Tunisia Individual Tax Guide

Tunisia

EY

Boulevard de la Terre Centre Urbain Nord 1003 Tunis Tunisia

Executive and immigration contacts

Faez Choyakh

+216 31-342-111

Fax: +216 70-164-810 Email: faez.choyakh@tn.ey.com

Omar Rekik +216 31-342-111

Fax: +216 70-164-810 Email: omar.rekik@tn.ey.com

Leyla Chouchene +216 31-342-111

Fax: +216 70-164-810 Email: leyla.chouchene@tn.ey.com

Kaouther Chaabani +216 31-342-111

Fax: +216 70-164-810 Email: kaouther.chaabani@tn.ey.com

A. Income tax

Who is liable. All resident individuals in Tunisia must pay income tax on all benefits or income received (worldwide income and benefits). Nonresident individuals are taxed on Tunisian-source income. They are subject to a final withholding tax of 15% (or 25% for residents of tax havens) on such income except for salaries, which are taxed according to the scale set forth in Rates, or at a flat tax rate of 20% if employees stay in Tunisia less than six months.

Subject to the provisions of double tax treaties, individuals are considered tax residents if they meet any of the following condi tions:

• They maintain their principal home in Tunisia.

• They are present in Tunisia for at least 183 days during the year.

• They are civil servants or state officials performing their duties or assignments in a foreign country, and they are not subject to personal tax on their global income in the foreign country.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Taxable employment income includes total compensation after deducting the employee’s social contributions and personal deductions and allowances.

Self-employment and business income. Self-employed individu als are divided into three categories for tax purposes, depending on the nature of their activities. They may be taxed on income from commercial and industrial activities, on income from pro fessional activities or on income from agricultural and fishing activities.

Under the 2019 Finance Act, a new flat tax regime is instituted for the profits of smallholders who are individuals meeting the following conditions:

• They have an unstable income.

• They engage in activities of small businesses, craftsmen and itinerant traders.

• They have no premises required for the exercise of their activ ity.

• They undertake their activity on 1 January 2019 without filing the declaration of existence provided by Article 56 of the Personal and Corporate Income Tax Code.

• On or after 1 January 2019, they file spontaneously the declara tion of existence with the tax authorities that have the legal power to control the taxpayer or that are territorially competent to cover the taxpayer.

The personal income tax due, over a period of three years, is TND200 per year for the persons in activity in communal areas and TND100 per year for those engaging in their activities in other areas.

Investment income. Dividends in Tunisia are subject to a final withholding tax of 10% (or 25% for individuals who are residents of tax havens). Individuals who receive an annual total dividend of less than TND10,000 can deduct the withholding tax on dividends. Interest payments are subject to a final withholding tax of 20% (or 25% for individuals who are residents of tax havens).

Revenues derived from betting games of chance and lottery. Classified as other/miscellaneous revenues, revenues derived from betting games of chance and lottery are subject to personal income tax through a discharging withholding tax at a rate of 25% when the revenues are received in cash.

Income derived from mutual betting games on horse racing and sports prediction contests organized by public establishments, as defined by the regulation in force, are exempt from personal income tax.

Exempt income. Certain types of income are exempt from tax, such as the following:

• Salaries, wages and allowances paid by foreign states to staff seconded to the Tunisian government under the framework of technical cooperation

• Interest paid with respect to home purchase savings plans

• Interest on deposits and securities in foreign currency or con vertible dinars

• Revenue from the rental of agricultural land reserved for field crops that are the subject of leases concluded for a minimum period of three years

• Sums paid for the execution of insurance contracts

Capital gains. Capital gains derived from shares are taxable at a rate of 10%, with an annual deduction of TND10,000. For non resident persons, capital gains derived from the sale of shares are subject to withholding tax of 10%, which cannot exceed 2.5% of the disposal price of the shares.

Some exemptions apply to capital gains derived from the sale of shares, such as the following:

• Shares listed on the Tunis Stock Exchange if their assignment or retrocession takes place after the expiration of the year fol lowing that of their subscription or acquisition

• Shares of open-ended investment companies and the units of equity investment mutual funds

• Shares contributed to the capital of the parent company or the holding company, subject to the commitment of the parent company or the holding company to bring its shares to the Tunis Stock Exchange by the end of the year following that of the exemption

Capital gains derived from the sale of buildings and land are subject to tax at a rate of 15% if the asset retention period is five years or less or 10% if the retention period is more than five years. Capital gains derived from the sale of buildings and land are subject to withholding tax of 2.5%.

Some exemptions apply to capital gains derived from the sale of buildings, such as the following:

• The transfer of ownership made to a spouse, ascendant or descendant

• The first transfer of ownership of building and land used for residential purposes, with a total area not exceeding 1,000 square meters, including all annexes, built or not built

Taxation of employer-provided stock options. Under the common regime, options are taxed at the time of exercise on the difference between the exercise price and the fair market value of the stock. The benefit is subject to both income tax and social security contributions.

Deductions

Deductible expenses. The following expenses are deductible:

• Employees may deduct the required amounts withheld by the employer for mandatory contributions to annuities, pensions, retirement funds and social security schemes.

• Individuals may deduct professional expenses equal to 10% of the balance of income, with a threshold of TND2,000 for income realized from 1 January 2017 after the deduction of mandatory contributions to annuities, pensions, retirement funds or social security schemes.

• Tax residents of Tunisia benefiting from foreign-source pensions, annuities or retirement funds may deduct 25% of such items from taxable income if they do not repatriate the income. This rate is increased to 80% for pensions, annuities or retire ment funds repatriated into Tunisia.

Personal deductions and allowances. The following personal deductions are granted:

• Mandatory arrears and annuities paid free of charge

• Premiums from certain life insurance and capitalization poli cies of up to TND100,000 per year with minimum tax applica ble

• Sums deposited in “savings accounts in shares” (“comptes épargne en actions”) of up to TND100,000 per year with mini mum tax applicable

• Interest received by the taxpayer for special savings accounts, limited to an annual amount of TND5,000

• TND300 for heads of families, in addition to TND100 for the first child, TND100 for the second, TND100 for the third, TND100 for the fourth, TND1,200 for disabled children and TND1,000 for children pursuing their studies at a university without any scholarship, plus 5% of net income per dependent parent, up to a combined maximum of TND450

Principal and interest paid on university loans

Interest and fees paid on loans for the acquisition or construc tion of a single housing if the cost of acquisition or construction does not exceed TND200,000. This does not apply to persons who already own a home on the date of acquisition or construction.

Contributions paid to social security funds by independent selfemployed individuals

Rates. The following are the income tax rates for income realized on or after 1 January 2017.

Taxable income Tax Effective rate on Exceeding Not exceeding rate higher amount

19.50

22.33

26.20

Employees working in Tunisia for less than six continuous or non-continuous months in a calendar year can be taxed at a flat rate of 20% on their gross salaries from Tunisian sources.

Some expatriates engaged in oil and gas activities, in mining activities, or in activities with offshore banks or with companies wholly engaged in exports can benefit from flat-rate taxation of 20% on gross salaries even if their work period exceeds six months and if they satisfy the conditions needed to obtain approval from the competent authorities.

Social Contribution of Solidarity. Beginning with 2018, individuals whose income is subject to personal income tax according to the progressive rate scale are subject to an additional Social Contribution of Solidarity.

The Social Contribution of Solidarity equals the difference between the following:

• The personal income tax determined based on the personal income tax progressive scale, increasing by one point the tax rates applicable to the income levels provided by the progres sive scale

• The personal income tax determined based on the personal income tax progressive scale, without adding the one point to the tax rates

Starting from 2020, employees and pensioners whose net annual income does not exceed TND5,000 after deduction of allowances for family status and expenses are exempted from the Social Contribution of Solidarity. This exemption covers the income of 2020 and subsequent years.

Restitution shall not be made of the amounts of the contribution paid before 1 January 2020.

Temporary and exceptional contribution for 2020. Under Article 1 of Decree-Law No. 2020-5, a temporary and exceptional con tribution for 2020 applies to individuals of Tunisian nationality who are employees and pensioners.

The temporary and exceptional contribution is fixed as the one day wage, salary or pension.

Article 2 of Decree-Law No. 2020-5 provides that this contribu tion shall not apply to the following:

• Employees and pensioners with a maximum net annual income of TND5,000 calculated after deducting 10% for employees, capped to TND2,000 annually, 25% for pensioners, as well as family status and family duties charges provided for in Article 40 of the Personal and Corporate Income Tax Code

• Employees of private sector companies covered by the provi sions introduced on 14 April 2020, providing exceptional and temporary social measures (or actions) in order to support these companies and protect their employees affected by the impact of the total containment measures preventing the spread of COVID-19

Suspension of the provisions relating to the termination of the contract due to force majeure. Article 1 of Legislative Decree No. 2020-2 suspends the application of the provisions of Subparagraph C of the third paragraph of Article 14 of the Labor Code relating to the impediment of execution resulting from a fortuitous event or force majeure occurring before or during the execution of a contract. As a result, from 14 April 2020 until the date of the end of the confinement, the employer can no longer terminate the employment contract unilaterally by invoking the fortuitous event or force majeure resulting from confinement or spread of COVID-19.

In addition, Article 2 of Legislative Decree No. 2020-2 sus pended the application of the provisions of Article 21-12 of the Labor Code with regard to dismissal or unemployment occurring without the prior notice of the regional commission of dismissal control.

In other words, any dismissal or layoff that occurs without prior notice of the regional commission or the regional commission of dismissal control is considered abusive, and the employer has no grounds for invoking force majeure to avoid this qualification.

Nothing has been changed with respect to other cases at the end of the employment contract provided for in Article 14 of the Labor Code. In other words, even after the enactment of Decree No. 2020-2, a long-term employment fixed term contract or indefinite period contract may end in the event of the following:

• Agreement of the parties

• The desire of one of the parties following a serious fault com mitted by the other party

• The worker’s death

• A resolution pronounced by the judge during a case

Tax incentive. A tax incentive that provides an exemption from personal income tax over a period of four years starting from the

effective beginning of the activity is available to new enterprises of self-employed individuals who obtain a certificate of the deposit of the declaration of investment during 2018, 2019 or 2020.

The right to the exemption is not available to new enterprises of self-employed individuals engaged in the financial sector, the energy sector except for renewable energies, mining, real estate development, on-site consumption, trade and telecommunication operation.

The tax incentive is granted to new enterprises of self-employed individuals if they fulfill the following conditions provided in Article 13 of the 2019 Finance Act:

• The enterprise keeps regular accounting books that comply with the enterprises’ accounting legislation in force.

• The enterprise must start its effective activity within two years from the date of the declaration of investment.

B. Estate and gift taxes

Sales of real property are subject to a proportional registration duty at a rate of 5%.

Inheritance tax is imposed on 2.5% of the inheritance value. Heirs or legatees must file and register a declaration of inherited property within one year following the decedent’s death.

Gifts must be recorded within 60 days after the date of the gift.

The following are the rates of tax on gifts and inheritances:

• 2.5% between ascendants and descendants and between spous es. Donations of goods between ascendants and descendants and between spouses, including donations of bare ownership and usufruct rights with respect to real property are registered at a fixed fee of TND25 per donation.

• 5% between brothers and sisters.

• 25% between uncles or aunts, nephews and nieces, great uncles and great aunts, and little nephews (sons of the brother’s [or sister’s] son or daughter) or little nieces (daughters of the brother’s [or sister’s] son or daughter), and between cousins.

• 35% between relatives beyond the fourth degree and between non-relatives.

In addition to the registration duties mentioned above, a fee for real estate conservation is due at a rate of 1% (except for dona tions of goods between ascendants and descendants and between spouses).

An additional 3% registration fee is due for the absence of the property’s origin. This fee is imposed if the references to the registration of the previous transfer are not included in the deed.

C. Social security

Employees pay social security contributions on their salaries at a rate of 9.18%. The total rate for contributions paid by the employer is 16.57%. No ceiling applies to the amount of wages subject to social security contributions. In addition, employers

must pay a work accident contribution. The rate varies from 0.4% to 4.2%, depending on the nature of the activities.

There are some exemptions available for foreign assignees, under which the employee and the employer do not pay social security contributions in Tunisia:

If the assignment is coming from a country that signed a totaliza tion agreement with Tunisia, the assignee must obtain a certifi cate of coverage (to be renewed according to the totalization agreement). If the days’ threshold specified by the totalization agreement is exceeded, the employee will need to be registered under the local regime.

Regardless of whether there is a totalization agreement, personnel of foreign who were nonresident prior to their employment or assignment in Tunisia are entitled to opt for a social security regime other than the local mandatory regime if they are assigned to companies within the following special legal frameworks:

• Petroleum companies

• Offshore business parks

• International trading companies

• Financial and banking organizations

Foreign assignees may elect to be excluded from the Tunisian social security system if there is a social security treaty between their original country and Tunisia.

D. Tax filing and payment procedures

For individuals with a habitual residence in Tunisia, income tax is due on 1 January of each year on all benefits or income realized over the previous year.

The deadline for filing the tax return is 25 February for individuals realizing income on shares and 5 December for employees or individuals benefiting from pensions or life annuities.

The general taxation method is the withholding of tax by employ ers. Employers must calculate the income tax and deduct it from the monthly gross salary.

Some exceptions exist for expatriates whose salaries are paid abroad. Such employees pay tax through self-withholding and make a filing each month.

Tax withheld by employers and tax self-withheld by employees are deducted from the annual tax due.

E. Double tax relief and tax treaties

Tunisia has entered into double tax treaties with the following jurisdictions.

Austria Jordan Senegal Belgium Korea (South) Serbia

Burkina Faso Kuwait South Africa

Cameroon Lebanon Spain

Canada Luxembourg Sudan

China Mainland Mali Sweden

Czech Republic Malta Switzerland

Denmark Mauritius Syria

Egypt Netherlands Turkey

Ethiopia Norway Union of the

France Oman Arab Maghreb

Germany Pakistan United Arab

Greece Poland Emirates

Hungary Portugal

United Kingdom

Indonesia Qatar United States

Iran Romania Vietnam

Italy

Saudi Arabia Yemen

These treaties generally stipulate that wages and compensation are taxed in the state where the activity is performed. Dividends and interest are taxed differently, depending on whether the source is Tunisian or foreign.

F. Entry visas

Tunisia issues the following documents to foreign nationals:

• Entry visas for stays of less than three months

• Work permits

• Residence permits, which often require applicants to first possess work permits

The requirements for entering, working and residing in the country depend on the nationality of the foreign national. Nationals of European Union (EU) countries, Canada and the United States are not required to obtain entry visas to visit Tunisia. Nationals of France and the Union of the Arab Maghreb (Union du Maghreb Arabe, or UMA) may enjoy certain special work and residence privileges.

Foreign nationals must obtain entry visas from Tunisian embassies or consulates for stays of less than three months.

G. Residence permits

Foreign nationals intending to stay in Tunisia for longer than three months must apply to the Ministry of the Interior for residence permits (cartes de séjour). Residence permits are usually granted to foreign nationals who obtain work permits (see Section H). A residence permit is valid for one year and may be renewed after an employee secures a renewed work permit.

H. Work permits and self-employment

Foreign nationals wishing to work in Tunisia must obtain work permits before beginning employment. The Ministry of Training and Employment requires specific documentation before permitting a foreign national to work in Tunisia. The ministry ensures that all employment opportunities are made available to Tunisian citizens before offering employment to foreign workers.

A foreign national wishing to practice a salaried professional activity in Tunisia must apply for work permit through his or her local employer. The employee must also provide a résumé and any diplomas and transcripts certifying his or her qualifications. The ministry requires a certificate attesting that a local Tunisian with similar qualifications was not available.

Work permits issued by the ministry have specific expiration dates. The work permit period may not exceed one year. To renew the work permit, the employer must again seek approval from the ministry by justifying the need to hire a foreign worker.

Tunisian employers are prohibited from recruiting foreign employees whose employment was not authorized by the Ministry of Training and Employment and have not obtained residence permits. An employer is also prohibited from recruit ing a foreign worker whose employment contract with a prior employer has not yet expired. Employers must notify the minis try of the departure of every foreign worker from their compa ny.

Simplified procedure. The following foreign nationals are exempt from obtaining employment contract approval:

• Under Article 258 of the Labor Code foreigners who have the status of Manager, Co-Manager or proxy director in the case of limited liability companies or Chief Executive or the Chairman of the Board of the company in the case of public limited com panies.

• Under Article 6 of the new Investment Law, supervisory and monitoring staff of foreign nationals, up to 30% of the total number of the company’s qualified employees, until the end of the third year following the date of the legal incorporation of the enterprise or until the end of the three-year period starting from the date of the company’s entry into effective production. This limit is reduced to 10% starting from the fourth year, counted from the relevant date (date of incorporation or entry into effective production). In all cases, the enterprise is allowed to recruit up to four foreign qualified employees.

The following are considered qualified employees:

• Supervisory and monitoring staff of foreign nationals in the fields of prospecting, research and exploration subject of the Article 107 of the Mining Code

• Supervisory and monitoring staff of foreign nationals in the fields of prospecting and research subject of the Article 124 of the Hydrocarbon Code

• Foreign qualified employees practicing in associations and nonprofit nongovernmental organizations

• Technical cooperators assigned in projects or programs financed by foreign states or organizations in collaboration with Tunisia

• Moroccan nationals

In all of the exempted cases described above, employers must report recruitment of foreign nationals to the Ministry of Training and Employment. As a result, the work permit is in the form of “Attestation of non-submission of the employment contract to the visa of the Ministry in charge of the employment.” The ministry delivers an exemption certificate for each notification. This cer tificate has no validity term. It should be renewed only for the purpose of residence card renewal.

French citizens. French citizens who have resided in Tunisia for at least three years following the date of the Tunisia/France Resi dence and Work Treaty (17 March 1988) may automatically obtain residence and work permits valid for 10 years. The work permits allow French citizens to perform any kind of salaried work in Tunisia. French citizens who have been married to Tunisian citi zens for one year are also eligible for residence permits and work permits valid for 10 years. French spouses and minor children of holders of 10-year residence and work permits may benefit from the same advantages.

Termination of residence. Any individual who intends to transfer his or her residency outside of Tunisia should apply before his or her departure for a tax clearance from the tax authorities. He or she should then apply for a change-of-residency certificate.

I. Family and personal considerations

Family members. The spouse and dependent children of a foreign national may accompany the worker to Tunisia. However, they are generally not permitted to work in Tunisia unless they qualify independently for work permits (see Section H for exceptions).

Driver’s permits. A foreign national may drive legally in Tunisia with a home country driver’s license for three months.

Tunisia does not have driver’s license reciprocity with other countries.