Month: April 2021

Factors contributing to and enhancing the status of this jurisdiction include:

Guernsey is a premier international financial centre with an enviable reputation and excellent standards. The Island is also one of the leading jurisdictions providing international corporate and private client services and has developed as a base from which internationally mobile families can organise their worldwide affairs through family office arrangements.

• A general rate of tax payable by Guernsey companies of zero.
• There are no wealth taxes, no inheritance taxes, no withholding taxes on dividends, no capital gains taxes and no VAT.
• For Guernsey resident individual tax payers there is a maximum tax charge of £260,000 on their worldwide income.
• Individuals relocating to the Island can effectively elect to pay tax on their Guernsey source income only, capped at £130,000, or on their worldwide income capped (as detailed above) at £300,000.
• The Companies (Guernsey) Law 2008, the Trusts (Guernsey) Law 2007 and the Foundations (Guernsey) Law 2012, reflect Guernsey’s commitment to providing a modern statutory basis and increased flexibility for companies and individuals using the jurisdiction of Guernsey. The laws also reflect the importance placed on corporate governance.
• Guernsey’s Economic Substance regime was approved by the EU Code of Conduct Group and endorsed by the OECD Forum on Harmful Tax Practices in 2019.
• A Guernsey Foundation is the only entity of this type globally that offers potential for disenfranchised beneficiaries.
• Guernsey is home to more non-UK entities listed on the London Stock Exchange (LSE) markets than any other jurisdiction globally. LSE data shows that at the end of December 2020 there were 102 Guernsey-incorporated entities listed across its various markets.
• Legislative and fiscal independence mean that the Island responds quickly to the needs of business. In addition the continuity achieved through the democratically elected parliament, without political parties, helps deliver political and economic stability.
• A wide range of internationally respected business sectors: banking, fund management and administration, investment, insurance and fiduciary. To meet the needs of these professional sectors, a highly skilled workforce has developed in Guernsey.
• 2REG, the Guernsey aviation registry offers a number of tax and commercial efficiencies for the registration of private and, off-lease, commercial aircraft.

Formation of Companies in Guernsey

General information is detailed below outlining the formation and regulation of companies in Guernsey, as embodied in the Companies (Guernsey) Law 2008.

1. Incorporation

Incorporation can normally be effected within twenty four hours.

2. Minimum Capitalisation

There are no minimum or maximum capital requirements. Bearer shares are not permitted.

3. Directors/Company Secretary

The minimum number of directors is one. There are no residency requirements for either directors or secretaries.

4. Registered Office/Registered Agent

The registered office must be in Guernsey. A registered agent needs to be appointed, and must be licensed by the Guernsey Financial Services Commission.

5. Annual General Meeting

Members can elect not to hold an Annual General Meeting by Waiver Resolution (requiring a 90% majority).

6. Annual Validation

Each Guernsey company must complete an Annual Validation, disclosing information as at 31^st December of each year. The Annual Validation must be delivered to the Registry by 31^st January of the following year.

7. Audit

Members can elect for the company to be exempt from the obligation to have an audit by Waiver Resolution (requiring a 90% majority).

8. Accounts

There is no requirement to file accounts. However, proper books of account must be maintained and sufficient records must be kept in Guernsey to ascertain the financial position of the company at no greater than six monthly intervals.

9. Taxation

Resident corporations are liable to tax on their worldwide income. Non-resident corporations are subject to Guernsey tax on their Guernsey-source income.

Companies pay income tax at the current standard rate of 0% on taxable income; however, income derived from certain businesses may be taxable at a 10% or 20% rate.

Income derived from the following business is taxable at 10%:

• Banking business.
• Domestic insurance business.
• Insurance intermediary business.
• Insurance management business.
• Custody services business.
• Licensed fund administration business.
• Regulated investment management services to individual clients (excluding collective investment schemes).
• Operating an investment exchange.
• Compliance and other related activities provided to regulated financial services businesses.
• Operating an aircraft registry.

‘Banking business’ is broadly defined as income that arises as a result of the provision of credit facilities by any type of company and the utilisation of customer deposits. Income derived from licensed fiduciaries (with regulated activities), licensed insurers (in respect of domestic business), licensed insurance intermediaries, and licensed insurance managers is also taxable at 10%.

Income derived from the exploitation of property located in Guernsey or received by a publicly regulated utility company is subject to tax at a higher rate of 20%. In addition, income from retail businesses carried on in Guernsey where taxable profits exceed 500,000 British pounds sterling (GBP) and income derived from the importation and/or supply of hydrocarbon oil and gas are also taxed at 20%. Finally, income derived from the cultivation of cannabis plants and income from the use of those cultivated cannabis plants or parts of those cultivated cannabis plants or licensed production of controlled drugs is taxable at 20%.

If you would like additional information regarding the formation of companies in Guernsey and the fees that Dixcart charge, please contact: advice.guernsey@dixcart.com

Dixcart Trust Corporation Limited has a Full Fiduciary Licence granted by the Guernsey Financial Services Commission

Background

With the advent of Brexit, the UK Government has been taking a number of steps to demonstrate it is definitely ‘open for business’ and to position itself as an attractive location for new and expanding companies.

In the Budget on 3 March 2021, the Chancellor announced two new first year allowances:

• A superdeduction of 130% on qualifying plant and machinery;
• A 50% first year allowance on qualifying special rate assets.

Who Qualifies for the Relief?

To qualify for either allowance, the expenditure needs to be made by a company within the charge to UK Corporation Tax.

As such, sole traders and partnerships do not qualify.

Which Expenditure Qualifies for the Relief?

The expenditure must be on new and unused items: second hand purchases will not qualify.

The categories of qualifying expenditure for the 130% superdeduction are very broad and include:

• Plant;
• Machinery;
• Furniture;
• Computer equipment;
• Software;
• Vans (cars do not qualify).

Purchases qualifying for the 50% deduction, are those which would normally be treated as ‘special rate’ assets with a lower rate of capital allowances:

• Air-conditioning and air-cooling systems;
• Hot and cold-water systems;
• Electrical systems, including lighting systems;
• External solar shading;
• Lifts, escalators and moving walkways;
• Space and water heating systems;
• Thermal insulation of buildings.

When Does Expenditure Need to be Incurred?

The expenditure must be made between 1 April 2021 and 31 March 2023.

The contract cannot have been entered into, prior to 3rd March 2021, when the superdeduction and 50% first year allowance were announced.

Hire purchase contracts are included as qualifying expenditure, provided that the asset is in use by the year end.

What About the Annual Investment Allowance?

The Annual Investment Allowance (“AIA”) currently gives a 100% deduction on expenditure up to £1m. It has recently been confirmed that this limit will remain until 31 December 2021.

It would therefore make most sense to claim the superdeduction on expenditure qualifying for the130% deduction, and use AIA for special rate expenditure. The 50% first year allowance could then be claimed on expenditure in the special rate pool above £1m.

What if the Asset is Sold?

The rules are complex but, broadly speaking, if the superdeduction is claimed and the asset is then sold before 31 March 2023, a balancing charge will be payable in order for the enhanced relief to be clawed back.

Similar rules apply to the 50% first year allowance.

What Action Points Might There be for the Company?

Where the company capitalisation policy means that certain assets are not capitalised, this may be worth revisiting.

It might be beneficial to capitalise all assets in order that the 130% superdeduction can be claimed, rather than a100% P&L deduction.

Additional Information

For additional information regarding how these new allowances can be beneficial to a company established in England or Wales, please speak to Paul Webb or Sarah Gardner, in the UK office: advice.uk@dixcart.com.

Background

There has been discussion for many years regarding potential major changes to the way that international corporation tax is collected.

Reforms have previously been proposed by the EU, the United States and the Organisation for Economic Cooperation and Development (OECD).

So What Has Changed Recently?

Much has changed during the past eighteen months, but the most significant factor in this debate, is the change in Government in the US and the arrival of Joe Biden as President.

Janet Yellen, the new US Treasury Secretary, is also pivotal to this initiative and has long been a supporter of moves by the OECD to level the international corporate tax playing field.

What is Proposed?

The new President has already announced plans for a big increase in taxes on the ‘offshore earnings’ of US businesses.

The US aim is to effectively stop countries using corporation tax as a competitive tool to attract investment:

1. The US is proposing to implement a minimum global tax on its companies. A key proposal is a 21% minimum tax rate on global earnings. The US administration also proposes to change the way this tax would be levied, removing a key allowance exempting earnings below a certain threshold, and collecting the tax for each jurisdiction that the company operates in.

Using Ireland as an example, this would currently mean US companies paying a top up of 8.5% in the US, having paid 12.5% corporation tax in Ireland.

There is, however, a long way to go before the details and the new US tax rate are agreed.

• Momentum is also building regarding the OECD minimum tax plan. The US position, favouring a global minimum rate being agreed by all countries at the OECD, is gaining support from a number of countries including the larger EU countries.

Exactly what level this rate might be set at is open to speculation. Until recently a rate of around 12.5% was considered possible, but with the US now supporting a minimum 21%, there is likely to be much debate.

Eventual agreement might be reached, at OECD level, on a lower rate, for example 15% or 18%, but this is highly speculative. Equally speculative, is the possibility that the US might subsequently be willing to sets its international corporate minimum tax rate at the agreed OECD rate, rather than 21%.

The OECD Digital Tax Sales Plan

Another central pillar of the OECD programme proposes that multinationals pay tax on what they sell through digital channels, in the markets where they sell these services.

This is a change to current rules where profit is declared and tax paid in countries from where the digital sales are managed.

The US has supported a version of this plan which will have a significant impact on US companies. The US administration might well hope that in return, this will help win support from Europe and other countries for its minimum tax rate plan.

Commentary

It is a matter of concern that larger nations are looking to dictate tax policy to smaller nations which use their tax system to compete for inward investment.  Larger nations do however have a legitimate concern with regards to the artificial diversion of profits to low tax centres.

The combined efforts of the OECD and the US  mean that it is likely that they will use their influence to introduce a minimum international corporation tax rate.

Additional Information

Dixcart provides effective solutions for protecting wealth. For more information please contact Laurence Binge:  advice.uk@dixcart.com or your usual Dixcart adviser.

Legal Background

The Cyprus AML Law 188(I)/2007 has recently been amended to introduce into local law, the provisions of the 5^th AML Directive 2018/843.

The Law provides for the establishment of two central registers of Beneficial Owners:

• Beneficial Owners of companies and other legal entities (the ‘Companies Central Beneficial Owner Register’);
• Beneficial Owners of express trusts and other legal arrangements (the ‘Trusts Central Beneficial Owners Register’).

The two Registers commenced on 16^th March 2021.

The Companies Central Beneficial Owners Register will be maintained by the Registrar of Companies, and the Trusts Central Beneficial Owners Register will be maintained by the Cyprus Securities and Exchange Commission (CySEC).

Obligations

Each company and its officers must obtain and keep, at the registered office, adequate and current information about the Beneficial Owners. These are defined as individuals (natural persons), who directly or indirectly have an interest of 25% plus one share, of the issued share capital of the company. If no such individuals are identified, the senior management official must be similarly identified.

It is the responsibility of the officers of the company to electronically submit the requested information to the Companies Central Beneficial Owner Register, no later than 6 months after the date of launch of the Companies Central Beneficial Owner Register. As detailed above, the Registers commenced on 16^th March 2021.

Access

The Beneficial Owner Register will be accessible by:

1. Competent Supervisory Authorities (such as ICPAC and Cyprus Bar Association), the FIU, the Customs Department, the Tax Department and the Police;
2. ‘Obliged’ entities e.g. banks and service providers, in the context of conducting due diligence and identification measures for relevant clients. They should have access to; the name, month and year of birth, nationality and country of residence, of the Beneficial Owner and the nature and extent of their interest;
3. The general public shall have access to the name, month and year of birth, nationality and country of residence of the Beneficial Owner and the nature and extent of their beneficial interest.

Are There Any Restrictions on the Information Being Made Available?

A Beneficial Owner may file a written request (accompanied by supporting evidence) to the Registrar of Companies, seeking a restriction to the access of his information by obliged entities or the general public, on the basis that such access would expose him to disproportionate risk of; fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation or where the Beneficial Owner is a minor or otherwise legally incapable.

During the transition period, that is for at least the first 6 months after the launch of the Beneficial Owner Register, no access will be granted to obliged entities or to the general public.

Penalties for Non-compliance

Non-compliance with the obligations can lead to criminal liability and administrative fines of up to €20,000.

No penalties will be imposed during the transition period.

How Dixcart Management (Cyprus) Limited can assist

If you or your Cyprus entity are in any way affected by the implementation of the Beneficial Owner Register or would like any additional information, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Types of Partnership in Malta

A Malta Partnership offers an alternative way in which to set up a business in Malta. The Maltese jurisdiction allows two types of partnership: Partnership ‘En Nom Collectif’ (General Partnership) and Partnership ‘En Commandite’ (Limited Partnership). Regulation of these two partnerships is detailed in the Malta Companies Act.

Once the partnership is created, it has to be registered with the Malta Business Registry (MBR) and, if it is a Partnership En Commandite, the name of the partnership has to include “Limited Partnership (or LP)”.

The difference between a General and a Limited Partnership is the liability of the partners. While general partners have an unlimited liability, limited partner liability depends on how much each partner has contributed to the partnership. Nevertheless, any person who calls him/herself general partner, will have unlimited, joint and several liability with all other general partners, for the obligations established in the LP.

General Partnership (En Nom Collectif)

The Maltese law defines a General Partnership as a group of partners who act together, which is one of the most common structures. Individuals involved in this kind of partnership have collective and personal unlimited liability. This means, the Partnership En Nom Collectif can hold and/or own a property and can also be sued or sue in its own name. The main difference, in comparison to a company, is that when a partner is insolvent, retires or dies his interest in the partnership is liquidated.

Partners who receive income from the General Partnership must declare this income in their personal tax returns. The tax rate applicable will therefore depend on the individual’s personal tax rate. A partnership must have at least two partners that sign the Partnership Deed, which must then be sent to the Malta Business Registry, before the Certificate of Partnership is issued.

A General Partnership registered in Malta must have an office in Malta.

The Deed of Partnership must state; the name and address of each of the partners, the partnership name, details of the registered office in Malta, the objects of the partnership, the contribution of each of the partners, specifying the value of the respective contribution of each partner, and the period (if any) fixed for the duration of the partnership.

Limited Partnership (LP, En Commandite)

LPs have a legal personality separate to their partners and this responsibility lasts until the LP is dissolved. This means that LP’s have rights and obligations, they can hold or own property and they can sue or may be sued in their own name.

Taxation of LPs is the same as for companies, resulting in a potential effective tax rate of 5% on trading income and a potential effective tax rate of 10% on passive income, for non-Maltese resident shareholders.

The partners of an LP may either be general or limited partners. Partners are defined as “any person or body corporate”. General partners will manage the LP and be responsible for the debts, without limitation. Limited partners are not responsible for managing the LP, or for the debts of the LP. Decisions are made by the general partners, by simple majority.

In order to create an LP, three documents are needed: A ‘Partnership Deed’ signed by the initial partners, a ‘Partnership Registration Document’ delivered to the Malta Business Registry (MBR), and a ‘Certificate of Registration’, issued by the MBR.

The Partnership Deed must include; the names and addresses of the general partners, the name of the partnership, details of the registered office in Malta, the business objects, whether the capital is divided into shares or not, the period of the duration of the LP, a declaration that the Partnership Deed has been entered into and signed, and a specification of who the general partners are and who the limited partners are.

Limited Partnerships and Different Structures

An LP can be one of a number of different structures:

• Limited Partnership with Variable Share Capital. This kind of partnership must include “with Variable Share Capital (or VC)” in its name, in addition to “Limited Partnership (or LP)”. Unique features of this type of partnership, include; it cannot issue partly paid-up shares, and it may purchase or redeem its own shares directly or indirectly from its assets, as long as this is permitted in the Partnership Deed.
• Multi-Class Limited Partnership. A Share Capital Limited Partnership can be constituted as Multi-Class, when the capital detailed in the Partnership Deed is divided, or can be divided into different types of shares, class or classes of shares, without creating any sub-funds. The different share classes can be denominated in different currencies, similarly, the annual accounts may be in any one of these currencies.
• Multi-Fund Limited Partnership. A Share Capital Limited Partnership can be constituted as a Multi-Fund, when the capital detailed in the Partnership Deed is divided, or can be divided into different types of shares, creating different sub-funds. Different type of shares in different currencies are permitted in each sub-fund.

Taxation of Partnerships

Generally, a partnership is tax transparent and tax is levied at the partner level.

Malta Partnerships need to be registered for income tax purposes and the partners are required to keep partnership accounts and file a partnership tax return. Partnership income is deemed to be the income of each partner. The tax rate levied on each partner is therefore at the rate applicable to them individually, and will  depend on their country of residence and other circumstances.

Additional Information

For further information about partnerships in Malta please contact Jonathan Vassallo or Clive Azzopardi, at the Dixcart office in Malta: advice.malta@dixcart.com. Alternatively, please speak to your usual Dixcart contact.