from heavy industry, emissions of coal-fired
electric plants, and transportation in major cities; industrial, municipal, and agricultural
pollution of inland waterways and seacoasts; deforestation; soil erosion; soil contamination from improper application of agricultural chemicals; scattered areas of sometimes
intense radioactive contamination; groundwater contamination from toxic waste; urban
solid waste management; abandoned stocks of obsolete pesticides.
Environment – international agreements: Party to: Air Pollution, Air Pollution-Nitrogen
Oxides, Air Pollution-Sulfur 85, Antarctic-Environmental Protocol, Antarctic-Marine
Living Resources, Antarctic Seals, Antarctic Treaty, Biodiversity, Climate Change,
Climate Change-Kyoto Protocol, Endangered Species, Environmental Modification,
Hazardous Wastes, Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship
Pollution, Tropical Timber 83, Wetlands, Whaling.
Signed, but not ratified: Air Pollution-Sulfur 94.
People
Population: 142,893,540 (July 2006 est.).
Median age:
Total: 38.4 years.
Male: 35.2 years.
Female: 41.3 years (2006 est.).
Population growth rate: -0.37% (2006 est.).
Net migration rate: 1.03 migrant(s)/1,000 population (2006 est.).
134
Russian Federation
Nationality: Noun: Russian(s). Adjective: Russian.
Ethnic groups: Russian 79.8%, Tatar 3.8%, Ukrainian 2%, Bashkir 1.2%, Chuvash
1.1%, other or unspecified 12.1% (2002 census).
Religions: Russian Orthodox 15-20%, Muslim 10-15%, other Christian 2% (2006 est.)
Note: estimates are of practicing worshipers; Russia has large populations of non-practicing believers and non-believers, a legacy of over seven decades of Soviet rule.
Languages: Russian, many minority languages.
Literacy: Definition: Age 15 and over can read and write.
Total population: 99.6%.
Male: 99.7%.
Female: 99.5% (2003 est.).
Government
Government type: Federation.
Capital: Moscow.
Administrative divisions: 48 oblasts (oblastey, singular – oblast), 21 republics (respublik, singular – respublika), 7 autonomous okrugs (avtonomnykh okrugov, singular
– avtonomnyy okrug), 7 krays (krayev, singular – kray), 2 federal cities (goroda, singular
– gorod), and 1 autonomous oblast (“avtonomnaya oblast”).
Oblasts: Amur (Blagoveshchensk), Arkhangel’sk, Astrakhan’, Belgorod, Bryansk,
Chelyabinsk, Chita, Irkutsk, Ivanovo, Kaliningrad, Kaluga, Kamchatka (PetropavlovskKamchatskiy), Kemerovo, Kirov, Kostroma, Kurgan, Kursk, Leningrad, Lipetsk,
Magadan, Moscow, Murmansk, Nizhniy Novgorod, Novgorod, Novosibirsk, Omsk,
Orenburg, Orel, Penza, Pskov, Rostov, Ryazan’, Sakhalin (Yuzhno-Sakhalinsk), Samara,
Saratov, Smolensk, Sverdlovsk (Yekaterinburg), Tambov, Tomsk, Tula, Tver’, Tyumen’,
Ul’yanovsk, Vladimir, Volgograd, Vologda, Voronezh, Yaroslavl’.
Republics: Adygeya (Maykop), Altay (Gorno-Altaysk), Bashkortostan (Ufa), Buryatiya
(Ulan-Ude), Chechnya (Groznyy), Chuvashiya (Cheboksary), Dagestan (Makhachkala),
Ingushetiya (Magas), Kabardino-Balkariya (Nal’chik), Kalmykiya (Elista), KarachayevoCherkesiya (Cherkessk), Kareliya (Petrozavodsk), Khakasiya (Abakan), Komi (Syktyvkar),
Mariy-El (Yoshkar-Ola), Mordoviya (Saransk), North Ossetia (Vladikavkaz), Sakha
[Yakutiya] (Yakutsk), Tatarstan (Kazan’), Tyva (Kyzyl), Udmurtiya (Izhevsk).
Autonomous okrugs: Aga Buryat (Aginskoye), Chukotka (Anadyr’), Khanty-Mansi,
Koryak (Palana), Nenets (Nar’yan-Mar), Ust’-Orda Buryat (Ust’-Ordynskiy), YamaloNenets (Salekhard).
Krays: Altay (Barnaul), Khabarovsk, Krasnodar, Krasnoyarsk, Permskiy, Primorskiy
(Vladivostok), Stavropol’.
Federal cities: Moscow (Moskva), Saint Petersburg (Sankt-Peterburg).
Autonomous oblast: Yevrey [Jewish] (Birobidzhan).
135
Russian Federation
Note: Administrative divisions have the same names as their administrative centers
(exceptions have the administrative center name following in parentheses).
Independence: 24 August 1991 (from Soviet Union).
Constitution: Adopted 12 December 1993.
Legal system: Based on civil law system; judicial review of legislative acts.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President Vladimir Vladimirovich Putin (acting president 31 December 1999-6 May 2000, president since 7 May 2000).
Head of government: Premier Mikhail Yefimovich Fradkov (since 5 March 2004); First
Deputy Premier Dmitriy Anatolyevich Medvedev (since 14 November 2005), Deputy
Premiers Aleksandr Dmitriyevich Zhukov (since 9 March 2004) and Sergey Borisovich
Ivanov (since 14 November 2005).
Cabinet: Ministries of the Government or “Government” composed of the premier and
his deputies, ministers, and selected other individuals; all are appointed by the president
Note: there is also a Presidential Administration (PA) that provides staff and policy
support to the president, drafts presidential decrees, and coordinates policy among
government agencies; a Security Council also reports directly to the president.
Elections: president elected by popular vote for a four-year term (eligible for a second
term); election last held 14 March 2004 (next to be held March 2008); Note – no vice
president; if the president dies in office, cannot exercise his powers because of ill
health, is impeached, or resigns, the premier serves as acting president until a new
presidential election is held, which must be within three months; premier appointed by
the president with the approval of the Duma.
Election results: Vladimir Vladimirovich Putin reelected president; percent of vote
– Vladimir Vladimirovich Putin 71.2%, Nikolay Kharitonov 13.7%, other (no candidate
above 5%) 15.1%.
Legislative branch: Bicameral Federal Assembly or Federalnoye Sobraniye consists
of the Federation Council or Sovet Federatsii (178 seats; as of July 2000, members
appointed by the top executive and legislative officials in each of the 88 federal
administrative units – oblasts, krays, republics, autonomous okrugs and oblasts, and
the federal cities of Moscow and Saint Petersburg; members serve four-year terms)
and the State Duma or Gosudarstvennaya Duma (450 seats; currently elected by
proportional representation from party lists winning at least 7% of the vote; members
are elected by direct, popular vote to serve four-year terms).
Elections: State Duma – last held 7 December 2003 (next to be held in December 2007).
Election results: State Duma – percent of vote received by parties clearing the 5%
threshold entitling them to a proportional share of the 225 party list seats – United
Russia 37.1%, CPRF 12.7%, LDPR 11.6%, Motherland 9.1%; seats by party – United
Russia 222, CPRF 53, LDPR 38, Motherland 37, People’s Party 19, Yabloko 4, SPS
2, other 7, independents 65, repeat election required 3; Note – seats by party as of 1
July 2006 – United Russia 309, CPRF 45, LDPR 35, Motherland 29, People’s Party 12,
independents 18, vacant 2.
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Russian Federation
Judicial branch: Constitutional Court; Supreme Court; Supreme Arbitration Court;
judges for all courts are appointed for life by the Federation Council on the recommendation of the president.
International organization partipation: APEC, Arctic Council, ARF, ASEAN (dialogue
partner), BIS, BSEC, CBSS, CE, CERN (observer), CIS, EAEC, EAPC, EBRD, G- 8,
GCTU, IAEA, IBRD, ICAO, ICC, ICCt (signatory), ICRM, IDA, IFC, IFRCS, IHO, ILO,
IMF, IMO, Interpol, IOC, IOM (observer), IPU, ISO, ITU, ITUC, LAIA (observer), MIGA,
MINURSO, MONUC, NAM (guest), NSG, OAS (observer), OIC (observer), ONUB, OPCW,
OSCE, Paris Club, PCA, PFP, SCO, UN, UN Security Council, UNCTAD, UNESCO,
UNHCR, UNIDO, UNITAR, UNMEE, UNMIL, UNMIS, UNMOVIC, UNOCI, UNOMIG,
UNTSO, UNWTO, UPU, WCO, WFTU, WHO, WIPO, WMO, WTO (observer), ZC.
Diplomatic representation in Denmark:
Danish representation in Russia:
The Embassy of the
Russian Federation in Denmark
Kristianiagade 5
2100 Copenhagen Ø
Denmark
Telephone: +45 3542 5585, +45 3542 55 86
Telefax: +45 3542 3741
Embassy of Denmark
9 Prechistensky Pereulok
119034 Moscow
Telephone: +7 (495) 642 68 00
Telefax: +7 (495) 775 01 91
Office hours: Monday-Friday: 08.30-12.30 and
14.00-18.15.
Consulate General of Denmark
Kamenniy Ostrov, Bolshaya Alleya 13
197022 St. Petersburg
Telephone:: +7 (812) 703 3900
Telefax:: +7 (812) 703 3901
E-mail: [email protected]
E-mail: [email protected]
E-mail: [email protected]
Economy
Economy – overview: Russia ended 2006 with its eighth straight year of growth,
averaging 6.7% annually since the financial crisis of 1998. Although high oil prices
and a relatively cheap ruble are important drivers of this economic rebound, since
2000 investment and consumer-driven demand have played a noticeably increasing
role. Real fixed capital investments have averaged gains greater than 10% over the
last five years, and real personal incomes have realized average increases over 12%.
During this time, poverty has declined steadily and the middle class has continued to
expand. Russia has also improved its international financial position since the 1998
financial crisis. Over the past several years, Russia has used its stabilization fund
based on oil taxes to prepay all Soviet-era sovereign debt to Paris Club creditors and
the IMF. Foreign debt has decreased to 39% of GDP, mainly due to decreasing state
debt, while commercial debt to foreigners has risen strongly. Oil export earnings have
allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $315
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Russian Federation
billion at yearend 2006, the third largest reserves in the world. These achievements,
along with a renewed government effort to advance structural reforms and fiscal restraint, have raised business and investor confidence in Russia’s economic prospects.
Russia’s economy grew 6.6% in 2006 and inflation growth was below 10% for the
first time in the past 10 years. Russia shows signs of increasing its ties to the global
economy, having signed a bilateral market access agreement with the US as a prelude
to possible WTO entry. Nevertheless, serious problems persist. Oil, natural gas, metals, and timber account for more than 80% of exports, leaving the country vulnerable
to swings in world commodity prices. Russia’s manufacturing base is dilapidated and
must be replaced or modernized if the country is to achieve broad-based economic
growth. The banking system, while growing at a high rate and increasing consumer
lending, is still small relative to the banking sectors of Russia’s emerging market
peers. Domestic and foreign investor sentiment is tempered by political uncertainties
ahead of elections, corruption, and widespread lack of trust in institutions. President
Putin continues to grant more influence to forces within his government that desire
to reassert state control over the economy. Government spending has increased
and risks becoming populist, most notably in the form of the four “national projects”
of agriculture, education, housing, and medicine. Russia has made little progress in
building the rule of law, the bedrock of a modern market economy.
GDP (purchasing power parity): $1.723 trillion (2006 est.).
GDP – real growth rate: 6.6% (2006 est.).
GDP – per capita: $12,100 (2006 est.).
GDP – composition by sector:
Agriculture: 5.3%.
Industry: 36.6%.
Services: 58.2% (2006 est.).
Labor force: 73.88 million (2006 est.).
Unemployment rate: 6.6% plus considerable underemployment (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 1.7%.
Highest 10%: 38.7% (1998).
Distribution of family income – Gini index: 40.5 (2005).
Inflation rate (consumer prices): 9.8% (2006 est.).
Investment (gross fixed): 18.2% of GDP (2006 est.).
Budget:
Revenues: $222.2 billion.
Expenditures: $157.3 billion; including capital expenditures of $NA (2006 est.).
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Russian Federation
Exports: $317.6 billion (2006 est.).
Exports – commodities: Petroleum and petroleum products, natural gas, wood
and wood products, metals, chemicals, and a wide variety of civilian and military
manufactures.
Exports partners: Netherlands 10.3%, Germany 8.3%, Italy 7.9%, China 5.5%, Ukraine
5.2%, Turkey 4.5%, Switzerland 4.4% (2005).
Imports: $171.5 billion (2006 est.).
Imports – commodities: Machinery and equipment, consumer goods, medicines,
meat, sugar, semifinished metal products.
Imports – partners: Germany 13.6%, Ukraine 8%, China 7.4%, Japan 6%, Belarus
4.7%, US 4.7%, Italy 4.6%, South Korea 4.1% (2005).
Currency (code): Russian ruble (RUR).
Exchange rates: Russian rubles per US dollar – 27.5 (2006), 28.284 (2005), 28.814
(2004), 30.692 (2003), 31.349 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: Profits tax: Profits earned by enterprises are taxed at a
rate not exceeding 24%, of which 6,5% is paid to the federal budget and 17,5% is paid
to the regional budgets. Regional legislative authorities are allowed to reduce (for certain
categories of taxpayers) the tax payable to their respective budgets by up to four
percentage points, thus in some regions of Russia the regional portion of profits tax may
be decreased down to 13,5%.
Corporate residence: The tax system in Russia distinguishes between Russian entities
and foreign entities on the basis of their place of incorporation. Foreign entities are
subject to Russian tax on profits earned from activities conducted through permanent
establishments on the territory of the Russian Federation or on income from sources
in Russia. Russian entities are taxed on their worldwide income. Certain concessions
apply under double taxation treaties.
All taxpayers are required to obtain a tax registration and will be assigned a taxpayer
identification number, whether or not their activities are taxable.
Foreign income: Enterprises and organizations that are legal entities under the law of
the Russian Federation are taxable on their worldwide income. Foreign taxes paid by
such enterprises on profits earned outside the Russian Federation can be offset against
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Russian Federation
the profits tax payable in Russia in an amount not exceeding the profits tax payable in
Russia on these profits.
Branch Income: The term “permanent establishment” (PE) is defined as a bureau,
office, division, agency, or any other permanent place where regular business activity is
carried on and/or is connected with exploiting natural resources, executing work under
contract on the construction, installation, erection, assembly, adjustment, and maintenance of equipment; or supplying services or carrying out other work. Organizations
and individuals on the territory of the Russian Federation authorized to represent foreign
legal entities on the basis of a contract, acting on behalf of that foreign legal entity, and
having authorization to conclude contracts in the name of that foreign legal entity or
to negotiate significant terms of contracts are also considered to constitute a PE of a
foreign legal entity. However, if a Russian legal entity or an individual acts as an agent in
the course of its ordinary business, this should not constitute a PE. The profit earned by
a foreign legal entity through a PE in the Russian Federation is subject to profits tax.
The determination of branch income is broadly similar to determination of income by a
Russian legal entity, with an exception that in the case of a branch, only income related
to activity in the Russian Federation is subject to tax. Profit earned from business
activities in the Russian Federation through a permanent establishment is calculated
according to the profits tax chapter of the tax code provisions based on tax accounting
records using direct method. The use of “indirect” method is allowed only for preparatory and auxiliary activity in favor of third parties on a free of charge basis.
Tax Administration: Returns and payments: Legal entities may choose between two
profits tax payment systems, either quarterly assessments of tax (paying monthly
advance payments) or monthly payment of tax on actual profit. Only the quarterly
assessment system should be applied by organizations with average quarterly revenue
less than RUB 3 million (calculated for preceding four quarters), organizations financed
from the Russian budget, PEs of foreign legal entities, and some other organizations.
The method chosen should be applied consistently through the year.
Filing: An annual declaration must be filed by March 28 of the year following the end of the
reporting year. Interim declarations (quarterly or monthly) must be filed within 28 days following the end of a reporting period. Profits tax is payable within the same dates. Foreign
companies operating through a permanent establishment are required to submit a return
by March 28 following the calendar year. Because of the regional tax basis, companies are
required to file tax returns in each place in which they conduct business.
Withholding taxes: Under profits tax law, passive income (such as dividends, interest,
royalties) and income from sale of immovable property and shares related to charter
capital consisting of more than 50% of immovable property, lease income, freight, and
international transportation received by foreign legal entities from sources in Russia is
subject to profits tax withholding at source provided that they are not derived via a permanent establishment (PE) of respective foreign legal entity (in such case, income is taxed via
a PE). Any other income received by foreign legal entities that do not have PEs in Russia
is not subject to withholding tax. Unless lower treaty rates apply, the domestic withholding
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Russian Federation
rate for dividends is 15%, while income of a foreign legal entity from all other income
including interest, intellectual property such as royalties, copyrights, licenses, rentals, and
other types of income listed in the tax code (excluding freight, which is taxed at 10%) from
sources in the territory of the Russian Federation is taxed at 20%. A foreign legal entity
should provide to a Russian tax agent (a company paying income) a residence certificate
from the tax (or other competent authority), in order to enjoy double tax treaty benefits.
The Russian tax authorities recognize the terms of the former USSR treaties until
renegotiated by the Russian government. The tax treaty network is continuously being
updated. This list is current as of January 1, 2004, and indicates the withholding tax
rates stipulated in the treaties.
Country
Treaty benefits
available from
Dividends
Interest
Royalties
Construction site
duration
(months)
Denmark/RF
January 1,1998
10
0
0
12
Protocol
(important
aspects)
Individual Taxation: Territoriality and residence: For both Russian and foreign individuals, tax residence in Russia is determined by the number of days in the calendar year
in which a person is present in Russia. For personal income tax purposes, an individual
is considered resident if physically present in Russia for 183 or more days in a calendar
year (days of arrival in Russia should not be considered as days spent in Russia, days of
departure from Russia should be counted as days spent in Russia).
Russian residents are liable to tax on their total worldwide income received in a calendar
year. Non-residents are taxed on income received from sources in Russia. Some tax
treaties provide for periods of exemption from Russian taxation on the Russian-source
income of non-residents. Consequently, the details of any applicable tax treaty should
always be examined before commencing work in Russia.
Income from Russian sources is determined as income received from property located
in Russia, dividends received from Russian legal entities, remuneration for activity
performed in Russia (even if it is paid by a foreign legal entity from abroad) and so on.
Gross income: Employment income: All income received in the course of a calendar year
from employment is subject to personal income tax. This includes all earnings, bonuses,
and other forms of payment or remuneration in cash or in kind. For expatriates, taxable
income includes allowances paid to employees living in Russia and compensation for
school fees, food, travel by employees and their families on holiday, and other non-business purposes. Benefits in kind are taxed at their monetary equivalent (market price).
Capital gains: There is no separate capital gains tax. Instead, gains from the disposal of
property and assets are subject to income tax at the normal rate. The taxable amount is
calculated as the difference between sale proceeds and historical cost or application of
a statutory exemption. The statutory exemption is provided for all property sold during a
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calendar year and is limited to RUB 1 million in the case of real estate and RUB 125,000
for other property. Proceeds received from the sale of property are fully excluded
from taxation if the property is owned for three years. This statutory exemption does
not apply to gains on assets disposed of in the course of entrepreneurial activities.
Additionally, the legislation sets special rules for transactions with securities.
Other taxable income: Other types of income taxable in Russia are as follows:
1. Interest income from deposits outside Russia.
2. Dividends on shares.
3. Income from leasing property, both in Russia and abroad.
4. Royalties from the creation, publication, performance, and use of works of literature,
art, and science, as well as from inventions, discoveries, and industrial prototypes
(subject to deductions).
5. Interest and gains from deposits in banks and other credit institutions in Russia
(above set limits).
6. Material benefits (the difference between interest paid on all loans and a notional
interest amount calculated with reference to a benchmark rate set by the Russian
Authorities).
Non-taxable income: The following income is not taxable:
1. In limited circumstances reimbursement by an employer for expenses arising from a
work-related change of domicile.
2. Payments by an employer in compensation for injury or damage to health incurred in
the performance of employment duties.
3. Severance gratuities payable upon dismissal (within established limits).
4. Business travel expenses within limits if certain documentary requirements are met.
Tax rates: Income tax is payable in roubles at the rates applicable to certain income
categories.
Earnings in foreign currency are converted into roubles at the exchange rate of the
Central Bank of the Russian Federation on each date income is received. The tax rate is
13% for all types of income received by residents, except those listed below.
1. Dividends received by tax residents are taxed at 9%. There is a special offset
mechanism for dividends paid out by group companies to its shareholders.
2. The tax rate of 35% is established in respect of certain types of income:
a. The value of any awards and prizes received during contests, games, and other
events conducted for the purpose of advertising goods, work, and services, in
excess of the set limits.
b. Insurance payments under voluntary insurance agreements in excess of the set
limits.
c. Interest income on deposits in Russian banks in excess of the amount calculated
based on the Central Bank current interest rate on rouble deposits during the
period for which the interest is accrued and 9% annual interest on foreign currency deposits.
d. The difference between interest paid on all loans and a notional interest amount
calculated with reference to a benchmark rate set by the Russian Authorities.
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Russian Federation
The tax rate is established at 30% in respect of any income received by individuals that
are non-residents of the Russian Federation for tax purposes.
Exchange rate issues: Foreign income is convertible into roubles for tax calculation
purposes at the exchange rate quoted by the Central Bank of the Russian Federation,
effective on the date of receipt of the income.
Exchange rate issues: Foreign income is convertible into roubles for tax calculation
purposes at the exchange rate quoted by the Central Bank of the Russian Federation,
effective on the date of receipt of the income.
For more information
www.pwc.com/ru
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
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Slovenia
Slovenia
Background
The Slovene lands were part of the Austro-Hungarian Empire until the latter’s dissolution
at the end of World War I. In 1918, the Slovenes joined the Serbs and Croats in forming
a new multinational state, which was named Yugoslavia in 1929. After World War II,
Slovenia became a republic of the renewed Yugoslavia, which though Communist, distanced itself from Moscow’s rule. Dissatisfied with the exercise of power by the majority
Serbs, the Slovenes succeeded in establishing their independence in 1991 after a short
10-day war. Historical ties to Western Europe, a strong economy, and a stable democracy have assisted in Slovenia’s transformation to a modern state. Slovenia acceded to
both NATO and the EU in the spring of 2004.
Climate: Mediterranean climate on the coast, continental climate with mild to hot summers and cold winters in the plateaus and valleys to the east.
Terrain: A short coastal strip on the Adriatic, an alpine mountain region adjacent to Italy
and Austria, mixed mountains and valleys with numerous rivers to the east.
Natural resources: Lignite coal, lead, zinc, mercury, uranium, silver, hydropower,
forests.
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Slovenia
Environment – current issues: Sava River polluted with domestic and industrial waste;
pollution of coastal waters with heavy metals and toxic chemicals; forest damage near
Koper from air pollution (originating at metallurgical and chemical plants) and resulting
acid rain.
Environment – international agreements: Party to: Air Pollution, Air Pollution-Nitrogen
Oxides, Air Pollution-Sulfur 94, Biodiversity, Climate Change, Climate Change-Kyoto
Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea,
Marine Dumping, Ozone Layer Protection, Ship Pollution, Wetlands, Whaling.
Signed, but not ratified: none of the selected agreements.
People
Population: 2,010,347 (July 2006 est.).
Median age:
Total: 40.6 years.
Male: 39 years.
Female: 42.2 years (2006 est.).
Population growth rate: -0.05% (2006 est.).
Net migration rate: 0.88 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Slovene(s). Adjective: Slovenian.
Ethnic groups: Slovene 83.1%, Serb 2%, Croat 1.8%, Bosniak 1.1%, other or unspecified 12% (2002 census).
Religions: Catholic 57.8%, Orthodox 2.3%, Muslim 2.4%, other Christian 0.9%, unaffiliated 3.5%, other or unspecified 23%, none 10.1% (2002 census).
Languages: Slovenian 91.1%, Serbo-Croatian 4.5%, other or unspecified 4.4% (2002
census).
Literacy: Definition: N/A.
Total population: 99.7%.
Male: 99.7%.
Female: 99.6%.
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Slovenia
Government
Government type: Parliamentary republic.
Capital: Ljubljana.
Administrative divisions: 182 municipalities (obcine, singular – obcina) and 11
urban municipalities (mestne obcine , singular – mestna obcina ) Ajdovscina, Beltinci,
Benedikt, Bistrica ob Sotli, Bled, Bloke, Bohinj, Borovnica, Bovec, Braslovce, Brda,
Brezice, Brezovica, Cankova, Celje, Cerklje na Gorenjskem, Cerknica, Cerkno,
Cerkvenjak, Crensovci, Crna na Koroskem, Crnomelj, Destrnik, Divaca, Dobje,
Dobrepolje, Dobrna, Dobrova-Horjul-Polhov Gradec, Dobrovnik-Dobronak, Dolenjske
Toplice, Dol pri Ljubljani, Domzale, Dornava, Dravograd, Duplek, Gorenja VasPoljane, Gorisnica, Gornja Radgona, Gornji Grad, Gornji Petrovci, Grad, Grosuplje,
Hajdina, Hoce-Slivnica, Hodos-Hodos, Horjul, Hrastnik, Hrpelje-Kozina, Idrija, Ig,
Ilirska Bistrica, Ivancna Gorica, Izola-Isola, Jesenice, Jezersko, Jursinci, Kamnik,
Kanal, Kidricevo, Kobarid, Kobilje, Kocevje, Komen, Komenda, Koper-Capodistria,
Kostel, Kozje, Kranj, Kranjska Gora, Krizevci, Krsko, Kungota, Kuzma, Lasko, Lenart,
Lendava-Lendva, Litija, Ljubljana, Ljubno, Ljutomer, Logatec, Loska Dolina, Loski
Potok, Lovrenc na Pohorju, Luce, Lukovica, Majsperk, Maribor, Markovci, Medvode,
Menges, Metlika, Mezica, Miklavz na Dravskem Polju, Miren-Kostanjevica, Mirna Pec,
Mislinja, Moravce, Moravske Toplice, Mozirje, Murska Sobota, Muta, Naklo, Nazarje,
Nova Gorica, Novo Mesto, Odranci, Oplotnica, Ormoz, Osilnica, Pesnica, PiranPirano, Pivka, Podcetrtek, Podlehnik, Podvelka, Polzela, Postojna, Prebold, Preddvor,
Prevalje, Ptuj, Puconci, Race-Fram, Radece, Radenci, Radlje ob Dravi, Radovljica,
Ravne na Koroskem, Razkrizje, Ribnica, Ribnica na Pohorju, Rogasovci, Rogaska
Slatina, Rogatec, Ruse, Salovci, Selnica ob Dravi, Semic, Sempeter-Vrtojba, Sencur,
Sentilj, Sentjernej, Sentjur pri Celju, Sevnica, Sezana, Skocjan, Skofja Loka, Skofljica,
Slovenj Gradec, Slovenska Bistrica, Slovenske Konjice, Smarje pri Jelsah, Smartno
ob Paki, Smartno pri Litiji, Sodrazica, Solcava, Sostanj, Starse, Store, Sveta Ana,
Sveti Andraz v Slovenskih Goricah, Sveti Jurij, Tabor, Tisina, Tolmin, Trbovlje, Trebnje,
Trnovska Vas, Trzic, Trzin, Turnisce, Velenje, Velika Polana, Velike Lasce, Verzej,
Videm, Vipava, Vitanje, Vodice, Vojnik, Vransko, Vrhnika, Vuzenica, Zagorje ob Savi,
Zalec, Zavrc, Zelezniki, Zetale, Ziri, Zirovnica, Zuzemberk, Zrece.
Note: There may be 45 more municipalities.
Independence: 25 June 1991 (from Yugoslavia).
Constitution: Adopted 23 December 1991.
Legal system: Based on civil law system.
Suffrage: 18 years of age; universal (16 years of age, if employed).
Executive branch: Chief of state: President Janez Drnovsek (since 22 December 2002).
Head of government: Prime Minister Janez Jansa (since 9 November 2004).
Cabinet: Council of Ministers nominated by the prime minister and elected by the
National Assembly.
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Slovenia
Elections: President elected by popular vote for a five-year term (eligible for a second
term); election last held 10 November and 1 December 2002 (next to be held in the
fall of 2007); following National Assembly elections, the leader of the majority party or
the leader of a majority coalition is usually nominated to become prime minister by the
president and elected by the National Assembly; election last held 9 November 2004
(next National Assembly elections to be held in October 2008).
Election results: Janez Drnovsek elected president; percent of vote – Janez v 56.5%,
Barbara Brezigar 43.5%; Janez Jansa elected prime minister; National Assembly vote
– 57 to 27.
Legislative branch: Bicameral Parliament consisting of a National Assembly or Drzavni
Zbor (90 seats; 40 are directly elected and 50 are selected on a proportional basis.
Note: The number of directly elected and proportionally elected seats varies with each
election; the constitution mandates one seat each for Slovenia’s Hungarian and Italian
minorities; members are elected by popular vote to serve four-year terms) and the
National Council or Drzavni Svet (40 seats; this is primarily an advisory body with limited
legislative powers; it may propose laws, ask to review any National Assembly decisions,
and call national referenda; members – representing social, economic, professional, and
local interests – are indirectly elected to five-year terms by an electoral college).
Elections: National Assembly – last held 3 October 2004 (next to be held October 2008).
Election results: percent of vote by party – SDS 29.1%, LDS 22.8%, ZLSD 10.2%, NSi
9%, SLS 6.8%, SNS 6.3%, DeSUS 4.1%, other 11.7%; seats by party – SDS 29, LDS
23, ZLSD 10, NSi 9, SLS 7, SNS 6, DeSUS 4, Hungarian and Italian minorities 1 each.
Judicial branch: Supreme Court (judges are elected by the National Assembly on the
recommendation of the Judicial Council); Constitutional Court (judges elected for nineyear terms by the National Assembly and nominated by the president).
International organization partipation: ACCT (observer), Australia Group, BIS, CE,
CEI, EAPC, EBRD, EIB, EMU, EU, FAO, IADB, IAEA, IBRD, ICAO, ICC, ICCt, ICRM, IDA,
IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM, IPU, ISO, ITU, MIGA, NAM (guest),
NATO, NSG, OAS (observer), OIF (observer), OPCW, OSCE, PCA, SECI, UN, UNCTAD,
UNESCO, UNIDO, UNTSO, UNWTO, UPU, WCO, WEU (associate partner), WHO,
WIPO, WMO, WTO, ZC.
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Diplomatic representation in Denmark:
Danish representation in Slovenia:
Embassy of Slovenia
Amaliegade 6, 2.sal
1256 Copenhagen K
Denmark
Telephone: +45 3373 0120
Telefax: +45 3315 0607
Embassy of Denmark
EuroCenter, Tivolska 48
1000 Ljubljana
Telephone: +386 (1) 438 0800
Telefax: +386 (1) 431 7417
Office hours: Monday-Friday: 09.30-16.00.
Office hours: Monday-Friday: 09.00-17.00
Consulate dept.: 10.00-12.00
E-mail: [email protected]
E-mail: [email protected]
Website: www.slovenia-embassy.dk
Economy
Economy – overview: With a GDP per capita substantially greater than the other transitioning economies of Central Europe, Slovenia is a model of economic success and
stability for its neighbors from the former Yugoslavia. The country, which joined the EU
in May 2004 and joined the eurozone on 1 January 2007, has excellent infrastructure,
a well-educated work force, and an excellent central location. Privatization of the
economy proceeded at an accelerated pace in 2002-05. Despite lackluster performance in Europe in 2001-05, Slovenia maintained moderate growth. Structural reforms
to improve the business environment have allowed for greater foreign participation
in Slovenia’s economy and have helped to lower unemployment. In March 2004,
Slovenia became the first transition country to graduate from borrower status to donor
partner at the World Bank. Despite its economic success, Slovenia faces growing
challenges. Much of the economy remains in state hands and foreign direct investment (FDI) in Slovenia is one of the lowest in the EU on a per capita basis. Although
tax reforms were implemented in December 2006, taxes are still relatively high. The
labor market is often seen as inflexible, and legacy industries are losing sales to more
competitive firms in China, India, and elsewhere. The current center-right government,
elected in October 2004, has pledged to accelerate privatization of a number of
large state holdings and is interested in increasing FDI in Slovenia. In late 2005, the
government’s new Committee for Economic Reforms was elevated to cabinet-level
status. The Committee’s program includes plans for lowering the tax burden, privatizing state-controlled firms, improving the flexibility of the labor market, and increasing
the government’s efficiency.
GDP (purchasing power parity): $47.12 billion (2006 est.).
GDP – real growth rate: 4.4% (2006 est.).
GDP – per capita: $23,400 (2006 est.).
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Slovenia
GDP – composition by sector:
Agriculture: 2.3%.
Industry: 34.1%.
Services: 63.6% (2006 est.).
Labor force: 1.026 million (2006 est.).
Unemployment rate: 9.6% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 3.6%.
Highest 10%: 21.4% (1998).
Distribution of family income – Gini index: 28.4 (1998).
Inflation rate (consumer prices): 2.4% (2006 est.).
Investment (gross fixed): 25.6% of GDP (2006 est.).
Budget:
Revenues: $15.9 billion.
Expenditures: $16.35 billion; including capital expenditures of $NA (2006 est.).
Exports: $21.85 billion f.o.b. (2006 est.).
Exports – commodities: Manufactured goods, machinery and transport equipment,
chemicals, food.
Exports partners: Germany 19.8%, Italy 12.7%, Croatia 9.3%, France 8.1%, Austria
8.1% (2005).
Imports: $23.59 billion f.o.b. (2006 est.).
Imports – commodities: Maachinery and transport equipment, manufactured goods,
chemicals, fuels and lubricants, food.
Imports – partners: Germany 19.5%, Italy 18.6%, Austria 12%, France 7.1%, Croatia
4.2% (2005).
Currency (code): Euro (EUR).
Note: On 1 January 2007, the euro became Slovenia’s currency; both the tolar and the
euro were in circulation from 1 January until 15 January.
Exchange rates: Tolars per US dollar – 190.85 (2006), 192.71 (2005), 192.38 (2004),
207.11 (2003), 240.25 (2002).
Fiscal year: Calendar year.
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Slovenia
Taxation
Taxes on corporate income: The general corporate income tax rate is 25%. If a company performs activities in a free economic zone, a reduced corporate profit tax rate of
10% can be applied.
Corporate residence: N/A.
Branch income: N/A.
Tax administration: The tax year is the calendar year. Tax is paid in monthly instalments
in advance on the basis of the previous year’s assessment. Tax returns must be filed
on forms prescribed by the Ministry of Finance. They are due by March 31 of the year
following the tax year; the due date for consolidated returns is April 15. The difference
between the total of advance payments and the tax payable must be remitted within
five days from the date of submitting the return. If advance payments exceed the tax
payable, a refund can be requested.
Note: The exchange rate of Slovenian tolar at April 12, 2006: US$1 = SIT 197,3038.
Withholding taxes: Witholding tax at a rate 25% is applicable for:
• Dividend distributions
• Interest
• Royalties.
Individual Taxation: Territoriality and residence: A resident is obliged to pay Personal
Income Tax (PIT) for all income, sourced both in and outside of Slovenia (world wide
taxation principle).
A non-resident is obliged to pay PIT for all income sourced in Slovenia
Gross income:
Personal income tax act with amendments – new from 1st January 2006 (some articles
are also valid for the year 2005) – is levied on six different sources of income:
• personal income (salary, salary compensation, incentives, benefits and other income
derived from employment, pensions, income earned on the basis of a temporary
service contract or some other basis, a state award or other kinds of award);
• income from private business;
• income from agriculture and forestry;
• income from property (to lease a property, property rights, interests, dividends,
mutual funds);
• capital gains;
• other incomes (rewards, gifts, gambling winnings, scholarships).
Tax rates: There are five tax brackets. These are fixed for one calendar year in advance.
Advance tax payments are made during the tax year at the following rates:
• The tax rates in 2006 for employment income are 16%, 33%, 37%, 41% , 50%;
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Slovenia
• Capital gains, interests and dividends are tax at 20% final. Capital gains will be taxed
according to the length of the holding period, and the 20% tax rate will be reduced
by five percentage points for each year period for the holding condition is met. All
forms of interests are taxable as part of individual income, for the year 2006 and
2007 at the following rates:
• 15% for 2006 exceeding 300.000 SIT
• 15% for 2007 exceeding 150.000 SIT.
• For certain professional or business activities, 25%.
In 2005, 10% of all forms of interest is taxable, if the amount of SIT 300,000.00 is
exceeded. This rises to 25% in 2006, 40% in 2007, and 75% in 2008.
For more information
www.pwc.com/si
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
152
Ukraine
Ukraine
Background
Ukraine was the center of the first eastern Slavic state, Kyivan Rus, which during the
10th and 11th centuries was the largest and most powerful state in Europe. Weakened
by internecine quarrels and Mongol invasions, Kyivan Rus was incorporated into the
Grand Duchy of Lithuania and eventually into the Polish-Lithuanian Commonwealth.
The cultural and religious legacy of Kyivan Rus laid the foundation for Ukrainian
nationalism through subsequent centuries. A new Ukrainian state, the Cossack
Hetmanate, was established during the mid-17th century after an uprising against the
Poles. Despite continuous Muscovite pressure, the Hetmanate managed to remain
autonomous for well over 100 years. During the latter part of the 18th century, most
Ukrainian ethnographic territory was absorbed by the Russian Empire. Following
the collapse of czarist Russia in 1917, Ukraine was able to bring about a short-lived
period of independence (1917-20), but was reconquered and forced to endure a brutal
Soviet rule that engineered two artificial famines (1921-22 and 1932-33) in which over
8 million died. In World War II, German and Soviet armies were responsible for some
7 to 8 million more deaths. Although final independence for Ukraine was achieved in
1991 with the dissolution of the USSR, democracy remained elusive as the legacy of
state control and endemic corruption stalled efforts at economic reform, privatization,
and civil liberties. A peaceful mass protest “Orange Revolution” in the closing months
of 2004 forced the authorities to overturn a rigged presidential election and to allow a
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Ukraine
new internationally monitored vote that swept into power a reformist slate under Viktor
Yushchenko. Subsequent internal squabbles in the Yushchenko camp allowed his rival
Viktor Yanukovych to stage a comeback in parliamentary elections and become prime
minister in August of 2006.
Climate: Temperate continental; Mediterranean only on the southern Crimean coast;
precipitation disproportionately distributed, highest in west and north, lesser in east and
southeast; winters vary from cool along the Black Sea to cold farther inland; summers
are warm across the greater part of the country, hot in the south.
Terrain: Most of Ukraine consists of fertile plains (steppes) and plateaus, mountains
being found only in the west (the Carpathians), and in the Crimean Peninsula in the
extreme south.
Natural resources: Iron ore, coal, manganese, natural gas, oil, salt, sulfur, graphite,
titanium, magnesium, kaolin, nickel, mercury, timber, arable land.
Environment – current issues: Inadequate supplies of potable water; air and water
pollution; deforestation; radiation contamination in the northeast from 1986 accident at
Chornobyl Nuclear Power Plant.
Environment – international agreements: Party to: Air Pollution, Air Pollution-Nitrogen
Oxides, Air Pollution-Sulfur 85, Antarctic-Environmental Protocol, Antarctic-Marine
Living Resources, Antarctic Treaty, Biodiversity, Climate Change, Climate Change-Kyoto
Protocol, Endangered Species, Environmental Modification, Hazardous Wastes, Law of
the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Wetlands.
Signed, but not ratified: Air Pollution-Persistent Organic Pollutants, Air Pollution-Sulfur
94, Air Pollution-Volatile Organic Compounds.
People
Population: 46,710,816 (July 2006 est.).
Median age:
Total: 39.2 years.
Male: 35.9 years.
Female: 42.2 years (2006 est.).
Population growth rate: -0.6% (2006 est.).
Net migration rate: -0.43 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Ukrainian(s). Adjective: Ukrainian.
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Ukraine
Ethnic groups: Ukrainian 77.8%, Russian 17.3%, Belarusian 0.6%, Moldovan 0.5%,
Crimean Tatar 0.5%, Bulgarian 0.4%, Hungarian 0.3%, Romanian 0.3%, Polish 0.3%,
Jewish 0.2%, other 1.8% (2001 census).
Religions: Ukrainian Orthodox – Kyiv Patriarchate 19%, Orthodox (no particular jurisdiction) 16%, Ukrainian Orthodox – Moscow Patriarchate 9%, Ukrainian Greek Catholic 6%,
Ukrainian Autocephalous Orthodox 1.7%, Protestant, Jewish, none 38% (2004 est.).
Languages: Ukrainian (official) 67%, Russian 24%, small Romanian-, Polish-, and
Hungarian-speaking minorities.
Literacy: Definition: Age 15 and over can read and write.
Total population: 99.7%.
Male: 99.8%.
Female: 99.6% (2003 est.).
Government
Government type: Republic.
Capital: Kyiv (Kiev).
Administrative divisions: 24 provinces (oblasti, singular – oblast’), 1 autonomous
republic (avtonomna respublika), and 2 municipalities (mista, singular – misto) with
oblast status; Cherkasy, Chernihiv, Chernivtsi, Crimea or Avtonomna Respublika
Krym (Simferopol’), Dnipropetrovs’k, Donets’k, Ivano-Frankivs’k, Kharkiv, Kherson,
Khmel’nyts’kyy, Kirovohrad, Kyiv, Kyiv, Luhans’k, L’viv, Mykolayiv, Odesa, Poltava,
Rivne, Sevastopol’, Sumy, Ternopil’, Vinnytsya, Volyn’ (Luts’k), Zakarpattya (Uzhhorod),
Zaporizhzhya, Zhytomyr .
Note: Administrative divisions have the same names as their administrative centers
(exceptions have the administrative center name following in parentheses).
Independence: 24 August 1991 (from the Soviet Union).
Constitution: Adopted 28 June 1996.
Legal system: Based on civil law system; judicial review of legislative acts.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President Viktor A. Yushchenko (since 23 January
2005).
Head of government: Prime Minister Viktor Yanukovych (since 4 August 2006); First
Deputy Prime Minister – Mykola Azarov (since 5 August 2006).
Cabinet: Cabinet of Ministers selected by the prime minister; the only exceptions are the
foreign and defense ministers, who are chosen by the president.
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Ukraine
Note: There is also a National Security and Defense Council or NSDC originally created in 1992 as the National Security Council; the NSDC staff is tasked with developing national security policy on domestic and international matters and advising the
president; a Presidential Secretariat helps draft presidential edicts and provides policy
support to the president.
Elections: President elected by popular vote for a five-year term (eligible for a second
term); Note: A special repeat runoff presidential election between Viktor Yushchenko
and Viktor Yanukovych took place on 26 December 2004 after the earlier 21 November
2004 contest – won by Mr. Yanukovych – was invalidated by the Ukrainian Supreme
Court because of widespread and significant violations; under constitutional reforms
that went into effect 1 January 2006, the majority in parliament takes the lead in naming
the prime minister.
Election results: Viktor Yushchenko elected president; percent of vote – Viktor
Yushchenko 51.99%, Viktor Yanukovych 44.2%.
Legislative branch: Unicameral Supreme Council or Verkhovna Rada (450 seats;
allocated on a proportional basis to those parties that gain 3% or more of the national
electoral vote; members serve five-year terms).
Elections: Last held 26 March 2006 (next to be held March 2011).
Election results: Percent of vote by party/bloc in 2002 – Party of Regions 32.1%,
Yuliya Tymoshenko Bloc 22.3%, Our Ukraine 13.9%, SPU 5.7%, CPU 3.7%; seats by
party/bloc – Party of Regions 186, Yuliya Tymoshenko Bloc 129, Our Ukraine 81, SPU
33, CPU 21.
Judicial branch: Supreme Court; Constitutional Court.
International organization partipation: Australia Group, BSEC, CBSS (observer), CE,
CEI, CIS, EAEC (observer), EAPC, EBRD, FAO, GCTU, GUAM, IAEA, IBRD, ICAO, ICC,
ICCt (signatory), ICRM, IDA, IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM, IPU,
ISO, ITU, ITUC, LAIA (observer), MIGA, MONUC, NAM (observer), NSG, OAS (observer),
OIF (observer), OPCW, OSCE, PCA, PFP, SECI (observer), UN, UNCTAD, UNESCO,
UNIDO, UNMEE, UNMIL, UNMIS, UNMOVIC, UNOMIG, UNWTO, UPU, WCL, WCO,
WFTU, WHO, WIPO, WMO, WTO (observer), ZC.
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Ukraine
Diplomatic representation in Denmark:
Danish diplomatic representation in Ukraine:
Embassy of Ukraine
Toldbodgade 37 A, 1st fl.,
1253 Copenhagen K
Denmark
Telephone: +45 3316 1635
Telefax:: +45 3316 0074
Embassy of Denmark
Vul. B. Khmelnitskoho 56, 4th fl.
01901, Kyiv
Telephone: +380 44 200 1260
Telefax:: +380 44 200 1281
Office hours: Monday-Friday: 09.00-16.00.
E-mail: [email protected]
E-mail: [email protected]
Consular section: Office hours: Monday,
Wednesday and Friday: 10.00-13.00.
For additional information please call only
from 15.00 to 17.00: +45 3316 1635.
Visa department
Office hours: Monday-Friday: 10.00-12.00.
Telephone hours: 14.00-16.00.
Afhentning af visum: Mon-Fri: 15.30-16.00.
Economy
Economy – overview: After Russia, the Ukrainian republic was far and away the most
important economic component of the former Soviet Union, producing about four
times the output of the next-ranking republic. Its fertile black soil generated more than
one-fourth of Soviet agricultural output, and its farms provided substantial quantities
of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy
industry supplied the unique equipment (for example, large diameter pipes) and raw
materials to industrial and mining sites (vertical drilling apparatus) in other regions
of the former USSR. Ukraine depends on imports of energy, especially natural gas,
to meet some 85% of its annual energy requirements. Shortly after independence
was ratified in December 1991, the Ukrainian Government liberalized most prices
and erected a legal framework for privatization, but widespread resistance to reform
within the government and the legislature soon stalled reform efforts and led to some
backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Loose
monetary policies pushed inflation to hyperinflationary levels in late 1993. Ukraine’s
dependence on Russia for energy supplies and the lack of significant structural
reform have made the Ukrainian economy vulnerable to external shocks. A dispute
with Russia over pricing in late 2005 and early 2006 led to a temporary gas cut-off;
Ukraine concluded a deal with Russia in January 2006 that almost doubled the
price Ukraine pays for Russian gas, and could cost the Ukrainian economy $1.4-2.2
billion. Ukrainian Government officials eliminated most tax and customs privileges
in a March 2005 budget law, bringing more economic activity out of Ukraine’s large
shadow economy, but more improvements are needed, including fighting corruption,
developing capital markets, and improving the legislative framework for businesses.
Reforms in the more politically sensitive areas of structural reform and land privatization are still lagging. Outside institutions – particularly the IMF – have encouraged
Ukraine to quicken the pace and scope of reforms. GDP growth was 6% in 2006, up
from 2.4% in 2005 mainly because of high steel prices worldwide and strong demand
for Ukrainian goods. The privatization of the Kryvoryzhstal steelworks in late 2005
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Ukraine
produced $4.8 billion in windfall revenue for the government. Some of the proceeds
were used to finance the budget deficit, some to recapitalize two state banks, some
to retire public debt, and the rest may be used to finance future deficits. Although the
economy is likely to expand in 2007, long-term growth could be threatened by the
government’s plans to reinstate tax, trade, and customs privileges and to maintain
restrictive grain export quotas.
GDP (purchasing power parity): $355.8 billion (2006 est.).
GDP – real growth rate: 6% (2006 est.).
GDP – per capita: $7,600 (2006 est.).
GDP – composition by sector:
Agriculture: 17.5%.
Industry: 42.7%.
Services: 39.8% (2006 est.).
Labor force: 21.69 million (2006 est.).
Unemployment rate: 2.9% officially registered; large number of unregistered or underemployed workers; the International Labor Organization calculates that Ukraine’s real
unemployment level is around 9-10% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 3.4%.
Highest 10%: 24.8% (2005).
Distribution of family income – Gini index: 29 (1999).
Inflation rate (consumer prices): 8.5% (2006 est.).
Investment (gross fixed): 22.7% of GDP (2006 est.).
Budget:
Revenues: $33.41 billion.
Expenditures: $35.6 billion; Note – this is the consolidated budget (2006 est.).
Exports: $39.12 billion (2006 est.).
Exports – commoditie: Ferrous and nonferrous metals, fuel and petroleum products,
chemicals, machinery and transport equipment, food products.
Exports partners: Russia 22.1%, Turkey 6%, Italy 5.6% (2005).
Imports: $44.81 billion (2006 est.).
Imports – commodities: Energy, machinery and equipment, chemicals.
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Ukraine
Imports – partners: Russia 35.5%, Germany 9.4%, Turkmenistan 7.4%, China 5%
(2005).
Currency (code): Hryvnia (UAH).
Exchange rates: Hryvnia per US dollar – 5.05 (2006), 5.1247 (2005), 5.3192 (2004),
5.3327 (2003), 5.3266 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: Ukraine’s corporate profits tax, which has a uniform rate
of 25%, applies to taxable profits earned by resident entities and permanent establishments of foreign companies.
A special tax regime applies to Ukrainian insurance companies.
Corporate residence: Corporate residence is determined by the place of incorporation.
Resident entities are taxed on their worldwide income. Non-resident entities are taxed
on their Ukrainian-source income.
Permanent establishment: A foreign company can set up a representative office in
Ukraine, which would be similar to an unincorporated branch. The representative
office does not constitute a legal entity. A non-resident company operating via a
representative office is deemed to carry out business in Ukraine through a permanent
establishment and may be subject to 25% corporate profits tax unless protected by a
double taxation treaty.
The Ukrainian definition of a permanent establishment is in line with the provisions of
the OECD Tax Convention Model, and includes:
• A fixed place of business through which the business activity of a non-resident entity
is wholly or partly carried on in Ukraine. A permanent establishment includes: a place
of management, a branch, an office, a plant, a factory, a workshop, a mine, an oil or
gas well, a quarry or any other place of extraction of natural resources; and
• A Ukrainian resident business entity which has the authority to act in the name of a
non-resident entity generating civil rights and obligations for the non-resident entity
(e.g. conclude contracts in the name of a non-resident; maintain a stock of goods
belonging to the non-resident for supply on behalf of the non-resident).
Tax administration: Returns: Tax returns must be filed both by resident and non-resident taxpayers on a quarterly basis within 40 calendar days following the last day of the
reporting quarter (i.e. by May 10, August 9, November 9 and February 11).
Payment of tax: Corporate profits tax must be paid quarterly within 10 calendar days
following the date when the tax return has to be filed.
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Ukraine
Withholding taxes: Upon remittance of dividends the payer has to pay to the state from
its own funds advance tax at 25% rate, which can be offset against its future corporate
profits tax liability. This tax may not be levied on the companies deriving more than 90%
of their income from dividends.
Payment of dividends to a non-resident business entity attracts a 15% withholding tax
unless an appropriate double tax treaty provides otherwise.
Interest, dividends, royalties, payments of engineering services, rental (leasing) income
from property, income from the disposal of real estate located in Ukraine, gains from
security trading or sale of other corporate rights, income earned by an un-incorporated
joint venture in Ukraine; income from long-term contracts; fees from cultural, educational, religious, sporting and entertainment activities; broker’s or agent’s fees in respect
of services performed in Ukraine; income from lotteries and gambling business other
than the state lottery; charitable donations payable to non-residents; other income from
business activity in Ukraine except for amounts payable to non-residents for goods
or services supplied to Ukrainian residents attract 15% withholding tax which can be
reduced or eliminated under effective double taxation treaties. As of January 1, 2007,
double taxation treaties are in effect with the following countries:
Recipient
Non-treaty
Treaty:
Denmark
Dividends
Interest
Royalties
%
%
15
Nil/15
15
5/15
Nil/10
Nil/10
Individual taxation: Significant developments: Ukraine is currently in the process of
revising its tax legislation. The following significant developments in Ukrainian legislation
governing individual taxation and payroll taxes took place as of January 1, 2007:
1. The standard personal income tax rate applicable to the tax residents has been
increased from 13% to 15%. Consequently, the double tax rate applicable to nonresidents has been increased from 26% to 30%.
2. The cap on the taxable base for social contributions (both employer’s and employee’s) has been increased from UAH 5,050 to UAH 7,875 per individual per month.
The cap will increase from April 1, 2007 to UAH 8,025 and from October 1, 2007 to
UAH 8,220 per individual per month.
The rate for employer’s contributions to Pension Fund of Ukraine was increased from
31.8% to 33.2%. On the contrary, the rate for employer’s contributions to the Social
Security Fund was reduced from 2.9% to 1.5%.
Territoriality and residence: The determination of tax residency is essential for an individual’s income tax position.
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Ukraine
Residents are individuals who have their place of abode in Ukraine. Where an individual has a place of abode in another country as well, such an individual is deemed
to be a resident of Ukraine if he/she has a permanent place of abode (domicile) in
Ukraine. If the individual has a domicile in another country as well, he/she is deemed
to be a resident of Ukraine if he/she has a centre of vital interests in Ukraine. A sufficient but not exclusive ground for determining the country of an individual’s centre
of vital interest is the place of permanent abode of the individual’s family members.
In the event that the individual’s centre of vital interests cannot be determined, or if
the individual has no domicile in any country, he/she is deemed to be a resident of
Ukraine if he/she stays in Ukraine at least 183 days during the tax year (calendar year).
If residency status cannot be determined based on the above rules, an individual shall
be deemed to be a resident of Ukraine if he/she is a citizen of Ukraine.
Non-residents are individuals who do not qualify as residents of Ukraine.
The PIT Law also provides that an individual may voluntarily elect that his/her main
place of abode is the territory of Ukraine.
Ukrainian tax residents are taxable on their worldwide income, subject to restriction
by the applicable double tax treaty. Individuals who qualify as non-residents for
Ukrainian personal income tax purposes are subject to Ukrainian tax only in respect
of their Ukrainian source income (this includes income received by the individual from
his/her employer, either resident or non-resident, in relation to employment exercised
in Ukraine).
Gross income: Employee gross income: All income received from employment in
monetary form or in kind during a calendar year is subject to personal income tax. This
includes all basic pay, overtime pay, supplemental pay, awards and bonuses, compensation for unused vacation, all other monetary amounts, and additional benefits granted
by employers to employees.
Taxable income of foreign nationals who are residents of Ukraine is determined in the
same order as for Ukrainians.
Capital gains and investment income: There is no separate capital gains tax. Gains and
investment incomes are taxed at the standard rate.
Tax-exempt income: There are several types of tax-exempt income. The main ones are
as follows:
1. Accommodation (and other tangible or non-tangible assets) provided by the employer to employee free-of-charge is not taxable where such free-of-charge provision is a condition for performing of labour functions by employee or is provided by
an employment contract or legislation within limits specified therein.
2. Benefit in the form of use of vehicles does not constitute taxable income if this benefit is granted by a resident employer who qualifies as a corporate profits taxpayer.
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Ukraine
3. Income from investments in securities issued by the Ministry of Finance of Ukraine
and prizes from state lotteries.
4. Alimony received from residents.
5. Shares received from capitalization of undistributed profits provided that allocation
of shares between shareholders remains unchanged.
6. Premiums paid by the employer in respect of long-term life insurance or non-state
pension insurance of its employees within the limit equal to 15% of employee’s
monthly salary but maximum 1.4 times of the subsistence minimum (currently limited
to UAH 740) per month.
7. Amounts received from employers in respect of certain types of medical treatment
and services.
8. Amounts paid by employers to educational institutions for training/re-training of employees within limits of 1.4 times the subsistence minimum (i.e. at present UAH 740)
per month of education. If the employee terminates employment during education or
prior to the end of the second calendar year following the year when education was
completed the cost of education should be taxed as an additional benefit.
9. Interest income from deposits placed with banks and non-banking financial institutions and from saving certificates (exemption is available until January 1, 2010).
Social security contributions made by the employer per Ukrainian tax legislation are not
included in the taxable income of the individual.
Tax rates: For 2007 the standard tax rate for tax residents is 15%. The standard rate
is applicable to most types of income, including salary income, dividends, royalties,
investment income, gifts (with certain exceptions).
Income in form of prizes (except for prizes from the state lottery in cash) is taxed at
double standard rates (i.e. 30%).
Income from the sale of the real estate (including incomplete constructions) is subject to
tax at either 0%, 1% or 5% depending on the nature of the real estate and the number
of real estate sales performed by the same taxpayer during the calendar year. The tax
should be paid prior to the sale of the real estate.
Income from the sale of the movable properties is subject to tax at the standard rate
(i.e., 15%). As an exception income from the sale of car, motorbike, yacht or boat once
per calendar year is subject to tax at 1% provided the state duty or notary fee is paid.
The stamp duty is 1% for sales to a spouse, parents or children, and 5% in other cases.
Income received as an inheritance or gift is subject to tax at the following rates: 0% – if
received from the spouse, children and parents, parents-in-law and spouse’s children,
5% – if received from other than stated above, 15% – if received from non-resident
testator irrespective of the relations with such testator.
Interest income from deposits placed with banks and non-banking financial institutions
and from saving certificates shall be subject to personal income tax at the rate of 5%
starting from 1 January 2010.
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Ukraine
Income earned by non-residents from sources in Ukraine in form of interest, dividends
and royalty as well as income received from the sale of real estate is taxed at the same
rates as for residents (see above).
The PIT Law provides that any other income earned by non-residents from sources in
Ukraine is taxed at double standard rates (i.e. 30%). However, the PIT Law is unclear
whether standard or double rates apply to salary income earned by non-residents in
Ukraine. In accordance with the tax clarification issued by the State Tax Administration
of Ukraine salary income paid to a non-resident individual by a Ukrainian resident
employer shall be taxed at standard rate (i.e. 15%).
Under the single tax regime, fixed monthly amounts of tax are established by local authorities. The monthly amounts of tax may range from UAH 20 to UAH 200, depending
on the type of business activity.
For more information
www.pwc.com/ua
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
163
Vietnam
Vietnam
Background
The conquest of Vietnam by France began in 1858 and was completed by 1884.
It became part of French Indochina in 1887. Vietnam declared independence after
World War II, but France continued to rule until its 1954 defeat by Communist forces
under Ho Chi Minh. Under the Geneva Accords of 1954, Vietnam was divided into the
Communist North and anti-Communist South. US economic and military aid to South
Vietnam grew through the 1960s in an attempt to bolster the government, but US
armed forces were withdrawn following a cease-fire agreement in 1973. Two years later, North Vietnamese forces overran the South reuniting the country under Communist
rule. Despite the return of peace, for over a decade the country experienced little
economic growth because of conservative leadership policies. However, since the
enactment of Vietnam’s “doi moi” (renovation) policy in 1986, Vietnamese authorities
have committed to increased economic liberalization and enacted structural reforms
needed to modernize the economy and to produce more competitive, export-driven
industries. The country continues to experience protests from various groups – such
as the Protestant Montagnard ethnic minority population of the Central Highlands and
the Hoa Hao Buddhists in southern Vietnam over religious persecution. Montagnard
grievances also include the loss of land to Vietnamese settlers.
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Vietnam
Climate: Tropical in south; monsoonal in north with hot, rainy season (May to
September) and warm, dry season (October to March).
Terrain: Low, flat delta in south and north; central highlands; hilly, mountainous in far
north and northwest.
Natural resources: Phosphates, coal, manganese, bauxite, chromate, offshore oil and
gas deposits, forests, hydropower.
Environment – current issues: Logging and slash-and-burn agricultural practices contribute to deforestation and soil degradation; water pollution and overfishing threaten
marine life populations; groundwater contamination limits potable water supply; growing
urban industrialization and population migration are rapidly degrading environment in
Hanoi and Ho Chi Minh City.
Environment – international agreements: Party to: Biodiversity, Climate Change,
Climate Change-Kyoto Protocol, Desertification, Endangered Species, Environmental
Modification, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Ship
Pollution, Wetlands.
Signed, but not ratified: none of the selected agreements.
People
Population: 84,402,966 (July 2006 est.).
Median age:
Total: 25.9 years.
Male: 24.8 years.
Female: 27.1 years (2006 est.).
Population growth rate: 1.02% (2006 est.).
Net migration rate: -0.42 migrant(s)/1,000 population (2006 est.).
Nationality: Noun: Vietnamese (singular and plural). Adjective: Vietnamese.
Ethnic groups: Kinh (Viet) 86.2%, Tay 1.9%, Thai 1.7%, Muong 1.5%, Khome 1.4%,
Hoa 1.1%, Nun 1.1%, Hmong 1%, others 4.1% (1999 census).
Religions: Buddhist 9.3%, Catholic 6.7%, Hoa Hao 1.5%, Cao Dai 1.1%, Protestant
0.5%, Muslim 0.1%, none 80.8% (1999 census).
Languages: Vietnamese (official), English (increasingly favored as a second language),
some French, Chinese, and Khmer; mountain area languages (Mon-Khmer and
Malayo-Polynesian).
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Vietnam
Literacy: Definition: Age 15 and over can read and write.
Total population: 90.3%.
Male: 93.9%.
Government
Government type: Communist state.
Capital: Hanoi.
Administrative divisions: 59 provinces (tinh, singular and plural) and 5 municipalities
(thanh pho, singular and plural).
Provinces: An Giang, Bac Giang, Bac Kan, Bac Lieu, Bac Ninh, Ba Ria-Vung Tau, Ben
Tre, Binh Dinh, Binh Duong, Binh Phuoc, Binh Thuan, Ca Mau, Cao Bang, Dac Lak, Dac
Nong, Dien Bien, Dong Nai, Dong Thap, Gia Lai, Ha Giang, Ha Nam, Ha Tay, Ha Tinh,
Hai Duong, Hau Giang, Hoa Binh, Hung Yen, Khanh Hoa, Kien Giang, Kon Tum, Lai
Chau, Lam Dong, Lang Son, Lao Cai, Long An, Nam Dinh, Nghe An, Ninh Binh, Ninh
Thuan, Phu Tho, Phu Yen, Quang Binh, Quang Nam, Quang Ngai, Quang Ninh, Quang
Tri, Soc Trang, Son La, Tay Ninh, Thai Binh, Thai Nguyen, Thanh Hoa, Thua Thien-Hue,
Tien Giang, Tra Vinh, Tuyen Quang, Vinh Long, Vinh Phuc, Yen Bai.
Municipalities: Can Tho, Da Nang, Hai Phong, Ha Noi, Ho Chi Minh.
Independence: 2 September 1945 (from France).
Constitution: 15 April 1992.
Legal system: Based on communist legal theory and French civil law system.
Suffrage: 18 years of age; universal.
Executive branch: Chief of state: President Nguyen Minh Triet (since 27 June 2006);
Vice President Truong My Hoa (since 25 July 2002).
Head of government: Prime Minister Nguyen Tan Dung (since 27 June 2006); Deputy
Prime Minister Nguyen Sinh Hung (since 28 June 2006), Deputy Prime Minister Pham
Gia Khiem (since 28 June 2006), and Deputy Prime Minister Truong Vinh Trong (since 28
June 2006).
Cabinet: Cabinet appointed by president based on proposal of prime minister and
confirmed by National Assembly.
Elections: President elected by the National Assembly from among its members for fiveyear term; election last held 27 June 2006; prime minister appointed by the president
from among the members of the National Assembly; deputy prime ministers appointed
by the prime minister; appointment of prime minister and deputy prime ministers confirmed by National Assembly.
Election results: Nguyen Minh Triet elected president; percent of National Assembly
vote – 94%; Nguyen Tan Dung elected prime minister; percent of National Assembly
vote – 92%.
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Vietnam
Legislative branch: Unicameral National Assembly or Quoc Hoi (498 seats; members
elected by popular vote to serve five-year terms).
Elections: Last held 19 May 2002 (next to be held on 20 May 2007).
Election results: Percent of vote by party – CPV 90%, other 10% (those who received
the 10% were not CPV members but were approved by the CPV to stand for election);
seats by party – CPV 447, CPV-approved 51.
Judicial branch: Supreme People’s Court (chief justice is elected for a five-year term by
the National Assembly on the recommendation of the president).
International organization participation: ACCT (observer), APEC, APT, ARF, AsDB,
ASEAN, CP, EAS, FAO, G-77, IAEA, IBRD, ICAO, ICRM, IDA, IFAD, IFC, IFRCS, ILO, IMF,
IMO, Interpol, IOC, IOM (observer), IPU, ISO, ITU, MIGA, NAM, OIF, OPCW, UN, UNCTAD,
UNESCO, UNIDO, UNWTO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WTO.
Diplomatic representation in Denmark:
Danish representation in Vietnam:
Embassy of Vietnam
Gammel Vartov Vej 20
2900 Hellerup
Denmark
Telephone: +45 3918 3932
Telefax: +45 3918 4171
Embassy of Denmark
19 Dien Bien Phu Street
Hanoi, Vietnam
Telephone: +84 (4) 8231 888
Telefax: +84 (4) 8231 999
E-mail: [email protected]
Office hours: Monday-Friday: 09.00-13.00 and
14.00-17.00
Consulate and visa dept.: 10.00-13.00
E-mail: [email protected]
Website: www.vietnamemb.dk
Economy
Economy – overview: Vietnam is a densely-populated, developing country that in
the last 30 years has had to recover from the ravages of war, the loss of financial
support from the old Soviet Bloc, and the rigidities of a centrally-planned economy.
Substantial progress was achieved from 1986 to 1997 in moving forward from an extremely low level of development and significantly reducing poverty. Growth averaged
around 9% per year from 1993 to 1997. The 1997 Asian financial crisis highlighted the
problems in the Vietnamese economy and temporarily allowed opponents of reform
to slow progress toward a market-oriented economy. GDP growth averaged 6.8% per
year from 1997 to 2004 even against the background of the Asian financial crisis and a
global recession, and growth hit 8% in 2005 and 7.8% in 2006. Since 2001, however,
Vietnamese authorities have reaffirmed their commitment to economic liberalization
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Vietnam
and international integration. They have moved to implement the structural reforms
needed to modernize the economy and to produce more competitive, export-driven
industries. Vietnam’s membership in the ASEAN Free Trade Area (AFTA) and entry
into force of the US-Vietnam Bilateral Trade Agreement in December 2001 have led
to even more rapid changes in Vietnam’s trade and economic regime. Vietnam’s
exports to the US doubled in 2002 and again in 2003. Vietnam joined the World Trade
Organization in January 2007, following over a decade long negotiation process.
This should provide an important boost to the economy and should help ensure the
continuation of liberalizing reforms. Among other benefits, accession allows Vietnam
to take advantage of the phase out of the Agreement on Textiles and Clothing, which
eliminated quotas on textiles and clothing for WTO partners on 1 January 2005.
Agriculture’s share of economic output has continued to shrink, from about 25% in
2000 to 20% in 2006. Deep poverty, defined as a percent of the population living under $1 per day, has declined significantly and is now smaller than that of China, India,
and the Philippines. Vietnam is working to promote job creation to meet the challenge
of over one million entrants to the job market every year. Vietnamese authorities have
tightened monetary and fiscal policies in order to stem high inflation. Hanoi is targeting an economic growth rate between 7.5 and 8% over the next five years.
GDP (purchasing power parity): $258.6 billion (2006 est.).
GDP – real growth rate: 7.8% (2006 est.).
GDP – per capita (PPP): $3,100 (2006 est.).
GDP – composition by sector:
Agriculture: 20.1%.
Industry: 41.8%.
Services: 38.1% (2006 est.).
Labor force: 44.58 million (2006 est.).
Unemployment rate: 2% (2006 est.).
Household income or consumption by percentage share: Lowest 10%: 3.6%.
Highest 10%: 29.9% (1998).
Distribution of family income – Gini index: 36.1 (1998).
Inflation rate (consumer prices): 7.5% (2006 est.).
Investment (gross fixed): 32.6% of GDP (2006 est.).
Budget:
Revenues: $15.42 billion.
Expenditures: $16.63 billion; including capital expenditures of $1.8 billion (2006 est.).
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Vietnam
Exports: $39.92 billion f.o.b. (2006 est.).
Exports – commodities: Crude oil, marine products, rice, coffee, rubber, tea, garments,
shoes.
Exports – partners: US 18.3%, Japan 13.6%, China 9%, Australia 7.9%, Singapore
5.6% (2005).
Imports: $39.16 billion f.o.b. (2006 est.).
Imports – commodities: Machinery and equipment, petroleum products, fertilizer, steel
products, raw cotton, grain, cement, motorcycles.
Imports – partners: China 15.6%, Singapore 12.4%, Taiwan 11.7%, Japan 11.1%,
South Korea 9.7%, Thailand 6.5% (2005).
Currency (code): Dong (VND).
Exchange rates: Dong per US dollar – 15,983 (2006), 15,746 (2005), (2004), 15,510
(2003), 15,280 (2002).
Fiscal year: Calendar year.
Taxation
Taxes on corporate income: Standard rates: The standard BIT rate is 28% for foreign
invested companies and domestic companies, branches of foreign companies and
foreign contractors not governed by the Foreign Investment Law. For oil and gas enterprises the standard rate is 50%.
Preferential rates: Preferential rates of 20%, 15%, and 10% for foreign invested companies and domestic companies are available where certain criteria are met. A 32% BIT
rate applies to oil and gas enterprises operating in certain difficult situations.
Corporate residence: All foreign investments must be approved (licensed) by the
authorities, and the BIT status will be decided as a part of the overall approval process.
Vietnam has an internationally recognisable permanent establishment (PE) definition.
Foreign income: In practice, only Vietnam-source income is likely to be booked in the
Vietnam investment vehicle. However, there are more cases where Vietnam resident
companies are making investments overseas. The foreign income, under the domestic
tax law, is subject to Vietnam BIT with tax credits available.
Branch income: Tax is levied at 28% on profits of branches of foreign banks, tobacco
companies, law firms and other branches. Branches of foreign entities are currently
permitted to operate in Vietnam, but are subject to many limitations.
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Vietnam
Tax administration: VAT returns and payments: Taxpayers must file VAT returns
monthly by the 10th day of the following month. The taxpayer must remit the VAT payable no later than by the 25th day of the month. In addition, the taxpayer must complete
an annual VAT reconciliation. The deadline for submission of the reconciliation is no later
than 60 days from 31 December and adjustments, if any, will be included in the VAT
return for February of the following year. However, for taxpayers operating under the
self-assessment program, an annual VAT reconciliation is not required.
BIT returns and payments: BIT returns are filed annually. The standard tax year is the
calendar year. However, different accounting year-ends can be used if approval is
obtained from the authorities. Tax is collected each year in four quarterly provisional
installments according to the provisional declaration submitted or the amount deemed
payable by the tax authorities. Payment must be made no later than the last day of the
quarter. The annual tax return and the audited financial statements should be filed within
90 days of the end of the financial year. An experimental program on BIT self-assessment has been launched for enterprises located in various provinces / cities.
Withholding taxes: Interest: An interest withholding tax of 10% applies to any loan
agreement signed after December 31, 1998 (and to those signed prior to this date
where subsequent changes to the agreement have occurred). However, offshore loans
provided by certain government or semi-governmental institutions may obtain an
exemption from the interest withholding tax where a relevant double taxation agreement
or Inter-Government Agreement applies.
Royalties, license fees etc.: A 10% royalty withholding tax applies in the case of payments made to a foreign party for transfers of technology, unless the transfers are
contributed as part of legal capital (akin to equity). Transfers of technology are defined
very broadly. Certain contracts for the transfer of technology must be registered with the
competent authorities e.g. the Ministry of Science and Technology.
Management fees etc.: Under the latest regulations, management fees are only acceptable in certain circumstances, but the payment of service fees are more readlily
accepted. Withholding tax will apply on management fees and head office charges.
Payments to foreign contractors: A withholding tax on payments to “foreign contractors” applies where a Vietnamese party (including a foreign-invested enterprise
licensed under the Law on Foreign Investment) contracts with a foreign party that
does not have a licensed investment in Vietnam. This withholding tax applies in many
cases and can be a very significant cost for businesses. This applies irrespective of
whether the services are provided in Vietnam or overseas. Previously, withholding tax
only applied to payments for services performed in Vietnam. Foreign contractors can
apply to be deduction-method VAT payers if they adopt the Vietnamese accounting
system, or a system that is internationally recognised and acceptable to the authorities. If accounting records are adequate, the foreign contractor will pay BIT on actual
profits, but otherwise on a deemed-profit basis. For direct (non-deduction-method)
foreign contractors, VAT and BIT will be withheld by the contracting party at a deemed
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Vietnam
percentage of taxable turnover. Various rates are specified according to the nature of
the contract performed.
For BIT the withholding tax rate varies from 1% to 10%. For VAT, the effective withholding tax rate can also range from 1% to 10%. The VAT withheld by the contracting party is
an allowable input credit in its VAT return. The VAT and BIT rates are summarised below:
Industry
Effective VAT rate
Deemed BIT rate
%
%
Trading: distribution, supply of goods, materials, machinery and equipment in Vietnam.
1%
1%
Services
5%
5%
Construction, installation without supply of
materials or machinery, equipment.
5%
2%
Construction, installation with supply of
materials or machinery, equipment.
3%
2%
1.25%
2%
2.5% or 1.25%
2%
Interest
Exempt
10%
Royalties
Exempt
10%
Transportation
Manufacturing, other business activities
Cross-border leases: A Vietnam-based lessee is required to withhold tax from payments
to an offshore lessor. Payments for the lease of machinery, equipment and means of
transportation are considered as a royalty (previously they were considered as a service). The corresponding withholding tax rate is a deemed BIT rate of 10%. For the lease
of ships, taxable turnover can be determined as either 50% or 20% of the lease payments depending on who (i.e. lessor or lessee) pays the various operational expenses
Summary of withholding tax rates: The rates of tax to be withheld from various forms of
income are as follows:
Recipient
Foreign corporations and individuals
(under domestic law).
Agreement:
Denmark
172
Interest
Royalties
%
%
10
10
10
5/15
Notes
1, 2, 3
Vietnam
(continued)
Notes:
1. In some cases the limits set by the treaty are higher than the present withholding rate under
domestic law. Therefore, the domestic rates will apply.
2. Interest derived by certain government bodies is exempt from withholding tax.
3. Royalty withholding tax rates vary for certain types of royalties.
Individual Taxes: Territoriality and residence: Residence is determined as follows.
1. Foreigners are considered to be resident in Vietnam and are taxed on their worldwide employment income if they live and work in Vietnam for an aggregate of 183
days or more in a tax year (the first tax year is defined as the first 12-month period
starting from the date of first arrival; subsequently it is the calendar year). Tax is
computed at progressive rates (see “Tax rates” below).
2. Nonresident foreigners who spend less than 183 days working in Vietnam are taxed
only on their Vietnam-sourced employment income, and the tax rate is a flat 25%.
Individuals who are tax resident of countries which have a double taxation agreement with Vietnam can obtain a tax exemption if they are nonresident for Vietnam
tax purposes and certain additional conditions are met.
Gross income: Employee gross income: In general, tax applies not only to employment
income but to all forms of income received by an individual. Regular income includes
salaries, wages, remuneration, allowances, and bonuses. Employer-provided housing,
electricity, and water are taxed. Technically, all noncash benefits are taxable. However,
there are exceptions, including school fees for expatriates’ children, home leave for
expatriates, and education/training fees for employees, provided these payments are paid
directly by the employer to the suppliers and other conditions are met. The taxable value
of employer-provided housing is limited to 15% of total gross taxable income if this is less
than the actual housing cost. Where an employee is remunerated on a net of taxes basis
this net income is required to be grossed up to determine gross income subject to PIT.
Irregular income (e.g., income from technology transfer, right to use industrial property
and income from lottery winnings) is taxed separately on each transaction at rates
different from those applicable to regular income. Business income would normally be
subject to business income tax and not PIT.
Capital gains and investment income: Certain capital gains and investment income are
temporarily not taxable; these include interest on bank deposits, bank savings and
loans; profits from purchases of bonds and shares; income derived from investment in
stocks; and gains from purchases and sales of stocks.
Income derived from exercising stock options in the form of cashless exercise by
employees working in Vietnam are taxable as regular income, regardless of whether the
gains are remitted to Vietnam. The taxable value is the difference between the exercise
price and the market price at the date of exercise. All expenses in relation to the
173
Vietnam
transaction can be used to reduce the taxable value. This treatment is applied to both
foreigners and Vietnamese nationals.
Tax rates: Regular income: Rates for resident foreigners are as follows. Note that even
for finalization of annual PIT returns the employee’s income is converted to a monthly
basis and tax is calculated accordingly.
Taxable income
Over
Not over
Tax on column 1
Percentage on excess
0
8,000,000
0
0%
8,000,000
20,000,000
0
10%
20,000,000
50,000,000
1,200,000
20%
50,000,000
80,000,000
7,200,000
30%
16,200,000
40%
(column 1)
80,000,000
The same rates apply to Vietnamese employees, but with the bandings being different.
The rate for nonresident foreigners is a flat 25%.
Irregular income: The rates on such income, applied to each individual transaction, are
as follows:
a. Income from technology transfer is subject to a flat 5% on the full amount of each
contract irrespective of the number of payments (nil for income less than or equal to
VND 15,000,000).
b. Lottery winnings are subject to 10% tax on the full amount of each occasion (nil for
winnings less than or equal to VND15,000,000).
Withholding tax on payments to non-employees/ There is a general requirement to
withhold 10% PIT from payments of VND500,000 or more to individuals who are not
employees (e.g. independent contractors)
For more information
www.pwc.com/vn
Reference:
World Fact Book (www.cia.gov/cia/publications/factbook/)
PwC Worldwide Tax Summaries (www.taxsummaries.pwc.com)
174
Big Mac Index
Big Mac Index
Local currency under (-)/over (+) valuation against the dollar, %.
-60 -50 -40 -30 -20 -10
0
10
20
30
40
50
Brazil
3.01
China
1.41
Czech Republic
2.41
Denmark
4.84
Estonia
2.49
India
Not available
Latvia
2.52
Lithuania
2.45
Malaysia
1.57
Mexico
2.66
Poland
2.29
Russia
1.85
Slovakia
2.13
Ukraine
1.71
United States1
Nil
Vietnam
1
3.22
Not available
Average of New York, Atlanta, Chicago and San Francisco.
Reference:
McDonald’s; The Economist, February 2007
175
Notes
www.pwc.dk