Legal & Tax Report
A question often raised by clients is whether there are legal or tax advantages to be gained in taking an expat lease in name of the individual assignee or in name of the corporate employer. So for this Report, I carried out a quick survey covering 13 European countries and the results appear below. As always, EuRA members were happy to share their expertise and it is a perfect reminder of the high levels of knowledge - and excellent co-operation - which exist within EuRA.
While the impact of Brexit on future UK-EU immigration remains unclear, new UK immigration rules
which come into effect in April will increase the cost of UK assignments from outside the EU. We
explain why below.
The EU's General Data Protection Regulation (GDPR) becomes law in May 2018. As the relocation
industry relies heavily on legally-compliant processing and sharing of personal data, the year ahead
will see a great deal of compliance activity, driven particularly by RMCs. By way of introduction to the GDPR, we summarise the main practical changes.
It is no coincidence that immigration and data protection are two of the main topics for the Warsaw
conference. I look forward to seeing you there!
Gordon Kerr
Employee Mobility Unit
Morton Fraser LLP
(gordon.kerr@morton-fraser.com)
Corporate Lease or Personal Lease? - A Quick Overview
The question of whether an expat lease should be put in the name of the individual assignee or the corporate employer can be a complicated issue and can sometimes give rise to challenges for a relocation adviser who is trying to give best advice to their client. The starting point will often be the employer's global policy, which could be "we always take the lease in our corporate name" - or may be the exact opposite: "the lease must be taken in the employee's name"!
But a strict global policy on this issue may result in unnecessary costs or complications, which arise from the laws and practices of particular countries. It is also interesting to learn if recent trends are moving in favour of corporate or personal leases.
Here is a snapshot of what some EuRA members had to say:-
Belgium
A contract in the name of a corporate entity, rather than the individual private tenant, is viewed by the taxation authorities as a commercial lease rather than a residential agreement, resulting in significantly higher taxation implications for the Landlord. Consequently, clients requiring a corporate lease are usually restricted to seeking properties owned by companies rather than private individuals to avoid the significant fiscal penalty which would otherwise arise for the Landlord.
Czech Republic (Prague)
From a legal perspective if the tenant is a private individual, they are quite well protected by the civil code. In case of a corporate lease the rights and obligations for both parties are more balanced and the protection provided to the tenant very much depends on what is stipulated in the lease contract.
Most landlords do not have particular preference for a personal or corporate tenancy. From our perspective as a DSP, getting a corporate lease approved takes much more time and from this perspective a personal lease is easier and quicker to complete and to allow the tenant to move in. In general we see a trend moving towards personal rather than corporate leases. This appears to be
driven by employers more commonly requiring that their foreign assignees "take care of themselves".
France
We see a 50-50 mix of corporate and personal leases. For personal leases, the candidacy acceptance process in France is hefty. The transferee needs to have a strong service reference with his/her employer (hence not be in a new hire / trial period situation) and have a total monthly compensation net (housing allowance included as applicable) to correspond to 3 to 4 times the total monthly rent amount. Even when these 2 main criteria are met, ad hoc guarantees in the form of a bank guarantee or 3rd party guarantee may be requested. A bank guarantee does imply blocking one year's worth of rent in an escrow account in France for the duration of the occupancy.
The corporate lease, in the French entity’s name, provides the advantage of being lifted from these criteria requirements, as the home owner will be looking at the company’s financial standing in France. The transferee’s name appears as the occupant and there are tax advantages for the corporate lease when the assignee benefits from an expat package and housing allowance.
However, due to certain special insurance guarantee requirements being requested by individual home owners, we are seeing corporate leases being discarded in favor of the individual leases where the non-payment of rent insurance applies, under certain income conditions.
Germany
In Germany there is no difference between corporate and personal tenancy from the tax and the legal perspective. However, more and more of our clients tend to the personal tenancy and monthly rent allowances because then the employees take much better care of the properties. Also, when the tenancy agreement needs a diplomatic clause allowing the lease notification prior to the agreed duration this only applies to personal leases and not to corporate leases.
Besides that, when US companies pay rents to German landlords this requires a W8N confirmation from the
landlord to allow third country payment. Most German landlords are reluctant to sign such an unfamiliar document, especially when we go outside the major cities.
Hungary (Budapest)
In legal terms there is no practical difference between a personal and corporate lease, the housing law applies in both cases. From a tax perspective there are a couple of potential minor issues. If the owner of a property is a legal entity then there is sometimes but not always a requirement to charge VAT on top of the rent. With a corporate lease the tenant may be required to withhold the tax payable on the landlord’s income and pay it direct to the tax authority.
As the lower end of the housing market in Budapest (generally rents of less than 1,000 EUR/month) is currently extremely dynamic, the ability to make a swift decision and even pay a cash deposit on the spot is more and more important. The requirement for a cumbersome lease approval process can put deals at risk as landlords will generally choose to conclude a deal quickly if they can choose to do so.
In general terms, for lower budget properties a personal lease is preferable and for a higher budget property the perceived security of a corporate lease is seen as an advantage.
Ireland
The trend is moving from corporate leases to personal leases. The main reasons for this:-
1. The name of the occupier is usually requested by the landlord
2. The lease can be used as proof of address when applying for Social Security No. called PPS
No. in Ireland
3. Companies are not held responsible for any dilapidations when the lease is in the assignee’s
name
There is one advantage to having the lease in the company’s name. If an assignee is waiting for a work permit to come through they can come in on an orientation and select their long term property, therefore saving the
company the cost of temporary accommodation and also saving the assignee the upheaval of moving twice. When the assignee’s name does not appear on the lease they are not jeopardising their work permit application.
Netherlands
In the Netherlands property owners prefer corporate over personal tenancies, as it reduces the risks for the owner. There is no difference in legal protection, but corporate tenancies have less chance of rent arrears. Furthermore, in the Netherlands an agency fee has to be paid to the real estate agent and a company is able to reclaim the VAT. Nevertheless, most companies do not want corporate leases, as they will have to carry the risk.
Poland
There are no differences in legal terms between a corporate and private lease. However, in general, corporate leases are often preferred by owners as they are viewed as offering greater financial security. The general perception is that a legal entity is easier to take action against than a foreign individual. In practice however we have never experienced a case where a landlord refused to sign a personal lease contract.
Portugal
Landlords prefer the lease to be in name of tenant, with the Company as guarantor. It is very important for landlords to have the Company as guarantor or the landlord may not be prepared to rent. If a lease is in a corporate name, the Company has to deduct 15% monthly and pay this to
PT tax office - which landlords do not like!
For the tenant there is no difference between a corporate and personal lease.
Spain
This is a complex question as it depends how the property is set up for tax purposes.
If the owners have registered the property in the name of a company and it is a corporate lease, then there will be tax applied. In principle this is 21% unless it is registered as a short term apartment and then it is 10%.
If the tenant pays there may or not, be 21% VAT applied.
If the property is in the name of a person and the company pays, then sometimes they apply VAT and issue invoices and often not. The law is quite complex. If it is an individual who signs and the property is in the name of a person then tax is not usually applied.
When it is a corporate signing, the company will often be asked to produce the power of attorney of the person signing on behalf of the company, along with ID and other company documents. Quite a lot of documentation needs to be presented, which can be particularly challenging for an overseas
company.
In summary, the law is a little “grey” and it depends entirely on the circumstances of each situation and how the property is registered.
In practice, we find that the majority of cases are private leases.
Sweden
The Swedish legislation regarding how an apartment can be subleased is very strict and has a big impact on the available number of flats on the market. There are three different types of lease contracts we need to consider:
- Rental lease /Hyresrätt). You sign a long term agreement directly with the landlord allowing you to live there as long as you abide by the rules that apply to renting an apartment.
2. Tenant ownership (Bostadsrätt) as a part of tenant-owner's association. You do not own your apartment, but a percentage of the building. You need to abide by the rules set up by the tenant owners’ association.
3. Tenant ownership (Andelsrätt). You own your own apartment and have more options available if you want to rent out the apartment. These days it is very rare to find a tenant ownership apartment.
Most apartments can only be subleased if the rental lease holder has a legitimate reason for not being able to live in the flat themselves. Any lease holder wanting to sublet needs the approval from the tenancy association or landlord.
This explains to some extent why the rental market in Sweden is limited, causing so much frustration with the expat community. Finding good rental accommodations for a reasonable price is quite the challenge when moving to Sweden. The actual number of flats available is more or less limited to the number of Swedes that have a legitimate reason to sublet their flats. The wait for a rental apartment in Stockholm averages 104 weeks, rising to as much as 20 years for attractive areas.
Regarding tax implications, the general rule in Sweden is that all remuneration and benefits, whether in-cash or in-kind, in respect of an employment or temporary assignment constitute taxable income.
Switzerland
There are hardly any corporate leases in Switzerland, as companies moved away from this approach.
We also do not recommend corporate leases for one significant reason. According to our experience, the occupant (transferee) takes much less care about the condition of the apartment knowing that the lease agreement has been signed by the company rather than by himself.
United Kingdom
There is no difference in the tax treatment of corporate and personal tenancies. There is, however, greater legal protection for personal leases, as these are protected by deposit protection rules and consumer "unfair contract" legislation. Overall, the general trend is a move away from corporate to personal leases, though many US employers retain a preference for corporate leases.
(My thanks are due to the following EuRA members which contributed to this survey: Andrews Blakeway Consult Relocation; Antares Relocation; Auris Relocation;
European Relocation Services; Executive Relocations; Inter Relocation; Irish Relo; Nordic Relocation Group; Palladium Mobility
Group; Team Relocations; and Triplicado.)
Upcoming UK immigration changes
March and April is always a busy time for UK immigration lawyers as UK Government fees increase and new rules come into force. At the time of writing, we are still waiting on confirmation of any proposed changes to the immigration rules, but there are two known changes which will have particular implications for the relocation industry and businesses which bring international assignees to the UK.
Immigration Health Surcharge
From the end of March, the exact date has yet to be published, the UK will require individuals applying for Tier 2 (Intra Company Transfer) visas, which is the most common visa for international assignments, to pay an additional fee to cover the cost of being able to access the National Health Service. This will be the equivalent to £200 per year for each year of their assignment and will also be applied to applications by family members.
The charge will apply to all visa applications, including extending existing assignments.
Immigration Skills Charge
From 6 April 2017, the cost of international assignments involving non EU nationals coming to the UK will dramatically increase due to the introduction of the Immigration Skills Charge. This is a new charge, which will apply to most Tier 2 visa applications. The charge will be based on the size of the company and the length of the proposed assignment.
The charge will apply at the point the UK company issues a Certificate of Sponsorship, the electronic document needed to support a visa application, and will either be:
• £1000 for each year of the assignment in large companies; or
• £364 for each year of the assignment in small companies or charities.
The UK Government defines a large company as one with at least 50 employees in the UK and an annual turnover of at least £10.2 million. Many multinational companies will therefore fall within the definition of a large company and the charge is an extra cost for employee mobility budgets.
The charge will apply to all new assignments except for those involving Tier 2 (Intra Company Transfer)(Graduate Trainee) applications, which involve short assignments as part of a management training programme. Assignees already in the UK will not be affected by the skills charge.
As an illustration of the consequences of the charges, a standard 3 year visa for an international assignment currently costs £575 for a single employee with no trailing family members. From 6 April 2017 the cost of this visa will be £4,175 when the health and skills charges are taken into account.
The cost for the same assignment but with a spouse and 2 dependent children will increase from
£2,300 to £7,700.
Relocation professionals should make sure that clients are aware of these additional costs and are budgeting accordingly. There is currently no indication as to whether skills charges will be refunded if assignments are cut short. So businesses will need to carefully consider who they select for
international assignments, since the cost of failed assignments is unlikely to be recoverable.
Criminal records checks in some occupations
A further change from 6 April is that applicants applying to do certain jobs in healthcare, teaching or social work professions will be required to provide a criminal records check when making their visa application.
Although this change is only applicable to a small number of occupations, it is likely to be rolled
out to all jobs in the near future and relocation professionals will need to be aware of the potential delay in visa applications being submitted while these are obtained.
This change, if rolled out across all jobs, will be particularly problematic for some assignees. This is because applicants will need to provide a check from every country where they have lived for 12 months in the last 10 years. It is not difficult to envisage an applicant with multiple previous assignments having to obtain checks from 3 or 4 different countries before being able to submit their UK visa application. This will be a further complication when planning international assignments.
The General Data Protection Regulation - Key Points for Businesses
It is worth reminding ourselves just how critical the correct management of personal data has become for relocation businesses. We need the personal data of transferees (and their families) in order to deliver relocation services. And to do this efficiently, we often share this data across several different organisations: between employers, RMCs, DSPs and other specialists across the relocation supply chain. We also frequently share personal data with service providers in other countries.
In each of these situations - gathering, retaining and sharing personal data - we need to comply with data protection law. Much of this is common-sense, such as keeping data safe and accurate. It becomes more complicated when we want to share this personal data with third parties or perhaps use the data for our own marketing purposes. With these latter scenarios, we need to ensure that the individual has provided full consent to our use of their data for that particular purpose.
When we wish to send personal data to a country outside the EU, we need to be particularly careful that we are not breaching EU data protection law. For example, in the context of relocation services, personal date of
EU nationals will often be held by US-headquartered RMCs on their servers located in the US (i.e. there is a data transfer from the EU to the US). It is for this reason that RMCs have been quick to obtain accreditation under the EU-US Privacy Shield.
It is against this sometimes complicated background that the EU is introducing the GDPR. For the first time, a single set of data protection rules will apply across all EU countries. In practice, it is likely that many RMCs will also adopt the GDPR as their global standard of data protection and we can expect to see this reflected in amendments to relocation service agreements this year.
Below is a summary of the main changes that the GDPR will introduce when it becomes law in May 2018. Many of these changes will require substantial lead time, so it is important for businesses to plan ahead.
• Expanded Territorial Scope
The GDPR applies to all data controllers/data processors processing the personal data of data subjects residing in the EU, regardless of the data controller's/data processor's location. This means that many non-EU businesses that were not required to comply with the current Data Protection Directive will be required to comply with the GDPR. Non-EU businesses processing the data of EU citizens will need to appoint a representative in the EU.
• Increased Enforcement Powers
Under the GDPR, data breaches could result in fines up to 4% of annual global turnover (or 20 Million Euros, whichever is greater). For violations relating to internal record keeping, data processor contracts, data security and breach notification, the GDPR allows for fines up to 2% of annual global turnover (or 10 Million Euros, whichever is greater). Accordingly, it would be prudent for organisations to review how they obtain, use and secure personal data. Data processing procedures should
be monitored and reviewed with an aim to minimise data processing and retention of data. It is worth noting that under the GDPR data processors may also be liable for high fines.
• New Rules for Obtaining Consent to Process Data
The GDPR requires a very high standard of consent for the processing of personal data. The burden of demonstrating that the legal standard of “consent” has been achieved will lie with organisations, so businesses should review whether its documents and forms of consent are adequate, and check that consents are freely given, informed and specific. Where the data processing has multiple purposes, the data subject should give their consent to each of the processing purposes. Businesses also must ensure that a data subject can withdraw their consent to the processing of their personal data at any time.
• Reporting Security Breaches
The GDPR requires that businesses will have to report breaches that are likely to harm individuals to national authorities (e.g. the ICO in the UK) within 72 hours. If the breach might result in high risk to the affected individuals, businesses must inform these individuals "without undue delay".
Organisations should develop a data breach response plan enabling them to respond quickly in the event of a data breach.
• Subject Access Requests
The rules for dealing with subject access requests (e.g. an enquiry from a transferee) will change under the GDPR. Organisations will have just a month to comply from the date of receipt of the request. The data controller must provide a copy of the personal data free of charge and in an accessible electronic format. There will be different grounds for refusing to comply with subject access request, and manifestly unfounded or excessive requests can be charged for or refused.
- Right to be Forgotten
In May 2014 the European Court of Justice ruled that search engines such as Google were data processors and that citizens had the right to ask that content referring to them be “forgotten”. The GDPR provides a more limited right to be forgotten in certain circumstances, such as where the data controller has no legal grounds for processing personal information.
• Privacy by Design
Privacy by design appears as a central concept within the GDPR, and means data protection considerations being taken into account from the outset of designing a new process, product or service, rather than treating it as an afterthought.
• Benefits to Businesses
The GDPR reduces 28 sets of different data protection laws to a single regulation, reducing compliance costs, complexity, risk and uncertainty over reporting for organisations who operate throughout the EU.
With just over 12 months to go before the GDPR becomes law, here are some practical steps to consider for your business:-
• Implement training programmes in your organisation so that employees are aware of the data protection compliance they must follow
• Audit and document the personal data your organisation holds, noting where it was obtained from, who it is shared with and how long it has been held for
• Ensure mechanisms are in place within your organisation to ensure that, by default, only personal data necessary for each specific purpose is processed and the data is stored no
longer than necessary
• Review all privacy notices used by your organisation and put in place a plan for changing these notices to comply with the GDPR.
Even relatively small businesses within the relocation industry will be affected by these changes and, initially, this may take the form of changes to clauses in RMC service agreements and related requests for suppliers to participate in data protection refresher training.
The Legal & Tax Report is produced for The EuRApean by Gordon Kerr, the Employee Mobility Unit at UK law firm, Morton Fraser LLP.
Gordon Kerr
Employee Mobility Unit
Morton Fraser LLP
(gordon.kerr@morton-fraser.com)