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| Residents Tax |
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Rates of tax |
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With the new law, the marginal rates have been reduced (previously there were 5) and the brackets have been widened; that is, the marginals apply to wider ranges of income. The minimum amount needed to live on (personal allowance + family allowance) is taxed at rate 0, because from 01 January 2007 it will be deducted from the payment and not from the gross tax base. |
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| Net tax base € |
Applicable rate (%) |
From 0 to 17,360
From 17,360 to 32,360
From 32,360 to 52,360
52,360 and above |
24% (minimum amount needed to live on at 0%)
28%
37%
43% |
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Personal and family allowances |
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With the new law, from 01 January 2007 the personal and family allowances are increased. |
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Family allowances: these also go up; for each descendant under 25 years of age, or of any age if disabled, provided he or she doesn't have income over €8,000, the allowance goes up to €1,800, €2,000, €3,600 and €4,100 for the first, second, third, and fourth and subsequent descendants, respectively.
If the descendant is under 3 years of age, €2,200/year will be added, for working mothers.
For situations where a descendant is disabled the allowance is €2,270 if the person is more than 33% disabled and €6,900 if he or she is more than 65% disabled.
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Furthermore, the application of the allowances for descendants and ancestors is improved because it is permissible to apply these allowances even though these family members may file a return, provided that they don't have income over €1,800. One should remember that, under the previous rule, the reduction for ancestors or descendants could not be made if the persons concerned filed a return or if, even though they didn't file one, they ought to have done so. |
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In cases where one of the parents makes annual alimony payments for the children, the rate continues to be applied separately to the amount of the annual payments and to the rest of the net tax base; but these taxpayers' family allowances go up by €1,600/year – providing them, generally, with a saving of €384/year. |
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Single rate for savings: 18% |
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Another major change brought in by the reform relates to the taxation of savings, which applies a single rate of 18% to all short- and long-term savings products (increases in assets, appreciation of land, transfer of shares, interest, dividends and insurance policies). |
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Dividends: as of 01-01-07 the deduction for double taxation of dividends is removed, and dividends earned which don't exceed €1,500 are tax free. Above that amount the 18% rate will be payable. |
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Exemption for usual home re-investment: if one increases one's assets by selling the usual home and the profit made is re-invested in a new usual home, this increase isn't taxed, provided one takes up residence in this home within 1 year of the date of purchase and lives there for at least 3 years. The re-investment may be whole or partial. |
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