Notice: The following is in no manner intended to provide a legal opinion nor shall it be construed in any manner to constitute legal advice. The following is solely intended to provide English-speaking persons with information relating to the Political, Social and Economic development of the Collectivity of Saint Barthelemy, which is otherwise only available in the French language.
POLITICAL PULSE XII-
THE CODE OF CONTRIBUTIONS
FOR THE COLLECTIVITY OF SAINT BARTHELEMY
On November 13, 2007, the Island’s Territorial Council approved the Code of Contributions for the new Collectivity of the island of Saint Barthelemy. The date of effect of the local Code is January 1, 2008.
It is crucial to understanding the minute distinctions and consequences, to set the context within which the Code of Contributions is applied in that for the first time in St. Barthelemy, a clear distinction is made between physical domicile and tax domicile for persons and entities alike. It is possible, therefore, pursuant to the new laws applicable to the Collectivity of St. Barthelemy, to be a physical resident all while remaining a non-resident for tax purposes.
I. THE OPINION OF THE CONSEIL D’ETAT
On December 27, 2007, The Conseil d’Etat (The Conseil d’Etat is the equivalent to the Supreme Court for matters relating to Administrative Justice), Finance Section, provided an Opinion (Nº 381.054) in which it provided clarification to certain pending questions regarding the taxation of non-residents with regard to wealth and income tax. In fact, the Code of Contributions having been approved, it remained unclear as to the scope to which the island would tax real estate, assets and income locally and to what extent Metropolitan France would retain the ability to implement and collect taxes. Essentially, the same provides in part, as follows:
- For those persons having their Tax Residency in St. Barthelemy: The provisions of the Law provides exclusive authority by the Collectivity as relates to the enactment of income and wealth tax to be imposed as to those persons “residents” within the Collectivity, as “residency” is described by the Law and pursuant to the Code of Contributions of the Collectivity of St. Barthelemy. This authority apparently extends to income and wealth situated in Metropolitan France or in its Overseas Departments. To the extent the same would create a double imposition of taxes, the issue would be addressed by the Tax Convention between France and the Collectivity of St. Barthelemy.
- As to those having their Tax Residence in mainland France: The French Tax Administration, as opposed to the Collectivity, has the exclusive authority to collect income and wealth tax from those persons and legal entities whose tax residence is in Metropolitan France and not in the Collectivity as that term is defined by the Law and the Code of Contributions of the Collectivity of St. Barthelemy.
- As to those persons having their Tax Residence in NEITHER the Collectivity of Saint Barthelemy NOR Metropolitan France: For those persons who have their tax residence in neither St. Barthelemy nor in Metropolitan France, the Conseil d’Etat states that there is nothing by law preventing the Collectivity from imposing the income or wealth of such persons as to assets held in the Collectivity. It does not speak of exclusive authority of the collectivity, which has raised some questions as to whether the door was left open to the French Tax Administration. A subsequent letter from the French Prime minister, François Fillon would indicate that the French Government would leave such taxation to the Collectivity, if it so chooses
For the purposes of those most likely to read this publication, English speaking, non-French, Non-St. Barthelemy residents, it appears to be left to the Collectivity to determine whether local wealth and income is to be imposed. This is good news, meaning that unless the Collectivity decides to tax wealth of Americans, English, Irish, Germans and other non-French, non-island residents, there appears that at this time, there is no wealth tax applicable on the island of St. Barthelemy as to those persons and legal entities. This is good news for American Tax residents in that due to the fact that the United States has no comparable tax on capital, the wealth tax has to date, although due and payable, not been a deductible tax on 1040 tax returns as a foreign tax credit.
II. THE CODE OF CONTRIBUTIONS
The Code of Contributions essentially provides an overview of new taxes and a restatement of existing taxes, some of which are increased slightly in order to reflect the increased costs of the operation of the Collectivity. The Code applies to the residents, be they physical persons or legal entities of the Collectivity, as well as to the assets and property located on the island and belonging to non-residents (in some cases limited to non-Metropolitan France residents).
Although perhaps in need of certain modifications and still being fine-tuned, the current Code of Contributions provides a basic framework within which to allow the Collectivity to start functioning as an Overseas Collectivity of France.
As to the effects of residency, the same are limited, as to both physical residents as well as resident legal entities, to the income or benefits from business or other activity on the island of Saint Barthelemy or from property or assets located in the Collectivity. All other income or benefits generated from any source not directly generated by island activities or further, from assets or property located elsewhere, is not covered by the Code of Contributions of the island of Saint Barthelemy at this time, although the Opinion of the Conseil d’Etat leaves that door open.
Physical persons who are considered to be residents pursuant to the Code of Contributions are:
- Those persons who can justify that they have had their home or principal place of residence, for the period of at least 5 years on January 1 of the year of imposition;
- Those persons who can justify that they have had their principal professional activity in Saint Barthelemy, for the period of at least 5 years on January 1 of the year of imposition;
- Those persons who can justify that they have had the center of their economic, material or business interests in Saint Barthelemy, for the period of at least 5 years on January 1 of the year of imposition.
Legal entities considered to be residents pursuant to the Code of Contributions are:
- Those entities which, regardless of their corporate form or corporate, for the period of at least 5 years on January 1 of the year of imposition, have established Saint Barthelemy as their effective principal place of business;
- Those entities which, regardless of their corporate form or corporate, for the period of at least 5 years on January 1 of the year of imposition, have established Saint Barthelemy as their effective principal place of business or which are controlled, directly or indirectly by persons who are considered physical residents of the island of St. Barthelemy (majority ownership of shares by a tax resident of the Collectivity of St. Barthelemy).
B. THE SPECIFIC TAXES
1. The Annual Business Tax:
The Code of Contributions provides for an annual flat tax together with a variable tax, to be paid by all for-profit businesses, regardless of their form or purpose. The same provides for a flat tax in the sum of 300 Euros and a variable tax in the sum of 100 Euros per employee, with a ceiling in the sum of 5,000 Euros per business.
2. Port Tax:
The Code of Contributions provides for a 5% port tax. The prior tax was 4% and was referred to as a Duty as opposed to a tax.
3. Transfer Taxes:
- Purchase and Sale of Property: The purchase of property continues to give rise to notaire's fees and registration fees in about the same amount as prior to the enactment of the Code of Contributions. The rate of the same is about 6.1-6.3%, generally speaking, at this time. The purchaser pays the transfer tax.
It is interesting to note that there is no longer a higher than normal, Value-Added Tax on vacant property if purchased in corporate form or on property which completion is less than five (5) years of age. The prior rate, excluding notaire's statutory tax was 8.5%.
- Capital Gains Taxes: In the event of a sale of real property, the Seller is, as has always been the case, responsible for the payment of the capital gains taxes. It is interesting to note that the Code of Contributions provides for a capital gains tax rate of 25%. If read together with the Opinion of the Conseil d'Etat referred to above, non-St. Barthelemy Metropolitan French residents, subject to the taxation pursuant to the general Code of taxation, would not be subject to 25%, but rather the to-date imposed rate of 27% (16% plus an 11% social tax). St. Barthelemy residents will pay 36% (25% together with an 11% social tax). As to everyone else who is a non-St. Barthelemy, non-Metropolitan French resident, only 25% since the Opinion referred to above states that the collectivity is free to impose taxes on such persons' revenue. In that a capital gains tax is a tax on sales revenue, it would appear that the tax for US residents will be only 25% in the event of a sale.
Of note regarding the capital gains taxes is the fact that at this time, the Code of Contributions does not provide, as to the sale of real property by a non-resident, the appointment of a fiscal representative to act as a surety to the Tax office relating to the payment of capital gains taxes to the Tax Office. As is the case with all provisions in the Code of Contributions, this is subject to modification.
4. Permit Tax:
Delivered at the time of the delivery of a permit.
5. Vehicle Registration Tax:
6. Vehicle Tax:
An annual vehicle tax is due by all persons owning vehicles. The amount due is based on the horsepower of he vehicle. Without getting into details and providing all the different possibilities, the majority of vehicles will pay 150 Euros (between 7 and 10 horsepower), 300 Euros (between 11 and 15 horsepower) and 2000 Euros for those larger vehicles (above 15 horsepower). This tax must be paid prior to March 1 in order to avoid penalties and interest.
7. Gas Tax:
0,23 Euros per liter.
8. Electricity Tax:
9. Tourist Tax:
There is implemented by the Collectivity of St. Barthelemy, a tourist tax in the sum of 5%, for seasonal rentals ( excluding yearly rentals), based on the gross rental amount paid or posted per night, regardless of the nature of the lodging. It is important to note that this tax is due at the end of each month and must be declared on a form provided on the Official St. Barthelemy site. To the extent property is rented through an agency, the agency collects and pays the tax. As to a private rental directly from an owner, the form must be completed by the owner and submitted together with payment at the end of the month of the stay.
10. Departure Tax:
Whether by sea or by air, each departure is subject to a tax in the sum of 5 Euros.
12. Boat Registration Tax:
There is a registration tax for each vessel registered in the Collectivity of St. Barthelemy.
13. Garbage Tax:
The garbage tax (previously 80 Euros is increased to 88 Euros.
As to those persons owning and or leasing property in St. Barthelemy, it is important that all taxes due are paid on time in that much like the Tax administration in all places, the powers of enforcement are considerable and the penalties and interest significant as a result of failure to pay.
Although the above is in no manner exhaustive of the recently enacted Code of Contributions, I hope it provides a general overview to those to date unaware of the local Tax Code. Likewise, the Code is still undergoing changes and I will provide an updated version of the above in an upcoming column.
Suffice it to say at this time that the Collectivity of St. Barthelemy is well on its way to the creation of an Administration and of an economic, social and political reality in tune with the realities of the island in which we live.
The economic development of the newly created Collectivity of St. barthelemy continues to progress, the real estate market remains strong despite economic and housing problems in the United States and the tax structure chosen for non-residents in keeping with an outreached hand that has been symbolic of the open invitation extended by the people of St. Barthelemy to people throughout Europe, the United States and the world in general throughout its history.
©2008 Chantal Decombe-Greaux