Category: Corporate Services

Companies licensed to operate within the legal framework of the Free Trade Zone of Madeira are Portuguese companies. The double taxation agreements (DTAs) concluded between Portugal and its treaty partners generally apply to Portuguese companies registered in Madeira. Not only is access to most of the agreements available, but also access to EU Directives, for instance the Parent-Subsidiary Directive.

Certain agreements are particularly advantageous and when combined with the benefits enjoyed by a Portuguese company licensed in Madeira the advantages are further enhanced.

Portugal does not impose withholding tax on dividends if the conditions for the application of the domestic participation exemption regime are satisfied and dividends are paid to a country with which Portugal has a DTA.

Particularly Attractive Agreements

Detailed below is a brief review of the particularly attractive DTAs between Portugal and Cape Verde, China, Colombia, Mexico, Mozambique, Singapore, South Africa and Turkey.

• Double Taxation Agreement between Portugal and Cape Verde

Portugal is the only country with a signed agreement with Cape Verde. Foreign investors into Cape Verde, therefore, frequently use Portuguese companies licensed in Madeira to invest into Cape Verde.

• Double Taxation Agreement between Portugal and China

This agreement is unique with regard to the taxation of capital gains from the sale of shares. Taxation only occurs in the state where the seller is resident. This is contrary to other agreements signed by China. In the case of a Madeira licensed company, capital gains realised from the sale of shares in China would be taxed in Portugal. If the company was licensed in Madeira, this would be at the low tax rate (of 5%) available to Portuguese companies licensed in Madeira.

• Double Taxation Agreement between Portugal and Colombia

Portugal signed a double taxation agreement with Colombia in 2015. The agreement allows a withholding tax of 10% on dividends and also includes information exchange mechanisms to control tax evasion.

• Double Taxation Agreement between Portugal and Mexico

There is a 10% withholding tax on the distribution of dividends from and to Portugal.

• Double Taxation Agreement between Portugal and Mozambique

Portugal is one of only two countries with a signed agreement with Mozambique. Potential investors into Mozambique can therefore use Portugal, more particularly Portuguese companies licensed in Madeira, to invest into Mozambique.

• Double Taxation Agreement between Portugal and Singapore

Although there is a provision in the agreement if 10% of withholding tax on dividends distributed by Portugal to Singapore, Portugal does not impose withholding tax on dividends if the conditions for the application of the domestic participation exemption regime are satisfied and the dividends are paid to a treaty partner recipient.

• Double Taxation Agreement between Portugal and South Africa

The agreement provides for a 10% tax rate where dividends are paid to a company that directly holds at least 25% of the capital of the company paying the dividend for a minimum two-year period before the dividends are paid; otherwise the rate is 15%.

• Double Taxation Agreement between Portugal and Turkey

The agreement provides for a 5% tax rate where dividends are paid to a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends for a minimum two-year period before the dividends are paid; otherwise the rate is 15%.

A 10% tax rate applies to interest on loans where the duration of the loan is a minimum of two years; otherwise, the rate is 15%.

The Madeira International Business Centre: Additional Corporate Tax Details

The Madeira International Business Centre provides a specific license, approved by the EU, and in line with EU Tax Directives, the OECD and BEPS requirements. See here for more information.

Additional Information

If you require additional information regarding Portuguese holding companies or registering a company in the International Business Centre of Madeira, please speak to your usual Dixcart contact, or contact the Dixcart office in Portugal: advice.portugal@dixcart.com.

Why Consider the Jurisdiction of Cyprus? 

Cyprus is the third largest and third most populated island in the Mediterranean Sea. It is situated to the east of Greece and to the south of Turkey. Cyprus joined the European Union in 2004 and adopted the euro as the national currency in 2008. 

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

• Cyprus is a member of the EU and therefore has access to European Union Conventions.   
• Cyprus has an extensive network of Double Taxation Treaties (DTAs). The DTA with South Africa is particularly attractive, reducing withholding tax on dividends to 5% and to zero on interest and royalties. 
• Resident companies are generally taxed at 12.5% of their business profit. This means that Cyprus is a good location for trading entities. 
• Cyprus is an attractive location for holding companies. There is no tax on dividends received and there is an exemption from withholding tax on dividends paid to non-resident shareholders. 
• Profits from a permanent establishment located outside of Cyprus are tax exempt from Cypriot taxes, as long as not more than 50% of the income has arisen from investment income (dividends and interest). 
• There is no capital gains tax. The only exception to this is immoveable property in Cyprus or shares in companies owning such property.  
• Notional interest deduction(NID) is available when new equity is introduced which generates taxable income in a Cyprus company, or in an overseas company with a Cyprus permanent establishment. NID is capped at 80% of the taxable profit generated by the new equity. The remaining 20% of profit will be taxed at the standard Cyprus corporate tax rate of 12.5%. 
• Cyprus offers a number of tax efficiencies for royalty structures. 80% of the profits from the use of intellectual property are exempt from corporation tax, which reduces the effective tax rate on intellectual property income to less than 3%. 
• Shipping regime whereby tax is based on an annual tonnage rate instead of a corporate tax.       

 Formation of a Private Limited Company in Cyprus

International business entities may be registered in Cyprus under Cyprus company law, which is almost identical to the United Kingdom’s former Companies Act 1948.  

1. Incorporation

Incorporation normally takes two to three days from the time that the necessary documentation is presented to the Cyprus Registrar of Companies.  Shelf companies are available. 

2. Authorised Share Capital

The minimum authorised share capital is €1,000.  There is no minimum paid up requirement.  

3. Shares and Shareholders

Shares must be registered. Different classes of shares with different rights as regards dividends and voting rights may be issued. The minimum number of shareholders is one and the maximum is fifty. 

4. Nominee Shareholders

Nominee shareholders are permitted. Dixcart can provide nominee shareholders. 

5. Registered Office

A registered office is required in Cyprus. 

6. Directors

The minimum number of directors is one.  A corporate entity may act as a director. 

7. Company Secretary

Every company must have a company secretary. A corporate entity may act as a company secretary. 

8. Statutory Records and Annual Returns

Financial statements must be filed with the Registrar of Companies once a year. Tax returns are filed with the Income Tax Authority. the company must hold an Annual General Meeting (AGM) every year and no more than 15 months should lapse between the first AGM and the subsequent one.  

9. Accounts and Year End

All companies have a year end of 31st December but may elect  another date.  Companies which follow the calendar year for their tax year must file an income tax return and financial statements within twelve months of their year end.   

10. Taxation

Companies, for tax purposes, are identified as tax resident and non tax resident. A company, irrespective of where it is registered, is taxed only if it is a tax resident of Cyprus.  A company is considered to be tax resident in Cyprus if its management and control is in Cyprus. 

The net profit of tax resident companies is liable to corporation tax of between zero and 12.5%, depending on the type of income. As mentioned above, such companies are those which are managed and controlled in Cyprus, regardless as to whether the company is also registered in Cyprus. Generally, resident companies are taxed at 12.5% of their business profit.

Updated January 2020

The UK updated its foreign company (“CFC”) rules on 1 January 2013. A number of exemptions apply that can reduce or remove the obligation to pay UK tax.

Background

A CFC is a non-UK resident company controlled by persons in the UK.  Typically a CFC is a foreign subsidiary of a UK group, although corporate control is not required for a company to be a CFC.

The rules, which are essentially anti-avoidance rules designed to prevent a company artificially moving its profits abroad to a country with more favourable tax rates, came into effect for accounting periods beginning on or after 1 January 2013.

Where the CFC rules apply some or all of the CFC’s profits will be allocated to the UK company that controls it and the UK company will be taxed on this amount.

Exemption from CFC Rules

Certain types of company and income are exempt from the CFC rules.

“Entity Level Exemptions” – these are a series of exemptions. Where a CFC qualifies under one of these exemptions the entire income of the CFC will be outside the scope of the CFC rules, and the group need not concern itself with CFC provisions.

“Gateway Provisions” – these examine the activities of the CFC and essentially leave only those profits that have been artificially diverted from the UK (those within the gateway) under the scope of the CFC rules, and therefore liable to UK tax.

Entity Level Exemptions

The following are full entity level exemptions:

• Exempt period exemption – this exemption applies for the first 12 months after a non-resident company has come under UK control. There will be no CFC charge, provided that any necessary restructuring is undertaken to ensure that no future CFC charges will arise in subsequent time periods.
• Excluded territories exemption – CFCs resident in specified territories (generally territories with a headline tax rate of more than 75% of the UK tax rate) will be exempt, provided that their total income within certain designated categories does not exceed 10% of the company’s pre-tax profit for the accounting period, or £50,000 if greater. This exemption is not available where significant IP has been transferred to the CFC from the UK during the accounting period or during the previous six years.
• Low profit exemption – a CFC will be exempt if its accounting profit does not exceed £50,000 in an accounting period, or if its accounting profit does not exceed £500,000 and its non-trading income does not exceed £50,000.
• Low profit margin exemption – a CFC will be exempt provided its accounting profit does not exceed 10% of the relevant operating expenditure.
• Low level of tax exemption – a CFC that has paid local tax of at least 75% of the amount it would have paid as a UK resident company is exempt.

Gateway Provisions

If the entity level provisions above do not apply, then the gateway provisions need to be considered to determine if profit passes through the CFC gateways and should therefore be subject to UK taxation.

There are a number of gateways specified in the various chapters of the legislation and for each gateway it is necessary to establish whether the applicable test applies, and, if so, which profits pass through the gateway.

The CFC charge gateway tests are as follows:

• Chapter 4: Profit attributable to UK activities
• Chapter 5: Non-trading finance profit
• Chapter 6: Trading finance profit
• Chapter 7: Captive insurance business
• Chapter 8: Solo consideration

Chapter 4 – Profit Attributable to UK Activities

Chapter 4 will apply if the CFC has business profit (other than property business profit and non-trading finance profit), where the CFC is unable to satisfy at least one of the following tests:

• the CFC does not hold assets or risks under an arrangement to avoid tax;
• the CFC does not have any UK managed assets or bear any UK controlled risks; and
• the CFC could operate effectively if its UK managed assets or UK controlled risks were managed/controlled other than from the UK.

Chapter 4 includes a number of exclusions which prevent a CFC’s profits passing through this gateway, for example; where those profits arise mainly from non-UK activities or where they relate to arrangements entered into with group companies where those arrangements could have been entered into with independent organisations.

Chapters 5 to 8 Gateway Tests

Chapters 5, 6, 7 and 8 gateway tests are specifically designed for CFCs with certain non trading finance profit, trading finance profit, insurance companies and CFCs consolidated with regulated UK financial companies. Unless the CFC falls into one of these categories, it will only be the Chapter 4 gateway that will need to be considered.

Chapter 5 – Non-Trading Finance Profit

Non-trading finance profit, which is incidental to business profit, will not pass through the gateway. Full or partial (75%) exemption may apply with regard to non-trading finance profit from qualifying loan relationships.

Chapter 6 – Trading Finance Profit

Only trading finance profit which derives from UK connected capital contributions will pass through this gateway. The profits of a group treasury company are treated as non-trading finance profit and therefore do not fall within this category. This enables such a company to access the full or partial (75%) finance company exemption.

Chapter 7 – Captive Insurance Business

Profits from captive insurance business will pass through the gateway where the contract of insurance is entered into with:

• a UK resident person connected with the CFC; or
• a non-UK resident person connected with the CFC acting through a UK permanent establishment; or
• a UK resident person where the contract is linked to the provision of services or goods to the UK resident person.

Chapter 8 – Solo Consideration

Solo consideration applies where the CFC is controlled by a UK resident bank.

Summary

It is important that UK CFC rules are clearly understood by all non-UK resident companies controlled by persons in the UK.  Due to the exemptions and the various gateways there may be legitimate opportunities to reduce the UK tax payable. Dixcart can provide advice in relation to UK CFCs and the exemptions that are available.

Additional Information

If you require any additional information please speak to Paul Webb or to your usual Dixcart contact.

Why is Guernsey an Attractive Jurisdiction for Companies?

There are a number of reasons why an individual may wish to migrate a company or foundation from its current jurisdiction of registration to the Bailiwick of Guernsey.

Guernsey is a well-regulated and internationally respected international jurisdiction.  It is also a politically stable jurisdiction with its own autonomous government but with close links to the UK.

Another advantage that Guernsey offers is a more flexible regulatory regime compared to those in other jurisdictions; for example:

• The Companies (Guernsey) Law, 2008 enables a company to convert from a non-cellular company into a protected cell company or an incorporated cell company.
• The Foundations (Guernsey) Law, 2012 provides a number of unique options compared to the laws of other jurisdictions. Additional details can be found in Dixcart Article: Guernsey Foundations.

Guernsey is also a leading jurisdiction in which to conduct investment fund business and has expertise and experience in dealing with a variety of asset classes, investment strategies and legal structures.

Corporation Tax in Guernsey: The Benefits Available

Non-resident corporations are subject to Guernsey tax on their Guernsey source income. Companies, however, pay income tax at the current standard rate of 0% on taxable income. The only exceptions are income derived from banking business, insurance business or custody services business, and licensed fund administration business, which are all taxable at 10%.

Conditions and Procedures: A Company or Foundation Migrating to Guernsey

Certain criteria must be met before a company or foundation is able to migrate to Guernsey:

• An entity must be permitted to migrate to another jurisdiction, according to the law of the jurisdiction under which the entity currently operates. Without this permission the entity will not be entitled to relocate.
• The members (shareholders) of the company, or officers of the foundation, must have passed a special resolution under the terms of the current foreign law under which the entity operates, consenting to the migration of the entity.
• The entity may not be in liquidation or any other insolvency process during relocation.
• The entity must satisfy the statutory ‘solvency test’ immediately after it is placed on the Guernsey Registry.
• A company’s memorandum (and/or articles of association) or the foundations charter must not differ on entry to the Guernsey Registry, compared to what was previously in place before the registration. If any changes are required, they must be approved by a resolution of the company/foundation as prescribed under the foreign law under which it currently operates.
• The company must not be able to issue bearer shares.
• If a company is intending to perform any activities (even if regulated by the Guernsey Financial Services Commission (GFSC)) which may result in the company becoming classified as a ‘supervised company’, then the company must obtain consent from the GFSC prior to commencing the migration process.

Status on Migrating to Guernsey

On registration as a Guernsey company or foundation:

• all property, and rights to which the entity was entitled immediately before the registration, remain its property and rights;
• the entity remains subject to all criminal and civil liabilities, all contracts, debts and other obligations to which it was subject immediately before the registration or removal;
• all actions and other legal proceedings which could have been instituted or continued by or against the entity immediately before the registration or removal may be instituted or continued by, or against it, after the registration or removal has occurred; and
• any conviction, ruling, order or judgment which is in favour of, or against the entity before the registration or removal, may be enforced by or against it after the registration or removal has occurred.

Registration as a Guernsey company or foundation does not:

• create a new legal person; or
• prejudice or affect the identity or continuity of the legal person, constituted by the company or foundation.

Solvency Test

To protect creditors who could be affected by a company’s migration in to or out of Guernsey, a test of solvency must be applied to the company. A company is considered to pass this solvency test if:

• the company is able to pay its debts as and when they are due; and
• the value of the company’s assets is greater than the value of its liabilities.

Provided that all of the information required in connection with an application is available, migration into Guernsey can generally be carried out quickly and is similar in terms of provisions, costs and timescale to the formation of a new entity. It must, however, be taken into consideration that there may be time constraints regarding outward migration from the country where the company or foundation was previously domiciled.

How Can Dixcart Help?

The Dixcart office in Guernsey has an extensive knowledge and expertise regarding redomiciling companies and foundations to Guernsey.

Dixcart managers can provide:

• Comprehensive advice and assistance throughout the process.
• Assistance in registering a company or foundation in Guernsey.
• Assistance in meeting the criteria and regulations before and after migration.
• A comprehensive range of individual and professional commercial services once relocation has taken place, including ongoing advice and compliance guidance.

Additional Information:

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

Switzerland is an attractive location for Intellectual Property (IP) companies. It combines a proactive business and tax approach with a stable political and economic environment.

Holding and administering IP rights in one jurisdiction under one central IP company considerably simplifies the management of group IP rights and enables stronger control.

Switzerland: A Formidable Intellectual Property Jurisdiction

The World Economic Forum’s global competitiveness report for 2015-16 ranked Switzerland third in terms of IP protection and the world’s most competitive country for the seventh year in a row. Geneva is also the headquarters of the World Intellectual Property Organization (WIPO).

Switzerland is a member of all the major international IP treaties. These include: the Paris Convention, the Berne Convention, the Madrid Agreement, the Patent Cooperation Treaty and the Hague Agreement.

A Swiss company can therefore register IP rights in a large number of jurisdictions through its centralised registration system, without the need to mandate local representatives in each jurisdiction. The treaties enable a Swiss registrant to claim the priority date of a Swiss registration for the registration of IP rights in other countries.

A Swiss IP Company and Taxation

A Swiss IP company is generally taxed as a mixed company. This is because its business activity will typically, primarily be related to activities abroad.

Corporate Income Tax: Mixed Companies

• The effective combined Swiss tax rate (federal, cantonal, communal) will be between 8% and 11.5% on foreign sourced net royalty income, depending on the company’s location. The precise status is granted based on an Advance Tax Ruling.
  

  The principal requirement, to benefit from this status, is that at least 80% of income and expenses must be foreign source related.

  
  
• Taking into account tax deductible expenses (e.g. IP amortisation) it is possible for a Swiss IP company to achieve a significantly reduced tax rate, and perhaps for this to even be reduced to less than 1%. Details regarding qualifying expenses and the maximum annual amortization allowable are available from the Dixcart office in Switzerland.

Substance

There needs to be sufficient substance, management and activity to comply with international transfer pricing rules and the OECD Model Tax Convention on Income and Capital. All of the key decisions regarding IP need to be made by the Swiss Company.

Withholding Tax Efficiencies

Switzerland benefits from a large double tax treaty network, with over 110 treaties, and also benefits from  the EU Parent/Subsidiary Directive and the EU Interest and Royalties Directive.

• More than 25 Swiss double tax treaties provide for a 0% rate of withholding tax on royalties. This enables a Swiss IP company to collect royalty payments with no foreign tax being withheld.
• Switzerland also offers a tax credit system for non-refundable foreign taxes such as withholding tax. Precise details vary depending on whether a double tax treaty is in force and, if so, what the terms of the treaty specify. Additional information is available from the Dixcart office in Switzerland.

There is NO Swiss withholding tax on royalty payments to local or foreign recipients.

Transfer of IP Rights to Switzerland

The transfer of IP rights to Switzerland does not generally trigger Swiss tax. However, the tax position in the country of origin of the rights would need to be established.

Swiss Company with a Foreign IP Branch

Switzerland unilaterally exempts foreign branches from Swiss income tax if the foreign activities constitute a Permanent Establishment (PE), from a Swiss domestic tax perspective.

Accordingly, if IP related activities in the foreign branch, from a Swiss perspective, are at a level to constitute a PE, the income will be taxed locally and not in Switzerland. Depending on the industry and the circumstances of each case, a foreign PE location might include tax efficient jurisdictions, such as Dubai, Singapore or Liechtenstein. In most cases it is not necessary to have a double tax treaty with the country where the foreign PE is located.

Summary

In addition to the prestige offered by Switzerland as a location for IP companies, Swiss IP companies offer a number of tax advantages in relation to corporation tax and withholding tax.

Additional Information

If you require additional information regarding Swiss IP companies, please speak to your usual Dixcart contact or to Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com.