Move out of the UK

Key Features of the New Double Tax Agreements betweem the UK and Guernsey, and the UK and the Isle of Man

At the start of July 2018 three new Double Tax Agreements (DTAs) were announced between the UK and the Crown Dependencies (Guernsey, Isle of Man, and Jersey). The three DTAs (from each of the islands) are identical, which was a key aim of the UK Government.

Each of the DTAs cover clauses relating to Base Erosion and Profit Shifting (’BEPS’) and they comply with new international tax standards, under the OECD’s Model Tax Convention.

The new DTAs will come into force once each of the territories has notified the others, in writing, of the completion of the process required under their local law.

Key Tax Related Clauses

  • Full interest and royalty tax withholding reliefs will apply in a number of circumstances, including, in relation to individuals, pension schemes, banks and other lenders, companies that are 75% or more beneficially owned (directly or indirectly) by residents of the same jurisdiction, and also listed entities meeting certain requirements.

These tax reliefs are likely to significantly increase the attractiveness of Guernsey and the Isle of Man as jurisdictions from which to lend into the UK. The Double Tax Treaty Passport Scheme will be available to Crown Dependency lenders to make the process of claiming withholding tax relief administratively easier.

Additional Significant Clauses

  • A residence tie breaker for individuals, which is clear and straightforward to apply.
  • A residence tie breaker for companies to be determined by the mutual agreement of the two tax authorities having regard to where the company is effectively managed, incorporated and where the major decisions are made. This should make it easier to establish where the management and control is taking place and to therefore determine where the tax obligations arise.
  • The inclusion of a non-discrimination clause.  This will prevent the application of a range of restrictive UK measures, such as the late paid interest rules and the application of transfer pricing for Small or Medium-Sized Enterprises (SMEs). At the same time benefits such as withholding tax exemptions for qualifying private placements and the dividend exemption for SMEs will be enjoyed.  This will place Guernsey and the Isle of Man on a much fairer and more equal footing with other jurisdictions.

Collection of Taxes for the UK Exchequer

Whilst the new DTAs confer a number of advantages, the Crown Dependencies will also now be required to assist in the collection of tax for the UK Exchequer.

Principal Purpose Test and Mutual Agreement Procedures

The DTAs include the ‘Principal Purpose Test’. This means that the benefits under each DTA may be denied where it is determined that the purpose, or one of the main purposes, of an arrangement was to secure those benefits. This test is derived from   BEPS treaty measures.

In addition, ‘Mutual Agreement Procedures’ will mean that where a taxpayer considers that the actions of one or both of the jurisdictions specified in the DTA gives rise to a tax outcome which is not in accordance with the DTA, the relevant tax authorities will try to resolve the matter through mutual agreement and consultation.  Where agreement is not reached, the taxpayer can request that the matter is submitted to arbitration, the outcome of which will be binding on both jurisdictions.

The Crown Dependencies – and Substance

In addition to the DTAs just announced, the commitment to substance, as defined in the ‘Council of the European Union – Code of Contact Group  (Tax) Report’ issued on 8 June 2018 is also likely to have a positive impact for the Crown Dependencies. In relation to international business, proving the existence of substance in the form of employment, investment, and infrastructure, will be key, to establish tax certainty and acceptability.

Additional Information

If you require further information regarding the new DTAs between the UK and the Crown Dependencies, please speak to your usual Dixcart contact or to the Dixcart office in Guernsey: advice.guernsey@dixcart.com or in the Isle of Man: advice.iom@dixcart.com.

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority.

St Kitts

Consideration of the Jurisdiction of Nevis for the Control and Management of Companies outside the EU

The Requirement for Substance

In recent times a number of leading European countries have sought to limit the use of holding or associated companies outside the EU.

The main reason given has been the lack of real substance being demonstrated in the countries outside the EU.

A Workable Solution to the Problem

Advantages continue to exist through the use of holding companies outside the EU. In the correct circumstances a number of tax efficiencies can be enjoyed. However, there not only needs to be a real demonstration of management and control in the relevant country, the Management Board also needs to ensure that processes are fully documented.

Where non-EU companies are established, this should be in ‘strong’ jurisdictions that can provide real substance.  This is best achieved by instructing a professional, local Management Board in the relevant country outside the EU, which has the ability and experience to make independent and informed decisions on behalf of the company.

How Can Dixcart Assist?

Through Dixcart’s office in Nevis, companies can be incorporated and managed in an efficient and structured manner, which demonstrates real substance and control at a local level.

What Can Dixcart Offer from the Jurisdiction of Nevis?

  • Provision of a local professional Board of Directors, permanently resident in Nevis.
  • Clear demonstration and documentation showing control and management is taking place in Nevis.
  • The ability to open and run bank accounts in the Caribbean.
  • The ability to incorporate and run locally licensed Trust Companies and Family Offices, which are regulated in Nevis.
  • The ability to register a Nevis International Business Corporation (IBC) for tax purposes and to obtain a tax residency certificate. The IBC would then pay local taxes at a rate of less than 1%.
  • The option to use Dixcart’s local managed service offices to rent office space.
  • The local Dixcart team in Nevis has a combined 40 years of professional experience in running Trusts and Companies, with each of the professionals having gained their experience in Europe.

Reasons to Consider the Jurisdiction of Nevis as a Location for a Company Outside of the EU

There are a number of reasons why Nevis is a jurisdiction that should be considered:

  • The ability to manage companies from other Caribbean countries, for example, the BVI. The same management and control measures can be used to demonstrate that these companies are being run outside the EU.
  • Simple and easy rules exist to redomicile companies to Nevis.
  • An extremely efficient and well-run jurisdiction, where incorporations, dissolutions and other similar services can easily be completed within 24 to 48 hours.
  • Flexible and advantageous wealth management and succession structures.

Additional Information

For further information please contact the Dixcart office in Nevis: advice.nevis@dixcart.com.  Alternatively, please speak to your usual Dixcart contact. 

Imminent Introduction of the Portuguese Tonnage Tax Scheme for Ships – What benefits will it offer?

The Portuguese tonnage tax and seafarer scheme was approved by the European Commission on 6 April 2018, in line with EU State aid rules, in particular the Guidelines on State aid to maritime transport. The Portuguese measures will enhance the competitiveness of the Portuguese shipping sector and, simultaneously, protect know-how and jobs in the EU maritime transport sector.

The law proposal had been presented by the Portuguese Government to Parliament before this date and enactment is anticipated in the near future.

Portuguese Tonnage Tax System: Eligibility

The tonnage tax is not a tax but rather a means to determine relevant taxable income.

Entities liable to corporate income tax, carrying out eligible shipping activities, with a registered head office or place of effective management in Portugal, may opt to be taxed under this new tonnage scheme.

Application to the tonnage scheme will be subject to certain legal requirements as follows:

  • at least 60% of the respective net tonnage must fly a flag of a European Member State (EU) or an Economic European Area State (EEA) and be managed from an EU or EEA State;
  • in terms of chartering, the net tonnage of the ships under a charter cannot exceed 75% of the total fleet of the charterer and must comply with the flag and management requirements detailed above;
  • at least 50% of the crew of the relevant ships must be nationals from EU, EEA or Portuguese-speaking countries, except for very limited exceptional cases.

Tax Details: Portuguese Tonnage Tax Regime

Taxable income is calculated as a lump sum, depending on the size (net tonnage) of the ships, independent of the actual earnings (profit or loss), as per the schedule below:

Net Tonnage Daily taxable income for each
100 net tonnes
Up to 1,000 net tonnes € 0.75
1,001 – 10,000 net tonnes € 0.60
10,001 – 25,000 net tonnes € 0.40
Over 25,001 net tonnes € 0.20

The tonnage tax can be applied to a shipping company’s:

  • core revenue from maritime transport activities, such as cargo and passenger transport;
  • certain ancillary revenue closely connected to shipping activities (which is capped at a maximum 50% of a ship’s operating revenue); and
  • revenue from towage and dredging, subject to certain conditions.

For more environmentally-friendly ships, companies can achieve an additional reduction of 10% to 20% of tax under the tonnage tax scheme.

Taxable profit assessed, as per the above schedule, is then subject to the standard rate of 21% corporate income tax (municipal surtax and state surtax also apply). No deductions can be offset against the taxable profit assessed under this scheme.

The proposed tonnage tax regime will be optional. However, participation in the scheme must be for a minimum 3 years, if commenced within the first 3 fiscal years of the introduction of the tonnage regime. After this initial period, subsequent participation must be for a minimum 5 years.

Scheme to Support Crew

The scheme exempts crew members employed on vessels eligible under the tonnage tax regime from paying personal income tax (IRS). A minimum of 90 days on board the vessel is required in each tax year, as well as meeting a number of other conditions.

The new scheme also allows the crew to pay reduced social security contributions; total rate of 6%, 4.1% paid by the employer and 1.9% by the member of the crew.

MAR – Madeira International Shipping Register

Ships registered with MAR qualify for the tonnage scheme. MAR is the fourth largest EU international shipping register. Madeira is an integral part of Portugal, with companies registered there enjoying a number of tax benefits, guaranteed until at least the end of 2027.

MAR also permits bareboat charter registration. Therefore, MAR is very likely to be the preferred option for ship owners wishing to reflag their fleet in order to benefit from this new tonnage system.

In addition, the Madeira International Business Centre, of which MAR is a part, also offers several tax advantages to shipping companies, which can be combined with the benefits of this new scheme.

Additional Information

If you require additional information on this topic, please speak to your usual Dixcart contact, or to Gisela Martins at the Dixcart office in Madeira: advice.portugal@dixcart.com.