Malta-Ukraine Double Taxation Agreement and Additional Attractive Malta DTAs

Background

A new Double Taxation Agreement between Malta and the Ukraine was ratified in 2017 and was made effective as from 1 January 2018.

As a result of this DTA, tax advantages for both countries are available and the Maltese holding company regime may prove attractive to Ukrainian investors. This DTA allows for dividends to be taxed in the country of source, at a withholding tax rate of 5%, if the volume of shares held is greater than 20%.

Taxation of Income

The tax treaty provides a low withholding tax rate on dividends, interest and royalties. 

  • Dividends

Withholding tax for dividends is capped at 15%. A lower rate of 5% applies to dividends received by a company owning at least 20% of the capital of the company paying the dividends. 

Due to its full imputation tax system, Malta does not withhold tax on distribution of dividends, irrespective of the nationality, domicile or residence of the beneficial owner of those dividends.

  • Interest and Royalties

Interest and royalty income is subject to a maximum 10% withholding tax.

The country of source has a limited primary right to tax the income, while the country of residence has a secondary right, with the obligation to grant relief from double taxation.

According to the Maltese Income Tax Act, interest and royalties received by non-residents is exempt from Malta tax and therefore no tax is withheld on such payments.

Additional Attractive Malta Double Tax Treaties

Malta has a network of over 70 double tax treaties.

In addition to the Ukraine, Cyprus and Switzerland have particularly beneficial double tax treaties with Malta.

Malta-Cyprus Double Tax Treaty

Foreign companies seeking to establish a certain type of entity in Europe, for example a company established for financing activities, should consider establishing a Cyprus company and managing it from Malta. This can result in double non-taxation for the passive foreign sourced income.

  • The Malta-Cyprus Double Tax Treaty contains a tie breaker clause that provides that the tax residence of the company is where its effective place of management is. A Cyprus company with its effective place of management in Malta will be resident in Malta and would therefore only be subject to Cyprus tax on its Cyprus source income.

It will not pay Maltese tax on non-Maltese passive source income not remitted to Malta. It is therefore possible to have a Cyprus company resident in Malta that enjoys tax-free profits, as long as the proceeds are not remitted to Malta.

Malta-Switzerland Double Tax Treaty

Malta’s holding company regime, coupled with the beneficial Double Taxation Agreement between Malta and Switzerland, provides a number of advantages when a Malta company is used to hold shares in a Swiss subsidiary.

The key features of the Double Taxation Agreement are:

  • The standard withholding tax on dividends paid from Switzerland is 35%. The agreement provides for a withholding tax exemption on dividends from Switzerland to a Maltese company, where the Maltese company directly holds 10% or more of the Swiss company’s capital for at least one year. Both companies must be subject to taxation.
  • Interest received in Malta is taxed at 35%. However a shareholder can claim a refund from the Maltese tax authorities in respect of a substantial element of the taxation paid by the Maltese company relating to dividend payments to shareholders.  This results in low net Maltese taxation on interest, generally an effective Maltese tax rate of 10%.
  • There is no withholding tax on royalties. This, coupled with Malta’s tax refund regime and unilateral double tax relief, in the form of a flat rate tax credit, results in very low net Maltese tax on royalty income.

Additional Information

If you would like additional information regarding the double tax treaty between Malta and Ukraine, or other Maltese Double Taxation Treaties, please contact Sean Dowden or Jonathan Vassallo at the Dixcart office in Malta: advice.malta@dixcart.com or your usual Dixcart contact.

UK

Living Overseas with Property Assets in the UK, or Intending to Buy? Here is what you need to know.

Five years have passed since the UK government set out its intention to create a public register of the beneficial ownership of “overseas entities’” UK assets – progress was slow to say the least with Brexit and then the pandemic slowing progress further.  The recent invasion of the Ukraine by Russia saw the government expedite that intention and the new  Economic Crime (Transparency and Enforcement) Act  2022 (“the ECA”) received royal assent on the 15 March 2022.

What is an “overseas entity”?

To understand the ECA we need to understand that it is an addition to a raft of historical measures seeking to impose financial or coercive measures on overseas legal entities to identify, control, change or stop them from behaving criminally. The ECA seeks to identify the ultimate foreign beneficial owner(s) on a public register even if that owner tries to hide behind a complex structure of shell companies.

Any corporate body including a partnership that is governed by the law of a country or a territory outside of the United Kingdom will be caught under the new rules. This will include  those holding more than 25% of the shares or voting rights in the entity. If this test cannot be satisfied then the ECA looks to any beneficial foreign owner who nonetheless exercises significant control over the relevant entity (or has the right to do so), including those with the right to remove (or appoint) a majority of the board of directors.

What does the new ECA do and when will you need to comply by?

There are three main parts to the ECA:

Part 1  – establishes a new register of foreign owners of UK property, which will be held at Companies House and will be retrospective, in that it will (subject to a few limited exceptions) include all property purchases in England & Wales since 1999 (2014 for Scotland). 

Foreigners looking to buy UK property will have 6 months, from the date of acquisition of freehold or leasehold land with over 7 years to run, to comply with the new rules. 

In practice, it is unlikely the Land Registry will register an overseas entity as owner of a UK property until it has registered its beneficial ownership at Companies House first. 

Those  who already own UK property will have six months from the date of the ECA’s commencement to either apply for registration or dispose of their property.  However, overseas entities trying to sell their UK property to get around the new rules, will not be allowed to without being registered first. Would-be sellers of property between 28 February 2022 and the date of full implementation of the new register are obliged to submit their details for registration.

Part 2 –  makes wide ranging amendments to powers under the unexplained wealth order (or UWO) regime –  a mechanism designed to confiscate the proceeds of crime, using civil rather than criminal powers pursuant to section 1 of the Criminal Finances Act 2017 (CFA 2017). This includes giving authorities the ability to apply for interim freezing orders.

Part 3 – strengthens provisions about sanctions. Fines of up to £2,500 per day can be levied against those who break the new rules, including criminal penalties for non-compliance of up to 5 years.  Even where no monetary fine is imposed, the Office of Financial Sanctions will be empowered to publicly identify companies and individuals that it suspects to have breached financial sanction rules.

Further guidance and action

Bearing in mind the speed at which the UK government rushed the ECA through,  further guidance from government and regulators regarding how and when entities should report is expected imminently. 

In practical terms there is a lot to do and only time will tell whether Companies House and the Land Registry will cope with the deluge of applications.

To learn more

To learn more, please see:

https://www.legislation.gov.uk/ukpga/2022/10/contents/enacted

https://www.gov.uk/government/news/new-measures-to-tackle-corrupt-elites-and-dirty-money-become-law

Additional information

Dixcart Legal can assist with property related enquiries in the UK. If you have any questions about this article or require any further information, please contact Kuldip Matharoo or Peter Robertson: advice.uk@dixcart.com.

Portugal 1

The Craze Around Portugal Explained – Companies and People

What is it about Portugal, other than the great food and weather, that everyone is talking about? You may have heard that Portugal has become a hotspot for millennials wishing to embark on a business venture start-up, or it is where crypto traders are now relocating to, or the fact that companies like Google and Amazon are setting up offices in the acclaimed ‘Florida’ of Europe.

Tax Advantages for Individuals

The buzz and energy in Portugal has sparked interest in many and for various reasons – Portugal is currently attracting the affluent, as well as a wide range of other individuals, through their favourable tax regime.

Individuals may be exempt from foreign income, or taxed at a flat rate of 20% for income earned in Portugal, for a period of 10 consecutive years. Those wishing to be eligible for this regime; the non-habitual resident regime (NHR), need to register specifically for this regime to be entitled to the tax related benefits. It is definitely  worth using a tax specialist, such as Dixcart Portugal to assist as the regime can be quite complex.

The main criteria are; an individual becomes Portuguese tax resident and has not been a Portuguese tax resident for any of the previous five years, and his/her income must be earned from a high value-added activity or is of a scientific, artistic or technical nature.

Benefits Offered by the International Business Centre of Madeira

The Portuguese island of Madeira has famously been acclaimed as one of the best islands in the world due to its natural beauty. It has won awards for several consecutive years up to 2021, namely; “Europe’s Leading Island Destination” and “World’s Leading Island Destination”. It also boasts an attractive international shipping registry, regarded as among the highest in the world. Efficient tax structures are also available for shipping companies and crew members.

This autonomous Portuguese island presents numerous opportunities – the International Business Centre of Madeira (IBC) allows for the registration of companies where income from international or online activities is taxed at a flat rate of 5%, provided certain criteria are met such as having a full time employee employed in Madeira and making a specified initial investment into the company. Companies wishing to register outside this framework are taxed at rates ranging from 11.7% to 14.7% . Companies registered in the IBC also have access to all of the double taxation agreements entered into by Portugal and have full access to the EU single market.

Incorporating Companies in Portugal

Companies also consider Portugal as a location to create an efficient tax structure, by making use of the participation regime. This regime means that companies may be exempt from dividend tax, provided certain conditions are met.

The conditions include the shareholder; holding at least 10% of the shares (the shareholdings in question must have been held, uninterruptedly, during the year prior to the distribution), and not being tax resident in a country considered to be a tax haven by Portugal. In addition, there must be no distribution of income in the first year of operation.

Although it is becoming harder, it is still possible for companies to find an affordable place to rent (or even purchase) as office space. Over the last decade, popular areas of Lisbon and Porto have however seen incremental price escalations as a result of the increased attention Portugal has received.

Why Are Individuals Moving to Portugal?

The recent popularity of Portugal is also witnessed in the tourist sector. Many individuals have moved onto relocate, after visiting. The streets of Lisbon and Porto are culturally rich with traditions that the country boasts proudly of. It is not hard to understand why tourists are in love with these cities! From the trams in Lisbon to the port wine in Porto.

D7 and D2 Visas

Through the introduction of various visas by the Portuguese government, it has become possible for almost anyone to come to Portugal, and apply for a residence permit.

Individuals are typically applying for D7 or digital nomad related visas, essentially a visa for those earning passive and/or independent income, and able to support themselves. This income can be for example from: property rentals, financial investments, profits and dividends from a company, copyright, etc.

Others, who are more entrepreneurially wired and wishing to venture to Portugal, are applying for a D2 visa. Those who can benefit are self-employed individuals or individuals who intend to set up or buy a company in Portugal. This visa  requires a business plan to be submitted to the Portuguese authorities, amongst other criteria.

The country has shifted gear in ensuring the right calibre of people are moving to this jurisdiction and it is clear that there are many opportunities in this country situated in the far West tip of Europe.

Golden Visa Program

Those wishing to keep Portugal as an option for relocation purposes, can register for the Golden Visa program. It is a quick way for foreign investors from non-EU countries to obtain a valid permanent residence permit in Portugal, and also allows them to travel freely in most European countries (Schengen Area).

Since inception of this program, over 17,000 family members have benefited from the Portuguese Golden Visa. The program has specific investment criteria – the most popular in recent times has been an investment in a fund to the value of €500,000. The program has been so successful that the Portuguese government has raised the limit, from the previous minimum of €350,000.

The stay requirements in Portugal are minimal, with an average of only 7 days stay per annum, over a 5 year period, unlike the other visas which require you to make a permanent move to Portugal.

Summary

As you can see from the above, there is more than just the crispy custard tarts and more than 300 days of sun that Portugal has to ‘shout’ about.

The reasons many are relocating to Portugal are numerous – with each person having their own story and set of circumstances.

Dixcart Assistance

Dixcart has assisted many families and businesses to relocate to various parts of the world, including Portugal.

Please reach out to Dixcart Portugal should you have any questions: advice@portugal.com.

We appreciate that better decisions can often be made with a professional adviser by your side.

UK

The UK Tax Treatment of Cryptoassets

Over the past few years, there has been an increase in customers buying goods and services using digital platforms and this has accelerated during the pandemic. This article will cover exactly what cryptoassets are and the tax treatment, in the UK, for both individuals and businesses.

What are Cryptoassets?

Cryptoassets, also known as ‘tokens’ or ‘cryptocurrencies’, are cryptographically secured digital representations of value or contractual rights that can be:-

  • Transferred
  • Stored
  • Traded electronically

There are numerous types of cryptoassets and they each work in different ways. The main 4 types of cryptoasset that you may encounter are as follows:

  • Exchange tokens – Intended to be used as a means of payment and this includes the most well-known token, the bitcoin.
  • Utility tokens – This provides the holder with access to particular goods or services on a platform. This is usually where a business will issue tokens and commit to accepting the tokens as payment for particular goods or services.
  • Security tokens – This provides the holder with particular rights or interests in a business, such as ownership or entitlement to a share in future profits.
  • Stable coins – These tokens minimise volatility as they are aligned to something that is considered to have a stable value, such as precious metals.

How the UK Tax Authorities Treat Cryptoassets

The tax treatment of all types of tokens is dependent on the nature and use of the tokens. It is not based on the definition of the token. HMRC does not consider a cryptoasset to be currency or money.

Tax Treatment of Cryptoassets for Individuals

Income Tax Treatment

Cryptoasset activity must be recognised as a trading activity for income tax rules to apply. To determine if a trading activity has taken place, HMRC will apply a series of tests known as ‘The Badges of Trade’. Any profits from this activity will be subject to income tax at an individual’s marginal rates (20%, 40% and 45%). There will also be Class 2 and 4 National Insurance due at the current rates applicable.

Capital Gains Tax Treatment

Where the transactions in cryptoassets are regarded as a personal investment, then they should be treated as a chargeable asset for Capital Gains Tax (‘CGT’) purposes. Any gain realised on a cryptoasset bought and subsequently sold, is subject to CGT at the current rate of 10% for a basic rate taxpayer and 20% for a higher rate taxpayer. Losses realised in the same way, can only be relieved against capital gains chargeable to CGT.

Non-Domiciled Individuals

The nature of cryptoassets is that they are decentralised, digital in nature and do not have a physical location. Determining the location or ‘situs’ of an asset is therefore important for UK resident, non-domiciled individuals, as it can change the tax consequences.

HMRC guidance has stated that the location of a cryptoasset is wherever the beneficial owner is resident. If the cryptoasset owner is resident in the UK, then the cryptoasset may also be located in the UK.

There is a need to watch out for the circumstances in which a UK resident, non-UK domiciled individual purchases cryptoassets using their untaxed foreign income or gains. They may have remitted those funds into the UK and triggered a tax liability on acquisition. If the individual then disposes of the cryptoasset and makes a gain, then the gain may also be taxable in the UK, without the benefit of the remittance basis of taxation.

Tax Treatment of Cryptoassets for Companies

Numerous transactions in cryptoassets by a company will invariably be regarded as trading for tax purposes. These profits will be subject to corporation tax at the current rate applicable (currently 19% for 2021 financial year). Any losses arising from cryptoassets are dealt with in the same manner as a trading loss.

However, if a business is not trading in cryptoassets, any profits will be treated as a chargeable gain for the company. The calculation of the gain would follow the pooling rules which also apply to shares and securities.

How Can Dixcart Help?

We are aware that HMRC are showing an increasing interest in cryptoassets and a planned ‘nudge letter’ campaign will reportedly target UK taxpayers who may have failed to properly pay tax on their cryptoassets. 

HMRC are now armed with data gathered from cryptoasset exchanges and other sources, meaning that investigations into the UK tax affairs of crypto investors are likely to be imminent. 

Any taxpayers who receive a ‘nudge letter’, or who may generally be concerned about their tax position, in respect of cryptoassets, should contact Paul Webb in  the Dixcart office in the UK: advice.uk@dixcart.com as soon as possible to discuss the position.

Introduction to Paul Webb, Karen Dyerson and Ravi Lal – Members of the UK Tax Team

The Dixcart Tax Team in the UK office is a busy department, largely due to the fact that many of the vehicles and individuals to whom we provide advice, have a UK element and/or assets in the UK.

The three members of the UK Tax Team, we are introducing you to today are; Paul Webb, Karen Dyerson and Ravi Lal.

Tax Advice

Prior to many decisions being taken, they should be considered and evaluated with a thorough knowledge of the potential tax implications

Advice to UK and non-UK domiciliaries on; inheritance tax, UK property ownership matters, and ongoing UK residence tax status, are important aspects of individual tax planning.

Corporates also need expertise regarding tax efficient UK share schemes, the tax aspects of mergers and acquisitions and working with maximising the tax relief available under the UK R&D and Patent Box regimes.

Paul Webb

paul.webb@dixcart.com

Director

CTA ATT BSc (Econ)

After gaining an honours degree in Economics, Paul Webb qualified as a member of the Chartered Institute of Taxation in 2001. Paul has a broad base of tax knowledge and advises both clients and other tax practitioners, both in the UK and around the world.

Paul joined the Dixcart Group in February 2013 and is based at the Dixcart office in the UK. He uses his extensive technical knowledge to help a varied portfolio of clients deal with their tax obligations in an efficient manner.

Paul was made a Director of Dixcart International Limited in 2014 and heads up the tax department in the UK. When travel is permitted he regularly travels to India, and extensively within the UK.

His main areas of expertise are; UK corporation tax, UK personal tax, and domestic and international tax structuring. He works alongside the Dixcart Immigration Department to assist non-UK domiciliaries and their families during their planning for a move to the UK, or when making an investment into the UK. Once in the UK, he advises internationally mobile individuals regarding the use of the UK remittance basis of taxation.

Paul also provides expertise to UK and non-UK domiciliaries on inheritance tax planning, UK property ownership matters, and ongoing UK residence tax status, if needed.

He invariably works with clients from the very early stages of tax planning and subsequently manages ongoing tax matters across the following years.

In recent years, Paul has been involved in establishing tax efficient UK share schemes, advising clients on the tax aspects of mergers and acquisitions and working with clients to maximise the tax relief available under the UK R&D and Patent Box regimes.

Karen Dyerson ATT

karen.dyerson@dixcart.com  

                       
Tax Manager, Dixcart International Limited 

Ravi Lal

ravi.lal@dixcart.com

Tax Senior, Dixcart International Limited

Karen and Ravi work closely with Paul and provide tax advice to both corporate and individual clients. They are both experienced professionals and assist on various tax matters such as corporation tax and R&D for businesses and income tax, capital gains tax and inheritance tax for individuals.

Karen is a member of theAssociation of Tax Technicians and has been qualified for over 25 years.

Ravi worked for a top 15 UK accountancy firm prior to joining Dixcart, working in all aspects of tax compliance including self-assessment, corporation tax, tax planning, P11Ds, PSA and ATED.

Additional Information

If you have a question regarding UK tax obligations, further guidance regarding your possible entitlement to use the UK remittance basis of taxation, or have a question in relation to UK corporate tax, please contact Paul Webb: advice.uk@dixcart.com.

Cyprus

Making Cyprus Even More Attractive – Proposed Initiatives for 2022

In October 2021, the Cyprus Government announced an ‘action plan’ to attract additional companies to operate and/or expand their activities in Cyprus.

The action plan is certainly forward-looking and innovative in terms of the further measures to be introduced, to attract companies and individuals to move to Cyprus.

Timing

The action plan will be implemented from January 1st 2022, except where new legislation is required, as in the case of the three points below. The aim is for the relevant legislation to be submitted to the House of Representatives by the end of December, and to be approved in the first quarter of 2022.

  • Extension of the tax exemption that applies to employees in the Republic.
  • Increased tax deduction (in addition to the existing one) for research and development expenses.
  • Application to gain Cypriot citizenship, after having spent five of the previous ten years in Cyprus.

1. Business Facilitation Unit: Visas for Highly Skilled Third Country Nationals

The Ministry of Finance announced the introduction of the Business Facilitation Unit that will assist highly skilled third country employees, with a minimum gross salary of €2,500 per month, to gain work permits. Such individuals are required to present a university degree, or equivalent qualification, or certificate.

The maximum quota of work permits for third-country nationals per company, is set at 70% of all employees, over a period of five years. Permits will be issued within one month of application and will last up to three years. The spouses of such employees will also have access to the country’s labour market.

2. Digital Nomad Visa

Eligibility

Via the Digital Nomad Visa Programme, non-EU nationals active as self-employed, salaried or on a freelance basis can apply for the right to live and work in Cyprus. Applicants must work remotely using information technology and communicate remotely with clients and employers outside Cyprus.

Residence status

A Digital Nomad has the right to stay in Cyprus for a period of up to one year, with the right to renew for another two years. If they reside in the Republic for a period that in total exceeds 183 days within the same tax year, they are then considered tax resident in Cyprus.

During the stay in Cyprus, the spouse or partner of the Digital Nomad and any minor family members are not allowed to undertake dependent work or to engage in any kind of paid activity in the country.

Digital Nomads must have; salaries of at least €3,500 per month, medical coverage, and a clean criminal record from their country of residence.

3. Extension of the tax exemption that applies to employees in the Republic

Tax exemptions that apply to foreign highly skilled employees in the Republic are being extended to a maximum period of 17 years.

The existing 50% tax exemption is also being extended to cover new resident employees, with an annual employment salary of €55,000 or more.

Please note that the relevant legislation is still to be submitted and approved.

4. Increased tax deduction for research and development expenses

Research and development expenses will be subject to an increased discount.

Eligible research and development expenses will be deducted from taxable income equivalent to 120% of the actual expenditure.

Please note that the relevant legislation is still to be submitted and approved.

5. Application for acquisition of Cypriot citizenship

The option will be available to apply for Cypriot citizenship after a period of five years of residence and work in the Republic of Cyprus, instead of the seven years that was applicable before.

Please note that the relevant legislation is still to be submitted and approved.

Additional Information

For additional information about the attractive tax regime for individuals in Cyprus, please contact Robert Homem or Charalambos Pittas at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Malta Passes the MoneyVal Test

On Thursday 29th April 2021, the Council of Europe’s Anti-Money Laundering (AML) committee (MONEYVAL) voted in favour of a final report on Malta’s AML and terrorism- financing safeguards.

MONEYVAL, is a permanent monitoring body of the Council of Europe, entrusted with the task of assessing compliance with the principal international standards to counter money laundering and the financing of terrorism and the effectiveness of implementation measures. It is also tasked with making recommendations to national authorities in respect of necessary improvements to their systems.

Background

Two years ago, Malta failed an exhaustive test of its anti-money laundering rules and policing and has since been at risk of being put on the ‘grey list’.  There are currently 19 countries on the grey list. Being put on the grey list comes with a strict reform procedure and ‘hand-holding’ by global authorities. The grey list does not imply any economic sanctions but serves as a signal to the global financial and banking system about heightened risks from transactions with the country in question.

AML Reforms

Since then, Malta has introduced a raft of reforms to strengthen their AML regime and address the shortcomings highlighted by the MONEYVAL Report.

Amongst the changes introduced, substantial investment was made in the police’s economic crimes unit which has led to a number of high profile prosecutions in relation to money laundering and other financial crimes.

Malta has significantly ‘stepped up’ its AML rules, demonstrating its commitment to fighting money laundering and terrorism financing and that the jurisdiction can appropriately manage major cases of financial crime and corruption.

What Happens Now?

The news was welcomed by Malta, and the country will now undertake a visit by the Financial Action Task Force (FATF), an intergovernmental organisation set up to combat money laundering. 

Malta has been engaging with FATF since the start of the year, and their team will have a series of meetings with senior officials from Malta’s regulatory and law enforcement bodies, in a week-long visit scheduled for May. 

Additional Information

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

St Kitts

Why Nevis? – Corporates, Wealth Management and Citizenship

Background

Nevis is a modern forward-thinking financial centre located in the Eastern Caribbean.  Its unique legislative and fiscal independence enables it to be at the forefront of delivering practical solutions to an increasingly mobile and international client base.

Over the years, Nevis has developed several opportunities to meet corporate and individual needs and to enable affairs to be organised in an efficient and confidential manner.

Corporates

Important Recent Developments

In late 2020, the St Kitts & Nevis Inland Revenue Department (IRD) issued guidance notes regarding the treatment of international companies in relation to federal tax.

Where a company is managed and controlled outside the Federation, for example in Europe, and the company does not have a permanent establishment in St Kitts & Nevis (just a registered office and registered agent), the company is classified as ‘non-resident’, and is only subject to taxes on income arising in St Kitts & Nevis.

All companies complete a simplified annual tax declaration, in which they state whether there are local connections or whether the company should be considered non-resident and will not therefore be subject to tax in Nevis.

It is anticipated that these guidelines will become law during 2021.

Nevis Resident Companies

Nevis companies with management and control exercised in and from Nevis will be subject to local corporate tax, currently at the rate of 33%

What Are the Corporate Opportunities in Nevis?

The new IRD guidelines provide much needed clarity on the ‘post exemption’ Federal Tax Regime.  Non-resident companies now have greater security and re-assurance that their activities will not be taxed in St Kitts & Nevis.

Another reason why Nevis remains popular include its continued privacy from public scrutiny, as it does not operate Government or Public Registers detailing beneficial ownership.  Companies can also be established and managed with exceptional efficiency.  Nevis does not operate a substance test regime.

Nominee and Officer Companies

The use of Nevis companies to act as corporate officers or as nominees is still possible and due to the nature of their non-income status, such use is unlikely to generate a tax liability.

Limited Liability Company as Unlimited Partners

Nevis LLC’s are ideal to act as the unlimited partner in a Limited Partnership, and would not suffer significant tax leakage, despite the recent corporate tax changes in Nevis.

Wealth Management

Pre-migration Wealth Planning for internationally mobile families

Nevis offers a good opportunity for pre-migration wealth planning.

Where a family is relocating to a country which is not their country of birth, for example, the UK, USA, or a country in the EU, they will often have tax planning opportunities which should be exercised before they become resident in the new country.  This often allows them to use special tax rulings and structures which help the family to segregate and protect its worldwide wealth. In such a scenario, a tax neutral third country, such as Nevis can offer some significant benefits.

It is important to note, that this planning needs to be undertaken well in advance of the family or individual members of a family taking up their new residence.

Private Trustee Company (PTC)

Nevis remains a popular jurisdiction to operate a PTC, both for Nevis International Exempt Trusts and as trustees of trusts, created and currently situated, in other jurisdictions.

Nevis Holding Foundations and Trusts

Nevis foundations and trusts can be used to own Nevis IBCs and/or LLC’s. Nevis Multiform Foundations and Trusts are exempt from corporate tax.

Nevis Multi-Form Foundations (MFF’s) the Possibilities

Why are they Popular?

Multiform Foundations are increasingly being used for certain types of activity and asset protection. They can be particularly beneficial as MMF’s can adopt the identity of a foundation, trust, company, or partnership, and are tax exempt in St Kitts and Nevis, regardless of where they are managed.   

Other benefits include the fact that they have their own legal personality and offer attractive wealth structuring opportunities. In addition, the MFF Ordinance contains special asset protection rules which deter frivolous lawsuits.

Conversion to a MFF

Foreign or domestic corporations and/or trusts can be converted to a foundation and the ‘form’ of the foundation can be changed to another form, for example, a Trust Foundation can convert to a Partnership Foundation.

There are many reasons that a Nevis Foundation might be chosen and these include; education support, succession planning, asset protection, and the provision of confidentiality for separate funds to protect junior members of the family.

Using Family Foundations to Protect the Identity of Vulnerable Members of a Family whilst Studying Abroad

Where a family lives in a country where the protection of their personal identity is very important, having the ability to protect their confidentiality can be extremely valuable.

An example would be, a Founder establishes a Nevis Educational Foundation, for the direct purpose of providing for the education of a junior member of the family who will be studying abroad for a specific period of time.

The Foundation would then open a bank account which can also provide a credit card. In this manner the education expenses and living accommodation, can be paid by the foundation, directly from its bank account and the daily living expenses can be paid through the credit card. This can seriously limit the amount of exposure of the child’s identity and also provide some control and oversight of their spending.

Nevis International Exempt Trusts

The jurisdiction of Nevis is a very good location for a trust, where the benefits include:

  • Forced heirships are not recognised.
  • Rules disallowing ‘perpetuity’ do not apply, unless otherwise provided for, and therefore a trust can have an unlimited duration.
  • Foreign judgements are not enforceable and would need to be re-presented in Nevis, where applicable.
  • In certain circumstances, several separate trusts can be combined into one trust, or a single trust can be divided into several trusts.

Citizenship

Citizenship By Investment

Dixcart Nevis, is a very experienced provider of Citizenship by Investment services and has successfully helped many families through the process to achieve citizenship. This programme enables successful applicants to hold a St Kitts & Nevis passport.

A major advantage of St Kitts & Nevis citizenship is that it guarantees receipt of a St Kitts & Nevis passport, with full Schengen travel rights throughout Europe.

There are three routes to citizenship (2 relate to real estate, and 1 one relates to a ‘one off donation’).  Depending on the origin of the applicant and the quality of the application, a ‘Fast Track’ can be selected, with approval, in principle, being achieved in between 45 and 90 days.

Cost Reduction: Citizenship Applications

At the start of March 2021, the St Kitts & Nevis Government announced a cost reduction for applications to the ‘Sustainable Growth Fund’ one of the routes to gain citizenship. This cost reduction is available until 31 December 2021.

The cost for an applicant and spouse is now $150,000, a cost reduction of $25,000. The cost for a family of four is also now $150,000, a cost reduction of $45,000.  

Key Characteristics and Benefits of a St Kitts & Nevis Passport

  • Applicants do not need to travel to St Kitts & Nevis for the application and there are no annual residency rules to maintain the passport.
  • A single application can include children up to a maximum age of 30 and parents with a minimum age of 55, as well as unmarried, dependent siblings up to the age of 30.
  • Passport holders enjoy full Schengen privileges and can travel to approximately 156 countries worldwide, either on a visa free, or visa on entry basis.
  • If holders of the passport choose to move to St Kitts & Nevis there is no personal income tax, no gift tax, no death duties, no estate tax, no inheritance tax and no capital gains tax on worldwide income.
  • The passport allows the holder to reside in other Caribbean Community countries (Caricom) if they wish to do so. There are 15 Caricom member states.

Additional Information

If you would like further information regarding the jurisdiction of Nevis and the advantages that it offers, please contact John Mellor on advice.nevis@dixcart.com.

UK

Global Britain – Outward Looking and Open for Business

Critics have claimed that the UK’s departure from the EU indicates that the UK is protectionist and less outward looking.  The reality is, that nothing could be further from the truth.

Leaving the EU has given the UK the chance to embrace a more global identity and establish new trade links with the rest of the world whilst preserving its trading relationship with the EU.

How Has the UK Done So Far?

A Brexit critic taunted “The UK has not negotiated an international trade deal in decades. The UK simply lacks the capacity.”  Two years later the UK has dumbfounded its critics having negotiated trade agreements with 63 countries plus the EU deal, which together cover £885 billion of UK trade.  No other country has ever negotiated so many deals simultaneously.

The UK has negotiated a unique deal with the EU which separates the UK from the EU but at the same time preserves quota and tariff free trade in goods.

Trade negotiations also continue with Australia and New Zealand as well as enhanced continuity deals with Canada, Mexico and Turkey.

The UK is also pushing to join the Pacific Nations Partnership. The UK’s inclusion in this bloc would increase the Global GDP that it represents to 17%, which is greater than the Global GDP represented by the EU.  If, as expected under Joe Biden, the US also joins this trading bloc, it will be the largest in the world.

An enhanced trade partnership was announced between the UK and India, on 10th February 2021: https://www.gov.uk/government/news/liz-truss-deepens-trade-ties-announces-investment-wins-in-india

Freedom of Movement

One of the consequences of  the UK leaving the EU is it will no longer be possible for Europeans to live and work in the UK without the necessary Visas.

The UK has introduced a new points based system, for those wishing to move to the UK. It believes this will enable the UK ambition to ‘build back better’, to be met, following the end of the coronavirus crisis.

The new system applies the same rules on migration to everyone, creating a level playing field which will enable the UK to attract the brightest and best regardless of where they come from.

Moving Forward

The UK Government intends to make it easier to invest in big manufacturing and research and development projects across the country.  It is to develop freeports to attract investment into deprived coastal areas.  There is also the intention to cut red tape to make it easier for businesses to flourish

Conclusion

The UK has made a good start in living up to its Global Britain vision.  It is also ahead of the curve on rolling the Covid vaccine out, which means that business will have the chance to recover and flourish sooner rather than later.

If you wish to explore setting up a business in the UK and want to take advantage of the level playing field with regard to migration to the UK please contact Laurence Binge: advice.uk@dixcart.com, or your usual Dixcart contact.

Isle of Man

Substance Requirements in the Isle of Man and Guernsey – Are You Compliant?

Background

In 2017, the European Union (“EU”) Code of Conduct Group (Business Taxation) (“COCG”) investigated the tax policies of a large number of non-EU countries, including the Isle of Man (IOM) and Guernsey, against the concept of “good tax governance” standards of tax transparency, fair taxation and anti-Base Erosion and Profit Shifting (“BEPS”) measures.

Although the COCG had no concerns with most of the principles of good tax governance as they relate to the IOM and Guernsey and a number of other jurisdictions that subject corporate profits to zero or near zero rates, or have no corporate tax regimes, they did express concerns regarding the lack of economic substance requirement for entities doing business in and through these jurisdictions.

As a consequence, in November 2017 the IOM and Guernsey (along with several other jurisdictions) committed to address these concerns. This commitment manifested itself in the form of the Substance Requirements which were approved on 11 December 2018. The legislation applies to accounting periods commencing on or after 1 January 2019.

The Crown Dependencies (defined as the IOM, Guernsey and Jersey), issued final guidance (“Substance Guidance”), regarding the Substance Requirements on 22 November 2019, to supplement the key aspects document that had been issued in December 2018.

What are the Economic Substance Regulations?

The core requirement of the Substance Regulations is that an Isle of Man or Guernsey (referred to each as “the Island”) tax resident company must, for each accounting period in which it derives any income from a relevant sector, have “adequate substance” in its jurisdiction.

Relevant sectors include

  • Banking
  • Insurance
  • Shipping
  • Fund Management (this does not include companies that are Collective Investment Vehicles)
  • Financing & leasing
  • Headquarters
  • Distribution and service centres
  • Pure Equity Holding Companies; and
  • Intellectual Property (for which there are specific requirements in high risk

At a high level, companies with relevant sector income, other than pure equity holding companies, will have adequate substance in the Island, if they are directed and managed in the jurisdiction, conduct core income-generating activities (“CIGA”) in the jurisdiction and have adequate people, premises and expenditure in the jurisdiction.

Directed and Managed

Being ‘directed and managed in the Island’ is distinct from the residency test of ‘management and control’. 

Companies must ensure that there are an adequate number of board meetings* held and attended in the relevant Island to show that the company has substance.  This requirement does not mean that all meetings need be held in the relevant Island.  The key points of consideration to meet this test are:

  • the frequency of meetings – should be sufficient to meet the business needs of the company;
  • how directors attend board meetings – a quorum should be physically present in the Island and tax authorities have recommended that the majority of directors should be physically present.  Furthermore, directors are expected to physically attend the majority of meetings;
  • the board should have relevant technical knowledge and experience;
  • strategic and significant decisions must be made at the board meetings.

*Board minutes should at a minimum, evidence key strategic decisions being made in the meeting held at the appropriate location.  If the board of directors does not, in practice, make the key decisions, tax authorities will look to understand who does, and where.

Core Income Generating Activities (CIGA)

  • t all CIGAs that are listed in the relevant Islands’ Regulations need to be carried out, but those that are, must comply with substance requirements.
  • Certain back office roles such as IT and accounting support do not comprise CIGAs.
  • In general, the substance requirements have been designed to respect outsourcing models, though where CIGAs are outsourced they should still be carried out in the Island and be adequately supervised.

Adequate Physical Presence

  • Demonstrated by having adequately qualified employees, premises and expenditure on Island.
  • It is common practice that the physical presence can be demonstrated through outsourcing to an Island-based administrator or corporate service provider, though such providers cannot double-count their resources provided.

What Information is Required to be Provided?

As part of the income tax filing process, companies carrying on relevant activities will be required to provide the following information:

  • business/income types, in order to identify the type of relevant activity;
  • amount and type of gross income by relevant activity – this will generally be the turnover figure from the financial statements;
  • amount of operating expenditure by relevant activity – this will generally be the company’s operating expenditure from the financial statements, excluding capital;
  • details of premises – business address;
  • number of (qualified) employees, specifying the number of full-time equivalents;
  • confirmation of the Core Income Generating Activities (CIGA), conducted for each relevant activity;
  • confirmation of whether any CIGA has been outsourced and if so relevant details;
  • the financial statements; and
  • net book value of tangible assets.

The legislation in each Island also includes specific powers to request additional information in relation to any substance information provided on or with the income tax return.

The legislation allows the Income Tax authorities to enquire into the income tax return of a corporate taxpayer, provided notice of the enquiry is given within 12 months of the receipt of the income tax return, or amendment to that return.

Failure to Comply

It is important too, that clients continue to monitor company activity to ensure ongoing compliance with the substance requirements, as a company may not be subject to the substance test in one year but fall into the regime in a subsequent year.  

Sanctions can be imposed including penalties between £50k and £100k for a first offence, with additional financial penalties for a subsequent offence.  In addition, where the Assessor believes there is no realistic possibility of a company meeting the substance requirements, he may seek to have the company struck off the register.

Can you Opt-out of Tax Residence in the Island?

In the Isle of Man, for instance, if, as is often the case, such companies are in fact tax resident elsewhere (and registered as such), the board of directors could elect (within section 2N(2) ITA 1970) to be treated as non-IOM tax resident. This means they will cease to be IOM corporate taxpayers and the Order will not apply to those companies, although the company will still exist.

Section 2N(2) states ‘a company is not resident in the Isle of Man if it can be proven to the satisfaction of the Assessor that:

(a) its business is centrally managed and controlled in another country; and

(b) it is resident for tax purposes under the other country’s law; and

(c) either —

  • it is resident for tax purposes under the other country’s law under a double taxation agreement between the Isle of Man and the other country in which a tie–breaker clause applies; or
  • the highest rate at which any company may be charged to tax on any part of its profits in the other country is 15% or higher; and

(d) there is a bona fide commercial reason for its residence status in the other country, which status is not motivated by a wish to avoid or reduce Isle of Man income tax for any person.”

In Guernsey, as in the Isle of Man, if a company is and can evidence it is tax resident elsewhere, then it can file a ‘707 Company Requesting Non Tax Resident Status’, to be exempt from complying with the economic substance requirements.

Guernsey and the Isle of Man  – How Can we Help?

Dixcart has offices in Guernsey and the Isle of Man and each are fully conversant with the measures that have been implemented in these jurisdictions and have been assisting its clients in ensuring adequate substance requirements are met.

Should you require additional information regarding economic substance and the measures adopted please contact Steve de Jersey in our Guernsey office: advice.guernsey@dixcart.com, or Steve Doyle in the Dixcart office in the Isle of Man regarding application of the substance rules in this jurisdiction: advice.iom@dixcart.com

Should you have a general question regarding economic substance please contact: advice@dixcart.com.

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

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