Category: Corporate Services

The level of regulation within the e-gaming industry is constantly being reviewed to increase protection for users. Many of the less well regulated jurisdictions are beginning to find themselves less attractive to the major e-gaming organisations.

Agreement between the Isle of Man and Malta

The Isle of Man Gambling Supervision Commission and the Malta Lotteries and Gaming Authority entered into an agreement in September 2012, which established a formal basis for cooperation and information sharing between the Isle of Man and Malta gambling authorities.

The objective of this agreement was to improve the regulatory standards with the ultimate aim of protecting consumers.

This Article provides an overview of the jurisdictions of the Isle of Man and Malta and why they are favourable locations for e-gaming.

The Isle of Man

The Isle of Man was the first jurisdiction to introduce legislation designed to regulate e-gaming and gambling firms, whilst, at the same time, providing statutory protection to online customers.

The Isle of Man is white-listed by the UK Gambling Commission, allowing Isle of Man licensees to advertise in the UK. The island has a AA+ Standard & Poor’s rating and the legal system and legislative practice are based on UK principles. The island also offers political stability and an experienced workforce.

Why is the Isle of Man a Favourable Location for E-Gaming?

The attractive tax regime available in the Isle of Man makes it an attractive location for e-gaming operations to establish themselves.

There are a number of additional advantages in establishing an online gaming operation in the Isle of Man:

• Simple and quick application process.
• World-class infrastructure.
• A diverse economy.
• A general “pro-business” environment.

Taxation

The Isle of Man has a favourable tax system with the following features:

• Zero rate corporation tax .
• No capital gains tax.
• Taxation of individuals – 10% lower rate, 20% higher rate, which is capped at a maximum of £125,000 per annum.
• No inheritance tax.

E-gaming Fees

E-gaming duty charges in the Isle of Man are competitive. The duty payable on retained gross profits is:

• 1.5% for gross gaming yield not exceeding £20m per annum.
• 0.5% for gross gaming yield between £20m and £40m per annum.
• 0.1% for gross gaming yield exceeding £40m per annum.

The exception to the above is pool betting which carries a flat duty of 15%.

Regulation and Fund Separation

The online gaming sector is regulated by the Gambling Supervision Commission (GSC).

Player funds are maintained separately from the operators’ funds to ensure that the players’ monies are protected.

IT Infrastructure and Support Services

The Isle of Man has an advanced telecommunications infrastructure. The island has a very substantial bandwidth capacity and an extremely stable platform, supported by “self healing” SDH loop technology. The Isle of Man also benefits from five “state of the art” data-hosting centres and has a high calibre of IT and marketing support service providers with experience in the e-gaming industry.

What is Required to Secure an Isle of Man E-gaming Licence?

There are a number of obligations, including:

• The business is required to have a minimum of two company directors resident in the Isle of Man.
• The business must be conducted by an Isle of Man incorporated company.
• The servers, where the bets are placed, must be hosted in the Isle of Man.
• Players must be registered on Isle of Man servers.
• Relevant banking must be carried out in the Isle of Man.

Malta

Malta has become one of the leading jurisdictions for online gaming with over four hundred licences having been issued, representing approximately 10% of the global online gaming market.

The online gaming sector in Malta is regulated by the Lotteries and Gaming Authority (LGA).

Why is the Jurisdiction of Malta a Favourable Location for E-gaming?

Malta offers a number of advantages for online gaming operations establishing themselves in this jurisdiction. Specifically in relation to taxes:

• Low levels of gaming tax payable.
• If structured correctly, corporate tax can be as low as 5%.

In addition Malta offers:

• A wide network of double taxation agreements.
• A sound legal and financial system.
• Solid IT and telecommunication infrastructures.

Gaming Tax

Each licensee is subject to gaming tax, which is currently capped at €466,000 per licence per annum. This is calculated depending on the class of licence held:

• Class 1: €4,660 per month for the first six months and €7,000 per month thereafter.
• Class 2: 0.5% of the gross amount of bets accepted.
• Class 3: 5% of “real income” (revenue from rake, less bonus, commissions and payment processing fees).
• Class 4: No tax for the first six months, €2,330 per month for the next six months and €4,660 per month thereafter.

(See below for further details regarding the classes of e-gaming licence in Malta).

Corporate Taxation

Companies operating in Malta are subject to a corporate tax rate of 35%. However, shareholders enjoy low effective rates of Maltese tax as Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds.

In certain circumstances it may be beneficial to interpose a Maltese holding company between the shareholders and the company. The dividends and capital gains derived from participating holdings are not subject to corporate tax in Malta.

Additional Potential Tax Advantages for Online Gaming Companies in Malta

An e-gaming company may be able to take advantage of Malta’s extensive double tax treaty network, as well as other forms of double taxation relief.

In addition Malta companies are exempt from transfer duties, exchange control restrictions and capital gains on the transfer of shares, in most cases.

Classes of E-gaming Licence in Malta

Every remote gaming operation must hold a licence issued by the Lotteries and Gaming Authority.

There are four classes of licence, with each class being subject to different rules. The four classes are as follows:

• Class 1: Risk taking on repetitive games generated by random events – this includes casino style games, lotteries and machines.
• Class 2: Risk taking by creating a market and backing that market – this includes sports betting.
• Class 3: Promoting and/or abetting games from Malta – this includes P2P, betting exchanges, skins, tournaments and bingo operations.
• Class 4: Provision of remote gaming systems to other licensees – this includes software vendors who take commissions on bets.

Licensing Requirements

To qualify for a licence in Malta, the applicant must:

• Be a limited liability company registered in Malta.
• Be fit and proper.
• Demonstrate adequate business and technical ability to conduct such activities.
• Demonstrate that the operation is covered by sufficient reserves or securities and be able to ensure payment of player winnings and deposit returns.

How Can Dixcart Help?

Dixcart has offices in both the Isle of Man and in Malta and can assist with:

• Licence applications.
• Advice regarding compliance.
• Advice regarding the tax issues to consider.
• Administrative and accounting support.
• Management and regulatory reporting assistance.

Dixcart can also provide initial office accommodation, if required, via its managed office facilities in the Isle of Man and Malta.

Additional Information

If you would like additional information regarding e-gaming, please speak to Paul Harvey at the Dixcart office in the Isle of Man: advice.iom@dixcart.com or Sean Dowden at the Dixcart office in Malta. Alternatively please speak to your usual Dixcart contact.

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

Updated 28/5/15

Malta introduced the Notional Interest Deduction Regime (NID) on 1 January 2018. On 8 August 2018, the Guidelines in relation to NID were updated, in particular the treatment of NID between related companies.

What is NID?

NID is an innovative way in which companies can, in the correct circumstances, reduce their tax liabilities. This option is of greatest interest to companies with large equity balances.

NID allows companies to deduct a notional interest amount based on the ‘risk’ capital of a company. Such companies will be able to claim a deduction against chargeable income for NID deemed to be incurred on their equity capital. Previously in Malta debt interest had been tax deductible, whilst dividends were not.

‘Risk’ capital is defined as: share capital, share premiums, retained earnings, interest free debt and any other equity.

Ability to Choose Between NID and the Maltese Tax Refund System

From the start of the 2018 tax year, Maltese companies, including permanent establishments of foreign companies in Malta and partnerships, can elect to use either the Notional Interest Deduction Regime OR the tax refund system (6/7^ths or 5/7^ths).

Tax Refund System – the Alternative to NID

Malta operates a full imputation system of taxation which allows for generous tax refunds. In most instances, shareholders not resident in Malta can apply for a tax refund of 6/7ths of the tax paid on active income used to pay a dividend. With a corporate tax rate of 35%, this results in an effective tax rate of 5%. In the case of passive income such as interest and royalties, non-resident shareholders can apply for a tax refund of 5/7ths of the tax paid on passive income used to pay a dividend. With a corporate tax rate of 35%, this results in an effective tax rate of 10%.

NID in More Detail

Notional Interest Deduction is calculated by multiplying the notional interest rate* by the company’s total equity at its financial year end.

*Notional interest rate is defined as the ‘risk free rate’; the current yield to maturity of Malta Government stocks, with a remaining term of approximately 20 years (this was 3.940% in Quarter 1 of 2024), plus a 5% premium.

Additional Features of NID

• NID claimed in any one year cannot exceed 90% of the company’s taxable income. Any excess can be carried forward indefinitely, to be deducted against taxable income in future years. Remaining income is taxed at the standard rate of 35%.
• No tax refund is paid to shareholders under the Notional Interest Deduction Regime and this therefore removes the relevance and need to put a double tier company structure in place.

Notional Interest Income in Relation to Shareholders

• For Maltese tax purposes, when NID is claimed, the shareholder (or partner) will be considered to have received that amount of notional interest as income.
• However, if the shareholder is not resident in Malta, the deemed interest income will be exempt from tax in Malta, providing that certain criteria have been met.

Timing Implications

Taxpayers are able to claim NID, for the first time, on profits relating to the 2017 tax year, as these profits are assessable for income tax in 2018.

Additional Information

If you have any questions or require any further information please contact the Dixcart office in Malta: advice.malta@dixcart.com  or speak to your usual Dixcart contact.

Características ventajosas para la ubicación de una empresa “holding” internacional

La ubicación de una empresa “holding” es una consideración importante en cualquier estructura internacional, donde uno de los objetivos es minimizar el impuesto aplicado sobre el flujo de ingresos.

Lo ideal sería que la empresa “holding” sea residente en una jurisdicción que:

• Tienga una buena red de tratados de doble tributación, lo que minimiza la retención de impuestos sobre los dividendos recibidos
• Exima los ingresos de dividendos de impuestos
• Exima a las ganancias de capital por la venta de subsidiarias de impuestos
• No imponga retenciones sobre las distribuciones de la sociedad “holding” a su matriz o a sus accionistas
• No imponga impuestos sobre las ganancias de capital derivadas de la venta de acciones en la sociedad “holding” por parte de accionistas no residentes
• Exima la transferencia de acciones de impuestos
• Asegure estabilidad en la aplicacion de leyes y reglamentos tributarios

Las empresas “holding” de Malta pueden beneficiarse de todo lo anterior.

Ventajas disponibles a las empresas “holding” de Malta

Red de Tratados Tributarios

Malta beneficia de una red de más de 70 tratados de doble imposición.

En la mayoría de las situaciones en que una empresa de Malta posee más del 10% del capital social emitido de una subsidiaria extranjera, la tasa de retención de impuestos sobre los dividendos que reciba de un socio ubicado en un pais con lo cual Malta tenga un tratado se reduce al 5%.

Como Malta es parte de la UE, también se beneficia de la Directiva de la UE sobre matrices y filiales, lo que reduce la retención fiscal a cero en los dividendos de muchos países de la UE.

Ventajas tributarias disponibles a las empresas “holding” de Malta

• Exención de participación y exención del impuesto sobre ganancias de capital

Los dividendos elegibles y las ganancias de capital derivadas de una “tenencia participante” están (a elección del contribuyente) exentas del impuesto de Malta.

Diríjase a nuestra oficina de Dixcart en Malta: advice.malta@dixcart.com para obtener definiciones sobre lo que constituye una “tenencia participante”.

• Venta de acciones en empresas “holding”

Malta no aplica impuestos a las ganancias de capital sobre la venta de acciones en empresas de Malta.

• Retención de impuestos

Malta no impone retenciones en la distribución de dividendos a los accionistas o empresas “holding”.

La retención a cuenta cero es aplicable independientemente de en qué parte del mundo resida el accionista.

• Impuesto sobre capital

En Malta no existe un impuesto sobre las aportaciones al capital social y no existe un impuesto de timbre en las transferencias posteriores.

• Otros ingresos

Los ingresos que no sean dividendos o ganancias de capital están sujetos a impuestos a la tasa normal de Malta del 35%. Sin embargo, al pagar un dividendo de este “otro ingreso”, se paga al accionista un reembolso de impuestos entre 6/7 y 5/7 del impuesto pagado por la sociedad de Malta, lo que resulta en una tasa impositiva neta en Malta de entre 5% y 10%.

Cuando dichos ingresos se hayan beneficiado de la desgravación fiscal doble o del crédito fiscal de tasa fija de Malta, se aplica un reembolso de 2/3.

Estabilidad en la aplicacion de leyes y reglamentos tributarios

Es posible obtener decisiones tributarias formales en Malta. Las decisiones proporcionan certeza sobre la aplicación de la ley a una transacción específica, y vinculan la Fiscalia de Malta durante cinco años.

También hay un sistema de orientación informal de la Fiscalia. Esto toma la forma de una carta de orientación a las autoridades fiscales. Dichas cartas no están expresamente reguladas en la ley, pero crean una expectativa legítima en la que un contribuyente puede confiar. La Fiscalia de Malta considera tales cartas como vinculantes para si misma.

Conclusión

Una empresa “holding” de Malta es una opción atractiva para los grupos comerciales internacionales.

Las ventajas potenciales incluyen:

• La amplia red de tratados de doble tributación de Malta
• Exención de impuestos de los dividendos
• Exención del impuesto de las ganancias de capital sobre la disposición de “tenencias participantes”
• Exención de impuesto de las ganancias de capital sobre la venta de acciones en una empresa “holding” por parte de accionistas extranjeros
• La ausencia de retención de impuestos

¿Cómo puede ayudar Dixcart?

Dixcart tiene una oficina en Malta y puede ayudar con:

• Incorporación de empresas “holding”
• Servicios de oficinas registradas
• Provisión de despachos gestionados
• Servicios de “compliance” tributario
• Servicios de contabilidad
• Servicios de directoria
• Consultoria en todos los aspectos de adquisiciones y disposiciones de acciones

Información Adicional

El Apéndice 1 proporciona un ejemplo de cómo se puede utilizar una sociedad “holding” de Malta como parte de una estructura fiscalmente eficiente.

Contacto

Si desea obtener más información sobre este tema, contáctese con Jonathan Vassallo en la oficina de Dixcart en Malta – advice.malta@dixcart.com.

Vantagens para a localização de uma sociedade “holding” internacional

A localização de uma sociedade “holding” é uma consideração importante em qualquer estrutura internacional, onde um dos objetivos é optimizar o imposto cobrado sobre o fluxo de rendimentos.

Idealmente, a sociedade “holding” deve estar localizada numa jurisdição que:

• Beneficie de uma boa rede de tratados de dupla tributação, minimizando assim a retenção na fonte sobre os dividendos recebidos.
• Isente de impostos o pagamento de dividendos.
• Isente de impostos as mais-valias na alienação de subsidiárias.
• Não imponha retenção na fonte sobre as distribuições da sociedade “holding” às suas controladoras ou aos seus accionistas.
• Isente de imposto sobre mais-valias sobre lucros decorrentes da venda de ações na sociedade “holding” por acionistas não residentes.
• Isente de imposto de selo a transferência de acções.
• Beneficie de previsibilidade no conteúdo e aplicação de leis e regulamentos fiscais

As sociedades “holding” de Malta beneficiam de todos os pontos ilustrados supra.

Benefícios disponíveis para sociedades “holding” de Malta

Rede de Tratados de Dupla Tributação

Malta tem uma rede de mais de 70 tratados de dupla tributação.

Na maioria das situações em que uma sociedade de Malta possua mais de 10% do capital social de uma subsidiária no estrangeiro, a taxa de retenção na fonte sobre os dividendos recebidos pela sociedade de Malta de uma sociedade registada num pais com o qual Malta tenha celebrado um tratado de dupla tributação é reduzida para 5%.

Como Malta faz parte da UE, também beneficia da Directiva Mães e Filhas, reduzindo assim a retenção na fonte a zero sobre os dividendos recebidos da maioria dos países da UE.

Vantagens fiscais disponíveis para as sociedades “holding” de Malta

• Isenção para participações em capital social e isenção para mais-valias

Os dividendos qualificados e mais-valias derivados de uma “sociedade holding participativa” são (caso assim o escolha o contribuinte) isentos de imposto em Malta.

Se deseja mais informacoes sobre o que constitui uma “sociedade holding participativa” diriga-se ao nosso escritório Dixcart em Malta: advice.malta@dixcart.com.

• Venda de Ações na Sociedade “Holding”

Malta isenta de imposto as mais-valias na venda de acções de sociedades sediadas em Malta.

• Retenção na Fonte

Malta não retem na fonte imposto sobre o rendimento na distribuição de dividendos aos accionistas ou a sociedades “holding”.

A não-retenção é aplicável independentemente de onde o acionista seja residente.

• Imposto de Selo

Em Malta não há imposto de selo quer na emissão de capital social quer em transferências subsequentes.

• Outros Rendimentos

Os rendimentos, excluindo dividendos e mais-valias, estão sujeitos a imposto à taxa normal de de 35% em Malta. No entanto, o pagamento de um dividendo financiado por rendimentos que não dividendos e mais-valias pode dar origem ao reembolso de ente 6/7 a 5/7 do total do imposto pago pela sociedade em Malta ao acionista, o que resulta numa taxa efectiva de imposto entre 5% e 10%.

Nos casos em que os supra-referidos rendimentos tenham beneficiado de um tratado de dupla tributação ou do imposto de taxa fixa de Malta o reembolso não pode exceeder 2/3 do montante total.

Previsibilidade do conteúdo e aplicação de leis e regulamentos fiscais

A legislação em Malta preve a emissão de decisões administrativas fiscais. As decisões fornecem certeza sobre a aplicação da lei a uma transação específica, e vinculam as autoridades fiscais de Malta por um periodo de cinco anos.

Preve-se ainda a emissão de orientações informais pelas autoridades tributárias sob a forma de “cartas de orientação”. Essas cartas não são expressamente reguladas pela lei, mas criam uma expectativa legítima em que o contribuinte pode confiar. As autoridades tributárias de Malta consideram as “cartas de orientação” como sendo vinculativas.

Conclusão

As sociedades “holding” de Malta constituem uma opção atraente para grupos económicos internacionais.

As potenciais vantagens incluem:

• A extensa rede de tratados de dupla tributação de Malta
• Isenção de tributação de dividendos
• Isenção de imposto sobre mais-valias na alienação de acções em “sociedades holding participativas”
• Isenção de imposto sobre mais-valias na alienação de acções de uma sociedade “holding” por acionistas estrangeiros
• A ausência de retenção na fonte

Como pode a Dixcart ajudar?

A Dixcart tem um escritório em Malta e pode assistir:

• na incorporação de sociedades “holding”
• na prestação de serviços de sede social
• na prestação de serviços de consultoria
• no cumprimento de obrigações declarativas de natureza fiscal
• na prestação de serviços de contabilidade
• na prestação de serviços de diretoria
• na assessoria de todos os aspectos de aquisições e alienações de participações sociais

Informação Adicional

O Anexo 1 contem um exemplo de como uma sociedade “holding” de Malta pode ser usada como parte de uma estrutura fiscalmente eficiente.

Contacto

Se gostaria de obter mais informações sobre este tema pode entrar em contato com Jonathan Vassallo no escritório da Dixcart em Malta – advice.malta@dixcart.com.

The Island of Guernsey offers Private Clients confidence in relation to the preservation, protection and growth of their wealth.

Guernsey is a well regulated jurisdiction situated in Europe, between the United Kingdom and France, with excellent travel links to both countries.  It is a tax neutral, politically stable jurisdiction with an excellent reputation and a network of multi-jurisdictional accounting and law firms.

The Island has a long history of providing financial services to the private client sector. Dixcart Trust Corporation Limited has maintained a presence on the Island since 1972, with experienced staff who understand the requirements of modern families and international private clients.

Guidance is repeatedly sought by international clients to assist in planning for the future, protection of assets from probate, mitigation or deferral of tax, and/or the consolidation of asset management and protection.

• International clients can benefit from the tax neutrality of Guernsey, along with freedom from any local capital gains or inheritance taxes.

Guernsey Trusts

The Guernsey trust industry has evolved over many years. The most recent update to trust law in Guernsey took place in 2007.

• The Trusts (Guernsey) Law 2007 is now one of the most modern trust laws available, whereby trusts can be maintained indefinitely and can be created for charitable and for non-charitable purposes.

Guernsey Foundations

Guernsey introduced foundation legislation in January 2013, learning from popular civil law jurisdictions with well-established laws, to provide a positive and flexible approach.

With legal roots in Norman customary law, Guernsey is in a prime position to offer expertise in both common and civil law situations.  For those clients domiciled in civil law jurisdictions a foundation is an attractive structure where a trust may not be suitable.  A Guernsey foundation is a registered entity with a separate legal personality, which can be used for a purpose or to benefit beneficiaries. Foundations can be migrated to Guernsey from other jurisdictions.

Guernsey Company

An amendment to the Guernsey Companies Law in 2008 resulted in modernisation of the legislation.  The Guernsey Registry launched online registration and a database the same year, enabling time efficient incorporations and filings.

A Guernsey company can waive the requirement to hold annual general meetings and the requirement to have its accounts audited on an annual basis.  A Guernsey company can be cellular or non-cellular and the law does not distinguish between public and private companies.

• With a basic corporate income tax rate of 0% in Guernsey, Guernsey companies can form an important role in private client structuring.

Guernsey Limited Partnerships

Guernsey Limited Partnerships do not impose a rigid structure in the same manner that a cellular or non-cellular company might, but they do enjoy the benefit of limited liability and are therefore popular with International investors seeking limited liability and confidentiality.

The relevant Guernsey law is The Limited Partnerships (Guernsey) Law, 1995 and all Guernsey Limited Partnerships must be registered in Guernsey with the Registrar to retain Limited Liability status.

Guernsey Limited Liability Partnerships (LLPs)

The Limited Liability Partnerships (Guernsey) Law, 2012 was passed on 12 May 2014.

Although this legislation is relatively new, Guernsey LLPs are becoming increasingly popular for a number of different commercial scenarios, including real estate joint-ventures and family offices, due to their workable and flexible structure.

A Guernsey LLP has no statutory capital requirements and can be migrated from one jurisdiction to another.  Guernsey legislation is unique as it provides the ability to convert a general partnership into an LLP.

Dixcart Trust Corporation Limited

With 7 offices around the world, Dixcart Trust Corporation Limited is distinct from other Corporate Service Providers as it is able to offer multi-jurisdictional full corporate and private client services.

These services include serviced office space within the Dixcart Business Centre, assistance with redomiciliation, captive insurance and full trust and corporate services.

The Dixcart network can be utilised to find a suitable multi-jurisdictional solution to meet our clients’ bespoke requirements, along with access to a wide range of resources from across the Group.

The Guernsey office has extensive knowledge and expertise to offer all clients, not only Guernsey registered structures, but for a wide range of trusts and companies based in other jurisdictions.

For further information please speak to John Nelson at the Dixcart office in Guernsey: advice.guernsey@dixcart.com or to your regular Dixcart contact.

At the start of July 2018 three new Double Tax Agreements (DTAs) were announced between the UK and the Crown Dependencies (Guernsey, Isle of Man, and Jersey). The three DTAs (from each of the islands) are identical, which was a key aim of the UK Government.

Each of the DTAs cover clauses relating to Base Erosion and Profit Shifting (’BEPS’) and they comply with new international tax standards, under the OECD’s Model Tax Convention.

The new DTAs will come into force once each of the territories has notified the others, in writing, of the completion of the process required under their local law.

Key Tax Related Clauses

• Full interest and royalty tax withholding reliefs will apply in a number of circumstances, including, in relation to individuals, pension schemes, banks and other lenders, companies that are 75% or more beneficially owned (directly or indirectly) by residents of the same jurisdiction, and also listed entities meeting certain requirements.

These tax reliefs are likely to significantly increase the attractiveness of Guernsey and the Isle of Man as jurisdictions from which to lend into the UK. The Double Tax Treaty Passport Scheme will be available to Crown Dependency lenders to make the process of claiming withholding tax relief administratively easier.

Additional Significant Clauses

• A residence tie breaker for individuals, which is clear and straightforward to apply.
• A residence tie breaker for companies to be determined by the mutual agreement of the two tax authorities having regard to where the company is effectively managed, incorporated and where the major decisions are made. This should make it easier to establish where the management and control is taking place and to therefore determine where the tax obligations arise.
• The inclusion of a non-discrimination clause.  This will prevent the application of a range of restrictive UK measures, such as the late paid interest rules and the application of transfer pricing for Small or Medium-Sized Enterprises (SMEs). At the same time benefits such as withholding tax exemptions for qualifying private placements and the dividend exemption for SMEs will be enjoyed.  This will place Guernsey and the Isle of Man on a much fairer and more equal footing with other jurisdictions.

Collection of Taxes for the UK Exchequer

Whilst the new DTAs confer a number of advantages, the Crown Dependencies will also now be required to assist in the collection of tax for the UK Exchequer.

Principal Purpose Test and Mutual Agreement Procedures

The DTAs include the ‘Principal Purpose Test’. This means that the benefits under each DTA may be denied where it is determined that the purpose, or one of the main purposes, of an arrangement was to secure those benefits. This test is derived from   BEPS treaty measures.

In addition, ‘Mutual Agreement Procedures’ will mean that where a taxpayer considers that the actions of one or both of the jurisdictions specified in the DTA gives rise to a tax outcome which is not in accordance with the DTA, the relevant tax authorities will try to resolve the matter through mutual agreement and consultation.  Where agreement is not reached, the taxpayer can request that the matter is submitted to arbitration, the outcome of which will be binding on both jurisdictions.

The Crown Dependencies – and Substance

In addition to the DTAs just announced, the commitment to substance, as defined in the ‘Council of the European Union – Code of Contact Group  (Tax) Report’ issued on 8 June 2018 is also likely to have a positive impact for the Crown Dependencies. In relation to international business, proving the existence of substance in the form of employment, investment, and infrastructure, will be key, to establish tax certainty and acceptability.

Additional Information

If you require further information regarding the new DTAs between the UK and the Crown Dependencies, please speak to your usual Dixcart contact or to the Dixcart office in Guernsey: advice.guernsey@dixcart.com or in the Isle of Man: advice.iom@dixcart.com.

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.

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.

Portuguese Double Taxation Agreements

The network of double taxation agreements entered into by Portugal continues to expand. Portugal has 79 double taxation agreements with the following countries: Algeria, Andorra, Austria, Bahrain, Barbados, Belgium, Brazil, Bulgaria, Canada, Cape Verde, Chile, China, Colombia, Croatia, Cuba, Cyprus, Czech Republic, Denmark, East-Timor, Estonia, Ethiopia, Finland, France, Germany, Georgia, Greece, Guinea Bissau, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Ivory Coast, Japan, Kuwait, Latvia, Lithuania, Luxembourg, Macao, Malta, Mexico, Moldova, Montenegro, Morocco, Mozambique, Netherlands, Norway, Oman, Pakistan, Panama, Peru, Poland, Qatar,  Romania, Russia, San Marino, São Tomé e Principe, Saudi Arabia, Senegal, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Venezuela and Vietnam.

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

Madeira companies are subject to a reduced corporate tax of 5% until the end of 2027. Corporate tax is applied in conjunction with ceilings relating to taxable income and is also dependent on the number of jobs created in Madeira. A low level of taxation is often more attractive than the use of a zero tax jurisdiction. The latter may invoke Controlled Foreign Company Rules and negate Double Taxation Agreements.

Additional tax benefits applicable to Portuguese companies registered in Madeira include:

• exemption from withholding taxes on the distribution of dividends, royalty and interest payments to EU countries;
• exemption from capital duty, notary and registration fees;
• capital gains are not taxed separately from the company’s overall income. This means that capital gains realised by companies registered in the Madeira International Business Centre also benefit from the low corporate tax rate.

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.