Category: Corporate Services

Establishing a Malta Company

Malta is a beautiful Mediterranean island and is equipped with a high-tech infrastructure that those wishing to establish a commercial operation would expect to find in an international financial service centre.

Additional advantages include; the corporate tax regime, investment and immigration opportunities, fiscal and social benefits, a distinctive lifestyle and a stable economic ecosystem.

Here we examine ten key reasons why businesses look to relocate to Malta.

Reason 1: Opportunities in the stable financial services sector

Building on the success of its robust banking industry, Malta has taken the opportunity to style itself as a European financial service centre and the jurisdiction of choice, for funds in the Mediterranean.

Malta offers a great selection of innovative funds structures, including:

• The Professional Investor Funds, commonly referred to as PIFs, are the Maltese hedge fund that does not fall under the AIFMD.
• Alternative Investment Funds (AIFs).
• UCITS (retail funds).
• Private Funds.

Malta is a member of the European Union and part of the Euro-zone, with the local economy being based on the Euro. This alleviates any foreign exchange issues for companies operating within the European Union.

Malta Enterprise sustains and assists newly formed enterprises and aspiring businesses to start operating profitably from day one. A series of beneficial incentives exist for foreign investors, small to medium-sized enterprises, and mega business set-ups. Some attractive support measures include; Micro Invest, Business Advisory Services, Development and Research Grant Schemes, Business START and more.

Reason 2: Tax and legal framework

Malta was one of the few European countries to adopt a complete imputation system, which is one of the main advantages of Malta’s tax system, along with the fact that Malta has an extensive network of double taxation agreements and a refundable tax credit scheme. Malta does not withhold tax on dividends paid to shareholders.

A Company established in Malta would have to account for tax on worldwide income and is typically taxed at the standard corporate tax rate of 35%. However, upon distributing dividends to a non-Maltese resident shareholder, such a shareholder becomes eligible to a tax refund on the Malta tax paid at the company level. The final tax leakage, after the refund is between 5% and 10%.

In addition to the traditional Limited Liability Company, Malta can offer Partnerships – an alternative vehicle to set up a business.

Reason 3: Simple re-domiciliation of companies

A company formed and incorporated or registered under the laws of an approved foreign country, which is similar in nature to a company as recognised under the laws of Malta, may make a request to the Malta Business Registry of Companies to be registered as ‘continued’ in Malta, provided the laws of the foreign country allow this, and provided the company is authorised to do so by its constitutive documents. 

The request to the Malta Business Registry of Companies must be accompanied by a specific pack of documents.

Reason 4: Business support services

Outsourcing any support required to ensure that all business needs are met, can prove to be a valuable cost-saving exercise. Malta boosts a number of professional service providers, such as Dixcart, that can efficiently handle all of the relevant corporate requirements in Malta.

Such services include; submission of annual returns to the Malta Business Registry, provision of director services, secretarial services, auditing and accounting, payroll, recruitment, employment law, compliance and regulatory advice.

Malta is also well-known within EU as a fast developing  Eco-friendly Jurisdiction. Please let us know if you would like any further information regarding the initiatives being developed in Malta and how these might be of benefit: advice.malta@dixcart.com.

Reason 5: Labour force

The workforce in Malta is highly renowned for its qualified and multi-lingual population which consists of both local and foreign workers. In addition to Maltese, English is an official language in Malta, making communication easy within the business itself and also with the Government and clients worldwide.

Italian is also widely spoken and professionals with a good grasp of French, German, Spanish and other languages are common too.

Reason 6: A perfectly located island

Despite being an island, Malta is highly accessible via both sea and air transport links to main and subsidiary airports in mainland Europe, North Africa, Turkey & UAE. Regular and frequent flights to and from Malta are operated by numerous airlines that make use of Malta International Airport.

Malta has flights departing and arriving from key capital cities, ranging from Berlin to Milan to Algiers, Warsaw, Istanbul, and Dubai amongst others. Not only does Malta boast its own national airline, but its airport welcomes a host of major airlines including low-cost ones. For the last decade Malta has become known as a respected Aircraft Hub.

Reason 7: Biggest yacht registry in the EU

Currently, Malta has the largest shipping register in Europe and the sixth largest in the world. In addition, Malta has become a world leader in commercial yacht registration.

The Maltese authorities are approachable and flexible in their practices, while at the same time meticulously follow a rigid framework of guidelines and regulations. This has helped create the cutting edge, for which Malta is known in this sector.

Dixcart Malta is very experienced in and more than happy to help with Yacht Registration.

Reason 8: IT Infrastructure

Malta is relatively advanced when it comes to IT infrastructure.

Types of services include; co-location and hosting services, data centres, cloud services and internet services. Robust government information systems architecture combined with established service providers, ensures that anyone interested in doing business in Malta will have access to secure, affordable, efficient, and reliable systems.

The new residential programme for Digital Nomad in Malta is open to third-country citizens who would usually need a visa to travel to Malta. Funding is also available for IT and Fintech Business in Malta. Malta is also one of the first countries to have nationwide 5G Data coverage.

Reason 9: Immigration and investment incentives

Third Nationals Country nationals can relocate to Malta and get a work permit with an Employer in a transparent procedure through the online application system supported by the Employer. This process is available for applications when abroad and when the individual is already in the Malta. In addition, some programmes are designed for fast-track highly qualified people and can generate tax benefits, such as Highly Qualified Persons (HQP)and professionals in Key Employment.

Additionally, there are nine citizenship and residence programmes are available, allowing qualifying persons that satisfy a robust due diligence process to take up Citizenship or Permanent and Global Residency in Malta. 

Reason 10: Entrepreneurial climate and safety

Major credit rating agencies repeatedly rate Malta as a solid and stable economy, and many prominent economists, describe Malta’s economy as highly stable. This translates into a secure economic climate which is also protected by highly regularised industries, a robust anti-money laundering system and an extremely low probability of natural disasters.

Even during the COVID-19 pandemic, Malta’s economic size made it possible to get back on its feet after a shorter time than many larger economies. Malta’s population has one of the highest rates, of not only being fully vaccinated but already having received booster injections, in Europe.

Additional Information

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

Background

We, at Dixcart in the UK, are asked several times a week if we provide UK resident directors, in order that a UK company owned and sometimes controlled from overseas, can open a UK bank account.

The position is not so simple. Before a UK bank will open a bank account for a UK company that is owned from abroad, there are many compliance and commercial hoops to jump through. Appointing a UK resident director will not magic these away.

Bank Accounts

Banks will not be willing to open accounts where they do not see the opportunity to make a profit. If the proposed account will receive a dividend once or twice a year which is then paid on, leaving only enough to pay the costs of the company, the banks will conclude that the compliance cost of opening such an account will far exceed the money that can be made by providing that banking service. It is just common sense.

Incorporation of a UK Company Run from Outside the UK

Many overseas companies who want to ‘dip their toe’ into the UK market will often want to incorporate a UK company but run it from outside of the UK. They then find it difficult or impossible to open a UK bank account with the end result that we receive several requests every week to act as a director of a UK company owned from outside of the UK. 

UK Director Responsibilities and Associated Fees

Many might think that a professional at Dixcart would be willing to be named as a UK resident director, sign a bank application, and then occasionally sign things as and when requested. 

In reality, if you are a director, you have onerous responsibilities and really need to understand the business, take the key decisions for that business, and ensure that you manage and control that business. 

Clearly one would take the advice of clients, but at the end of the day the ‘buck stops’ with the director. That is why the cost of this service normal carries a risk fee of £5,000 per annum plus a charge for the director’s time costs. In addition, Dixcart would only be willing to accept the position if Dixcart UK did all of the; accounting, company secretarial and tax compliance services for the company. For a relatively quiet holding company the total annual cost is likely to be a minimum £20,000 per annum plus VAT at 20%.  For a trading company the cost is likely to be greater.

The First Year of Operation

In the first year the costs would be higher because you would also have set up fees including; company formation, VAT registration, ICO registration and dealing with commercial contracts and shareholders agreements. The time spent dealing with the potential bank is also likely to be significant, without the guarantee of successfully opening an account.

What are the Banks Looking For?

The banks will typically want to see a business plan that clearly sets out the business opportunity and has budgets and cash flows. They will expect to know who the likely customers and suppliers will be and the size and frequency of deals. They often want to meet the people behind the business and understand how their business is to be done and be confident that there are sufficient human resources to run the business from the UK. Clients are more likely to be successful if they try and open the account with a UK correspondent of the home country bankers.

There are some industries and geographic locations that most banks just will not do business with. Any structure that looks like its prime purpose is tax planning, they will not be keen on either.

Tax Residency Needs to be Considered

The question of tax can be problematic, where the company is in effect being run from outside the UK, as it is likely to mean that, even if you have UK resident directors, the company may be tax resident in the jurisdiction of the individuals managing the day-to-day activity of the company. 

UK companies are tax resident in the UK by virtue of the place of their incorporation. The exception to the rule is where a double tax treaty deems them to be resident in another country. This would typically happen where there is a tie breaker clause in the double tax treaty with the UK, and management and control are not in the UK.

Re-domiciliation of Companies to the UK

The UK is keen to attract genuine businesses to the UK. As well as attracting new businesses the UK is interested in attracting existing businesses to move to the UK. The UK has recently carried out consultation on the introduction of legislation to permit the re-domiciliation of foreign companies into the UK.

Normally when an overseas business wants to set up in the UK, they will want to send people from their own organisation to get things going. There are various visas that can be applied for, and the UK company will need to apply for a sponsor licence. Our Dixcart immigration lawyers can assist with advice regarding visas and guide you through the application process.

What can Dixcart do to Help?

For genuine businesses, with a well thought out business proposal Dixcart can definitely be of help. 

We are a team of Accountants, Lawyers, Taxation, and Immigration advisors who work together to assist new businesses successfully establish themselves in UK. We also operate a business centre with high quality fully furnished offices of varying sizes.

If you wish to discuss setting up a business in the UK, please contact the Dixcart office in the UK: advice.uk@dixcart.com.

As an EU member state, Cyprus offers a pleasant climate, adequate infrastructure and a convenient geographical location. There are two main airports which provide frequent flights to most European cities as well as several international destinations. Cyprus has positioned itself well as a country of choice for both individuals and corporations, through the various tax incentives and benefits.

The numerous tax incentives offered has seen a steady flow of EU and non-EU nationals establishing their business operations in Cyprus. In addition, individuals find Cyprus a tax efficient location to structure their personal tax positions by taking advantage of flexible tax resident rules and the Non-domicile tax regime.

Cyprus is a common law jurisdiction and its justice system is based on the adversarial model. Cypriot law has been modelled on English common law.

Cyprus also has access to all EU directives as well as an extensive network of double tax treaties.

Corporate Tax Benefits

EU and non-EU nationals have the option to either establish a new company in Cyprus or migrate an existing business to Cyprus. English is widely spoken in Cyprus and staff can be easily sourced on the island. Most professionals have obtained their degrees from a UK university.

Once a company is established it can then access the tax incentives that are available.

The corporate tax rate in Cyprus is currently 12.5%, which is one of the lowest corporate tax rates in Europe. In addition, companies can apply the Notional Interest Deduction (NID) which can further reduce the overall corporate tax rate. NID was introduced in 2015, to reduce discrepancies in the tax treatment of equity financing compared to debt financing, and to promote an incentive for capital investment in Cyprus. NID is deductible, in the same manner as interest expenses, but it does not trigger any accounting entries as it is a ‘notional’ deduction.

Companies can also distribute dividends free of withholding tax. Dividends are, however, subject to contributions to the General Health System (GHS) at the rate of 2.65%, although there is a maximum cap of €180,000.  

 Summary of Corporate Tax in Cyprus

The following sources of income are exempt from corporate income tax:

• Dividend income;
• Interest income, excluding income arising in the ordinary course of business, which is subject to corporation tax;
• Foreign exchange gains (FX), with the exception of FX gains arising from trading in foreign currencies and related derivatives;
• Gains arising from the disposal of securities.

Personal Taxation

• Tax Residence in 183 days

If an individual becomes tax resident in Cyprus by spending more than 183 days in Cyprus in any one calendar year, they will be taxed on income arising in Cyprus and also on foreign source income. Any foreign taxes paid can be credited against the personal income tax liability in Cyprus.

• Tax Residence under the 60 Day Tax Rule

An additional scheme has been implemented whereby individuals can become tax resident in Cyprus by spending a minimum of 60 days in Cyprus, provided that certain criteria are met.

• Non-Domicile Tax Regime

Individuals who were not previously tax resident can also apply for non-domicile status. Individuals who qualify under the non-Domicile Regime are exempt from tax on; interest*, dividends*, capital gains* (apart from capital gains derived from the sale of immovable property in Cyprus), and capital sums received from pension, provident and insurance funds. In addition, there is no wealth and no inheritance tax in Cyprus.

*subject to contributions to the General Health System at the rate of 2.65%.

Salary Income in Cyprus

On the 26^th of July 2022 the long-anticipated tax incentives for individuals have been implemented. As per the new provisions of the income tax legislation, a 50% exemption for income in relation to first employment in Cyprus is now available for individuals with annual remuneration in excess of EUR 55.000 (previous threshold EUR 100.000). This exemption will be available for a period of 17 years.

Additional Information

If you would like additional information about Cyprus residency and business relocation to Cyprus, please contact the Dixcart office: advice.cyprus@dixcart.com.

Background: Cyprus Companies

The reputation of Cyprus as an international financial centre has grown significantly over recent years. Cyprus is an attractive jurisdiction for trading and holding companies and offers a number of tax incentives.

The corporate tax rate in Cyprus 12.5%, which is amongst the lowest in Europe.  Another feature is that Cyprus companies are not subject to Capital Gains Tax. In addition, Cyprus has over 60 double tax treaties to assist with international tax structuring, finally, as a member of the EU, Cyprus has access to all European Union Directives.

Tax Residency

A company that is managed and controlled from Cyprus is considered to be tax resident in Cyprus.

What is Notional Interest Deduction and When Does it Apply?

Cyprus tax resident companies and Cyprus permanent establishments (PEs), of non-Cyprus tax resident companies, are entitled to a Notional Interest Deduction (NID), on the injection of new equity used to generate taxable income.

NID was introduced by Cyprus in 2015, to reduce discrepancies in the tax treatment of equity financing compared to debt financing, and to promote an incentive for capital investment in Cyprus. NID is deductible, in the same manner as interest expenses, but it does not trigger any accounting entries as it is a ‘notional’ deduction.

What Tax Advantages are Available Through the Use of Notional Interest Deduction?

NID is deducted from taxable income.

It cannot exceed 80% of the taxable income, as calculated prior to Notional Interest Deduction, arising from the new equity.

• A company could therefore achieve an effective tax rate as low as 2.50% (income tax rate 12.50% x 20%).

Initially, the NID rate was defined as; the 10 year government bond yield, as at 31 December of the year preceding the tax year the NID is claimed, of the country in which the new equity was employed, plus a 3% premium. This was subject to a minimum rate equal to the yield of the 10 year Cyprus government bond plus a 3% premium.

• Since January 1, 2020 the NID rate has been defined as; the interest rate of the 10 year government bond yield of the country in which the new equity is invested, as published annually, plus a 5% premium. The interest rate of the Cyprus 10 year government bond will no longer be used as a general minimum rate. It is only deemed to be relevant, when the country in which the new equity is invested has not issued any government bonds, as of 31 December the year preceding the tax year the NID is claimed.

Additional Information Regarding the Taxation of Companies in Cyprus

The following sources of income are exempt from corporate income tax:

• Dividend income
• Interest income, excluding income arising in the ordinary course of business, which is subject to corporation tax
• Foreign exchange gains (FX), with the exception of FX gains arising from trading in foreign currencies and related derivatives
• Gains arising from the disposal of securities.

Deductible Expenses

All expenses incurred wholly and exclusively in the production of income are deductible when calculating taxable income.

Additional Information

If you would like additional information about the notional interest deduction and the advantages it can offer, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Background

Dixcart Trust Corporation Limited provides a suite of outsourced professional company secretarial services for listed companies which trade on worldwide stock exchanges. This includes the provision of a professional company secretary who will also advise on current governance matters.

What Services Can Dixcart Offer?

• Provision of a chartered governance professional (ACG) (Chartered Secretary) with 22 years of listed company experience with clients trading on stock exchanges in the UK, Canada, USA, and Australia.
• Management of Board and Committee meetings: pre-meeting discussion with Chairs; draft agendas; circulate meeting materials; attend and act as recording secretary; prepare initial ‘To Do’ list from the meeting and provide minutes.
• Assistance with ongoing regulatory compliance for the listed company.
• Assistance in preparing AGM meeting materials.
• Provide advice on corporate governance practices, including the preparation of a full suite of corporate mandates / charters / policies.
• Monitor corporate governance compliance to ensure best practices are being maintained.
• Undertake annual Board assessments and tabulate results in a confidential manner.
• Administer compensation plans.
• Function as warrant agent for the listed company.
• Function as the liaison for the listed company with the registrar, professional advisors and corporate stakeholders.
• Minute Book custody in both hard copy and electronic format.
• Provision of an administrative substance expected of operating companies.

Private Companies

Many private companies require their internal governance to be at the same level as that of a listed company, especially where the shareholders have invested significant financial capital.

Dixcart can work with management and the Board of these companies to determine and implement an appropriate level of corporate governance policies and processes. This is particularly of interest to a private company that is seeking an exchange listing as part of its short to medium-term corporate strategy.

Attendance at Meetings

Many Board and Committee meetings are held by video conferencing platforms. However, the Dixcart Guernsey office is only a short thirty-five-minute flight to London by air and has excellent transport links to other key UK airports, which enables easy access to European and international connections, attendance in person for Board and Committee meetings is easily facilitated.

What Advantages Does Dixcart Offer?

Dixcart provides effective and efficient solutions to listed company clients, using experience gained over 22 years.

The cost effective solution for a listed company is to outsource the company secretary role until there is a requirement to engage a full time in-house person. Dixcart is well positioned in this market to provide an experienced company secretary, whether as an officer position or in an advisory role.

Further Information

For further information on this topic please contact your usual Dixcart adviser or speak to Shaun Drake in the Guernsey office: advice.guernsey@dixcart.com.

Malta is a popular choice for companies and new businesses as it is a reputable EU jurisdiction and ‘sunshine’ island, with an ‘outdoor’ lifestyle in a clean and safe ecological environment.

The sustainability movement exemplifies the positive impact that individuals can have on their environment. Dixcart aim to contribute to this cause by supporting the island’s foremost organisations which are working towards preserving our environment.

In this article, we consider eco-friendly projects and the opportunities that are available in Malta. 

1. Corporate Social Responsibility (CSR) projects

If you are looking for a way to enhance your company’s CSR profile, we can provide an opportunity for your team to make a positive change that will last much longer than their trip to Malta. Set up a company in Malta, with Dixcart’s assistance, and drive research and development to focus on eco-friendly projects.

Specific financial support is available to reduce single-use plastic usage at events taking place in Malta. Over the past few years, businesses in Malta have done much to reduce the amount of single-use plastic at events. Biodegradable alternatives to plastic cutlery, plates, and straws, for outdoor events, is in demand. 

Currently there is a financial aid scheme, that offers shops in Malta up to €20,000 to transition to retailing plastic-free and reusable packaging alternatives. 

This eco-friendly retail investment grant will cover up to 50% of the expenses incurred in moving away from single-use packaging to a more sustainable method of consumption.

At the beginning of 2022, the Maltese Government stopped the importation of plastic cotton bud sticks, cutlery, plates, straws, beverage stirrers, balloon sticks, and polystyrene containers and cups.

The project also aims to incorporate innovative and sustainable technology, such as solar paving, smart benches, and smart solar bins.

• Encourage enterprises to invest in sustainable and digitalised operations

The demand for greener travel will continue to increase in the future, and so will the expectations of ‘green’ travellers, who will demand more than the traditional water and energy-saving measures. These developments will put destinations and travel companies under increased scrutiny by discerning holidaymakers, and destinations and service providers who demonstrate a tangible commitment to the natural environment will become even more attractive.

To further encourage enterprises to invest, businesses in Malta can benefit from up to €70,000 to implement projects which lead to more sustainable and digital processes.

The ‘Smart & Sustainable Scheme’, managed by Malta Enterprise, incentivises more competitiveness and better use of resources, enhancing the economic activity of these businesses.

Through the Smart & Sustainable Scheme, businesses are entitled to receive 50% of the total eligible costs, up to a maximum €50,000 for each relevant project.

Businesses fulfilling the criteria for this scheme may also benefit from a tax credit of up to €20,000 for each product which satisfies at least two of the three conditions, as detailed below:

1. New investment or an expansion in Gozo.
2. A project that an enterprise will implement in a start-up phase.
3. A reduction in carbon usage by the enterprise, as determined through an independent auditor.

If a project satisfies one of the above criterion, the tax credit will be a maximum €10,000.

        3. Water quality and Blue Flags awarded local beaches

The quality of water is also an essential aspect of the sustainability of tourism. Following the investment in the purification process of sewage water at various outfall treatment centres, the quality of sea water around the Maltese Islands has improved. It is now considered one of the best in Europe. This is also being reinforced by the increase in the number of Blue Flags awarded to local beaches.

€150 million funding, the biggest ever, for a project in Malta, is enabling the Water Services Corporation to produce more water, recycle used water, and improve energy efficiency.

Desalination plants are being upgraded, and more seawater can be processed. This means that far less water will need to be taken out of ground-based sources – about four billion fewer litres each year. In Gozo, a plant using advanced ‘reverse osmosis’ technology boosted daily water production by nine million litres a day.

These initiatives are known collectively as the ‘Net Zero Impact Utility’ project, and they are cutting edge in terms of sustainable water production usage across Malta and Gozo. EU investment in this project has helped make this “holistic” and sustainable approach possible.

Malta Tourism Authority’s ‘Eco-certification Scheme’ creates more awareness and promotes sound environmental practices amongst hotel operators and other providers of tourist accommodation. This voluntary national scheme has now expanded from initially being just hotels to include other forms of accommodation. As a result, it is credited with raising standards in environmental practices within this highly important sector.

The Future of the Green Economy in Malta

In 2021, the European Commission unveiled the ‘New European Bauhaus’ initiative, an environmental, economic, and cultural project aimed to design ‘future ways of living’ in a sustainable manner. The new project is about how we live better together with the environment, after the pandemic, while respecting the planet and protecting our environment. In addition, it is about empowering those who have potential solutions to the climate crisis.

The Malta Government plays an active role in deciding how financial resources are allocated between competing uses, at present and in the future. Infrastructure development is one such future-focused investment, including plans to invest in Malta’s industrial zones and estates. There are also schemes to support start-ups through venture capital. The support and strategies aimed at a green transition feed into and support a greener economy.

Your eco-friendly start-up or extending an existing business in Malta, can be part of these exciting changes and a ‘new page’ in the NextGen post-pandemic economy.

Additional Information 

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

Background – What the UK Offers as a Tax Efficient Jurisdiction

The UK is one of the world’s leading financial countries given its financial services industry and its robust corporate law and governance frame works. This information concentrates on its highly competitive corporation tax system for holding companies.

One of the UK Government’s key ambitions has been to create the most competitive tax system in the G20. It has developed strategies to support, rather than hinder, growth and to boost investment.

Through the implementation of these strategies the Government is aiming to make the UK the most attractive location for corporate headquarters in Europe.

In order to achieve this the UK Government has created an environment where:

• There are low corporate taxes
• Most dividend income is tax exempt
• Most share disposals are tax exempt
• There is a very good double tax treaty network to minimise withholding taxes on dividends, interest and royalties received by a UK company
• There is no withholding tax on the distribution of dividends
• Withholding tax on interest can be reduced due to the UK’s double tax agreements
• There is no tax on profits arising from the sale of shares in a holding company by non-resident shareholders
• No capital duty is applicable on the issue of share capital
• There is no minimum share capital
• An election is available to exempt overseas branches from UK taxation
• Informal tax clearances are available
• Controlled Foreign Company Legislation only applies to narrowly targeted profits

Tax Advantages in More Detail

• Corporation Tax Rate

Since 1 April 2017 the UK corporation tax rate has been 19% but will increase to 25% with effect from 10^th April 2023.

The 19% rate will continue to apply to companies with profits of no more than £50,000 with marginal relief for profits up to £250,000.

• Tax Exemption for Foreign Income Dividends

Small Companies

Small companies are companies with less than 50 employees that meet one or both of the financial criteria below:

• Turnover less than €10 million
• Balance sheet total of less than €10 million

Small companies receive a full exemption from the taxation of foreign income dividends if these are received from a territory that has a double taxation agreement with the UK which contains a non-discrimination article.

Medium and Large Companies

A full exemption from taxation of foreign dividends will apply if the dividend falls into one of several classes of exempt dividend. The most relevant classes are:

• Dividends paid by a company that is controlled by the UK recipient company
• Dividends paid in respect of ordinary share capital that is non-redeemable
• Most portfolio dividends
• Dividends derived from transactions not designed to reduce UK tax

Where these exemption classifications do not apply, foreign dividends received by a UK company will be subject to UK corporation tax. However, relief will be given for foreign taxation, including underlying taxation, where the UK company controls at least 10% of the voting power of the overseas company.

• Capital Gains Tax Exemption

There is no capital gains tax on disposals of a trading company, by a member of a trading group, where the disposal is all or part of a substantial shareholding in a trading company or where the disposal is of the holding company of a trading group or sub-group.

To have a substantial shareholding a company must have owned at least 10% of the ordinary shares in the company and have held these shares for a continuous period of twelve months during the two years before disposal. The company must also have an entitlement to at least 10% of the assets on winding up.

A trading company or trading group is a company or group with activities that do not include ‘to a substantial extent’ activities other than trading activities.

Generally, if the non-trading turnover (assets, expenses and management time) of a company or a group does not exceed 20% of the total, it will be considered to be a trading company or group.

• Tax Treaty Network

The UK has the largest network of double tax treaties in the world.  In most situations, where a UK company owns more than 10% of the issued share capital of an overseas subsidiary, the rate of withholding tax is reduced to 5%.

• Interest

Interest is generally a tax deductible expense for a UK company providing loans for commercial purposes. There are, of course, transfer pricing and thin capitalisation rules.

Whilst there is a 20% withholding tax on interest, this can be reduced or eliminated by the UK’s double tax agreements.

• No Withholding Tax

The UK does not impose withholding tax on the distribution of dividends to shareholders or parent companies, regardless of where the shareholder is resident in the world.

• Sale of Shares in the Holding Company

The UK does not charge capital gains tax on the sale of assets situated in the UK (other than UK residential property) held by non-residents of the UK. 

Since April 2016 UK residents have paid capital gains tax on share disposals at a rate of 10% or 20%, depending on whether they are basic or higher rate taxpayers.

• Capital Duty

In the UK there is no capital duty on paid up or issued share capital. Stamp duty at 0.5% is, however, payable on subsequent transfers.

• No Minimum Paid up Share Capital

There is no minimum paid up share capital for normal limited companies in the UK.

In the event that a client wishes to use a public company, the minimum issued share capital is £50,000, of which 25% must be paid up.  Public companies are generally only used for substantial activities.

• Overseas Branches

A company may elect to exempt from UK corporation tax all of the profits of its overseas branches that are involved in active operating business.  If this election is made, branch losses may not be offset against UK profits.

• Controlled Foreign Company Rules

Controlled Foreign Company Rules (CFC) are intended to apply only where profits have been artificially diverted from the UK.

Subsidiaries in jurisdictions detailed on a wide list of excluded territories are generally exempt from CFC taxation if less than 10% of the income generated in that territory is exempt from or benefits from a notional interest deduction.

Profit, other than interest income, in all remaining companies is only subject to a CFC charge if a majority of the business functions relating to assets used or risks borne are performed in the UK; even then only if taxed at an effective rate less than 75% of the UK rate.

Interest income, if taxed at less than 75% of the UK rate, is subject to a CFC taxation charge, but only if it arises ultimately from capital invested from the UK or if the funds are managed from the UK.

An election can be made to exempt from CFC taxation 75% of the interest received from lending to direct or indirect non-UK subsidiaries of the UK parent.

Introduction of a New UK Tax – Directed Towards Large Multinational Companies

On April 2015 the UK introduced a new Diverted Profits Tax (DPT) which has also been called the “Google Tax.” It is aimed at countering aggressive tax avoidance by multinational companies, which historically has eroded the UK tax base.

Where applicable, DPT is charged at 25% (compared to the corporation tax rate of 20%) on all profits diverted from the UK.  It is important to note that this is a new tax and is entirely separate from corporation tax or income tax and, as such, losses cannot be set against the DPT.

Conclusion

The UK continues to be regarded as a leading holding company jurisdiction. Due to the number of tax benefits that are legitimately available, its access to capital markets, its robust corporate law and governance frame works.

The recently introduced Diverted Profits Tax is directed towards a specific and limited group of large multinational organisations.

Which UK Services can Dixcart Provide?

Dixcart can provide a comprehensive range of services relating to the formation and management of UK companies. These include:

• Formation of holding companies
• Registered office facilities
• Tax compliance services
• Accountancy services
• Dealing with all aspects of acquisitions and disposals

Contact

If you would like further information on this subject, please contact advice.uk@dixcart.com, or your usual Dixcart contact.

Background

Dixcart has been approached by many clients wanting to redomicile their companies from other jurisdictions to the UK. 

Re-domiciliation is the process by which a company moves its domicile from one country to another by changing the country under whose laws it is registered.

Changes Being Put in Place to be able to Re-domicile a Company to the UK

Currently, as of February 2022, it is not possible to redomicile a company to the  UK, which has meant that Groups wishing to move business to the UK have had to undertake re-organisations, often crystallising liabilities. 

All this is likely to change in the near future.

The UK Government is determined to strengthen the UK’s position as a global business hub with an open and competitive free market.  The UK Government therefore intends to make it possible for companies to move their domicile, and to relocate to the UK, bringing it in line with other common law countries such as; Canada, New Zealand, Australia, Singapore and a number of US States.

Why is the UK Attractive to Corporates?

Clients are attracted to the UK as the UK is a leading destination for investment and business. It has world class regulatory systems, robust corporate law and governance, as well as a competitive corporate tax system especially for holding companies.  Please see our Information Note The UK – A Truly Excellent Holding Company Regime.

A Need to Enhance Reputation

Some Groups with companies incorporated, for historic reasons in offshore jurisdictions, all be it legitimately, have suffered reputational damage by being cited in the Panama and Pandora papers.  As a result many are  keen to redomicile to protect themselves from reputational damage.

Benefits of Re-domiciliation

The act of re-domiciliation enables a company to maximise continuity of its operations while enabling it to shift its place of incorporation.  This enables its corporate history, intellectual and other property rights, contracts and regulatory approvals to remain intact, despite the companies re-domiciliation.

What Happens Next?

The UK Government have just completed an initial consultation and legislation for the introduction of a UK Corporate Re-domiciliation Regime is expected within the next year.

Additional Information

If you would like further information on this subject, please contact Paul Webb: advice.uk@dixcart.com at the Dixcart office in the UK, or your usual Dixcart contact.

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.

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.