Simple Tax Guide for Americans in Tunisia
US Expat Taxes - 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 Personal Income Tax Rates
Tunisia individual income tax rates are progressive to 35%.
The Finance Law 2018 implemented a social solidarity contribution to the benefit of the social funds, which is due by individuals (resident or not resident in Tunisia) on their income taxable in Tunisia and in the application of the PIT scale. Hence, that contribution is not applicable to the income that is not taxable in the application of the PIT scale, including mainly dividends, capital gains, and salary income taxable at the flat rate of 20% since these income categories are taxable at a specific PIT rate and not subject to the PIT scale. Also, income exempted from PIT will not be subject to the said contribution. The solidarity contribution is due at the rate of 1%. It is applicable from 1 January 2018. Hence, the PIT scale is as follows:
|Taxable income (TND)||PIT rate excluding the solidarity contribution (%)||PIT rate including the solidarity contribution (%)|
|From 0 to 5,000||0||1|
|From 5,000 to 20,000||26||27|
|From 20,000to 30,000||28||29|
|From 30,000 to 50,000||32||33|
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 the 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:
- The 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:
- Income from commerce and industry
- Income from non-trading professions
- Income from agriculture and fishing activities
- Wages, salaries, pensions, and life annuities
- Land income
- Income in the nature of dividends and interests resulting from the detention of securities and bonds.
- 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. A 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. The income of children is reported on the tax return of the head of the family. A spouse can report the 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:
- 25% provided that the sale is performed to state land agency
- 50% 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 carryback 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
Deduction for family chief: TND 150 (increased to TND 300 from 1 January 2019).
Deductions for dependent children are as follows:
- TND 90 for the first child.
- TND 75 for the second child.
- TND 60 for the third child.
- TND 45 for the fourth child.
- TND 2,000 per disabled child.
Deductions for dependent children will be TND 100 per child for the first four dependent children from 1 January 2019.
The children of the taxpayer or the taxpayer's adopted children of less than 20 years of age on 1 January of the tax year are considered as dependent on the taxpayer, on the condition that they do not have income separate from that which serves as the taxation base of the taxpayer.
Social Security Tax
The Tunisian social security system is financed by contributions from both employers (16.57%, reduced to 0.5% for wholly exporting companies) and employees (9.18%) based on salaries. Employers collect and pay social security contributions from each wage-earner.
Gift, Wealth, Estate, and/or Inheritance Tax
Inheritance of movable and immovable goods, from ancestors and descendants, are subject to registration fees of 2.5% on the basis of the value of the inherited good.
Inheritance of movable and immovable goods from brothers and sisters are subject to registration fees at the rate of 5% on the basis of the value of the inherited good.
Inheritance of movable and immovable goods from uncles, aunts, nephews, nieces, and cousins are subject to registration fees at the rate of 25% on the basis of the value of the inherited good.
Inheritance of movable and immovable goods from relatives beyond the fourth degree and non-relatives are subject to registration fees at the rate of 35% on the basis of the value of the inherited good.
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 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).
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 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 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 owned by owners, occupiers, or persons enjoying the land.
Tunisia Corporate Taxation
The general corporate tax rate is 25%. However, specific rates are foreseen for specific sectors of activity. Indeed, corporate tax is due at the rate of:
- 10% for:
- companies carrying out craft activities, agricultural and fishing activities, and fitting out fishing boats
- trading groups of retail businesses organized as service cooperatives, governed by the general cooperation legislation
- service cooperatives formed between producers for the wholesale of their production
- consumer cooperatives governed by the general cooperation legislation
- profits made in the context of industrial or commercial projects benefiting from the youth employment program or the national fund of the promotion of crafts and small businesses
- benefits derived from exports (except wholly exporting companies where the ten-year tax holiday period has not expired)
- support and pollution control activities, and
- companies operating in the regional development zones after the expiry of the total deduction period.
- 20% for:
- Small and medium-sized entities (SMEs): SMEs are defined as trade and processing companies with total revenues (excluding taxes) not exceeding TND 1 million, and companies operating in services and non-commercial activities with total revenues (excluding taxes) not exceeding TND 500,000.
- 35% for:
- banks (including Islamic banks) and financial institutions (leasing companies, factoring companies, investment banks)
- offshore financial institutions governed by the code related to financial services destined to non-residents, and this only for the benefits derived from services provided to non-resident persons
- investment companies (SICAF and SICAR)
- insurance, mutual insurance, and reinsurance companies
- debt collection companies
- telecommunication operators
- companies rendering services to companies operating in the oil and gas field
- companies operating in the production and the transport of hydrocarbons and governed by particular conventions, as well as companies operating in the transfer of hydrocarbons via pipeline
- companies operating in the oil refining sector and the wholesale of hydrocarbon products
- hypermarkets (constructed area exceeding 3,000 m² or sales area exceeding 1,500 m²)
- car dealers, and
- franchisees of a foreign brand or trademark, except for enterprises with a rate of integration equal to or greater than 30%.
A minimum corporate tax is due at the rate of 0.2% of the local turnover, including VAT, in case:
- the company realizes losses or
- the corporate tax due at the rate of 25%, 20%, or 35% is less than the minimum corporate tax of 0.2% of the local turnover, including VAT.
However, the minimum corporate tax is reduced to 0.1% of the turnover for companies subject to corporate tax at the rate of 10% (e.g. exporting companies after the expiry of the ten-year tax holiday period) and companies selling products subject to the government homologation of prices with a gross margin not exceeding 6%.
The minimum corporate tax is not due by companies benefiting from the whole exemption of profits deriving from operations (e.g. companies established in the regional development zones, companies operating in the agricultural sector) during the period of tax holidays. These latter are fixed by decree.
Vocational training tax
Entities subject to corporate tax are subject to vocational training tax, calculated at 2% of the gross amount of salaries paid to its employees, including benefits in kind. The rate of this tax is 1% for manufacturing industrial companies.
This tax is payable monthly before the 28th day of the following month.
Local authority tax (LAT)
LAT is payable by entities subject to corporate tax, except entities operating in the tourism sector. The tourism sector is defined as accommodation, entertainment, tourist transportation, thermals, congressional tourism, companies managing hotels and entertainment centres, and travel agencies.
If a company is engaged in several activities, some of which are subject to LAT and the remaining are not subject to LAT, the taxable base to be considered is constituted only by the turnover of the activities that are subject to LAT.
The LAT is paid to the local authority at the rate of:
- 0.2% of the local turnover of the entity, with a minimum calculated on the basis of the number of square metres of construction used by the entity.
- 0.1% of the turnover deriving from exportation as defined by the legislation in force.
LAT is payable monthly before the 28th day of each month.
The hotels' tax is due by entities that work with tourists; provide accommodation, food, and beverages; or organize leisure activities for clients. The tax is calculated at 2% of the gross turnover generated from tourism and relating activities.
This tax is payable monthly before the 28th day of the following month.
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 the 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.
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 from 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 depreciation on hardware, agriculture equipment 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 depreciation on manufacturing equipment financed by leasing.
For the determination of net income, inventories must be evaluated at their cost price. If the market value or realizable 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 a dividend payment.
GAINS FROM STOCK OPTION EXERCISES
In Tunisia, stock options are only recognized in certain sectors of activities as follows:
- Software engineering
- Software services
- Telecommunications and new technologies sectors
- Listed companies
When the plan is not recognized, 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 recognize the stock option plan, the exercise gain made by the employee (the 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 profitable business year, the deduction of deficits and depreciation 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 realized 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.
Two laws have been promulgated in order to promote investment in Tunisia, the Investment Law and the Tax Incentives Law.
The purpose of the Investment Law is to promote investment and to encourage the creation of enterprises, notably through:
- Increasing the added value, competitiveness, and export capacity of the national economy, and technological development at the regional and international levels.
- Job creation and promotion of human resources competence.
- Achieving an integrated and balanced regional development.
- Achieving sustainable development.
The major tax incentives provided for by the Tax Incentives Law are mainly relating to:
- Export operations.
- Investments in regional development zones.
- Agricultural development.
- Support and depollution activities.
- Newly created companies.
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.
The payments of certain remunerations are subject to corporate WHT in Tunisia. Applicable WHT rates in Tunisia are as follows:
- 15% of the gross amount of the invoices related to fees, commissions, brokerage fees, rentals, payment of non-commercial activities.
This rate is reduced to 5% for fees (including those paid for non-commercial activities) and hotel rentals when these amounts are paid to entities subject to corporate tax and individuals who keep proper accounts in accordance with the Tunisian accounting principles.
This rate is reduced to 2.5% for fees, commissions, rentals, and non-commercial remunerations deriving from exportation, in accordance with the legislation in force.
- 15% on performance bonus paid to distributors of goods.
- 20% on interest and director’s attendance allowance. This does not include interest on deposits and bonds in foreign currency or convertible dinars.
- 10% on bank loans granted by non-Tunisian resident banks.
- 2.5% on the sales price indicated in a real estate sale, in case the seller is an individual.
- 1.5% on payments exceeding TND 1,000 (including VAT) made for the acquisition of goods and services necessary to the activity and that are not subject to a specific WHT rate.
This rate is reduced to 0.5% in case the remunerations are derived from exportation, in accordance with the legislation in force, or payment is made to companies subject to corporate tax at the rate of 10%.
- 15% on other payments made to non-Tunisian tax resident persons.
- Dividends distributed by Tunisian-resident companies to non-resident, non-establishment companies, to non-resident individuals, and to resident individuals are subject to corporate tax paid through a discharging WHT at the rate of 10% of its total amount.
- 25% on payments made to persons resident in tax havens.
- 25% on lottery and gambling gain.
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.