Category: Taxation

During the Autumn of 2022, changes to UK corporate tax and personal tax regimes were subject to a number of amendments.

However, it is now confirmed that two significant changes are taking place in the near future:

• The UK Government announced that from 1 April 2023, non-UK resident property companies will be subject to an increased corporate tax rate of 25%, a 6% increase compared to the current rate of 19%, tax year 2021/2022.

• An existing set of rules which, have not been directly relevant for some time, will now definitely need to be taken into account and will see many companies under common control, now being viewed as ‘associated’ with each other. This can have a significant impact on the amount and dates on which UK corporate tax is payable.

The Increase in the UK Corporate Tax Rate

From 1 April 2023, corporate tax rates in the UK will vary between 19% and 25%. The previous single rate having been 19%.

Where a UK resident company has taxable profits of less than £50,000, the 19% small profits rate will apply. UK resident companies with profits of between £50,000 and £250,000 will pay a tapered rate of between 19% and 25%. Above the higher limit of £250,000, the 25% rate will apply to all taxable profits.

These bandings are reduced if there are associated companies, please see further details below.

Where an accounting period spans across the date of 1 April 2023, taxable profit will be split to the period before and after 1 April 2023, with differing rates applied.

Companies Incorporated or Tax Resident Overseas

Companies which are incorporated and/or tax resident overseas and which are subject to UK corporation tax, will pay a flat rate of 25% corporation tax on taxable profits arising after 1 April 2023.

This 25% rate will apply to all UK based property and trading income and to capital gains on all sales of UK investment property.

Action could be taken ahead of 1 April 2023, to mitigate some of the implications of these changes. Any proposed action would, however, need to be assessed to ensure it makes commercial sense and take into account any prevailing case law and HMRC practice. Professional advice from a company such as Dixcart should be taken.

The Option of De-enveloping UK Property Held in a Non-UK Resident Company

If the de-enveloping of UK properties being held by non-UK resident companies is being considered, this should take place as far ahead of 1 April 2023, as possible.

Each situation needs to be considered based on its merits and an evaluation needs to take place as to whether this is the most appropriate action, from both a tax and a wider perspective. Any decision also needs to take into account that it might take some time to put changes in place to achieve the desired end result.

Associated Companies – Changes to the Rules

The current rule of a ‘related 51% group company’; where companies have generally been deemed to be related 51% companies, where there is common corporate ownership greater than 50%, is also due to change on 1 April 2023. As a consequence, companies that previously did not fall within the quarterly instalment payment regime (QIPs), may now do so.

The new definition of associated companies will be significantly broadened to include companies controlled by the same person/s. A ‘person’ includes not only individuals but also trustees of a trust and partners of a partnership.

A simple example is detailed below: a trust holds all of the shares (100%), in 8 separate companies. The companies undertake similar activities and the shares were settled into the trust by the same settlor. Under the pre-1 April 2023 rules there are no 51% group companies, under the new rules there could be up to 8 associated companies.

QIPs: Definition

Most companies pay UK corporation tax within 9 months and 1 day, after their year-end. This is unless they fall under QIPs. As detailed above, whether a company is deemed to be an associated company and the number of associated companies will determine whether a company must pay its UK corporation tax via the QIPs regime.

Generally, QIPs applies, where:

• Taxable profit exceeds £1.5million in two consecutive accounting periods,

OR

• Taxable profit exceeds £10million on any accounting period.

It is very important to note that the taxable limits are divided by the number of associated companies.

QIPs does not increase the tax payable, but it does have a considerable impact on cash flow and missing or underpaying QIPs can result in penalties and/or interest being applied.

Additional Information

If you have any questions regarding the forthcoming changes to UK corporation tax, please contact Paul Webb, at the Dixcart office in the UK: advice.uk@dixcart.com.

As the UK tax authority (‘HMRC’), are returning to normal operations, they are revising their approach to encourage compliance. HMRC have at their disposal vast pools of information from overseas jurisdictions, from Companies House and from the Land Registry. They are using this data to subtly push people towards compliance, which is why they are called ‘nudge’ letters. The letter is designed to prompt or nudge the taxpayer into reviewing their tax returns and finances to determine whether further income or gains need to be notified to HMRC.

HMRC has recently issued ‘nudge’ letters to UK taxpayers who it believes hold crypto assets. The letter advises them that Capital Gains Tax issues can arise on any gains realised from the sale, or deemed disposal, of crypto assets. This can include the outright sale of crypto assets for cash, exchanging one crypto asset for another or using crypto assets to acquire goods or services.

What should you do if you get a ‘nudge’ letter?

It is important to undertake a thorough review of your sources of income and gains to consider if your filings are correct and complete. If you are sure that everything is in order, you can respond to HMRC to this effect.

The HMRC ‘nudge’ letter asks the individual to sign and complete a ‘certificate of tax position’ declaration. This includes a confirmation of understanding that a false declaration is a criminal offence and can result in an investigation or even criminal prosecution. There is no legal obligation on the taxpayer to sign the declaration and if your affairs are in order it may be best to respond to HMRC by letter rather than with the ‘certificate of tax position’ provided.

If you have overlooked a source of income or gain, then this will need to be corrected as soon as possible. Different disclosure routes are available depending on the individual’s circumstances and one such route is via the Digital Disclosure Service (DDS).

How We Can Help

It is advisable for the individual to seek specialist tax advise on receipt of a HMRC ‘nudge’ letter.

Our tax team, in the UK office, can help you review your tax position and can respond to HMRC and confirm what action, if any, will need to be taken to resolve the matter. In our experience, getting the strategy right to resolve the enquiry, in the most cost-effective way, is the key to minimising any potential damage.

For more information, please contact Paul Webb or Karen Dyerson at the Dixcart office in the UK: advice@dixcartuk.com as soon as possible to discuss the position.

Background

Guernsey is a premier international financial centre with an enviable reputation and excellent standards. The Island is also one of the leading jurisdictions providing international corporate and private client services and has developed as a base from which internationally mobile families can organise their worldwide affairs through family office arrangements.

The island of Guernsey is the second largest of the Channel Islands, which are situated in the English Channel close to the French coast of Normandy. Guernsey combines many of the reassuring elements of UK culture with the benefits of living abroad. It is independent from the UK and has its own democratically elected parliament which controls the Island’s laws, budget and levels of taxation.

Taxation of Individuals in Guernsey 

For Guernsey income tax purposes an individual is; ‘resident’, ‘solely resident’ or ‘principally resident’ in Guernsey. The definitions relate primarily to the number of days spent in Guernsey during a tax year and, in many cases, also relate to the days spent in Guernsey in several preceding years, please contact: advice.guernsey@dixcart.com for further information.

Guernsey has its own system of taxation for residents. Individuals have a tax-free allowance of £13,025. Income tax is levied on income in excess of this amount at a rate of 20%, with generous allowances.

‘Principally resident’ and ‘solely resident’ individuals are liable to Guernsey income tax on their worldwide income.

Attractive Tax Caps

There are a number of attractive features of the Guernsey personal taxation regime:

• ‘Resident only’ individuals are taxed on their worldwide income, or they can elect to be taxed on their Guernsey source income only and pay a standard annual charge of £40,000.
• Guernsey residents falling under any one of the three residence categories, detailed above, can pay 20% tax on Guernsey source income and cap the liability on non-Guernsey source income at a maximum of £150,000 per annum OR cap the liability on worldwide income at a maximum £300,000 per annum.
• New residents to Guernsey, who purchase an ‘open market’ property, can enjoy a tax cap of £50,000 per annum on Guernsey source income in the year of arrival and the subsequent three years, as long as the amount of Document Duty paid, in relation to the house purchase, is at least £50,000.

Additional Benefits of the Guernsey Tax Regime

The following taxes are not applicable in Guernsey:

• No capital gains taxes.
• No wealth taxes.
• No inheritance, estate or gift taxes.
• No VAT or sales taxes.

Immigration to Guernsey

The Dixcart Information Note: Moving to Guernsey – The Benefits and Tax Efficiencies contains additional information about moving to Guernsey. Please contact the Guernsey office if you have any specific questions or require any additional information regarding immigrating to Guernsey: advice.guernsey@dixcart.com

Taxation of Companies and Funds in Guernsey

What are the Advantages Available to Guernsey Companies and Funds?

• A key advantage for companies registered in Guernsey, is a ‘general’ corporate tax rate of zero.

There are a number of additional advantages:

• The Companies (Guernsey) Law 2008, the Trusts (Guernsey) Law 2007 and the Foundations (Guernsey) Law 2012, reflect Guernsey’s commitment to providing a modern statutory basis and increased flexibility for companies and individuals using the jurisdiction of Guernsey. The laws also reflect the importance placed on corporate governance.
• Guernsey’s Economic Substance regime was approved by the EU Code of Conduct Group and endorsed by the OECD Forum on Harmful Tax Practices, in 2019.
• Guernsey is home to more non-UK entities listed on the London Stock Exchange (LSE) markets than any other jurisdiction globally. LSE data shows that at the end of December 2020 there were 102 Guernsey-incorporated entities listed across its various markets.
• Legislative and fiscal independence mean that the Island responds quickly to the needs of business. In addition the continuity achieved through the democratically elected parliament, without political parties, helps deliver political and economic stability.
• Located in Guernsey, there are a wide range of internationally respected business sectors: banking, fund management and administration, investment, insurance and fiduciary. To meet the needs of these professional sectors, a highly skilled workforce has developed in Guernsey.
• 2REG, the Guernsey aviation registry offers a number of tax and commercial efficiencies for the registration of private and, off-lease, commercial aircraft.

Formation of Companies in Guernsey

A few key points are detailed below, outlining the formation and regulation of companies in Guernsey, as embodied in the Companies (Guernsey) Law 2008.

1. Incorporation

Incorporation can normally be effected within twenty four hours.

• Directors/Company Secretary

The minimum number of directors is one. There are no residency requirements for either directors or secretaries.

• Registered Office/Registered Agent

The registered office must be in Guernsey. A registered agent needs to be appointed, and must be licensed by the Guernsey Financial Services Commission.

• Annual Validation

Each Guernsey company must complete an Annual Validation, disclosing information as at 31^st December of each year. The Annual Validation must be delivered to the Registry by 31^st January of the following year.

• Accounts

There is no requirement to file accounts. However, proper books of account must be maintained and sufficient records must be kept in Guernsey to ascertain the financial position of the company at no greater than six monthly intervals.

Taxation of Guernsey Companies and Funds

Resident companies and funds are liable to tax on their worldwide income. Non-resident companies are subject to Guernsey tax on their Guernsey-source income.

• Companies pay income tax at the current standard rate of 0% on taxable income.

Income derived from certain businesses, however, may be taxable at a 10% or 20% rate.

Details of Businesses Where a 10% or 20% Corporate Tax Rate is Applicable

Income derived from the following types of business, is taxable at 10%:

• Banking business.
• Domestic insurance business.
• Insurance intermediary business.
• Insurance management business.
• Custody services business.
• Licensed fund administration business.
• Regulated investment management services to individual clients (excluding collective investment schemes).
• Operating an investment exchange.
• Compliance and other related activities provided to regulated financial services businesses.
• Operating an aircraft registry.

Income derived from the exploitation of property located in Guernsey or received by a publicly regulated utility company, is subject to tax at the higher rate of 20%.

In addition, income from retail businesses carried out in Guernsey, where taxable profits exceed £500,000, and income from the importation and/or supply of hydrocarbon oil and gas are also taxed at 20%. Finally, income derived from the cultivation of cannabis plants and income from the use of those cannabis plants and/or licensed production of controlled drugs is taxable at 20%.

Further Information

For additional information regarding personal relocation, or the establishment or migration of a company to Guernsey, please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com. 

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

Dixcart Fund Administrators (Guernsey) Limited: Protection of Investors Licence granted by the Guernsey Financial Services Commission

Background

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

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

Taxation of Income

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

• Dividends

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

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

• Interest and Royalties

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

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

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

Additional Attractive Malta Double Tax Treaties

Malta has a network of over 70 double tax treaties.

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

Malta-Cyprus Double Tax Treaty

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

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

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

Malta-Switzerland Double Tax Treaty

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

The key features of the Double Taxation Agreement are:

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

Additional Information

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

The Popularity of Switzerland

Switzerland’s tax system is among the world’s most attractive for both corporations and individuals. Offering one of the lowest tax rates in Europe, Switzerland is popular with leading international companies and their internationally qualified employees.

The Swiss tax system is decentralized, most taxes are administered by the cantonal tax administrations which are responsible for collecting federal, cantonal and any local tax. There are 26 cantons in Switzerland and the cantonal tax administrations are audited by the Federal administration.

The Rule and the Purpose

Each year individuals and companies based in Switzerland, must complete and file a tax return with the relevant authority.

The Swiss tax system is based on taxpayers’ declarations with subsequent assessments being issued by the tax authorities based on the tax returns filed.

The tax return is used to assess the level of tax on income and wealth/capital of the taxpayer.

Who is Required to File a Tax Return in Switzerland ?

• Swiss Companies

Swiss companies must file annual tax returns and financial statements (balance sheets, profit and loss accounts), with the tax office of the canton that the company is registered in.

Swiss Tax Return as a Company

The tax system for corporate income and capital taxes is based on taxpayers’ declarations, with subsequent assessments being issued by the tax authorities based on the tax returns filed.

Companies are initially assessed on a provisional basis, with final assessments being issued after the tax base was either the subject of a tax audit or declared final by the authorities.

Deadline

The tax return must be filed annually. An exemption exists in the first year of business when an extended business year can apply.

The filing deadlines vary from canton to canton but are usually between six and nine months, after the close of the business year.

Taxable Period

The tax year is the business year. Thus, the basis for corporate taxation is the applicable accounting period, which may end at any date within a calendar year.

Payment of Tax

Unless instalment payments are specifically requested, Swiss taxes are payable on receipt of a demand, based on a provisional or final assessment.

About one month before the due date, a provisional tax bill based on the latest tax return filed, or the assessment of the preceding period, is sent to the taxpayer.

Payment is usually made in three to ten instalments. If the entire amount is paid up front, a discount may be granted.

• Individuals

Any individual who is over the age of 18 and has permanent or temporary residence or owns a property in Switzerland, is required to file a Swiss tax return, including anyone who is in education or training even if he/she receives little or no income.

Foreign nationals with a resident permit (Permit C), need to declare their income and assets by submitting the same tax return as Swiss citizens. Other foreign nationals are subject to wage tax withholdings on a monthly basis. The wage tax covers federal, cantonal, and municipal taxes.

If a non-resident individual owns property in Switzerland, they have to file a special tax return in the canton where the property is located.

Swiss Tax Return as an Individual

A single, income and assets tax return has to be completed and filed. One tax return is enough to enable the cantonal tax administration to assess the three different levels or types of tax to be paid.

Deadline

Tax returns for individuals have to be filed by 31 March of the following year, in the canton where the taxpayer was resident at the end of the respective tax period. Filing extensions are usually granted until September/November upon request.

Taxable Period

The official financial year in Switzerland begins in January and ends in December.

Tax Audit Process

Every tax return filed is reviewed and assessed by the tax authorities. In the course of this process, the tax authorities may ask for additional information and statements. A formal tax assessment is then issued, and if no legal action is taken, the tax assessment comes into legal force and final tax bills are issued.

Payment of Tax

Two to six months after the filing of the tax application, the taxpayer receives the tax bill including federal, cantonal and municipal taxes.

Cantonal and municipal taxes are usually collected on a provisional basis throughout the respective tax year. Cantonal rules differ but all include federal tax.

Taxes are paid to one single cantonal administration.

Final tax payments or tax refunds are due once the tax return has been finally assessed by the relevant tax authority.

Additional Information

The Dixcart Office in Switzerland can provide a detailed understanding of the Swiss System of Taxation and the obligations that need to be met.

Should you need further information or wish to discuss how to make your tax return, please do get in touch: advice.switzerland@dixcart.com.

Background

The Malta – Poland Double Tax Treaty (DTT) has recently been revised with amendments being published as Legal Notice 64 of 2021. The changes are aimed to eliminate base erosion and profit shifting (BEPS), with the Treaty being based on the OECD Model Tax Convention.

Modifications were made to Articles relating to the following; dividend definition, withholding tax on interest, royalty income, capital gains from the sale of shares, and director’s fees, the method of elimination of double taxation, the mutual agreement procedure, the exchange of information to provide for tax arbitration, and  prevention of treaty abuse.

These changes are outlined below:

• The definition of ‘dividend’ has been amended, and a new definition in Article 10 explicitly includes; income from distributions on certificates or participating units of an investment fund and their redemption, income from liquidation or partial liquidation of a company and income from the purchase or redemption of its own shares, by a company.

• Withholding tax on interest payments, which is defined in Article 11, has been reduced. The maximum withholding tax that a Contracting State can levy, on outbound interest payments, when the beneficial owner is a resident of the  Contracting State, is 4%. In the previous version it was 5%.

• Article 12 on royalty payments has been revised. New provisions include not only royalty payments but also payments for technical services. Such payments are now subject to the shared taxing right. The Resident State has the obligation to provide relief for the taxes suffered at the Source State. The Source State may tax payments for technical services at a maximum rate of 5%.

• Income from an immovable property company, regulated by Article 13, was amended. The updated version details, that gains derived by a resident of a Contracting State, such as interests in a partnership or trust, or certificates or the participating units  of an investment fund, may be taxed in the other Contracting State if, during the 365 days preceding the sale or transfer of these shares or comparable interests, more than 50% of their value was derived directly or indirectly from immovable property situated in the other State.

The previous provision stipulated that if more than 50% of the value of shares directly or indirectly were derived from immovable property the capital gains from the sale of those shares could be taxed in the State where the property, owned by the company, was situated.

• Article 16 dealing with director’s fees has been changed. The old rule stated that this type of income earned by a resident of a Contracting State could be taxed in the other Contracting State, where the company is resident. The new Article 16 provides that this type of income shall be taxed only by the Resident State. This change provides an exclusive taxing right in the State where the individual director is resident.

The new Article also expands on the definition of ‘director’, as a member of the board of directors and as a member of the supervisory board.

• New Article 23 amends the method of elimination of double taxation. It now provides that if a Polish resident’s income is liable to tax in Malta, the amount  paid will be subject to a tax deduction in Poland.
• Article 25 – Mutual Agreement Procedure has been changed. The amendment states that the competent authority will try to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the agreement. Any agreement reached shall be implemented notwithstanding  obligations under the domestic law of the Contracting States. 

• Exchange of Information – Article 26, authorises the use of such information, received by a Contracting State for other purposes, provided that the competent authority of the supplying State authorises such use.

A new Article 26A has also been inserted which provides for the prevention of tax treaty abuse practices.

Date of Implementation

The changes will come into the force the first day of January of the year following the date on which the Protocol comes into force.

This is therefore likely to be January 2022.

Additional Information

For further information about Malta-Poland Double Tax Treaty please contact Jonathan Vassallo or Henno Kotze, at the Dixcart office in Malta: advice.malta@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

Background

On 1^st June 2021, the Republic of Cyprus and the Netherlands signed, for the first time ever for the two countries, a Double Taxation Treaty (DTT). This DTT relates to tax on income earned in Cyprus and/or in the Netherlands, and the prevention of tax evasion and avoidance.  

The Treaty will become effective, the year following the year in which the ratification process in both countries is completed.  

The Treaty Covers the Following Withholding Taxes

1. Dividends

There is no withholding tax (WHT) on dividends, if the dividends are beneficially owned by:

• a recipient that holds at least 5% of the capital of the company paying the dividends for at least one year, OR
• a recipient that has a recognised pension fund.  

The WHT in all other cases shall not exceed 15% of the gross amount of dividends.

2. Interest

There is no withholding tax on payments of interest, provided that the recipient is the beneficial owner of the income.

3. Royalties

There is no withholding tax on payments of royalties, provided that the recipient is the beneficial owner of the income.

4. Capital Gains

Capital gains arising from the disposal of shares are taxed exclusively in the country of residence .

The exception to this is capital gains arising from the disposal of shares or comparable interests, deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State. Such capital gains may be taxed in that other State. Certain exemptions apply.

The Principal Purpose Test (PPT)

BEPS (Base Erosion and Profit Shifting (BEPS) Package), introduced the principal purpose test (PPT), as one of the Minimum Standards to be implemented by the countries participating in the BEPS Inclusive Framework. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.

The PPT aims to deny tax treaty benefits in the case of treaty abuse.

Each case or situation, will be submitted to the PPT and the authorities will decide whether the benefits arising from the DTT can be granted or not.

Additional Information

If you require additional information as to how this new DTT might be of benefit, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com. Alternatively, please contact your usual Dixcart contact.