Category: Residency

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.

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

Liability to UK tax is broadly determined by the application of the concepts of “domicile” and “residence”.

Domicile

UK law relating to domicile is complex and differs from the laws of most other countries. Domicile is distinct from the concepts of nationality or residence. In essence, you are domiciled in the country where you consider you belong and where your real and permanent home is.

When you come to live in the UK you will not generally become UK domiciled if you intend, at some point in the future, to leave the UK.

Residence

The UK introduced a statutory residence test in 6 April 2013.  Residence in the UK normally affects a whole tax year (6 April – 5 April the following year) although in certain circumstances “split year” treatment may apply.

For more details on residence please read our separate UK Resident/Non-Resident Test  information note.

Remittance Basis

An individual who is resident but not domiciled in the UK can choose to have his or her non-UK income and gains taxed in the UK only to the extent that they are brought into or enjoyed in the UK. These are called ‘remitted’ income and gains. Income and gains made abroad, which are left abroad, are called ‘unremitted’ income and gains. Major reforms regarding how non-UK domiciliaries (“non-doms”) are taxed were implemented in April 2017. Additional advice should be requested.

The rules are complex but in summary, the remittance basis will generally  apply in the following circumstances:

• If unremitted foreign income is less than £2,000 at the end of the tax year. The remittance basis automatically applies without a formal claim and there is no tax cost to the individual. UK tax will be due only on foreign income remitted to the UK.
• If unremitted foreign income is over £2,000 then the remittance basis can still be claimed, but at a cost:
  • Individuals who have been resident in the UK for at least 7 out of the prior 9 tax years must pay a Remittance Basis Charge of £30,000 in order to use the remittance basis.
  • 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 in order to use the remittance basis.
  • 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.

In all cases (except where unremitted income is less than £2,000) the individual will lose the use of his or her UK tax-free personal allowances and capital gains tax exemption.

Income Tax

For the current tax year the UK top rate of income tax is 45% on taxable income of £150,000 or more. Married persons (or those in a civil partnership) are taxed independently on their individual incomes.

As detailed above, if you are resident, but not domiciled, in the UK and choose to be taxed on the “remittance basis” you are taxable in the UK only on income that either arises in, or is brought to, the UK in any tax year.

Individuals resident and domiciled in the UK, or those who do not use the remittance basis, pay tax on all income worldwide on an arising basis.

Careful planning prior to arriving in the UK is needed to avoid unintentional remittances. In each case, attention must be paid to any relevant double taxation treaty.

Any remittances to the UK of income (or gains) used to make a commercial investment in a UK business are exempt from an income tax charge.

Capital Gains Tax

The UK rate of capital gains tax ranges from 10% to 28% depending on the nature of the asset and the income level of the individual. Married persons (or those in a civil partnership) are taxed separately.

As above if you are resident, but not domiciled in, the UK and choose to be taxed on the “remittance basis” you are liable to capital gains tax on gains made from the disposal of assets situated in the UK or from those which are outside the UK if you remit the proceeds to the UK. Non-sterling currency is treated as an asset for capital gains tax purposes and therefore any currency gain (measured against sterling) is potentially chargeable.

As with income, gains realised by certain offshore structures can be attributed to a UK resident individual under complex anti-avoidance rules; for example, gains realised by “closely controlled” non-UK companies (broadly companies under the control of five or fewer “participators”) are attributed to the participators individually.

Gains on the disposal of certain types of asset, such as a main residence, UK government securities, cars, life assurance policies, savings certificates and premium bonds may be relieved from capital gains tax.

Inheritance Tax

Inheritance tax (IHT) is a tax on an individual’s wealth on death and may also be payable on gifts made during an individual’s lifetime. The UK inheritance rate is 40% with a tax free threshold of £325,000 for the tax year 2019/2020.

Liability to inheritance tax depends on your domicile. If you are domiciled in the UK you are taxable on a worldwide basis.

A person who is not domiciled in the UK is taxable only on the transfer of assets situated in the UK (including transfers to successors/beneficiaries that occur on death). For inheritance tax purposes only, special rules apply. Any person who has been resident in the UK (for income tax purposes) for more than 15 years out of a continuous period of 20 years will be treated as being domiciled in the UK for IHT. This is called “deemed domicile”.

Certain lifetime gifts are exempt from inheritance tax provided the donor survives seven years and divests himself of any benefit. Strict rules have been introduced in cases where the donor retains or reserves a benefit out of the gift (e.g. gives away his house but continues to live in it). The effect of these changes will be to treat the donor for IHT purposes, in most cases, as if he had never made the gift.

Transfers of property between spouses of the same domicile status are exempt from inheritance tax, as are transfers by a spouse with a non-UK domicile to a UK domiciled spouse. However the amount that can be transferred by a UK domiciled spouse to a non-UK domiciled spouse without incurring an inheritance tax charge is limited to £325,000. It is, however, possible for a non-domiciled spouse to elect to be treated as domiciled, which would enable the full spouse exemption to be claimed. Once such a deemed domicile had been claimed the spouse would remain deemed domiciled until a number of years of non-residence had subsequently been re-established.

The Maltese Government introduced modifications to the remittance basis of taxation on 1 January 2018.

Background

Malta offers an extremely attractive remittance basis, whereby a resident non-domiciled individual is only taxed on foreign income if this income is received in Malta or is earned or arises in Malta.

A Tax Change for Resident Non-Domiciled Individuals

Changes, introduced at the beginning of 2018, mean that individuals who are ordinarily resident in Malta, but not domiciled there, may be subject to pay a minimum amount of annual tax in Malta, capped at €5,000.

The tax is payable if the non-domiciled individual:

• is not participating in a scheme such as ‘The Residence Programme’, ‘Global Residence Programme’ and/or ‘Malta Retirement Programme’, which specify a minimum tax payable; and
• earns at least €35,000 of income from outside of Malta (or its equivalent in another currency). In the case of a married couple, the combined income is taken into consideration.

Calculation of the Amount of Tax to be Paid

To calculate the tax payable, personal tax paid in Malta, including withholding tax, is taken into account. Capital gains tax, however, is not included.

If the income of a non-domiciled individual in any single tax year results in a tax liability of less than €5,000, the maximum tax of €5,000 will be payable. For example, if an individual is liable to pay €3,000 on income arising or received in Malta, they will be required to ‘top up’ that tax by an additional €2,000.

An exception to the above rule exists if a non-domiciled or non-resident individual can prove that tax on foreign income or capital, arising outside of Malta, would be less than €5,000. At the discretion of the Commissioner of Tax, the tax liability may be agreed at a lower level than the €5,000 specified amount.

Zero Tax on Capital Gains Arising Outside of Malta

No changes are in place or proposed in relation to tax payable on capital gains arising outside of Malta.

Irrespective of whether this income is brought into Malta or not, NO tax is payable.

Summary

The remittance basis of taxation in Malta remains a very attractive tax regime for individuals who are resident but not domiciled in Malta.

The Maltese remittance basis of taxation has been revised and may result in the payment of a maximum annual tax of €5,000. This remains a relatively low amount of tax payable.

Additional Information

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

Dixcart Management Malta Limited Licence Number: AKM-DIXC

Background

Cyprus is already attracting global technology companies from all over the world, especially from EU countries, due to relatively low operational costs and its competitive EU-approved regimes for non-domiciled individuals. In addition, entrepreneurs from the EU do not require a resident visa to reside in Cyprus.

In February 2017, the Cypriot Government established a new scheme designed to attract Non-EU nationals specialised in the fields of innovation, and research and development (R&D) to Cyprus.

The Start-up Visa Scheme

The Cyprus Start-up Visa Scheme allows talented entrepreneurs from outside the EU and EEA to enter, reside and work in Cyprus in order to establish and operate a start-up company themselves or as part of a team, with a high growth potential. The aim of establishing such a scheme was to increase the creation of new jobs, promote innovation and research, and enhance the business ecosystem and economic development of the country. 

The scheme consists of two options:

1. Individual Start-up VISA Plan
2. Team (or Group) Start-up VISA Plan

A start-up team can consist of up to five founders (or at least one founder and additional executive/managers who are entitled to stock options). Founders who are third country nationals must own more than 50% of the shares of the company.

Cyprus Start-up Visa Scheme: Criteria

Individual investors and groups of investors can apply for the scheme; however, in order to obtain the required permits, applicants must meet certain criteria:

• The investors, whether they are an individual or a group, must have a minimum start-up capital of €50,000. This can include venture capital funding, crowdfunding or other sources of funding.
• In the case of an individual start-up, the founder of the start-up is eligible to apply.
• In the case of group start-ups, a maximum number of five individuals are eligible to apply.
• The enterprise must be innovative. The enterprise will be considered innovative if its research and development costs represent at least 10% of its operating costs in at least one of the three years preceding the submission of the application. For a new enterprise the evaluation will be based on the Business Plan submitted by the applicant.
• The Business Plan must stipulate that the organisation’s head office and tax residency will be registered in Cyprus.
• Exercise of the management and control of the company must be from Cyprus.
• The founder must hold a university degree or an equivalent professional qualification.
• The founder must have a very good knowledge of Greek and/or English.

Benefits of the Cyprus Start-up Visa Scheme

Approved applicants will benefit from the following:

• The right to reside and work in Cyprus for one year, with the opportunity to renew the permit for an additional year.
• The founder can be self-employed or employed by their own company in Cyprus.
• The opportunity to apply for a permanent residence permit in Cyprus if the business succeeds.
• The right to hire a specified maximum number of staff from non-EU countries, without prior approval by the Department of Labour in the event that the business is a success.
• Family members may join the founder in Cyprus if the business succeeds.

The success (or failure) of the business is determined by the Cyprus Ministry of Finance at the end of the second year. The number of employees, taxes paid in Cyprus, exports and the extent to which the company promotes research and development will all have an impact on how the business is evaluated.

How Can Dixcart Help?

• Dixcart has been providing professional expertise to organisations and individuals for over 45 years.
• Dixcart has staff located in Cyprus who have a detailed understanding of the Cyprus Start-up Visa Scheme and the benefits of establishing and managing a Cyprus company.
• Dixcart can assist with applications for relevant Cyprus Permanent Residence Programmes if the start-up business succeeds. We can draft and submit the relevant documents and monitor the application.
• Dixcart can provide on-going assistance in terms of accounting and compliance support in organising a company established in Cyprus.

Additional Information

For more information on the Cyprus Start-up Visa Scheme or establishing a company in Cyprus, please contact the Cyprus office: advice.cyprus@dixcart.com or speak to your usual Dixcart contact.