Category: Corporate Services

This article outlines the options available to third country nationals employed by foreign interest companies and the criteria that need to be met.

Key Feature of a Cyprus Foreign Investment Company

A Cyprus Foreign Investment Company (FIC), is an international company which can employ non-EU nationals in Cyprus. Such a company can obtain work permits for relevant employees and residence permits for their family members.

Main Advantages

• FICs can employ third country nationals, who can apply for appropriate residence and work permits, each of which will be valid for up to 2 years and are renewable.
• Employees can exercise the right for their families to join them in Cyprus.

Naturalisation Pathways

Under the amended Civil Registry Law, highly skilled TCNs employed by FICs may pursue fast-track naturalisation. An adult foreigner who, on the day of application submission and on the day of examination of the application is employed in a company that meets the relevant conditions, and whose employment was high-skilled according to the required criteria, may apply for Cypriot citizenship by naturalisation if certain conditions are cumulatively met. The applicant must have legal and continuous residence for 12 months immediately before the date of application submission. Periods of absence not exceeding a total of 90 days do not interrupt this period. During the immediately preceding 10 years from the 12-month period, the applicant must have legal residence for cumulative periods of not less than 4 years, or 3 years depending on their level of Greek language proficiency (A2 or B1, respectively). Periods of absence not exceeding a total of 90 days annually are not considered absences.

Additionally, the applicant must demonstrate good character, sufficient knowledge of the Greek language at level A2 or B1 (as applicable), sufficient knowledge of basic elements of the contemporary political and social reality of Cyprus, suitable accommodation and stable and regular financial resources sufficient for the maintenance of themselves and their family members. The applicant must also show an intention to reside in the Republic.

Criteria to be Met

The requirements to be met are as follows:

• The majority of the company’s shareholders should be foreign shareholders, and, in the situation where the ultimate owners are foreign companies, they must be  approved by the Civil Registry and Migration Department.

The following cases are exempt:

• Public companies registered in any recognised stock exchange.
• Former offshore companies that were operating in Cyprus by approval of the Cyprus Central Bank, before the change of their offshore status.
• Cypriot shipping companies.
• Cypriot companies of high technology/innovation, as certified by the Deputy Ministry of Research, Innovation and Digital Policy.
• Cypriot pharmaceutical companies or companies operating in the fields of biogenetics and biotechnology.
• Persons who have acquired Cypriot citizenship by naturalization based on economic criteria, and able to prove that they continue to meet all of the criteria.
• Companies which employ staff from third countries for the first time must invest at least €200,000 in Cyprus, for the purposes of operating the company.

• If the percentage of foreign participation in the share capital of the company is equal to or below 50% of the total share capital, this percentage must represent an amount equal to or greater than €200,000.

• The company must operate independent offices in Cyprus, in suitable premises, separate from any private housing or other office, except in the case of business ‘co-habitation’.

Employee Classification

Eligible companies which fulfil the above conditions can employ third country nationals in the following positions:

• Directors
  • this term includes directors or partners, general managers of branches and of parent companies of subsidiary companies, departmental managers, project managers.
  • the minimum acceptable gross monthly salary for directors is €4,000, an amount that may be adjusted from time to time, depending on fluctuations in the wage index.
  • there are no restrictions on the residence period of these employees.

• Middle-management staff, executive staff and any other key personnel

In this category the following third country nationals are included:

• Upper/middle management personnel,
• Other administrative, secretarial or technical staff

The minimum acceptable gross monthly salary for this category is €2,500. Amounts may be adjusted from time to time, depending on wage index fluctuations.

• Specialists

The minimum acceptable gross monthly earnings for Specialists is €2,500, an amount that can be adjusted from time to time, depending on fluctuations in the wage index.

• Support Staff

This includes all third country nationals not included in the above categories. Companies are expected to fill positions in this category, with Cypriot or European citizens. Where there are no qualified Cypriots or European citizens available, a company may employ third country nationals up to a maximum 30% of the total staff.

For this category, the General Employment Procedure is followed, after  receipt of a positive recommendation (sealed employment contract) from the Department of Labour, which confirms that the approved maximum percentage above, has not been exceeded. Please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com for details of the certificates/supporting documents that need to be submitted.

The market test is not necessary for third country nationals with free access to the labour market.

Length of Validity of the Temporary Residence and Employment Permit

Where the criteria are met, the third country national is granted a temporary residence and employment permit. The validity of the permit depends on the duration of the employment contract and can be up to two years, with a right of renewal. Directors, middle management executives and other key personnel, as well as specialists (staff categories 1-3), may reside in the Republic without a time limit, provided they hold a valid temporary residence and employment permit.

For support staff, the restrictions applicable to the general employment of third country nationals in the Republic apply.

Family Members

Third country nationals with residence and employment permits, under staff categories 1-3 of the policy, have direct access to family reunification with their family members (spouse and minor children), provided that the relevant conditions of the Aliens and Immigration Law, Cap.105 as amended, are met.

In such cases, third country nationals who are family members (spouse and minor children) can enter and reside in Cyprus after the sponsor has followed the procedure for family reunification.

Additional Information

If you require any additional information, please speak to your usual Dixcart contact or to the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Dixcart Corporate Services

The Dixcart Group has been providing corporate services for over 45 years. Dixcart has extensive expertise in advising both private and institutional clients as to how to set up structures to best meet their needs and to match their circumstances. A number of structures feature companies in one or more jurisdictions as well as other asset protection vehicles, whilst many just feature companies.

Dixcart not only establishes the companies but also provides a comprehensive range of company management services. Such corporate services include:

• Day to day administration and company secretarial services
• Director services
• Registered office and agent services
• Tax compliance services
• Accountancy services
• Dealing with transactions, including all aspects of acquisitions and disposals

Introduction to Charalambos Pittas and Steven de Jersey

Charalambos Pittas from our Cyprus office and Steven de Jersey from the Guernsey office are two key members of the Dixcart Corporate team that we are introducing to you today.

Charalambos Pittas joined the Dixcart Group in 2018 and was appointed Operations and Finance Director of the Dixcart office in Cyprus. He is responsible for the operations of the office and supervision of all accounting functions for clients. He also provides support to the Managing Director to develop the office and the depth of services that it provides.

Steven de Jersey is a Director of Dixcart Guernsey and is a Member of the Institute of Chartered Accountants in England and Wales with over 25 years’ experience in the Guernsey Finance Industry. Steve joined Dixcart in 2018, after 13 years productively spent establishing, and developing the Guernsey office for a leading Guernsey service provider. His particular focus was advising and servicing the larger and more complex structures for both institutional and private clients. Guernsey is a very attractive location for structures due to its zero corporate tax rates for the majority of companies established on the island relating in tax transparent structures for investors.

Charalambos Pittas

Director

BSc, FCA

charalambos.pittas@dixcart.com

Charalambos holds a BSc degree in Accounting and Finance, and he qualified as a Chartered Accountant in 2002, having completed his training with KPMG. In 2003 he moved to an International Information Technology company listed on AIM and later on WSE, where he served as the Finance Director of Western Europe. In early 2008 he was appointed Financial Controller when he moved to a Reinsurance company listed on CSE, which was acquired in late 2008 by a NYSE listed company. Charalambos moved to an Administrative Service Provider company in March 2010 until October 2018, where he was the Risk Assessment Manager

His direct involvement with multinational and multicultural companies and his wide exposure to various regulated environments and international business have enhanced his professional capabilities. His expertise is of direct relevance to the structures seeking to establish themselves in Cyprus and he is experienced in providing all of the management and accounting support required.

Charalambos also travels to meet prospective new clients and to detail the advantages available to companies established in Cyprus and for High Net Worth individuals seeking to relocate there.

He is a member of the Dixcart Risk Committee, assisting in providing advice and support, relating to compliance to all of the offices across the Dixcart Group. He advises on the relevant due diligence requirements relating to business acquisitions and is expert in providing support to ensure that all compliance requirements are fully met.

He is a member of the Institute of Chartered Accountants in England & Wales (ICAEW) and the Institute of Certified Public Accountants of Cyprus (ICPAC).

Steven de Jersey

Director

ACA

steven.dejersey@dixcart.com

Steve is responsible for the business development of the Dixcart Guernsey office along with leading the Corporate offering and promoting corporate and listing services throughout the Group. He also specialises in the establishment and administration of all forms of domestic and offshore corporate vehicles, investment trusts, foundations and partnerships for corporate, institutional and private clients.

He has specific experience in relation to holding structures, mergers and acquisitions, migrations, restructuring, refinancing, reorganisations, joint ventures, disposals, debt and equity, private placements, and listings.

In addition, Steve is responsible for private client structures and works closely with local and international advisors in administering traditional trust and foundation structures as well as the more recent trend in the use of Limited Partnerships. Steve also works closely with Locate Guernsey in order to aid individuals and families relocating to the island and potentially establishing a business here. He provides professional advice regarding each stage of relocating to Guernsey, aid in integrating into Island life and guidance to Guernsey’s beneficial tax regime.

Steve travels regularly to the UK, as well as other jurisdictions around the world in particular South Africa and works closely with the other Dixcart offices. He is regularly involved in organising networking events for professional contacts and clients.

In his spare time Steve enjoys an active life, being very involved in the rugby scene in Guernsey including playing for the Guernsey veterans’ team. Steve also plays for a local veterans’ football team as well as being a passionate motorsport fan.  He is also connected to the equestrian world with a close family member owning a horse and frequently competing in events locally and on the UK mainland.

Background

With the advent of Brexit, the UK Government has been taking a number of steps to demonstrate it is definitely ‘open for business’ and to position itself as an attractive location for new and expanding companies.

In the Budget on 3 March 2021, the Chancellor announced two new first year allowances:

• A superdeduction of 130% on qualifying plant and machinery;
• A 50% first year allowance on qualifying special rate assets.

Who Qualifies for the Relief?

To qualify for either allowance, the expenditure needs to be made by a company within the charge to UK Corporation Tax.

As such, sole traders and partnerships do not qualify.

Which Expenditure Qualifies for the Relief?

The expenditure must be on new and unused items: second hand purchases will not qualify.

The categories of qualifying expenditure for the 130% superdeduction are very broad and include:

• Plant;
• Machinery;
• Furniture;
• Computer equipment;
• Software;
• Vans (cars do not qualify).

Purchases qualifying for the 50% deduction, are those which would normally be treated as ‘special rate’ assets with a lower rate of capital allowances:

• Air-conditioning and air-cooling systems;
• Hot and cold-water systems;
• Electrical systems, including lighting systems;
• External solar shading;
• Lifts, escalators and moving walkways;
• Space and water heating systems;
• Thermal insulation of buildings.

When Does Expenditure Need to be Incurred?

The expenditure must be made between 1 April 2021 and 31 March 2023.

The contract cannot have been entered into, prior to 3rd March 2021, when the superdeduction and 50% first year allowance were announced.

Hire purchase contracts are included as qualifying expenditure, provided that the asset is in use by the year end.

What About the Annual Investment Allowance?

The Annual Investment Allowance (“AIA”) currently gives a 100% deduction on expenditure up to £1m. It has recently been confirmed that this limit will remain until 31 December 2021.

It would therefore make most sense to claim the superdeduction on expenditure qualifying for the130% deduction, and use AIA for special rate expenditure. The 50% first year allowance could then be claimed on expenditure in the special rate pool above £1m.

What if the Asset is Sold?

The rules are complex but, broadly speaking, if the superdeduction is claimed and the asset is then sold before 31 March 2023, a balancing charge will be payable in order for the enhanced relief to be clawed back.

Similar rules apply to the 50% first year allowance.

What Action Points Might There be for the Company?

Where the company capitalisation policy means that certain assets are not capitalised, this may be worth revisiting.

It might be beneficial to capitalise all assets in order that the 130% superdeduction can be claimed, rather than a100% P&L deduction.

Additional Information

For additional information regarding how these new allowances can be beneficial to a company established in England or Wales, please speak to Paul Webb or Sarah Gardner, in the UK office: advice.uk@dixcart.com.

Background

There has been discussion for many years regarding potential major changes to the way that international corporation tax is collected.

Reforms have previously been proposed by the EU, the United States and the Organisation for Economic Cooperation and Development (OECD).

So What Has Changed Recently?

Much has changed during the past eighteen months, but the most significant factor in this debate, is the change in Government in the US and the arrival of Joe Biden as President.

Janet Yellen, the new US Treasury Secretary, is also pivotal to this initiative and has long been a supporter of moves by the OECD to level the international corporate tax playing field.

What is Proposed?

The new President has already announced plans for a big increase in taxes on the ‘offshore earnings’ of US businesses.

The US aim is to effectively stop countries using corporation tax as a competitive tool to attract investment:

1. The US is proposing to implement a minimum global tax on its companies. A key proposal is a 21% minimum tax rate on global earnings. The US administration also proposes to change the way this tax would be levied, removing a key allowance exempting earnings below a certain threshold, and collecting the tax for each jurisdiction that the company operates in.

Using Ireland as an example, this would currently mean US companies paying a top up of 8.5% in the US, having paid 12.5% corporation tax in Ireland.

There is, however, a long way to go before the details and the new US tax rate are agreed.

• Momentum is also building regarding the OECD minimum tax plan. The US position, favouring a global minimum rate being agreed by all countries at the OECD, is gaining support from a number of countries including the larger EU countries.

Exactly what level this rate might be set at is open to speculation. Until recently a rate of around 12.5% was considered possible, but with the US now supporting a minimum 21%, there is likely to be much debate.

Eventual agreement might be reached, at OECD level, on a lower rate, for example 15% or 18%, but this is highly speculative. Equally speculative, is the possibility that the US might subsequently be willing to sets its international corporate minimum tax rate at the agreed OECD rate, rather than 21%.

The OECD Digital Tax Sales Plan

Another central pillar of the OECD programme proposes that multinationals pay tax on what they sell through digital channels, in the markets where they sell these services.

This is a change to current rules where profit is declared and tax paid in countries from where the digital sales are managed.

The US has supported a version of this plan which will have a significant impact on US companies. The US administration might well hope that in return, this will help win support from Europe and other countries for its minimum tax rate plan.

Commentary

It is a matter of concern that larger nations are looking to dictate tax policy to smaller nations which use their tax system to compete for inward investment.  Larger nations do however have a legitimate concern with regards to the artificial diversion of profits to low tax centres.

The combined efforts of the OECD and the US  mean that it is likely that they will use their influence to introduce a minimum international corporation tax rate.

Additional Information

Dixcart provides effective solutions for protecting wealth. For more information please contact advice.uk@dixcart.com or your usual Dixcart adviser.

Types of Partnership in Malta

A Malta Partnership offers an alternative way in which to set up a business in Malta. The Maltese jurisdiction allows two types of partnership: Partnership ‘En Nom Collectif’ (General Partnership) and Partnership ‘En Commandite’ (Limited Partnership). Regulation of these two partnerships is detailed in the Malta Companies Act.

Once the partnership is created, it has to be registered with the Malta Business Registry (MBR) and, if it is a Partnership En Commandite, the name of the partnership has to include “Limited Partnership (or LP)”.

The difference between a General and a Limited Partnership is the liability of the partners. While general partners have an unlimited liability, limited partner liability depends on how much each partner has contributed to the partnership. Nevertheless, any person who calls him/herself general partner, will have unlimited, joint and several liability with all other general partners, for the obligations established in the LP.

General Partnership (En Nom Collectif)

The Maltese law defines a General Partnership as a group of partners who act together, which is one of the most common structures. Individuals involved in this kind of partnership have collective and personal unlimited liability. This means, the Partnership En Nom Collectif can hold and/or own a property and can also be sued or sue in its own name. The main difference, in comparison to a company, is that when a partner is insolvent, retires or dies his interest in the partnership is liquidated.

Partners who receive income from the General Partnership must declare this income in their personal tax returns. The tax rate applicable will therefore depend on the individual’s personal tax rate. A partnership must have at least two partners that sign the Partnership Deed, which must then be sent to the Malta Business Registry, before the Certificate of Partnership is issued.

A General Partnership registered in Malta must have an office in Malta.

The Deed of Partnership must state; the name and address of each of the partners, the partnership name, details of the registered office in Malta, the objects of the partnership, the contribution of each of the partners, specifying the value of the respective contribution of each partner, and the period (if any) fixed for the duration of the partnership.

Limited Partnership (LP, En Commandite)

LPs have a legal personality separate to their partners and this responsibility lasts until the LP is dissolved. This means that LP’s have rights and obligations, they can hold or own property and they can sue or may be sued in their own name.

Taxation of LPs is the same as for companies, resulting in a potential effective tax rate of 5% on trading income and a potential effective tax rate of 10% on passive income, for non-Maltese resident shareholders.

The partners of an LP may either be general or limited partners. Partners are defined as “any person or body corporate”. General partners will manage the LP and be responsible for the debts, without limitation. Limited partners are not responsible for managing the LP, or for the debts of the LP. Decisions are made by the general partners, by simple majority.

In order to create an LP, three documents are needed: A ‘Partnership Deed’ signed by the initial partners, a ‘Partnership Registration Document’ delivered to the Malta Business Registry (MBR), and a ‘Certificate of Registration’, issued by the MBR.

The Partnership Deed must include; the names and addresses of the general partners, the name of the partnership, details of the registered office in Malta, the business objects, whether the capital is divided into shares or not, the period of the duration of the LP, a declaration that the Partnership Deed has been entered into and signed, and a specification of who the general partners are and who the limited partners are.

Limited Partnerships and Different Structures

An LP can be one of a number of different structures:

• Limited Partnership with Variable Share Capital. This kind of partnership must include “with Variable Share Capital (or VC)” in its name, in addition to “Limited Partnership (or LP)”. Unique features of this type of partnership, include; it cannot issue partly paid-up shares, and it may purchase or redeem its own shares directly or indirectly from its assets, as long as this is permitted in the Partnership Deed.
• Multi-Class Limited Partnership. A Share Capital Limited Partnership can be constituted as Multi-Class, when the capital detailed in the Partnership Deed is divided, or can be divided into different types of shares, class or classes of shares, without creating any sub-funds. The different share classes can be denominated in different currencies, similarly, the annual accounts may be in any one of these currencies.
• Multi-Fund Limited Partnership. A Share Capital Limited Partnership can be constituted as a Multi-Fund, when the capital detailed in the Partnership Deed is divided, or can be divided into different types of shares, creating different sub-funds. Different type of shares in different currencies are permitted in each sub-fund.

Taxation of Partnerships

Generally, a partnership is tax transparent and tax is levied at the partner level.

Malta Partnerships need to be registered for income tax purposes and the partners are required to keep partnership accounts and file a partnership tax return. Partnership income is deemed to be the income of each partner. The tax rate levied on each partner is therefore at the rate applicable to them individually, and will  depend on their country of residence and other circumstances.

Additional Information

For further information about partnerships 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.

Giriş

Yabancı portföy yatırımları olan Türk hissedarlara, özellikle de bu yatırımlarını İsviçre’de tutanlara, bu yatırımların mülkiyetini bir İsviçre şirketinde tutma seçeneğini değerlendirmelerini öneriyoruz.

Başlıca avantajları nelerdir?

a) İsviçre’de kâr %11,9 ila %14 aralığında vergilendirilir; Türkiye’de ise %25’lik bir kurumlar vergisi veya %40’lık bir bireysel gelir vergisi (marjinal vergi oranı) uygulanır.

b) Genel Raporlama Standardı (CRS) yönetmelikleri gereği Türkiye’ye sağlanması gereken bilgi miktarı azalır.

c) Türkiye ile İsviçre arasında 1 Ocak 2013 tarihinden bu yana yürürlükte olan bir çifte vergi anlaşması vardır.

Türkiye’deki Denetime Tabi Yabancı Şirket (CFC) Mevzuatı ve İsviçre Kurumlar Vergisi

Yukarıda açıklandığı gibi, İsviçre Şirketleri %11,9 ila %14 arası değişen (İsviçre’nin hangi kantonunda bulunduklarına bağlı olarak) kurumlar vergisi oranları ile cazip bir fırsat sunar. Bu da önemli bir avantajdır zira Türkiye’deki CFC kuralları uyarınca yabancı şirketin kurumsal vergisi %10’un üzerinde olduğunda yabancı şubelerin dağıtılmamış geliri ödenememektedir.

Yatırım Yapılan Para Birimindeki Dalgalanmalar

Yatırımlar Türkiye’deki bireysel ve kurumsal vergi mükelleflerinin mülkiyetinde olduğunda, Türk Lirasının büyük para birimleri karşısında dalgalanması vergiye tabi döviz kazançlarını tetikleyebilir. Türkiye’de, yatırım yapılan para birimindeki dalgalanmalar, reel bir kazanç sağlamasa bile vergilendirilir. İsviçre şirketleri ise reel bir kazanç elde etmedikçe yatırım yaptıkları para birimindeki dalgalanmalardan ötürü vergi ödemez.

İsviçre’de özkaynaklar satılmadıkları ve reel bir kâr sağlamadıkları müddetçe mali tablolara satın alma bedeliyle kaydedilir. 

Stopaj Vergisi

İsviçre şirketi bir Türk hissedara kâr payı dağıtırsa, bireysel hissedarlara %15, kurumsal hissedarlara ise %5 oranında stopaj vergisi uygulanır.

Türkiye’de gelir vergisine karşılık bir vergi indirimi imkanı sunulur.

Bilgi Alışverişi – İsviçre’deki Portföy Yatırımları

İsviçre ile Türkiye arasında bilgi alışverişi mevzuatı Ocak 2021’de yürürlüğe girmiştir ve 1 Ocak – 31 Aralık 2021 rapor dönemini kapsayan ilk veri alışverişi 2022’de gerçekleşecektir.

Alınıp verilecek bilgiler, İsviçre şirketinin Genel Raporlama Standardı (CRS) sınıfına göre değişecektir. İsviçre Şirketi tarafından sağlanan hizmetlere ve şirketin İsviçre’deki faaliyetlerine bağlı olarak, bu şirketler ve intifa hakkı sahipleri, CRS kuralları kapsamında nispeten şeffaf olarak kabul edilir. 

Daha Fazla Bilgi

Türk vatandaşlarının ve / veya şirketlerinin portföy yatırımlarını bir İsviçre şirketinde tutmaları hakkında daha fazla bilgi edinmek isterseniz, lütfen İsviçre’deki Dixcart ofisinden Christine Breitler veya Thierry Groppi ile iletişime geçin:  advice.switzerland@dixcart.com

Background

Many international organizations, such as the OECD, European Council and European Commission, are driving changes as to how businesses operate, with a focus on substance.  The international arena is changing, and with the implementation of Base Erosion and Profit Shifting legislation (BEPS) measures, it is becoming increasingly important to demonstrate real substance and genuine activity. Emphasis is placed on the requirement for an operation to have substance in the country or countries where activities are carried out.

Within international tax planning, substance has become an important consideration when setting up a new corporate structure and/or when restructuring an existing corporate structure.

Substance Considerations in Malta

There are no specific economic substance rules in Malta, but there are a number of recommendations that you should consider when setting up a company, to ensure that the company will remain tax resident in Malta.

• Members of the board of directors – a minimum 50% of the board members should be Maltese resident;
• The decisions of the board of directors should be taken in Malta and the minutes recorded locally through regular board meetings;
• Creation of economic substance in Malta, by renting an office and employing personnel.

Factors that Assist in Establishing Substance in Malta

There are a number of factors that assist companies to meet the recommended substance requirements in Malta:

• There is a large, well-educated pool of English speaking individuals available for employment. In recent years, in particular, there has also been an increase in affordable flexible working spaces.
• Malta’s geographical location makes it an ideal jurisdiction, as a base to travel to Europe and further afield.
• There are several financial assistance packages available to companies that set-up ‘real’ operations in Malta. A number of benefits relate to tax credits whilst other programmes reimburse successful applicants with up to 40% of their capital expenditure.

Benefits Available to Tax Resident Maltese Companies

Companies that are tax resident in Malta benefit from Malta’s full imputation system of taxation that allows generous unilateral relief and tax refunds.

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

• Active income – in most instances 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, shareholders can apply for a tax refund of 5/7ths of the tax paid by the company on the passive income used to pay a dividend. This results in an effective Maltese tax rate of 10% on passive income.

• Holding companies – the dividends and capital gains derived from participating holdings are not subject to corporate tax in Malta.
• There is no withholding tax payable on dividends.
• Advance tax rulings can be obtained.

Summary

Meeting the substance requirements increases costs for a company, but the potential risk of being challenged by the tax authorities, for a lack of substance, would definitely be far more costly and onerous, for the company to deal with.

How Can Dixcart Help and the Dixcart Business Centre in Malta

Dixcart Management Malta Limited provides a comprehensive range of incorporation, secretarial and management services for companies registered in Malta, including companies and international companies that are managed through the Dixcart Malta office. 

Dixcart Malta has a Business Centre within our office building, and this Business Centre offers serviced offices and a productive work environment. It can be a cost-effective option for organisations with international interests, wishing to operate from Malta.

The Dixcart Business Centre is located in the prime area of Ta’Xbiex, close to the capital, Valletta. The building is iconic and has been faithfully restored to retain its boat like shape. It incorporates a delightful roof terrace and a unique and memorable bespoke chandelier in the reception area. An entire floor is dedicated to serviced offices. There are nine serviced offices in total, accommodating between one and nine people, there is a kitchen and a boardroom is available for meetings.

Additional Information

If you would like further information regarding companies and substance in Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com, at the Dixcart office in Malta or to your usual Dixcart contact.

There are several advantages for using corporate structures, especially those registered in financial hubs such as the Isle of Man.

They can be used to help mitigate taxes, hold luxury assets, hold investment portfolios, or as part of appropriate succession planning.

Isle of Man companies benefit from a 0% standard rate of corporate income tax, 0% stamp duty, 0% capital gains tax and no annual filing of accounts for private companies.  

What can you do with an Isle of Man Corporate Structure?

• Own assets such as ships, aircraft, and works of art.
• Hold UK or foreign property.
• Hold investment portfolios and participations in other companies. This is due to the zero rate of tax on such activities and where withholding taxes on dividend income from such companies may not apply.
• Hold intellectual property.
• Act as an employer for international workers.
• Receive international income, commissions, and royalties.
• Be part of business structuring and re-structuring.
• Convert immovable assets, such as land, into movable assets, such as shares.
• Incorporate as part of succession planning and asset protection.
• Incorporate as part of tax planning.
• Isle of Man companies wishing to borrow money from banks benefit from being in a well-regulated jurisdiction with a public register of mortgages and other charges.

Formation of Companies in the Isle of Man

Isle of Man companies can be formed and regulated under two separate Acts: the Isle of Man Companies Act 1931 and the Isle of Man Companies Act 2006. More information can be provided on request.

Dixcart in the Isle of Man can provide full management and control of companies, as well as offering advice regarding the statutory obligations for companies incorporated in the Isle of Man and compliance with substance rules requirements. 

The Isle of Man is home to businesses operating in a wide variety of sectors.  The Manx Government has actively encouraged the financial sector. Consequently, the island is extremely well served by international service providers, fully licensed and regulated banks, and insurance companies.

How Dixcart Can Help

Dixcart provides a comprehensive incorporation service in the Isle of Man. We initiate the organisation and incorporation of companies in many locations around the world and can provide ongoing management and secretarial services to those companies. Dixcart managed companies are established with a complete corporate organisation. This includes the maintenance of statutory records, preparation and completion of financial statements and full documentation relative to the operation of the company. Dixcart can also assist with serviced office and support facilities for clients requiring a physical presence on the island. 

We have a strong network of contacts within the wider professional and commercial sectors, both on and off the island, and can introduce businesses to relevant individuals where appropriate.

If you require additional information regarding this subject, please contact Paul Harvey in the Isle of Man office: advice.iom@dixcart.com.

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

This Article identifies three important trends that need to be considered by companies operating internationally:

• Tax structuring and the increasing emphasis on transparency and compliance
• Global technologies and emerging markets
• Increasing importance of the flow of information

Each of these has a significant impact on the most appropriate corporate structure to achieve long term goals.  

Tax Structuring: Tax Transparency, Compliance and Social Responsibility

Changes in the law and public opinion in recent years, have made companies recognise that their tax affairs need to be, not only transparent and compliant, but also that they need to be seen to be responsible and to be paying a ‘fair’ amount of tax.

The United Nation’s Sustainable Development Goals (SDGs) were detailed in 2012, and consist of 17 goals that focus on economic growth, social development and environmental protection for countries and their populations. These goals require significant investment and the implementation of effective tax systems to generate the resources needed. Developing countries are being encouraged to reduce tax leakage and to direct tax revenue gains towards those most in need.

International tax cooperation and enhanced exchange of information, under the automatic exchange of information standards developed by the OECD and the G20, are additional measures designed to reduce tax evasion and under reporting of tax revenue.

The move to regulate fiscal behaviour is ongoing. International government organisations and domestic tax authorities have issued rules and legislation to curb tax evasion. For example, BEPS (OECD), ATAD (EU), and a large number of institutions and regulatory bodies are putting measures in place and re-affirming this approach.

Rules on mandatory reporting of certain tax transactions was adopted by the Economic and Financial Accounts Council (ECOFIN) of the European Commission in 2018, and exchange of this information by all member states of the EU, commenced in October 2020. 

The priority for professional advisers, such as Dixcart, continues to be to  help minimise a company’s tax cost whilst at the same time ensuring full compliance with laws and regulations relating to the company’s tax affairs.

Global Technologies and Emerging Markets

Innovation has become increasingly global due to the rate and variety of technological advances. Globalisation has led to  tasks that were performed at a single location within one country, being spread across different locations and countries.

The advantages include; carrying out the work where the best expertise exists, lower costs, and potentially mitigating risk by using alternative centres for production and/or service provision.

Internationally, China and India are now major sources of global demand, each with distinct consumer needs. In addition, both countries  are becoming sources of talent for developing new products and processes.

On the customer side, many organisations have been making efforts to move faster, and make more decisions locally. Simultaneously there have been opportunities to re-assess functions such as product development and R&D, relocate them, possibly across several countries, and integrate them across the world.

The world today is far more integrated than ever before but the rising friction between China and the US could weaken this. Covid-19 has not helped either.  The pandemic has made countries inward looking, and the demand for self-sufficiency has risen especially with regard to products relevant to health.  Hopefully, this will be a momentary ‘blip’ as the costs of deglobalisation could be high.

 Increasing Importance of the Flow of Information

The digital revolution and remote working, which has accelerated significantly in 2020 and 2021 due to Covid-19, mean that organisations need to place great emphasis on the efficient flow of information, and this increases the need to keep employees happy and engaged. Each employee needs to be enabled to think and communicate effectively.

Communication and collaboration are now far more important and increasingly employees are asked for their input and are involved in helping an organisation move forward, in the right direction.

Increased accountability is now expected across the employee spectrum and there is a deeper appreciation that communication and organisational structure is central to a businesses’ success, as well as to its culture and values.

Summary and Additional Information

If you would like to discuss any of the matters raised in this article, or have any other questions, please contact us: advice@dixcart.com.

Background

Once it has been decided that the UK is the correct location to establish a business, the next key decision is how this should be structured. One of the most popular structures is a limited company.

Recruiting high quality staff is also a priority and the availability and tax efficient nature of UK share option schemes can help achieve this objective.

Situations Where a Limited Company is Most Appropriate

Limited companies can offer a number of advantages.

They can be of particular benefit where:

• The business is being set-up with other people;
• There is a wish to incentivise staff though share schemes;
• The company will be receiving external funding;
• The company will be claiming Research and Development tax relief (R&D).

Forming a Company in England & Wales

The company formation process is relatively quick and easy.

All you need to start a company is an address within England & Wales for the registered office, at least one shareholder and at least one director (these two may be the same person). There is no minimum initial cash investment and the company can be formed in a matter of hours.

Why Use a Limited Company?

The main benefit of a limited company is the limited liability of the company’s officers and shareholders. This means that unlike the situation of a ‘sole trader’ or ‘partnership’ personal assets are not at risk in the event of a failure of the business.

Other considerations are:

• The company has a legal existence separate from its management and its members (the shareholders).
• The company’s name is protected.
• The company continues despite the death, resignation or bankruptcy of the management and/or members.
• The interests and obligations of management are defined.
• Appointment, retirement or removal of directors is straightforward.
• It is an easy process to gain new shareholders and investors.
• Employees can acquire shares.
• Companies are often perceived as more robust and more business-like than sole traders.
• Companies can provide tax advantages such as lower tax rates, R&D incentives, extraction of profits via dividends, etc.

Recruiting and/or Incentivising Employees Using Share Schemes

Finding the right calibre of staff is vital to the success of a business, wherever it is located.

Employers in the UK often use share schemes to recruit important members of staff and as a way of incentivising employees to work hard and remain with the business for the medium to long term.

There are a number of ways to do this, as detailed below. The most popular is the Enterprise Management Incentive (EMI) share option scheme as it is particularly tax efficient:

Enterprise Management Incentive (EMI)

Eligible companies frequently use an EMI share scheme, because the tax advantages are attractive. The EMI share option scheme is Government approved, tax beneficial and a very flexible way of incentivising staff.

Under the EMI scheme, options are issued over an agreed number of shares. No tax is paid when the option is granted. When the option is exercised, which means converted into shares, there is no tax to pay provided that the agreed exercise price is no lower than the market value of the shares on the day that the option was granted.

When the shares are sold, the capital gain is usually taxed at 10% in situations where ‘Business Asset Disposal Relief’ (previously known as Entrepreneurs Relief) is available.

Growth Share Scheme

Where companies cannot use EMI, a growth share scheme is often used instead. This type of scheme is not appropriate for a start-up, it is only relevant to an established company.

Under this share scheme, on the sale of a company employees benefit only from the growth in the value of the shares, not the historic value built up until the date of the share issue. This is achieved by valuing the company and then issuing shares of a different class, which only benefit from value generated above an agreed threshold.

For example, if the company is worth £10m, a growth share scheme may allow holders to share in the proceeds, only if they exceed £12m. The value of the growth share, on issue, would be low because it would not have the ‘right’ to any of the value built up previously. Income tax charged on acquisition of the shares would consequently be low.

Phantom Share Scheme

A phantom share scheme is essentially a cash bonus scheme.

This arrangement allows an individual to receive a cash payment equal to the value of shares, or the increase in value of shares, above a notional exercise price. No actual shares or share options are issued. The idea is that individuals are incentivised because the level of any payment is linked to an increase in the value of the company’s shares.

Additional Information

If you would like additional information regarding setting up a company in the UK and using a share scheme to recruit or incentivise staff, please speak to Paul Webb or Sarah Gardner at the Dixcart office in the UK: advice.uk@dixcart.com

The Dixcart office in the UK has extensive expertise in forming UK companies, establishing the most appropriate corporate structure and meeting all relevant compliance obligations. Dixcart UK is also experienced in building EMI schemes to meet specific needs and liaising with the UK tax authorities (HMRC), to gain advance approval and for the drafting of relevant share option agreements.