Cyprus-South Africa Double Tax Agreement – Why is it so Attractive?

South Africa, currently, hits the headlines for the ‘wrong’ reasons but it remains a jurisdiction where investment, in the correct manner, can be attractive.

The South African economy offers a diversity of sectors and industries. It has a modern and extensive transport infrastructure and  labour costs are priced competitively.

These factors, together with the country’s significant natural resources, have made it an investment destination worth consideration.

South Africa and Withholding Tax

South Africa levies a withholding tax of 15% on dividends, interest and royalties paid to non-residents. Holding companies are not subject to this 15% withholding tax.

The Double Tax Agreement between Cyprus and South Africa

The initial Cyprus-South Africa DTA was signed in 1997, and a Protocol was signed in April 2015, which amended certain key clauses.

  • The Cyprus-South Africa DTA remains very attractive and reduces withholding tax on interest and royalties to zero.

In terms of dividends, the following amounts of withholding tax are payable:

  • 5% – if the beneficial owner of the company holds at least 10% of the capital of the company paying the dividend.
  • 10% – in all other cases.

Dividend payments from Cyprus continue to enjoy a zero rate of withholding tax. The withholding tax payments for dividends, detailed above, only relate to the payment of dividends from South Africa.

The Exchange of Information article was revised in 2015, in line with the OECD Model Tax Convention.

Use of Cyprus Financing Companies for South Africa

There are benefits in using Cyprus companies as financing companies for South Africa.

The advantages relate to the zero withholding tax rate on interest payments from South Africa to Cyprus and the low 12.5% rate of corporation tax applied to any margin on the interest in Cyprus. In addition, no withholding tax is applicable on interest payments from Cyprus.

Cyprus as a Location for the Holding of Intellectual Property (IP) exploited in South Africa

Cyprus is an efficient jurisdiction in which to hold intellectual property that is to be exploited in South Africa:

  • Zero withholding tax on royalty income paid from South Africa to Cyprus.
  • Only 20% of royalty income is taxed in Cyprus. Application of the Cyprus corporate tax rate of 12.5% therefore provides an effective tax rate of 2.5%.
  • It is possible to transfer profits from a Cyprus company without there being withholding tax payable on dividends or on onward royalty payments.
  • On disposal of the IP rights, 80% of the proceeds are exempt from corporation tax in Cyprus.

Other Advantages Offered by the Jurisdiction of Cyprus

Cyprus offers a number of other important benefits:

  • Profits from a permanent establishment located outside of Cyprus are exempt from Cypriot tax as long as no more than 50% of the income has arisen from investment income (dividends and interest).
  • There is no capital gains tax. The only exception to this is on gains from the sale of immovable property in Cyprus or shares in companies owning such property.
  • The availability of tax rulings from the Cypriot Tax Authority make tax planning a more certain and efficient process.
  • No withholding tax on dividends, interest and royalties.
  • No tax on dividend income.
  • No tax on income or gains derived from the disposal of securities.
  • Shipping regime whereby tax is based on an annual tonnage rate instead of a corporate tax.

Summary

The Double Tax Agreement between Cyprus and South Africa is very favourable, due  to its zero withholding tax on interest, royalties and dividends paid from Cyprus, and its relatively low rate of withholding tax on dividends paid from South Africa.

This can be particularly tax efficient for the holding of IP in Cyprus that is to be exploited in South Africa, and the use of Cyprus financing companies for South Africa.

Additional Information

If you require any additional information regarding the benefits available through the Double Tax Agreement between Cyprus and South Africa, or have any questions relating to the advantages that the jurisdiction of Cyprus offers, please speak to Robert Homem at our office in Cyprus: advice.cyprus@dixcart.com.

Key Personal Taxes and Potential Advantages for UK Non-Doms

A number of countries offer ‘remittance basis of taxation’ regimes to attract wealthy individuals to re-locate from other countries, such as Russia. These individuals are known as ‘non-doms’. Very simply expressed a non-dom is an individual not living in his/her country of ‘origin’.

The UK remittance regime is a particularly attractive example and although the rules have changed since 2008, with the latest changes being implemented in April 2017, this regime  remains of significant benefit to HNW non-doms living in the UK. In fact, the advantages for individuals living in the UK for less than 7 years remain very generous  (please see below).

The rules are relatively complicated and you are advised to seek specialist advice, at an early stage, from a firm such as Dixcart, with expertise in this area.

Advantages Available Through Use of the UK Remittance Basis Of Taxation

  • The remittance basis of taxation allows UK resident non-UK domiciliaries, who retain funds outside of the UK, to avoid being taxed in the UK on the gains and income that arise from these funds. This is as long as the income and gains are not brought into or remitted to the UK. Such individuals are only subject to tax on UK source income and gains.

Exceptions to the Remittance Rules

  • Under an exception introduced in April 2012, no tax charge arises on remittances to purchase certain UK investments (these include the purchase of an interest in a commercial property business).

In addition, there are other exceptions, please contact Dixcart if you require further details.

Temporary Non-Residence in the UK

Non-UK domiciliaries who have unremitted foreign income and gains, and who cease to be resident in the UK, need to leave the UK and be non-resident for at least 6 complete years, if they wish to use the non-UK income and gains, that they held prior to becoming non-resident, to fund UK expenditure during their absence from the UK.

UK Inheritance Tax (IHT)

The UK IHT rate is 40% of the value of assets held (above a nil-rate band, which varies depending on circumstances).

  • Non-UK dom individuals can benefit from only being subject to UK IHT on UK assets.
  • However, this UK tax benefit does not last forever. The IHT position is typically affected, at the start of the 16th year of residence in the UK and then covers worldwide assets, not just those in the UK.

Additional Information

This is an extremely brief review of the UK remittance basis of taxation and UK IHT. These are complex areas and professional advice should be taken.

If you require additional information on this topic, please speak to Paul Webb or Peter Robertson at the Dixcart office in the UK: advice.uk@dixcart.com

Multi Jurisdiction

Why Choose the Isle of Man or Malta for the Location of an E-Gaming Business?

The level of regulation within the e-gaming industry is constantly being reviewed to increase protection for users. Many of the less well regulated jurisdictions are beginning to find themselves less attractive to the major e-gaming organisations.

Agreement between the Isle of Man and Malta

The Isle of Man Gambling Supervision Commission and the Malta Lotteries and Gaming Authority entered into an agreement in September 2012, which established a formal basis for cooperation and information sharing between the Isle of Man and Malta gambling authorities.

The objective of this agreement was to improve the regulatory standards with the ultimate aim of protecting consumers.

This Article provides an overview of the jurisdictions of the Isle of Man and Malta and why they are favourable locations for e-gaming.

The Isle of Man

The Isle of Man was the first jurisdiction to introduce legislation designed to regulate e-gaming and gambling firms, whilst, at the same time, providing statutory protection to online customers.

The Isle of Man is white-listed by the UK Gambling Commission, allowing Isle of Man licensees to advertise in the UK. The island has a AA+ Standard & Poor’s rating and the legal system and legislative practice are based on UK principles. The island also offers political stability and an experienced workforce.

Why is the Isle of Man a Favourable Location for E-Gaming?

The attractive tax regime available in the Isle of Man makes it an attractive location for e-gaming operations to establish themselves.

There are a number of additional advantages in establishing an online gaming operation in the Isle of Man:

  • Simple and quick application process.
  • World-class infrastructure.
  • A diverse economy.
  • A general “pro-business” environment.

Taxation

The Isle of Man has a favourable tax system with the following features:

  • Zero rate corporation tax .
  • No capital gains tax.
  • Taxation of individuals – 10% lower rate, 20% higher rate, which is capped at a maximum of £125,000 per annum.
  • No inheritance tax.

E-gaming Fees

E-gaming duty charges in the Isle of Man are competitive. The duty payable on retained gross profits is:

  • 1.5% for gross gaming yield not exceeding £20m per annum.
  • 0.5% for gross gaming yield between £20m and £40m per annum.
  • 0.1% for gross gaming yield exceeding £40m per annum.

The exception to the above is pool betting which carries a flat duty of 15%.

Regulation and Fund Separation

The online gaming sector is regulated by the Gambling Supervision Commission (GSC).

Player funds are maintained separately from the operators’ funds to ensure that the players’ monies are protected.

IT Infrastructure and Support Services

The Isle of Man has an advanced telecommunications infrastructure. The island has a very substantial bandwidth capacity and an extremely stable platform, supported by “self healing” SDH loop technology. The Isle of Man also benefits from five “state of the art” data-hosting centres and has a high calibre of IT and marketing support service providers with experience in the e-gaming industry.

What is Required to Secure an Isle of Man E-gaming Licence?

There are a number of obligations, including:

  • The business is required to have a minimum of two company directors resident in the Isle of Man.
  • The business must be conducted by an Isle of Man incorporated company.
  • The servers, where the bets are placed, must be hosted in the Isle of Man.
  • Players must be registered on Isle of Man servers.
  • Relevant banking must be carried out in the Isle of Man.

Malta

Malta has become one of the leading jurisdictions for online gaming with over four hundred licences having been issued, representing approximately 10% of the global online gaming market.

The online gaming sector in Malta is regulated by the Lotteries and Gaming Authority (LGA).

Why is the Jurisdiction of Malta a Favourable Location for E-gaming?

Malta offers a number of advantages for online gaming operations establishing themselves in this jurisdiction. Specifically in relation to taxes:

  • Low levels of gaming tax payable.
  • If structured correctly, corporate tax can be as low as 5%.

In addition Malta offers:

  • A wide network of double taxation agreements.
  • A sound legal and financial system.
  • Solid IT and telecommunication infrastructures.

Gaming Tax

Each licensee is subject to gaming tax, which is currently capped at €466,000 per licence per annum. This is calculated depending on the class of licence held:

  • Class 1: €4,660 per month for the first six months and €7,000 per month thereafter.
  • Class 2: 0.5% of the gross amount of bets accepted.
  • Class 3: 5% of “real income” (revenue from rake, less bonus, commissions and payment processing fees).
  • Class 4: No tax for the first six months, €2,330 per month for the next six months and €4,660 per month thereafter.

(See below for further details regarding the classes of e-gaming licence in Malta).

Corporate Taxation

Companies operating in Malta are subject to a corporate tax rate of 35%. However, shareholders enjoy low effective rates of Maltese tax as Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds.

In certain circumstances it may be beneficial to interpose a Maltese holding company between the shareholders and the company. The dividends and capital gains derived from participating holdings are not subject to corporate tax in Malta.

Additional Potential Tax Advantages for Online Gaming Companies in Malta

An e-gaming company may be able to take advantage of Malta’s extensive double tax treaty network, as well as other forms of double taxation relief.

In addition Malta companies are exempt from transfer duties, exchange control restrictions and capital gains on the transfer of shares, in most cases.

Classes of E-gaming Licence in Malta

Every remote gaming operation must hold a licence issued by the Lotteries and Gaming Authority.

There are four classes of licence, with each class being subject to different rules. The four classes are as follows:

  • Class 1: Risk taking on repetitive games generated by random events – this includes casino style games, lotteries and machines.
  • Class 2: Risk taking by creating a market and backing that market – this includes sports betting.
  • Class 3: Promoting and/or abetting games from Malta – this includes P2P, betting exchanges, skins, tournaments and bingo operations.
  • Class 4: Provision of remote gaming systems to other licensees – this includes software vendors who take commissions on bets.

Licensing Requirements

To qualify for a licence in Malta, the applicant must:

  • Be a limited liability company registered in Malta.
  • Be fit and proper.
  • Demonstrate adequate business and technical ability to conduct such activities.
  • Demonstrate that the operation is covered by sufficient reserves or securities and be able to ensure payment of player winnings and deposit returns.

How Can Dixcart Help?

Dixcart has offices in both the Isle of Man and in Malta and can assist with:

  • Licence applications.
  • Advice regarding compliance.
  • Advice regarding the tax issues to consider.
  • Administrative and accounting support.
  • Management and regulatory reporting assistance.

Dixcart can also provide initial office accommodation, if required, via its managed office facilities in the Isle of Man and Malta.

Additional Information

If you would like additional information regarding e-gaming, please speak to Steve Doyle at the Dixcart office in the Isle of Man or Sean Dowden at the Dixcart office in Malta. Alternatively please speak to your usual Dixcart contact.

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

Updated 28/5/15

Low Tax Trading opportunities

Foundations – Why? And Consideration of Various Jurisdictions: Guernsey, the Isle of Man, Malta and Nevis

Foundations are useful tools in terms of wealth management and asset protection. The jurisdictions of Guernsey, the Isle of Man, Malta and Nevis are attractive locations in which to establish a foundation. Each of these jurisdictions offer a number of potential advantages and the most appropriate jurisdiction will depend upon each specific situation.

Dixcart and Foundations

Dixcart can assist with the formation and management of foundations in Guernsey, the Isle of Man, Malta and Nevis.

Foundations: A Definition

A foundation is a self-owning legal entity, separate from its founder, officers and any beneficiaries. A foundation is established by a founder who then gives assets to achieve the objects of the foundation. Assets placed in a foundation become the property of the foundation itself, both legally and beneficially.

Characteristics of Foundations

Foundations offer a number of important and distinctive characteristics. These include:

  • A foundation is recognised by law in the majority of European States and most South American countries.
  • A foundation has legal personality and can enter into contracts in its own name.
  • A foundation is a registered entity and is therefore relatively transparent.
  • Legal charges can be placed against a foundation and can be recorded.
  • The removal or addition of beneficiaries can be implemented by an amendment to the constitution documentation.
  • A foundation is relatively unlikely to be challenged as a “sham” as it exists under defined laws and has its own personality.

Additional Benefits of Foundations

  • Amendment of Foundation Powers

During the lifetime of a foundation, powers can be altered to take account of changing circumstances. Tax implications need to be taken into consideration when dealing with control, but the foundation can change its powers.

  • Control over Beneficiaries

A simple alteration to the by-laws of a foundation can be used to include or exclude beneficiaries. It is also possible for additional beneficiaries to be required to sign up to the regulations of the foundation before they are allowed to become a beneficiary.

  • Use of Foundations as Fund Vehicles

The use of foundations as fund vehicles can make the fund easier to administer. Each investor can be required to sign up to the manner in which the fund/foundation is to be managed.

  • Orphan Vehicles and Confidentiality

The founder can form a foundation with no specified beneficiary, but with a procedure in place to appoint one or more in the future. This can be useful for financial institutions where securitisation of assets is an issue.

The appointment of one or more beneficiaries may only need to take place when a distribution is made or a change to the by-laws is implemented. Assets can therefore be held in a transparent manner with no owner, which can assist confidentiality.

  • Use of Foundations for Commercial Purposes

The use of a foundation for commercial purposes can be achieved by interposing one (or more) underlying companies into the structure, with the shares owned 100% by the foundation. This offers the protection and advantages of a foundation, while allowing for a wide variety of business to be carried out by the underlying companies.

Guernsey Foundations

Guernsey Foundation Law came into effect on 9 January 2013.

A Guernsey foundation must be registered with the Registrar of Foundations in Guernsey. Documents to be provided to the Registrar include a declaration signed by (or on behalf of) the founder, the names and addresses of councillors and guardians and their consent to act, together with the address and telephone number of the registered office. Payment of the registration fee is also required.

A council comprising of at least two councillors is required to manage a Guernsey foundation, unless the constitution permits a single councillor. If at least one of the councillors or guardians of the foundation is not a Guernsey licensed fiduciary, the foundation must have a Guernsey resident agent to maintain the foundation’s records.

Certain limited information must be made public, including the name and registered number of the foundation, names and addresses of the councillors and guardians, and details of the registered office.

  • A unique feature of Guernsey Foundation Law is the ‘Disenfranchised Beneficiaries’ provisions, which allow for a class of beneficiary with no rights to information. Whilst they may well benefit from the foundation, they are not in a position to hold the council to account. This is a welcome feature of Guernsey Foundation Law and may appeal to founders with minor children, or where the founder does not want each of the beneficiaries to have information relating to their interests or the interests of other beneficiaries.

Existing foundations can be migrated to Guernsey. This jurisdiction offers a high quality of support and service and has extensive experience in establishing and  managing wealth management structures.

Isle of Man Foundations

The Isle of Man Foundations Act 2011 was passed and became Isle of Man statute law in November 2011.

The creation of an Isle of Man foundation is by registration, following application to the Registrar. The application needs to be filed by a corporate service provider, such as Dixcart, in the Isle of Man.

A Manx foundation has a legal personality, capable of forming contracts and holding assets to achieve its objects.  It has the rights, powers and privileges of an individual, although it may not directly engage in “commercial trading that is not incidental to the attainment of its objects”.

The foundation’s objects as well as other specified information must be contained in the foundation instrument.  As detailed in the foundation rules there must be an administrative board, which is called the Foundation Council, and a registered agent.

  • A distinctive feature with regard to Isle of Man foundations, unlike foundations in other jurisdictions, is that Isle of Man foundations will not always require a guardian or enforcer (unless the foundation has been established to carry out a specific non-charitable purpose).

Malta Foundations

Foundations have been recognised under Maltese law for more than one hundred years. Under Maltese law foundations can either be “Private Foundations” for the benefit of a named person or persons, or “Purpose Foundations” to carry out a specified purpose.

A Maltese foundation must be constituted by a public deed, drawn up by a public notary, or by means of a will. A Purpose Foundation can potentially exist in perpetuity, while a Private Foundation is limited to a maximum period of one hundred years.

The founder may also be the beneficiary, with an external administrator then being  required. The founder, or any other person permitted by statute, may amend or add to the purpose of a foundation after it has been established. A person resident in Malta needs to be appointed to act as the local representative of the foundation if all of the foundation administrators are non-Maltese residents.

  • An attractive feature of foundation law in Malta is that it is legal to establish segregated cells within a Maltese foundation to achieve specific purposes with particular assets. Maltese legislation also allows for the redomiciliation of a foundation into and/or out of Malta. A Maltese foundation can also be converted from an existing trust.

For tax purposes, foundations in Malta are generally treated in exactly the same way as companies. Foreign beneficiaries of a private foundation generally enjoy a reduction in the effective Malta tax rate to 5% through application of Malta’s tax imputation system.

Nevis Multiform Foundations

The Nevis Multiform Foundations Ordinance came into effect in October 2005 and provides that each Nevis foundation has a stated “multiform”. The constitution of a foundation details how it is to be treated; whether as a trust, a company, a partnership or as an ordinary foundation.

Five requirements need to be met to establish a Nevis Multiform Foundation:

  • It must have a Nevis based registered agent
  • It must have a registered office in Nevis
  • It must have an acceptable name
  • It must have a management board and secretary
  • It must have a memorandum of establishment

Mobility of foundations in to and out of Nevis is provided for in the Nevis Foundation Ordinance and entities can be converted or transformed, continued or consolidated and merged into Nevis Multiform Foundations.

Forced heirship is specifically addressed in Nevis Foundation Law and a foundation cannot be set aside due to the law of a foreign jurisdiction.

Nevis foundations are exempt from tax in Nevis, irrespective of their specified status as detailed in their constitution.

Summary

Foundations are attractive asset protection vehicles which can offer a number of tax advantages with regard to wealth management.

Dixcart can provide advice, and deal with the formation and management of foundations in Guernsey, the Isle of Man, Malta and Nevis.

Additional Information

Please speak to your usual Dixcart contact regarding the establishment of a foundation or to the Dixcart office in Guernsey: advice.guernsey@dixcart.com, the Isle of Man: advice.iom@dixcart.com, Malta: advice.malta@dixcart.com or Nevis: advice.nevis@dixcart.com.

Please also see our Family Office page.

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.

Updated October 2018

Guernsey

Why are Security Trustee Arrangements Increasingly Popular and Why Choose Dixcart?

Alternative project finance has become increasingly popular since the financial crisis of 2008. Businesses continue to diversify their funding arrangements by considering alternative finance structures. These structures can take a number of different forms, with the most common being equity and debt based alternative investments.

How Can Dixcart Assist with the Organisation of these Arrangements?

Dixcart establishes workable structures to enable clients to raise the funds they require, from both direct high net worth sophisticated investors and via Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSAS), whilst also ensuring that the structures are compliant with financial services legislation.

Dixcart works with specialist corporate lawyers who provide advice on the most appropriate alternative structures to comply with complex financial services legislation and the associated rules and regulations established by the Guernsey Financial Conduct Authority.

How Does a Dixcart Security Trust Arrangement Work?

The Dixcart Security Trust Arrangement (STA) is generally introduced by the fundraising party via a Security Trust Deed. The security trustee holds a charge over the investment assets and is empowered to act on behalf of the investors should the terms of the investment return not be fulfilled.

The parties to the agreement are:

  1. The company seeking to raise funds
  2. The investors
  3. The security trustee

  

What are the Benefits of using Dixcart as the Security Trustee?

  • Competitive and Flexible Cost Structure
    • Use of a Security Trust Arrangement can be a less expensive on-going alternative to using a standard fundraising model.
    • A Security Trust Arrangement offers flexibility in terms of the potential to add extra levels of fund raising through the issue of additional equity or debt instruments.
  • Expertise
    • The Dixcart Group was established in 1972 and has in excess of 45 years’ experience in acting as a professional, independent trustee on a wide range of corporate and private matters.
    • Dixcart Trust Corporation Limited is a licensed fiduciary and is regulated by the Guernsey Financial Services Commission.

Additional Information

If you require additional information regarding Dixcart acting as a security trustee, please contact Bruce Watterson (advice.guernsey@dixcart.com) at Dixcart Trust Corporation Limited, the Dixcart company in Guernsey. Alternatively please speak to your usual Dixcart contact.

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

Updated October 2018