Category: Private Client

Introduction to Cyprus Trust Legislation

Trusts in Cyprus can be established either as domestic trusts under the Trustee Law or as Cyprus International Trusts (CITs), or under the Cyprus International Trusts Law. A Cyprus International Trust is an English common-law-based legal vehicle.

The Cyprus International Trust Law has undergone major reform and the law introduced in early 2012 (Law20(I)/2012, which amends the 1992 law) is said to have transformed the Cyprus Trust Regime into the most favourable Trust Regime in Europe.

In 2021 Cyprus fully implemented the provisions of the 5th Anti-Money Laundering EU Directive 2018/843 and the register of beneficial owners of express Trusts and similar arrangements was established, which is administered by the Cyprus Securities and Exchange Commission (“CySEC”).

Why Cyprus?

Cyprus is a prominent fiscal international centre which provides attractive opportunities for setting up and operating a trust.
Some of reasons why a CIT may be used, are as follows:

• To hold property for minors or successive generations of a family
• To provide how the assets of the settlor will be divided between his family, without forced heirship limitations;
• To cater to a person who cannot take care of him/herself due to old age or mental incapacity;
• To provide benefits to underage people;
• As an investment vehicle

Requirements for the creation of a valid Cyprus International Trusts

The Law defines a Cyprus International Trust as having the following characteristics:

• The Settlor, whether a physical or legal person, must not be a resident of Cyprus during the calendar year, which precedes the year of creation of the Trust;
• The Beneficiaries, either physical or legal persons, except for a charitable institution, must not be resident of Cyprus during the calendar year, which precedes the year of creation of the trust; and
• At least one of the Trustees is, throughout the lifetime of the trust, must be a resident of Cyprus.

Benefits

Cyprus International Trusts are widely utilised by high net wealth individuals for asset protection, tax planning and wealth management.
Some of the benefits a Cyprus International Trusts can offer are as follows:

• Asset protection against creditors, forced heirship rules or legal action;
• Difficult to challenge, as the only reason it can be challenged is in the circumstances where creditors are being defrauded. The burden of proof in this case lies on the creditors;
• Confidentiality (as far as permitted by relevant laws)
• Preservation of family wealth and gradual distribution of income and capital to the Beneficiaries;
• Flexibility in relation to the powers of the Trustee;
• Tax benefits for the parties involved;
  • No Capital Gains Tax is paid on the disposal of assets of a Cyprus Trust
  • No estate or inheritance tax
  • Income received from local or overseas sources is taxable in Cyprus where the beneficiary is a Cyprus tax resident. If beneficiaries are non-tax residents of Cyprus, only Cyprus sources of income are taxable under Cyprus’s income tax law.

Our services

• We advise clients about the creation of a CIT, including proposing structuring ideas for creating and operating a CIT,
• We draft all required legal documents,
• We set up private trustee companies (PTCs) in Cyprus and in other jurisdictions,
• We advise clients and trustees about issues arising in relation to a CIT Including trustee powers, beneficiary rights and interpretation of trust deeds.

Why us

Dixcart has been providing professional expertise to organisations and individuals for over 50 years. We are an independent group and are proud of our experienced teams of highly qualified, professional staff who offer international business support services around the world. Dixcart work closely with professional intermediaries worldwide. These include accountants, fiduciaries, and lawyers.

Dixcart Management (Cyprus) Limited can assist you in every step of the creation of a Cyprus International Trust.

Additional Information
For further information about the Cyprus International Trust, please contact Charalambos Pittas or Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Introduction

Families are becoming more and more mobile. There are many attractive residence schemes available around the world, which have added to the popularity of moving to different countries. As this trend continues the management and control of family wealth across jurisdictions becomes even more vital.  

Cyprus is well known as a lively international business centre, with a straightforward and attractive tax regime for foreign investors. Its geographical location, advanced infrastructure, business orientated environment and high level of professional services, are all factors that contribute to the benefit of establishing a Cyprus Family Office that can be used to preserve and grow the Family’s wealth for the next generation.

What is a Family Office?

A family office is generally a private company engaged by a single family or a group of families to manage all of their financial and legal affairs.

What Services are Offered by a Family Office?

Family office services generally involve the management of the following activities:

• Accounting and reporting: the family office needs to provide timely and accurate accounting, tax and performance reporting.
• Assistance in avoiding Intergenerational conflict.
• Direct investments: many families will have made their money through operating a business, real estate developments, private equity investing or entrepreneurial activities. These skills can be applied to increase the family’s wealth through direct investments in similar enterprises.
• Education of younger generations about their future responsibilities.
• Investment management: a primary task is to manage the wealth effectively, on a large scale and over many decades. This is probably the most challenging and critical issue for most families.
• Management of a family-owned business: a forum for discussing how such a business will be managed and governed.
• Philanthropy: the pursuit of fulfilling charitable projects for the family.

What Should you be Looking for in a Family Office Provider?

There are a number of important points to take into account when selecting a provider of family office services, including,

professional expertise; in asset management, taxation and succession planning.

Other important factors to consider are:

• A legal or fiduciary professional who is not tied in to any one bank, investment manager or fund adviser. This helps to ensure impartiality of advice and allows for the selection of appropriate third-party support, free from any conflict of interest.
• Providers who have multi-jurisdictional coverage either through their own offices or through a global network or association membership. This helps achieve a well-coordinated organisation of a family’s global affairs.
• A provider with proven experience in dealing with family office positions or, at minimum, complex, multi-jurisdictional and multi-generational structures.

Provision of Family Office Services by Dixcart

Dixcart Cyprus is experienced in offering Family Office services to its clients. At Dixcart Management (Cyprus) Limited we are happy to gain an in-depth understanding of your needs and to propose appropriate structures, and support for your Family Office.

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

The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time

Background

It is important that UK inheritance tax is taken into careful consideration, in particular by individuals who have assets in the UK.

This Information Note examines how, with careful planning, some UK inheritance tax obligations can be mitigated for certain individuals.

What is UK Inheritance Tax?

UK inheritance tax (IHT) is a tax on money or assets held at death, and on some gifts made during a lifetime (most importantly those gifts made less than 7 years prior to death).

A certain amount can however be passed on tax-free. This is known as the ‘tax-free allowance’ and/or the ‘nil rate band’.

Each individual has a tax-free inheritance tax allowance of £325,000. This allowance has remained the same since 2010/11.

On death, inheritance tax in the UK is at a rate of 40%.

Additional Nil Rate Allowance

Individuals, with an estate value greater than their tax-free allowance of £325,000, due to the value of their home, may be able to take advantage of an additional tax-free allowance known as the  residence nil rate band (RNRB).

This additional tax allowance is worth up to £175,000 (2023/24), and is available when an individual’s main residence is passed to their children or grandchildren.

Does UK Inheritance Tax Apply to a Non-UK Tax Resident?

The UK inheritance rules are different depending on a person’s domicile.  The concept of domicile is based on a complex set of laws (outside the scope of this note). However as a broad overview, an individual is domiciled where he/she considers his/her home to be.  There may also be estate or inheritance taxation liabilities in other jurisdictions.  Therefore local advice should be taken in any jurisdiction where taxes might be chargeable.

For UK inheritance tax purposes, there are three categories of domicile:

• UK Domiciled – the worldwide assets of the individual will be subject to UK inheritance tax, whether the individual is UK resident or not.
• Non UK Domiciled (“non-dom”) – the assets of the individual, situated in the UK, will be subject to UK inheritance tax irrespective of whether the individual is UK resident or not.
• Deemed UK Domiciled – where an individual is a non-dom but has lived in the UK in 15 out of 20 tax years. According to UK inheritance tax rules he/she is considered to be UK domiciled and his/her worldwide assets will therefore be subject to inheritance tax on his/her death.

When an individual moves to the UK, dependent on all of the circumstances of the move and the new life adopted in the UK, there may be an argument that an individual has immediately become UK domiciled.  When this is not the situation, once an individual has lived in the UK for 15 years he/she will be deemed domiciled for UK inheritance tax purposes.

As is often the case, a complex set of laws is best considered through explanatory examples.

Explanatory Examples

Tom is an Australian citizen, he was born in Australia and has always lived and worked there. He is a non-dom in the UK and has a net worth of £5m.  He is divorced with one child aged 19.

Tom’s child, Harry, chooses to study at a university in the UK and Tom is aware that UK real estate has, over the last few years, shown some good returns.

Tom purchases a property in his sole name, mortgage free, near to his son’s university in the UK for £500,000, for his child to live in while studying in the UK.

Planning opportunity – 1

Even though Tom is not UK tax resident and is a UK non-dom, any assets that he has in his own name situated in the UK are subject to UK inheritance tax on his death.  If Tom dies while owning the property, leaving his whole estate to Harry, there will be a tax liability of £70,000 on his death.  This is 40% of the value of the property above the £325,000 nil rate band, assuming that Tom has no other UK assets.

• Tom could have considered purchasing the property jointly in the name of himself and his son. Had he done so, on his death, the value of his UK asset would have been £250,000.  This is below the nil rate band threshold and therefore no UK inheritance tax would be payable.

Planning opportunity – 2

Tom is getting close to retirement and decides to move to the UK to be with his child, who has settled in the UK after finishing university.   He sells his Australian home but keeps his Australian bank accounts and other investments and is still considering that he may return to Australia at some point in the future.  He sends £1m over to a newly opened UK bank account before moving to the UK, to live on, once in the UK.

• Tom would be better advised to remit these funds to a tax neutral, sterling jurisdiction, such as Guernsey or the Isle of Man. If Tom was to die before becoming domiciled for UK inheritance tax purposes, these funds would then be outside the inheritance tax net.
• By structuring such an account correctly, Tom could bring ‘capital only’ to the UK and thereby avoid any obligation to pay income tax. Please contact Dixcart to take advice on this topic, prior to moving to the UK.

Planning opportunity – 3

Tom dies having lived in the UK for 25 years of his retirement.  He leaves his whole estate to his son.  As Tom was deemed domiciled at death, his entire worldwide estate, not just his UK situated assets, will be subject to UK inheritance tax at 40%, except for the nil rate band at the time of his death.  If his estate is still worth £5m, the inheritance tax payable will be £1.87m at current rates and nil rate band.

• Before Tom became deemed domiciled in the UK, he could have settled the non-UK assets he still had, into a non-UK resident discretionary trust (traditionally in a tax neutral jurisdiction). This would place those assets outside his UK estate for UK inheritance tax purposes. Following Tom’s death the trustees could have distributed the trust assets to Harry; achieving the same results as a will, but passing on the assets free from inheritance tax liabilities.

Planning opportunity – 4

Following Tom’s death, his son Harry, decides to leave the UK for New Zealand, having lived in the UK for the previous 30 years.  He sells all of his properties and other assets and deposits the proceeds in a New Zealand bank account. He dies within a year of moving to New Zealand.

As Harry only left the UK a year prior to his death, he will still have been UK resident for more than 15 of the previous 20 years.  He will therefore still be considered UK deemed-domiciled at death and his entire estate would be taxable to UK inheritance tax at 40%, even though he had no assets in the UK on his death.

• Rather than the trustees distributing the assets to Harry on his father’s death, it might have been prudent for the trustees to only distribute assets as needed by Harry over time. This would mean that the entire estate would not be in his name on his death and would not therefore be subject to inheritance tax in the UK.  The assets would remain in the trust and be available for future generations of the family. Advice should be taken on distributions from a trust to ensure that these are as tax efficient as possible.

Summary and Additional Information

UK inheritance tax is a complex issue. In particular for individuals with assets in the UK. Careful consideration and advice need to be taken regarding the best manner to structure the holding of these assets.

Advice should be taken as early as possible and should be reviewed regularly, to allow for any changes in the law and/or family circumstances. If you require additional information on this topic, please contact the Dixcart office in the UK: advice.uk@dixcart.com

The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time.

Changes in terms of global tax regulations and increasing international tax transparency are vital to consider when implementing strategies to preserve family wealth and family business ownership structures.

To help address tax avoidance, the Organisation for Economic Co-operation and Development’s (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project has built on the original measures applying to large multinational businesses, by implementing a two-pillar approach. Pillar Two relates to new global minimum tax rules and aims to ensure income is taxed and paid at an appropriate rate. These new rules are in addition to the familiar regulations such as the Common Reporting Standard (‘CRS’), the US Foreign Accounting Tax Compliance Act (‘FATCA’), Substance Requirements, and ultimate beneficial ownership registers.

Dixcart Expertise in Relation to Wealth Structures

Dixcart are familiar with the issues facing families in an ever-changing international world.

We provide advice in terms of the location of family offices, their members, and businesses, as well as offering management and coordination for family offices, and liaison across the family members. We also provide trustee services in a number of jurisdictions.

Location

It is very important to consider where each of the relevant family members are resident and also where they are tax resident.

Structuring options also need to be considered and/or reviewed. The use and location of holding companies and/or family wealth protection vehicles such as; family investment companies, foundations, trusts needs to be planned carefully.

International investment structures need to be evaluated, including the holding of real estate, from a tax and asset protection perspective, in particular in relation to ‘BEPS.’

Organisation

Key areas that need to be organised to ensure that a Family Office runs as efficiently as possible and achieves its objectives include:

Confidentiality Management

A procedure needs to be developed to deal with relevant confidential information requests from financial institutions and third parties.

Contingency Planning

Rules and procedures should be in place to protect the family business in the case of unexpected events:

• Policies and procedures to underwrite business continuity.
• Use of appropriate legal structures to provide as much asset and wealth protection as possible.
• Consideration of ‘citizenship by investment’ programmes in reputable jurisdictions, to provide options for the tax residence of family members to be diversified.

Family Governance

• Successors need to be identified and their role discussed with them.
• The development of open communication amongst family members regarding decision making strategies and processes.
• A ‘Family Constitution’ is a useful way to formalise family governance and to prevent potential future conflict.
• Creation or identification of education and training programmes, to groom the next generation.

Family Office Advisory Services

• The segregation of the family’s wealth from the family business(es), should be considered.
• Development of a strategy regarding use of the profits arising from the family business and investments, that are not going to be re-invested.
• Creation of a team to manage the wealth.

Succession and Inheritance Planning

• Establishment and/or review of policies and procedures to ensure the adequate preservation and transfer of wealth to the next generation.
• A review of the ownership structure of each family business and other relevant assets.
• Understand how relevant local laws would apply, in relation to inheritance (for example; Civil Law, Sharia Rules etc.).
• Putting in place the most appropriate legal structures such as wills or other legal vehicles to pass wealth to the next generation.

Liaison

Time must be taken, by those managing the Family Office, to establish and develop close relationships with the relevant family and with other professionals advising them. Dixcart believe this relationship is critical.

As well as providing technical expertise in terms of structuring, professionals at Dixcart also understand family dynamics and frequently assist in offering advice as to how to improve communication and how to avoid potential conflict.

Additional Information

If you would like further information regarding a well-considered and comprehensive approach towards succession planning, please speak to your usual Dixcart contact or to a member of the professional team at the Dixcart office in the UK: advice.uk@dixcart.com

Can Anyone Invest in a UK Real Estate Even Without a UK Passport?

Yes.  Foreign individuals (over the age of 18) and corporate entities (subject to being registered at Companies House) may purchase or invest in UK real estate.

What Types of Investment can be made?

There are many ways to invest in UK real estate. Some of the more conventional routes in England and Wales include:

• Ownership of a legal “estate” in land to realise capital appreciation

An estate is an abstract entity carried on from medieval times and used to describe nothing more than time in the land.  The most common forms of estate ownership are freehold (owning land in perpetuity or “forever”) and leasehold (owning land for a number of years). Generally a term of years in a lease of property will be born out of a freehold estate or a leasehold estate for a term longer than the one in question. The owner of a term of years in a leasehold interest will be a tenant.

• Buy to let investments

A purchaser can acquire a freehold or leasehold interest (as above) specifically to rent it out to reap the rewards of a rental income. An investor will be looking closely for high net yields when deciding what to invest in and where.

• Real Estate Investment Trust (or REIT)

Providing an easier and lower cost way to invest in  property, a UK REIT (often holding a portfolio of property) provides a way to invest in buy-to-let property without having to buy property directly.  UK REITs benefit from an exemption from UK tax on both rental income and gains relating to their property investment business allowing them to redistribute up to 90% of rental income to their shareholders.

• Property development

This can take many forms. You might wish to buy land and sell it onto a developer having secured planning permission over it; buy an existing commercial building and apply for planning to convert it into residential property, convert adjoining houses into one large property and letting it out as a house with multiple occupation and so on.

You Have Identified a Property, What Next ?

Let the buyer beware

In the UK, a seller of  land has limited duties of disclosure to a purchaser because of the principle of caveat emptor (let the buyer beware).  In effect, a purchaser buys at its own risk. It is therefore important to instruct a property solicitor to carry out the usual pre-contract investigations on “title”, apply for the relevant searches and raise relevant enquiries of the seller. Careful investigation should minimise risk whilst flushing out any potential burdens and obligations that decrease value.

Site inspection

It is also advisable to carry out a site inspection and note any discrepancies between the plans and what is on the ground. You will also want to check for signs of the presence of occupiers,  rights of way and/or to carry out investigations such as soil samples in the event you intend to develop the land. Your professional advisor will be able to advise you further.

Who will hold “title” to the property?

This might be a corporate entity or an individual. Whenever land is held by two or more people concurrently there must be a trust. The legal title to the estate may be held by up to four persons as “joint tenants” on trust for the beneficial owners so that if any one of the legal owners dies, title to the estate passes to the survivor(s). Holding property as “tenants in common” however allows you to hold the legal interest on trust for the separate beneficiaries in equal or unequal shares as the case may be.

Finance

How will you finance the purchase and a potential deposit? Mortgages are difficult to come by in the UK for foreign investors.

Use of the property

Consider whether there are any restrictions on the use of the property.

Relocation to the UK

If you are intending on relocating to the UK, have you consulted with an immigration specialist to ensure all rules are complied with?

Tax considerations

It is advisable to speak to a professional as to the tax implications of your impending purchase or look for tax efficient structures.

Further information

If you have any questions and/or would like advice on any UK Commercial Property, please speak to us at: advice.uk@dixcart.com

We are frequently asked by our clients about the often-difficult topic of exit and succession planning.

This gives rise to several practical issues, especially where a trade sale is not likely, or the existing management team are perhaps not in a position to be able to raise sufficient funds to affect a traditional “Management Buy Out”.

One Solution that is often overlooked is an Employee Ownership Trust (EOT)

An EOT can be used to acquire between 51% and 100% of a trading company’s shares which are then held on trust for the benefit of all the company’s employees, on the same terms.

Unlike traditional employee share schemes, which give rise to direct employee ownership, the EOT allows for indirect employee ownership overseen by selected employee Trustees.

EOT’s have been shown to promote better business performance, greater commitment, and productivity from employees with increased staff loyalty, lower staff turnover and absenteeism. They also allow staff members to benefit from being involved in the management and future direction of the business.

Benefits to the Shareholder

• The sale by the existing business owner of over 51% of his/her shares in the company to a qualifying EOT, would be Capital Gains Tax (CGT) and Inheritance Tax (IHT) free.  This can prove to be a valuable relief given that the Business Asset Disposal relief limit for the reduced 10% rate of CGT is only £1 million;
• A market is created for the shares that might not otherwise exist;
• Unlike in a liquidation situation (which is often the only choice for small business owners to realise the value of the business), the company can continue to operate, and the shareholders and employees can still be part of that business;
• Typically, the sale of shares in a company to an EOT is funded by a mixture of existing cash, from within the company, and external loan instruments;
• It avoids the need for often complex and expensive negotiations when selling to a third party.

Benefits to the Company and Employees

• A trading company owned by an EOT is able to pay cash bonuses of up to £3,600 per annum to all employees (on a ‘same terms’ basis);
• These bonuses will be tax-free but will be subject to National Insurance Contributions (NIC’s);
• The company gets corporation tax relief on these tax-free bonuses;
• There are benefits in terms of increased staff motivation and job retention, as set out above.

Summary and Additional Information

An EOT can provide a tax-beneficial way for shareholders to realise value and to involve employees in the company that they work for, although the structuring and funding of an EOT requires careful consideration.

If you would like to find out more about how an EOT may benefit you and your business, please contact us: advice.uk@dixcart.com.

Introduction

As a reminder, a Security Trustee is a person or entity who holds security on behalf of lenders. They are appointed to safeguard and manage the assets that are put up as collateral for a loan. Security Trustees play an important role in providing comfort to lenders and ensuring that they are protected in case of a borrower default.

Dixcart Trust Corporation Limited operate a number of corporate security trustee arrangements, primarily for property development and acquisition lending, particularly loan note and alternative debt arrangements.

Role of Security Trustees

The primary role of a Security Trustee is to act as an independent third-party that holds security on behalf of lenders. This means that the Security Trustee is responsible for managing the security, ensuring that it is properly maintained and protected, and that any proceeds from the security are distributed to the lenders in accordance with the terms of the security agreement.

Security Trustees are typically appointed in situations where there are multiple lenders involved in a transaction or where the security being provided is complex or difficult to manage. In these situations, a Security Trustee can provide a single point of contact for all lenders and can help to simplify the process of managing the security.

Responsibilities of Security Trustees

The responsibilities of a Security Trustee can vary depending on the specific terms of the security agreement. However, some common responsibilities include:

1. Holding and managing the security: The Security Trustee is responsible for holding and managing the security on behalf of the lenders. This includes maintaining the security, ensuring that it is properly insured, and taking any necessary steps to protect the security.

2. Distribution of proceeds: In the event that the security is realized, the Security Trustee is responsible for distributing the proceeds to the lenders in accordance with the terms of the security agreement.

3. Monitoring the borrower: The Security Trustee may be responsible for monitoring the borrower and ensuring that they are complying with the terms of the security agreement. This can include monitoring financial performance, compliance with covenants, and ensuring that the borrower is properly maintaining the security.

4. Taking enforcement action: Should the borrower default on the loan, the Security Trustee may be responsible for taking enforcement action to realize the security on behalf of the lenders. This can include taking legal action, selling the security, or taking any other necessary steps to protect the interests of the lenders.

Conclusion

In conclusion, Security Trustees play a vital role in providing security to lenders and ensuring that their interests are protected. They are responsible for holding and managing security on behalf of lenders and distributing any proceeds in accordance with the terms of the security agreement.

Additional Information

For additional information regarding security trustee services, please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com. 

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

Malta – Innovation and Technology

Malta is currently implementing a strategy to help ensure that Malta is considered as one of the top jurisdictions in the EU for innovation and technology. It is therefore important to be aware of what exactly the Digital Finance Market is made up of currently and where it is heading.

Malta is a prime locality for a Micro test-bed and there are currently several schemes that have been introduced to attract innovation and technology-based start-up companies.

The EU and the Digital Finance Sector

As early as September 2020, the European Commission adopted a digital finance package, including a digital finance strategy and legislative proposals on crypto-assets and digital operational resilience, to generate a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The aim of having rules which are more digital-friendly and safe for consumers, is to leverage synergies between high innovative start-ups and established firms in the financial sector while addressing any associated risks.

Position of Regulators

The financial services sector has seen a rapid acceleration in the trend towards digitisation, and as a result, many regulators are navigating how to best ensure the regulatory framework manages the risks of these innovations, without impeding their potential to significantly enhance the financial system.

Market interest around crypto-assets, and the underlying distributed ledger technology (DLT), continues to grow. The potential benefits of these innovations is to increase payment efficiency as well as reducing cost and expanding financial inclusion. In doing so there also a list of associated concerns that many regulators have highlighted and they are stepping up warnings to consumers and investors.

In a shift away from traditional business models, big tech players are beginning to offer a variety of platform-based financial services. Artificial intelligence and machine learning techniques are being incorporated into firms’ processes and are increasingly being used in tools designed for use by customers. Regulators are also taking note of ethical concerns where AI models insufficiently consider data cleaning, transformation and anonymisation.

A Unified Approach

As firms lean on outsourcing to minimise costs and deliver innovative products, there is growing scrutiny on cyber resilience and third-party outsourcing, and various conferences are being held in order to merge regulators and innovators into one stream with a shared focus. Currently there a number of sandbox projects which encourage innovative start-ups to participate in creating transparency between product offering and regulation.

The fundamental building blocks underpinning all of the emerging technologies and digitisation, are infrastructure and data. Firms need to ensure that they have the expertise to store and analyse their databases and have in place adequate governance and controls. They need to protect confidential customer and market data, while delivering services more efficiently across borders. This raises legal challenges, which regulators continue to debate.

Digital Finance Strategy

The Digital Finance Strategy sets out a general European position on the digital transformation of financing in the coming years, while regulating its risks. While digital technologies are key for modernising the European economy across sectors, users of financial services must be protected against risks stemming from increased reliance on digital finance.

The Digital Finance Strategy sets out four main priorities that promote digital transformation:

1. Tackles fragmentation in the Digital Single Market for financial services, thereby enabling European consumers to access cross-border services and help European financial firms’ scale up their digital operations.
2. Ensures that the EU regulatory framework facilitates digital innovation in the interest of consumers and market efficiency.
3. Creates a European financial data space to promote data-driven innovation, building on the European data strategy, including enhanced access to data and data sharing within the financial sector.
4. Addresses new challenges and risks associated with digital transformation.

Banks should be aware that such a strategy will bring about expectations regarding the implementation of new technologies to deliver financial services, enhanced data sharing that leads to expected better offerings by firms and enhancements of skills to navigate in this new financial eco-system.

Particular initiatives which form part of the Digital Finance Strategy include:

• Enabling EU-wide interoperable use of digital identities
• Facilitating the scaling up of digital financial services across the Single Market
• Promoting cooperation and the use of cloud computing infrastructures
• Promoting the uptake of artificial intelligence tools
• Promoting innovative IT tools to facilitate reporting and supervision

Digital Operational Resilience (DORA)

Part of the Digital Finance Package issued by the European Commission, the legislative proposal on digital operational resilience (DORA proposal), augments existing Information and Communications Technology (ICT) risk requirements, enabling an IT landscape which is expected to be safe and fit for the future. The proposal tackles various elements and includes; ICT risk management requirements, ICT-related incident reporting, digital operational resilience testing, ICT third-party risk and information sharing.

The proposal aims to address; fragmentation regarding the obligations of financial entities in the area of ICT risk, inconsistencies in incident reporting requirements within and across financial services sectors as well as the threat of information sharing, limited and uncoordinated digital operational resilience testing, and the increasing relevance of ICT third party risk.

Financial entities are expected to maintain resilient ICT systems and tools that minimise ICT risk with effective business continuity policies in place.  Institutions are also required to have processes to monitor, classify and report major ICT-related incidents, with the ability to periodically test the system’s operational resilience.  ICT third party risk is given greater emphasis, with critical ICT third-party service providers subject to a Union Oversight Framework.

In the context of the proposal, banks are expected to undertake a holistic exercise, assessing their ICT framework and plan for the expected changes. The Authority emphasises that banks should continuously monitor all sources of ICT risk whilst having adequate protection and prevention measures in place. Finally, banks should build the necessary expertise and have adequate resources to be compliant with requirements emanating from such proposals.

Retail Payments Strategy

The Digital Finance Package also includes a dedicated Retail Payments Strategy.  This strategy encompasses a new medium-to-long term policy framework that aims to enhance the development of retail payments within the evolving digital world. The four pillars of this strategy are;

1. increasing digital and instant payment solutions with pan-European reach;
2. innovative and competitive retail payment markets;
3. efficient and interoperable retail payment systems and other support infrastructures; and
4. efficient international payments, including remittances.

This strategy aims to broaden the acceptance network for digital payments, with the Commission also supporting the work towards the issuing of a digital euro.  In addition, the Commission wants to ensure that the surrounding legal framework regarding payments, covers all of the important players, with a high degree of consumer protection in place. 

How Can Dixcart Malta Help?

Dixcart Malta has a wealth of experience across financial services, and can provide a legal and regulatory compliance insight and help to implement transformational, technology and organisational change. 

When launching new innovative products and services, the experience of Dixcart Malta can help clients adapt to changing regulatory requirements and recognise and manage emerging risks.

We also identify and assist our clients in accessing various Malta government schemes, including grants and soft loans. 

Additional Information

For further information about Digital Finance and the approach taken in Malta, please contact Jonathan Vassallo, at the Dixcart office in Malta: advice.malta@dixcart.com.

Alternatively, please speak to your usual Dixcart contact.

Background: Malta Trusts

With the Great Wealth Transfer currently taking place, a Trust is a vital tool when it comes to succession and estate planning. A Trust is defined as a binding obligation between a settlor and trustee or trustees. There is an agreement that stipulates the transfer of the legal ownership of  property by the settlor to the trustees, for purposes of management and for the benefit of the nominated beneficiaries.

There are two types of Trust which are commonly utilised in Malta, depending on the specific needs of the individuals and desired purpose of the Trust:

• Fixed Interest Trust – the trustee has no control over the interest to be given to the beneficiaries. The Trust therefore defines the interest.

• Discretionary Trust – the more common type of Trust, where the trustee defines the interest issued to the beneficiaries.

Why are Trusts the Best Structure for Asset Preservation and Succession Planning?

There are several reasons as to why Trusts are effective structures for asset protection and succession planning, including:

• To preserve and generate family wealth in a tax efficient manner, avoiding the division of the assets into smaller and less effective shares in each generation.

• The assets of the trust are segregated from the personal assets of the settlor hence, there is a further layer of protection against insolvency or bankruptcy.

• The settlor’s creditors have no recourse against the property settled into the Trust.

When considering Maltese Trusts:

Malta is one, of a minority of  jurisdictions, where the legal system provides for both Trusts and Foundations.  A Trust can remain active for a period of up to 125 years from the establishment date, a duration which is documented in the Trust Instrument.

• Maltese Trusts can either be tax neutral, or be taxed as companies – income taxed at 35% and the beneficiaries will receive 6/7 refund on active income and 5/7 refund on passive income, as long as they are not resident in Malta.

• Lower Set Up Fees to establish a Trust in Malta. Significantly lower administration and set up costs are needed, compared to several other countries. Costs such as; audit fees, legal fees, and trust management fees are much lower in Malta, while the professional services provided, using a firm such as Dixcart, are of a high standard.

Key Parties to a Trust

The comprehensive definition of a Trust recognises three elements, which are; the trustee, beneficiary, and the settlor. The trustee and beneficiary are defined as the key components of a Trust in Malta, while the settlor is the third party that establishes the property in a Trust.

The Settlor – The person who makes the Trust, and provides the trust property or the individual that makes a disposition from the Trust.

The Trustee – Legal or natural person, holding the property or to whom the property is bestowed within the terms of the trust.

The Beneficiary – The person, or persons, entitled to benefit under the Trust.

The Protector – Can be an additional party introduced by the settlor as one who holds a trustworthy position, such as a family associate, lawyer, or member. Their roles and powers may include, but not be limited to, acting as an investment advisor, having the ability to remove trustees at any time, and to appoint additional or new trustees to the trust.

Different Types of Trust in Malta

Malta Trust Law provides for the different types of Trust, that can be found in most traditional trust jurisdictions, including the following:

• Charitable Trusts
• Spendthrift Trusts
• Discretionary Trusts
• Fixed Interest Trusts
• Unit Trusts
• Accumulation and Maintenance Trusts

Taxation of a Trust

The taxation of income attributable to a Trust and all matters relating to taxation on the settlement, distribution and reversion of property settled in a Trust, are regulated by the Income Tax Act (Chapter 123 Laws of Malta).

It is possible to elect for Trusts to be transparent for tax purposes, in the sense that income attributable to a trust is not charged to tax in the hands of the trustee, if it is distributed to a beneficiary. In addition, when all of the beneficiaries of a trust are not resident in Malta and when  the income attributable to a Trust does not arise in Malta, there is no tax impact under Maltese tax law. Beneficiaries are charged to tax on income distributed by the trustees, in the jurisdiction where they are resident.

Dixcart as Trustees

Dixcart has provided trustee and related trust services in; Cyprus, Guernsey, the Isle of Man, Malta, and Switzerland for over 35 years and has extensive experience in the formation and administration of trusts.

Dixcart Malta can provide trust services through its wholly owned group company Elise Trustees Limited, which is licensed to act as a trustee by the Malta Financial Services Authority.

Additional Information

For additional information regarding Trusts in Malta and the advantages that they offer, speak to Jonathan Vassallo in the Malta office: advice.malta@dixcart.com