Historically, Swiss companies have enjoyed a zero tax regime for capital gains and dividend income.
Trading companies, however, have always attracted a local canton (region) tax rate. The new tax changes focus on trading profits.
New Corporate Tax Rate – Geneva
As from January 2020, the corporate tax rate (combined federal and cantonal tax) for all companies in Geneva, will be 13.99%.
The Swiss federal tax rate is consistent but corporate tax rates (federal tax, plus cantonal tax) will vary across different Swiss cantons, depending on the specific cantonal tax rates approved in the referendums, which took place in May 2019.
Background
The European Union (EU) gave Switzerland until the end of 2018 to abolish a number of tax privileges that are not internationally acceptable. The main objective of the reforms is to achieve this while retaining the international attractiveness of the Swiss Corporate Tax Regime
On 28 September 2018, the final draft of the ‘Federal Act on Tax Reform Financing’ (“TRAF”) was approved by the Swiss Parliament.
Results of the Referendum
The referendum on TRAF took place on 19 May 2019, and the new Law is to be implemented on 1 January 2020.
A large majority of Swiss voters accepted the 2020 Swiss federal tax reforms and a large majority of Geneva voters also accepted the Geneva cantonal tax reforms (each canton had its own vote on its specific cantonal tax reforms).
Summary of Principles
At the federal level, the profit allocation rules of principal companies and Swiss finance branches are to be repealed.
At the cantonal level, tax privileges for holding companies, domicile companies and mixed companies will be abolished.
Patent Box
Net profit from domestic and foreign patents are to be taxed separately with a maximum reduction of 90% (precise rate subject to cantonal discretion). This Patent Box Regime meets the OECD2 standard and the 90% maximum relief is mandatory at the cantonal level.
Before the Patent Box is applied for the first time, the corresponding tax deducted R&D expenditures must be recaptured and taxed.
R&D Super Deduction
An R&D super deduction of 50% for domestic R&D is optional, at the cantonal level.
Additional Measures
Overall tax relief of 70% is mandatory at the cantonal level; the patent box, R&D super deduction and a notional interest deduction (NID), in addition to possible depreciations from an early transition from ‘privileged’ to ‘ordinary’ taxation, are subject to an overall tax relief of 70%.
Extension of the flat-rate tax credits on the permanent establishments of foreign companies; Swiss permanent establishments of foreign companies will, in most circumstances, be able to claim withholding tax on income from third countries, with a flat-rate tax credit.
So called ‘high’ tax cantons have the option to introduce a notional interest rate deduction (NID) on excess capital. It is anticipated currently that only the canton of Zurich will meet the specified requirements.
Adjustments are being made to the taxation of dividend income from qualifying participations. At the federal level, the tax rate increases to a standard rate of 70% (previously 50% for business investments and 60% for private investments). At a cantonal level there is a harmonisation of the relief method and a minimum tax rate of 50% (precise rate at cantonal discretion).
Swiss-listed companies may only pay tax-free capital contribution reserves if they pay taxable dividends equal to the same amount.
Summary
Cantons are expected to receive an increased share of federal tax: 21.2% (previously 17%).
This will enable the majority of Swiss cantons to provide attractive corporate tax rate of between 12% and 18% (combined federal and cantonal tax).
Additional Information
If you would like additional information regarding the changes to the Swiss Corporate Tax Regime, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com. Alternatively please speak to your usual Dixcart contact.
Malta has established itself as an innovative island.
Practical, workable regulations have been successfully introduced for gaming and blockchain/crypto businesses and Malta is now preparing for the next generation of development within the financial service sector. New initiatives include Malta ‘FinTech Vision 2021’ and the ‘Artificial Intelligence Project’.
FinTech Vision 2021
The Malta Financial Services Authority (MFSA) has launched its strategic vision and values for the next three years.
MFSA is currently assessing viable solutions to nurture innovation and to facilitate access to FinTech.
Ongoing assessments include:
Regulatory sandbox – an environment in which businesses can test innovative products, services, business models and delivery mechanisms, without immediately having to be governed by the compliance regulations for that specific type of business. Several international financial service regulators have adopted this strategy to scrutinise innovator proposals, on a case by case basis, against a set of eligibility criteria.
Innovation Hub – the ‘Innovation Hub’ was set-up to support and provide guidance to innovative firms, in particular regarding the understanding and interpretation of applicable regulations. This guidance can be supplied by email/written correspondence, as well as via face-to-face meetings, between the relevant, innovative firm and Malta MFSA personnel.
Innovation partnerships – an innovation partnership, or innovation accelerator, is a partnership arrangement between innovators, incumbent firms and/or public sector authorities, to accelerate the growth or development of a particular new initiative.
New MFSA website – as part of FinTech Vision 2021, the MFSA has replaced its website with one that is more user centric.
Interactive rulebooks – interactive rulebooks form an integral part of the new website. These interactive rulebooks provide the industry with a ‘state of the art’ online platform, facilitating access to the Maltese regulatory framework and helping to ensure that the regulations are consistently implemented.
Use and application of supervisory technology – the MFSA is implementing technically sophisticated supervisory technology. This technology, commonly termed ‘SupTech’, will enable the MFSA to automate certain processes and will make the supervision of licence holders more efficient.
MFSA ‘Licence Holder Portal’ – the ‘Licence Holder Portal’ is currently being upgraded, to meet changing and additional business demands, and new European Union obligations. This Portal will shortly be renamed the ‘FinHub Portal’.
Cyber-security – the MFSA will be issuing guidelines on cybersecurity for regulated entities, with the aim of enhancing licence holders’ cyber-resilience, particularly for those firms reliant on technology. The proposed guidelines will set out the Authority’s minimum expectations as to how entities should be addressing cyber-risk, and the necessary safeguards they should have in place. The guidelines will also provide assessment methodology that will be used to determine compliance in this key area.
Artificial Intelligence
Malta is developing a national Artificial Intelligence (AI) strategy as part of an initiative to become one of the leading nations in this category.
The Maltese Parliamentary Secretary for Financial Services, Digital Economy and Innovation, Silvio Schembri, has stated: “With this strategy Malta is set to gain a strategic commercial advantage in the global economy sphere, generating investment and positioning itself as a leader in the AI field. The Maltese Government aspires to be a country that can help companies that invest in and serve Malta, not only to establish their business, but to commercialise and scale up using public policy.”
Malta is developing a coherent strategy to attract foreign AI companies to establish themselves in Malta.
Silvio Schembri explained that the Malta AI Taskforce has identified three ‘Strategic Pillars’:
Investment, start-ups and innovation;
Public sector adoption;
Private sector adoption.
These ‘Pillars’ will be supported by three ‘Enablers’:
Education and workforce;
Legal and ethical framework;
Ecosystem infrastructure.
Conclusion and Additional Information
Malta is positioning itself as a dynamic jurisdiction, across a number of new high-tech sectors. It is vital that the regulatory framework is appropriate and robust and Malta is developing, not only a coordinated compliance strategy, but is also identifying the Government support needed to optimise growth opportunities.
If you would like further information on this subject, please contact the Dixcart office in Malta: advice.malta@dixcart.com or your usual Dixcart contact.
Malta is one of the countries most advanced in terms of legislation regarding crypto-currencies and has developed a pragmatic approach in relation to the taxation of this asset type.
The Malta Commissioner for Revenue has issued three guidelines regarding the tax treatment of distributed ledger technology (‘DLT’) assets. Each of the guidelines relates to a different tax: income tax, VAT, and the duty payable on documents and transfers.
Categories of DLT Assets
For the purposes of taxation DLT assets are categorised as follows:
Coins – this category refers to DLT assets, that do not have any characteristics of a security, that have no connection with any project or equity relating to the issuer, and whose utility, value or application is not directly related to the redemption of goods or services. Functionally coins represent the cryptographic equivalent of ‘fiat currencies’.
Financial tokens – this category refers to DLT assets with characteristics that are similar to equities, debentures, units in collective investment schemes, or derivatives, and include financial instruments. Generally, they are known as ‘security’, ‘asset’ or ‘asset-backed’ tokens. Alternatively, such tokens may provide potential reward, based on performance or voting rights, or represent ownership in assets, or rights secured by an asset, as in asset-backed tokens, or a combination of the above.
Utility tokens – this category refers to a DLT asset whose use, value or application is restricted solely to the acquisition of goods or services, either within the DLT platform, or within a limited network of DLT platforms. This category also includes all other DLT assets that are tokens and whose use is restricted solely to the acquisition of goods or services, whether or not listed on a DLT exchange. They have no relation to the equity of the issuer and do not have the characteristics of a security.
It may be possible for a token to contain the features of a financial and a utility token, depending on the terms and conditions of the relevant token. In this case the token is referred to as a ‘hybrid’ and taxation will depend on how the hybrid token is used; as a financial token, as a utility token, or as a coin.
Income Tax Treatment of DLT Assets
A transaction involving DLT assets, in terms of income tax, is treated in the same way as any other transaction, with reference to the nature of the activities, the status of the parties and the specific facts and circumstances of the particular case.
Ultimately, the tax treatment of any type of DLT asset will not necessarily be determined by its categorisation, but will depend on the purpose for and context in which it is used.
When a payment is made or received in a cryptocurrency it is treated like a payment in any other currency, for income tax purposes. Accordingly, for businesses which accept payment for goods or services in cryptocurrency, there is no change to when revenue is recognised or the manner in which taxable profit is calculated. The same applies to payments of remuneration, such as salaries or wages, which are regarded as taxable in terms of the general principles. When a payment is made by means of the transfer of a financial or utility token, it is treated like any other ‘payment in kind’.
For the purpose of income tax, transactions involving DLT assets, are evaluated with reference to the market value of the DLT asset:
the rate established by the relevant Maltese Authority, OR (if such a rate is not available);
by reference to the average quoted price on a reputable exchange, on the date of the relevant transaction or event, OR;
other methodology that meets the requirements of the Maltese Commissioner of Revenue.
Examples of the Application of General Tax Principles to Transactions Involving DLT Assets
Transactions in COINS
The tax treatment of transactions involving DLT coins is identical to the tax treatment of transactions involving fiat currency. The profit realised from exchanging coins is treated in the same manner as the profit derived from the exchange of fiat currency. Gains and/or profit within the revenue account, from the mining of cryptocurrency, represent income. DLT coins fall outside the scope of capital gains tax.
Return on FINANCIAL TOKENS
Returns derived from the holding of financial tokens, for example, payments such as dividends, interest, premiums etc., in a cryptocurrency or in another currency, or in kind, are treated as income for tax purposes.
Transfers of FINANCIAL and UTILITY TOKENS
The tax treatment of the transfer of a financial or utility token, depends on whether the transfer is a trading transaction or the transfer of a capital asset.
If the transfer is a trading transaction, the consideration will be treated as a receipt in the revenue account and will be treated as a trading profit.
In the case of the transfer of a financial token, if it is not a trading transaction, the transfer may fall under the scope of capital gains tax.
Treatment of INITIAL OFFERINGS
An initial offering of financial tokens (or token generation event), typically involves raising capital. The proceeds of such an issue are not treated as the income of the issuer and the issue of new tokens is not treated as a transfer, for the purposes of capital gains tax. Gains or profits realised from the provision of services or the supply of goods will represent income.
VAT
In relation to VAT, a transaction involving DLT assets is analysed in the same manner as any other transaction, with the place of supply of the goods or services always being taken into consideration.
DUTY on Documents and Transfers
When a transfer involves DLT assets that have the same characteristics as ‘marketable securities’, they are subject to duty, in accordance with the provisions of the Malta ‘Duty on Documents and Transfers Act’.
Additional Information
If you would like further information on this subject, please contact the Dixcart office in Malta:advice.malta@dixcart.com or your usual Dixcart contact.
Malta is a country located in a strategic position in the middle of the Mediterranean. Due to its location Malta has been a major centre for maritime operations for generations. This historical heritage and robust transport links, via air and sea, help to make Malta an ideal hub to establish an international company.
Malta’s strategic geographical location make it the gateway port into Europe from Africa, Israel and beyond. Malta is an attractive place to do business, offering year-round great weather and short commutes to and from Europe with direct flights to several European capitals.
Malta Free Port
As one of the Mediterranean’s key transhipment ports, Malta Freeport represents a strategic platform for shipping lines that have chosen it as their Mediterranean hub port, being located at the crossroads of some of the world’s greatest shipping routes and at the heart of the Europe/Maghreb/Middle East triangle.
Since 1988, Malta Freeport has enjoyed remarkable growth and is now a major transhipment port in the Mediterranean region, enjoying positive international recognition, as a reliable and credible port, with global carriers.
Malta Freeport focuses on the ‘hub’ concept, whereby cargo is discharged from large mother vessels and relayed to a network of regional ports by regular and frequent feeder vessels. Around 96% of Malta Freeport’s container traffic is transhipment business. This logistical concept offers various benefits to Malta Freeport clients, including; fewer mainline port calls, and reduced voyage times through minimal diversions and shorter transit times, enabling shipping companies to concentrate on profitable voyage legs.
New Free Zones – Authorised Undertakings and Permitted Activities
EU member states can introduce free zones, where non-European Union goods may be stored in the EU, without being subject to import duty, other charges and/or relevant commercial policies, as long as the activities being undertaken in the free trade zones do not prohibit the entry or exit of goods into or from the customs territory of the European Union.
To meet the increasing demand for Malta Freeport services, the Maltese Authorities have created new legislation, the ‘Malta Free Zones Act’. This provides for the regulation and administration of the business of the Free Zones in Malta, with the objective of encouraging economic development and the generation of employment in Malta.
The Free Zones Act provides a regulatory framework and has introduced the concept of public/private partnerships to operate in the free zones.
What Type of Activities Can be Carried Out In the Malta Free Trade Zones?
A trade or business being undertaken in the Free Trade Zone must principally be:
the production or manufacturing of goods, materials, commodities, equipment, plant or machinery;
the assembly, testing, repair and/or maintenance of goods, materials, commodities, equipment, plant or machinery;
the labelling, packaging, sorting, dividing, warehousing, storage, exhibition, assembly and any related activities, in relation to goods, materials, commodities, equipment, plant or machinery, including where such goods are acquired in bulk and are to be processed within a Free Zone in preparation for their eventual sale or distribution;
any activity involving the provision of services relative to, or concerning logistics as may be approved by the Maltese Authorities;
the carrying out of any activities as may be approved by the Maltese Authorities during the time that the goods are being held in a Free Zone or in preparation for their eventual transhipment;
any activity concerned solely with the conduct of a Free Zone including, but not limited to; stevedoring, wharfage, operation of terminals and container handling;
the rendering of services analogous or complementary to the activities referred to above; and
the carrying out of industrial, commercial or service activity as prescribed in guidelines issued by the Maltese Authorities.
Additional Information
The Dixcart office in Malta has extensive experience in establishing and advising trading companies including those choosing to use the Free Port in Malta.
For further assistance please contact us on advice.malta@dixcart.com or speak to your usual Dixcart contact.
The current digital age brings with it new challenges and opportunities for the finance sector. As far back as 20th July 2015 the States of Guernsey released their report ‘A strategic vision for FinTech’ drafted by PwC and contributed to by more than 70 representatives of local industry and the FinTech sector including Dixcart Trust Corporation Limited.
FinTech, as defined by the European Commission, is the combination of innovative financial services and the availability of capital through the use of new (digital) technologies.
Broadly speaking FinTech can be currently divided into four sectors;
payments and currencies (crypto-currencies, currency exchanges, mobile money and payment apps),
software (any new process or programme designed to improve back and middle office processes),
data/analytics (tech which gathers and analyses data to produce information to improve business or target customers more efficiently, often referred to as “big data”).
FinTech is making a significant impact on the financial services market. Whilst some of this is a natural evolution of the industry, the current rate of change and the level of new opportunities is substantial.
The global growth in FinTech has been rapid and the sector is predicted to continue this strong pattern of growth.
GUERNSEY AS A FINTECH CENTRE OF EXCELLENCE
Guernsey has considerable strengths which make it attractive to the FinTech sector including:
Established Trust and Credibility as an Existing International Finance Sector
Guernsey’s finance industry has successfully grown over five decades. Professionals have extensive experience, infrastructure is in place and there is accumulated intellectual capital and this has contributed to the Island becoming a leading international financial service centre, with a high reputation.
Ability to be Flexible and Agile with Laws and Regulations Providing Ideal ‘Test Bed’ Conditions
Legislative and fiscal independence allows the Island to respond quickly to the needs of business. The Guernsey Financial Services Commission promotes robust yet pragmatic regulation and is renowned for being approachable, accessible and open to new ideas.
Guernsey is politically and economically stable – with a high grade AA+ credit rating from Standard & Poor’s – and it has strong links to the UK and wider Europe.
The Island is therefore an ideal test bed for FinTech.
No Capital Gains Tax
The absence of Capital Gains Tax in Guernsey is a substantial benefit as most entrepreneurs look to exit their start-up in three to five years.
This means that the investors and entrepreneurs can reinvest all of their gains in new projects. As most FinTech businesses do not make a great deal of profit in the early years, low taxes on earnings (another benefit for companies registered in Guernsey) are not, in this instance, such an incentive.
No VAT on Capital Expenditure
There is no VAT in Guernsey and therefore VAT savings can be achieved on capital and certain operating expenditure, such as marketing costs.
The absence of VAT on capital expenditure equates to savings on initial setup costs, such as the purchase of servers located on Island. Equipment and software costs for a FinTech business are likely to be significant, increasing the savings that may be enjoyed.
Access to Capital Including Public Listed Vehicles
Guernsey offers a wide breadth of financial structuring expertise to help maximise revenue potential through a project’s lifecycle.
Listings are available through the Channel Islands Securities Exchange, as well as other exchanges.
Guernsey has established a prominent position for itself in providing access to international stock exchanges, particularly the London Stock Exchange. More Guernsey companies have had successful initial public offerings of non-UK entities, than from any other jurisdiction in the world.
Data Sovereignty
Guernsey is a self-governing democracy, with legislative and fiscal independence from the UK and EU. It legislates for all of its internal affairs, including data protection.
The Island is recognised by the EU as having adequate data protection regulations. This enables businesses to freely move personal data between the EU and Guernsey.
Guernsey’s ‘interception of communications’ legislation is based on a judicial approval process which is favourable compared to other jurisdictions and has received widespread approval.
Island Wide Cyber Protection
Guernsey has a resilient and secure data connectivity within the global network of subsea fibre cables. Six fibre cables connect Guernsey to the UK, France and onwards to the rest of the world.
As an Island, there is the potential ability to ‘ring-fence’ systems thereby reducing certain cyber threats, such as distributed denials of service (DDoS) attacks.
Guernsey’s telecoms providers supply data filtering services which recognise when a DDoS attack is happening, and identifies and blocks the flow of malicious traffic, while allowing through legitimate data.
Progressive Company and Intellectual Property Legislation
The Island has developed leading intellectual property legislation which covers a number of areas that are particularly relevant to FinTech, these include;
Brand protection through trademarks and image rights,
Copyright, including Digital Rights Management,
Database rights, protecting the value created when analysing data,
Patent Re-registration, including ‘business method’ style patents.
Lifestyle and Community
Guernsey is a vibrant yet relaxed place to live and work with high standards of health and education and a strong sense of community.
Guernsey has a broad-based financial services industry (including support services) and all of the Island’s businesses and key institutions are in close proximity to each other which means an opportunity for increased face-to-face interaction, in less time.
The Island’s location between Europe and the UK places it in a time zone between the US and the Far East. This makes Guernsey a convenient place to carry out business with many different countries.
Summary
Guernsey’s existing laws, regulations and expertise mean that the Island is already an attractive location for FinTech.
In the absence of Capital Gains Tax and VAT in Guernsey provide additional incentives to FinTech companies to locate there.
Established activity across the range of FinTech sectors includes; insurance, financial markets, financial modelling, payment service providers, wealth management, platform investors, peer to peer, private equity and insurance.
For further information regarding support for FinTech business in and from Guernsey please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com or alternatively please speak to your usual Dixcart contact.
Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission.
Like other offshore jurisdictions, Guernsey will be implementing new legislation introducing economic substance requirements for companies in Guernsey. This briefing note sets out key aspects of the Guernsey Government proposed legislation, noting that further, more comprehensive guidance notes, will follow in due course.
The proposed legislation is relevant to all companies resident for tax purposes in Guernsey and will be effective for accounting periods commencing on or after 1 January 2019. It is proposed that the Guernsey company tax return will be redesigned as all tax resident companies will be required to provide additional information concerning their activities and income.
Please note that this briefing note should be read in conjunction with the proposed legislation and guidance notes, which can be found at: www.gov.gg/economicsubstance
2 Background
In 2016 the EU Council committed to coordinated policy efforts in the fight against tax fraud, evasion and the Code of Conduct Group (“COCG”) were instructed to undertake a screening process whereby jurisdictions, including the Crown Dependencies of Guernsey, Jersey and the Isle of Man, were assessed against three standards in respect of:
i) tax transparency
ii) fair taxation; and
iii) compliance with anti– Base Erosion and Profit Shifting (“BEPS”) measures.
No issues were raised in respect of the Crown Dependencies’ standards of tax transparency and anti-BEPs compliance. The COCG, however, expressed concern that the Crown Dependencies did not have a “legal substance requirement for entities doing business in or through the jurisdiction”.
The COCG were concerned that this “increases the risk that profits registered in a jurisdiction are not commensurate with economic activities and substantial economic presence”. These concerns were articulated in a letter to each of the Crown Dependencies in November 2017.
In response Guernsey, along with the other Crown Dependencies, made a commitment to address these concerns by the end of December 2018. Accordingly, the Crown Dependency Governments have “worked in close collaboration together” in preparing the respective legislation and guidance notes with the intention of them being as closely aligned as possible. Representatives from the relevant industry sectors have been involved in the preparation of these legislations to ensure that they can work in practice, as well as fully meeting the requirements of the EU.
On 5 November 2018, the draft Income Tax (Substance Requirements) (Guernsey)(Amendment) Ordinance, 2018 (the “Substance Requirements Law” or ”SRL”) was published by the Guernsey Government with a view to ensure that Guernsey addresses its commitment in relation to the lack of economic substance requirement for doing business in and through Guernsey.
This briefing note has been prepared to summarise the key features of what is proposed under the SRL.
3 High Level Principles
The proposed SRL has been designed to address concerns that companies could be used to artificially attract profits that are not commensurate with economic activities and substantial economic presence in Guernsey. With this in mind the proposed legislation requires certain companies to demonstrate they have substance in the Island by:
being directed and managed in the Island;
conducting Core Income Generating Activities (CIGA) in the Island; and
having adequate people, premises and expenditure in the Island.
These substance requirements apply to a company resident for tax purposes in Guernsey for the following categories of geographically mobile financial and other service activities referred to as “relevant activities”, as identified by the OECD’s Forum on Harmful Tax Practices:
Banking
Insurance
Shipping
Financing & leasing
Headquarters
Distribution and service centres
Pure Equity Holding Company; and
Intellectual Property (for which there are specific requirements in high risk scenarios)
Each relevant activity category is defined in the SRL for which further details on specific scope are given in Appendix 1.
It is understood that all tax resident companies will be required to provide more information in their tax returns to ensure the above activities can be identified. Tax returns will also be tailored to collect the information needed to monitor compliance with the substance requirements as detailed in “5 Reporting” below.
Exemption to the Substance Test
Please note the following circumstances, where a resident company carries out a relevant activity, would be considered out of scope:
a) If in any accounting period it has no income generated from a relevant activity; or
b) Where a company is not resident for tax purposes in Guernsey, even if incorporated in Guernsey. Under the current law, it will be dependent on whether that Guernsey company is claiming residency in another jurisdiction that Guernsey has a double tax agreement (DTA) with, and then depending on the facts of that company and the applicable DTA to confirm the actual residency status. Guernsey has announced that it is reviewing its corporate tax residence rules in light of the new SRL and further guidance is expected during 2019.
4 The Three Substance Tests
Once a Guernsey resident company has been identified as undertaking relevant activities, the SRL requires the company to satisfy the “economic substance test”. This test is split into three parts as detailed below (remembering if no gross income is received in relation to the relevant activity, there is no requirement to meet these tests):
(i) Test 1 – Directed & Managed
The requirement to be directed and managed in the Island (“the directed and managed test”) is a separate test to the case law “management and control” test used in determining the tax residence of a company. The following areas must be considered in applying the directed and managed test:
Frequency of Board meetings – that an adequate number of board meetings are held having regard to the amount of decision-making required at that level. What constitutes an adequate number of meetings will be dependent on the relevant activities of the company. However, it is generally expected that even for companies with a minimal level of activity, there will be at least one meeting per annum of its board of directors.
Meetings held in Guernsey – that there is a quorum of directors physically present in Guernsey. It is not necessary for all of those meetings to be held in the Island but it would be expected that the majority are. Also, though the SRL refers to the “quorum” of directors being present in the Island, the Guernsey Tax Office have confirmed they would expect to see the majority of the board physically attending in the Island.
Minutes and records – that the associated minutes and records are kept and provide evidence that the board is a decision-taking body making the strategic decisions.
Knowledge and expertise of Board – that the board has the necessary knowledge and expertise to discharge their duties. In the case where there are corporate directors, the requirements will apply to the individual(s) (officers of the corporate director) actually performing the duties.
Records kept in Guernsey – all minutes and records are kept in Guernsey.
(ii) Test 2 – Core Income Generating Activities (“CIGA”)
For each sector the proposed SRL provides a list of the core income generating activities (which are listed in Appendix 2), applicable to each relevant activity that a company operates in, would carry out. The company will therefore need to demonstrate that these core activities are undertaken in Guernsey.
However, it is not necessary for the company to perform all of the CIGA listed, in order to demonstrate substance. For example, a company that holds a patent does not have to carry on the CIGA of marketing, branding and distribution as well as the research and development.
The proposed legislation also does not prohibit a company from outsourcing some or all of its activity. Outsourcing, in this context, includes outsourcing, contracting or delegating to third parties (such as a Corporate Service Provider (CSP)) or group companies. What the Guernsey company has to be able to demonstrate is that it has adequate supervision and control of the outsourced activities and, to meet the substance requirements, that those activities are undertaken in the Island. Where a CIGA is outsourced the resources of the CSP in the Island will be taken into consideration when determining whether the people and premises test is met. However, there must be no double counting if the services are provided to more than one company. The company remains responsible for ensuring accurate information is reported on its return and this will include precise details of the resources employed by its CSP, for example based on the use of timesheets.
Note, where outsourced activity is not part of the CIGA this will not affect the company’s ability to meet the substance requirement (for example, back office functions such as IT support). In addition, the substance requirement does not preclude companies seeking expert professional advice or engaging the services of specialists in other jurisdictions.
The key point to note is that the income subject to tax in the Island must be commensurate to the CIGA undertaken in the Island.
(iii) Test 3 – Adequate Resources
The company has to demonstrate that in relation to the level of relevant activity carried on in Guernsey that there is adequate:
(a) Employees – The Company has an adequate level of (qualified) employees in the jurisdiction proportionate to the activities of the company.
(b) Expenditure – An adequate level of annual expenditure is incurred in the jurisdiction proportionate to the activities of the company.
(c) Premises – Adequate physical offices and/or premises in the jurisdiction from which it can carry out the activities of the company.
The proposed legislation refers to the term “adequate”. However, this term is not defined and therefore has its ordinary meaning. The dictionary definition of “adequate” is: “Enough or satisfactory for a particular purpose”.
What is adequate for each company will be dependent on the particular facts of the company and its business activity. A company will have to ensure it maintains and retains appropriate records to demonstrate the adequacy of the resources utilised and expenditures incurred.
5 Reporting
The SRL requires a Guernsey company to provide to the Guernsey Income Tax Office any information that is reasonably required to assist the Director of Income Tax in determining whether or not a resident company has met the economic substance test. Although the legislation is currently silent on what type of information is required, industry advisors have indicated that this information will be collected through the company’s annual tax return and that the following are details that are likely to be requested:
Business activities;
Amount and type of gross income;
Amount and type of expenses and assets;
Premises;
Number of employees specifying the number of fulltime equivalent employees with the necessary qualifications.
6 Sanctions and International Reporting
The proposed legislation includes robust and dissuasive sanctions for failure to meet the substance requirements. The sanctions are progressive and include financial penalties (as detailed below), the possible request for an audit where continued non-compliance is identified, with the ultimate sanction leading to the striking off of the company from the Companies Register.
The competent authority will also spontaneously exchange relevant information with the EU Member State competent authority where the immediate parent company, ultimate parent company and/or ultimate beneficial owner is resident, if the substance requirement is failed. In all high risk IP cases exchange of relevant information will automatically occur (see Appendix 1 “Intellectual Property” for further details).
The financial penalties in Guernsey for failing the economic substance test are:
i) For first accounting period failure, a penalty not exceeding £10,000;
ii) For its third accounting period failure, a penalty not exceeding £50,000; and
iii) For its fourth accounting period failure, a penalty not exceeding £100,000.
7 Further Guidance
The tax administrations from the Crown Dependencies will continue to work together to produce comprehensive guidance notes which will be published in the near future. However, these will not possibly be able to cover every scenario and will not replace the need to take independent professional advice.
A useful substance requirements flowchart as produced in the Crown Dependencies guidance notes has been attached at Appendix 3.
8 Conclusion
Companies operating in relevant sector industries are now under pressure to ensure that they comply with the new legislation which will commence at the start of 2019.
This will have a significant affect upon many Guernsey businesses who have only a short amount of time to demonstrate to the authorities that they are compliant. The potential penalties of non-compliance may cause detrimental reputational risk, fines of up to £100,000 and could even cause a company to eventually be struck off.
Where does this leave us?
All companies must consider whether they fall within the relevant sectors, and where they do, will need to consider and asses their position. If a company does not fall within a relevant sector, then there are no obligations falling upon them by the proposed SRL.
Many companies will easily be able to identify whether or not they fall within a relevant sector and companies managed by CSPs may need to assess whether they have the necessary substance.
What might change?
We are on the brink of Brexit and, to date, much of the discussions have taken place with the EU commission and the draft legislation has been reviewed by them; however, the COCG will only meet to discuss such matters in February 2019.
It therefore remains to be seen whether the COCG agree that the proposals go far enough. What is clear, is that this legislation is here to stay in some shape or form and therefore companies need to consider their position as soon as possible.
How can we help?
If you think that your business may be affected by the new legislation, it is important that you begin assessing and taking appropriate action now. Please contact the Dixcart office in Guernsey to discuss substance requirements in more detail: advice.guernsey@dixcart.com.
Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.
Appendix 1
Relevant Activity Definitions
Each relevant activity category is defined as follows in the SRL for a company resident for tax purposes in Guernsey:
Banking
Means the carrying on of banking business as regulated by the Banking Supervision (Bailiwick of Guernsey) Law, 1994.
Insurance
Means the undertaking of insurance business within the meaning and under the licence of the Insurance Business (Bailiwick of Guernsey) Law, 2002.
Shipping
Is defined in the SRL as any vessel larger than 24 meters operating in international waters (i.e. not in the Bailiwick of Guernsey waters) for income, for the transport of passengers or cargo including the following activities:
The rental on a charter basis of the ship;
The sale of tickets or equivalent and the provision of services connected with such sales;
The use, maintenance or rental of containers (including trailers and other vehicles or equipment used for the transport of containers) used for the transport of goods or merchandise; and
The management of the crew of a ship.
Finance and Leasing
Is defined as a company providing credit facilities of any kind for consideration to any person (a “customer”). It includes the provision of credit by way of instalments for which a separate charge is made and disclosed to the customer in connection with:
The supply of goods by hire purchase;
Financial leasing (excluding land and interests in land); and
Conditional sale or credit sale.
Headquarters’ Business
Means the provision by a Guernsey resident company to non-Guernsey resident intra group persons of the of any of the following services:
The provision of senior management;
The assumption or control of material risk for activities carried out by, or assets owned by, any of those group persons; and
The provision of substantive advice in relation to the assumption or control of risk for such activities or assets mentioned above.
Distribution and Service Centres
Means a business of which the sole or main activity is:
The purchase or raw materials and finished products from other members of the same group which are non-resident in Guernsey and to re-sell them for a small percentage of profits; or
The provision of services to other members of the same group which are not Guernsey resident.
Holding Company
Where it is a Guernsey resident company which broadly holds the majority shares in another entity; has as its primary function the acquisition and holding of shares or equitable interests in other companies; and which does not carry on any commercial activity.
Intellectual Property (IP)
Where a company receives income from IP, it will also have to consider if it is a “high risk IP company”, which is defined in the legislation.
There is a rebuttable presumption that a high risk IP company has failed the substance requirement as the risks of artificial profit shifting are considered to be greater. As a result, the competent authority will exchange all of the information, provided by the company, with the relevant EU Member State competent authority where the immediate parent company, ultimate parent company and/or ultimate beneficial owner is resident. Such exchange of information will be in accordance with the existing international tax exchange agreements.
To rebut the presumption and not incur further sanctions (see below), a high risk IP company will have to produce materials which will explain how the DEMPE (Development, enhancement, maintenance, protection and exploitation) functions have been under its control, and that this has involved people who are highly skilled and perform their core activities in the Island. The high evidential threshold requires:
Detailed business plans which clearly lay out the commercial rationale for holding the Intellectual Property asset(s) in the Island;
Concrete evidence that the decision making is taking place in the Island, and not elsewhere; and
Information on the employees in Guernsey, their experience, contractual terms, their qualifications, and their length of service. Periodic decisions by non-resident directors or board members, or local staff passively holding intangible assets, cannot rebut the presumption.
For the purposes of the Regulations “core income-generating activity” in relation to each relevant activity that is being undertaken in Guernsey has been defined as follows:
Banking
In relation to banking, includes:
managing risk including credit, currency and interest risk;
taking hedging positions;
providing loans, credit or other financial services to customers;
managing regulatory capital; and
preparing regulatory reports and returns.
Insurance
In relation to insurance, includes:
predicting and calculating risk;
insuring or re-insuring against risk; and
providing client services,
Finance and Leasing
In relation to financing and leasing, includes:
identifying and acquiring assets to be leased (in the case of leasing);
setting the terms and duration of any financing or leasing;
monitoring and revising any agreements; and
managing any risks.
Headquartering
In relation to headquartering, includes:
taking relevant management decisions;
incurring expenditures on behalf of group entities; and
co-ordinating group activities.
Shipping
In relation to shipping, includes:
managing crew (including hiring, paying and overseeing crew members);
hauling and maintaining ships;
overseeing and tracking deliveries;
determining what goods to order and when to deliver them; and
organising and overseeing voyages.
Distribution and Service Centres
In relation to distribution and service centres, includes:
transporting and storing goods, components and materials;
managing stocks;
taking orders; and
providing consulting or other administrative services.
Holding Company
All activities related to that business.
Intellectual Property Assets
In relation to intellectual property assets, includes:
research and development (rather than acquiring or outsourcing);
marketing, branding and distribution;
taking the strategic decisions and managing (as well as bearing) the principal risks relating to the development and subsequent exploitation of the intellectual property asset;
taking the strategic decisions and managing (as well as bearing) the principal risks relating to the third-party acquisition and subsequent exploitation of the intellectual property asset; and
carrying on the underlying trading activities through which the intellectual property asset is exploited and which lead to the generation of revenue from third parties.
Appendix 3
Substance Requirements Flow Chart
Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.
The Crown Dependencies (Guernsey, Isle of Man and Jersey) have introduced economic substance requirements, for companies incorporated, or resident for tax purposes, in each of these jurisdictions, effective for accounting periods starting on or after 1st January 2019.
This legislation has been designed to meet the high level of commitment made by the Crown Dependencies, in November 2017, to address the EU Code of Conduct Group’s concerns, that some companies tax resident in these Islands do not have sufficient ‘substance’ and benefit from preferential tax regimes.
Once implemented, these changes are designed to place the Crown Dependencies on the EU white list of cooperative jurisdictions and will avoid any possibility of future sanctions.
It is worth noting that the EU have identified 47 jurisdictions, in total, all of which are having to address substance requirements urgently.
Crown Dependencies – Working Together
The Crown Dependency Governments have “worked in close collaboration together” in preparing the respective legislation and guidance notes, with the intention that these are as closely aligned as possible. Representatives from the relevant industry sectors have been involved in the preparation of the legislation for each Island, to ensure that it will work in practice, as well as it fully meeting EU requirements.
In brief, Economic Substance Requirements, areeffective for accounting periods commencing on or after the 1st January 2019. Any Crown Dependency company that is considered resident in the jurisdiction for tax purposes and is generating income from undertaking relevant activities, will need to prove substance.
[2] This is a very narrowly defined activity and does not include most holding companies.
A company tax resident in one of the Crown Dependencies which undertakes one or more of these ‘relevant activities’ will have to prove the following:
Directed and Managed
The company is directed and managed in the jurisdiction in relation to that activity:
There must be meetings of the Board of Directors in the jurisdiction, at adequate frequency, given the level of decision making required;
At these meetings, a majority of directors must be present in the jurisdiction;
Strategic decisions of the company must be made at these Board Meetings and the minutes should reflect these decisions;
All company records and minutes should be retained in the jurisdiction;
Members of the Board should have the necessary knowledge and expertise to discharge the duties of the Board.
2. Qualified Skilled Employees
The company has an adequate level of (qualified) employees in the jurisdiction, proportionate to the activities of the company.
3. Adequate Expenditure
An adequate level of annual expenditure is incurred in the jurisdiction, proportionate to the activities of the company.
4. Premises
The company has adequate physical offices and/or premises in the jurisdiction, from which to carry out the activities of the company.
5. Core Income Generating Activities
It conducts its core income generating activity in the jurisdiction; these are defined in the legislation for each specific ‘relevant activity’.
The additional information required from a company, to demonstrate that it meets the substance requirements, will form part of the company’s annual tax return in the appropriate Island. Failure to file returns will generate a fine.
Enforcement
Enforcement of the economic substance requirements will consist of a formal hierarchy of sanctions for non-compliant companies, with increasing severity, up to a maximum fine of £100,000. Ultimately, for persistent non-compliance, an application would be made to strike off the company from the relevant Company Registry.
What Type of Companies Must Pay Particular Attention to Substance?
Companies that only have their registered office in or are incorporated outside (and controlled in), one of the Crown Dependencies must pay particular attention to these new rules.
How Can Dixcart Help?
Dixcart have been proactively encouraging clients to demonstrate real economic substance for several years. We have established extensive serviced office facilities (in excess of 20,000 square feet) in six locations around the world, including the Isle of Man and Guernsey.
Dixcart employ senior, professionally qualified staff, to support and direct international functions for its clients. These professionals are competent to take responsibility for different roles, as appropriate; finance director, non-executive director, industry specialist, etc.
Summary
Dixcart perceive this as an opportunity for clients to demonstrate true tax transparency and legitimacy. These measures also encourage real economic activity and job creation, in the Crown Dependency jurisdictions.
Additional Information
Two flow charts, one for Guernsey and one for the Isle of Man, are appended.
They detail the respective steps to consider and define when substance requirements must be met. Links to the relevant Government websites containing comprehensive details regarding the appropriate legislation for each jurisdiction are also featured.
Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.
Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.
Recent interest from the international financial and investment community in Portuguese real estate has motivated the Portuguese Government to introduce a new investment vehicle, exclusively dedicated to real estate investment.
Introduced in February 2019, the ‘Sociedades de Investmento e Gestao Imobiliaria’, (‘SIGI’) introduces a number of features generally associated with Real Estate Investment Trusts.
The SIGI is a new type of real estate company designed to acquire and/or manage, commercial or residential, properties within the rental market.
The tax framework mirrors that of another investment vehicle, the ‘OIC – Organismos de Investimento Colectivo’, and the tax benefits relevant to the latter are also applicable to SIGI’s, and regulated by the Portuguese Company Code.
The Advantageous Tax Regime
A key advantage of an SIGI is its tax framework.
The goal is to attract small investors and to provide them with re-assurance that, as long as there are profits to be distributed, they will benefit from them. The Law therefore states, that 9 months following the end of the tax year, the SIGI should pay, as dividends:
90% of the profit arising from; dividends, income generated by its own shares, or income generated by other shares or units (when the SIGI holds the shares of other SIGI’s, or units in an investment fund);
75% of the profits generated by the direct real estate activity;
In addition, at least, 75% of the net profit resulting from the sale of assets under the management of the SIGI, must be reinvested. This reinvestment should be made in other assets, within a 3 year period.
Failure to comply with any of the above requirements will result in SIGI status being withdrawn, for a minimum of 3 years.
Corporate tax, applicable to the profits of the SIGI, is at a rate of 21%.
However, in calculating the net profit, the following sources of income are NOT included:
Capital gains;
Income arising from real estate (including rental income);
Income arising from capital.
These exemptions are not available, if the source of the income is a country considered to be a tax haven by Portugal.
In relation to withholding tax:
If the investor is an individual tax resident in Portugal, withholding tax at a rate of 28% is applicable, when dividends are paid;
If the investor is an individual who is not tax resident in Portugal, the withholding tax rate is 10%;
If the dividends are paid to a Portuguese company, withholding tax is 25%;
Where dividends are paid to a company, the participation exemption may be applicable, and, in that case, there will be no withholding tax.
Criteria
An SIGI must comply with the following rules:
Registered as a stock company (“Sociedades Anónimas”);
Appoint an external auditor and an internal tax committee;
Use a specified Objects Clause;
Have a minimum share capital of €5,000,000, represented in ordinary shares (it is not possible to have different classes of shares);
Comply with certain limits relating to debt and the composition of assets;
Include reference to “SIGI” or “Sociedades de Investment e Gestao Imobiliaria” in their name;
The shares must be available to trade on a stock market or on a Multilateral System in Portugal or another EU Member State (Euronext Access or Alternext, Portugal).
To provide additional opportunities to small investors, at least 20% of the shares must be held by investors, each holding less than 2% of the voting rights.
All assets acquired by the SIGI must be retained for at least 3 years and the debt ratio (debt includes: shareholder debt excluding equity, and bank debt) cannot be greater than 60% of the total value of the company assets, at any time.
Land that is acquired for the purpose of construction needs to be designated as urban property or as independent units, within 3 years of the acquisition date.
OIC’s (Organismos de Investimento Colectivo) and stock companies can be converted into SIGI’s.
Additional Information
If you would like additional information regarding Portuguese SIGI’s and their potential benefits, please contact the Dixcart office in Portugal: advice.portugal@dixcart.com. Alternatively, please speak to your usual Dixcart contact.
The Republic of Malta is an archipelago consisting of the three inhabited islands of Malta, Gozo and Comino. The Maltese islands are situated in the middle of the Mediterranean Sea, about 100 km south of Italy.
Factors contributing to and enhancing the status of the jurisdiction include:
Malta is a member of the EU and therefore has access to European Union Conventions.
It is a Sovereign Independent State, enjoying political, economic and social stability.
Malta has friendly relations with the majority of countries across the world through its policy of non-alignment.
Companies operating in Malta are subject to a corporate tax rate of 35%. However, non-resident shareholders enjoy low effective rates of Maltese tax as Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds:
Active income – in most instances non-resident shareholders can apply for a tax refund of 6/7ths of the tax paid by the company on the active profits used to pay a dividend. This results in an effective Maltese tax rate of 5% on active income.
Passive income – in the case of passive interest and royalties, non-resident shareholders can apply for a tax refund of 5/7ths of the tax paid by the company on the passive income used to pay a dividend. This results in an effective Maltese tax rate of 10% on passive income.
Holding companies – the dividends and capital gains derived from participating holdings are not subject to corporate tax in Malta.
There is no withholding tax payable on dividends.
Malta has an extensive network of Double Taxation Treaties (approximately 70 treaties).
Advance tax rulings can be obtained. These relate to legislation currently in force in Malta. Advance tax rulings guarantee that if the basic legislation upon which the ruling was based changes adversely for the taxpayer, the terms of the ruling will survive for a further two years after the change in legislation. Advance tax rulings are given for a period of five years, renewable for a further five years.
Malta offers an aircraft register and a combined ship and yacht register. Substantial tax saving opportunities are available.
FORMATION OF A MALTA PRIVATE LIMITED COMPANY
General information is detailed below, outlining the formation and regulation of Malta companies as embodied in the Companies Act 1995.
Incorporation
Incorporation normally takes between twenty four and forty eight hours from the time that the necessary documentation is presented to the Maltese Business Registry. Shelf companies are not available.
Authorised Share Capital
The minimum authorised share capital is €1,200. A minimum of 20% of the authorised share capital must be paid up. The share capital can be denominated in any currency.
Shares and Shareholders
Shares must be registered. The minimum number of shareholders for public and private companies in Malta is two, but a private limited liability company in Malta may also be formed as a single-member company. The sole shareholder and sole director of the Maltese Company cannot be corporate entities, and the objects clause is restricted to one main activity.
Fiduciary Shareholders (previously known as Nominee Shareholders)
These are permitted but must be authorised. Dixcart can provide fiduciary shareholders.
Registered Office
A registered office is required in Malta.
Directors
The minimum number of directors is one. Directors may be of any nationality and do not have to be resident in Malta. Companies wishing to take advantage of Malta’s Double Taxation Treaties need to ensure that the company is managed and controlled from Malta.
Company Secretary
Every company must have a company secretary. The company secretary has to be an individual and cannot be a corporate entity.
Accounts and Year End
All companies have a year end of 31st December unless they elect for another date. Audited accounts must be presented to the members within ten months of the year end and filed with the Registrar forty two days after presentation to the members.
Taxation
Maltese companies pay tax at a rate of 35%. However, when a dividend is paid the non-resident shareholder is able to claim a refund. This refund equals 6/7ths of the Maltese tax paid on active profits from which the dividend distribution was made. Where profits emanate from passive income, this refund is reduced to 5/7ths. It is reduced further to 2/3rds where the dividend is distributed out of foreign source income and where the Maltese company paying the dividend has claimed double taxation relief.
The tax refund is increased to 100% where the profits from which the relevant dividend is distributed are derived by the Maltese company from a participating holding.
This means that the effective rate of tax in respect of dividends received from a participating holding is 0%, for dividends received from active income it is 5%, and for dividends emanating from passive income it is 10%.
Continuation of Companies
Maltese law allows companies to change their domicile in and out of Malta. Companies moving their domicile to Malta must come from a jurisdiction which allows this. This option enables companies to freely move from one jurisdiction to another without the need to go through a liquidation process. Companies wanting to move their domicile to Malta must submit certain documentation to the Registry of Companies. The Maltese Registrar then issues a provisional certificate and the certificate is converted into a ‘Certificate of Continuation’ on the presentation of evidence that the company has ceased to exist in the previous jurisdiction.
If you would like additional information regarding the formation of companies in Malta and the fees that Dixcart charge, please contact advice.malta@dixcart.com
As a member of the EU, Malta has implemented the EU Anti-Tax Avoidance Directive (ATAD) and has incorporated it into domestic legislation.
Malta incorporated the ATAD measures into its domestic legislation at the beginning of December 2018 through implementation of Legal Notice 411, which includes the following:
an interest limitation rule;
general anti-abuse rules (GAAR);
controlled foreign company rules (CFC);
an exit tax.
These measures came into force as from 1st of January 2019, with the exception of the exit tax, which will be introduced as from 1st of January 2020.
Interest Limitation Rule
This regulation limits the deductibility of borrowing costs for a taxpayer. If borrowing costs exceed interest receivable, the maximum allowable tax deduction from the excess costs (referred to as “exceeding borrowing costs”), during a specific tax year, will be 30% of EBIDTA (the taxpayer’s earnings before interest, depreciation, tax and amortisation).
The unutilised exceeding borrowing costs can be carried forward, subject to further limitations and criteria. In addition, no capping applies for borrowing costs less than €3 million.
The “interest capacity” that a taxpayer has in a tax year can also be carried forward for up to 5 years.
These rules do not apply to financial institutions such as banks, funds, insurance companies, etc. and also to companies which do not form part of a group or have no permanent establishments or associated companies.
There is also an exception to the general rule, whereby it is possible to enjoy full deductibility of the exceeding borrowing costs. This is subject to the taxpayer proving that the ratio of equity over total assets is equal to, or higher than, the equivalent ratio of the group.
GAAR
General anti-abuse rules have been included, for a considerable length of time, in the Malta Income Tax Act and the EU directive re-iterates the importance of these rules.
CFC Rules
An entity or permanent establishment, whose profits are not subject to tax or are exempt from tax, will be treated as a controlled foreign company in the following circumstances:
an entity (the ‘taxpayer’ and/or associated enterprises), holds a direct or indirect participation of more than 50% of the voting rights, or owns directly or indirectly more than 50% of the capital, or is entitled to receive more than 50% of the profit of that entity; and
the corporate tax paid by the entity or permanent establishment is lower than the difference between the tax that would have been liable under the Malta Income Tax Act plus any foreign corporate tax paid.
The CFC rule does not apply to an entity or permanent establishment:
with accounting profits not exceeding €750,000 and non-trading income of not more than €75,000; or
where the accounting profit is less than 10% of operating costs in the relevant tax year.
Exit Tax
A taxpayer will be subject to tax on unrealised capital gains where assets owned by the taxpayer are moved or transferred outside of Malta.
The capital gain is calculated as the market value of the transferred assets, at the time of exit, less their value for tax purposes, and is applicable in any one of the following circumstances:
a taxpayer transfers assets from its head office in Malta to its permanent establishment in another EU Member State or other country;
a taxpayer transfers assets from its permanent establishment in Malta to its head office or another permanent establishment in another EU Member State or other country;
a taxpayer transfers tax residence from Malta to another EU Member State or other country (excluding assets which remain effectively connected with a permanent establishment in Malta);
a taxpayer transfers the business conducted by its permanent establishment in Malta to another EU Member State or other country.
Additional Information
The Dixcart office in Malta has extensive experience in establishing and managing tax-efficient companies in Malta, can assist with all relevant compliance matters, and related corporate and residence issues. For further assistance please contact us on advice.malta@dixcart.com or speak to your usual Dixcart contact.
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