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Usufruct tax implications for US taxpayers

06.12.2022

While usufructs are a valuable succession-planning tool in Latin America, they may result in undesirable tax consequences when involving US persons. Therefore, proper planning should be done for usufruct structures involving US beneficiaries.

In some Latin American countries, it is common for a parent – a non-resident alien (“NRA”) – to gift property to their US children through a usufruct. The usufructuary parent can transfer rights to a property for a period limited to the life of their US child, while retaining title to the property during their own lifetime. The use of usufruct arrangements for NRAs with US children makes the classification of the usufruct for US tax purposes very relevant.

What exactly is usufruct?

A usufruct grants, by contractual arrangement, the right of use or enjoyment of property from one person to another for a specified period. The usufructuary is the person who has the right to use the property and is generally entitled to income from the property.

Provisions of a usufruct arrangement vary. When it comes to ownership of non-US entities via usufruct, the terms need to be properly analysed to determine what US reporting requirements apply.

We plan usufruct structures with you and support you in meeting your reporting obligations.

Fiorella Belardi, Tax Director, Marcum LLP*, Miami Beach, Florida, USA

The Internal Revenue Service has issued private letter rulings (“PLRs”) that characterise a usufruct as a trust for US income tax purposes. In one such ruling (PLR 9121035) the usufructuary had administrative powers over the assets subject to the usufruct (similar to a trustee).

Under the premise that a usufruct is a trust for US tax purposes, assets transferred to a beneficiary upon the death of the person creating the usufruct may result in the beneficiary receiving a fair market value tax basis in the property received, in accordance with US estate tax principles.

Observe reporting requirements for usufruct regulations

Without the appropriate understanding of a usufruct arrangement, property held in a usufruct can result in non-compliance with US reporting requirements for US taxpayers. US persons receiving or holding title to usufruct property located outside the US or from a non-US person may have several US information reporting requirements, including forms 8938 and 3520. In addition, if a US person holds a usufruct account at a foreign financial institution, the US person is required to report the account on form Fincen 114 (“FBAR”).

For further information please contact:

Fiorella Belardi, Tax Director, Marcum LLP*, Miami Beach, Florida, USA
Email: fiorella.belardi@marcumllp.com

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*Marcum LLP is the exclusive associated partner of ECOVIS International for accounting, tax and audit in the United States of America.

Remote work Poland: changes in employment law

05.12.2022

One of the most important changes to employment law in Poland in 2023 will be the formal regulation of remote work. Companies that allow their employees to work from home should adapt their employment contracts and work regulations accordingly. The amendments to the Labour Code are expected to come into force in early 2023.

In the wake of the COVID-19 pandemic, working from home (also known as, home office or remote work) has become extremely popular. Remote work is now an integral part of many workplaces. The ability to work from home is becoming the norm in the post-pandemic workforce.

Discuss and regulate remote work together

The introduction of remote work must be mutually agreed between the employer and the employee, say the Ecovis experts. Unilaterally, employers will only be able to instruct a particular employee to work from home in exceptional circumstances (e.g. lockdowns, natural calamities). The arrangements can be amended and the initiative to cease working remotely will also be with both the employer and the employee. A request made by one party to change the working conditions will be binding on the other party.

We review employment contracts and adapt them to the new regulations for remote work.

Michał Mieszkowski, attorney at law, ECOVIS LEGAL POLAND Law & Tax, Warszawa, Poland

What rules must be set for remote work

The terms and conditions of remote working should be included in a company’s remote work regulations. This document should specify:

• A group of employees who have the option to work remotely
• The rules for reimbursement of expenses related to remote working (including a lump sum for increased consumption of utilities and an allowance for the use of the employee’s own tools)
• The rules for communication between the employer and remote workers (including the method of confirming attendance at work)
• The principles of monitoring work performance
• The principles of health and safety inspections
• The principles of checking compliance with security and information protection requirements, including procedures for the protection of personal data
• The rules on the installation, inventory, maintenance and updating of software and the servicing of work tools provided to remote workers.

Regulating remote work in companies with employees’ representatives

According to the bill, remote working regulations may be introduced after consultation with employees’ representatives. If there is no employee representative in the workplace, it will be necessary to elect one – it will be the preliminary stage before the implementation of remote work. For workplaces with a trade union presence, it will be necessary to reach an agreement with these organisations.

The remote work regulations will undoubtedly become an essential document in the operation of a workplace and drafting and implementing them will require an analysis of the specific issues related to working outside of the employer’s premises. At Ecovis, we can provide full support to employers with the introduction of remote working.

For further information please contact:

Michał Mieszkowski, attorney at law, ECOVIS LEGAL POLAND Law & Tax, Warszawa, Poland
Email: michal.mieszkowski@ecovis.pl

How to invest in Spain: New law makes it easier and more economic

02.12.2022

There are several possibilities for companies wanting to invest in Spain. They can simply register in Spain for tax and employment purposes, open a branch office (without its own legal personality) or incorporate a company. Thanks to a new law, this is now possible with just EUR 1 of capital.

A company makes sense for investors who need a permanent structure, want to limit the liability of the parent company and fully close the economic cycle, meaning it contracts directly with clients, issues invoices, etc.

Until recently, the options were either a public company (Sociedad Anónima) with a minimum capital of EUR 60,000 or a limited liability company (Sociedad Limitada) with a minimum capital of EUR 3,000.

What the corporate law reform will mean for investors

The reform now allows the incorporation of a limited liability company with a capital of only EUR 1. It also establishes a procedure which makes company incorporation easier, as long as standard procedures and models (for example for company articles) are followed. These models are now being prepared by the corresponding authorities, which does mean it may be some time before this easier procedure is actually available.

Discuss with us the alternatives for an office in Spain to suit your company.

Christian Koch, Lawyer, Partner, ECOVIS Legal Spain , Madrid, Spain

However, there are also some limitations. If the initial capital is below EUR 3,000,  the company must set aside 20% of its yearly benefits to establish a legal reserve until this reserve reaches EUR 3,000. Until this sum is reached, the partners will be personally liable up to this amount for the debts of the company in the case of insolvency, explain the members of the Ecovis Madrid Hub.

In all other aspects, a EUR 1 limited liability company is fully equivalent to any other limited liability company. As a result, investors now have a new instrument for investing in Spain when they are just testing the market and want to limit the cost of their investment.

For further information please contact:

Christian Koch, Lawyer, Partner, ECOVIS Legal Spain, Madrid, Spain
Email: christian.koch@ecovis.es