Category: Residency

Highly Qualified Persons Scheme – A Need for Additional Highly Qualified Individuals in Certain Sectors

Since joining the EU in 2004, Malta has been modernising its economy. It is becoming recognized as a high functioning, low cost, and well-regulated jurisdiction with an underlying theme being the availability of trained staff thanks to Malta’s high investment in education and training. The expansion of the financial, aviation and gaming sectors, since Malta joined the EU, and the associated increase in demand for technical skills has in recent years however, highlighted the need for additional highly qualified workers. There is a need to attract individuals with sufficient existing knowledge to Malta, particularly in these sectors of; financial services, gaming, aviation and the associated support services. The Highly Qualified Persons scheme was introduced to attract these individuals.

The objective of the Highly Qualified Persons Rules (SL 123.126), was the creation of a route to attract highly qualified persons to occupy ‘eligible office’, with companies licensed and/or recognized by the Competent Authority regulating the specific sector.

Benefits of the Highly Qualified Persons Scheme

This option is targeted at professional individuals, earning more than €86,938 in 2021, and seeking to work in Malta.

• The qualifying individual’s tax is set at a highly competitive flat rate of 15%, with any income earned over and above €5,000,000 being tax exempt.

The standard alternative in Malta, would be to pay income tax on a sliding scale, with a current maximum rate of 35%.

2021 Update of the HQPS in Malta

Changes were recently introduced in 2021 and were made retrospective as from 31 December 2020.

These changes consist of:

• The HQPS has been extended for five years.

No changes to the scheme will now be made until 31 December 2025. Some variations to the scheme might potentially be made to HQPS, for relevant employment in Malta that commences between 31 December 2026 and 31 December 2030.

• Individuals enjoying HQPS now have two different extension options, depending on their nationality: five years for EEA and Swiss nationals, and four years for third-countries nationals.

Definition of an ‘Eligible Office’

‘Eligible office’ in the financial, gaming, aviation and associated supporting services sectors, including any organisation holding an air operator’s certificate,  is defined as employment in one of the following positions:

• Actuarial Professional

• Aviation Continuing Airworthiness Manager

• Aviation Flight Operations Manager

• Aviation Ground Operations Manager

• Aviation Training Manager

• Chief Executive Officer

• Chief Financial Officer

• Chief Commercial Officer

• Chief Insurance Technical Officer

• Chief Investment Officer

• Chief Operations Officer; (including Aviation Accountable Manager)

• Chief Risk Officer; (including Fraud and Investigations Officer)

• Chief Technology Officer

• Chief Underwriting Officer

• Head of Investor Relations

• Head of Marketing; (including Head of Distribution Channels)

• Head of Research and Development; (including Search Engine Optimisation and Systems Architecture)

• Odds Compiler Specialist

• Portfolio Manager

• Senior Analyst; (including Structuring Professional)

• Senior Trader/Trader

Other Applicable Criteria

In addition to individuals having a qualifying position, as detailed above,  individuals must also meet the following criteria:

• The applicant’s income must be derived from an ‘eligible office’, and must be subject to income tax in Malta.
• The applicant’s employment contract must be subject to Maltese Law and is for the purpose of genuine and effective work in Malta. This must be demonstrated to the satisfaction of the Maltese Authorities.
• The applicant needs to provide proof to the authorities that he/she has appropriate professional qualifications, and has at least five years’ professional experience.
• The applicant must not have benefitted from any other deductions available to ‘Investment Service Expatriates’, as detailed in the terms of Article 6 of the Income Tax Act.
• All salary payments and expenses must be fully disclosed to the authorities.
• The applicant must prove to the authorities that:
• He/she is in receipt of sufficient resources to maintain himself/herself and members of his/her family, without recourse to public funds.
• He/she resides in accommodation regarded as normal for a comparable family in Malta, which meets the general health and safety standards in force in Malta.
• He/she is in possession of a valid travel document.
• He/she possesses sufficient health insurance for himself/herself and members of his/her family.
• He/she is not domiciled in Malta.

Summary

In the right circumstances, the Highly Qualified Persons Scheme provides taxation advantages for professional high net worth individuals who want to move to Malta and work on a contractual basis there.

Additional Information

If you would like further information regarding the Highly Qualified Persons Scheme and opportunities available through Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com, at the Dixcart office in Malta or your usual Dixcart contact.

Dixcart Management Malta Limited Licence Number: AKM-DIXC

Background

Malta offers a variety of routes to residency. Some are appropriate for non-EU individuals while others provide an incentive for EU residents to move to Malta.

The residence options and the tax benefits they can provide for individuals, where relevant, are detailed below.

1. Malta Permanent Residence

Malta Permanent Residence is available to non-EU individuals and enables them to reside indefinitely in Malta.

Successful applicants receive Permanent Maltese residence immediately and a 5 year residence card. The card is renewed every 5 years if the requirements are still being met. There are two options with regards to this route:

Option 1: Rent a property and pay the full contribution:

• Pay the €40,000 non-refundable administrative fee; AND
• Rent a property with a minimum of €12,000 per year (€10,000 if the property is situated in Gozo or the south of Malta); AND,
• Pay the full Government contribution of €58,000; AND
• Make a donation of €2,000 to a local philanthropic, cultural, scientific, artistic, sport or animal welfare NGO registered with the Commissioner of Voluntary Organisations.

Option 2: Purchase a property and pay a reduced contribution:

• Pay the €40,000 non-refundable administrative fee; AND
• Purchase a property with a minimum value of €350,000 (€300,000 if the property is situated in Gozo or the south of Malta); AND,
• Pay the reduced Government contribution of €28,000; AND
• Make a donation of €2,000 to a local philanthropic, cultural, scientific, artistic, sport or animal welfare NGO registered with the Commissioner of Voluntary Organisations.

It is possible to include up to 4 generations in one application if it can be proven that the additional applicants are principally dependant on the main applicant.

An additional Government Contribution of €7,500 is required for each additional adult dependant (excluding the spouse) included in the application.

Applicants must show capital assets of not less than €500,000, out of which a minimum of €150,000 must be financial assets.

2. Global Residence Programme

The Global Residence Programme entitles non-EU nationals to obtain a special Malta Tax Status and Maltese residence permit through a minimum investment in property in Malta.

Successful applicants can relocate to Malta if they choose to do so. They also have the right to travel to any country within the Schengen Zone of countries without the need for an additional visa(s). There is no minimum day stay requirement, however successful applicants may not reside in any other jurisdiction for more than 183 days per year.

To qualify, an individual must purchase property costing a minimum of €275,000 or pay a minimum of €9,600 per annum in rent. If the property is in Gozo or the south of Malta the minimum property value is €250,000 or €220,000 respectively, or a minimum rent payment of €8,750 per annum is required. In addition, an applicant must not spend more than 183 days in any other jurisdiction in any single calendar year.

• Tax Advantages Available to Individuals – Global Residence Programme

A flat rate of 15% tax is charged on foreign income remitted to Malta, with a minimum amount of €15,000 tax payable per annum (income arising in Malta is taxed at a flat rate of 35%). This applies to income from the applicant, his/her spouse and any dependants jointly.

Foreign source income not remitted to Malta is not taxed in Malta.

Individuals may also be able to claim double taxation relief under the regime.

3. The Malta Residence Programme

The Malta Residence Programme entitles EU nationals to obtain a special Malta Tax Status and Maltese residence permit through a minimum investment in property in Malta.

To qualify for the scheme an individual must purchase property costing a minimum of €275,000 or pay a minimum of €9,600 per annum in rent. If the property is in Gozo or the south of Malta the minimum property value is €250,000 or €220,000 respectively, or a minimum rent payment of €8,750 per annum is required. In addition, an applicant must not spend more than 183 days in any other jurisdiction in any single calendar year.

There is no minimum day stay requirement, however successful applicants may not reside in any other jurisdiction for more than 183 days per year.

• Tax Advantages Available to Individuals –The Malta Residence Programme

A flat rate of 15% tax is charged on foreign income remitted to Malta, with a minimum amount of €15,000 tax payable per annum (income arising in Malta is taxed at a flat rate of 35%). This applies to income from the applicant, his/her spouse and any dependants jointly.

Foreign source income not remitted to Malta is not taxed in Malta.

Individuals may also be able to claim double taxation relief under this route.

4. Highly Qualified Persons Programme

The Highly Qualified Persons Programme is directed towards professional individuals earning over €86,938 per annum (basis year 2021), employed in Malta on a contractual basis.

This route is open to EU nationals for 5 years (may be extended 2 times – 15 years in total) and to non-EU nationals for 4 years (may be extended 2 times – 12 years in total. A list of qualifying positions is available on request.

• Tax Advantages Available to Individuals – Highly Qualified Persons Programme

Income tax is set at a flat rate of 15% for qualifying individuals (instead of paying income tax on an ascending scale with a current maximum top rate of 35%).

No tax is payable on income earned over €5,000,000 relating to an employment contract for any one individual.

5. Retirement Programme

The Malta Retirement Programme is available to EU and non-EU nationals whose main source of income is their pension.

An individual must own or rent a property in Malta as his/her principal place of residence in the world. The minimum value of the property must be €275,000 in Malta or €220,000 in Gozo or south Malta; alternatively, property must be leased for a minimum of €9,600 annually in Malta or €8,750 annually in Gozo or south Malta.

In addition, there is a requirement for an applicant to reside in Malta for a minimum of 90 days each calendar year, averaged over any 5-year period. Individuals must not reside in any other jurisdiction for more than 183 days in any calendar year during which they benefit from the Malta Retirement Programme.

• Tax Advantages Available to Individuals – The Retirement Programme

An attractive flat rate of 15% tax is charged on a pension remitted to Malta. The minimum amount of tax payable is €7,500 per annum for the beneficiary and €500 per annum for each dependant.

Income that arises in Malta is taxed at a flat rate of 35%.

6. Key Employee Initiative

Malta’s ‘Key Employee Initiative’ is available to non-EU passport holders and is applicable to managerial and/or highly technical professionals with relevant qualifications or adequate experience relating to a specific job.

Successful applicants receive a fast-track work/residence permit, which is valid for one year. This can be renewed annually.

Applicants must provide proof and the following information to the ‘Expatriates Unit’:

• Annual gross salary of at least €30,000 per annum.
• Certified copies of relevant qualifications warrant or proof of appropriate work experience. Declaration by the employer stating that the applicant has the necessary credentials to perform the required duties.

• Tax Advantages Available to Individuals

The standard Remittance Basis of Taxation apply. Individuals that intend to stay in Malta for some considerable time but do not intend to permanently establish themselves in Malta, will be classified as resident but not domiciled in Malta. Income earned in Malta is taxed on a progressive scale with a maximum rate of 35%. Non-Malta sourced income not remitted to Malta or Capital remitted to Malta are not taxed.

7. The Qualifying Employment in Innovation & Creativity

This route is targeted towards certain professional individuals earning over €52,000 per annum and employed in Malta by a qualifying employer on a contractual basis. The applicant can be a national of any country.

This routeis available for a consecutive period of not more than 3 years.

• Tax Advantages Available to Individuals

Income tax is set at a flat rate of 15% for qualifying individuals (instead of paying income tax on an ascending scale with a current maximum top rate of 35%).

8. Nomad Residence Permit

The Malta Nomad Residence Permit enables third country individuals to maintain their current job in another country, whilst they legally reside in Malta. The permit can be for a period of between 6 and 12 months. If a 12 month permit is issued then the individual will receive a residence card which allow for visa-free travel throughout the Schengen Member States. The permit may be renewed at the discretion of the agency.

Applicants for the Nomad Residence Permit must:

1. Prove they can work remotely using telecommunication technologies
2. Be third country nationals.
3. Prove they work in any of the following categories:
   • Work for an employer registered in a foreign country and have a contract for this work, or
   • Perform business activities for a company registered in a foreign country, and be a partner/shareholder of said company, or
   • Offer freelance or consulting services, mainly to customers whose permanent establishment is in a foreign country, and have supporting contracts to verify this.
4. Earn a monthly income of €2,700 gross of tax. If there are additional family members, they will each have to satisfy the income requirements as specified by the Agency Policy.

• Tax Advantages Available to Individuals

Successful applicants will not be taxed on their income as the income will be taxed in their home country.

How Can Dixcart Assist?

Dixcart can assist in providing advice as to which route would be most appropriate for each individual or family. We can also organise visits to Malta, submit the application , assist with property searches and purchases, and provide a comprehensive range of individual and professional commercial services once relocation has taken place.

Additional Information

For further information about moving to Malta please contact Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.

Dixcart Management Malta Limited Licence Number: AKM-DIXC

Why Switzerland?

There are many reasons why Switzerland is a desirable country to live in.

• A high standard of living with excellent working conditions and business opportunities.
• Beautiful scenery and an active outdoor lifestyle.
• A central location within Europe, with flight connections to over 200 international locations.

Non-Swiss nationals are allowed to stay in Switzerland as tourists, without registration, for up to three months. After three months, anyone planning to stay in Switzerland must obtain a work and/or residence permit, and formally register with the Swiss authorities.

How to Become a Legal Swiss Resident

There are two alternative routes to become a Swiss resident:

• By working in Switzerland
• Through the Swiss ‘Lump Sum System of Taxation’

Working in Switzerland

The acquisition of a Swiss work permit allows a non-Swiss national to become a Swiss resident.

There are three ways to be entitled to work in Switzerland:

• Being hired by an existing Swiss company.
• Forming a Swiss company and become a director or an employee of the company.
• Investing in a Swiss company and become a director or an employee of the company.

When applying to work in Switzerland and/or for residence permits, different regulations apply to EU/EFTA nationals, compared to nationals of other countries.

It is a straightforward process for EU/EFTA citizens as they enjoy priority access to the labour market in Switzerland.

Non-EU/EFTA nationals can work in Switzerland as long as the are appropriately qualified, for example managers or specialists and/or with higher education qualifications.

An alternative route is for non-Swiss nationals to form a Swiss company and obtain a residence permit in Switzerland. Relevant individuals must be employed by the company that they establish in Switzerland.

Non-EU/EFTA businesses need to create jobs and business opportunities in Switzerland, as specified by each particular canton.

Lump Sum Taxation

A non-Swiss national, who does not work in Switzerland, can apply for Swiss residency under the system of ‘Lump Sum Taxation’.

• The taxpayer’s lifestyle expenses are used as a tax base instead of his/her global income and wealth. There is no report of global earnings and assets.

Once the tax base has been determined and agreed with the tax authorities, it will be subject to the standard tax rate relevant in that particular canton.

Work activities outside Switzerland are permitted. Activities relating to the administration of private assets in Switzerland can also be undertaken.

Third country nationals (non-EU/EFTA), may be required to pay a higher lump-sum tax on the basis of “predominant cantonal interest”. This will depend on a number of factors and varies case by case.

How can an Individual Become a Swiss Citizen?

• An EU or non-EU/EFTA national must have lived in Switzerland for at least 10 years, to be able to apply for a Swiss passport.
• However, if an EU or non-EU/EFTA national is the spouse of a Swiss national, they need only to have lived in Switzerland for 5 years.

Additional Information

If you require additional information regarding moving to and living in Switzerland, or have any other questions about this jurisdiction, please contact Christine Breitler or Thierry Groppi at the Dixcart office in Switzerland: advice.switzerland@dixcart.com.

Background

Until recently, the Malta Retirement Programme was only available to applicants from EU, EEA, or Switzerland. It is now available to EU and non-EU nationals and is designed to attract individuals who are not in employment but instead are in receipt of a pension as their regular source of income.

Individuals taking advantage of the Malta Retirement Programme, can hold a non-executive position on the board of a company, resident in Malta. They would, however, be prohibited from being employed by the company in any capacity. Such individuals can also be engaged in activities related to an institution, trust or foundation of a public nature, that is involved in philanthropic, educational, or research and development activities in Malta.

Benefits of the Malta Retirement Programme

In addition to the lifestyle benefits of living on a Mediterranean island, which enjoys more than 300 days of sunshine per year, individuals benefiting from the Malta Retirement Programme are granted a special tax status.

• An attractive flat rate of 15% tax is charged on a pension remitted to Malta. The minimum amount of tax payable is €7,500 per annum for the beneficiary and €500 per annum for each dependant.
• Income that arises in Malta is taxed at a flat rate of 35%.

Who May Apply?

Applicants who meet the following criteria are eligible to apply for the Malta Retirement Programme:

• Non-Maltese nationals.
• Own or rent a property in Malta as his/her principal place of residence in the world. The minimum value of the property must be €275,000 in Malta or €220,000 in Gozo or south Malta; alternatively, property must be rented for a minimum of €9,600 annually in Malta or €8,750 annually in Gozo or south Malta. Applicants renting the property must take out the lease for a minimum period of 12 months, and a copy of the lease contract needs to be submitted with the application.
• The pension which is received in Malta must constitute at least 75% of the beneficiary’s chargeable income. This means that the beneficiary can only earn up to 25% of his/her total chargeable income from any non-executive post(s), as referred to above.
• Applicants must have Global Health Insurance and provide evidence that they can maintain this for an indefinite period.
• The applicant must not be domiciled in Malta and should have no intention of becoming domiciled in Malta, within the next 5 years. Domicile means the country where you officially have a permanent home or have a substantial connection with. You can have more than one residence, but only one domicile.
• Applicants must reside in Malta for a minimum of 90 days in each calendar year, averaged over any five-year period.
• The applicant must not reside in another jurisdiction for more than 183 days in any one calendar year during the period that they benefit from the Malta Retirement Programme.

Household Staff

A ‘household staff’ is an individual who has been providing substantial and regular, curative or rehabilitative health care services to the beneficiary or his/her dependants, for at least two years prior to an application for special tax status, under the Malta Retirement Programme.

A household staff may reside in Malta with the beneficiary, in the qualifying property.

Where the care has not been provided for a minimum period of two years, but has been provided on a regular basis for a long and established period, the Commissioner in Malta may assess that this criteria has been met. It is important that the provision of such services is formalised by a contract of service.

A household staff would be subject to tax in Malta, at the standard progressive rates and is precluded from benefiting from the 15% tax rate. The household staff must register with the relevant tax authorities in Malta.

Applying to the Malta Retirement Programme

An Authorised Registered Mandatory in Malta must apply to the Commissioner of the Inland Revenue on behalf of an applicant. This is to ensure that the individual enjoys the special tax status as provided in the programme. A non-refundable administrative fee of €2,500 is payable to the Government on application.

Dixcart Management Malta Limited is an Authorised Registered Mandatory.

Individuals with special tax status are required to submit an annual return to the Commissioner of the Inland Revenue, with evidence that they have met the specified criteria.

Additional Information

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

Dixcart Management Malta Limited Licence Number: AKM-DIXC

Background

UK inheritance tax should be carefully considered, and appropriate tax planning should be taken by all individuals who have assets in the UK, not just those that live in the UK.

What is UK Inheritance Tax? 

On death, UK inheritance tax (IHT) is at a rate of 40%.

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’ 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. In the case of a married couple this tax-free allowance can be passed onto a surviving spouse, which means that, following their death, the estate will enjoy a £650,000 tax free allowance.

Additional Nil Rate Allowance

Individuals who died after 6 April 2017, with an estate value greater than their tax-free allowance of £325,000, due to the value of their home being passed to their children, may pass on an additional tax-free allowance. In tax year 2020 – 2021 this additional amount is £175,000 per estate.

Lifetime Gifts

Gifts made more than seven years prior to death, without the retention of a benefit (such as continuing to live in a gifted property rent free), will not be included in the deceased’s estate. Any gifts made within seven years will, in most circumstances, form part of the estate.

Gift Allowances

There are certain gift allowances that can be used year on year, where the seven-year rule is not applicable. The six key gift options are detailed below. These options, if planned for properly across several years, can reduce the inheritance tax liability considerably.

Dixcart recommends that a record of all gifts made is kept with the Will.

• Give away money each year – each year an individual can give away up to £3,000. This gift can be to anybody or split across any number of people.
• Wedding presents – parents can each give a wedding gift of up to £5,000 to their children. This gift allowance must be made before the ceremony.
• Unlimited small gifts – an unlimited number of gifts of up to £250 each in any tax year can be made as long as they are to different people.
• Charitable donations – charitable gifts are free from inheritance tax. If at least one-tenth of net wealth (calculated as a percentage of the estate, on death) is donated, the Government has the discretion to cut an individual’s inheritance tax rate from 40% to 36%.
• Contributing to living costs – money used to support an elderly person, an ex-spouse, and/or a child under the age of 18 or in full-time education is not considered to be within the deceased’s estate on death, whatever amounts have been paid.
• Payments from surplus income – an individual with surplus income should not ignore the opportunities provided by this provision. If the criteria, detailed below are met, the seven-year period is not relevant:

1. it was made as part of the usual expenditure of the transferor; and
2. the transferor retains sufficient income to maintain his usual
   standard of living, having taken account of all the income transfers
   that form part of his usual expenditure.

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 they consider themselves to be indefinitely settled and “at home”. There may also be estate or inheritance tax liabilities in other jurisdictions.  Therefore, local advice should be taken in any jurisdiction where taxes might be chargeable. 

For UK IHT 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 this 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 the previous 20 tax years (prior to their
  death). According to UK inheritance tax rules he is considered to be UK
  domiciled and his worldwide assets will therefore be subject to
  inheritance tax on his death. The rules are slightly different if the
  individual has fulfilled this requirement but is no longer resident at
  the date of their death although IHT may well still be chargeable in
  this instance. 

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.  Even if 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.

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

Tax Planning Opportunities for Non-UK Tax Residents 

Tom is an Australian citizen; he was born in Australia and has always lived and worked there. He is a UK non-dom 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: Property Ownership 

Even though Tom is not UK tax resident and is 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: Remittance of Money 

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. 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 the Isle of Man. If Tom was
  to die before becoming domiciled for UK inheritance tax purposes, these
  funds would 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: Use of a Trust 

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 distribute 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: Distribution of Assets from a Trust 

Following Tom’s death, his son 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. Careful consideration and advice need to be taken regarding the best manner to structure the holding of UK assets. 

It is important for both UK and non-UK tax residents to take advice, as early as possible, and this should be reviewed regularly to allow for any changes in the law and/or family circumstances. A number of important tax planning steps can be put in place, in particular for non-UK tax residents.

If you require additional information on this topic, please contact Paul Webb or Peter Robertson at the Dixcart office in the UK: advice.uk@dixcart.com.

Spring 2020, and we are experiencing an unprecedented period in terms of threat to health and economic stability.

Lower key disruption took place in April 2010, due to the ash caused by a volcanic eruption in Iceland and the subsequent cancellation of a large number of flights.

At this current time, there may be a number of other, less serious, but important unforeseen consequences.

Tax Residence

You may be in the unfortunate position of having to remain in a country and not being able to travel elsewhere and/or to return to your country of residence. If this is the case, you may inadvertently become tax resident by overstaying the number of days you should remain in that country. 

Action to Take

Please see below a suggested list of action you can take, to help mitigate an unplanned over-stay of days, if you need to:

• Keep records of why you are in the country, and for how long.
• Keep all travel tickets/records.
• Keep any notifications advising you that you cannot leave that particular country.
• It is worth checking the legislation of the country you are in to see if there are exceptions to the usual residency rules. For example, HMRC in the UK provided exemptions during the volcanic ash episode in 2010.

All of the above sounds very simple – but can easily be forgotten in difficult and stressful times.

Additional Information

If you would like further information about the tax residence regime in a particular country, or what your particular status might be, do not hesitate to speak to your usual Dixcart contact or please email: advice@dixcart.com.

The UK continues to offer significant tax advantages for individuals who are resident but not domiciled in the UK. This is due to the availability of the remittance basis of taxation. The availability of the remittance basis for longer term residents was restricted from April 2017 and additional details are available on request.

Non-UK domiciliaries who are resident in the UK (whether on a short-term basis or a long-term basis) should take specialist advice from a firm such as Dixcart, which has expertise in this area,  ideally before they become UK resident.

Advantages Available Through the Use of the UK Remittance Basis Of Taxation

• The remittance basis of taxation allows UK resident non-UK domiciliaries, who retain funds outside of the UK, to avoid being taxed in the UK on the gains and income that arise from those funds. This is as long as the income and gains are not brought into or remitted to the UK.

In addition, clean capital (i.e. income and gains earned outside of the UK before the individual became resident, that have not been added to since the individual became resident in the UK) can be remitted to the UK with no further UK tax consequences.

What is the UK Remittance Basis of Taxation?

Generally, the remittance basis applies in the following circumstances:

• If unremitted foreign income is less than £2,000 at the end of the tax year (6 April to the following 5 April), the remittance basis applies. The remittance basis automatically applies without a formal claim and there is no tax cost to the individual in the UK. UK tax will be due only on foreign income or gains remitted to the UK.

• If unremitted foreign income is over £2,000 then the remittance basis can still be claimed, but at a cost:-
  1. In all cases the individual will lose the use of his or her UK annual tax free personal allowance and capital gains tax exemption.
  2. Individuals who have been resident in the UK for less than 7 out of the prior 9 tax years do not have to pay a Remittance Basis Charge in order to use the remittance basis.
  3. Individuals who have been resident in the UK for at least 7 out of the prior 9 tax years have to pay a Remittance Basis Charge of £30,000 per annum in order to use the remittance basis. This remains the annual charge until they have been in resident the UK as specified in point 4 below.
  4. Individuals who have been resident in the UK for at least 12 out of the prior 14 tax years must pay a Remittance Basis Charge of £60,000 per annum in order to use the remittance basis.
  5. Anyone who has been resident in the UK in more than 15 of the previous 20 tax years will not be able to enjoy the remittance basis, and will therefore be taxed in the UK on a worldwide basis for income, and capital gains tax purposes.

Identifying Income and Chargeable Gains

The starting point is to identify what type of income and/or chargeable gain is covered by the rules. In some cases this is relatively straightforward. For example, if an individual’s sole source of foreign income is interest arising on a foreign deposit account, then the interest is clearly the individual’s foreign income. However, in reality, matters are often more complex.

The concept of income and chargeable gains includes not only income from sources owned by the individual personally, or gains realised from personally held assets, but also income and gains treated as being received by the individual.

There are many scenarios that might be included in the latter category and some examples are detailed below:

• Income arising in non-UK structures (i.e. trusts and companies) of which the individual is the settlor/transferor (i.e. the person who created the structure or, in some circumstances, who added property to it) where the income is treated as theirs;
• Gains deemed to be those of the individual by being attributed to him through certain closely held foreign corporations – note that these provisions generally only apply where the individual’s ability to participate in the gains and income of the company (normally through a shareholding) amount to a participation of more than 25%; and
• Certain types of deemed income – including on the disposal of non-reporting status offshore funds (i.e. most hedge funds), or income deemed to arise under the “accrued income scheme”, or gains from the disposal of other securities, known as deeply discounted securities.

Having identified what constitutes the individual’s “income and chargeable gains”, it is necessary to track the income and chargeable gains in order to see if they have been remitted to the UK.

Definitions: Remittance, Relevant Persons and Relevant Debt

The legislation creates a broad meaning for remittance and a wide class of persons capable of triggering a remittance. It is important to fully understand the definitions that apply to: “remittance”, “relevant persons” and “relevant debt”. Please contact Dixcart for this detailed information.

The Remittance Rules in Practice

The remittance rules are designed to stop an individual and any “relevant person” using unremitted foreign income or gains to finance an item of UK expenditure without a remittance occurring.

As a result, and subject to the exceptions outlined briefly below, the purchase of any asset in the UK, the payment for any service in the UK, the importation of any asset into the UK by an individual or by a “relevant person” using the individual’s income or chargeable gains, will be deemed to be a remittance.

Example 1:

John purchases a work of art at an auction in Switzerland. John does not have sufficient clean capital to fund the purchase, so he uses overseas income in order to do so. He then brings the art to the UK and displays it in his  house. “Property” has been “brought to” and “received in” the UK by John; therefore this is treated as a remittance of the income used to purchase the picture.

Example 2:

Brian and Claire are husband and wife. Their child David is at school in the UK. The school bills Claire for David’s school fees. Brian gives foreign investment income to Claire to finance the payment of the school fees. Claire is a “relevant person”. Claire has received income which she then spends in the UK by paying David’s school fees. A remittance by Brian is deemed to have occurred.

Example 3:

The facts are the same as in example 2 above, except the school has a foreign bank account into which it invites non-UK domiciled parents to pay the school fees. In this case, no money or other property is “brought to”, or “received” or “used in the UK”. However, a service (in other words the education of David) is provided in the UK to David, who is a relevant person (i.e. Brian’s minor child). Therefore the payment of the school fees by Claire is deemed to be a remittance by Brian.

Exceptions to the Remittance Rules

• Under an exception introduced from 6 April 2012, no tax charge arises on remittances to purchase certain UK investments (this includes the purchase of an interest in a commercial property business).

In addition, there are other exceptions to the remittance basis of taxation.  One of these is exempt property, which includes:

• Clothing, footwear, jewellery and watches if they are for the personal use of a “relevant person”.
• Property where the amount of foreign income or gains (that would otherwise be deemed to be remitted) is less than £1,000. “Property” for these purposes does not include “money” or any negotiable instrument (e.g. travellers cheques).

The Mixed Funds Rules

Since 6 April 2008 new rules have applied which create an order of priority of distribution from “mixed funds” to determine the type of monies that have been remitted to the UK.

Effectively, each account that contains “mixed funds” has to be analysed to determine the type of funds held in that account. This exercise must be undertaken for each tax year in which amounts have been credited to the account. The account will therefore contain a number of layers, each of which will contain a different composition of income and gains as defined in the mixed funds rules. The purpose of the mixed funds rules is to identify the type of funds being remitted to the UK.

This can give rise to complex situations and, wherever possible, we advise individuals coming to the UK to structure their affairs in a suitable manner before becoming resident in the UK. Dixcart is experienced in providing this type of advice.

The simplest way would be to establish three accounts outside of the UK:

1. Capital arising before the individual became resident in the UK, from which remittances can be made tax free;
2. Capital with capital gains arising after the individual became resident in the UK – remittances from this account will attract tax at 20% on the proportion remitted to the UK (with gains being taxed in priority to capital at the same 20% rate); and
3. Other – this would include income; such as interest paid on the first account, deemed income and capital that has become mixed with other sums, except gains.

The intention would be that the individual would keep the capital in account 1, free from any further additions. These amounts could then be remitted to the UK without any further UK tax charge.

If the capital in account 1 was subsequently exhausted, remittances should then be made from account 2, ensuring a lower tax rate than if amounts were taxed as income from account 3.

Temporary Non-Residence in the UK

Non-UK domiciliaries who have unremitted foreign income and gains, and who cease to be resident in the UK, will need to leave the UK and be non-resident for at least five complete years, if they wish to use the non-UK income and gains, that they held prior to becoming non-resident, to fund UK expenditure during their absence from the UK.

The most likely example of the funding of UK expenditure during an individual’s absence would be the repayment of a debt incurred during the individual’s period of residence in the UK. If the individual returns to the UK to become resident within the five year period, pre-departure non-UK income and gains which have been remitted to the UK will be taxed.

In addition, dividends or loans from closely held companies, certain employment income, pension income and chargeable event gains from certain insurance policies will be taxed on return to the UK after a period of temporary non-residence.

Additional Information

If you require any additional information on this topic, please speak to Paul Webb at the Dixcart office in the UK: advice.uk@dixcart.com or to your usual Dixcart contact.

Background

When individuals not resident in the UK are short term business visitors to the UK and/or are directors of UK companies, the individual’s UK tax position needs to be considered carefully. UK tax may be due, but there are a number of options that might reduce or negate the UK tax payable.

Short Term Business Visitors

Short-term business visitors are individuals who are not resident in the UK but undertake visits to the UK on business, to work for a UK company. The UK company is treated as the individual’s employer and must deduct tax under PAYE in the usual way. This applies even when the overseas company continues to pay the individual.

Individuals will usually be taxed on their worldwide income in their country of residence. This means that the same income might be taxed twice. In such circumstances, the individual would need to make a claim for double tax relief.

Short-Term Business Visitor Agreements

HMRC allows companies to enter into a Short Term Business Visitor Agreement (“STBVA”) which removes the requirement to operate PAYE. The individual will not, therefore, be taxed on UK income and will not need to make a claim for double tax relief. The criteria for eligibility for a STBVA are as follows:

1. the individual must be resident in a country with which the UK has a relevant Double Taxation Agreement;
2. the individual must be working for a UK company or a UK branch of an overseas company, but remain an employee of an overseas company;
3. the individual is expected to stay in the UK 183 days or fewer in any 12 month period;
4. The UK company must not ultimately bear the cost of the employment. Even if an individual is legally employed by a UK company, they must be economically employed by an overseas company.

Individuals visiting from overseas branches of a UK company will not be eligible for a STBVA as HMRC considers an overseas branch to be part of the UK company and therefore the final criteria 4, above, is not met.

Under some circumstances an individual can still be eligible for the agreement where their remuneration is recharged to the UK host company (see criteria 4 above), provided that the employee’s visits to the UK total fewer than 60 days in any single tax year. The employer would need a sufficiently accurate recording mechanism to validate that the 60 day rule has been met.

Reporting requirements vary substantially, depending on the number of days spent in the UK. Where reports must be made, these are due by 31 May following the tax year end of 5 April. Directors are not eligible for STBVAs.

PAYE Special Arrangements

PAYE ‘special arrangements’ deal with situations where a STBVA is not available because an individual is visiting from an overseas branch, or from a country with which the UK does not have a double tax treaty, such as Brazil.

• In the situation where a host employer has adopted ‘special arrangements’, PAYE can be calculated annually, as long as the individual has not worked more than 30 work days in any one tax year.
• This eases the administrative burden and means that, where personal allowances are due, there may be no tax to pay. Certain incidental duties can be excluded from the calculation of work days.

The employer has responsibility to assess when a day counts as a work day, when travel to or from the UK has taken place on that day.

The filing deadline is 19 April following the end of the tax year, and any tax due must be paid by 22 April following the end of the tax year.

Directors are not eligible for PAYE ‘special arrangements’.

National Insurance Contributions

UK National Insurance contributions need to be considered separately from tax arrangements.

• There is, however, a 52 week exemption from UK National Insurance contributions.

This means that National Insurance does not usually need to be considered until after 52 weeks of continuous residency. There are separate EU rules which apply in some circumstances. Please contact Dixcart for further information on this.

Non-UK Resident Directors of UK Companies

A non-UK resident director of a UK company is an office holder and therefore his or her earnings, in respect of their UK role, are subject to UK tax.

If the individual is not remunerated for the UK directorship there should be no tax to pay, although HMRC may argue that a proportion of the director’s total remuneration should be allocated to the UK director role. It is therefore helpful if the director’s employment contract sets out whether any remuneration is attributable to the UK directorship, to reduce the risk of HMRC seeking to allocate a portion of the overall remuneration to the UK role.

Self-Assessment Tax Returns

Non-UK resident directors fall within the UK self-assessment scheme for income tax. If HMRC issues a tax return, it must be completed and filed by 31 January, following the relevant tax year end of 5 April.

If HMRC does not issue a tax return, but UK tax is due, the individual must notify HMRC that they are within the criteria for filing a return. If they do not, penalties and interest will apply.

If a return is filed, but no tax is due, HMRC will not subsequently require a return every year, but will periodically check whether one is due.

Accommodation and Travel Expenses

As the individual is the director of a UK company, the UK will be treated as the regular place of work, and accommodation and travel expenses paid by the company are therefore taxable. There are some exceptions to this rule, in tightly defined circumstances.

Reporting

If an employer books and pays for the travel or accommodation, the costs are reported on the employee’s P11D form. If the individual incurs the cost and is then reimbursed, the costs are treated as earnings, and PAYE must be applied.  It may be possible to include these costs in a PAYE Settlement Agreement, to remove the reporting requirement and to allow the employer to directly pay the tax liability.

National Insurance Contributions (“NICs”) for Directors

The NICs position will vary, depending on factors such as the home country of the director, whether that country is in the EEA and whether the country has a social security agreement with the UK.

Where appropriate criteria are met, the director may be exempt from NICs in the UK.

How Can Dixcart Help?

Dixcart can review the status and particular circumstances of short term business visitors to the UK, and non-UK resident directors of UK companies. Dixcart can then assist in determining if individuals are required to pay income tax and, if they are, the most cost efficient manner in which to do so, whilst ensuring that all obligations are met.

Dixcart can assist in determining tax and NIC obligations in respect of both employees and directors working internationally. We can assist with making a STBVA application to HMRC and advise on monitoring systems to ensure that employees’ travel is properly recorded.  We can also assist in approaching HMRC in respect of earlier years where compliance requirements may not have been met.

Dixcart can advise on the tax and NIC obligations of non-UK resident directors of UK companies and can prepare and file self-assessment tax returns and P11D forms where required.

Please speak to your usual Dixcart contact or to professionals in the Dixcart office in the UK: advice.uk@dixcart.com.

BACKGROUND

Many foreigners move to Switzerland for its high life quality, outdoor Swiss lifestyle, excellent working conditions and business opportunities.

A central location within Europe with a high standard of living, as well as connections to over 200 international locations via regular international flights, also make Switzerland an attractive location.

Many of the world’s largest multi-nationals and international organisations have their head-quarters in Switzerland.

Switzerland is not part of the EU but one of 26 countries making up the ‘Schengen’ area. Together with Iceland, Liechtenstein and Norway, Switzerland forms the European Free Trade Association (EFTA).

Switzerland is divided into 26 cantons, each currently with its own basis of taxation. As from January 2020 the corporate tax rate (combined federal and cantonal) for all companies in Geneva will be 13.99%

RESIDENCE

Foreigners are allowed to stay in Switzerland as tourists, without registration, for up to three months. 

After three months, anyone planning to stay in Switzerland must obtain a work and/or residence permit, and formally register with the Swiss authorities.

When applying for Swiss work and/or residence permits, different regulations apply to EU and EFTA nationals compared to other nationals.

EU/EFTA Nationals

EU/EFTA – Working 

EU/EFTA nationals enjoy priority access to the labour market.

Should an EU/EFTA citizen want to live and work in Switzerland, he/she can freely enter the country but will need a work permit.

The individual will need to find a job and the employer register the employment, before the individual actually starts work.

The procedure is made easier, if the new resident forms a Swiss company and is employed by it.

EU/EFTA Not working 

The process is relatively straightforward for EU/EFTA nationals wanting to live, but not work, in Switzerland.

The following conditions must be met:

• They must have sufficient financial resources to live in Switzerland and ensure that they will not become dependent on Swiss welfare

AND

• Take out Swiss health and accident insurance OR
• Students need to be admitted by the relevant educational institution, prior to entering Switzerland.

NON-EU/EFTA Nationals

Non-EU/EFTA – Working 

Third country nationals are allowed to enter the Swiss labour market if they are appropriately qualified, for example managers, specialists and those with higher educational qualifications.

The employer needs to apply to the Swiss authorities for a work visa, while the employee applies for an entry visa in his/her home country. The work visa will allow the individual to live and work in Switzerland.

The procedure is made easier, if the new resident forms a Swiss company and is employed by it. 

Non-EU/EFTA – Not working 

Non-EU/EFTA nationals, without gainful employment are divided into two categories:

1. Older than 55;

• Must apply for a Swiss residence permit through a Swiss consulate/embassy from their current country of residence.
• Provide proof of adequate financial resources to support their life in Switzerland.
• Take out Swiss health and accident insurance.
• Demonstrate a close connection to Switzerland (for example: frequent trips, family members living in the country, past residency or ownership of real estate in Switzerland).
• Abstain from gainful employment activity in Switzerland and abroad.

2. Under 55;

• A residence permit will be approved on the basis of “predominant cantonal interest”. This generally equates to paying tax on deemed (or actual) annual income, of between CHF 400,000 and CHF 1,000,000, and depends on a number of factors, including the specific canton in which the individual lives.

TAXATION 

• Standard taxation

Each canton sets its own tax rates and generally imposes the following taxes: income, net wealth, real estate, inheritance and gift tax. The specific tax rate varies by canton and is between 21% and 46%.

In Switzerland, the transfer of assets, on death, to a spouse, children and/or grandchildren is exempt from gift and inheritance tax,  in most cantons.

Capital gains are generally tax free, except in the case of real estate. The sale of company shares is one of the assets, that is exempt from capital gains tax.

• Lump sum taxation

Lump sum taxation is a special tax status available to resident non-Swiss nationals without gainful employment in Switzerland.

The taxpayer’s lifestyle expenses are used as a tax base instead of his/her global income and wealth. This means that it is not necessary to report effective global earnings and assets.

Once the tax base has been determined and agreed with the tax authorities, it will be subject to the standard tax rate relevant in that particular canton.

It is possible for an individual to have gainful employment  outside Switzerland and to take advantage of Swiss lump-sum taxation. Activities relating to the administration of private assets in Switzerland can also be undertaken.

Third country nationals (non-EU/EFTA), are required to pay a higher lump-sum tax on the basis of “predominant cantonal interest”. This generally equates to paying tax on deemed (or actual) annual income, of between CHF 400,000 and CHF 1,000,000, and depends on a number of factors, including the specific canton in which the individual lives. 

Additional Information

If you would like additional information regarding moving to Switzerland, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com