As a response to the sanctions placed on Russia, Russia signed, on the 8th of August 2023, a decree suspending (not abolishing) the double tax treaties with multiple ‘unfriendly’ countries including Cyprus.
According to the official decree, the suspension of DTT’s is justified by Russia’s need to respond to ‘unfriendly actions’ taken by these nations against the Russian Federation, its citizens, and legal entities, in connection with the war in Ukraine.
What does this mean for International Taxation?
The suspension of such agreements in full or in part will inevitably entail not only an increase in the tax burden due to double taxation of the same income, but will also have a major impact on reporting.
The decree halts the application of key provisions in approximately half of Russia’s DTT’s.
The suspension pertains to the following provisions:
Taxation of dividends, interest, royalties, income from permanent establishments, capital gains, employment earnings, and miscellaneous income.
Provisions related to property taxation.
Non-discrimination clauses.
Limitation of benefits provisions stipulated in several treaties, namely: Sweden, Luxembourg, UK, Switzerland, Cyprus, Lithuania, Austria, and Malta.
Provisions involving mutual assistance in tax collection for agreements with Belgium, Norway, Cyprus, Austria, and Japan.
From a Cyprus perspective
Cyprus Minister of Finance will continue to honour the Tax Treaty with Russia until further notice.
The suspension of the treaty from Russia’s side will have some tax implications for Cyprus registered companies that receive income from Russian entities. The tax applied on interest, which is deducted at source, will increase from 15% to 20%. As for royalty income, tax applied will rise from 0% to 20%, whereas the tax deducted at source for dividend income, will remain at 15%, as it was before.
However, as announced by the Minister of Finance, the non-application of the Double Taxation Avoidance Agreement’s provisions, might not have further significant consequences for Cyprus, as the existing sanctions and restrictions have already impacted significantly on the economic relations between the two countries.
For additional information, please contact: Katrien De Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.
The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies.
Malta has established itself as a top film location in the Mediterranean and is gaining a strong global reputation that is managing to attract a large volume of foreign films and series over recent years.
Such films include; the movie Entebbe, Game of Thrones and the Netflix series Sense 8, as well as box offices movies such as Jurassic World Dominion and Gladiator 2 which is set to start production in the next half of the 2023. There has been an increase in crews from Hollywood and Bollywood as well as marketing agencies and production companies frequently visiting the island to take advantage of the benefits available to them.
In this article we will discuss the specific reasons as to why the film industry is continuing to grow in Malta and why it has attracted so much interest. In addition to; Malta’s versatile location, the film servicing facilities and infrastructure as well as English being the first language, a significant bonus is the fiscal incentives offered by the Government.
Fiscal Incentives
Currently there are several tax incentives in Malta, that can be enjoyed by both local and international film productions.
Cash Rebate – A cash rebate of up to 40% of the eligible expenditure incurred in Malta on film production, including; pre-production, production, and post-production costs. The minimum expenditure threshold is €60,000 for feature films, documentaries, and TV drama series, and €100,000 for TV commercials, animation, and other productions.
VAT Refund – A refund of up to 25% of the VAT paid on eligible expenditure incurred in Malta on film production.
Tax Credit – A tax credit of up to 25% of the eligible expenditure incurred in Malta on film production. The credit can be used to offset tax payable on income earned in Malta.
Co-Production Fund – A fund that provides up to 25% of the eligible expenditure incurred in Malta on co-productions. The fund is available to international co-productions that involve a Maltese production company as a partner.
Malta Enterprise Investment Aid – A scheme that provides financial assistance to companies that invest in film production facilities in Malta. The assistance is in the form of a cash grant of up to 35% of the eligible costs of the project.
Geographics
Malta has an ability to ‘double-up’ to become multiple locations, which gives it a great advantage over many other jurisdictions. Over the years the island has been transformed into; North Africa, ancient Rome, the South of France and Tel Aviv. Producers are attracted by the island’s natural beauty and the diverse architecture of Malta’s towns and villages, castles, palazzos, towers and farmhouses. Mother Nature also plays her role; with 300 days of sunshine a year, directors are re-assured that filming is far less likely to be unexpectedly interrupted.
Local Production Support in Malta
Filmmakers are also given a warm welcome by the Malta Film Commission (MFC), which is responsible for the promotion and development of the industry. It offers assistance and guidance and is usually the first point of contact for any filmmaker considering Malta as a location.
The MFC runs an incentive scheme, which offers up to a 40% rebate of costs, in relation to; accommodation, transport and location hire.
Screen tourism is a growing phenomenon worldwide, and Malta‘s film and tourism sectors have responded to this trend by offering dedicated tours that take visitors to the sites where movies were filmed.
Malta Film Studios
Malta is also home to the Malta Film Studios which offer shallow water tanks to allow the shooting of water scenes in a controlled environment with an unlimited ocean backdrop.
The island is currently sharpening its focus on developing further film infrastructure. The Government is currently looking for a strategic partner to redevelop, renovate and operate the film studios, and world-renowned companies have expressed their interest in the project. There are plans for the building of one or two sound-stages to allow producers to work in a fully controlled environment, so that filming can flourish 365 days a year.
How Can Dixcart Malta Help?
The Dixcart office in Malta has a wealth of experience in assisting companies in Malta and detailed knowledge of the benefits and financial incentives that are available to film production companies and how to claim these.
We also offer legal and regulatory compliance insights to meet specific needs and to ensure that all necessary legal requirements have been met. In addition our team of qualified Accountants and Lawyers are available to set up structures and to manage them efficiently if you decide to incorporate a new company or redomicile an existing structure.
To Contact Us
Please do not hesitate to contact the Dixcart office in Malta and we will be delighted to assist you: advice.malta@dixcart.com.
Property has recorded double digit percentage growth in various sectors listed by numerous real estate service companies in recent years and the expectation is that this will continue – with an increased demand and reduced supply than previously seen.
What is an interesting misconception is that property prices are driven predominantly by the Golden Visa program – in actual fact, the Portuguese Golden Visa accounts for an insignificant portion of property purchases, when considered in comparison to total property purchases in Portugal.
This reflects that there are various factors in Portugal influencing properties prices, including: the fact that Portugal is the new acclaimed California, the new European Silicon Valley, it is ranked one of the best places to live and work in the world, it is an attraction magnet for digital nomads, as well as offering a 10-year tax holiday for the affluent, and there is more.
Property has always been a favourable investment class for many – and that is no different now. This raises the importance of understanding the related tax consequences of holding property in Portugal.
Dixcart have summarised below some of the tax implications applicable in Portugal.
Taxation Implications to Consider
What are the Tax Consequences for My Rental Income?
Rental income, for individuals is taxed at a flat rate of 28% – for both resident and non-resident Portuguese holders of property.
Qualifying expenses may be used to reduce the taxable income due – provided it forms part of the income producing activity.
Corporate tax rates for rental income depend on residency status: non-resident entities may be subject to 21% tax, whereas local Portuguese companies will be subject to tax at rates between 19% to 21% in mainland Portugal and 11.9% to 14.7% for properties located in the autonomous region of Madeira.
When is Stamp Duty Applicable?
Stamp duty is applicable on a variety of transactions in Portugal – this may occur when a property is inherited or when a property is purchased. Please refer below for more details.
What Inheritance Tax Implications Exist for Property (or is it Stamp Duty that Applies)?
Although inheritance tax is not applicable in Portugal, stamp duty does apply.
For the purposes of stamp duty, inheritance or gifts may fall into one of two categories – those which are exempt, and those taxed at a flat rate of 10%. Inheritances by close relatives, such as parents, children and spouses, are exempt from stamp duty. All other inheritances and gifts are taxed at a flat stamp duty rate of 10%.
Stamp duty is payable for the respective property, even if the recipient does not live in Portugal.
If you are a UK domicile, your Portugal property will form part of your UK estate for UK inheritance tax purposes.
Stamp Duty on the Purchase of a Property
Stamp duty on the purchase of a property is charged at a rate of 0.8% on the higher of the purchase price or VPT (the rateable value, attributed by the tax authorities). The VPT in most cases is much lower than the actual purchase price of the property.
The purchaser must pay this duty, prior to signing the final deed, and proof of payment will need to be provided to the notary.
VAT may be applicable on the purchase of new builds, in particular situations.
Property Transfer Tax
Property transfer tax, namely IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis), is applicable each time ownership is transferred. The tax is required to be paid by the purchaser prior to the final deed of sale being signed (as the original copy of proof of payment needs to be shown to the notary at the time of the property exchange).
The tax paid, is calculated on the higher of the purchase price or the VPT.
The property transfer tax rate is largely dependent on the ultimate use of the property and whether it is your first or second home, with the rates varying between 0% and 6%.
Companies, which have as their principal activity the purchase and sale of properties, enjoy an exemption from property transfer tax, if they can prove that they have sold other properties in the previous 2 years.
Annual Municipal Property Tax (IMI)
Annual municipal property tax, or IMI (Imposto Municipal sobre Imóveis), is payable by the person who is the property owner as at 31 December of the previous year, and is based on the VPT. The rate applied ranges from 0.3% to 0.8%, and is dependent on whether the property type is classified as urban or rural (classified by the Portuguese tax authorities and based on the location of the property). Note that any investor or company located in a blacklisted tax jurisdiction, in accordance with the Portuguese tax authority, will be subject to a flat rate of 7.5% IMI.
An additional annual municipal property tax, namely AIMI (Adicional ao IMI), is chargeable for any VPT value exceeding €600,000, for all residential properties and construction plots. The rate will vary between 0.4% and 1.5% depending on if you are taxed as a single person, or as couple, or as a company.
Please note that AIMI is not only considered for a single property but is taken into account per owner. If more than one property is therefore held, the cumulative VPT needs to be considered. If the cumulative VPT value for all properties held by a single owner exceeds €600,000, AIMI will be applicable on the value of the properties held, exceeding this threshold.
If the property is being used to promote an activity, such as extending local, affordable accommodation, there will be no AIMI.
What Tax Consequences are Applicable Upon the Sale of a Property?
Capital gains tax is applicable on the sale of a property, unless purchased before 1989.
The tax consequences vary dependent on whether you are resident or non-resident. In addition, the use of the property and the way that the proceeds from the sale are utilised are paramount, as this may have a significant impact on the related tax consequences applicable.
The tax is calculated on the difference between the selling price and the acquisition value (adjusted for inflation rates, net of documented costs incurred when the property was acquired, coupled with any capital improvements within the last 12 preceding years of the sale).
As a Portuguese tax resident, 50% of the gain is liable to tax. If the property was held for a period of two years or more, inflation relief may also be applicable. Capital gains, on your property, are added to your other annual income and are taxed at marginal tax rates of up to 48%.
It is worth noting that gains resulting from the sale of a primary residence are exempt for residents, if you reinvest all of the proceeds (net of any mortgage on the property), in another main home in Portugal or the EU/EEA, before the property is sold (a window of up to 24 months), or within 36 months of the disposal of the property, provided you live in the new property, within 6 months of the purchase.
Since 1st January 2023, capital gains tax for a non-resident, applies to 50% of the gain. The actual rate of tax will depend on the amount of other income earned across the world, by the non-resident.
Rates of capital gains tax are progressive, with the maximum rate being 48%.
The capital gains tax rate for non-residents companies is either 21% or 14.7%, depending on where the property is located.
Other Considerations
However, the tax consequences in Portugal are not the only considerations to take into account. The specifics of the relevant double taxation treaty needs to be examined, as well as the local laws and regulations applicable in the country of tax residence.
A typical example of this for a UK resident, is the fact that UK tax residents also pay tax on the gain from the Portuguese property in the UK, however, under the double taxation treaty, any tax paid in Portugal may be credited against the tax due in the UK.
Is there a Preferred Structure to Hold Property in Portugal?
A topical query – what is the most preferred and tax efficient structure to hold property in Portugal?
The answer may vary depending on the objectives and circumstances of each individual investor, as well as the proposed usage of such properties. It is however worth noting, that for a non-tax resident investor wishing to invest in property to earn rental income, holding such a structure through a Portuguese (resident) company may be beneficial, with tax rates varying between 17% to 21% for properties located on the Portuguese mainland and 11.9% to 14.7% for properties located in the autonomous region of Madeira, in comparison to the flat rate of 21% for non-resident entities.
For residents, holding a primary residence in their personal capacity, may be more beneficial from a capital gain point of view. Thus, each situation needs to be considered on a case-by-case basis.
Other considerations, however, need to be taken into account, such as the operational costs for running a company and ensuring appropriate substance exists. The cost of holding a property through a corporate structure may thus not exceed the benefit in all circumstances.
Alternative qualitative benefits may include the fact that corporate structures provide an extra layer of asset protection, which may be considered invaluable for many individuals located in jurisdictions exposed to considerable financial and other types of risk.
Summary of Property Tax Consequences
To summarise the tax and costs applicable for purchasers, owners, sellers and others, as discussed above, please refer below:
– IMI (Annual Municipal Tax) – AIMI (in addition to IMI) – Running costs (such as water and electricity)
Seller:
Others:
– Capital gains – Commission to real estate agency
Inheritance tax
The related tax rates may be summarised as follows:
Individuals
Residents
Non-Residents
Capital Gains Tax
– Primary residence may be subject to exemption – Second property will be taxed at 50% of the gain at progressive tax rates.
50% of the gain will be taxed at progressive tax rates.
Rental Income
– Lower of 28%; or – Marginal tax rate.
28%
Companies
Resident
Non-Resident
Capital Gains Tax
28%
Portugal: 21% Madeira: 14.7% Azores: 14.7%
Rental Income
Respective company tax rates: – Portugal: 17% to 21% – Madeira: 11.9% to 14.7% – Azores: 14.7%
Portugal: 21% Madeira: 14.7% Azores: 14.7%
Why is it Important to Engage with Dixcart?
It is not just the Portuguese tax considerations on properties, largely outlined above, but also the impact from where you may be tax resident and/or domiciled, that need to be considered. Although property is typically taxed at source, double taxation treaties and double tax relief need to be considered.
A typical example is the fact that UK residents will also pay tax in the UK and this will be calculated based on UK property tax rules, which may be different to those in Portugal. They are likely to be able to offset the Portuguese tax actually paid against the UK liability to avoid double taxation, but if the UK tax is higher, further tax will be due in the UK. Dixcart will be able to assist in this regard and to help make sure you are aware of your obligations and filing requirements.
How else may Dixcart Assist?
Dixcart Portugal have a team of experienced professionals who may assist with various aspects regarding your property; efficient tax planning, legal support (for the sale or purchase of a property), accounting and tax support and the incorporation and maintenance of companies.
Further to this, if you would like a deemed tax calculation to be performed, you may reach out to our offices in Portugal and/or Madeira for this information: advice.portugal@dixcart.com
Dixcart have helped many with this service and look forward to assisting you with your next property advice and/or transaction.
How Individuals and International Companies can Benefit from Tax Incentives in Cyprus
As an EU member state, Cyprus offers a pleasant climate, excellent infrastructure, and a convenient geographical location. There are two main airports which provide frequent flights to most European cities as well as several international destinations. Cyprus has positioned itself well as a country of choice for both individuals and corporations, through various tax incentives and benefits.
The numerous tax incentives offered has seen a steady flow of EU and non-EU nationals establishing their business operations in Cyprus. In addition, individuals find Cyprus a tax efficient location to structure their personal tax positions by taking advantage of flexible tax resident rules and the non-domicile tax regime.
Cyprus is a common law jurisdiction, and its justice system is based on the ‘adversarial model’. Cypriot law has been modelled on English common law.
Cyprus also has access to all EU directives as well as an extensive network of double tax treaties.
Cyprus Offers a Range of Interesting Tax Incentives for Individuals
Many high-net-worth individuals relocate to Cyprus due to its advantageous non-domicile tax regime, whereby individuals who were not previously tax resident can apply for non-domicile status.
Cypriot non-domiciles benefit from a zero rate of tax on; interest, dividends, and capital gains (apart from capital gains derived from the sale of immovable property in Cyprus), as well as capital sums received from pension, provident and insurance funds.
These zero tax benefits are enjoyed even if the income has a Cyprus source or is remitted to Cyprus. There are several other tax advantages, including a low rate of tax on foreign pensions, and there are no wealth or inheritance taxes in Cyprus.
Options for Relocating: Permanent Residence and Temporary Residence Permits
Individuals wishing to move to Cyprus can apply for a Permanent Residence Permit which is useful as a means to ease travel to EU countries and organise business activities in Europe.
Applicants must make an investment of at least €300,000 in one of the investment categories required under the programme, and prove they have an annual income of at least €50,000 (which can be from pensions, overseas employment, interest on fixed deposits, or rental income from abroad).
If the holder of a Permanent Residence Permit resides in Cyprus, this may make them eligible for Cyprus citizenship by naturalisation.
Alternatively, a temporary residence permit can be obtained by establishing a foreign investment company (FIC). Through this kind of international company, work permits can be obtained for relevant employees, and residence permits for them and family members. Another key advantage is, again, that after residing for seven years in Cyprus, within any ten-calendar year period, third country nationals can apply for Cyprus citizenship.
Moving to Cyprus to take up Employment
It is common for high-net-worth individuals to relocate to Cyprus for employment purposes. If the Permanent Residence Permit is not the right route for you and/or your family, Cyprus offers several alternate ways to live and work in Cyprus:
Business Facilitation Unit: visas for highly skilled third country nationals – the Ministry of Finance announced in 2022, that they are introducing the Business Facilitation Unit to assist highly skilled third country employees with a minimum gross salary of €2,500 per month, to gain work permits in Cyprus. These permits will last up to three years.
Digital Nomad visa: non-EU nationals who are self-employed, salaried, or on a freelance basis can apply for the right to live and work from Cyprus remotely, for up to one year. The visa can be renewed for another two years.
Why Relocate to Cyprus for Work?
Personal taxation benefits:
A tax exemption of 50% of employment income, is available to an individual employed in Cyprus who was resident outside of Cyprus before he/she commenced employment in Cyprus. The exemption applies for a period of seventeen years starting from the first year of employment in Cyprus, provided that employment income exceeds €55,000 per year.
Cyprus has more than 65 tax treaties that provide for zero or reduced withholding tax rates on; dividends, interest, royalties, and pensions received from abroad. In addition, lump sums received as a retirement gratuity, are exempt from tax.
A Cypriot tax resident receiving pension income from abroad, can choose to be taxed at a flat rate of 5%, on amounts exceeding €3,420 per year.
Starting a Business in Cyprus as a Means of Relocation
The reputation of Cyprus as an international financial centre has grown significantly over recent years. Cyprus is an attractive jurisdiction for trading and holding companies and offers a number of tax incentives.
In order to encourage new businesses to the island, Cyprus offers two temporary visa routes as a means for individuals to live and work in Cyprus:
Establishing a Cyprus Foreign Investment Company (FIC): individuals can establish an international company which can employ non-EU nationals in Cyprus. Such a company can obtain work permits for relevant employees and residence permits for them and their family members. A key advantage is that after seven years, third country nationals can apply for Cyprus Citizenship.
Establishment of a small and medium sized Innovative Enterprise (Start-up visa): this scheme allows entrepreneurs (individuals or a team), from countries outside the EU and outside the EEA, to enter, reside and work in Cyprus in order to; establish, operate, and develop a start-up business. This visa is available for one year, with the option to renew for another year.
Corporate Tax Benefits
Cypriot companies enjoy a 12.5% rate of tax on trading, and a zero rate of capital gains tax. In addition, Cyprus tax resident companies and Cyprus permanent establishments (PEs) of non-Cyprus tax resident companies, are entitled to a Notional Interest Deduction (NID), on the injection of new equity used to generate taxable income.
NID is deducted from taxable income. It cannot exceed 80% of the taxable income, as calculated prior to the NID, arising from the new equity. A company could achieve an effective tax rate as low as 2.50% (income tax rate 12.50% x 20%). Please contact the Dixcart office in Cyprus for further information: advice.cyprus@dixcart.com
Additional Information
For further information about the attractive tax regime for individuals in Cyprus, please contact Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com
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.
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:
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.
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 31st December of each year. The Annual Validation must be delivered to the Registry by 31st 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%:
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
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.
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.
Due to the impact it can have on an individual’s UK tax liability, it is vital that domicile is fully understood by those wishing to relocate to the UK permanently.
In general terms, if a non-domiciled individual wishes to move to the UK permanently and has no intention to return to their previous country, then there is a strong case they will be considered UK domiciled for tax purposes.
Effective tax planning, pre-UK arrival is therefore critical to avoid potential costly surprises in the future.
UK Domiciled vs Non-domiciled Impact
Firstly, let us briefly look at the UK tax implications for a person who is UK domiciled versus non-domiciled. Please note that both individuals are UK tax resident in the year for this illustration.
Mr UK Domiciled
Liable to tax on worldwide income and gains
Worldwide assets are subject to UK inheritance tax
Miss Non-domiciled
Worldwide income and gains are taxable on the arising basis
A claim for the remittance basis can be made which will mean Miss Non-domiciled will only be taxed on her foreign income and gains if she remits it to the UK. If it is kept offshore, she will not be subject to UK tax
Non-UK situs assets are excluded from UK inheritance tax
From this, we can see that Miss Non-domiciled position is usually more advantageous from a UK tax perspective.
Determining your Domicile
In establishing whether a new domicile of choice has been created, careful consideration must be taken for the following points before making a decision to move to the UK:
the intentions of the individual;
their permanent residence;
their business interests;
their social and family interests;
ownership of property; and
the form of any Will that they have made.
This list is by no means exhaustive and there is no single criteria which determines whether an individual is or is not domiciled in the UK. Instead, a ‘balance of probabilities’ approach is taken.
Defend your Domicile
Taking into account the above, it is therefore essential to have provisions in place before arriving in the UK, to defend any potential challenge from HMRC.
Domicile enquires can be lengthy and intrusive should HMRC doubt an individual’s non-domicile claim. This can involve months or even years of correspondence involving various questions into; background, lifestyle and family and social connections, both from a historic perspective and to establish future intentions.
Acquiring and maintaining evidence of strong, ongoing links to the country of domicile is crucial for those claiming non-domiciled status, and so is evidence of an intention to leave the UK at a future date. This can be particularly problematic on death, potentially bringing a foreign estate within the scope of UK inheritance tax.
To avoid any hiccups in the future, it may be worth considering having a domicile statement prepared, to provide contemporaneous evidence supporting the claim .
Case Law
IRC v Bullock: Mr Bullock had a domicile of origin in Nova Scotia. He lived in England for 40 years. His wife did not want to live in Nova Scotia. Mr Bullock hoped to return there should he persuade his wife to change her mind or should he survive her. It was held by the Courts that he had a real determination to return rather than a vague aspiration. Accordingly he retained his Nova Scotian domicile of origin and had not acquired an English domicile of choice.
In contrast:
Furse v IRC: Mr Furse expressed a wish to live in England for the rest of his life save only for a contingency that he would return to the USA, should he cease to be physically able to take an active interest in his farm (situated in England). The Courts decided that this intention was so vague as to impose no limit on his intention to remain in England. Accordingly he had acquired an English domicile of choice.
Summary
From the above we can see it is difficult to make a judgement without fully examining an individual’s position in detail.
An individual’s domicile status is a fundamental factor in determining his/her liability to UK tax. It also has implications for other branches of the law.
Due to HMRC’s increased number of investigations into the tax affairs of non-domiciled individuals, you should be prepared to present a robust defence in the event of any challenge from HMRC. A domicile statement can greatly assist, to provide evidence of an individual’s intentions, where it is supported by the facts, and can be particularly useful in situations where enquiries are opened by HMRC after death.
Additional Information
If you require additional information on this topic and further guidance regarding your domicile status, please contact your usual Dixcart adviser or speak to the Dixcart office in the UK: advice.uk@dixcart.com
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.
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