Month: March 2020

Multi-jurisdiction

UK and Nevis – The Answer To New Indian Tax Residency Regulations?

Posted on | by Charlotte Clabon

What is Changing?

India is tightening its residency provisions specifically to push ‘stateless’ persons (Indian nationals), who are not liable to tax in any other country, within the Indian tax net.

In addition, in order to become non-resident in India you will have to stay outside of India for at least 240 days per tax year and as detailed above, Indian citizens will also need to be liable to pay tax in another country, by virtue of domicile or residence.

Who Will this Affect – What Can be Done?

Non-Resident Indians (NRIs) who are “Citizens of the World,” often find they do not stay anywhere long enough to trigger tax residence. Other NRIs are resident in countries that do not impose taxation on individuals. For both of these groups of NRIs, the changes will have a major impact.

Such NRIs will now have to accept Indian tax residency or ensure that they either cease to be Indian citizens or find a tax residence that is not too punishing in respect of their global income.

UK Tax Residence

NRIs in the above position could do far worse than to consider becoming tax resident in the UK.

UK tax residence can be triggered by a combination of connecting factors and days spent in the UK. By having a regular pattern of visits, having accommodation available, a spouse with you on your visits to the UK, and by doing some work in the UK, residence could be triggered by as little as a 46 day presence.  Many NRIs spend some time in London and therefore a slight adjustment could trigger UK tax residence.

Whilst the UK is a ‘high’ tax jurisdiction, NRIs who are tax resident in the UK can enjoy a very favourable tax position thanks to the UK’s remittance basis of taxation. With proper planning, before becoming UK resident, it is possible to pay very little tax.

Giving Up Existing Citizenship

For those wanting to give up their existing citizenship and take up new citizenship, key problems can be; the amount of time that this can take and the commitment in terms of the time to be spent in the host country. To be eligible to apply for UK citizenship, for example, you would need to spend nine months a year in the UK for six years.

There are however some faster alternatives. With a significant donation, you can gain citizenship in Malta after 12 months. With a €2,000,000 investment into Cyprus real estate, you could secure Cyprus citizenship in 180 days. 

St Kitts & Nevis Citizenship

A potentially faster and cheaper option is the St Kitts & Nevis Citizenship Programme, which can be fast tracked. This would enable you to secure citizenship, costing from US$186,000 (required donation and professional fees), within two months.  

A St Kitts & Nevis passport enables the holder to travel visa free or visa on arrival to all Schengen countries, Commonwealth countries, the UK and Russia.

St Kitts & Nevis Citizenship AND UK Tax Residence

A viable and attractive solution could be to gain St Kitts & Nevis citizenship while   becoming UK tax resident. The advantageous UK remittance basis of taxation can be enjoyed by NIRs for up to 15 years.

Additional Information

If you require further information on any of the issues raised in this Information Note  please speak to Laurence Binge at the Dixcart office in the UK: advice.uk@dixcart.com or to your normal Dixcart contact.  

Multi-jurisdiction

If You Must Stay in a Country Due to Unforeseen Circumstances – Including a Pandemic

Posted on | by Charlotte Clabon

Spring 2020, and we are experiencing an unprecedented period in terms of threat to health and economic stability.

Lower key disruption took place in April 2010, due to the ash caused by a volcanic eruption in Iceland and the subsequent cancellation of a large number of flights.

At this current time, there may be a number of other, less serious, but important unforeseen consequences.

Tax Residence

You may be in the unfortunate position of having to remain in a country and not being able to travel elsewhere and/or to return to your country of residence. If this is the case, you may inadvertently become tax resident by overstaying the number of days you should remain in that country. 

Action to Take

Please see below a suggested list of action you can take, to help mitigate an unplanned over-stay of days, if you need to:

  • Keep records of why you are in the country, and for how long.
  • Keep all travel tickets/records.
  • Keep any notifications advising you that you cannot leave that particular country.
  • It is worth checking the legislation of the country you are in to see if there are exceptions to the usual residency rules. For example, HMRC in the UK provided exemptions during the volcanic ash episode in 2010.

All of the above sounds very simple – but can easily be forgotten in difficult and stressful times.

Additional Information

If you would like further information about the tax residence regime in a particular country, or what your particular status might be, do not hesitate to speak to your usual Dixcart contact or please email: advice@dixcart.com.

St Kitts & Nevis

St Kitts and Nevis: An Update on the Taxation of Non-Resident International Companies

Posted on | by Charlotte Clabon

What is the Good News?

The period of uncertainty regarding the future of Nevis companies is coming to an end and the future for Nevis looks more positive.

In summary, companies that can demonstrate they are non-resident, that is companies with central management and control outside Nevis and no permanent establishment in Nevis, may continue to enjoy a tax neutral environment.

Background

In 2019, we reported that the Federal Government of St Kitts & Nevis had commissioned an in-depth consultation with Ernst & Young, for the express purpose of reviewing the Federal Income Tax Act, Cap 20.22. 

The collaboration was commissioned to find a long-term solution to the changes in the Nevis Business Corporation Ordinance (“NBCO”) and the Nevis Limited Liability Company Ordinance (“NLLCO”) that were enacted in December 2018.

We are now pleased to confirm that this review process is nearing an end and we have received confirmation from the Nevis Island Administration (“NIA”) that there is a commitment, by the Federal Government, to make an announcement as early as September 2020.

What are the Expected Changes?

The NIA confirmed that the expected changes will be based around the definition of tax residency.  An assessment will be based on where a company has its central management and control. Treatment of a permanent establishment, with no management and control in Nevis, has also been considered. 

Defined Tax Residence Status and Different Tax Treatments

The NIA have identified three possible tax outcomes:

  • A company with central management and control and with a permanent establishment within the Federation, would be taxed on their worldwide income.
  • A company without central management and control but with a permanent establishment within the Federation, would be taxed on the income generated in or the income remitted to the Federation.
  • A company without central management and control or a permanent establishment within the Federation, would not be liable for taxation in the federation.

All companies would need to file a simplified tax return by the 15th April each year (this filing requirement and the payment of any due tax has been deferred to allow time for the Federal Government to make necessary amendments to the act).

The Government intends to release more details on the definitions of ‘Central Management and Control’ as well as ‘Permanent Establishment’.

Associated Benefits: Nevis Companies.

  • Companies that can demonstrate they are non-resident, that is companies with central management and control outside Nevis and no permanent establishment in Nevis, may continue to enjoy a tax neutral environment.
  • Non-resident companies are likely to continue to enjoy no withholding tax liabilities.
  • Companies should always, however, be issued with a tax number, to enable appropriate filings to take place.
  • There are no planned substance requirements.
  • The continued enjoyment of the existing confidential nature of Nevis companies with maintenance of the privacy of ownership from a public register.

Additional Information

If you require further information in relation to the incorporation and management of Nevis international companies, please contact John Mellor: advice.nevis@dixcart.com.

Malta

An Opportunity to Redomicile a Ship to an Attractive Shipping Regime in a Sunny Jurisdiction

Posted on | by Charlotte Clabon

Redomiciliation of a Shipping Company to Malta

Malta has established itself as a robust and safe maritime jurisdiction and has the largest European maritime flag registry.

It is possible to redomicile a shipping company from another jurisdiction to Malta, without liquidating the company in the country that it is being redomiciled from (Legal Notice 31, 2020).

A Summary of the Attractive Tax Regime Available to Ships Registered in Malta

In December 2017, the European Commission approved the Maltese tonnage tax regime for a period of 10 years, following a review of its compatibility with EU State Aid Rules.

The Maltese Shipping Tonnage Tax System

Under the Malta Tonnage Tax System, tax is dependent on the tonnage of the vessel or fleet belonaging to a particular ship-owner or ship-manager. Only companies that are active in maritime transport are eligible under the Maritime Guidelines.

Standard corporate tax rules do not apply to shipping activities in Malta. Instead shipping operations are subject to an annual tax consisting of a registration fee and annual tonnage tax. The rate of tonnage tax reduces according to the age of the vessel.

  • As an example, a trading ship measuring 80 metres, with 10,000 gross tonnage, built in the year 2000, will pay a fee of €6,524 on registration and €5,514 annual tax thereafter.

The smallest category of ship is up to a net tonnage of 2,500 and the largest, and most expensive, are ships over 50,000 net tonnage. Charges are reduced for ships in the 0-5 and 5-10 year age categories respectively and are greatest for those 25-30 years old.

Please see IN546 – Maltese Shipping – The Tonnage Tax System and Advantages for Shipping Companies, for further information regarding this regime and additional advantages regarding the registration of a ship in Malta.

Conditions to Redomicile a Shipping Company to Malta

The following conditions need to be met:

  • the company is established under the law of an approved country or jurisdiction where those laws are similar in nature to company law in Malta;
  • the ‘objects’ of the company must be such that the company qualifies as a shipping organisation;
  • provisions in the law of overseas country enabling such countries to redomicile
  • redomiciliation is permitted by the company’s charter, statutes or memorandum, and articles or other instruments that constitute or define the company;
  • a request is submitted to the Malta Registrar for the company to register to be continued in Malta.

A request by a foreign company for registration to be continued in Malta, must be  accompanied by:

  • the resolution authorising it to be registered as being continued in Malta;
  • a copy of the revised constitutional documents;
  • a certificate of good standing or equivalent documentation relating to the foreign company;
  • a declaration by the foreign company to be registered as continued in Malta;
  • a list of directors and company secretary;
  • confirmation that such a request is permitted by the laws of the country or jurisdiction in which the foreign company has been formed and incorporated or registered.

The Registrar will then issue a Provisional Certificate of Continuation.  Within six months of this certificate being issued, the company must submit documentation  to  the  Registrar  that  it  has ceased to be a company registered in the country or jurisdiction where it had been previously established. The Registrar will then issue a Certificate of Continuation.

Additional Information

If you would like further information regarding the Malta Tonnage Tax System or the registration of a ship and/or yacht in Malta, please contact Jonathan Vassallo at the Dixcart office in Malta: advice.malta@dixcart.com or your usual Dixcart contact.

Guernsey

Offshore Planning for Ultra High Net Worth Individuals Using Corporate Family Investment Structures

Posted on | by Charlotte Clabon

Family investment companies continue to prove popular as an alternative to trusts in wealth, estate and succession planning.

What is a Family Investment Company?

A family investment company is a company used by a family in their wealth, estate or succession planning which can act as an alternative to a trust. Their use has grown significantly in recent years, particularly in instances where it is difficult for individuals to pass value into a trust without immediate tax charges but there is a desire to continue to have some control or influence over the family’s wealth protection.

Benefits of a Family Investment Company include;

  1. If an individual has available cash to transfer into a company, the transfer into the company would be tax-free.
  2. For UK domiciled or deemed domiciled individuals there would be no immediate charge to Inheritance Tax (IHT) on a gift of shares from the donor to another individual as this is deemed to be a potentially exempt transfer (PET). There will be no further IHT implications for the donor if they survive for seven years following the date of gift.
  3. The donor can still retain some element of control in the company providing the articles of association are carefully drafted.
  4. There is no ten year anniversary or IHT exit charge
  5. They are income tax efficient for dividend income as dividends are received tax free into the company
  6. Shareholders only pay tax to the extent that the company distributes income or provides benefits. If the profits are retained within the company therefore, no further tax would be payable, other than corporation tax as appropriate.
  7. International families making direct investments into UK companies as individuals are liable to UK Inheritance Tax on those UK situs assets and it is also advisable that they have a UK will to deal with those assets on their death. Making those investments through a non-UK resident family investment company removes the liability to UK inheritance tax and removes the need to have a UK will.
  8. Memorandum and articles of association can be bespoke to the family requirements for example having different classes of shares with varying rights for different family members to suit their circumstances and to meet the wealth and succession planning objectives of the founders.

Trusts vs. Family Investment Companies

Below is a comparison of key features and benefits to individuals, assuming that individual is not actually or deemed to be UK domiciled. 

 Trust Family Investment Company
Who’s in control?Controlled by the trustees.Controlled by the directors.
Who benefits?The value of the trust fund is for the benefit of the beneficiaries.The value of the entity belongs to the shareholders.
Flexibility around payments?  Typically, a trust will be discretionary, so that the trustees have discretion over what payments, if any, are made to beneficiaries.Shareholders hold shares, which may be of different classes and which may allow dividends to be paid to shareholders. It is difficult to change interests after inception without tax consequences and therefore, the interests associated with each shareholder may be considered less flexible than a trust.
Can you roll up income and gains?It is possible to roll up offshore income and gains within a trust.Tax is paid when amounts are distributed to UK resident beneficiaries, chargeable to income tax to the extent there is accumulated income in the structure and capital gains tax if there are gains in the structure.A family investment company can roll up income and gains, however, to the extent the person who established the company still has an interest, income tax would be payable on an arising basis. It is also possible for the company to be incorporated offshore with UK directors. This would give rise to a corporation tax liability at company level but then no further taxes at shareholder level until amounts are distributed from the company.
Laws in place?Long established jurisprudence in family law and probate situations. Position continues to evolve.Company law is well established.
Governed by?Governed by a trust deed and a letter of wishes, both of which in most instances are private documents.Governed by articles and shareholders agreement. The articles of a company are, in many jurisdictions, a public document and therefore any matters of a sensitive nature will generally be included in a share-holders agreement.
Registration requirements?There is a requirement for any trusts with a UK tax obligation/liability to be included on a register of trust beneficial ownership. This private register is maintained by the HM Revenue & Customs in the UK.Shareholders of Guernsey companies are included on a beneficial ownership register maintained by the Guernsey Companies Registry. Unlike the UK persons of significant control register, this is a private register.
Taxed in Guernsey?No tax in Guernsey on income or gains.No tax in Guernsey on income or gains.

Why Use a Guernsey Company?

The company will pay tax at a rate of 0% on any profits that it generates.

Provided the company is incorporated offshore and the register of members is kept, as required, offshore it is possible to retain ‘excluded property’ status for IHT (apart from UK residential property).

The shares in the company are not a UK situs asset. If the company is a private Guernsey company, it does not need to file accounts. Whilst there is a beneficial ownership register for companies in Guernsey, this is private and not searchable by the public.

In contrast, a UK company would file accounts on public record, and directors and shareholders would be listed on Companies House, a free searchable website, whose shareholders have a UK situs asset regardless, of where in the world they live.

Additional Information

If you require additional information on this topic, please contact your usual Dixcart adviser or speak to Bruce Watterson in the Guernsey office: advice.guernsey@dixcart.com.