Month: January 2023

The New Digital Nomad Visa – Residency Route: Steps to Take

Posted on | by Hristina Georgieva

Background

The new visa for digital nomads became available on October 30th 2022, allowing any remote worker or self-employed individual to pursue their profession through Portugal, enjoying all of the quality of life that Portugal has to offer.

Overview

With the last amendment of the relevant law, the Portuguese Government implemented the digital nomad visa, specifically allowing foreign professionals to provide their services remotely, either as a subordinate worker or as an independent worker from Portugal, and to apply for residency in Portugal. 

Step 1: Hire a Legal Adviser

As the digital nomad visa is very recent, it requires an expert, such as Dixcart, with sufficient experience and knowledge of Portuguese immigration law, to take you smoothly through the process. Things to consider when hiring a legal adviser are experience in the market, specifically in this area, and the track history of the firm.

Once a legal adviser is appointed, they will assist you with the documents that you need to collect to apply for the visa and schedule the relevant appointment at the Portuguese Consulate, for the area where you reside, helping you through every step of the process.

Step 2: Portuguese Tax number and Opening a Portuguese Bank Account

To apply for the visa, you will need to prove that you have sufficient means of subsistence in Portugal for the period of your stay (a minimum of one year). This means that a Portuguese bank account, and consequently a Portuguese tax number, are required.

A deposit of the minimum monthly Portuguese salary of €760, multiplied by twelve (the minimum stay period) is mandatory, to present to the Portuguese Immigration Authorities.

Step 3: Collect Documentation

You will need to assemble a number of documents for the appointment at the Portuguese Consulate:

General documentation required to request a visa:

  1. Proof of legal residency in the country from where you are applying
  2. Travel insurance covering necessary medical expenses, valid for 12 months
  3. Criminal record
  4. Proof of accommodation in Portugal for, at least, 12 months
  5. Proof of means of subsistence in Portugal

Specific documentation for the digital nomad visa

  • Working for an employer – one of the following documents:
    • Work contract; or,
    • Promise of work contract; or,
    • Declaration by employer confirming the labour link.
  • Independent professional activity – one of the following documents:
    • Contract of company incorporation; or,
    • Contract of service provision; or,
    • Written proposal of services provision contract; or, 
    • Document attesting the services provided to one or more entities.
  • Proof of average monthly income for the last three months with a minimum value equivalent to four times the Portuguese minimum wage: €3,040.
  • A document confirming tax residence.

Step 3: Legal Formalities

Make an appointment at the Portuguese Consulate, where a meeting must take place to deliver the documentation and for biometrics for the visa to be taken.

Step 4: Final Steps

After analysis of the application is complete, the digital nomad visa is issued for a period of four months and allows two legal entries in Portugal. When in Portugal, an appointment needs to be made with the Portuguese Immigration Authorities to complete the process. Once the digital nomad visa for residency is issued, it will be valid for two years and there is an option to then renew it.

Advantages

Work remotely and legally from Portugal Mainland or either of the Islands of Madeira or the Azores, and enjoying the amazing weather and food.

In Madeira, the “Digital Nomads Madeira” has already been created, which is a village for digital nomads, where they can enjoy workspaces, places of activity and community, with updated technology.

In addition, following on from this residency visa and subsequent residency permit, you can apply for citizenship or permanent residency after five years, and you can also apply for the non-habitual tax regime that gives a number of income tax advantages.

Additional Information

If you require any additional information regarding the Digital Nomad visa, the processes involved and the advantages it offers, please contact the Dixcart office in Portugal: advice.portugal@dixcart.com

We will be delighted to help you.

Cyprus’ new strategies for attracting business – What has changed during 2022?

Posted on | by Hristina Georgieva

In October 2021, the Cyprus Government announced that they were implementing an Action Plan to attract investment into Cyprus.

This Article reviews the extensive tax incentives and new programmes implemented during 2022, which have made Cyprus an even more attractive place to relocate to.

Business Facilitation Unit

The Ministry of Finance promotes the Business Facilitation Unit that processes the acquisition of work permits for highly skilled third country employees, with a minimum gross salary of €2,500 per month. It is a requirement to have a university degree or equivalent qualifications or certifications.

The maximum number of work permits for third country nationals per company is set at 70% of all employees over a period of 5 years. The permits are issued within 1 month and last up to 3 years, and employees’ spouses  can also access the labour market in Cyprus.

Digital Nomad Visa

Eligibility

Via the Digital Nomad Visa Program non-EU nationals, active as self-employed, salaried or on a freelance basis can apply for the right to live and work in Cyprus. The applicants must work remotely using information technology and communicate remotely with clients and employers outside Cyprus.

Residence status

A Digital Nomad has the right to stay in Cyprus for a period of up to 1 year, with the right to renew for another 2 years. During the stay in Cyprus the spouse or partner and any minor family members, cannot provide dependent work or engage in any kind of employment activity in the country. If they reside in the Republic for a time period that exceeds 183 days within the same tax year, then they are considered as tax residents of Cyprus.

Each digital nomad must have a salary of at least €3,500 euros per month, medical coverage and a clean criminal record from their country of residence.

Extension of the tax exemption that applies to employees in the Republic

As specified in the strategy, tax exemptions that apply to foreign highly skilled employees in the Republic are extended up to a period of 17 years.

The existing tax exemption has also been extended to cover new resident employees with an annual salary from employment of €55,000 or more. They are entitled to a tax exemption of 50%.

Increased tax deduction (compared to the actual one) for research and development expenses

Research and development expenses are subject to an increased discount. Eligible research and development expenses can be deducted from taxable income equal to 120% of the actual spend.

Application for acquisition of Cypriot citizenship

There is now the option to apply for the Cypriot citizenship after a period of 5 years of residence and work in the Republic of Cyprus, instead of the 7 years that was applicable before.

Additional Information

For further information about the attractive tax regime for individuals in Cyprus, please contact Robert Homem or Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Investing into Africa – Efficient Route to Market Using a Guernsey/South African Structure

Posted on | by Hristina Georgieva

The African Continent offers vast opportunities for inward investment and is of great interest to international investors searching for growth, particularly in relation to venture capital, private equity and infrastructure strategies.

Guernsey has an extensive track record in providing a stable, globally recognised and flexible regime for these strategies and Dixcart has seen a steady stream of enquiries for structuring investments into the African Continent for Family Offices, Private Equity Houses, South African Fund Managers and groups of mutual interest investors.

Structures are bespoke and often include an ESG (environment, social and governance) investment strategy. Both corporate and fund vehicles are typically used, with Private Investment Funds (PIFs) the favoured fund structure.

This note looks at a Guernsey Fund structure with the consideration of a South African investment company subsidiary.  The principal is the same for a Guernsey holding company for international investors where a regulated Fund is not required.

Inward Investment: The Private Investment Fund (PIF)

For Fund Managers, there are compelling reasons to use a Guernsey fund structure due to the speed they can be launched, the competitive cost to establish and maintain, and the practicality of closely aligned time zones.

Guernsey is home to more than 850 investment funds with AUM of £310bn for Promoters, ranging from well-established global investment managers to boutique managers.

The newly revised Guernsey Private Investment Fund (PIF) structure provides incredible flexibility for:

  • the speed it can be brought to market
  • the streamlining of regulation with reliance being placed on the Designated Administrator, and
  • there being three routes to market, tailored to suit different investor types

A PIF is limited to a maximum of 50 investors which is rarely an issue for these funds as they typically accommodate a limited number of investors.  For further information on the three PIF types please click here, for the Qualifying Investor PIF please click here, and for the Family Relationship PIF please click here.

The Qualifying Investor PIF is a quick and efficient way for Fund Managers to access international institutional investors and raise capital for their African strategies.

Whilst Mauritius has often been considered a natural fit for access to the African market due to its treaty networks, the combination of a PIF with an African Investment Structure beneath, offers an attractive alternative for tax efficient investing across much of Africa and is discussed further below.

The African Investment Structure (AIS)

(For investing outside of South Africa)

The African Investment Structure (AIS) would be a company incorporated in South Africa as a 100% subsidiary of the Guernsey PIF and be exclusively “resident” for South African tax purposes. This is non-negotiable in order to provide full access to tax treaty relief.

There should ideally be a single 100% foreign shareholder (i.e. the Guernsey PIF), with no requirement for this shareholder to be from a country with an existing South African Double Tax Agreement. However multiple shareholders, both foreign and local, are permissible.

This must be an active investment company, so the structure needs to affect the foreign investment as soon as possible. The predominant value of the company’s assets must represent interests in non-South African investments, with the income apportionment dependant on the AIS’s anticipated annual turnover.

The ideal income mix would be a combination of interest, dividends and service fees. Whilst other classes of income are allowed under the AIS, these would be dealt with on a case-by-case basis working alongside an independent and recognised tax advisor in South Africa.

Highlights

  • Full access to South Africa’s DTA network (23 DTA’s with African countries)
  • Mitigation of SA transfer pricing provisions to related party transactions, including:
    • Intra-group financial assistance
    • Licensing of IP, involving the SA Investment Company
  • SA’s Controlling Foreign Company (CFC) provisions are navigated to result in a nil net income imputation for the AIS
  • The AIS can elect a functional currency other than the Rand
  • The AIS may not be subject to further scrutiny on an exchange control front

Benefit Synopsis

The exact benefits will depend on the nature and location of each investment, but may be summarised as follows:

  • Interest, dividends, and service fees can be received by the AIS from the foreign investment with a reduced or zero withholding tax, considering South Africa Double Tax Treaty provisions
  • Dividends either paid out or received by the AIS, may be subject to relief, to the extent of either minimization, or a neutral tax effect.  This relief can make up for the lack of a treaty between South Africa and Guernsey
  • Disposals of participating holdings by the AIS are not subject to Capital Gains Tax
  • There is no South African tax on an optimally designed structure

Conclusion

The PIF with an AIS subsidiary provides a robust, flexible and efficient structure for PE Houses and Fund Managers for structuring through, to enable their networks of professional and institutional investors to implement their African strategies.

For single investors and Family Offices where a regulated structure is not required, a Guernsey company above the AIS provides the same solution.

Additional Information

For more information on Guernsey, and the investment structures for Africa (or indeed anywhere else in the World) and how Dixcart can help, please contact Steven de Jersey or Bruce Watterson at the Dixcart Guernsey office at: advice.guernsey@dixcart.com and visit our website www.dixcart.com

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

Dixcart Fund Administrators (Guernsey) Limited, Guernsey: Full Protector of Investor Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 68952.

Guernsey – Tax Efficiencies for Individuals, Companies and Funds

Posted on | by Charlotte Clabon

Background

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.

The island of Guernsey is the second largest of the Channel Islands, which are situated in the English Channel close to the French coast of Normandy. Guernsey combines many of the reassuring elements of UK culture with the benefits of living abroad. It is independent from the UK and has its own democratically elected parliament which controls the Island’s laws, budget and levels of taxation.

Taxation of Individuals in Guernsey 

For Guernsey income tax purposes an individual is; ‘resident’, ‘solely resident’ or ‘principally resident’ in Guernsey. The definitions relate primarily to the number of days spent in Guernsey during a tax year and, in many cases, also relate to the days spent in Guernsey in several preceding years, please contact: advice.guernsey@dixcart.com for further information.

Guernsey has its own system of taxation for residents. Individuals have a tax-free allowance of £13,025. Income tax is levied on income in excess of this amount at a rate of 20%, with generous allowances.

‘Principally resident’ and ‘solely resident’ individuals are liable to Guernsey income tax on their worldwide income.

Attractive Tax Caps

There are a number of attractive features of the Guernsey personal taxation regime:

  • ‘Resident only’ individuals are taxed on their worldwide income, or they can elect to be taxed on their Guernsey source income only and pay a standard annual charge of £40,000.
  • Guernsey residents falling under any one of the three residence categories, detailed above, can pay 20% tax on Guernsey source income and cap the liability on non-Guernsey source income at a maximum of £150,000 per annum OR cap the liability on worldwide income at a maximum £300,000 per annum.
  • New residents to Guernsey, who purchase an ‘open market’ property, can enjoy a tax cap of £50,000 per annum on Guernsey source income in the year of arrival and the subsequent three years, as long as the amount of Document Duty paid, in relation to the house purchase, is at least £50,000.

Additional Benefits of the Guernsey Tax Regime

The following taxes are not applicable in Guernsey:

  • No capital gains taxes.
  • No wealth taxes.
  • No inheritance, estate or gift taxes.
  • No VAT or sales taxes.

Immigration to Guernsey

The Dixcart Information Note: Moving to Guernsey – The Benefits and Tax Efficiencies contains additional information about moving to Guernsey. Please contact the Guernsey office if you have any specific questions or require any additional information regarding immigrating to Guernsey: advice.guernsey@dixcart.com

Taxation of Companies and Funds in Guernsey

What are the Advantages Available to Guernsey Companies and Funds?

  • A key advantage for companies registered in Guernsey, is a ‘general’ corporate tax rate of zero.

There are a number of additional advantages:

  • 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.
  • 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.
  • Located in Guernsey, there are 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

A few key points are 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.

  • Directors/Company Secretary

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

  • 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.

  • Annual Validation

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

  • 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.

Taxation of Guernsey Companies and Funds

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

  • Companies pay income tax at the current standard rate of 0% on taxable income.

Income derived from certain businesses, however, may be taxable at a 10% or 20% rate.

Details of Businesses Where a 10% or 20% Corporate Tax Rate is Applicable

Income derived from the following types of 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.

Income derived from the exploitation of property located in Guernsey or received by a publicly regulated utility company, is subject to tax at the higher rate of 20%.

In addition, income from retail businesses carried out in Guernsey, where taxable profits exceed £500,000, and income 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 cannabis plants and/or licensed production of controlled drugs is taxable at 20%.

Further Information

For additional information regarding personal relocation, or the establishment or migration of a company to Guernsey, please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com. 

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

Dixcart Fund Administrators (Guernsey) Limited: Protection of Investors Licence granted by the Guernsey Financial Services Commission

Why Use an Isle of Man Company? What you need to know

Posted on | by Hristina Georgieva

Isle of Man companies provide a flexible vehicle that meet a huge variety of objectives and can be particularly beneficial under the right conditions.

Depending on the circumstances, the Ultimate Beneficial Owner (UBO) and their adviser can utilise Isle of Man companies in everything from corporate structuring and asset protection to wealth and estate planning. The Isle of Man company delivers a tax efficient and globally compliant solution.

In this article we highlight some of the good reasons to consider using Isle of Man companies:

Isle of Man Jurisdictional Benefits

The Isle of Man is an independent Crown Dependency that holds a Moody’s rating of Aa3 Negative, as at 28 October 2022, in line with the UK’s current rating. Companies registered in the Isle of Man benefit from the business-friendly Government, legislative environment and locally set tax regime. In addition, an Isle of Man company can be incorporated in 48 hours or less.

Headline rates of taxation include:

  • 0% Corporate Tax
  • 0% Capital Gains Tax
  • 0% Inheritance Tax
  • 0% Withholding Tax on Dividends
  • Isle of Man companies are able to register for VAT, and businesses in the Isle of Man fall under the UK’s VAT regime.

However, the island offers more than just tax efficiency.  It is OECD compliant and therefore not considered a tax haven and the local environment continues to provide world class professional services to those engaging in international wealth, corporate and estate planning.

You can read more about why the Isle of Man is a jurisdiction of choice, here.

The Flexibility of Isle of Man Companies

Isle of Man companies provide a large degree of flexibility in terms of their constitution and operation, particularly companies incorporated under CA 2006 – although, there can be situations where a more traditional CA 1931 company can be more attractive.

Whilst both types of company are required to maintain a Registered Office in the Isle of Man, must have a Nominated Officer etc. there is a large amount of freedom provided:

Companies Act 1931

Companies Act 2006

No restrictions on trading objects

Minimum of one Shareholder. Can be corporate.
Can have a single share, with no max. Share can hold a par value of as little as £0.01p. No thin capitalisation rules. Can be any currency.Can have a single share, with no max. Share can hold a par value of zero. No thin capitalisation rules. Can be any currency.
Minimum of two Directors. Can be non-resident. Cannot be a corporate.Minimum of one Director. Can be non-resident and can be a corporate.
Company Secretary required. Can be a non-resident and can be a Director.Requires a Registered Agent at all times. Registered Agent is a licensed Isle of Man resident.

Minimal restrictions on the management of dividends and share capital
Requirement to produced Annual Financial Statements, in line with Part 1 of the Companies Act 1982.

Subject to meeting the conditions set out in the Companies (Audit Exemption) Regulations 2007, the Members can unanimously agree to dispense of the requirement for Annual Accounts to be audited where applicable.		No requirement to produce Annual Financial Statements, but it is standard practice to produce such accounts.

No requirement for Annual Accounts to be audited.

Minimal filing and accounting requirements
There is a requirement to hold an Annual General Meeting, but private companies can dispense with this requirement in line with the Companies Act 1931 (Dispensation For Private Companies) (Annual General Meeting) Regulations 2010.No requirement to hold Annual General Meetings.

Furthermore, it is possible for a CA 1931 company to apply to re-register as a CA 2006 company and vice versa, since the commencement of the Companies (Amendment) Act 2021. This provides UBOs and advisers with ultimate flexibility with regards to the constitution of the company. You can read more about the effect of the Companies (Amendment) Act 2021 here.

You can read more about Isle of Man companies incorporated under the Companies Act 1931 here. Alternatively, you can read more about Isle of Man companies incorporated under the Companies Act 2006 here.

Dixcart have significant experience in assisting clients and their advisers with their corporate planning and can support them to make the most appropriate decisions regarding the choice of vehicle.

Isle of Man Companies and Disclosure of Beneficial Ownership

Central registers of beneficial ownership were introduced as a mandatory requirement for Member States and jurisdictions within the European Economic Area by Article 30 of the Fourth EU Money Laundering Directive (4MLD), coming into force in 2017. The Isle of Man gave affect to this Directive through the introduction of the Beneficial Ownership Act 2017.

Under the Beneficial Ownership Act 2017, where the UBO owns more than 25% of the legal entity the person is a Registrable Beneficial Owner, and the Nominated Officer must submit the Required Details to the Registrar to be held in the Isle of Man Database of Beneficial Ownership. The Register is not publicly available and is limited to competent Authorities and relevant organisations who conduct AML checks e.g. criminal enforcement bureaus such as the Financial Investigations Unit etc.

Further, you may be aware of a recent EU Court of Justice (CJEU) Grand Chamber ruling concerning the balancing the proportionality of achieving AML objectives and privacy rights. The judgement stemmed from a Luxembourg case, whereby a Luxembourg company and its UBO made an application to prevent information concerning beneficial ownership from being made publicly available – this was rejected by the Luxembourg RBO. Following this, the company and UBO began legal action relating to both the decision and legality of the legislative powers allowing this to take place.

The law gave affect to the Fifth EU Money Laundering Directive (5MLD). 5MLD amended Art 30 of 4MLD to make provision for any member of the general public to be entitled to access information concerning beneficial ownership. The Grand Chamber found that the legislation was indeed unlawful, and disproportionate in its derogation from the European Union’s Charter of Fundamental Rights – namely Art 7 the right to respect for private and family life, and Art 8 concerning the protection of personal data.

The Crown Dependencies’ financial regulators have released a joint statement in late December 2022 in response to this landmark CJEU Grand Chamber ruling. They intend to seek specialist legal advice regarding how to proceed in implementing 5MLD compliant legislation, given the outcome of the above case. The Crown Dependencies have stated that they intend to adopt legislation in their respective jurisdictions as soon as possible after receiving the expert legal opinion, which is expected to be completed in early 2023. Whilst the regulators are clearly committed to honouring their commitments to openness and transparency, the statement does not provide any consideration of how the judgement will affect any interpretation of 5MLD or the legality of introducing measures such as a public register. You can find the Joint Statement: Crown Dependencies on access to registers of beneficial ownership of companies here.

Redomiciling an Existing Company to the Isle of Man

If there is an existing legal entity, you may be able to redomicile it to the Isle of Man and reregister it under Companies Act 1931 or Companies Act 2006.

When an incorporated entity is redomiciled to the Isle of Man, the result is a continuation of the same body corporate with all of its assets, liabilities and obligations remaining i.e. it is not a new entity. However, once imported, the laws and regulations of the Isle of Man apply.

It is important to note that this process can only be undertaken if the jurisdiction that the legal entity is exiting has the required legislative framework in place. Of course, the Isle of Man possess such legislation. For example, conversely there is no such Statute in the UK to support redomiciliation, and therefore UK companies cannot be redomiciled to any jurisdiction.

Further, it is necessary for the UBO and/or adviser to be aware of the potential licensing requirements if they wish to continue certain business activities after redomiciliation.

Additionally, it is also necessary to ensure your company’s Registered Name, or a derivative is available – if available, it can be reserved. In such cases, we would advise contacting Dixcart in the first instance. For further information on choosing a company name, you can read the Company and Business Names Etc Act here and you can check the name’s availability here.

There is a myriad of reasons why a UBO or their adviser may seek to move their company to the Isle of Man. For example, where an entity has been incorporated in a jurisdiction that was previously attractive, but has since fallen out of favour, this can make administering the company operationally difficult owing to the implicit risks of that jurisdiction. You can find a risk rated list of jurisdictions here (Jurisdictions in Lists A, B, C and D concerning AML/CFT risks).

The Isle of Man is regarded as a compliant, stable and well-regulated jurisdiction, and is therefore considered a leading international destination for business. For example, due to the Isle of Man being well-regulated and transparent, those companies that wish to structure debt finance can be looked on favourably by banks, owing to facilities such as a public register of mortgages and other charges. You can read more about why the Isle of Man is a Preferred Jurisdiction for Corporate Structuring here.

Dixcart are well placed to assist with the redomiciliation of all incorporated vehicles.

Isle of Man Companies and Banking

From carrying out its activities to meeting its liabilities, reliable banking arrangements are essential. Where a company is not incorporated in a reputable jurisdiction, or worse a blacklisted jurisdiction, this can cause significant operational issues. Further, where the company does not bank with a trusted institution, this can also create operational issues.

The banks take a risk-based approach, considering various factors upon application e.g. jurisdictions, connected parties, source of funds and wealth, nature of activity, volume of transactions etc. all of which will influence the acceptability of the application. The resulting risk rating will also affect the level of fees payable to the bank.

In addition, high street banks will not provide services to Isle of Man companies that do not have a resident Director. Therefore, in the circumstances where the UBO and/or adviser do not wish Dixcart to provide Isle of Man Directors, other options will have to be considered – for example, do you have existing banking relationships within other jurisdictions?

Dixcart has good relationships with all of the banks on the Isle of Man and can facilitate banking services on fully managed entities. In circumstances where Dixcart are not providing Directors, we can make appropriate introductions.

Taxation of Isle of Man Companies

Tax advice is almost always essential for non-Isle of Man residents, when considering incorporating an Isle of Man company. There are so many factors at play – what activity is the company carrying out? Are there Economic Substance requirements to be met? How are foreign companies treated within the UBOs local jurisdiction? How involved can they be with the management and control of the company? Is the company conducting cross-border transactions? Etc.

Furthermore, as a compliant whitelisted jurisdiction, the Isle of Man has signed up to a number of information exchange and double-taxation agreements. There can be reporting requirements that must be taken into account.

As you can see, even considering these basic questions there are a lot of things to clarify, much of which can have complex tax implications and require professional advice. Generally, the place to start will be to take advice in the UBO’s local jurisdiction. Whilst our Isle of Man office does not provide tax advice, we have built up a network of contacts over our 30+ years of trading, and will be able to make an appropriate introduction to an adviser local to the UBO.

How Are Isle of Man Companies Used?

Isle of Man companies have a huge variety of uses, and can be an option in most circumstances where the planning allows for the use of the Isle of Man. Below, I have covered a number of areas where Isle of Man companies are commonly utilised.

Holding Companies

A large range of capital, from participations in other companies to investment portfolios and luxury assets, can benefit from being owned via an Isle of Man company, due to the local legislative environment and tax regime. In such situations it is particularly important to ensure that placing the assets with the Isle of Man company will not attract any unintended taxation or liabilities – this needs to be considered at outset. Often the question can be whether the cost of maintaining and administering an Isle of Man company will outweigh the benefits or vice versa.

Below I have noted some of the most common types of Isle of Man holding companies:

  • Equity Holding: Isle of Man companies offer a great vehicle for holding participations in other companies. This can take the form of a personal portfolio of stocks and shares, or even the Isle of Man company acting as TopCo of a group of companies. Regardless, the UBO will need to confirm whether the Isle of Man company’s activity falls within a Relevant Sector for the purposes of Economic Substance legislation – contained in Part 6A Income Tax Act 1970.

Under Economic Substance, if an Isle of Man company’s sole function is to acquire and hold controlling equity positions in other companies i.e. more than 50% of the company’s share capital, then the company is considered a Pure Equity Holding Company. A Pure Equity Holding Company must demonstrate that its Core Income Generating Activities (CIGA) occur on the Isle of Man. The required CIGA is usually met through the provision of Directors and other management services in the Isle of Man, enabling Adequate Substance to be met.

However, if the Isle of Man company meets these requirements but has no income i.e. no dividends are paid up from the equity holdings, then it falls out of Economic Substance.

You can find the latest guidance on Economic Substance here.

  • Real Estate Property Holding: Isle of Man companies are often used to purchase, develop and/or generate income from Real Estate. This option is particularly attractive in circumstances where the UBOs are in a number of geographic locations or outside of the jurisdiction being invested into.
  • Yacht Holding: Isle of Man companies are often used for the management of luxury assets. We have particular expertise in Superyacht management structures, whereby we work with industry professionals to deliver a ringfenced and efficient corporate ownership structure. You can read more about our superyacht services here.
  • Honourable Mentions: as noted above, in the right circumstances it can be beneficial to hold almost any asset via an Isle of Man company. Other typical assets held by Isle of Man companies include; intellectual property, aircraft, and tangible investment property such as works of art, wine etc.

International Structuring

The Isle of Man provides a great non-EU base from which to structure companies that operate internationally. There are several instances where this makes particular sense:

  • Geographic diversity – The company may have Shareholders, workforce or activities that are located within multiple jurisdictions or trade areas;
  • Restructuring – An Isle of Man company may be established for the purposes of carrying out acquisitions and mergers. Further where a TopCo needs to relocate to a well-regarded jurisdiction, the Isle of Man company offers a great option for redomiciliation.
  • Equity Finance – The company and or its subsidiaries may wish to commoditise their assets to attract new investment i.e. converting immovable assets, such as land and real estate, into shares or debt instruments. New investors would purchase positions within the new TopCo, thereby providing the group of companies with a source of capital for growth etc.
  • Access to markets – As a well-regulated and reputable jurisdiction, the Isle of Man provides a platform for certain types of regulated business to attain and manage licenses to provide international activities e.g. eGaming.

Estate Planning

Trusts have been the mainstay of estate planning for generations, delivering a degree of certainty and protection to Settlors and their assets. However, a Trust is not an incorporated entity and therefore has no separate legal personality and limited liability – the Trustees hold legal title of the assets and are responsible for the Trust’s liabilities. Additionally, the Trust cannot engage in commercial activity, and must do so via a company. Further, Trusts are not recognised in all jurisdictions, and therefore predominantly attractive to Settlors from Common Law jurisdictions. You can read more about Isle of Man Trusts in this series of articles, and this accompanying video presentation.

In recent times, many offshore jurisdictions, such as the Isle of Man and Channel Islands, have introduced legislation to support the use of Foundations. Foundations provide an incorporated vehicle that is comparable to a Trust but possesses separate legal personality and limited liability – albeit there is no share capital. The Foundation is traditionally used within Civil Law jurisdictions. Therefore, the tax treatment of a Foundation is less certain within Common Law jurisdictions such as the UK, and seems to be assessed on a case-by-case basis – in part governed by the purpose of establishment i.e. if formed to carry out company activities it may be treated as per a company. As with the Trust, the Foundation cannot engage in commercial activity, and must do so via a company. You can read more about Isle of Man Foundations in this series of articles, and this accompanying video presentation.

Isle of Man companies, incorporated under the CA 2006, can be used as a viable alternative to both Trusts and Foundations. Delivering an entity with separate legal personality, limited liability and share capital. Further, companies, unlike Trusts, are recognised as legal structures throughout the world and can engage in commercial activity directly. Therefore, given the right circumstances, an Isle of Man company can present a more efficient option than a Trust or Foundation.

The UBO, or Founder, transfers their assets to the Isle of Man company. Transferring those assets to the Isle of Man company can have tax implications and as such will require tax advice within the Founder’s jurisdiction of domicile and tax residency.

Through the issuance of different classes of share, various powers and rights can be attributed to different parties. For example, issuing a class of shares to the Founder can provide them with voting rights and therefore increased control during their lifetime. This mechanism can also provide the beneficiaries with access to income and/or capital and the appointed Directors with management rights. The class rights would be detailed within the Articles of Association. It is important to note that where the Founder possesses voting rights, this can have tax implications, even though there is no right to participate in income or capital.

Dixcart can provide for the provision of Trustees, Council Members and Directors as required by the client and their adviser, and are well placed to assist in all international planning.

How Dixcart Can Help

Our Isle of Man office has been providing effective structuring and efficient administration for companies for over 30 years and is well placed to assist with all Isle of Man planning.

We have developed an extensive range of offerings which can be tailored to meet the needs of  clients and their advisers. Our in-house experts and senior employees are professionally qualified, with a wealth of experience – this means that, from pre-incorporation planning and advice to the day-to-day management of the company and troubleshooting issues, we can support your goals at every stage.

Additional Information

If you require further information regarding the use of Offshore Trusts, or Isle of Man structures, please feel free to get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

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

Ceasing to be UK Tax Resident – Don’t Get it Wrong!

Posted on | by Charlotte Clabon

Introduction

It is January 2023 and two people are sitting at the departure gate at Heathrow waiting for their (inevitably) delayed flight to the Bahamas. They start a conversation and talk about why they are flying to this Caribbean island. 

Person A, Mrs Sunseeker, explains to Person B, that she had lived in the UK for a long time as a resident “non-dom,” but that changes to the tax rules for longer term residents had meant that she had decided to leave the UK and cease being tax resident; “My friend told me I just had to spend fewer than 90 days each year in the UK.” she declares.

Fortunately for Mrs Sunseeker, Person B, Mrs Tax, is, by nominative determinism, a tax adviser and explains that the old ‘90 day’ rule does not apply anymore and suggests that she takes a look at the UK statutory residence test.

Background for Mrs Sunseeker

Mrs Sunseeker moved to the UK in the early 2000s, as a student.  After graduating, she was offered a job in the financial services industry. She has been very successful and accumulated significant personal wealth. 

In 2010, she inherited the shares of a large family business, back home in Dubai, which started to generate a regular dividend income of around £5 million a year which she has kept in her bank account in Dubai. As a UK remittance basis of taxation user, the Dubai dividends have not been taxed in the UK, as Mrs Sunseeker never remitted them into the UK. 

However, with the UK non-dom rules changing in 2017, remaining in the UK was going to be just too expensive.  She has therefore decided to move to a warm country.  Mrs Sunseeker is planning to carry on working for the same employer (taking advantage the fact that her firm realises she can work remotely) and, indeed, is likely to be working very hard on the days that she returns to the UK.

She is married. Her husband is British and does not want to spend as much time outside of the UK as his wife. His only source of income is in the UK and he still enjoys his work.  As he is going to stay, they will keep their home and Mrs Sunseeker will live there when she returns to visit him.

What is Mrs Sunseeker’s Tax Status and Why?

While waiting for the flight, Mrs Sunseeker takes a look at the residence test rules.  She realises that the first two parts of the test, the ‘Automatic Tests’ do not apply to her and reads on to the ‘Sufficient Ties’ section. Mrs Sunseeker has four such ties, or connections:

  • Spent more than 90 days in the UK in both of the previous two tax years;
  • Will have available accommodation in the UK;
  • Has a UK tax resident spouse and will continue to do so;
  • Will work in the UK for more than 40 days under the definition of the test.

What Will the Tax Impact Be?

As she has four ties, Mrs Sunseeker will be tax resident in the UK, for at least the first two years after she leaves, by spending just 16 days per year in the UK, far lower than the 90 she had anticipated.

The next time she receives her large dividend, she would still be considered UK tax resident and will suffer UK income tax. It may be even worse, if she has not paid this tax on time she would receive a late payment penalty, which is quite likely because she no longer believed she was UK tax resident and she could be liable for penalties under the ‘offshore assets’ rules too.

The problem would become further compounded were Mrs Sunseeker to sell her shares in the family business in Dubai for a large gain, while she believed she was not UK resident.

Other Considerations

Please note for completeness, that the UK ‘split year rules’ are not being considered, nor are the tax implications of Mrs Sunseeker continuing to receive a salary for work she undertakes when in the UK. Dixcart, would of course advise on these, where relevant.  The Bahamas does not have a double tax treaty with the UK, and there is therefore no tie breaker clause to consider in this scenario either.

So, What Could Mrs Sunseeker Do?

Can you believe it, the flight is still delayed!

Mrs Sunseeker picks up her phone and calls Mr Sunseeker. Whilst he loves his job, he now understands that there will be a high tax cost if his wife does not properly exit UK tax residence.  He packs his things and heads to the airport. While on his way, he calls his employer and resigns, and then calls an estate agent to list the home for immediate rental.

The repercussions of the two actions above, would be to reduce the number of UK ties that Mrs Sunseeker has, from four to two:

  • 90 days in both of the previous two tax years; and
  • Work tie (assuming she still works, when back in the UK).

Now she would be able to spend up to 90 days in the UK per year and lose her UK tax residence status.

Very lucky!

Whilst everyone else on the flight was cursing the delay, Mrs Sunseeker had struck lucky.  However, had Mr and Mrs Sunseeker started to plan earlier than at the airport departure lounge, there would have been more options to consider around their employment situation and their home status, and they might have avoided having to take such extreme steps.

How Can Dixcart Help?

Dixcart’s team of lawyers, accountants, immigration and tax professionals would have assisted Mr and Mrs Sunseeker with:

  • Pre-departure tax planning;
  • Ongoing tax planning, to ensure that UK tax residence is not accidentally acquired again in the future;
  • Employment law advice for both individuals in relation to their ongoing employment contracts, should they wish to continue to work, as well as related UK tax advice regarding the income being earned;
  • Application for Indefinite Leave to Remain before they leave the UK, so they can be sure that they can return in the future.

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.

Dixcart UK, is a combined accounting, legal, tax and immigration firm.  We are well placed to provide these services to international groups and families with members in the UK. The combined expertise that we provide from one building, means that we work efficiently and coordinate a variety of professional advisers, which is key for families and businesses with cross-border activities.

By working as one professional team, the information we obtain from providing a service, can be shared appropriately with other members of the team, so that you do not need to have the same conversation twice!  We are ideally placed to assist in situations as detailed in the case study above. We can provide cost effective professional services for companies and individuals and also offer in-house expertise to provide assistance with more complex legal and tax matters.

The Swiss Social Security System Explained

Posted on | by Hristina Georgieva

Background

Swiss companies are very popular and it is important to understand the Swiss Social Security System when considering the establishment of a company in this attractive jurisdiction.

The Swiss social security system is unique and relatively complex. The assistance of an expert such as Dixcart is recommended, to guide you through the process and to ensure that you are fulfilling all of your obligations.

Attractive Protections for Employees

Switzerland has a close-knit network of different types of ‘social’ insurance, which offer individuals living and working in the country, and their dependants, a broad protection against financial risks, which could not be covered without this insurance.

Who is Subject to the Swiss Social Security System?

Anyone working or living in Switzerland is subject to the Swiss Social Security System.

The Five Areas

The Swiss social security system is divided into five areas:

  1. Old-age, survivors and invalidity (the three-pillar system).
  2. Sickness and accidents.
  3. Income compensation allowances, in the event of compulsory service, maternity or paternity leave.
  4. Unemployment benefits.
  5. Family allowances.
  1. Old Age, Survivors and Invalidity

The Swiss social security system covers the risks of old age, death and disability and is built on the three pillars of; old-age, survivors and invalidity

The first Pillar (Pillar 1) is a mandatory state pension plan for everyone. It aims to cover basic living costs.

The second Pillar (Pillar 2) is compulsory for salaried persons. It feeds into “Pillar 1” to maintain the previous standard of living for individuals, to provide them with an income equal to approximately 60% of that earned pre-retirement. The law sets the minimum statutory benefits. Companies and other institutions may establish benefits exceeding this minimum.

“Pillar 1” and “Pillar 2” are compulsory and dealt with by the employer, “Pillar 3” is a voluntary individual process organised directly with an insurance company or bank. This scheme benefits from tax incentives.

  1. Health and Accidents

Swiss health insurance is mandatory for everyone living in Switzerland for longer than three months. The insurance premiums are considered a private cost and are rarely covered by the employer.

Accident insurance is compulsory for everyone with gainful employment in Switzerland. It covers the financial consequences of accidents at work and outside of work.

In other cases, the risk is covered under private health insurance.

  1. Compulsory Military Service, Maternity and Paternity Leave

Anyone living or working in Switzerland is insured. It partially covers loss of earnings arising from the performance of military or civil protection services, or during maternity and paternity leave.

  1. Unemployment Benefits

In principle, anyone who has been gainfully employed is covered by the unemployment insurance scheme. Self-employed individuals are not covered.

  1. Family Allowances

The family allowance is a provision to compensate for the costs incurred by raising a family.

Contributions Payment.

The benefits paid out by the different types of social security are in principle financed by contributions levied on income.

Employees and employers make contributions in equal parts. The employer’s contribution should at least equal the employee’s contribution. The employer pays the total amount to the insurance company and deducts the employee’s contribution from their salary.

The following are exceptions to the above:

  • Family Allowances, which are almost exclusively financed by employers.
  • Private Health Insurance, which is paid by each individual.
  • “Pillar 3” which is voluntary and supported by each insurer.

Please note that self-employed individuals make full contributions themselves to Swiss Social Security.

Switzerland and International Social Security

Switzerland has concluded bilateral and multilateral social security agreements with EU and EFTA member states, as well as with a number of other countries. These social security agreements determine the rights and obligations of citizens in relation to the social security system of another signatory state. The aim is to ensure the equal treatment of citizens from both Switzerland and the other state.

Switzerland is chosen by many international companies as a base for their European or global cross-border business activities, largely because of its advantageous investment climate. Swiss employment law is known as being more liberal than other jurisdictions. While the fundamental principle of contractual freedom is predominant, it is important to understand the statutory minimal standard and the social protection mechanisms provided by Swiss law.

How Can We Help?

The Dixcart office in Switzerland can assist you with all of the following:

  1. Preparing and supporting the Swiss Social Security process.
  2. Coordinating the contribution payment via the payroll.
  3. Relevant administrative work.
  4. Clarifying social security obligations, particularly in an international context.

Please contact Christine Breitler, who will be delighted to put you in contact with the appropriate expert in the Dixcart Swiss office: advice.switzerland@dixcart.com

Enhanced Benefits St Kitts & Nevis Citizenship By Investment Programme: Limited Time Period

Posted on | by Hristina Georgieva

Background

Changes have been made to the St Kitts & Nevis Citizenship by Investment Programme (CBI), for a limited time period of six months: 1 January 2023 – 30 June 2023.

Three benefits are available during this limited time offer period: 

  • Contributions that need to be paid by applicants to the Sustainable Growth Fund (SGF) have been reduced.
  • Government fees for a spouse and dependants respectively, are enhanced compared to fees post the start of July 2023.
  • The time limit to process applications has been decreased from 90 days to 60 days.

Contribution to the Sustainable Growth Fund

Contribution costs to the Sustainable Growth Fund (SGF), for the limited offer time period are confirmed as:

  • Main applicant: US$125,000
  • Main applicant and a spouse: US$150,000
  • Main applicant, spouse and two dependants: US$170,000
  • Each additional dependant under 18: US$10,000
  • Each additional dependant over 18: US$25,000

These costs are US$25,000 less for each of the categories of; main applicant, main applicant and spouse, and a family of four, compared to the contribution costs as from the start of July 2023.

Real Estate Investment Option

From January 2023 onwards, only Approved Developments are eligible for the Real Estate Investment Option under the new CBI regime.

The minimum investment amount remains US$200,000.

However, there are now clear guidelines as to what cannot be included as part of the investment costs, a number of fees are specifically excluded. Please contact Dixcart Nevis, for further details: advice.nevis@dixcart.com.

Private Homes Sale Investment Option

The Private Home Sale Investment Option is retained as a permanent investment option under the CBI Programme, where the minimum investment per application is US$400,000 in a private single-family dwelling house, designated as an Approved Private Home.

  An Approved Private Home is subject to the following restrictions:

  • It cannot be resold within 7 years;
  • It cannot be resold to any other CBI applicant; and
  • It cannot be converted into apartments or condominiums.

Public Good Investment Option

As from January 2023, the Alternative Investment Option (AIO) has been replaced with, the newly introduced, Public Good Investment Option (PGIO). The minimum investment per application is US$175,000 in an Approved Public Good Project, payable to an Approved Public Good Investor. 

On designating an investor as an Approved Public Good Investor, the Government of St Kitts and Nevis will specify; the number of public good investment units of the Approved Public Good Project to be sold, the schedule of completion and distribution of the units, and the corresponding escrow drawdown process.

Government Fees for CBI Applications 

From January 2023 onwards, for non-accelerated CBI applications under the Real Estate Investment Option, Private Home Sale Investment Option and the PGIO, the government fees payable upon ‘approval-in-principle’ are as follows: 

  • Main applicant: US$25,000 
  • Spouse: US$15,000 
  • Each dependant child or qualified dependant under 18: US$10,000 
  • Each dependant aged 18 or above or qualified dependant: US$15,000 

The fee for the addition of a spouse will increase to: US$20,000, as from 1 July 2023.

For accelerated CBI applications, the enhanced government fees payable, upon ‘approval-in-principle,’ for the limited time period: 1 January 2023 – 30 June 2023 are:

  • Main applicant: US$42,500
  • Spouse: US$32,500
  • Each dependant child or other qualified dependant under 18: US$22,500
  • Each dependant aged 18 or above or qualified dependant: US$32,500

The fees for the addition of a spouse and/or other qualified dependant will increase to: US$37,500, as from 1 July 2023.

Additional Information

Please contact John Mellor at the Dixcart office in Nevis for additional information regarding the benefits of this limited time offer and how you can make an application under the St Kitts & Nevis CBI programme: advice.nevis@dixcart.com.

Formation of Companies in Guernsey

Posted on | by Charlotte Clabon

Why Use Guernsey?

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.

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

  • A general rate of tax payable by Guernsey companies of zero*.

*Generally, the rate of corporation tax payable by a Guernsey company is 0%.

There are certain limited exceptions when a 10% or 20% rate of tax apply. Please contact the Dixcart office in Guernsey, for further details: advice.guernsey@dixcart.com.

  • 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 £150,000, 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 31st December of each year. The Annual Validation must be delivered to the Registry by 31st 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

 

Establishing a Trust in Malta and Why it can be so Beneficial

Posted on | by Hristina Georgieva

Background: Malta Trusts

With the Great Wealth Transfer currently taking place, a Trust is a vital tool when it comes to succession and estate planning. A Trust is defined as a binding obligation between a settlor and trustee or trustees. There is an agreement that stipulates the transfer of the legal ownership of  property by the settlor to the trustees, for purposes of management and for the benefit of the nominated beneficiaries.

There are two types of Trust which are commonly utilised in Malta, depending on the specific needs of the individuals and desired purpose of the Trust:

  • Fixed Interest Trust – the trustee has no control over the interest to be given to the beneficiaries. The Trust therefore defines the interest.
  • Discretionary Trust – the more common type of Trust, where the trustee defines the interest issued to the beneficiaries.

Why are Trusts the Best Structure for Asset Preservation and Succession Planning?

There are several reasons as to why Trusts are effective structures for asset protection and succession planning, including:

  • To preserve and generate family wealth in a tax efficient manner, avoiding the division of the assets into smaller and less effective shares in each generation.
  • The assets of the trust are segregated from the personal assets of the settlor hence, there is a further layer of protection against insolvency or bankruptcy.
  • The settlor’s creditors have no recourse against the property settled into the Trust.

When considering Maltese Trusts:

Malta is one, of a minority of  jurisdictions, where the legal system provides for both Trusts and Foundations.  A Trust can remain active for a period of up to 125 years from the establishment date, a duration which is documented in the Trust Instrument.

  • Maltese Trusts can either be tax neutral, or be taxed as companies – income taxed at 35% and the beneficiaries will receive 6/7 refund on active income and 5/7 refund on passive income, as long as they are not resident in Malta.
  • Lower Set Up Fees to establish a Trust in Malta. Significantly lower administration and set up costs are needed, compared to several other countries. Costs such as; audit fees, legal fees, and trust management fees are much lower in Malta, while the professional services provided, using a firm such as Dixcart, are of a high standard.

Key Parties to a Trust

The comprehensive definition of a Trust recognises three elements, which are; the trustee, beneficiary, and the settlor. The trustee and beneficiary are defined as the key components of a Trust in Malta, while the settlor is the third party that establishes the property in a Trust.

The Settlor – The person who makes the Trust, and provides the trust property or the individual that makes a disposition from the Trust.

The Trustee – Legal or natural person, holding the property or to whom the property is bestowed within the terms of the trust.

The Beneficiary – The person, or persons, entitled to benefit under the Trust.

The Protector – Can be an additional party introduced by the settlor as one who holds a trustworthy position, such as a family associate, lawyer, or member. Their roles and powers may include, but not be limited to, acting as an investment advisor, having the ability to remove trustees at any time, and to appoint additional or new trustees to the trust.

Different Types of Trust in Malta

Malta Trust Law provides for the different types of Trust, that can be found in most traditional trust jurisdictions, including the following:

  • Charitable Trusts
  • Spendthrift Trusts
  • Discretionary Trusts
  • Fixed Interest Trusts
  • Unit Trusts
  • Accumulation and Maintenance Trusts

Taxation of a Trust

The taxation of income attributable to a Trust and all matters relating to taxation on the settlement, distribution and reversion of property settled in a Trust, are regulated by the Income Tax Act (Chapter 123 Laws of Malta).

It is possible to elect for Trusts to be transparent for tax purposes, in the sense that income attributable to a trust is not charged to tax in the hands of the trustee, if it is distributed to a beneficiary. In addition, when all of the beneficiaries of a trust are not resident in Malta and when  the income attributable to a Trust does not arise in Malta, there is no tax impact under Maltese tax law. Beneficiaries are charged to tax on income distributed by the trustees, in the jurisdiction where they are resident.

Dixcart as Trustees

Dixcart has provided trustee and related trust services in; Cyprus, Guernsey, the Isle of Man, Malta, Nevis, and Switzerland for over 35 years and has extensive experience in the formation and administration of trusts.

Dixcart Malta can provide trust services through its wholly owned group company Elise Trustees Limited, which is licensed to act as a trustee by the Malta Financial Services Authority.

Additional Information

For additional information regarding Trusts in Malta and the advantages that they offer, speak to Jonathan Vassallo in the Malta office: advice.malta@dixcart.com