Portugal

Proposal for Greater Transparency of ‘Shell’ Entities in the EU

The Unshell Bill

The European Commission met on 22 December 2021 in Brussels, to discuss the Unshell Bill, the so called anti-tax avoidance Directive 3 (“ATAD 3”), to address the misuse of “shell”, or letterbox, companies that have been created for improper tax purposes.

The purpose is to discourage the use of “shell” companies, where there is little or no business activity, and/or where the vehicle is being used for aggressive tax planning or tax avoidance and evasion purposes. It will mean that in the future, deemed shell companies will not be able to access tax relief and related benefits, if certain criteria are met. The proposal is relevant to all businesses; small, medium and large.

The Misuse of Shell Companies

The misuse of shell companies exists in various forms and presents an opportunity to abuse tax obligations.

Shell companies are typically created to generate a financial flow through the respective company, in jurisdictions with no or very low taxes or where taxes are circumvented in some way. In other cases, individuals make use of shell companies to shield assets and real estate from taxes, either in the country in which they are resident or where the property is physically located.

Key Components of the Bill

The proposed Directive, once adopted, must be transposed into national law by the Member States before 30 June 2023, to come into effect from 1 January 2024.

This Directive sets out transparency standards, so that entities that merely exist ‘on paper’ can be more easily detected by the respective tax authorities.

The EU Commission proposes to introduce a filtering system to determine whether a company is deemed to be a shell company or not.

Companies that meet three gateway ‘cumulative’ requirements, will need to disclose information in their tax return to validate the company’s substance. This information will include providing supporting evidence regarding the company’s premises and bank accounts as well as the tax residency of its directors and employees.

The Indicators or Gateways

The key indicators or gateways are highlighted below:

Consequences of Gateways Being Met

If all three gateway specifications, as detailed above, are met, and there is a subsequent failure to meet the substance validation requirements, from the information provided in the relevant tax return, the company will be deemed a shell company and will not be able to access tax relief and any related benefits.

In addition, companies will not be able to obtain a tax residency certificate or will receive a certificate to say that it is a “shell”. The “shell” entity will be regarded as a “flow entity” and thus any payments to third countries, for example, will not be treated as flowing through the “shell” entity. Withholding tax will be applicable in the state of the “shell’s” shareholder/s.

Opportunity to ‘Appeal’

It is worth noting that companies will be able to rebut the presumption of shell status, through the submission of additional evidence. This information is likely to include additional data relating to the non-tax reason/s for its existence, as well as other additional evidence that is considered valid.

Sharing of Information

Member State authorities will automatically share information, regardless of whether companies are deemed to be a shell or not.

In addition, one EU Member State may require another EU Member State to carry out a tax audit for a company that is deemed to have shell company characteristics.

Penalties

In addition to the penalties that will be imposed and defined by the individual  Member State(s), a penalty payment of at least 5% of the turnover of the company in the relevant tax year, will be imposed, for failure to comply with the notification obligations and/or false declarations on the tax return.

Summary

The introduction of this proposal will; provide more transparency among Member States, will ensure that shell companies have legitimate reasons for their existence, and will ensure a more even playing field for European businesses.

Dixcart Compliance Advice and Further Information

Dixcart professionals in the Dixcart Portugal office, as well as in our other Dixcart offices are fully conversant with this draft EU Directive.

We can provide detailed advice regarding transparency and compliance to our clients. If you require additional information, please contact Lionel de Freitas or Monica Santos at the Dixcart office in Portugal: advice.portugal@dixcart.com.

Malta

Malta – The Package of Support Available for Research and Development Projects

Background

Malta has long been a popular choice for companies and new businesses and is a reputable EU jurisdiction. An exceptional package of support and financial incentives is available to innovative companies seeking to establish themselves and/or extend operations within Malta.

 Companies based in Malta have access to national and EU funding. Dixcart Malta can assist with applications to Malta Enterprise, the Government agency which offers support to companies at different stages of their lifecycle.

Please see below a summary of the support, grants and repayable loans that are available, the Dixcart office in Malta can provide further details: advice.malta@dixcart.com

1. Research and Development Feasibility Studies

Research and development initiatives are associated with high risk, and therefore R&D Feasibility Studies are a vital component, to determine that the critical elements of the proposed research project are based on sound principles.

Businesses, employing at least two full-time employees, and intending to carry out an Industrial Research and Experimental Development Project may benefit from financial assistance.

A cash grant is available, for six month projects, to cover the salaries of research personnel, and costs associated with undertaking ‘contractual research and technical knowledge’.

  • Businesses carrying out R&D Feasibility Studies can receive up to €50,000 per project, up to a maximum 70% of eligible costs, depending on the size of the business. Aid is capped at €5,000 per full-time employee employed by the applicant at the time of application. In situations where an applicant established his/her company in the twenty-four months preceding the date of application, a grant of up to €20,000, may still be approved, irrespective of the number of full-time employees.

2. Cash Grant Towards Wage Costs 

This grant is designed to support industrial research and/or experimental development carried out to gain knowledge that leads to the development of innovative products and solutions.

Two grants are available:

  • A cash grant on wage costs of up to €500,000.
  • A tax credit on; instruments, equipment (depreciation costs) and materials and supplies, relating to a contractual research and technical knowledge project that last up to thirty-six months. This grant is available up to a maximum 25-60% of eligible costs, depending on the size of the business.

3. Aid for Research and Development Projects

This incentive allows companies to claim tax credits on costs incurred directly or indirectly in carrying out an R&D project or projects relevant to the company’s trade. Eligible projects must seek to make advances in a field of science or technology through the ‘resolution’ of scientific or technological uncertainty.

  • Pre-approval, prior to the commencement of a project, is not required for this grant. This grant is available up to a maximum of 45% of eligible costs, depending on the size of the enterprise with a maximum €15million per project being available. 

4. Financing for Business Development

This incentive is targeted towards companies engaged in; manufacturing, industrial services, digital technology, biotechnology, or in other innovative or high value-added operations, as approved by Malta Enterprise.

  • The maximum aid available per business is €200,000 over three rolling fiscal years. The approved financing must be directly related to the operation of the business. It can be used to cover; relocation costs of key personnel, payroll costs, lease and rental of real estate, services directly related to the business operations, rights and licenses, relocation of tangible assets, procurement of tangible assets and utility costs.

5. Skills Development Scheme

This scheme is specifically designed to help companies to provide training to create and update the skills and knowledge of their workforce.

  • Support is available in relation to eligible costs, as follows; wage costs of trainees and trainers, direct contact hours of training service providers, air travel expense to send trainees to foreign training locations, air travel expense to bring trainers to Malta, rental of training rooms, tools, and equipment. The grant available  is a maximum of eligible costs; 70% for a ‘small’ business, 60% for a ‘medium’ business, and 50% for a ‘large’ business. The maximum grant available is €2,000,000 per Skill Development Project.

6. Start-up Finance

  • Grants of up to €400,000 are available in Malta, unless the business is an innovative business, in which case the potential grant increases to a maximum €800,000.

The following criteria apply:

  • the company (following an evaluation by an external expert) must be producing/developing new products/services/processes which are substantially improved OR
  • Research and development costs represent at least 10% of the firm’s operational costs, in at least one of the three preceding years, or, in the case of a start-up, in the audit of the fiscal year, preceding the grant.

This ‘grant’ is offered as a repayable advance, unless the company is interested in taking part in the ‘Accelerator Programme’, please speak to Dixcart Malta for further information: advice.malta@dixcart.com.

The repayable advance support can be used to cover several eligible costs:

  • Co-investment in payroll costs: to finance up to 75% of the full-time employees’ salaries.
  • Co-investment linked to private equity: equivalent to 50% of the increase in share capital from unrelated parties, universities or non-profit research centres or related enterprises. The increase in share capital needs to occur following approval by Malta Enterprise, and not later than twelve months from acceptance of the advance. Disbursements can occur in tranches, linked to milestones established in the initial business plan.
  • Support in relation to working capital: up to €200,000, increasing to up to €400,000 in the case of innovative companies.
  • Support for the procurement of tangible and intangible assets: Malta Enterprise may award up to 75% of the costs to procure; machinery, equipment  and amortizable, intangible assets. Intangible assets must not exceed 50% of the total investment and are defined as being limited to the procurement of; patents, licences, and know-how.

7. Support Linked to Crowdfunding

  • A repayable grant of up to 50% of a project or equity financing increase, that is also being funded through a successful crowdfunding campaign.

The grant may not exceed the amount requested through the campaign, and the beneficiary must notify that s/he has received assistance from ‘Malta Enterprise’. If the beneficiary raises more funds than those featured on the platform, the difference can be deducted from the repayable contribution.

Additional Information 

If you would like further information regarding the support measures for research and development and the opportunities available through the jurisdiction of Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office, in Malta or to your usual Dixcart contact.

Malta

Funding Available for IT and Fintech Business in Malta

Background

Companies based in Malta have access to national and EU funding.

Dixcart Malta can assist with applications to Malta Enterprise, the Government agency which offers support to companies at different stages of their lifecycle. Schemes are available depending on various criteria, including the nature of the project/operation.

Which Sectors are Eligible for Funding?

The main funding options are available for the following sectors: hi-tech, artificial intelligence, advanced manufacturing, life sciences, education and training, digital innovation and data science.

The hi-tech sector is defined to include: 

  • Data hosting services 
  • Payment gateway services
  • Cybersecurity 
  • Cloud-based applications 
  • Behaviour analytics 
  • Automated multilingual customer service development 
  • Big data and AI-driven financial analytics and insights 
  • Autonomous, decentralised and intelligent system design 
  • Digital games 
  • Fintech 
  • MedTech

How Are Funding Decisions Reached?

Each situation is assessed on its own merits with Malta Enterprise reviewing numerous criteria and reaching a final decision on a case by case basis.

AI Strategy

The national AI strategy of Malta sets out the long-term objective as being to transform Malta into a leading economy in the field of AI by 2030. This maps the path for Malta to gain a strategic competitive advantage in the global economy as a leader in the AI field and has been built on the following three strategic pillars: 

  • Investment, start-ups and innovation 
  • Public sector adoption 
  • Private sector adoption – three strategic enablers: education and workforce, ethical and legal, and ecosystem infrastructure.

New Niches 

Malta is becoming a home to technologies that will shape the future. Technologies such as: 

  • Distributed Ledger Technology (DLT) including blockchain 
  • MedTech including bioinformatics and medical imaging
  • Artificial Intelligence, mainly with a focus on machine learning, natural language processing and speech
  • Internet of Things and 5G
  • Biometrics 
  • Virtual Reality and Augmented Reality 

Malta as a Technology Test Bed

Due to its relatively small size and population, Malta is an ideal micro test bed to enable solutions and service providers to prove their concepts.

Malta incentivises companies to introduce innovative technologies and to help build a new infrastructural future. The Government of Malta continues to invest in bringing the latest technologies to Malta to ensure continuous connectivity.

Malta The Tech Hub in the Mediterranean 

Malta Enterprise is the Maltese Government’s economic development agency, responsible for attracting Foreign Direct Investment whilst also assisting businesses to set-up, grow and continue to expand.

This is achieved through various fiscal and financial incentives that are managed and administered by the agency.

The Advantages Offered by Maltese Companies

In addition, a number of benefits, including several tax efficiencies are available to international companies established in Malta and these are explained fully in the Dixcart Article: What Are the Advantages Available to Companies Established in Malta?

Malta’s Expat Population

Malta as a jurisdiction appreciates the positive contribution being made by expats in helping to achieve its ambitious AI and technology objectives. 

25% of Malta’s population are expats living and working in Malta:

  • Expats are active across all economic sectors
  • Qualified non-residents are employed in roles that cannot be filled by the local labour market 
  • Through the newly launched ‘Qualifying Employment in Innovation and Creativity Tax Programme’, qualified non-residents who earn an annual minimum employment income of €52,000 and pay income tax in Malta, are eligible to a flat tax rate of 15% for a maximum period of three years.

 Additional Information

If you require further information regarding setting up a company in Malta and would benefit from a one-stop-shop of corporate services, including support with funding applications, please speak to Jonathan Vassallo at the Dixcart office in Malta: advice.malta@dixcart.com.

What Are The Advantages Available to Companies Established in Malta?

Background

Malta has the geographical advantage of being situated in the middle of the Mediterranean Sea, at a crossroads between Europe, North Africa and the Middle East. This island offers a fully developed open market economy, and has a hardworking and multilingual population (88% of Maltese people speak English). It also offers a low rate of corporate tax.

Malta is one of a few ‘lucky’ countries where the weather is temperate all year round. In Malta, average summer temperatures range from +28 to +38 ° C. The summer  begins in May and conventionally ends in October, but even the “winter” weather is very comfortable and the air temperature rarely drops below +12 ° C.

International Status of Malta

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

  • Malta is a member of the EU and therefore has access to European Union Directives.
  • Malta is a full Schengen Member state and has access to all the benefits that this brings.
  • 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, as Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds.

Malta’s Full Imputation Method of Taxation

The unilateral relief and refund system provides a low effective Maltese tax rate of 5% for active income and 10% for passive income:

  • 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.

What Other Tax Advantages are Available to Maltese Companies?

Other tax advantages are also available to companies established in Malta:

  • No withholding tax on dividends, even if they payment is made to a non-European jurisdictions.
  • Qualifying dividends and capital gains derived from a “participating holding” are, at the option of the taxpayer, exempt from Malta tax. In order for a holding to be classified as a ‘participating holding’, please see Article: Malta Holding Companies – Why Are They So Attractive. It details what single condition, from a list of six,  needs to be met.
  • Notional Interest Deduction (NID). NID is an innovative way in which Maltese 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. Please see the following Article for additional information: Malta’s Notional Interest Deduction Regime Which Types of Company Are Most Likely to Benefit.
  • Malta has approximately 70 Double Taxation Treaties in place. If there is no relevant double taxation treaty,  then unilateral tax relief is available.

Other Attractive Factors for Maltese Companies

There are additional advantages available to companies established in Malta, depending on the specifics of the particular company and its employees. 

  • Start-up funding is available for setting up operations in Malta. There is additional booster funding available if the company operates in the technology space.
  • The regulator is approachable, and, on the basis of a solid business proposal,  is happy to discuss setting up ‘sandbox environments’, to test new technologies
  • Fast-track employment permits are available for third country nationals under the ‘Key Employee Programme’. The Malta ‘Key Employee Programme’ is available to managerial and/or highly-technical professionals with relevant qualifications or adequate experience relating to a specific job. Successful applicants receive a fast track work/residence permit within five working days from the date of application, valid for one year. This can be renewed for a maximum period of three years.
  • A special tax rate of 15% can be enjoyed by certain individuals employed in; Research & Development/Financial Services/Aviation/Online Gaming, under the Highly Skilled Programme.

Dixcart Corporate Services in Malta: Registration and Maintenance of Companies

Services available from the Dixcart office in Malta include:

  • Company registration: preparation and submission of all necessary documents, obtaining permits, certificates and licenses.
  • Opening bank accounts and interaction with banks on any matters.
  • Corporate secretarial: documentation and reporting, and compliance with all legal requirements.
  • Office services: rental of a work space or an office, internet access, telephone and fax, office equipment, and assistance with correspondence, if required.
  • Other services: bank account management, accounting services, assistance in employing foreign employees by the Maltese company.
  • Change of jurisdiction: domiciliation of the company to Malta, and the use of Maltese companies in combination with other jurisdictions.

Additional Information

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

Key Compliance Checklist – When You Start a Business in The UK

Introduction

Whether you are an overseas business looking to expand into the UK, or already in the UK with plans for an exciting new busines, your time is valuable. Getting the compliance and administrative elements setup at an early stage is crucial to allow the business to grow efficiently, but can be a drain in terms of the time required. 

At the Dixcart office in the UK, our combined team of accountants, lawyers, tax advisers and immigration consultants make this process as easy as possible for you.

Bespoke Advice

As every business is different, there will always be some specific items to consider for your particular business, and taking bespoke professional advice at an early stage will always be the right thing to do. 

Please see below a checklist regarding the key compliance matters that every new UK business looking to take on employees needs to consider. 

Checklist

  • Immigration: Unless you are looking to only employ workers already with the right to work in the UK, you may need to consider business related visas, such as a sponsor license or sole representative visa.
  • Employment contracts: all employees will need to have an employment contract compliant with UK employment laws.  Many businesses will also need to prepare staff handbooks and other policies.
  • Payroll: UK income tax rules, benefits-in-kind, pension auto-enrolment, employer’s liability insurance, all need to be understood and implemented correctly.  Administering a UK compliant payroll can be complex. 
  • Book-keeping, management reporting, statutory accounting and audits: well- maintained accounting records will help provide information for considered decision-making and financing and remaining compliant with Companies House and HMRC.
  • VAT: registering for VAT and filing, in compliance with requirements, will help ensure there will be no unexpected surprises and, if dealt with promptly, can help with early-stage cash-flow. 
  • Commercial contracts: whether an agreement with a; vendor, supplier, service provider or customer, a well prepared and robust contract will help protect your business and ensure it is well placed for any future exit strategy. 
  • Premises: whilst many businesses are operating more and more online, many will still require office or warehousing space.  Whether renting or purchasing space we can assist. We also have a Dixcart Business Centre in the UK, which may be helpful if a serviced office is needed, with professional accounting and legal services being available, in the same building.  

Conclusion

Failing to take the right advice at the right time can prove costly in terms of time and finance at a later stage.  By working as one professional team, the information Dixcart UK gain when we provide one professional service can be shared appropriately with other members of our team, so you do not need to have to have the same conversation twice.

Additional Information 

If you require additional information on this topic, please contact Peter Robertson or Paul Webb in the UK office: advice.uk@dixcart.com.

Guernsey

Have UK Tax Reforms for Holding UK Real Estate Affected the Use of Guernsey Structures?

The Aim of this Note

The aim of this Article is to highlight the many other reasons for using Guernsey structures, besides the mitigation of tax leakage for holding UK real estate (and other assets). In the past the focus on the benefits of using Guernsey structures was often concentrated purely on the tax benefits available, whilst ignoring other potential benefits.

What’s Changed? – Tax Reforms for Non-UK Resident Owners

Since 2015 the UK government has announced various tax reforms to more closely align the tax treatment of non-UK resident owners of UK property (both residential and commercial) with that of UK residents holding UK property.

These reforms were introduced as part of the UK government’s wider efforts to tackle tax avoidance, evasion and non-compliance and were designed to ‘level the playing field’ in terms of taxation of gains between non-UK resident and UK-resident investors in UK real estate.

Notwithstanding these reforms, investors are still free to structure their investments in UK real estate through Guernsey structures reducing some of the adverse UK tax implications which use of UK vehicles may incur.

Lawful mitigation of tax liabilities is still permissible.

Why the Use of Guernsey Structures Can be Beneficial

There are a number of important non-tax related reasons why structuring through a Guernsey structure is beneficial for holding UK real estate (and other assets):

  1. The Versatility of Guernsey Vehicle Options Available

Guernsey legislation allows a versatile variety of structures that can be used.  Some of the key advantages are the flexibility of the laws such as:

Companies – Very flexible company law, distributions on a solvency basis (not limited to distribution of profits), no withholding tax on distributions, re-domiciliation allowed, Guernsey corporation tax is currently 0% with no capital gains tax.

Limited Partnerships / Guernsey Property Unit Trusts (GPUTS) – Both of these provide options for tax transparent structures which can aid planning, particularly where there is a diverse pool of international investors.

Protected Cell Companies – Provides a company which has the ability to appoint different shareholders to different cells and ring fence assets in those cells, and can be an alternative to a Collective Investment Scheme.

Trusts and Foundations – For those investors who have estate planning in mind, Guernsey is a world leader in this area with a well-developed trust regime. Since 2012 Guernsey has been able to offer Foundations for wealth planning and asset holding which are increasingly popular, particularly with clients from civil law jurisdictions. Guernsey Foundations are particularly interesting due to their ‘disenfranchised’ beneficiary legislation.

2. Guernsey Collective Investment Schemes and Listed Real Estate Investment Trusts

Guernsey Collective Investment Schemes (CIS) and The International Stock Exchange (TISE) listed Real Estate Investment Trusts (REITs), which use British offshore entities as the listing vehicles, offer the following benefits to investors:

  • improved returns – exemption or potential exemption from UK corporation tax on rental income and from UK capital gains tax on corporate profits at the fund level, through the “transparency election” or an “exemption election”;
  • reduced or no transaction costs – no stamp duty arises in relation to the sale of shares in or units of a Guernsey entity unlike the SDLT suffered with a UK entity;
  • Private Investment Fund (PIF) Regime – provides a lighter touch regulation for a CIS and is therefore more cost-effective to use, rather than other more regulated fund structures.

3. Eurobond Exemption to UK Withholding Taxes

The TISE is an internationally recognised stock exchange headquartered in Guernsey, with offices in Isle of Man, Jersey, Dublin and London.

Currently, nearly one third of all UK REITs are listed on the TISE to take advantage of the Eurobond Exemption to UK Withholding Taxes, as non-UK companies issuing debt secured on UK real estate can list the debt on a recognised stock exchange in order to pay interest to non-UK Entities and Persons, without deducting UK withholding tax.

4. Privacy and Confidentiality (not secrecy)

Ultimate beneficial ownership of structures is not currently publicly available, but is required to be disclosed to the Guernsey Registry, and shared to fully meet the obligations of the Common Reporting Standard and Tax Information Exchange Agreements. 

In addition, trust and foundation instruments, limited partnership agreements and limited liability company (LLC) agreements are not publicly available, so investors can manage their affairs privately.

5. Internationally Recognised Jurisdiction

Guernsey has a reputation for being a well-regulated and transparent international finance centre. Guernsey has robust and extensive anti-money laundering laws and has entered into over 61 TIEAs based on the OECD model arrangement.  Guernsey also has a world-class, professional infrastructure with numerous legal, tax, accounting and corporate service providers providing the high level of services required from investors.  Other benefits include:

  • All trust and corporate services providers must be regulated (not a requirement in many other countries including the UK).
  • Most major UK, EU and US financial institutions are familiar with Guernsey and willing to provide services. Compliance related matters and therefore procedures such as opening bank accounts and raising finance can be carried out with minimal issues arising.

6. Guernsey: Ability to Redomicile Entities

It is often necessary or advantageous to move, or redomicile structures to other jurisdictions. For example, where geopolitical events or legislation become adverse, or there is a change in the investment strategy being followed, or there is adverse opinion regarding the structure’s current jurisdiction.

One of the attractions of this re-domiciliation option is that it permits an entity to transfer its legal base to a different jurisdiction, while maintaining its legal personality and so remaining subject to all agreements (including external financing arrangements and related security), to which the entity was party prior to re-domiciliation taking effect.

By contrast, companies incorporated in the UK or in some other jurisdictions cannot be redomiciled, which can limit the multi-jurisdictional structuring options available to such onshore companies.

7. Ability to Open Up to a Wider Buyer Audience on Exit

Holding UK real estate or infrastructure assets through a Guernsey entity can create a wider international buying audience at the time of exit.  An international buyer may not wish to hold shares directly in a UK company if they do not currently have a UK tax exposure.

It is also perfectly acceptable for a UK resident to have the asset held through a Guernsey company, to register the company as UK tax resident, and run the company’s affairs from the UK.  At the time of sale, the shares in the Guernsey company can be sold and the Guernsey company either re-domiciled (as described above), or have its tax residency changed to suit the new owner.

Have UK Tax Reforms Changed the Use of Guernsey Structures?

In short, no, not entirely.  

CIS benefits continue to persist as the UK government permits CIS to make either a transparency election or an exemption election, thereby meaning that investors will not be subject to possible double taxation.  As a result, we have seen a steady use of Guernsey holding structures and continue to see new enquiries.

We have also experienced a number of structures migrating to Guernsey to benefit from the jurisdiction’s reputation and expertise, particularly as substance requirements are now increasingly important to demonstrate.

In addition, advisers and clients are less focused on tax advantages but reverting back to traditional reasons for using Guernsey structures, such as; wealth preservation and succession planning. 

There are clearly a considerable number of benefits to investors in utilising Guernsey structures to hold real estate and other assets, with a great deal of flexibility and variety, to form a structure and to suit any investor.

Additional Information

For more information regarding the use of Guernsey structures to hold UK real estate and other assets, please contact Steven de Jersey or Bruce Watterson at the Dixcart office in Guernsey: advice.guernsey@dixcart.com

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

The Advantages of Portuguese Companies – Including Portuguese Holding Companies

Background

Portugal is a member of the EU and offers an internationally competitive tax framework that is both transparent and compliant.

The corporate tax rate is 21% of net profit, but tax incentives apply to certain types of business and the participation-exemption regime allows for a credit in relation to foreign tax.  

Key Advantages Available Through the Portuguese Tax Regime

Capital Gains

Capital gains are generally included in taxable profit.

A 50% relief can however be enjoyed where the total amount of the capital gain is re-invested in tangible fixed assets (shares and investment property are excluded), during the previous financial year, or up until the end of the second subsequent  financial year.

Patent Box Regime

There is a 50% exemption to tax on income generated by intellectual property. This is applicable to the income generated by the assignment or sub-licensing of patents, models and industrial designs protected by intellectual property and which have been subject to registration.

The acquisition costs of certain intangible assets, with unlimited durability, and goodwill are deductible on an annual basis of 5% for a period of 20 years. In addition, all costs associated with the development of the intellectual property are tax deductible.

Investment Incentives

Several tax incentives are available to Portuguese businesses undertaking investments. If you would like more information, please contact us: advice.portugal@dixcart.com

Special Rates for SMEs

A corporate tax rate of 17% is levied on the first €25,000 profit of an SME, with profits exceeding this rate then taxed at the standard rate of 21%. An SME is defined as a business having a turnover of less than €50million.

This initial ‘low’ corporate tax rate falls to 12.5% in some low population density and interior regions of Portugal.

The Portuguese Corporate Tax Structure

Portuguese companies are subject to tax on their worldwide income. However, branches of non-resident companies are only taxed on Portuguese-source profits.

Corporate tax is charged at a rate of 21% on a company’s profit, although some exemptions may apply in relation to passive income, under the participation exemption method.

Worldwide Participation Exemption Regime: Applicable to Capital Gains and Dividend Payments Inbound and Outbound

Under Portugal’s participation exemption regime, dividends received and capital gains received and distributed by a Portuguese resident company from a domestic or foreign shareholding are exempt from tax, provided that the shareholder holds, directly or indirectly, at least 10% of the capital or voting rights of the other company for 12 months.

The subsidiary may not be resident in a listed tax haven and must be subject to, and not exempt from, income tax at a rate which is equivalent to at least 60% of the Portuguese corporate tax rate (currently 21%).

A tax credit may be applicable, when the conditions for the application of the participation exemption regime are not fully met, with an option for an underlying tax credit for dividends on foreign shareholdings held for 12 months, of at least 10%.

In terms of capital gains, the participation exemption method applies to gains on the disposal of shares.

Advantages for Portuguese Companies Registered in Madeira

A number of extremely attractive corporate tax incentives are available to companies licensed in the International Business Centre of Madeira (IBCM). Please see our Dixcart Article:  A Madeira (Portugal) Company – An Attractive Way to Establish a Company in the EU.

Additional Information

If you require additional information regarding Portuguese companies and the benefits they offer, please contact your usual Dixcart adviser or speak to Lionel Freitas or Catarina Sardinha in the Portugal office: advice.portugal@dixcart.com.

Why are Corporate Groups and Clients Continuing to Redomicile Companies to Guernsey?

What has been Happening?

For many years the movement of a company’s jurisdiction of registration has been driven by the degree of success, that International Finance Centres (IFCs) have achieved in implementing international standards. These standards, designed to combat money laundering, bribery and corruption and the financing of terrorism are issued by the Financial Action Task Force (FATF). The degree of success, the quality of legislation and the standard of on-going monitoring in an IFC affects how each jurisdiction is assessed by administrative authorities around the world.

The recent implementation of Economic Substance Requirements by IFCs, has added further motivation to a growing trend, for companies to consider relocating from their incorporated jurisdiction to jurisdictions which are higher ranked, as being fully compliant with international standards.

Why are Companies Migrating?

Economic Substance and Black Lists

Economic Substance Requirements (ESR) have now been adopted by most IFCs, in response to concerns raised by, amongst others, the European Union. These concerns relate to the possibility that IFCs might  be used in structures designed to shift, then roll-up profits in a low or no-tax jurisdiction, where there is little true substance in relation to the operations supporting the core income generating activity.

Where an IFC has not satisfactorily implemented FATF and ESR, these jurisdictions are then at risk of being placed on one of the 450+ administrative lists around the world of ‘Grey’ or ‘Black’ ranked jurisdictions.  The issue for structures in these jurisdictions is the impact on their ability to conduct financing and transaction activity, particularly banking, and their credibility in the global financial world.

Practical difficulties in such jurisdictions also include; not being able to obtain banking and lending services; missed investor opportunities or lack of investor interest and engagement and greater compliance scrutiny, each of which affect the ability of the structure to operate effectively, efficiently and possibly even viably.

Considerations when choosing the IFC to Migrate to

There are three leading factors driving the choice of jurisdiction:

  • The tax harmonisation compliance track record of that IFC; and
  • The practicality of operating from that IFC; and
  • The simplicity of the migration process itself.

Track record is often the first criteria assessed.  It is important that the jurisdictions considered are white-listed.  Clients will also want certainty that the jurisdiction will remain white-listed, as the international standards mentioned previously, and global tax harmonisation rules continue to evolve. 

Forums such as the Organisation for Economic Cooperation and Development (OECD) and assessment bodies such as MONEYVAL conduct periodic assessments to ensure that a jurisdiction has adhered to the highest level of; standards, implementation and monitoring. These assessments provide key information when assessing corporate re-domiciliation.

Practical operation of the company from the chosen jurisdiction is the second consideration. Can the company and its activities be conducted in line with ESR, where appropriate and applicable, in an efficient and effective manner? Geographical location, time zone, access to markets, access to professionals, advisers and financial services, appropriately qualified directors and other personnel, as well as transport links are all important considerations. 

Simplicity of corporate migration. The laws of the inbound jurisdiction need to permit corporate migration and the process should be simple and cost effective, to ensure that the process is commercially viable.

Guernsey offers these features.

Companies are migrating to jurisdictions where they can most readily comply with requirements such as substance. Corporate groups are consolidating multiple jurisdictional structures into single, or at least fewer, jurisdictions to create cost, compliance and substance efficiencies.

These considerations are not limited to the migration of existing structures, new structures are being established, which take into account the above trends and concerns.

Migration of Funds – Guernsey’s Fast Track Solution

It is not only corporations that are seeking to migrate to Guernsey, but also funds.

In recognition of the large number of expressions of interest from non-Guernsey domiciled fund managers seeking to relocate to Guernsey, the Guernsey Financial Services Commission has introduced a 10-day fast track application regime, to facilitate a simplified and speedy solution to migration.

Fund managers may wish to migrate to Guernsey for regulatory reasons, and /or to be geographically closer to UK/European operations, assets, and investors.

Further information on this fast track route can be found here: Migration of Funds – Guernsey’s Fast Track Solution.

Guernsey’s Tax and Regulatory Standards Track Record

Guernsey’s tax policy is underpinned by strong general anti-avoidance rules and the adoption of a number of international tax standards. Some of the more relevant developments are detailed below;

  • December 2017 – EU Code of Conduct Group on Business Taxation for the EU Economic and Financial Affairs Council (COCG), confirmed Guernsey to be a co-operative jurisdiction which complied with the general principles of “fair taxation” and raised no concerns regarding Guernsey’s standards of transparency or implementation of measures to counter base erosion and profit shifting (BEPS).
  • Guernsey committed to adopt economic substance legislation by the end of 2018.
  • During 2018, Guernsey worked closely with the COCG, EU Member States and the other Crown Dependencies to develop economic substance legislation, which was adopted in December 2018.
  • In 2019, the EU Council confirmed that Guernsey had met its commitment to introduce economic substance requirements and therefore removed Guernsey from the list of jurisdictions who had committed to make certain changes.
  • Guernsey has given its full support to the transparency principles central to the current G20, OECD and EU tax initiatives, and is working as part of the wider international community in the development and effective implementation of internationally agreed standards.
  • In 2004 Guernsey voluntarily entered into automatic information exchange and bilateral withholding arrangements respectively with all EU Member States under the European Union Savings Directive (2003/48/EC).
  • Guernsey committed in May 2013, to join the initiative of the G5 countries on establishing and piloting an international standard for automatic exchange of information between tax authorities.
  • In December 2013 Guernsey entered into an intergovernmental agreement with the United States of America in relation to the implementation of FATCA, which it implemented in June 2014.
  • In October 2013 Guernsey entered into an intergovernmental agreement with the United Kingdom in relation the United Kingdom’s own version of FATCA, which it also implemented in June 2014.
  • Guernsey joined in the joint statement on 19 March 2014 committing to the early adoption of the global CRS. On 29 October 2014 Guernsey was among over 50 jurisdictions to sign the OECD’s Multilateral Competent Authority Agreement in Berlin, as a further step towards implementation of the CRS.
  • Guernsey, along with over 50 jurisdictions, implemented the CRS into its domestic legislation with effect from 1 January 2016.
  • As a key member of the global community committed to transparency, Guernsey continues to implement developments in transparency and best practice, building upon its early adoption of FATCA and the CRS, and also being compliant with the BEPS minimum standards.

Data Protection – Guernsey is among a small group of third country jurisdictions that have been officially assessed as meeting current EU data protection standards and granted equivalence (“adequacy”) through individual Commission Decisions.

Next Steps

If any of the areas covered in this note are relevant to your or your clients, please get in contact to discuss the practical aspects, costs and timings of redomiciling structures to Guernsey. Please contact Bruce Watterson or Steven de Jersey at advice.guernsey@dixcart.com

A Madeira (Portugal) Company – An Attractive Way To Establish A Company In The EU

What and Where?

Madeira is part of Portugal, an island located south west of Portugal’s mainland, in the Atlantic Ocean.

It is well known for its tourist attractions but also offers the International Business Centre of Madeira, which offers appealing tax benefits to attract foreign investment.

Madeira is a Portuguese island and is therefore an integral part of the European Union. Individuals and corporations that are resident, or registered in Madeira, therefore have full access to all of Portugal’s international treaties and conventions.

What Are the Key Tax Advantages Offered by the International Business Centre of Madeira (IBCM)?

The IBCM offers a number of attractive tax benefits for corporations:

  • A 5% corporate tax rate which is guaranteed by the EU to remain in place, until at least the end of 2027.
  • Non-resident individual and corporate shareholders benefit from a total exemption from withholding tax on dividend remittances, as long as they are not resident in jurisdictions featured on Portugal’s ‘black list’.
  • No tax is payable on the worldwide payment of; interest, royalties and services.
  • Access to the wide network of Double Tax Treaties that Portugal has with other countries.
  • Madeira is accepted by the OECD as an on-shore, EU-compatible free trade zone.

Additional Advantages Offered by the Island of Madeira

The island offers an attractive quality of life and has one of the lowest costs of living in the EU. It is a top tourist and retirement destination and has a young workforce, with one third of the population being under the age of 24. It is a multi-lingual jurisdiction with English being the second language and regarded as the business language, alongside Portuguese.

Madeira also has an international airport, with many daily connections to Lisbon and several weekly connections to Germany, Switzerland, and the UK.

The IBCM covers a wide range of activities, including; commercial, industrial, service-related industries and shipping. The greatest benefits can be enjoyed by; e-business, managing of intellectual property, shareholding, trading and shipping and yachting businesses.  

Substance Requirements

An important feature of the IBCM regime is that the law clearly defines appropriate substance requirements to be met, for the company to obtain the relevant tax benefits.

These substance requirements essentially relate to the creation of jobs.

There are two key requirements, verifiable at different times:

1. After the incorporation of the company:

  • within the first 6 months of the activity, the IBCM company must hire at least, one worker, and undertake a minimum investment of €75.000 in fixed assets within the first 2 years of activity. OR
  • it can hire 6 employees during the first 6 months of activity, where it will be exempt from doing the minimum investment of €75.000.

2. On an ongoing basis, the company must have at least one full time employee on its payroll, paying Portuguese personal income tax and social security. This employee can be the Director or a Board Member of the IBCM company.

Capping of Benefits

The regime is very favourable and, not surprisingly, upper limits apply, to ensure that very large companies have a cap on the benefits that they can receive.

As detailed previously, the corporate tax rate of 5% applies to a company’s taxable income. There is an upper limit of income which can enjoy this favourable tax rate, based on the number of jobs that have been created in Madeira by the company.

These figures are detailed below:

Job CreationMinimum InvestmentMaximum of Taxable Income Reduced Tax Rate Applies to
1 – 2€75,000€2.73 million
3 – 5€75,000€3.55 million
6 – 30N/A€21.87 million
31 – 50N/A€35.54 million
51 – 100N/A€54.68 million
100+N/A€205.5 million

In addition, the total benefits granted to companies licensed to operate in the IBCM are capped at one of the following amounts:

  • 15.1% of the annual turnover; OR
  • 20.1% of the annual earnings before interest, tax, and amortisation; OR
  • 30.1% of the annual labour costs.

How can Dixcart Help?

Dixcart has had an office in Madeira for over thirty years.

We offer advice regarding the establishment of a company in the IBCM and provide a complete range of services relating to the incorporation and management of the company.

These services include meeting all of the company’s day-to-day obligations, including: accounting, legal, human resources, tax compliance and IT.

Additional Information

If you require further information regarding the IBCM and/or if you would like information regarding the type of company and tax frameworks available in Portugal, please speak to your usual Dixcart contact, or to Catarina Sardinha at the Dixcart office in Portugal: advice.portugal@dixcart.com.

UK

UK Companies and the Role and Importance of UK Professional Directors

Why use a UK Company?

Over recent years, the UK Government has introduced many changes to make the UK tax system more competitive, in particular in relation to; UK holding companies, the re-shoring of manufacturing and increased UK based research and development (R&D).

United Kingdom (UK) entities have a respectable international image and can be used tax efficiently for cross border trading and as international holding companies.

UK Resident Companies: Some of the Advantages/Opportunities

Since 1 April 2017 the corporation tax rate has been 19%. Given the unprecedented measures in response to the COVID 19- pandemic the Government has found it necessary to increase the rate to 25% which is still the lowest rate in the G7.

There are generous allowances for investment in R&D by small and medium sized entities. The tax relief on allowable R&D is 230%. That means that for every £100 spent on R&D you can claim a tax deduction of £230.

Where a company makes a profit from exploiting potential inventions those profits may be taxed at 10% rather than at the normal corporate tax rate.

UK Controlled Foreign Company Laws have been reformed with the aim of making the UK tax system competitive for multinationals.

There are no withholding taxes on dividends paid, from the UK, by companies.

Why Appoint Directors From Dixcart UK?

Clients typically appoint us because they initially do not always have the resources in the UK to provide the management and control of the proposed company in the UK. If management and control were to be exercised from a client’s home jurisdiction there would be a danger that the jurisdiction would seek to tax the profits of the UK company.

Professional Dixcart UK directors are also appointed due to their expertise and assistance in managing UK companies, many of which are subsidiaries of an international parent company.

Management and Control

The fundamental question is; where is a company managed and controlled, and what factors will tax authorities consider when assessing where management and control takes place?

The central management and control of a company would normally be the place where directors meet to manage the company’s business. Generally, this is the place where board meetings are conducted. This is only relevant if central management and control is in fact exercised by the directors in those meetings. It is essential to show that directors have authority and make independent and informed decisions concerning the central business policy of the company, rather than just ‘rubber stamping’ the decisions of others.

It is important therefore, that foreign shareholders appoint UK resident directors who are aware of these risks and ensure that they carry out their duties correctly, but also properly minute and evidence their actions, in order to be able to demonstrate management and control in the UK, if called upon to do so.

Where a UK entity is being used as an SPV for a number of different shareholders, we are often appointed because the shareholders want independent directors to run the company. Such directors will need to familiarise themselves with any shareholder agreement, and ensure that the controls and mechanisms put in place to govern the relationship between the shareholders and to protect minority interests, are observed.

Dixcart Directors and Additional Professional Support

Dixcart directors are supported by a team of professionals enabling us to provide a complete business management and administration service. This includes:

  • Company formation and secretarial services;
  • Book-keeping, accounting and tax compliance services;
  • Serviced office space;
  • Telephone answering and email services;
  • Human resource services, including help with recruitment, employment contracts and payroll services;
  • Immigration services to help clients who wish to recruit or transfer staff to the UK from abroad.

Additional Information

Clients wishing to establish a business in the UK are advised to contact Dixcart at an early stage so that we can gain a comprehensive understanding of the proposed business.

This will enable us to give relevant pre-arrival advice and demonstrate how our directors would add value, should you decide to form a company in the UK. Please contact:  Laurence Binge or Peter Robertson at the Dixcart office in the UK: advice.uk@dixcart.com