Simple Tax Guide for Americans in Tunisia
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Tunisia for over 3 years. Our clients hail from all parts of the country - Tunis and Sfax, Susah and Kairouan.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay. Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Egypt for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Tunisian Tax System for the American Expatriates.
Tunisia individual income tax rates are progressive to 35%.
Income in TD Tax Rate Effective Tax Rate
0 - 1,500 0% 0%
1,501 - 5,000 15% 10.5%
5,001 - 10,000 20% 15.25%
10,001 - 20,000 25% 20.12%
20,001 - 50,000 30% 26.05%
Over 50,000 35%
Foreign national' workers in certain sectors (e.g. export enterprises, offshore banks and hydrocarbon exploitation) can opt to pay a lump sum tax of 20% of gross salary.
With respect to the international taxation agreements, Tunisian personal income tax is a direct tax levied on income of an individual. Taxpayers are classified into resident and non-resident.
According to Tunisian laws, three criteria are used to indicate that an individual has a habitual residence in Tunisia:
- Main residence of the person is in Tunisia
- Principal place of residence (period equal to or more than 183 days during a civil year)
- The individual is a civil servant or state employee carrying out his/her duty a foreign country where they are not subject to personal income tax on global income.
A non-resident is subject to tax only on personal income from Tunisian sources.
Income chargeable to the Personal Income Tax is called assessable income.
Assessable income is divided into seven categories:
1. Income from commerce and industry
2. Income from non-trading professions
3. Income from agriculture and fishing activities
4. Wages, salaries, pensions and life annuities
5. Land income
6. Income in the nature of dividends and interests resulting from the detention of securities and bonds.
7. Income from any other activity not specified earlier.
For each category of income, certain deductions and allowances are allowed in the calculation of the taxable income. Taxpayer shall keep the books in compliance with the accounting legislation, in order to benefit from these deductions.
In general, a person liable to Personal Income Tax has to compute his tax liability, file tax return and pay tax, if any, accordingly on a calendar year basis.
Married couples file tax returns as separate individuals. Income of children is reported on the tax return of the head of family. A spouse can report income of the children on his/her tax return in certain circumstances.
Tax return due date - The 5 of December subsequent to the year of taxation.
Taxation of Investment Income and Capital Gains - Interest is subject to a withholding tax at 20 percent (a more favorable rate if the case is covered by a nondouble imposition treaty), which is offset against ordinary income tax on this income. Dividends are tax-exempt from at the shareholder level. There is no withholding tax on the distribution of dividends.
Rent from improved or unimproved land is included in the category of income from land and is taxed at ordinary tax rates. Rental income from student accommodation is tax-exempt during the first 10 years.
Interest from foreign currency deposits or from convertible Dinar4 is exempt from withholding requirements.
There is no specific capital gain tax on receipts derived from capital investments made in hard currency or in convertible Dinar. Nevertheless, the gains from the disposal of shares in real estate companies and from the disposal of building land, or buildings are classified as income from land, except for sales made to a spouse or other close relative, or if the sale is the result of compulsory purchase by the state or the disposal of inherited property or the principal residence. The tax rate for these transactions is 10 percent when the sale is realized in the first 10 years. If the sale occurs after the first 10 years the rate is 5 percent. For inherited building land or buildings, the rate is 5 percent irrespective of the possession period. The tax base is the difference between the sales price at the time of the transfer and the acquisition price or added value, in the case of buildings, the value of the land together with expenses and 10 percent of the total for each year held.
Transactions which create a profit from the sale of lots or parts of lots which originally belonged to the state land agency and used to have, but no longer have, an agriculture use are taxable at the following rates.
- Twenty-five percent provided that the sale is performed to state land agency.
- Fifty percent in all other cases.
The tax base is defined as above.
Dividends, Interest, and Rental Income
Dividends - Collected dividends that are distributed by Tunisian companies are tax-exempt.
Interest - Limitation of interest rates are not applicable when the partner who benefits from these interests is a bank in which case interests are deductible from the taxable base to the limit applicable on the market. This limit can be more than 8 percent.
A fortiori, the 8 percent limit is not applicable in case of a loan granted by a bank or a financial institution which is not shareholder or partner. Financial fees are fiscally considered as charges and accordingly are deductible from the tax base.
Rental Income - The withholding of 15 percent is not applied for non-resident natural persons who carry out in Tunisia rentals of a business or building or non-building properties part of a professional asset on an industrial company, commercial or non-commercial as considered as established in Tunisia. The rent amounts that are paid to them and that are part of the operating result in Tunisia are subject to withholding taxes at the rate of 15 percent or 5 percent if the building is a hotel.
As for foreign legal entities that realize revenues from buildings located in Tunisia, the tax administration considers them as established in Tunisia because they possess these buildings.
Consequently, they are dealt with as any other company established in Tunisia. The realized rentals are subject to a withholding tax at the rate of 15 percent or 5 percent if the building is a hotel. If it is the case of professional rentals, they are liable to VAT at the rate of 18 percent.
When the Tunisian law recognizes the plan to be a stock option, the gain is not subject to taxation. This advantage is awarded under the double condition as follows.
- At the date the stock option is granted, the employee does not hold more than 10 percent of the subscribed share capital.
- The shares are not sold during a period of three years starting from 1 January of the subsequent year in which the option is exercised.
When the Tunisian law does not recognize the stock option plan, the exercise gain made by the employee (difference between the exercise price and the fair market value of the shares at the date of exercise) will be subject to income tax.
Foreign Exchange Gains and Losses
If the exchange gains and losses are realized, that is a payment or receipt of funds occurred, they will be part of the tax base of calculation.
If the exchange gains and losses are not realized, they are not included in the taxable base discount of debts.
Principal Residence Gains and Losses
Use of Losses
- Tax losses can be brought forward for four years.
- No loss carry back allowed.
- Depreciation charge in periods of tax losses can be indefinitely carried forward.
Assessment of Profits - Profits (income and taxable gains) of a company are assessed for an accounting period, usually related to a 12-month period corresponding or not to the calendar year.
Taxable profits are determined on the basis of accounting statements. When there are discrepancies between tax rules and accounting rules, off-books adjustments are used.
The deficit recognized for a business year which resulted from a regular accounting record in accordance with corporate accounting legislation is deducted successively from the results of the subsequent business years up until and including the fourth year.
For any profit business year, the deduction of deficits and depreciation is carried out according to the following order.
- Reportable deficits.
- The depreciation for the related business year.
- Deferred depreciation in deficit periods.
Deduction of grants paid to 26-26 or 21-21 and funds for support, maintenance and repairs of schools from the global revenue, except for contributions that are subject to the flat tax regime, any taxpayer who grants to 26-26 or 21-21 and fund of support, maintenance and repairs of schools may deduct amounts as well as grants from his/her taxable revenues.
When a person operates an activity subject to the real tax regime, these grants are recognized under operating expenses and are deductible for their total amounts for the determination on the net revenue by category. As for persons who are subject to flat taxable base, as well as those that do not impute these grants to their operations, the grants' amounts are deductible in their totality from their global revenues but up to the limit of the latter.
For salaried employees, the grants paid to National solidarity fund 26-26, or 21-21 and the fund for support, maintenance and repairs of schools are deductible from the taxable revenue after a tax allowance of 10 percent for professional fees and before the deduction of tax relief for reinvestment.
General Deductions from Income
The personal allowances for 2010 are as follows:
- Family head: TND 150.
- First child: TND 90.
- Second child: TND 75.
- Third child: TND 60.
- Fourth child: TND 45.
- Dependent parents: 5 percent of net income (limited to TND 150).
Social Security Tax
Type of Insurance Employer Percent Employee Percent Total Percent
CNSS 16.57% 9,18% 25,75%
The social security rates are 8.47 percent on behalf of the employee and 16.57 percent on behalf of the employer and 0.5 percent for employers' compensation on behalf of the employer.
Gift, Wealth, Estate, and/or Inheritance Tax
Inherited property and gifts are subject to tax at the following rates.
- Direct line relatives (children, spouses, parents, siblings, and so on): 2.5 percent.
- Brothers and sisters: 5 percent.
- Collateral line relatives: 25 percent.
- Relatives beyond the fourth degree: 35 percent.
- Unrelated individuals: 35 percent.
Real Estate Tax
According to article 20 of the Registration and Stamps Duties Code, the purchase of real estate is subject to the following.
- A registration duty of 5 percent on the purchase price increased by VAT.
- A stamp duty of 2 DT per sheet of contract.
- A real estate property conservation duty of 1 percent on the purchase price increased by VAT.
The following are exempted from registration and stamps duties.
- The purchase by a fully exporting company of real estate for the purposes of its activities. In order to benefit from this exemption, the investment declaration receipt (before the API) has to mention the real estate purchase and the declaration's date has to be anterior to the purchase's date.
- The purchase made via a registered real estate promoter. (A partially exporting company can benefit from this exemption provided that the purchase is carried out via a registered promoter.)
In this case and in order to benefit from the exemption, it is necessary, at the time of the registration, to present to the Tax Collector a copy of the real estate promoter's authorization delivered by the Equipment Minister and a copy of the performance certificate.
If the purchase is carried out for the purpose of an economic activity, the related investment has to be declared to the relevant organism (A.P.I) before the purchase operation.
Any real estate buyer who is a natural person or a corporate entity subject to a regular accounting system must withhold tax on the real estate purchase price. This tax is of 2.5 percent on the purchase price increased by VAT (article 52 of the Natural Person Tax Code).
- Tax advantages granted to real estate promotion companies.
Unemployment Tax - There is no unemployment tax in Tunisia.
The tax on the rental value is a municipal tax on buildings. The owner of the property is liable for collection of the tax. The base of this tax is the gross rental value determined in accordance with a general census carried out every three to five years by the local authorities. The rate is fixed per local authority, which may be divided into two zones, urban and suburban (where the rate will be lower).
The land tax on undeveloped land is owed by owners, occupiers, or persons enjoying the land.
Tunisia Corporate Taxation
The standard rate of Tunisia corporate tax is 30%. Some other tax rates also apply:
- A 35% corporate tax rate applies to certain banking and financial institutions; investment companies; insurance and reinsurance companies; companies operating in the hydrocarbons sector; factoring companies; and telecommunications companies.
- The corporate tax rate is 10% for agriculture and fishing companies.
- As from 1 January 2011, companies that are wholly or partially engaged in exports, companies established in Economic Activities Parks (free zones) and international trade companies will be subject to a 10% corporate tax rate on profits derived from exports.
- A five-year reduction in the corporate income tax rate from 30% or 35% to 20% for a company that lists at least 30% of its share capital between 1 January 2010 and 31 December 2014 (see details below).
A law published on 7 June 2010 (Law 2010-29) aims to encourage Tunisian companies to list their shares on the Tunisian stock market with a view to making the market more dynamic. The law provides for a five-year reduction in the corporate income tax rate from 30% or 35% to 20% for a company that lists at least 30% of its share capital between 1 January 2010 and 31 December 2014. The reduced corporate rate starts from the date the shares are listed on the stock market. If the company's shares are removed from the stock market during the period the reduced rate is in effect, the company will be required to pay the difference between the corporate income tax due at the normal rate of 30% or 35% and the 20% rate, in addition to penalties. The reduced corporate tax rate does not apply to telecommunications companies, oil and gas companies and oil and gas services companies or companies involved in the refining of oil and the wholesaling of oil products.
Minimum tax liability: A corporation has to pay a minimum tax liability of 0.1% of the total gross turnover with a minimum account due even without any turnover of 100 TND. For companies taxable at the 10% rate and those taxable at the 30% rate this minimum amount is 250 TND.
Legal entities liable to company tax and individuals liable to personal income tax carrying on a trade business are subjected to three tax instalments each representing 30% of the total levy calculated on income and profits of the previous year. Tax instalments should be paid during the 28 first days of the 6th, 9th and 12th months respectively following the balance sheet date.
Limited companies, limited partnerships and co-operatives are liable to corporate income tax on their profits arising from any business they carry on in Tunisia. Foreign companies not carrying on business in Tunisia but deriving certain types of income from Tunisia are subjected to company tax.
Local tax: There is a municipal tax on the rental value of buildings. The owner of the property is liable for the collection of the tax. The base of this tax is the gross rental value determined in accordance with a general census carried out every three to five years by the local authorities. The rate is fixed by the local authority and may be divided into two zones, urban and suburban (where the rate is lower).
OTHER TAXES AND LEVIES
SOCIAL SECURITY TAXES
The social security rates are 9.18% on behalf of the employee and the 16.57% on behalf of the employer and 0.5% for employer's compensation on behalf of the employer.
REAL ESTATE TAX
The transfer of real propriety located in Tunisia is subject to various registration fees, such as a 5% transfer tax and a 1% tax for unregistered buildings. The owner or user of undeveloped land is subject to an annual tax. Further, a tax on industrial, commercial or professional establishment is due at a rate of 0.2% of turnover up to a maximum of TND 100,000.
Any real estate buyer who is an individual or a corporate entity subject to a regular accounting system must withhold tax on the real estate purchase price. This tax is 2.5% on the purchase price inclusive of VAT.
VOCATIONAL TRAINING TAX
This is payable monthly at the rate of 2% of the total gross wages. A special rate of 1% is applicable to the manufacturing sector.
TAX FOR PROMOTING EMPLOYEES' ACCOMMODATION
Employers have to pay a tax at the rate of 1% of total gross salaries to promote the employee's accommodation. Farmers are exempt of this tax.
DETERMINATION OF TAXABLE INCOME
Taxable income is determined on the basis of regular accounting results. When there are discrepancies between fiscal rules and accounting principles, adjustments are made to the accounting results.
Profits are habitually considered to be gross revenue less production, salary and wages and rental expenses.
Generally, all expenses generated by the conduct of business are deductible if they are incurred in gaining or producing assessable income.
Taxable income also includes capital gains, except for capital gains stemming from the disposal of securities listed on the Tunisian Stock Exchange (TSE) and capital gains from an initial public offering on TSE.
Fixed assets owned by the company are normally written off over their normal useful life. For tax purposes, the straight-line method is normally adopted. Assets of a lower value than 200 TND may be fully written off during their initial year. Companies may choose the declining-balance method to calculate depreciations on hardware, agriculture equipments and newly purchased manufacturing equipment (from 1 January 1999).
From 1 January 2008, a company is eligible to use the declining balance method to compute depreciations on manufacturing equipment financed by a leasing.
For the determination of net income, inventories must be evaluated at their cost price. If market value or realisable value is lower at the end of the year, the company must set up reserves for depreciation of inventories which is deductible within the limit of 30% of the taxable income.
Collected dividends that are distributed by Tunisian companies are tax-exempt for both residents and non-residents. The non-capitalised earnings, amounts given to partners or shareholders, and attendance fees given to members of the board of directors are assimilated to dividend payment.
GAINS FROM STOCK OPTION EXERCISES
In Tunisia, stock options are only recognised in certain sectors of activities as follows:
- Software engineering
- Software services
- Telecommunications and new technologies sectors
- Listed companies
When the plan is not recognised, by Tunisian Law to be a stock option, the gain is not subject to taxation. This advantage is awarded under the double condition that:
- At the date the stock option is granted, the employee does not hold more than 10 % of the subscribed share capital; and
- The shares are not sold during a period of three years starting from 1 January of the subsequent year in which the option is exercised.
When the Tunisian law does not recognise the stock option plan, the exercise gain made by the employee (difference between the exercise price and the fair market value of the shares at the date of exercise) will be subject to income tax.
Interest from foreign currency deposits or from convertible Dinar is deductible from taxable income. The interests on loans granted, or left at the disposal of the Tunisian company by partners or shareholders are fully deductible from the taxable income of shareholders or partners, under the following condition:
- The interest rate does not exceed 8%
- The amounts do not exceed 50% of the capital which should be fully paid up.
Limitation of interest rates is not applicable when the partner or shareholder who benefits from these interests is a bank in which case interests are deductible from the taxable base to the limit applicable on the market.
The deficit recorded during a business year which resulted from a regular accounting record in compliance with corporate accounting legislation is deducted successively from the results of the following business years up until and including the fourth year.
For any profit business year, the deduction of deficits and depreciations is carried out according to the following order:
a) Reportable deficits
b) The depreciation of the concerned business year
c) Deferred depreciation in deficit periods.
During a business year and when the profit is not sufficient to carry out the total deduction of the deficit and depreciation, the remaining part is put back successively on the results of the subsequent business years up until and including the fourth year.
FOREIGN SOURCED INCOME
According to the Tunisian tax legislation, revenues from foreign-source realised by individuals and which were subject to tax payment in the country of origin are not taxed.
Non-resident legal entities are taxable on their Tunisian source income and on the gain from the disposal of buildings and the disposal of shares in real estate companies. The taxable capital gain is the difference between the sale price and the purchase cost. Relief from foreign Taxes in Tunisia depends on double tax treaty concluded by Tunisia.
The Tunisian tax legislation has established a number of incentives for investment in and creation of projects in specific sectors of activity that are aimed at accelerating growth rate and job creation within activities related to fields determined in article one of the Investment Incentives Code.
Various tax incentives are available for totally exporting companies. 100% of the exporting activity income is deductible from total taxable income up until 31 December 2010. This deduction is made notwithstanding the minimum tax. From 1 January 2011, the exporting activity income is taxable at the rate of 10%.
Major incentives are available for investments made by enterprises settled in areas that need development (regional development zones). Income arising from investments carried out in these areas is fully deductible from the taxable income during the first ten years of activity but, for the subsequent business years, only 50% is deductible from the tax base.
Two free zones have been established in Bizerte (North of the country) and Zarzis (south) where companies which exercise activities contained in incentive code could be installed tax free.
FOREIGN TAX RELIEF
Relief from foreign taxes in Tunisia depends on double tax treaties concluded by Tunisia. Tunisia has concluded 67 non-double imposition treaties applicable on 1 January 2008. Tunisia concluded a convention on avoidance of double taxation with UAE that came into force on 27 July 1997.
When a Tunisian company holds 75% or more of the shares of one or more Tunisian companies, the group may choose to be taxed as a single entity. Hence, the subsidiaries are treated as branches of the parent company and corporate tax is payable only by the parent company.
To benefit from the results integrating scheme, the parent company must make the commitment to list its shares on the stock market before the end of the year. Under this system, the profits and losses of all controlled branches, subsidiaries and partnerships in Tunisia and abroad are consolidated.
For certain categories of income, the payer of income has to withhold tax at source, file tax return and submit the amount of tax withheld to the finances.
Tunisia vat (Value Added Tax)
The standard rate of VAT in Tunisia is 18%.
Three different VAT rates apply in Tunisia:
18%: operations related to goods and services not subject to another rate specified below.
12%: raw materials, craft industry products, medical activities, and canned food
6%: information technology services, hotels and restaurant activities and equipment.
Exports are zero rated.
VAT is an indirect tax in that the tax is collected from someone who does not bear the entire cost of the tax. All economic activities conducted in Tunisia, including industrial and handicraft activities, liberal or commercial professions, are subject to VAT.
Exports by definition are consumed abroad and are usually not subject to VAT and any VAT charged under such circumstances is usually refundable. This avoids downward pressure on exports and, ultimately, on export-derived income or revenue.
According to article 18 of the Tunisian VAT code, a sales invoice issued by a VAT registered company should contain the following compulsory information: client name, address and fiscal register, date of the transaction, price of the goods or services sold, VAT rate.
Filing and payment – VAT returns are due monthly returns along with the tax payable by the 28th of the following month for companies and by the 15th of the following month for individuals.