Month: November 2019

Low Tax Trading opportunities

Low Tax Trading opportunities Using: Cyprus and Malta, and Using the UK and Cyprus

Posted on | by Charlotte Clabon

It is possible for a company to be incorporated in one jurisdiction and to be resident in another. In certain circumstances this can generate tax efficiencies.

It is very important to always ensure that the company is properly managed and controlled from the jurisdiction in which it is resident.

The jurisdictions of Cyprus, Malta and the UK present a number of low tax trading opportunities, as detailed below.

Advantages Available to a Cyprus Company Resident in Malta

Foreign companies seeking to establish certain entities in Europe, for example a company set up for financing activities, should consider establishing a Cyprus company and managing it from Malta. This can result in double non-taxation for the passive foreign sourced income.

A company resident in Cyprus is taxed on its worldwide income. In order for a company to be resident in Cyprus it must be managed and controlled from Cyprus. If a company is not resident in Cyprus, Cyprus will only tax it on its Cyprus source income.

A company is considered resident in Malta if it is incorporated in Malta, or, in the case of a foreign company, if it is managed and controlled from Malta.

Generally foreign companies in Malta are only taxed on their Malta source income and income remitted to Malta. The exception is income arising from trading activities, which is always considered to be income arising in Malta.

  • The Malta-Cyprus Double Tax Treaty contains a tie breaker clause that provides that the tax residence of the company is where its effective place of management is. A Cyprus company with its effective place of management in Malta will be resident in Malta and would therefore only be subject to Cyprus tax on its Cyprus source income.  It will not pay Maltese tax on non-Maltese passive source income not remitted to Malta.

It is therefore possible to have a Cyprus company resident in Malta that enjoys tax-free profits, as long as the proceeds are not remitted to Malta.

Advantages Available to a UK Company Resident in Cyprus

A number of foreign companies wishing to establish a trading company in Europe are attracted to the UK, for a number of reasons.  In April 2017, the UK’s corporation tax rate was reduced to 19%.

To enjoy an even lower tax rate might be an objective.

If it is not essential to manage and control a company from the UK, the tax rate can be reduced to 12.5% by managing and controlling the UK company from Cyprus.

Whilst a UK company is resident in the UK by virtue of its incorporation, the UK-Cyprus Double Tax Treaty specifies that when a person, other than an individual, is a resident of both contracting states, the entity will be resident in the contracting state in which its place of effective management is situated.

  • A UK company with its place of effective management in Cyprus will therefore only be subject to UK tax on its UK source income. It will be subject to Cyprus corporation tax on its worldwide income, with the Cyprus rate of corporation tax currently being 12.5%.

Effective Place of Management and Control

The two structures detailed above rely on the location of the effective management and control being established in a jurisdiction other than the jurisdiction of incorporation.

To establish an effective location for management and control, a company must almost always:

  • Have a majority of directors in that jurisdiction
  • Hold all board meetings in that jurisdiction
  • Implement decisions in that jurisdiction
  • Exercise management and control from that jurisdiction

If the place of effective management and control is challenged, a court is likely to take into account the records that have been maintained. It is very important that these records do not suggest that the real decisions are being conceived and executed elsewhere. It is essential that management and control take place in the correct jurisdiction.

How Can Dixcart Help?

Dixcart can provide the following services:

  • Company incorporation in Cyprus, Malta and the UK.
  • Provision of professional directors who are suitably qualified to understand the business of each entity and to manage it appropriately.
  • Provision of serviced offices with full accounting, legal and IT support.

Additional Information

If you would like additional information please contact Robert Homem: advice.cyprus@dixcart.com, Peter Robertson: advice.uk@dixcart.com or your usual Dixcart contact.

Please also see our Corporate Services page for further information.

Updated October 2018

UK

Taxation of UK Commercial Real Estate and Foreign Ownership

Posted on | by Charlotte Clabon

Property in the UK can be owned by a company or by an individual and the method of ownership and the status of the company or individual involved will affect the tax treatment.

Tax on Rental Profit

  1. Where an investment is made in UK commercial property in the name of a non-UK resident company and the company does not carry on a trade in the UK, basic rate income tax (currently 20%), is payable on rental profits.

To achieve the favourable tax treatment outlined above, it is important to use a non-UK resident company to acquire the UK property and that the company is managed and controlled in a manner that ensures it remains resident outside of the UK for tax purposes.

Where an investment is made in UK commercial property, in the name of a non-UK resident individual, applicable tax rates are equivalent to UK income tax rates (up to 45%).

  1. The UK Government has announced that it will bring non-UK resident companies with UK property income within the scope of corporation tax from April 2020. This will mean that UK rental profit will be subject to UK corporation tax at a rate of 19%.

Implications of Falling Within the UK Corporate Tax Regime

While the lowering of the tax rate is positive, falling under the UK corporation tax regime will mean that, from 2020, the UK’s corporate interest and loss restriction rules will be relevant:

  • The corporate interest restriction rules restrict a group’s deductions for interest expense and other financing costs to an amount commensurate with its taxable activities in the UK.  The rules will apply to groups with a net interest expense of more than £2million per annum and could significantly restrict the deductibility of financing costs, leading to a significant increase in tax liabilities.
  • The corporate loss restriction rules restrict a group’s deductions for carried-forward losses to £5million.  Above the £5million allowance, only 50% of profit can be covered by carried-forward losses. While this rule may not have such a significant impact, as the interest restriction rule, the impact should be considered.

Capital Gains

From April 2019, non-UK residents holding UK commercial real estate have been subject to UK tax on their gains. This measure brought the UK into line with most other tax jurisdictions and the concept that land should be taxed where it is situated.

The good news is that a rebasing of property costs took place as of April 2019, meaning that only gains from that point onward will be charged to tax.

The new rules will also apply to sales of interests in “property rich” vehicles – that is, entities that derive at least 75% of their gross asset value from UK land. Gains on the disposal of any interest in such a vehicle, amounting to 25%, or more will become liable to UK tax.

Property Developers and Traders  

In 2016, anti-avoidance rules were introduced to counteract any claim that a development or dealing trade relating to UK property was actually being carried on outside the UK, and therefore not subject to UK tax.

Profits from a development project are therefore within the scope of income tax or corporation tax, depending upon who is carrying it out.  These rules also apply where there are arrangements to sell the development company, rather than the land itself. They apply where shares, for example, are sold and they derive at least 50% of their value from UK land.

Stamp Duty Land Tax (SDLT)

Acquiring a UK commercial property directly  incurs a charge to SDLT (a purchase tax) as follows:

No such tax generally arises when acquiring a company that itself holds UK property. As a result, there is a benefit in acquiring and disposing of UK commercial property via a company vehicle, particularly where that company is based in a jurisdiction that does not charge transfer tax on share dealings.

Value Added Tax (VAT)

The sale of a freehold or long leasehold title to a commercial property will, by default, be exempt from VAT. However, property owners have the option to ‘opt to tax’ their property, which may make the sale of that property subject to VAT (but, as a consequence, also entitles the property owner to claim credit for VAT charged to them on their overheads).

This is a complex area and, when acquiring UK commercial property, due diligence will be required to establish whether the property is subject to VAT or not, and what impact this may have for the purchaser.

On Death – Inheritance Tax (IHT)

From 6 April 2017, all UK residential property, whether held directly or indirectly, became liable to UK IHT (with the exception of property owned by diversely held vehicles).

  • UK commercial property held directly by an individual is similarly liable to a UK IHT charge; however, commercial property held via a non-UK resident company is not.

There is, at this time, no indication that commercial property held indirectly through a company or similar vehicle will give rise to an exposure to UK IHT; however, in light of recent changes this might be a logical next step.

How Dixcart Can Help?

Dixcart can assist with reviewing existing UK commercial property ownership structures and whether action is advisable to restructure such investments.

Our UK tax specialists and commercial property lawyers can, if required, implement any resulting planning and restructuring recommendations. Please contact Paul Webb in the UK office: advice.uk@dixcart.com.

Importance of having a will

Forthcoming Changes in Tax Status for Non-UK Resident Companies with Income from UK Property

Posted on | by Charlotte Clabon

Changes Being Introduced in April 2020

From April 2020, non-UK tax resident companies with income from UK property will no longer be charged UK income tax and will instead be subject to the UK’s corporation tax regime.

When the changes come into force, these companies will need to calculate their profits in accordance with corporation tax principles, which may represent a significant change from the current method of calculation.

We consider some of the implications in more detail below.

Timing and a Potentially Reduced Charge to Tax

For affected companies, the change will take place at the end of the 2019-20 tax year. The income tax property business will be deemed to cease on 5 April 2020, with a new corporation tax business and tax period beginning on 6 April 2020.

  • Profits or losses arising in the period to 5 April 2020, will be subject to income tax (up to 20%), with any income arising from 6 April 2020 being subject to corporation tax at the rate of 19%.

Treatment of Losses 

Any pre-5 April 2020 property business losses, that the company has at the date of transition, will be carried forward to the new corporation tax business. These losses will be re-categorised as ‘income tax property losses’ (ITPLs) and will be available for offset against post-6 April 2020 UK property business profits, but not against the company’s income from other sources or against capital gains. Additionally, they will not be available for surrender as group relief.

ITPLs will be offset automatically against the relevant profit of future periods, in priority to post-6 April 2020 losses, and will not be subject to the 50% corporation tax loss cap (see below). It will not be possible to disclaim them. If the property business ceases trading, any un-utilised  losses will be lost.

Losses, suffered by the company after it comes within the corporation tax regime will be subject to the usual corporation tax loss relief rules. In general, these rules allow losses to be carried forward to be used against future profits, subject to a limit of £5million. The brought forward losses that can be offset are limited to 50% of the profits if these are above £5million. In addition, post-6 April 2020 losses can be surrendered as group relief, subject to certain conditions.

Financing Costs – the Treatment of Loan Finance

Financing is the area where some non-UK resident property companies may see the biggest impact of the new rules. Finance costs and interest will fall into the ‘corporation tax loan relationships regime’. Under these rules, profits and losses from loan relationships are calculated separately from any other income the company may have and are categorised as ‘trading’ or ‘non-trading,’ depending on the use of the loan finance in question. For property companies, they will normally be treated as ‘non-trade loan relationships’.

In recent years, there have been changes to limit the deductibility of interest for corporation tax purposes, most notably the corporate interest restriction (CIR) rules. These are designed to limit tax relief for finance costs and interest to a percentage of taxable profits.

The restriction can apply where the net tax interest expense of group companies (or standalone companies), within the charge to UK corporation tax, exceeds £2million (adjusted where a period of account is different to a 12 month period). In these circumstances, the allowable deduction will be a figure based on 30% of the companies’ earnings before interest, taxes, depreciation and amortisation (EBITDA), or a group ratio.

The CIR rules can be complex and will need to be considered, even if no disallowance of interest results. This will lead to an increased administrative burden for non-UK resident companies.

In addition, companies (or groups) with high levels of debt may find that a proportion of their finance costs are no longer deductible and there could therefore be a significant increase in the tax burden.

The Treatment of Management Expenses

Non-UK resident companies will be able to claim a deduction for management expenses related to their property income. To be deductible, the costs must be directly linked to their UK property business. No deduction will be allowed for costs related to managing non-UK property or subsidiaries.

Administration: Filing of Tax Returns and Payment of Tax Due

Companies affected by the change will need to register for corporation tax with HM Revenue & Customs (HMRC). This will apply even where companies are already registered with HMRC under the Non-Resident Landlord Scheme.

Taxpayers will need to complete a final self-assessment return in the normal way to report the proportion of income arising up to 5 April 2020. A corporation tax return will need to be filed for period commencing 6 April 2020 and for subsequent accounting periods.

Corporation tax returns will need to be filed online together with accounts (this is likely to be the case even if the jurisdiction in which the non-UK resident company is established does not require preparation and filing of accounts) and tax computations. It has not been confirmed if accounts will need to be data tagged for ‘iXBRL’ (the format in which HMRC now receive all accounts). This extra administrative burden of ensuring accounts and returns are in the correct format, could represent additional cost and complexity for some companies.

The tax payment dates for corporation tax also differ from those with which non-UK resident companies will be familiar. The due date for companies and groups with taxable profits up to £1.5million falls nine months and one day after the end of their accounting period. Those with higher profits will need to pay their tax in quarterly instalments, two of which are due before the end of the accounting period.

ATED-related Gains; Non-resident Gains and Gains on an Interest in UK Land

From 6th April 2013 to 5th April 2019, the ‘Annual Tax on Enveloped Dwellings’ (ATED) related gains of a non-UK resident company, in relation to high value disposals of residential property, were chargeable to capital gains tax at a rate of 28%, subject to the ATED annual charge.  From 6 April 2015 to 5th April 2019, closely held non-UK resident companies were also chargeable to capital gains tax on disposals of UK residential property at a special rate of 20%.

  • Both of the above charges were repealed from 6th April 2019 and replaced with ‘non-resident capital gains tax’ (NRCGT), a corporation tax charge on gains on disposals of interests in UK land (including commercial and residential property), and on indirect disposals of UK land. In relation to property disposals since 6th April 2019, companies need to register for corporation tax and may need to submit a corporation tax return to declare the disposal, within 30 days.

How Dixcart Can Help?

Dixcart can assist with reviewing existing UK property ownership structures.

Our UK tax specialists and commercial property lawyers can, if required, implement any resulting planning and restructuring recommendations. Please contact Paul Webb in the UK office: advice.uk@dixcart.com.

Why Use a Family Investment Company?

Posted on | by Charlotte Clabon

What is a Family Investment Company and Why Have One?

As anti-avoidance legislation aimed at trusts, is increasing, people are looking for alternatives to protect a family’s fortune.  Whilst many people are happy to pass ownership to others they often wish to retain control.

Family investment companies (“FICs”) are being used increasingly by wealthy families to protect their family fortunes.

  • The key to their success is that it is possible to split ownership from control. Ownership rests with the shareholders whereas control rests with the Directors of the company.  The family will then own shares in the company.  The Articles will include provisions designed to ensure that control of the company is retained by the Founders, and that assets are protected, as far as possible.

Typically the Board will have the right to appoint successors and the shareholders will have entered into a Shareholders’ Agreement, not to exercise their voting rights to appoint or dismiss directors, without the Board’s prior approval.  In this way the Founders can retain control, until such time, that they identify suitable successors for this role.

The Articles can also be drafted to give the Directors’ the sole responsibility to declare dividends.  By use of different classes of shares, it is also possible to pay dividends to different classes of shareholders, at different times.

Inheritance Tax Benefit from a UK Perspective

It is possible for the Founders of an FIC to gift shares to family members and/or to gift cash to family members to use to subscribe for shares in the FIC.  These gifts are potentially exempt transfers and, if the donor survives 7 years, there will be no charge to UK inheritance tax.

Typically the Founders will retain some shares and the rest will be owned by other family members or even a trust.  When a company is valued, a minority shareholding interest attracts a discount.  Whilst the discounts for investment companies are not as large as for trading companies, a minority interest means that the value in an individual’s estate is less than it would have been, had the assets of the FIC been owned directly by the individual. This therefore generates an additional inheritance tax saving.

Asset Protection

One of the main reasons for using an FIC is to try to protect the wealth of the family for future generations.  There are many risks, other than taxation, to a family fortune and these include; spendthrifts, investment incompetence, bankruptcy and divorce.

The Articles of the FIC can include provisions that entitle the FIC to buy back shares in the event of the bankruptcy or divorce of any of the shareholders, at market value. As detailed above, this will be less than the value of the underlying investments, in the case of a minority shareholding.

Control of the dividend policy and  built in controls to prevent the pledging of shares can protect spendthrifts from themselves.

Income Tax Benefits from a UK Perspective

If the FIC was a UK tax resident company and the intention was to pay out all of the profit as dividends, an FIC might not then be the best structure to use. In this scenario, there would be corporation tax on the profit, at the company level, and the shareholders would also be liable to tax on the dividends paid to them.

  • These effects could be mitigated by providing some of the capital of the company as shareholder loans. Capital can then be extracted by way of loan repayments.

It should be noted that dividends paid out of post-tax profit, by UK companies and most offshore companies to FICs, will not be subject to additional tax at the level of the FIC.

  • Alternatively, if the aim is to invest capital and accumulate profit during the years of accumulation, income and gains would only be subject to UK corporation tax. The UK rate of 19% is currently far less than UK personal income tax and capital gains tax rates.

A company with an investment business may also deduct management expenses whereas individual investors may not.

Training Family Members

Many families set up investment committees for the FIC, consisting of family members.  This not only gives family members a voice but can act as a valuable training ground for younger family members.

Conclusion

FICs can be effectively used for estate planning and, in some circumstances, also for income tax planning.  Careful planning should be undertaken when establishing such structures to take into account the personal tax position of the Founders and any relevant anti-avoidance legislation.

Additional Information

If you would like additional information regarding when and how the use of a Family Investment Company can be most beneficial, please contact Laurence Binge at the Dixcart office in the UK: advice.uk@dixcart.com. Alternatively please speak to your usual Dixcart contact.

Please also see our Private Client page.

UK

The Taxation of UK Residential Property – What is the Current Situation?

Posted on | by Charlotte Clabon

Background

The past few years have seen dramatic changes to the taxation of UK residential property for both UK and non-UK residents. Detailed below is a summary of the current position (as of June 2019).

It is important that existing structures (particularly those with foreign company ownership) are continually reviewed to ensure that the anticipated benefits of such structures remain relevant.

On Purchase of the Property

Before changes to the England and Northern Ireland Stamp Duty Land Tax (SDLT) rates were announced in December 2014, the SDLT regime worked on a ‘cliff edge basis’ and had a top rate of 7% (having been 4% for several years).  A series of amendments to the SDLT regime resulted in two charging systems for SDLT:

  1. If a property is acquired in the personal name of an individual, the SDLT rate is charged on a stepped basis rather than on a cliff edge basis, as detailed below:
Value up to £125,000 0%
Over £125,000 to £250,000 2%
Over 250,000 to £925,000 5%
Over £925,000 to £1,500,000 10%
Over £1,500,000 12%
  1. If the property is acquired through a corporate structure the SDLT rate will be 15%.  The only exception is if the residential property is acquired by a property development company, in which case SDLT will be charged at the same rate as for an individual.

An additional 3% is payable where a second or subsequent property is purchased, with a small number of exceptions. Worldwide property ownership is taken into account when considering whether a property is an additional residential property.  Buy to let investors or those purchasing a second home will therefore pay the extra tax, and trustees also fall within the scope of the 3% extension, unless a specific exemption applies. For this purpose, spouses are treated as one person so the extra SDLT cannot be avoided by purchasing properties in separate names.

SDLT is charged on the full acquisition price of the property.

During Ownership of the Property

The Annual Tax on Enveloped Dwellings (“ATED”) is a UK tax, which was introduced in 2013. Subject to certain exceptions, it is payable in respect of any residential property situated in the UK that was worth more than £1million in April 2012 or worth more than £500,000 in April 2016, and was/is owned or acquired, in whole or in part, by a company (but not by an individual).

ATED is charged on a daily basis and is payable annually in advance. Penalties and interest may apply to late and/or incorrect returns.

From April 2018 the annual charges range from £3,650 per annum, through to over £232,350 per annum for properties worth over £20million.

On Disposal of the Property

The ATED charge does not apply to property owned in the name of individuals.

Generally, all residential property, other than that used by the owner as his principal private residence, is subject to CGT on disposal

Amendments have been made to the CGT element of the tax regime:

  • ATED-related CGT charges were abolished with effect from 6 April 2019, after this date the relevant tax regime for companies disposing of UK residential property has been UK corporation tax.

The amendment to ATED-related CGT presents a potential tax saving opportunity for companies disposing of UK residential property. ATED-related CGT was charged at 28% on all gains made since 5 April 2013 with no indexation allowance, while corporation tax will be charged at 19% on all gains made since 5 April 2015, with an indexation allowance up to 31 December 2017.

  • Residential property owned by individuals, that is not their principal private residence, whether rented out or not, is now subject to CGT on disposal for gains arising since 2015. Individuals are taxed on such gains at either 18% or 28%, dependent on the total amount of UK income and gains received by the taxpayer.

On Death

As from April 2017, all UK situs residential property has been subject to the UK Inheritance Tax Regime (IHT), irrespective of the ownership structure.

Inheritance tax is chargeable at 40% of the market value at the time of death and is also potentially chargeable if the property was gifted away within 7 years prior to death.

Each individual has a £325,000 nil rate band (£650,000 per couple) and this will increase to a maximum of £500,000 per individual (£1million per couple) in 2020, where the property is the main residence of the deceased.  This allowance is restricted for estates with a net value of more than £2million.

In most cases, there is an exemption from IHT on property left to a spouse.

Considerations for New Property Acquisitions

When acquiring UK residential property it is important to consider the ownership structure prior to an exchange of contracts.

As indicated above, the CGT and IHT positions for the owner of a UK residential property, personally or through a company, are now broadly the same.  There can still however be some tax savings achieved particularly if, the property is not to be used as the owner’s main residence.

Other objectives may also be of importance. For example, a structure may be required to provide confidentiality, and this would need to be carefully planned, in order to minimise tax liabilities.

Additional Information

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

Multi-jurisdiction

Dixcart Business Centres: Serviced Offices Where and Why?

Posted on | by Charlotte Clabon

Dixcart Business Centres offer extensive serviced office capacity and are ideal for companies establishing themselves in a new location. Dixcart Business Centres are located in Guernsey, the Isle of Man, Malta and the UK.

Business Centres can offer a productive work environment and a cost effective option for organisations with international interests wishing to operate from a particular location. The international arena is changing and with the implementation of anti Base Erosion and Profit Shifting legislation (BEPS) it is becoming increasingly important to demonstrate real substance and genuine activity.

The Issues of Substance and Value Creation

Substance is an important factor for organisations to take into account, especially international companies seeking to establish subsidiaries in other countries. In addition new measures are being implemented to ensure that corporate tax is levied where real value creation takes place.

Companies must show that the management, control and day to day decisions concerning their activity are taken in each specific foreign jurisdiction and that the company itself operates through an establishment which provides a real presence in that location. In the event that substance and presence are not demonstrated or that no real value creation has taken place in that jurisdiction, the tax benefits enjoyed by the subsidiary company may be negated by a tax imposition in the country where the parent company is based.

The Benefits of Serviced Offices

Companies setting up for the first time in a jurisdiction will require premises for the staff and directors who manage and control the business to create value in the jurisdiction.

Dixcart serviced offices provide high quality, flexible furnished accommodation together with sophisticated IT and communication systems.

A comprehensive range of administrative support and professional services are also available. These include:

  • Accounting
  • Business Planning
  • HR
  • IT Support
  • Legal Support
  • Management
  • Payroll
  • Tax Support

The Dixcart Business Centre in Guernsey

Companies and individuals in Guernsey benefit from tax advantages, which include:

  • A general zero rate of corporate tax.
  • No VAT.
  • A personal income tax rate of a flat 20%, with generous allowances.
  • No wealth taxes, no inheritance taxes and no capital gains taxes.
  • A tax cap of £110,000 for Guernsey resident taxpayers on non-Guernsey source income or a tax cap of £220,000 on worldwide income.

Guernsey is an attractive location for international companies and individuals. The Dixcart Business Centre is situated in a prime location within the island’s main financial district of St Peter Port. At Dixcart House there are nine fully furnished offices and each can accommodate between two and four staff. There is a general reception area and a shared kitchen, plus a boardroom available to hire.

The Dixcart Business Centre in the Isle of Man

Companies and individuals in the Isle of Man benefit from the following advantages:

  • A zero rate of corporate tax on trading and investment income.
  • Businesses in the Isle of Man are treated by the rest of the EU, for VAT purposes, as if they are in the UK and they can therefore register for VAT.
  • There is no wealth tax, inheritance tax, capital gains tax or investment income surcharge.
  • A standard rate of income tax for individuals of 10%, with a higher rate of 20%.
  • A cap of £125,000 exists on an individual’s income tax liability for a period of up to five years.

The Isle of Man is an attractive location for international companies and individuals. The Dixcart Business Centre is situated in a prime location within the island’s main financial district of Douglas.  Due to an increasing demand for services, an additional building was acquired in Athol Street. Britannia House offers over 18,000 square feet of office space and has serviced offices on two floors. A number of suites are available, with each office varying in size and accommodating between one and fifteen staff. There is a shared reception and kitchen space, plus meeting rooms available to hire.

The Dixcart Business Centre in Malta

Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds:

  • 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:
    • Active income – in most instances shareholders can apply for a tax refund of 6/7ths of the tax paid by the company on the active profits used to pay a dividend. This results in an effective Maltese tax rate of 5% on active income.
    • Passive income – in the case of passive interest and royalties, shareholders can apply for a tax refund of 5/7ths of the tax paid by the company on the passive income used to pay a dividend. This results in an effective Maltese tax rate of 10% on passive income.
  • Holding companies – the dividends and capital gains derived from participating holdings are not subject to corporate tax in Malta.
  • There is no withholding tax payable on dividends.
  • Advance tax rulings can be obtained.

The Dixcart Business Centre is located in the prime area of Ta’Xbiex, close to the capital, Valletta. The building is iconic and has been faithfully restored to retain its boat like shape. It incorporates a delightful roof terrace and a unique and memorable bespoke chandelier in the reception area. An entire floor is dedicated to serviced offices. There are nine serviced offices in total, accommodating between one and nine people, and there is a kitchen and boardroom available for meetings.

The Dixcart Business Centre in the UK

The UK is a popular jurisdiction for both companies and individuals:

  • The UK has one of the lowest rates of corporation tax in the western world. The current UK corporation tax rate is 19%.
  • There is no withholding tax on dividends.
  • The majority of share disposals and dividends received by holding companies are exempt from taxation.
  • Controlled foreign company tax rates only apply to a narrow classification of profit.

The Dixcart Business Centre in the UK is located at Dixcart House on Bourne Business Park, Surrey. Dixcart House is near central London and just minutes from the M25 and M3. Train services from Weybridge serve Central London and you can be in the heart of the capital in 30 minutes. It is only a 20 minute drive to Heathrow Airport and 45 minutes to Gatwick Airport.

There are 6 meeting rooms and a large boardroom, which can accommodate up to 25 people comfortably. The space can be divided into smaller meeting rooms or a theatre style seminar space if required. There is a shared reception area and kitchen facilities specifically for serviced office clients.

Summary

Dixcart Business Centres provide businesses and individuals with a range of benefits, and are available in the jurisdictions of Guernsey, the Isle of Man, Malta and the UK. These Business Centres provide organisations with the opportunity to establish themselves in an additional jurisdiction in a cost effective manner, and assist in meeting substance requirements.

Additional Information

If you require additional information regarding substance and the serviced offices offered through the Dixcart Business Centres, please visit our website, or speak to your usual Dixcart contact or to Peter Robertson at our office in the UK: advice.uk@dixcart.com.

St Kitts & Nevis

The Reassurance of Having a Second Passport

Posted on | by Charlotte Clabon

Threats and opportunities have always existed and never more so than in this rapidly changing world.

Many countries are experiencing significant political and economic change.

Key Benefits Offered By Holding a St Kitts & Nevis Passport

A St Kitts & Nevis passport can include a wide breadth of dependants, provides extensive travel options, and does not require a visit to the island:

  • A single application can include children up to a maximum age of 30 and parents with a minimum age of 55 and unmarried, dependent siblings up to the age of 30.
  • St Kitts & Nevis Citizenship guarantees receipt of a St Kitts & Nevis passport, with full Schengen travel rights throughout Europe. Full Schengen privileges means that holders can travel to approximately 152 countries worldwide, either on a visa free, or visa on entry basis.

What are the Criteria to Obtain a St Kitts & Nevis Passport?

The St Kitts & Nevis Citizenship by Investment scheme enables citizenship and therefore a passport, to be obtained by individuals choosing one of three alternative investment programmes:

Option 1: Sustainable Growth Fund (SGF) Contribution

  • A single applicant can make a contribution of US$150,000 to the Sustainable Growth Fund (SGF). The contribution for a family of up to four is US$195,000.
  • For additional dependants (children or parents), the contribution requirement is US$10,000 per dependant. The addition of a sibling under the Sustainable Growth Fund, will be US$20,000.

OR

Option 2: Approved Property Development

  • Investment of a minimum US$400,000 in an approved property development. The property must be held for a minimum of 5 years after the citizenship has been granted.

A registration fee is payable by the applicant and additional fees are required for the spouse, children under the age of 18, and additional family members over the age of 18. The addition of a sibling is US$40,000.

If this route is selected, the Dixcart office in Nevis can help source management services for the property, which can be sold on after 5 years. 

OR

Option 3: Luxury Real Estate

  • Investment of a minimum US$200,000 in new luxury real estate. The property must be held for a minimum of 7 years after the citizenship has been granted.

A registration fee is payable by the applicant and additional fees are required for the spouse, children under the age of 18, and any additional family members over the age of 18. The addition of a sibling is US$40,000.

Additional Advantages of Holding a St Kitts & Nevis Passport

  • There is no personal income tax, no gift tax, no death duties, no estate tax, no inheritance tax and no capital gains tax on worldwide income.
  • The passport allows the holder to reside in other Caribbean Community countries (Caricom) if they wish to do so. There are 15 Caricom member states.

Dependants

  • Unmarried, dependant children who are older than 18 but younger than 30 may be included in the application.
  • Dependant parents aged 55 or above may also be included. Citizenship can be passed on to future generations by descent.
  • Siblings may be added to the application if he/she is the brother or sister of either the main applicant or his/her spouse, is unmarried and childless, under the age of 30, and dependent on the applicant for financial support.

Accelerated Application Process

In 2016, the St Kitts & Nevis Government approved a 60-day accelerated application process (AAP). Applicants can benefit from an enhanced process time, in some cases, as little as 45 days. The costs associated with AAP, which include due diligence and passport fees, are:

  • Main applicant: US$25,000
  • Dependant older than 16 years: US$20,000
  • Dependant younger than 16 years: US$500

Sponsorship

Under certain conditions, it is possible to sponsor family members, to qualify for Citizenship, for example:

  • Common Law Partners
  • Children of the main applicant that do not qualify as dependants.
  • Parents of the main applicant that do not qualify as dependants. 

The sponsor and the individual being sponsored must be direct relatives and the sponsor must complete forms, pay a due diligence fee of US$7,500, and provide evidence regarding the identity and source of wealth/funds of the individual being sponsored.

Additional Information

Dixcart is a licensed Service Provider for the St Kitts & Nevis Citizenship by Investment Programme and can provide comprehensive details regarding the alternative application routes available, additional fees that might be required, and assist with  coordination of the application.

If you would like additional information regarding the St Kitts & Nevis Economic Citizenship Programme please contact John Mellor at our office in Nevis: advice.nevis@dixcart.com or your usual Dixcart contact.

Guernsey

Substancial Activity Requirements: The EU Council, OECD and Low Tax Jurisdictions

Posted on | by Charlotte Clabon

Background

The EU Council’s ‘base erosion and profit shifting’ (BEPS) action plan defines the requirements to be met, by jurisdictions wishing to maintain low tax regimes for businesses undertaking ‘specified’ activities, in order to demonstrate that they have sufficient substance in that particular jurisdiction.

Requirements include; ‘core income generating activities’ must take place in the jurisdiction in question, with adequate expenditure and staff in that jurisdiction proportionate to the level of activity carried out there. In addition, measures must be in place for the jurisdiction to enforce any non-compliance to the rules.

Reporting

On 31 October 2019, the OECD released guidance regarding the spontaneous exchange of information by zero or nominal tax jurisdictions. As part of BEPS Action 5, as from 2020, low-tax jurisdictions will have to ‘spontaneously exchange’ information. Guidelines have been published to clarify key definitions, specify timelines relating to the information exchanges and detail the context of the international legal framework.

Relevant Activities

Companies undertaking the following relevant activities are subject to economic substance requirements:

  • Banking
  • Distribution and service centres
  • Finance and leasing
  • Fund management
  • Headquarters
  • Holding Companies
  • Insurance
  • Intellectual property holding
  • Shipping

Guernsey and the Isle of Man

Guernsey and the Isle of Man were on the original OECD list of low tax jurisdictions and both are now compliant with the standards for substantial activity legislation, having introduced new laws in 2018.

Further information can be found in the following Articles:

IN561 Key Aspects – Economic Substance Requirements For Guernsey

IN562 New Substance Requirements For Isle Of Man Companies – Effective 1 January 2019 

Guidance Notes: Guernsey and the Isle of Man

The States of Guernsey and the Isle of Man Government issued additional Guidance Notes on 26 April 2019.

Key points to note include:

  • Each resident company, undertaking a relevant activity, is expected to hold at least one board meeting per annum in the jurisdiction of residence of the company. In addition the board must meet in the jurisdiction at an adequate frequency, given the level of decision making required. When more than one meeting is held, the majority of such meetings should be held in that jurisdiction. During such meetings, there must be a quorum of the Board physically present in the jurisdiction. This is to help ensure that the relevant activity is ‘directed and managed’ in, for example, Guernsey or the Isle of Man.
  • The ‘core income generating activity’ must be performed in the jurisdiction of residence for the company.
  • If there is a failure to meet the economic substance requirements, sanctions will include exchange of information with competent authorities in other jurisdictions. Current wording of the existing legislation in Guernsey and the Isle of Man is that the information will only be exchanged where the parent of the particular company or the beneficial owners are resident in the EU. It is anticipated that the current laws will be amended and extended beyond the existing EU obligation.

Additional Information

Each of the Dixcart offices are familiar with the economic substance requirements in their particular jurisdiction.

Dixcart Business Centres act as Start-up hubs for companies as they offer high quality serviced offices and a range of professional services to assist clients to establish a business: https://dixcartbc.com/

Our Guernsey and Isle of Man offices are fully conversant with the ‘substance’ legislation and the implications within their respective jurisdiction.

For further information please speak to your usual Dixcart contact or to our Guernsey or Isle of Man office: advice.guernsey@dixcart.com or advice.iom@dixcart.com

Full Fiduciary Licence granted by the Guernsey Financial Services Commission

Guernsey Registered Company: 6512

 

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

Ukraine – Changes to Two Double Taxation Treaties

Posted on | by Charlotte Clabon

On 30 October 2019, the Ukraine ratified changes to two Double Tax Treaties (DTAs), the treaty with Cyprus and the treaty with the UK, respectively.

Once the appropriate formalities have taken place in the reciprocal countries, these treaties are expected to come into force at the start of January 2020.

Ukraine: Cyprus Treaty 

The key changes are:

  • A reduction in the withholding tax for dividends from 15% to 10% (if the paying company does not qualify for a lower rate).
  • To enjoy a reduced withholding tax rate of 5% on dividends the following two conditions must now be met (previously it was only one of the two conditions):
  • The company paying withholding tax holds a minimum 20% of the capital in the company distributing the dividends; AND
  • The value of the investment held (directly or indirectly) is a minimum €100,000.

Ukraine: UK Treaty 

The key changes are:

  • An increase from 10% to 15% on the withholding tax rate payable for dividends;
  • A reduced withholding tax rate of 5% on dividends, where the company paying withholding tax holds a minimum 20% of the capital in the company distributing the dividends;
  • An increase from 0% to 5% on the withholding tax rate payable for royalty payments;
  • Measures to increase the exchange of tax information between the two countries.

Additional Information

If you would like additional information regarding Ukraine’s Double Tax Treaties and the opportunities that they might provide, please speak to the Dixcart office in Cyprus or in the UK or to Maria Muzarowska, at the Dixcart office in Malta; advice.malta@dixcart.com.

St Kitts

Nevis – What Does This Jurisdiction Offer Companies and Individuals?

Posted on | by Charlotte Clabon

Background

Nevis is a leading international Caribbean financial centre with a good reputation and excellent standards.

The jurisdiction of St Kitts & Nevis offers options in terms of international companies, private trustee companies and international trusts and foundations. It also offers an attractive passport scheme (recipients do not need to reside in St Kitts & Nevis), which is of particular appeal for individuals requiring an additional passport to ease travel and/or perhaps whilst they are awaiting receipt of a passport from another jurisdiction.

A brief summary of the key advantages available is detailed below. For further information please contact the Dixcart office in Nevis: advice.nevis@dixcart.com.

Nevis as an International Business Centre

  • Nevis does not levy VAT or other indirect taxes in relation to Nevis International Business Corporations (IBCs) and there is NO income tax, NO corporation tax, NO capital gains tax, NO wealth tax, and NO death duty or  inheritance tax.
  • The Nevis Financial Registry maintains the strictest levels of confidentiality.
  • Legislative and fiscal independence mean that the island responds quickly to the needs of business.
  • Nevis is a well-regulated jurisdiction and is recognised by the FATF (Financial Action Task Force) and the OECD (Organisation for Economic Co-operation and Development).
  • New legislation is regularly being introduced, offering an increased number of corporate vehicles. These include IBCs; insurance, companies, LLCs (Limited Liability Corporations), multiform foundations, registered trusts and mutual funds.
  • The island is independent and offers a stable political and economic environment.
  • Nevis is a former British Colony which applies a common law legal system (similar to the English legal system).

Dixcart, in Nevis, offers bespoke structures, allowing families to set up specific solutions that maintain the confidentiality of the family.

The Dixcart office in Nevis establishes and manages companies and can also assist with the re-domicile of non-Nevis companies to Nevis for the purpose of either continuance or closure.

Dixcart also has the ability to manage companies from other Caribbean jurisdictions and to provide the necessary levels of management and substance that are now commonly required by countries within the EU and other countries around the world.

Nevis Structures, the Economic Citizenship Programme and their Key Benefits:

  • IBC – International Business Corporation 
    • Sole directors allowed (both personal and corporate).
    • Incorporated in 24 to 48 hours.
    • Easy to setup and maintain, private and cost effective.
    • Ability to have documents legalised in the UAE, due to the St Kitts Consulate in Dubai.
    • Certificates of Good Standing/Incumbency can be notarised and apostilled in under 24 hours.
  • LLC – Limited Liability Company
    • A legal entity with separate rights and liabilities, distinct from its managers and members, which is liable for its own debts, obligations and liabilities.
    • Can be used for any legal purpose, including financing US and non-US operations, real estate holding, manufacturing and investment vehicles for international trusts.
    • Incorporated in 24 to 48 hours.
    • Foreign LLCs may convert to become a Nevis LLC through use of a simple conversion plan.
    • Foreign entities may convert to become a Nevis LLC after redomiciling to Nevis.
    • Extra protection can be gained by stating that ‘the explicit naming of a member or manager in a legal action being brought against the company is legal grounds for dismissal or at least for a motion of misjoinder’.
  • PTC – Private Trustee Company
    • No licence required to act as trustee (for private family arrangements).
    • Incorporated in 24 to 48 hours with sole directors allowed (both personal and corporate).
    • Can be owned either by a purpose trust or by the settlor.
    • Ability to have a representative of the underlying asset companies on the Board of the PTC and it is relatively easy to replace the Board and therefore the effective trustees, if necessary.
  • International Trust
    • Registered in 24 to 48 hours.
    • Cannot be declared void, voidable or defective by reason of any forced heirship rules of the Settlor’s domicile, residence, place of current incorporation, formation or establishment.
    • No rule against perpetuity unless otherwise provided for; the international trust can therefore have unlimited duration.
    • Foreign judgements are not enforceable in Nevis.  Any civil action to recover assets would need to be brought, in addition, in the Courts of St Kitts & Nevis.
    • A deposit of $100,000 must be paid before creditor action can be taken.
    • If the Protector has the authority to direct the Trustees to make and approve distributions, or to direct the Trustees to make particular investments, statutory protection is given to the Trustees for acting on the direction of the Protector, in the absence of wilful misconduct.
  • Multiform Foundations
    • Asset protection and succession planning opportunities.
    • Can be set up for estate planning, charity, financing and special investment holding arrangements.
    • Can take the form of a foundation, a company, a trust or a partnership.
    • The ordinance allows for entities to be converted or transformed, continued or consolidated and merged into Nevis Multiform Foundations.
  • Economic Citizenship Programme – Passports

A St Kitts & Nevis passport can provide a relatively fast option to ease  travel and to gain residence, if required, whilst plans are being made to live elsewhere.

There are three alternative routes to gain a St Kitts & Nevis passport:

  • Investment in Real Estate.
  • Investment in Luxury Real Estate.
  • Sustainable Growth Fund (SGF) Contribution.

Applicants do not need to visit St Kitts & Nevis in order to apply for a St Kitts & Nevis passport. They do, however, need to use an approved intermediary on the island, such as Dixcart, to coordinate the application.

There are NO conditions attached to a St Kitts & Nevis passport in terms of the number of days that need to be spent on St Kitts & Nevis. Other advantages include:

  • Visa-free access to over 130 countries around the world including Europe, UK, Hong Kong, Russia, Ukraine, and Switzerland.
  • Fast processing times; approval can be achieved in between 45 to 60 days using the ‘accelerated process’ and 90 to 120 days with standard processing.
  • Inclusion of dependant children up to the age of 30.
  • Inclusion of dependant parents from the age of 55.
  • Sponsorship of common law partners.
  • Ability to pass citizenship to children.

Additional Information

Nevis offers a number of attractive international entities and an appealing Economic Citizenship Programme. If you require additional information, please contact John Mellor at our office in Nevis advice.nevis@dixcart.com or your usual Dixcart contact.