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.

Multi Jurisdiction

Dixcart Digest: An Analysis of Government Measures Taken in Response to Covid-19

The Covid-19 Pandemic

2020 is going to be a year remembered for the challenging pandemic, which has had a huge impact on people’s well-being, both health wise and financially.

On a positive note, people are appreciating the ‘simple’ things in life and there is a heightened attitude of looking out for and assisting others, particularly those falling into the vulnerable category.

Most Governments have taken sympathetic measures to support their health services and to try to keep business functioning during the challenging circumstances.

Measures taken in the Jurisdictions where Dixcart has Offices

Please see below a summary of the support measures being taken in the eight key jurisdictions where Dixcart has an office. This is by no means a comprehensive summary, rather an outline of some of the innovative measures being taken and is only relevant at the time of publication.

Cyprus

  • Suspension of the collection of loan instalments and interest until the end of 2020.
  • Central Bank of Cyprus guidelines to banks to provide short-term liquidity facilities, for up to 12 months, at preferential terms (interest rate and other charges). A maximum amount, to be available of double the annual payroll cost, or 25% of the entity’s most recent annual turnover.
  • Special plan for a ‘Full Suspension of Business or Partial Suspension of Operations’ – payment of a Special Unemployment Benefit to private sector employees.
  • Special Self-Employed Benefit, a similar concept to the above payment.
  • ‘Child Care Special Leave Allowance’ to be awarded to working parents who are responsible for the care of children up to 15 years of age and / or children with disabilities of any age and due to the nature of their work cannot work from home.

 Guernsey

  • As of 19 March, a requirement was imposed on all persons arriving in the Bailiwick from anywhere in the world (including, for the avoidance of doubt, Jersey and the United Kingdom), to self-isolate for 14 days on arrival. This is a legal requirement, and failure to comply is a criminal offence.
  • Testing and contact tracing have formed a major part of the response strategy. Guernsey has employed a high rate of testing, several times more per capita than many other jurisdictions.
  • Deferral of payment of Social Security contributions for both Quarter 1 (due mid-April), and Quarter 2 (due mid-July).
  • ‘Coronavirus Payroll Co-Funding Scheme’ – the Government will pay employees an amount equivalent to Guernsey’s minimum wage. For a 35-hour week, this figure equates to a gross figure of £298. The States of Guernsey will meet 80% of this figure (i.e. £238 per week based on a 35-hour week). Employers must make up the remaining 20%.
  • ‘Small Businesses and Self-employed Grant’ – the amount payable will be a flat sum of £3,000.
  • A loan guarantee scheme to enable further financial support for trading businesses with a turnover of less than £10m.
  • Commencement of phased relaxation of lockdown rules with businesses and workers for certain types of business able to operate from 25 April 2020, if public health requirements on social distancing and hygiene are met.
  • There is a weekly national ‘clap’ for the National Health Service, at 20.00 (GMT), every Thursday evening. Individuals and families stand outside their homes (preserving social distancing), or at their open windows and clap to show appreciation for healthcare workers and carers.

Isle of Man

  • As of 6am on Friday 27 March 2020, the Isle of Man’s borders closed to passengers, until further notice. The only exception is the return of Manx residents from overseas. 
  • To help viable businesses that have been affected to retain staff, a wage support package is available for 12 weeks, to provide businesses with a flat rate contribution of £280 per week for every full-time equivalent staff member.   
  • ‘Business Adaptation Grant’ – £3.5m is being made available to support businesses looking to evolve. 50% of any costs will be met, that can be shown to be involved in the adaptation of a business, as a result of changing market conditions due to the Coronavirus outbreak – the business must also have a viable business plan going forward
  • A range of support measure are available from Manx Utilities Authority, Manx Telecom, Sure, and Manx Gas, for individuals who are being affected.

 Malta

  • A two-month deferral for businesses, including the self-employed, to pay: Provisional Tax, VAT and National Insurance Contribution on salaries.
  • €900 million has been provided in bank guarantees, for companies requesting operational loans. These loans will enjoy low interest rates and longer repayment periods.
  • Employers and self-employed individuals investing in technology that enables working from home, can claim to partially cover the costs of this investment.
  • Full-time employees of businesses and self-employed individuals, operating in sectors that have suffered drastically due to the COVID-19 pandemic, will be entitled to up to five days’ salary a month, equivalent to a maximum €800 per month, to be financed by the Maltese Government. Part-time employees will be eligible to a maximum €500 per month.
  • The government has increase rent subsidies for individuals whose jobs have been terminated.
  • Companies that operate in adversely affected sectors and have suffered 25% loss in turnover will be entitled to one days’ salary per week equivalent to €160 per month per member of staff.

 Portugal

  • The Portuguese Government declared a State of Emergency on March 18 and it is currently in place until 2 May 2020.
  • A mandatory restriction on movement and measures relating to social isolation have been put in place.
  • Commercial passenger flights are not permitted during the State of Emergency, except for emergency or repatriation purposes. Individuals cannot cross between Spain and Portugal for leisure or tourist purposes.
  • As at the end of April, Social Security Lay-off Payments have been approved for over 40,000 companies. The average amount to be paid is €422 per employee per month.

St Kitts & Nevis

  • St Kitts and Nevis closed their borders and imposed a State of Emergency from Saturday 28th March 2020 for a period of three weeks.  However, this was then extended for a further period of six months from the date of expiry of the first State of Emergency.  
  • During this period citizens and residents have been subject to various degrees of curfew.  For the first three weeks, emergency regulations meant that there was a 24-hour home curfew, where households were mandated to stay within their own dwellings. During this time, a short period, twice a week was assigned for essential shopping and banking.  During this period, there was extensive business disruption, such as the Companies Registry and most Government being closed.
  • During the second State of Emergency, curfew conditions have so far been lightened.  Citizens and residents now have four days per week in which they may leave their dwellings during the day. The nighttime curfew remains in place seven nights per week.
  • Business disruption is now lessening, Government Departments are now opening and operating on a limited basis. 

 Switzerland

  • On March 25 the Swiss Government extended entry restrictions to all Schengen and non-Schengen states except Swiss nationals and foreigners with Swiss permits.
  • Salaries for the month of March are guaranteed, although in some cases there might be delays.
  • In total the government has set aside around CHF62 billion to support the economy. On April 3, it announced it was doubling the amount of emergency loans available to struggling companies to CHF40 billion ($41 billion). It has since presented a plan to offer additional loans of up to CHF154 million for start-up companies.
  • A grant to cover 80% of wages (up to CHF 12,350 per month), for employees who are not working due to the impact of Coronavirus but are retained on the payroll. This will be backdated to 1stMarch 2020 and will be open for a maximum one-year period.
  • The self-employed will be assisted for 2 months. They will receive CHF 5,880 maximum per month, backdated to 17 March 2020.
  • Since the beginning of the crisis, Switzerland has increased testing for the coronavirus to achieve one of the highest per capita rates.
  • A three-step easing of emergency lockdown measures began on April 27. With protection measures for staff and customers, hair stylists, beauticians and physiotherapists can re-open their doors, along with florists and garden/DIY stores. Dental and medical centres can offer non-urgent care. Bars, restaurants, museums, libraries and markets will reopen on 11 May.
  • The ban on gatherings of more than five people remains in place.

UK

  • As of the end of April, the British Government has announced that a phased and gradual easing of lockdown restrictions will take place, starting May 2020.
  • A grant to cover 80% of wages (up to £2,500 per month), for employees who are not working due to the impact of Coronavirus but are retained on the payroll. This will be backdated to 1stMarch 2020 and was open initially for a three-month period, now extended to 30th June 2020.
  • No business will have to pay any VAT from the third week in March 2020, until mid-June. The payment will be deferred, and businesses will have until the end of the 2020-21 tax year to settle any liabilities that have accumulated during the deferral period.
  • The Coronavirus Business Interruption Loan Scheme (CBILS) was launched on Monday 23rdMarch 2020. Loans will be delivered by lenders that partner with the British Business Bank, including all of the major banks. The lender will receive a guarantee of 80% of the loan amount from the government. The loan will be interest free for the first 12 months.
  • No ‘rates’ will payable to local authorities for the 2020-2021 tax year, for any business in the retail, hospitality or leisure sectors.
  • There is a weekly national ‘clap’ for the National Health Service, at 20.00 (GMT), every Thursday evening. Individuals and families stand outside their homes (preserving social distancing), or at their open windows and clap to show appreciation for healthcare workers and carers. It is a moving experience.

 Assistance

All of the Dixcart offices are fully operational.

Each office can provide you with an update on the status in their particular jurisdiction and can give advice in terms of applying for appropriate financial assistance. Please speak to you usual Dixcart contact or alternatively email: advice@dixcart.com.

UK

Government Assistance Being Provided to UK Businesses During the Covid-19 Pandemic

The UK Government has introduced a far-reaching package of assistance for UK businesses and the self-employed. This package has been enhanced whilst the pandemic is evolving.

This package of assistance for UK businesses, is applicable even if the business is owned from abroad.

The UK Government assistance, outlined below, is a summary and reflects the measures in place as of: 07.04.2020. Please contact the Dixcart office in the UK for more detailed information and for advice as to how to claim the available assistance: advice.uk@dixcart.com.

Coronavirus Job Retention Scheme

  • Available to any size of business (including charities), in any sector.
  • A grant to cover 80% of wages (up to £2,500 per month), for employees who are not working due to the impact of Coronavirus but are retained on the payroll.
  • For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%.
  • It must be a UK employer with a UK bank account.
  • The employer can also claim Employer’s National Insurance and Employer’s Auto Enrolment, minimum contributions, on the furloughed salary up to the maximum of £2,500 per month.
  • Should businesses wish to top up the salaries they can.
  • This will be backdated to 1stMarch 2020 and will be open initially for a three month period.
  • It was originally announced that ‘Employees taken on after 1st March 2020, are excluded from the scheme’, but on the 15th April this was changed to the 19th March. As long as the employee was on the payroll as at 19th March, that individual can be furloughed and included in the claim.
  • There is no limit on the funding available to the scheme.
  • To claim the grant businesses should designate affected employees as ‘furloughed workers’ and notify employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
  • To qualify for the payment, an employee must be furloughed for a minimum of three weeks.  They can then come off furlough.  This means that employers cannot rotate staff weekly between furlough and non-furlough.

VAT

  • No business will have to pay any VAT from the third week in March 2020, until mid-June.
  • The payment will be deferred, and businesses will have until the end of the 2020-21 tax year to settle any liabilities that have accumulated during the deferral period.
  • The deferral applies automatically and businesses do not need to apply for it.
  • If a business pays by Direct Debit then it is their responsibility to cancel the direct debit  with HMRC to prevent payment being taken.

Coronavirus Business Interruption Loan Scheme (CBILS)

  • This scheme was launched on Monday 23rdMarch 2020.
  • Loans will be delivered by lenders that partner with the British Business Bank, including all of the major banks. The lender will receive a guarantee of 80% of the loan amount from the government. The loan will be interest free for the first 12 months.
  • These loans are intended to support cash strapped small and medium sized business during the crisis. They are available for UK-based businesses with turnover of no more than £45 million and can provide for a facility up to £5 million.
  • The borrower remains liable for 100% of the debt.

Coronavirus Corporate Finance Facility

  • The Bank of England has set up a scheme to finance working capital by purchasing debt from larger business ‘making a material contribution to the UK economy’.
  • Businesses do not need to have previously issued debt in order to participate.
  • The scheme will operate for at least 12 months.

Help for Self-Employed Individuals

Dixcart have drafted a separate Article specifically for the self-employed, if you would like this information please email: advice.uk@dixcart.com

HMRC Time to Pay

  • HMRC’s ‘Time to Pay’ scheme can enable firms and individuals in temporary financial distress, as a result of Covid-19, to delay payment of outstanding tax liabilities.
  • If there is PAYE to pay, this can be deferred.  There does not seem to be a consistent message from HMRC, but they seem to be accepting deferral for the next 3 months. To be certain, call them to agree this quoting your PAYE reference number.

Business Rates Holidays and Cash Grants

  • No rates payable for the 2020-2021 tax year, for any business in the retail, hospitality or leisure sectors.
  • The list of businesses eligible for relief was expanded on the 25thMarch 2020.  Retail, leisure, and hospitality properties, that will have been forced to close, as a result of the COVID-19 restriction measures, are eligible for the relief.
  • In those sectors, if your rateable value is between £15K and £51k, you will also receive a cash grant of up to £25,000 per property.
  • Any business which receives small business rates relief, including those in the retail, hospitality or leisure sectors, will receive a cash grant of £10,000 (increased from the £3,000, announced in the 11 March 2020 Budget).

Assistance

The Dixcart office in the UK has accountants, tax advisers and lawyers that can assist your business to apply for financial assistance, at this challenging time. Please phone speak to your usual Dixcart contact or to the Dixcart office in the UK: advice.uk@dixcart.com.

Malta

The Government of Malta’s Response to Covid-19

Dixcart Malta has prepared a summary of the assistance that the government has made available to Maltese businesses, at this challenging time. It is split into several categories to make it as easy as possible to follow. 

Prohibition of Non-essential Retail, Services, and Mass Gatherings

One of the measures introduced by the Maltese government to avoid the spread of Coronavirus, was the prohibition of people working together to supply non-essential retail and other services, as well as any mass gatherings. 

Deferral of Tax Payments

  • A two-month deferral for businesses, including the self-employed, to pay: Provisional Tax, VAT and National Insurance Contribution on salaries.
  • This applies to taxes owed, until the end of April 2020. All tax forms must be submitted to meet normal deadlines. The incentive is primarily aimed, but not limited to, the tourism and hospitality, entertainment, transport, and manufacturing sectors.  Businesses will still collect National Insurance on their employees’ wages, but will retain these, for the duration of the deferral.
  • These deferrals are estimated to improve the liquidity of businesses by €700 million. At the end of April 2020, the government will review a possible extension of these tax deferral measures, depending on the prevailing economic conditions.

Banking and Further Liquidity Measures

  • €900 million has provided in bank guarantees, for companies requesting operational loans. These loans will enjoy low interest rates and longer repayment periods. This will be financed by grants from the National Development and Social Fund, and a number of EU funds.
  • A three month moratorium from banks, for the repayment of business and personal loans. This will alleviate the burden of bank loans for ALL individuals and businesses in this challenging period.

Facilitating ‘Teleworking’ Activities

  • Employers and self-employed individuals investing in technology that enables working from home, can claim to partially cover the costs of this investment.
  • Claims are limited to a maximum of €500 per individual being enabled to work from home, or €4,000 for the total project. The grant will cover 45% of the eligible cost. To be eligible, costs have to be incurred between 15th of February and 8th May 2020.
  • In order to be eligible, the employee should not have had a means of working from home, prior to the 15th of February 2020. All of the costs must have been incurred after this date. These measure only apply to full-time employees. 

Covid-19 Wage Supplement

  • Full-time employees of businesses and self-employed individuals, operating in sectors that have suffered drastically due to the COVID-19 pandemic, or have had to temporarily suspend operations on the order of the Superintendent of Public Health, as listed on Malta Enterprise’s website, will be entitled to up to five days’ salary a month, equivalent to a maximum €800 per month, to be financed by the Maltese Government. Part-time employees will be eligible to a maximum €500 per month.
  • Full-time employees of businesses in other adversely affected sectors, will be entitled to one days’ salary per week, up to a maximum of €160 per month, or a maximum of €100 per month for part-time employees. For businesses located in Gozo, this increases to two days’ salary per week, equivalent to a maximum €320 per month for full-time employees, and €200 per month for part-time employees.
  • Self-employed individuals in adversely affected sectors who have employees, will be entitled to two days’ salary per week, equivalent to a maximum €320 per month.
  • Self-employed individuals located in Gozo, in adversely affected sectors, will be entitled to 2 days’ salary per week equivalent to a maximum €320 per month. This increases to 3 days’ salary, equivalent to a maximum €480 per month, for self-employed individuals who employ staff. The relevant employees will be entitled to two days’ salary per week.

Social Measures

  • Parents who both work in the private sector, where there is a need for one of the parents to stay at home to take care of school-aged children, will receive a direct payment of €166.15 per week if working full-time, or €103.85 per week if working part-time, provided that they cannot carry out their job responsibilities by working from home. This measure also applies to single parent families who have school-aged children.
  • Individuals classified as disabled, who work in the private sector and are registered with Jobsplus, may opt to stay home for health and safety reasons and will receive a direct payment of €166.15 per week if working full-time, or €103.85 per week if working part-time.
  • Employees who have had their full-time employment terminated as of 9th March 2020, as a result of the COVID-19 pandemic, will be eligible for Contributory Unemployment Benefit, and will receive a direct payment of €166.15 per week, if work was full-time, or €103.85 per week if work was part-time.
  • The government will increase rent subsidies for individuals whose jobs have been terminated.

Quarantine Leave

  • A grant of €350 per employee to businesses (including the self-employed) that have full-time employees on mandatory quarantine leave, is available.  The grant is also available to full time self-employed persons who have to undergo mandatory quarantine.
  • This grant is also available to members of staff who have had to quarantine themselves, due to contact with individuals who may have contracted Covid-19, and they either live in the same household or working in the same place of work as the potentially infected individuals.
  • This grant is only available for full-time employees. 

Employment of Third Country Nationals

  • National Agency Jobsplus, will assist third country nationals living in Malta to find an alternative job, if their job has been terminated, as a result of Covid-19.
  • Only applications from highly skilled, new third country nationals will be accepted.
  • Companies who terminate an active employment contract for a third country national, will not be able to recruit other third country nationals, in the future. 

Assistance

The Dixcart office in Malta has professionals that can assist your business to apply for appropriate financial assistance, at this challenging time.  If you are already a client, please speak to your usual Dixcart contact, or alternatively, please email: advice.malta@dixcart.com.

UK

Technology Investment is Booming in the UK – Why Should You Be Speaking to Dixcart?

The UK continues to be a favoured place for technology start-up companies, with 2019 investment growth, outpacing that of both China and the US.

According to the Government backed ‘Tech Nation Dealroom’, British technology start-ups raised $13.2 billion in 2019, an increase of 44% compared to 2018.

Eric Schmidt, who was the Chief Executive Chairman of Google for six years to 2017, stated; “Britain is a particularly good platform to do global things. There’s enough ‘Unicorns’ (that is start-ups worth $1billion) here that the system will generate enough learning to continue to generate more capital. Markets are accessible. You have a real asset here. Don’t screw it up.” 

Sarl Blevin, co-founder of Lovefilms said; “The secular wave of technology is so huge, its beyond Brexit. If you look at the numbers since the country voted ‘leave’ in 2016, every year there has been a record: more money has gone into the sector, more jobs have been created.” 

Dixcart Comment

When individuals or companies invest in the UK, whether in tech companies or otherwise, amongst the factors that they take into account, will undoubtedly be the tax implications.

The UK is extremely competitive, with key factors including:

  • Its low rate of corporation tax: currently 19%.
  • Significant tax credits for research and development.
  • No withholding tax on dividends.
  • No capital gains tax on gains made by non-UK residents on the disposal of shares held in UK companies (other than real estate companies).
  • Income tax and capital gains tax reliefs for UK resident ‘seed’ investors.

Other reasons why the UK is an attractive jurisdiction:

  • A stable legal and regulatory environment.
  • Transparent, flexible corporate law and governance that makes it easy to do business.
  • The top-rated major European economy for attracting talent with one of the largest labour forces in Europe, and lower labour costs than Italy, France or Germany.
  • An encouragement of innovation as well as opportunities for entrepreneurs and employees to move to the UK, please see: IN629: UK Immigration – A Summary of Key Changes 2019.
  • A large network of experienced professional advisers.

Further Information

Any one of our professionals at the Dixcart office in the UK, would be delighted to explain more – as to why the UK is an attractive location for companies, the tax benefits, and the opportunities available to innovators in terms of re-locating to the UK.

Please contact: advice.uk@dixcart.com.

Dixcart new office in Cyprus

Robert Homem, the Managing Director of Dixcart Cyprus, is delighted to announce that the Dixcart office in Cyprus moved to its new premises in Limassol, during the first week of December 2019.

 Substantial red-tape and two sets of Planning Permissions had to be navigated, as well as a number of complications in relation to the electricity supply. A few grey hairs were gained.

 The Dixcart floor is fully operational while the outside areas are still under completion and are expected to be finalised by the end of February. The building comprises three floors (approximately 600sqm). One floor is being used by Dixcart and the other two for serviced offices. We will therefore be launching a Cyprus Dixcart Business Centre, to add to the other five Dixcart Business Centres.

 The building has a little bit of history to it, being built in 1958 by a Cypriot  Lawyer who practised in the UK. At the time of building, most of the materials were brought from the UK including fireplaces and wooden floors. Unfortunately it was not possible to maintain the original wooden floors as a result of damage over the years.

In the late 50’s to early 70’s, Limassol was not a main town in Cyprus and the street in which the building is located was most likely one of the main roads leading to the port. It was only after the Turkish invasion in 1974 that Limassol began to grow as a city.

Every effort has been made to preserve the original architecture of the building. The only major amendment, apart from the outside, was the construction of a new staircase to enable better access to the three floors. A full, but sympathetic renovation was required internally, to modernise the facilities and infrastructure.

With this investment, Dixcart is able to continue its growth and provide clients with a comprehensive range of business support services. The Cyprus Dixcart Business Centre offers 2-8 desk rooms and a full range of ancillary services are available to assist with the business needs of clients.

We look forward to you visiting us at our new premises – just let us know when you might be in Cyprus: advice.cyprus@dixcart.com

Why Is It Beneficial To Register Artistic Work and Other Copyright Material in Malta

The Maltese Income Tax Act exempts royalties, advances and similar payments arising from copyright, from tax. 

Exemption in Respect of Certain Copyright Income

The income tax exemption with respect to royalties received from certain types of ‘copyrightable’ intellectual property, in relation to; books, film scripts, music and art.

The Income Tax Act exempts royalties, advances and similar income arising from:

  • Patents, in respect of inventions;
  • Copyright;
  • Trademarks.

This exemption applies whether the royalties are obtained in the course of a trade, business, profession, vocation or otherwise. They are subject to meeting the terms, conditions and approvals established in relevant Maltese subsidiary legislation.

Intellectual Property Companies 

Whilst the tax exemption is undoubtedly good news for artists, who receive royalties for their work, it is also a very positive development for Intellectual Property companies which are tax resident in Malta, or which are looking to re-locate to Malta.

Royalties from qualifying patents and from qualifying copyright are both exempt from income tax in Malta, whilst non-qualifying royalties may still benefit from low effective tax rates. IP companies can apply for the Maltese Patent Box Deduction, which allows taxpayers that exploit qualifying IP to deduct their expenses related to such IP.

In an international context, the measures above, combined with Malta’s network of Double Taxation Treaties and access to the various EU directives, present interesting opportunities for taxpayers owning copyright and patents.

What Constitutes ‘Copyrightable’ Material?

The Income Tax Act does not, to date, define royalties that derive from copyright, but the Copyright Act lists the following, as eligible for copyright, subject to certain conditions and exclusions:

  • Artistic work;
  • Audiovisual work;
  • Databases;
  • Literary work;
  • Musical work.

The Copyright Act further defines artistic work as including:

  • Paintings, drawings, etchings, lithographs, woodcuts, engravings and prints;
  • Maps, plans, diagrams and three-dimensional works relating to geography, science or topography ;
  • Sculpture;
  • Photographs not featured in audiovisual;
  • Architecture in the form of buildings or models;
  • Artistic craftsmanship, including pictorial fabric collages and works of applied handicraft and industrial art. 

Additional Information

The registering of IP in Malta, can present an attractive proposition, please contact the Dixcart office in Malta: advice.malta@dixcart.com for further information, or your usual Dixcart contact.

Guernsey

Substancial Activity Requirements: The EU Council, OECD and Low Tax Jurisdictions

Background

The EU Council’s ‘base erosion and profit shifting’ (BEPS) action plan defines the requirements to be met, by jurisdictions wishing to maintain low tax regimes for businesses undertaking ‘specified’ activities, in order to demonstrate that they have sufficient substance in that particular jurisdiction.

Requirements include; ‘core income generating activities’ must take place in the jurisdiction in question, with adequate expenditure and staff in that jurisdiction proportionate to the level of activity carried out there. In addition, measures must be in place for the jurisdiction to enforce any non-compliance to the rules.

Reporting

On 31 October 2019, the OECD released guidance regarding the spontaneous exchange of information by zero or nominal tax jurisdictions. As part of BEPS Action 5, as from 2020, low-tax jurisdictions will have to ‘spontaneously exchange’ information. Guidelines have been published to clarify key definitions, specify timelines relating to the information exchanges and detail the context of the international legal framework.

Relevant Activities

Companies undertaking the following relevant activities are subject to economic substance requirements:

  • Banking
  • Distribution and service centres
  • Finance and leasing
  • Fund management
  • Headquarters
  • Holding Companies
  • Insurance
  • Intellectual property holding
  • Shipping

Guernsey and the Isle of Man

Guernsey and the Isle of Man were on the original OECD list of low tax jurisdictions and both are now compliant with the standards for substantial activity legislation, having introduced new laws in 2018.

Further information can be found in the following Articles:

IN561 Key Aspects – Economic Substance Requirements For Guernsey

IN562 New Substance Requirements For Isle Of Man Companies – Effective 1 January 2019 

Guidance Notes: Guernsey and the Isle of Man

The States of Guernsey and the Isle of Man Government issued additional Guidance Notes on 26 April 2019.

Key points to note include:

  • Each resident company, undertaking a relevant activity, is expected to hold at least one board meeting per annum in the jurisdiction of residence of the company. In addition the board must meet in the jurisdiction at an adequate frequency, given the level of decision making required. When more than one meeting is held, the majority of such meetings should be held in that jurisdiction. During such meetings, there must be a quorum of the Board physically present in the jurisdiction. This is to help ensure that the relevant activity is ‘directed and managed’ in, for example, Guernsey or the Isle of Man.
  • The ‘core income generating activity’ must be performed in the jurisdiction of residence for the company.
  • If there is a failure to meet the economic substance requirements, sanctions will include exchange of information with competent authorities in other jurisdictions. Current wording of the existing legislation in Guernsey and the Isle of Man is that the information will only be exchanged where the parent of the particular company or the beneficial owners are resident in the EU. It is anticipated that the current laws will be amended and extended beyond the existing EU obligation.

Additional Information

Each of the Dixcart offices are familiar with the economic substance requirements in their particular jurisdiction.

Dixcart Business Centres act as Start-up hubs for companies as they offer high quality serviced offices and a range of professional services to assist clients to establish a business: https://dixcartbc.com/

Our Guernsey and Isle of Man offices are fully conversant with the ‘substance’ legislation and the implications within their respective jurisdiction.

For further information please speak to your usual Dixcart contact or to our Guernsey or Isle of Man office: advice.guernsey@dixcart.com or advice.iom@dixcart.com

Full Fiduciary Licence granted by the Guernsey Financial Services Commission

Guernsey Registered Company: 6512

 

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

St Kitts

Nevis – What Does This Jurisdiction Offer Companies and Individuals?

Background

Nevis is a leading international Caribbean financial centre with a good reputation and excellent standards.

The jurisdiction of St Kitts & Nevis offers options in terms of international companies, private trustee companies and international trusts and foundations. It also offers an attractive passport scheme (recipients do not need to reside in St Kitts & Nevis), which is of particular appeal for individuals requiring an additional passport to ease travel and/or perhaps whilst they are awaiting receipt of a passport from another jurisdiction.

A brief summary of the key advantages available is detailed below. For further information please contact the Dixcart office in Nevis: advice.nevis@dixcart.com.

Nevis as an International Business Centre

  • Nevis does not levy VAT or other indirect taxes in relation to Nevis International Business Corporations (IBCs) and there is NO income tax, NO corporation tax, NO capital gains tax, NO wealth tax, and NO death duty or  inheritance tax.
  • The Nevis Financial Registry maintains the strictest levels of confidentiality.
  • Legislative and fiscal independence mean that the island responds quickly to the needs of business.
  • Nevis is a well-regulated jurisdiction and is recognised by the FATF (Financial Action Task Force) and the OECD (Organisation for Economic Co-operation and Development).
  • New legislation is regularly being introduced, offering an increased number of corporate vehicles. These include IBCs; insurance, companies, LLCs (Limited Liability Corporations), multiform foundations, registered trusts and mutual funds.
  • The island is independent and offers a stable political and economic environment.
  • Nevis is a former British Colony which applies a common law legal system (similar to the English legal system).

Dixcart, in Nevis, offers bespoke structures, allowing families to set up specific solutions that maintain the confidentiality of the family.

The Dixcart office in Nevis establishes and manages companies and can also assist with the re-domicile of non-Nevis companies to Nevis for the purpose of either continuance or closure.

Dixcart also has the ability to manage companies from other Caribbean jurisdictions and to provide the necessary levels of management and substance that are now commonly required by countries within the EU and other countries around the world.

Nevis Structures, the Economic Citizenship Programme and their Key Benefits:

  • IBC – International Business Corporation 
    • Sole directors allowed (both personal and corporate).
    • Incorporated in 24 to 48 hours.
    • Easy to setup and maintain, private and cost effective.
    • Ability to have documents legalised in the UAE, due to the St Kitts Consulate in Dubai.
    • Certificates of Good Standing/Incumbency can be notarised and apostilled in under 24 hours.
  • LLC – Limited Liability Company
    • A legal entity with separate rights and liabilities, distinct from its managers and members, which is liable for its own debts, obligations and liabilities.
    • Can be used for any legal purpose, including financing US and non-US operations, real estate holding, manufacturing and investment vehicles for international trusts.
    • Incorporated in 24 to 48 hours.
    • Foreign LLCs may convert to become a Nevis LLC through use of a simple conversion plan.
    • Foreign entities may convert to become a Nevis LLC after redomiciling to Nevis.
    • Extra protection can be gained by stating that ‘the explicit naming of a member or manager in a legal action being brought against the company is legal grounds for dismissal or at least for a motion of misjoinder’.
  • PTC – Private Trustee Company
    • No licence required to act as trustee (for private family arrangements).
    • Incorporated in 24 to 48 hours with sole directors allowed (both personal and corporate).
    • Can be owned either by a purpose trust or by the settlor.
    • Ability to have a representative of the underlying asset companies on the Board of the PTC and it is relatively easy to replace the Board and therefore the effective trustees, if necessary.
  • International Trust
    • Registered in 24 to 48 hours.
    • Cannot be declared void, voidable or defective by reason of any forced heirship rules of the Settlor’s domicile, residence, place of current incorporation, formation or establishment.
    • No rule against perpetuity unless otherwise provided for; the international trust can therefore have unlimited duration.
    • Foreign judgements are not enforceable in Nevis.  Any civil action to recover assets would need to be brought, in addition, in the Courts of St Kitts & Nevis.
    • A deposit of $100,000 must be paid before creditor action can be taken.
    • If the Protector has the authority to direct the Trustees to make and approve distributions, or to direct the Trustees to make particular investments, statutory protection is given to the Trustees for acting on the direction of the Protector, in the absence of wilful misconduct.
  • Multiform Foundations
    • Asset protection and succession planning opportunities.
    • Can be set up for estate planning, charity, financing and special investment holding arrangements.
    • Can take the form of a foundation, a company, a trust or a partnership.
    • The ordinance allows for entities to be converted or transformed, continued or consolidated and merged into Nevis Multiform Foundations.
  • Economic Citizenship Programme – Passports

A St Kitts & Nevis passport can provide a relatively fast option to ease  travel and to gain residence, if required, whilst plans are being made to live elsewhere.

There are three alternative routes to gain a St Kitts & Nevis passport:

  • Investment in Real Estate.
  • Investment in Luxury Real Estate.
  • Sustainable Growth Fund (SGF) Contribution.

Applicants do not need to visit St Kitts & Nevis in order to apply for a St Kitts & Nevis passport. They do, however, need to use an approved intermediary on the island, such as Dixcart, to coordinate the application.

There are NO conditions attached to a St Kitts & Nevis passport in terms of the number of days that need to be spent on St Kitts & Nevis. Other advantages include:

  • Visa-free access to over 130 countries around the world including Europe, UK, Hong Kong, Russia, Ukraine, and Switzerland.
  • Fast processing times; approval can be achieved in between 45 to 60 days using the ‘accelerated process’ and 90 to 120 days with standard processing.
  • Inclusion of dependant children up to the age of 30.
  • Inclusion of dependant parents from the age of 55.
  • Sponsorship of common law partners.
  • Ability to pass citizenship to children.

Additional Information

Nevis offers a number of attractive international entities and an appealing Economic Citizenship Programme. If you require additional information, please contact John Mellor at our office in Nevis advice.nevis@dixcart.com or your usual Dixcart contact.

The Isle of Man – Your New Island Home?

The beautiful Isle of Man is situated in the heart of the Irish Sea, centrally located between England, Ireland, Scotland and Wales.  Whilst the island may be small, just 572 km2, with its rugged coastline and rolling hills it can give you and your family space to breath, relax and enjoy what island life has to offer.

The Isle of Man has been a self-governing Crown Dependency since 1866, and this political independence, combined with its strong democratic values, has enabled the Isle of Man to be governed efficiently over the past 150 years.

Advantages Offered by the Isle of Man

The Isle of Man Government has always adopted a forward thinking and pragmatic domestic and international approach, which allows the close knit community of approximately 87,000 people to benefit from the following advantages:

  • Lifestyle

The natural resources of the island enable residents to pursue a variety of recreational and sporting activities. The growth of the sporting community on the island has been supported by the Isle of Man Sports Council www.isleofmansport.com  and the Manx National Lottery Fund.

  • Crime (or lack of it)

The Isle of Man has one of the lowest crime rates in the EU. This is further enhanced by a strong community spirit.

  • Low Unemployment

The Isle of Man currently (April 2016) has an unemployment rate of 1.8%.  Whilst there is a requirement for non local residents to hold a work permit for the first 5 years of residency, the work permit process is, in most instances, a relatively straightforward process. www.gov.im/categories/working-in-the-isle-of-man/work-permits/faqs

  • Housing

The Isle of Man is consistently rated as having a standard of living equal to those regions with the highest standard of living in the UK. There are no restrictions on buying property for those not born or raised on the island.

  • Education

The Isle of Man has a high quality of education. Recently the Government invested in a programme to modernise all of the schools, and the island achieves one of the top sets of comprehensive school results in the UK, with private schools also positioned well in the UK rankings.

  • Transport

The island has excellent transport links. The large international carriers, including British Airways, easyJet, and Flybe offer routes from the Isle of Man to Dublin, Edinburgh, Geneva, Liverpool, London and Manchester. In addition, the island has the runway capacity to handle large private aircraft, including the Global Challenger 7000.

  • Tax Advantages for Individuals

The standard rate of income tax in the Isle of Man is 10%, with a higher rate of 20%. A tax cap of £150,000 (£300,000 for jointly assessed couples) exists on personal income tax liabilities in any one tax year for individuals living in the Isle of Man. To be tax resident in the Isle of Man the Assessor of Taxes must be satisfied that there is an intention to establish residence on the island, rather than there being a presence on the island for a temporary purpose.

  • The Key Employee Concession (KEC)

The KEC can be extremely beneficial to new arrivals on the Island and may even be more beneficial than the tax cap, in certain circumstances. It applies to individuals who are required to move to the Isle of Man by their employer and who are essential to the implementation and operation of new business on the Island. In order to grant the KEC, the Treasury must be satisfied that the new business is in the economic interests of the Isle of Man and will provide additional productive employment on the Island.

When the Concession applies the individual will be resident for Isle of Man income tax purposes and therefore subject to resident income tax rates, allowances and reliefs. However the majority of additional income sources will be treated, for Isle of Man tax purposes, as if the individual was not resident on the island.

This could be extremely beneficial if, for example, a wealthy entrepreneur who has substantial income streams from non-Manx sources moves to the Island and sets up a business on the Island. Of course, for the KEC to apply to them, they would have to be employed by that business on the Island.

  • Tax Advantages for Companies

A zero rate of corporation tax applies to company profit.

The only exceptions to this zero rate are banking business, which is taxed at 10%, retail businesses with profits in excess of £500,000, which are also taxed at 10%, and income from land and property in the Isle of Man, which is taxed at 20%.

There is a requirement to prepare annual accounts, however, for private companies there is no requirement to file these. There is also a requirement to complete an annual tax return.

  • Government Support for Inward Investment

The Department of Economic Development has solid experience in assisting businesses to relocate to the Isle of Man. A Relocation Manager can be appointed to act as a single point of contact for all relocation matters relating to the Isle of Man. In addition, the island’s Financial Assistance Scheme provides a range of grants to eligible businesses within qualifying sectors.

  • Immigration

UK Immigration Rules are extended to the Isle of Man for regulating the entry into, and the stay of persons in the Isle of Man. Whilst the Isle of Man has its own Immigration Rules (based on UK immigration rules), the United Kingdom represents the Isle of Man’s interest in Diplomatic and Foreign Affairs. British Embassies overseas accept and process visa applications for the Isle of Man and other Crown Dependencies (CDs), referring the applications to the islands’ Entry Clearance Officers to determine a decision.

Additional Information

If you would like further information regarding the advantages offered by the Isle of Man and how you might take up residence there, speak to Steve Doyle at the Dixcart office in the Isle of Man or to your usual Dixcart contact.

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