Data Points Q.1 2019

A Selection of AIRINC Survey Results

This quarter’s cost of living surveys were conducted primarily in North America, Central and South America, the Middle East, Africa, and maritime Southeast Asia-Pacific.

Housing Update

Snapshots of expatriate-quality rental markets around the world

Bogota, Colombia

The rental market is up in Bogota. The newly elected president’s tax cuts on corporations have led to more investment and more assignee arrivals, increasing demand for an already limited housing supply. In addition, sources said, rising property values have directly increased rental prices because of a Colombian law stating that rent must be no more than 1% of the total home price. Thus, as home prices increase, rents may increase as well.

Libreville, Gabon

Political strife has manifested itself as economic turmoil in Libreville, triggering the departure of many expatriate assignees. Despite this trend, the construction of new apartments has not slowed. The result is an oversupply that leaves many new projects sitting vacant for months at a time. Rents have fallen drastically as landlords try to fill empty apartments.

Manama, Bahrain

The market in Manama has been falling rapidly over the past year. Contributing to lower rents is the oversupply generated by the continuing completion of new construction projects even as fewer expatriates are arriving. Sources claim that some expats are upsizing as larger units become more affordable. To attract more international assignments, Manama is expanding the airport, developing a metro system, and subsidizing real estate investment.

Doha, Qatar

With housing supply exceeding demand and the number of incoming expatriates dropping, Doha’s rental market declined over the past year. New construction of housing units continues across Doha, especially in Lusail City, where expats with reduced budgets can find better properties at lower costs. Some landlords remain competitive by offering concessions such as two months’ free rent or the inclusion of utilities in the rental price. Before the diplomatic blockade, many Doha-based expatriates traveled to cities in other Gulf Cooperation Council (GCC) nations for business meetings. Sources said that many meetings are now conducted virtually, since travel between Doha and the GCC countries can cost five times as much as it once did.

U.A.E.

Rents dropped in Abu Dhabi and Dubai, where housing supply continues to exceed demand. New construction continues, with thousands of new units expected to enter both markets in the near future. Much of the new construction is expected to be completed in time for Expo 2020, a large exhibition to be hosted in Dubai. Because of falling expatriate demand, many landlords are willing to negotiate rents down or to offer incentives such as thirteen-month leases with one month free. Some buildings that once had long waiting lists now have vacancies. Sources mentioned that more expatriates are coming on assignments without bringing families, so the demand for smaller apartments has increased.

Kuala Lumpur, Malaysia

The rental market in Kuala Lumpur has stagnated. Falling oil prices have slowed the arrival of international assignees and led to lower demand. The market is unbalanced, with supply outweighing demand. Landlords have preferred to let units remain vacant for up to a year rather than lower prices. Sources mentioned that some landlords have recently begun to negotiate rents once unrented units have been empty for long periods.

Goods and Services Update

Highlights from our in-depth on-site surveys

Uruguay

On January 1, 2019, the monthly national minimum wage increased from 13,430 Uruguayan pesos (UYU) to 15,000 UYU, an almost 12% annual increase. Similarly, the minimum wage had been raised 9.5% the previous year. This period of robust growth means that wages are converging with those in advanced economies faster than in most Latin American countries, although they’re still significantly lower than in Western Europe or the U.S. and Canada. Expatriates have experienced this rise in wages through prices for domestic help. Although expatriates often pay above minimum wage to domestic workers, the upward pressure at the bottom has also increased wages for those one rung up. Our February survey found higher wages for both cleaning and childcare, but labor groups in Uruguay say that these increases are still not enough to keep up with the local cost of living. The 2019 law includes a provision that if inflation rises above 8.5%, the Salary Council will be summoned to reconsider wage levels. Since the official inflation rate was over 7% in February 2019, this measure may come into play if inflation rises further.

GCC Countries

Gulf Cooperation Council (GCC) countries first agreed to collective tax reforms in 2016, including directives to implement a VAT of 5%, as well as excise taxes, also known as selective taxes and commonly referred to as “sin taxes.” Implementation in Qatar was delayed multiple times over the past two years, but rumors of imminent implementation began to spread in the last weeks of 2018. The excise tax was put into effect on January 1, 2019, with tobacco products, energy drinks, alcohol, and pork products taxed at 100% and carbonated drinks (except unflavored carbonated water) at 50%. Our onsite survey showed that the final price impact was mixed, with some increases at exactly the excise rate and others over- or under-shooting expectations. Despite these high increases, the goods that were impacted make up only a portion of overall expatriate consumption, and the increases were mostly offset by low inflation for other goods and deep price cuts for fuel over the same period.

Qatar was the fourth GCC member to implement the excise tax, following Saudi Arabia, the United Arab Emirates, and Bahrain in 2017. Oman will implement excise taxes in June 2019, while Kuwait’s plan currently points to implementation in 2020/2021. Qatar has set the date of VAT implementation for January 1, 2020.

Singapore

Singapore can be one of the most expensive places in the world to purchase a vehicle because of the Certificate of Entitlement (COE), which is required for purchasing a car and allows for ownership for a period of ten years. Singapore uses a Vehicle Quota System (VQS) to determine the number of COEs made available to the public. The VQS uses a number of factors to determine the quota, including the number of vehicles removed from the road, allowable growth, expiration of existing COEs, vehicle type, etc. This system allows Singapore to strictly control the number of vehicles on the road to avoid overburdening its infrastructure and to keep traffic in check. When COEs are made available, they are then bid upon, with the bids determining the final price. When demand is high, the price for a COE can be very high, often exceeding the value of the car itself. Because of the unpredictability of the process, the total purchase price of a car can be highly variable.

AIRINC has seen the purchase price of cars in Singapore decrease significantly over the past couple of years, largely because of declining COE prices, which have been on a downward trend for years. Some of the largest decreases came in 2018. For example, a COE for a category A car (up to 1600 cc) cost 41,400 SGD on January 4th, 2018, but only 26,659 SGD today, a drop of roughly 36%. Several factors that impact supply and demand have played a role in the decrease, including a change to vehicle emissions surcharges, which have decreased demand for many new cars; a high number of deregistered COEs entering the market from cars purchased ten years ago, bolstering supply; and low consumer interest leading to a slow sales market.

Goods and Services Inflation

Selected surveyed locations with inflation higher than 5% for 6 months

Luanda, Angola

Buenos Aires, Argentina

Cairo, Egypt

Lagos, Nigeria

Selected 3-month Exchange Rate fluctuations of more than 5%

Venezuela

Currency VES
Change vs EUR -90.8%
Change vs USD -90.9%

Ghana

Currency GHS
Change vs EUR -10.5%
Change vs USD -10.9%

Haiti

Currency HTG
Change vs EUR -8.7%
Change vs USD -9.1%

Argentina

Currency ARS
Change vs EUR -6.7%
Change vs USD -7.1%

Mexico

Currency MXN
Change vs EUR -5.7%
Change vs USD -5.2%

Country Tax Update

Changes in expatriate tax

Ireland

The tax rate and Universal Social Charge schedules have been amended. The net effect is a small decrease in income tax at all income levels.

Effective January 1, 2019, employers must report payroll information in “real-time,” as opposed to the old system of reporting at year-end. This change impacts companies with both inbound and outbound Ireland employees. It will be particularly critical that employers track and report short-term business visitors and inbound assignees on foreign payrolls. Employees will be required to have an Irish social security number (PPSN) and be registered for PAYE income tax withholdings. Failure to comply with the new regime can result in interest and penalties being levied on employers, up to EUR 4,000 for each violation.

Vietnam

The maximum annual contributions to social security have increased. The net effect is an increase in social security and a decrease in income tax, since social security is deductible for most taxpayers.

Effective December 1, 2018, Vietnam requires employers to enroll certain foreign employees in the social insurance program and to pay employer contributions on the employee’s behalf. Foreign employees will continue to be exempt from social insurance, but beginning January 1, 2022, the same contribution rates that apply to Vietnamese citizens (including the retirement benefit fund) will also apply to foreign nationals. Given that Vietnam does not have any totalization agreements in force, companies with assignees in Vietnam should expect an increased social security cost in the immediate and near future.

Singapore

There are no changes to central provident fund contributions, allowances, or tax rates for individuals for 2019. Singapore has announced a one-off retroactive rebate against the 2018 tax liability equal to 50% of the assessment, up to a maximum SGD 200.

The government has announced the withdrawal of the Not Ordinarily Resident Scheme (NOR), effective 2020, with a transition period through 2023. The NOR scheme allowed certain expatriate taxpayers to apply time-apportionment of employment income for time worked outside Singapore that is not taxable in Singapore. Abolishing the NOR scheme will increase tax costs for affected taxpayers.

Colombia

The value of the Colombian tax unit for 2019 has increased from COP 33,156 to COP 34,270, resulting in inflation adjustments to tax brackets, the dependent children allowance, deductible mortgage interest, and the medical deduction. Income tax rates have increased, with a top marginal tax rate of 33% increasing to 39%. The rate of social security employee contributions has remained unchanged, but the maximum social security contribution has also increased. The net effect is an increase in social security tax for higher incomes. The net effect on income tax varies by income level, generally resulting in a decrease for lower incomes and an increase for higher incomes.

United States Tax Update

For 2019, inflation-indexing adjustments have been made to tax brackets and the standard deduction. The social security wage base has increased. The net effect of these changes varies by income level, family size, state selected, and deduction type.

Notable state tax developments:

The United States enacted significant federal tax reform, titled The Tax Cuts and Jobs Act, effective January 1, 2018. Because states incorporate provisions of the federal tax code into their own codes to varying degrees, federal tax reform has implications for state tax revenue (beyond any broader fiscal effect of the reform).

Eighteen states and Washington, D.C. have “‘rolling,” or automatic, conformity with the Federal Internal Revenue Code. Nineteen states must update their fixed-date conformity to adopt the new provisions. The remaining states conform selectively. States conform for a variety of reasons, but mostly to reduce the compliance burden of state taxation, since conformity allows both the state and taxpayers to rely on federal rulings, statutes, and interpretations.

Many states have taken the 2018 calendar year to analyze the impacts of the tax reform and decide which elements to conform to. In particular, where states previously conformed to the federal personal exemption (now eliminated), the standard deduction (now nearly doubled), and itemized deductions (now limited), the states have had to make decisions about whether to continue following the federal regulations or create their own.

In addition, under the 2018 reform, moving expenses are now considered taxable (except for military personnel). As of this writing, ten states currently do not conform to the Internal Revenue Code regarding moving expenses, so reimbursed qualifying moving expenses continue to be excluded from taxable wages for state purposes:

Excluded for 2018 and beyond: Arizona, Hawaii, New York, Pennsylvania, and Virginia;
Exclusion allowed due to static conformity, but have not passed laws updating conformity date: Arkansas, California, Massachusetts, Minnesota, and New Jersey.

Other state tax developments:

Georgia: top marginal rate reduced from 6% to 5.75%, possible further reduction to 5.5% in 2020.

Iowa: tax rates reduced, with top marginal rate reduced from 8.98% to 8.53%.

Kansas: mortgage interest and property taxes deductible up to 75% of federal amounts (without limitation), will be 100% in 2020; child tax credit 18.75% of the federal amount, will be 25% in 2020.

Massachusetts: flat rate reduced from 5.1% to 5.05%, with further reduction to 5% likely in 2020.

Missouri: top marginal rate reduced from 5.9% to 5.4%, with further reduction to 5.1% likely in 2020. New federal tax deduction phase-out for higher incomes, and personal exemptions eliminated.

New York: Empire State child credit reverts to 2017 levels and phase-outs for 2018 and going forward.

North Carolina: flat rate reduced from 5.499% to 5.25%; standard deduction increased.

Washington: implementation of a 2.25% income tax on individuals earning over $250,000 ($500,000 MFJ) was attempted, but it was ruled unconstitutional. Washington remains a no income tax state.

Survey Location Update

Q1 Surveyed Locations and Upcoming Q2 Survey Locations

AIRINC surveys more than 150 locations each quarter.

In response to market volatility, we will also conduct a survey update in Venezuela in the fourth quarter.

Make quicker decisions with access to country/city reports for education costs, tax implications, transportation information, and assignment location summaries.

View Publications

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EDUCATION REPORT: NEW YORK, NY, U.S.A.

The AIRINC Education Report for New York, NY, U.S.A. provides a summary of costs for a representative list of international schools in…

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Expat Tax Summary: Colombia

This Expat Tax Summary for Colombia contains comprehensive information about the taxation of expatriate income and serves as a vital resource for Global Mobility managers…

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Transportation Report: Oslo, Norway

Transportation systems vary widely across locations. Do you know what to provide for your international assignees?

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Site Summary: Lusaka, Zambia

This AIRINC Site Summary provides instant, on-the-ground insight of Lusaka, Zambia covering the relevant aspects of expatriate life that assignees encounter on a daily basis…

For More Information

Please contact your Client Services representative for more details and further information. For AIRLinc subscribers, please check out On-Site Insight, a weekly blog featuring location updates written by our on-site surveyors.

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Data Points Q.1 2019

A Selection of AIRINC Survey Results

Housing Update

Bogota, Colombia

Libreville, Gabon

Manama, Bahrain

Doha, Qatar

U.A.E.

Kuala Lumpur, Malaysia

Goods and Services Update

Uruguay

GCC Countries

Singapore

Goods and Services Inflation

Luanda, Angola

Buenos Aires, Argentina

Cairo, Egypt

Lagos, Nigeria

Selected 3-month Exchange Rate fluctuations of more than 5%

Venezuela

Ghana

Haiti

Argentina

Mexico

Country Tax Update

Ireland

Vietnam

Singapore

Colombia

United States Tax Update

Notable state tax developments:

Other state tax developments:

Survey Location Update

Make quicker decisions with access to country/city reports for education costs, tax implications, transportation information, and assignment location summaries.

EDUCATION REPORT: NEW YORK, NY, U.S.A.

Expat Tax Summary: Colombia

Transportation Report: Oslo, Norway

Site Summary: Lusaka, Zambia

For More Information