The Latest News on Income Tax Law, Tax Withholding and Labor Law Reform
How China’s New Income Tax Law Affects Expatriates
The new individual income tax (IIT) law in China came into effect January 1. It introduced key rules that changes the way tax residency is determined for expatriates.
The new tax residency rule impacts foreigners in three ways:
Tax residency status will be triggered more easily because of shorter time requirements
For expats who reside in China for over 183 days but less than a year, the new rule is less beneficial, considering income sourced outside of China but paid by Chinese enterprises or individuals will be taxable in China.
Foreigners don’t have to leave China as frequently to get IIT exemption on global income
The six-year rule under the new IIT system enables expats to leave China every six years, instead of five years, to reset the tax clock on their global income.
The clock-reset rule is less convenient for certain expatriates working in China, such as those who travel internationally frequently
Previously, expatriates could reset the five years tax clock by leaving China for over 90 days cumulatively, but under the new Law, they can only reset the clock by leaving China for over 30 days.
IRS Clarifies Tax Withholding on Uncashed Retirement Plan Checks
It’s irrelevant whether a recipient keeps the check, destroys it or cashes it in a subsequent year
New IRS guidance confirms how retirement plan administrators should handle reporting and income tax withholding for distributions to participants who are not “missing” by affirming the principle that a taxpayer cannot change the timing of taxation merely by refusing to cash a check. The IRS says it is still analyzing other situations such as those that involve missing individuals with plan benefits remaining to be paid.
In Revenue Ruling 2019-19, issued Aug. 14, the IRS addresses when a distribution is taxable to a distributee and plan obligations for reporting and withholding for the distribution. Under the situation addressed in the ruling, a distribution of $900 was required to be made from a plan to a participant in 2019. Such a distribution might be required, for example, because a plan calls for the automatic payment of all benefits with a value not in excess of $1,000.
The ruling concludes that the distribution is taxable to the participant for 2019 because it was actually distributed in 2019 and could have been cashed. The IRS notes that it is irrelevant whether the individual keeps the check, sends it back, destroys it or cashes it in a subsequent year.
It’s irrelevant whether a recipient keeps the check, destroys it or cashes it in a subsequent year.
The fact that the distribution is included in a participant’s taxes should propel the participant to cash the check or, at a minimum, think about it.
Consistent with this treatment, the ruling concludes that income tax withholding and Form 1099-R reporting is required for 2019. A plan participant’s failure to cash a distribution check received from the plan does not alter the withholding or reporting obligation.
The Need for Labor Law Reform in Egypt
The purpose of reform is not to reduce the employee’s rights but to provide both clarity and flexibility to companies
The Egyptian Labor Law needs significant changes in order to keep up with existing practices and avoid exacerbating negative effects on the employer, employee and the economy at large. This is why a new Labor Law to replace the existing Labor Law is currently being discussed in the Egyptian Parliament.
Though several important amendments are being discussed, the general direction in Parliament is still unclear. Moreover, the date of any promulgation is still difficult to discern given the discussions currently taking place. Therefore, instead of discussing the proposed amendments, which may or may not be included in the final version of the law, this article addresses the need for reform from the perspective of companies, especially foreign entities, operating in Egypt.
The purpose of reform is not to reduce the employee’s rights but to provide both clarity and flexibility to companies wishing to conduct business without the need to resort to unregulated solutions. It is all the more important to seriously discuss reforms in light of governmental efforts to increase Egypt’s global competitiveness in attracting foreign investment.
The current regime governing labor relations in Egypt has been in place since 2003 when Labor Law No. 12 (“Labor Law”), which replaced Law No. 127 of 1981, took effect. The Labor Law’s inability to deal with current market practices has been fairly obvious since its promulgation. However, in comparison to its predecessor, the Labor Law has made significant strides in the right direction, although it still remains unable to deal with some basic market trends.
One of the Labor Law’s main issues requiring reform is the type of employee it envisions protecting. It tends to deal with employees as manual laborers. While a significant portion of the Egyptian population do indeed work in manual labor, a sizeable portion of the population has desk jobs. Moreover, given the changing nature of the Egyptian economy into a more capitalistic market, it requires corresponding legislative reform to ensure that neither employer nor employee is treated unfairly.
Transfer of tax residence abroad – reporting requirements for individuals amended
On 23 August 2019, decree no. 2019-868 of 21 August 2019 (the decree) simplifying the reporting requirements for individuals transferring their tax residence abroad was published in the Official Journal.
According to the decree, individuals are required to report their new tax residence using a specific form to be filed in the year following the transfer of the tax domicile outside France.
However, taxpayers requesting a deferral of payment of the exit tax provided for in article 167 bis, paragraph V of the General Tax Code are required to send a proposal for guarantees to the tax authorities ninety days before the transfer of residence at the latest.
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