Category: Corporate Services

Background

Malta has the geographical advantage of being situated in the middle of the Mediterranean Sea, at a crossroads between Europe, North Africa and the Middle East. This island offers a fully developed open market economy, and has a hardworking and multilingual population (88% of Maltese people speak English). It also offers a low rate of corporate tax.

Malta is one of a few ‘lucky’ countries where the weather is temperate all year round. In Malta, average summer temperatures range from +28 to +38 ° C. The summer  begins in May and conventionally ends in October, but even the “winter” weather is very comfortable and the air temperature rarely drops below +12 ° C.

International Status of Malta

Factors contributing to and enhancing the international status of this jurisdiction include:

• Malta is a member of the EU and therefore has access to European Union Directives.
• Malta is a full Schengen Member state and has access to all the benefits that this brings.
• It is a Sovereign Independent State, enjoying political, economic and social stability.
• Malta has friendly relations with the majority of countries across the world through its policy of non-alignment.
• Companies operating in Malta are subject to a corporate tax rate of 35%. However, non-resident shareholders enjoy low effective rates, as Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds.

Malta’s Full Imputation Method of Taxation

The unilateral relief and refund system provides a low effective Maltese tax rate of 5% for active income and 10% for passive income:

• Active income – in most instances non-resident shareholders can apply for a tax refund of 6/7ths of the tax paid by the company on the active profits used to pay a dividend. This results in an effective Maltese tax rate of 5% on active income.
• Passive income – in the case of passive interest and royalties, non-resident shareholders can apply for a tax refund of 5/7ths of the tax paid by the company on the passive income used to pay a dividend. This results in an effective Maltese tax rate of 10% on passive income.

What Other Tax Advantages are Available to Maltese Companies?

Other tax advantages are also available to companies established in Malta:

• No withholding tax on dividends, even if they payment is made to a non-European jurisdictions.

• Qualifying dividends and capital gains derived from a “participating holding” are, at the option of the taxpayer, exempt from Malta tax.

• Notional Interest Deduction (NID). NID is an innovative way in which Maltese companies can, in the correct circumstances, reduce their tax liabilities. This option is of greatest interest to companies with large equity balances. NID allows companies to deduct a notional interest amount based on the ‘risk’ capital of a company. Such companies will be able to claim a deduction against chargeable income, for NID deemed to be incurred on their equity capital. Previously in Malta, debt interest had been tax deductible, whilst dividends were not. Please see the following Article for additional information: Malta’s Notional Interest Deduction Regime Which Types of Company Are Most Likely to Benefit.

• Malta has approximately 70 Double Taxation Treaties in place. If there is no relevant double taxation treaty,  then unilateral tax relief is available.

Other Attractive Factors for Maltese Companies

There are additional advantages available to companies established in Malta, depending on the specifics of the particular company and its employees. 

• Start-up funding is available for setting up operations in Malta. There is additional booster funding available if the company operates in the technology space.
• The regulator is approachable, and, on the basis of a solid business proposal,  is happy to discuss setting up ‘sandbox environments’, to test new technologies
• Fast-track employment permits are available for third country nationals under the ‘Key Employee Programme’. The Malta ‘Key Employee Programme’ is available to managerial and/or highly-technical professionals with relevant qualifications or adequate experience relating to a specific job. Successful applicants receive a fast track work/residence permit within five working days from the date of application, valid for one year. This can be renewed for a maximum period of three years.
• A special tax rate of 15% can be enjoyed by certain individuals employed in; Research & Development/Financial Services/Aviation/Online Gaming, under the Highly Skilled Programme.

Dixcart Corporate Services in Malta: Registration and Maintenance of Companies

Services available from the Dixcart office in Malta include:

• Company registration: preparation and submission of all necessary documents, obtaining permits, certificates and licenses.
• Opening bank accounts and interaction with banks on any matters.
• Corporate secretarial: documentation and reporting, and compliance with all legal requirements.
• Office services: rental of a work space or an office, internet access, telephone and fax, office equipment, and assistance with correspondence, if required.
• Other services: bank account management, accounting services, assistance in employing foreign employees by the Maltese company.
• Change of jurisdiction: domiciliation of the company to Malta, and the use of Maltese companies in combination with other jurisdictions.

Additional Information

For further information about establishing a company in Malta, please contact Jonathan Vassallo or Clive Azzopardi, at the Dixcart office in Malta: advice.malta@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

Introduction

Whether you are an overseas business looking to expand into the UK, or already in the UK with plans for an exciting new busines, your time is valuable. Getting the compliance and administrative elements setup at an early stage is crucial to allow the business to grow efficiently, but can be a drain in terms of the time required. 

At the Dixcart office in the UK, our combined team of accountants, lawyers, tax advisers and immigration consultants make this process as easy as possible for you.

Bespoke Advice

As every business is different, there will always be some specific items to consider for your particular business, and taking bespoke professional advice at an early stage will always be the right thing to do. 

Please see below a checklist regarding the key compliance matters that every new UK business looking to take on employees needs to consider. 

Checklist

• Immigration: Unless you are looking to only employ workers already with the right to work in the UK, you may need to consider business related visas, such as a sponsor license or sole representative visa.

• Employment contracts: all employees will need to have an employment contract compliant with UK employment laws.  Many businesses will also need to prepare staff handbooks and other policies.

• Payroll: UK income tax rules, benefits-in-kind, pension auto-enrolment, employer’s liability insurance, all need to be understood and implemented correctly.  Administering a UK compliant payroll can be complex. 

• Book-keeping, management reporting, statutory accounting and audits: well- maintained accounting records will help provide information for considered decision-making and financing and remaining compliant with Companies House and HMRC.

• VAT: registering for VAT and filing, in compliance with requirements, will help ensure there will be no unexpected surprises and, if dealt with promptly, can help with early-stage cash-flow. 

• Commercial contracts: whether an agreement with a; vendor, supplier, service provider or customer, a well prepared and robust contract will help protect your business and ensure it is well placed for any future exit strategy. 

• Premises: whilst many businesses are operating more and more online, many will still require office or warehousing space.  Whether renting or purchasing space we can assist. We also have a Dixcart Business Centre in the UK, which may be helpful if a serviced office is needed, with professional accounting and legal services being available, in the same building.  

Conclusion

Failing to take the right advice at the right time can prove costly in terms of time and finance at a later stage.  By working as one professional team, the information Dixcart UK gain when we provide one professional service can be shared appropriately with other members of our team, so you do not need to have to have the same conversation twice.

Additional Information 

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

The Aim of this Note

The aim of this Article is to highlight the many other reasons for using Guernsey structures, besides the mitigation of tax leakage for holding UK real estate (and other assets). In the past the focus on the benefits of using Guernsey structures was often concentrated purely on the tax benefits available, whilst ignoring other potential benefits.

What’s Changed? – Tax Reforms for Non-UK Resident Owners

Since 2015 the UK government has announced various tax reforms to more closely align the tax treatment of non-UK resident owners of UK property (both residential and commercial) with that of UK residents holding UK property.

These reforms were introduced as part of the UK government’s wider efforts to tackle tax avoidance, evasion and non-compliance and were designed to ‘level the playing field’ in terms of taxation of gains between non-UK resident and UK-resident investors in UK real estate.

Notwithstanding these reforms, investors are still free to structure their investments in UK real estate through Guernsey structures reducing some of the adverse UK tax implications which use of UK vehicles may incur.

Lawful mitigation of tax liabilities is still permissible.

Why the Use of Guernsey Structures Can be Beneficial

There are a number of important non-tax related reasons why structuring through a Guernsey structure is beneficial for holding UK real estate (and other assets):

1. The Versatility of Guernsey Vehicle Options Available

Guernsey legislation allows a versatile variety of structures that can be used.  Some of the key advantages are the flexibility of the laws such as:

Companies – Very flexible company law, distributions on a solvency basis (not limited to distribution of profits), no withholding tax on distributions, re-domiciliation allowed, Guernsey corporation tax is currently 0% with no capital gains tax.

Limited Partnerships / Guernsey Property Unit Trusts (GPUTS) – Both of these provide options for tax transparent structures which can aid planning, particularly where there is a diverse pool of international investors.

Protected Cell Companies – Provides a company which has the ability to appoint different shareholders to different cells and ring fence assets in those cells, and can be an alternative to a Collective Investment Scheme.

Trusts and Foundations – For those investors who have estate planning in mind, Guernsey is a world leader in this area with a well-developed trust regime. Since 2012 Guernsey has been able to offer Foundations for wealth planning and asset holding which are increasingly popular, particularly with clients from civil law jurisdictions. Guernsey Foundations are particularly interesting due to their ‘disenfranchised’ beneficiary legislation.

2. Guernsey Collective Investment Schemes and Listed Real Estate Investment Trusts

Guernsey Collective Investment Schemes (CIS) and The International Stock Exchange (TISE) listed Real Estate Investment Trusts (REITs), which use British offshore entities as the listing vehicles, offer the following benefits to investors:

• improved returns – exemption or potential exemption from UK corporation tax on rental income and from UK capital gains tax on corporate profits at the fund level, through the “transparency election” or an “exemption election”;
• reduced or no transaction costs – no stamp duty arises in relation to the sale of shares in or units of a Guernsey entity unlike the SDLT suffered with a UK entity;
• Private Investment Fund (PIF) Regime – provides a lighter touch regulation for a CIS and is therefore more cost-effective to use, rather than other more regulated fund structures.

3. Eurobond Exemption to UK Withholding Taxes

The TISE is an internationally recognised stock exchange headquartered in Guernsey, with offices in Isle of Man, Jersey, Dublin and London.

Currently, nearly one third of all UK REITs are listed on the TISE to take advantage of the Eurobond Exemption to UK Withholding Taxes, as non-UK companies issuing debt secured on UK real estate can list the debt on a recognised stock exchange in order to pay interest to non-UK Entities and Persons, without deducting UK withholding tax.

4. Privacy and Confidentiality (not secrecy)

Ultimate beneficial ownership of structures is not currently publicly available, but is required to be disclosed to the Guernsey Registry, and shared to fully meet the obligations of the Common Reporting Standard and Tax Information Exchange Agreements. 

In addition, trust and foundation instruments, limited partnership agreements and limited liability company (LLC) agreements are not publicly available, so investors can manage their affairs privately.

5. Internationally Recognised Jurisdiction

Guernsey has a reputation for being a well-regulated and transparent international finance centre. Guernsey has robust and extensive anti-money laundering laws and has entered into over 61 TIEAs based on the OECD model arrangement.  Guernsey also has a world-class, professional infrastructure with numerous legal, tax, accounting and corporate service providers providing the high level of services required from investors.  Other benefits include:

• All trust and corporate services providers must be regulated (not a requirement in many other countries including the UK).
• Most major UK, EU and US financial institutions are familiar with Guernsey and willing to provide services. Compliance related matters and therefore procedures such as opening bank accounts and raising finance can be carried out with minimal issues arising.

6. Guernsey: Ability to Redomicile Entities

It is often necessary or advantageous to move, or redomicile structures to other jurisdictions. For example, where geopolitical events or legislation become adverse, or there is a change in the investment strategy being followed, or there is adverse opinion regarding the structure’s current jurisdiction.

One of the attractions of this re-domiciliation option is that it permits an entity to transfer its legal base to a different jurisdiction, while maintaining its legal personality and so remaining subject to all agreements (including external financing arrangements and related security), to which the entity was party prior to re-domiciliation taking effect.

By contrast, companies incorporated in the UK or in some other jurisdictions cannot be redomiciled, which can limit the multi-jurisdictional structuring options available to such onshore companies.

7. Ability to Open Up to a Wider Buyer Audience on Exit

Holding UK real estate or infrastructure assets through a Guernsey entity can create a wider international buying audience at the time of exit.  An international buyer may not wish to hold shares directly in a UK company if they do not currently have a UK tax exposure.

It is also perfectly acceptable for a UK resident to have the asset held through a Guernsey company, to register the company as UK tax resident, and run the company’s affairs from the UK.  At the time of sale, the shares in the Guernsey company can be sold and the Guernsey company either re-domiciled (as described above), or have its tax residency changed to suit the new owner.

Have UK Tax Reforms Changed the Use of Guernsey Structures?

In short, no, not entirely.  

CIS benefits continue to persist as the UK government permits CIS to make either a transparency election or an exemption election, thereby meaning that investors will not be subject to possible double taxation.  As a result, we have seen a steady use of Guernsey holding structures and continue to see new enquiries.

We have also experienced a number of structures migrating to Guernsey to benefit from the jurisdiction’s reputation and expertise, particularly as substance requirements are now increasingly important to demonstrate.

In addition, advisers and clients are less focused on tax advantages but reverting back to traditional reasons for using Guernsey structures, such as; wealth preservation and succession planning. 

There are clearly a considerable number of benefits to investors in utilising Guernsey structures to hold real estate and other assets, with a great deal of flexibility and variety, to form a structure and to suit any investor.

Additional Information

For more information regarding the use of Guernsey structures to hold UK real estate and other assets, please contact Steven de Jersey or John Nelson at the Dixcart office in Guernsey: advice.guernsey@dixcart.com

Dixcart Trust Corporation Limited has a Full Fiduciary Licence granted by the Guernsey Financial Services Commission

Background

Portugal is a member of the EU and offers an internationally competitive tax framework that is both transparent and compliant.

The corporate tax rate is 21% of net profit, but tax incentives apply to certain types of business and the participation-exemption regime allows for a credit in relation to foreign tax.  

Key Advantages Available Through the Portuguese Tax Regime

Capital Gains

Capital gains are generally included in taxable profit.

A 50% relief can however be enjoyed where the total amount of the capital gain is re-invested in tangible fixed assets (shares and investment property are excluded), during the previous financial year, or up until the end of the second subsequent  financial year.

Patent Box Regime

There is a 50% exemption to tax on income generated by intellectual property. This is applicable to the income generated by the assignment or sub-licensing of patents, models and industrial designs protected by intellectual property and which have been subject to registration.

The acquisition costs of certain intangible assets, with unlimited durability, and goodwill are deductible on an annual basis of 5% for a period of 20 years. In addition, all costs associated with the development of the intellectual property are tax deductible.

Investment Incentives

Several tax incentives are available to Portuguese businesses undertaking investments. If you would like more information, please contact us: advice.portugal@dixcart.com

Special Rates for SMEs

A corporate tax rate of 17% is levied on the first €25,000 profit of an SME, with profits exceeding this rate then taxed at the standard rate of 21%. An SME is defined as a business having a turnover of less than €50million.

This initial ‘low’ corporate tax rate falls to 12.5% in some low population density and interior regions of Portugal.

The Portuguese Corporate Tax Structure

Portuguese companies are subject to tax on their worldwide income. However, branches of non-resident companies are only taxed on Portuguese-source profits.

Corporate tax is charged at a rate of 21% on a company’s profit, although some exemptions may apply in relation to passive income, under the participation exemption method.

Worldwide Participation Exemption Regime: Applicable to Capital Gains and Dividend Payments Inbound and Outbound

Under Portugal’s participation exemption regime, dividends received and capital gains received and distributed by a Portuguese resident company from a domestic or foreign shareholding are exempt from tax, provided that the shareholder holds, directly or indirectly, at least 10% of the capital or voting rights of the other company for 12 months.

The subsidiary may not be resident in a listed tax haven and must be subject to, and not exempt from, income tax at a rate which is equivalent to at least 60% of the Portuguese corporate tax rate (currently 21%).

A tax credit may be applicable, when the conditions for the application of the participation exemption regime are not fully met, with an option for an underlying tax credit for dividends on foreign shareholdings held for 12 months, of at least 10%.

In terms of capital gains, the participation exemption method applies to gains on the disposal of shares.

Advantages for Portuguese Companies Registered in Madeira

A number of extremely attractive corporate tax incentives are available to companies licensed in the International Business Centre of Madeira (IBCM). Please see our Dixcart Article:  A Madeira (Portugal) Company – An Attractive Way to Establish a Company in the EU.

Additional Information

If you require additional information regarding Portuguese companies and the benefits they offer, please contact your usual Dixcart adviser or speak to Lionel Freitas or Catarina Sardinha in the Portugal office: advice.portugal@dixcart.com.

This Article outlines the options available to third country nationals employed by foreign interest companies and the criteria that need to be met.

Key Feature of a Cyprus Foreign Investment Company

A Cyprus Foreign Investment Company (FIC), is 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 their family members.

Main Advantages

A key advantage is that after 7 years, third country nationals can apply for Cyprus Citizenship.

In the shorter term:

• FICs can employ third country nationals, who can apply for appropriate residence and work permits, each of which will be valid for up to 2 years and are renewable.
• Employees can exercise the right for their families to join them in Cyprus.

Criteria to be Met

The requirements to be met are as follows:

• The majority of the company’s shareholders should be foreign shareholders, and, in the situation where the ultimate owners are foreign companies, they must be  approved by the Civil Registry and Migration Department.

The following cases are exempt:

• Public companies registered in any recognised stock exchange.
• Former offshore companies that were operating in Cyprus by approval of the Cyprus Central Bank, before the change of their offshore status.
• Cypriot shipping companies.
• Cypriot companies of high technology/innovation, as certified by the Deputy Ministry of Research, Innovation and Digital Policy.
• Cypriot pharmaceutical companies or companies operating in the fields of biogenetics and biotechnology.
• Persons who have acquired Cypriot citizenship by naturalization based on economic criteria, and able to prove that they continue to meet all of the criteria.
• Companies which employ staff from third countries for the first time must invest at least €200,000 in Cyprus, for the purposes of operating the company.

• If the percentage of foreign participation in the share capital of the company is equal to or below 50% of the total share capital, this percentage must represent an amount equal to or greater than €200,000.

• The company must operate independent offices in Cyprus, in suitable premises, separate from any private housing or other office, except in the case of business ‘co-habitation’.

Employee Classification:

Eligible companies which fulfil the above conditions can employ third country nationals in the following positions:

• Directors
  • this term includes directors or partners, general managers of branches and of parent companies of subsidiary companies, departmental managers, project managers.
  • the minimum acceptable gross monthly salary for directors is €4,000, an amount that may be adjusted from time to time, depending on fluctuations in the wage index.
  • there are no restrictions on the residence period of these employees.

• Middle-management staff, executive staff and any other key personnel

In this category the following third country nationals are included:

• Upper/middle management personnel,
• Other administrative, secretarial or technical staff

The minimum acceptable gross monthly salary for this category is €2,500. Amounts may be adjusted from time to time, depending on wage index fluctuations.

• Specialists

The minimum acceptable gross monthly earnings for Specialists is €2,500, an amount that can be adjusted from time to time, depending on fluctuations in the wage index.

• Support Staff

This includes all third country nationals not included in the above categories. Companies are expected to fill positions in this category, with Cypriot or European citizens. Where there are no qualified Cypriots or European citizens available, a company may employ third country nationals up to a maximum 30% of the total staff.

For this category, the General Employment Procedure is followed, after  receipt of a positive recommendation (sealed employment contract) from the Department of Labour, which confirms that the approved maximum percentage above, has not been exceeded. Please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com for details of the certificates/supporting documents that need to be submitted.

The market test is not necessary for third country nationals with free access to the labour market.

Length of Validity of the Temporary Residence and Employment Permit

Where the criteria are met, the third country national is granted a temporary residence and employment permit. The validity of the permit depends on the duration of the employment contract and can be up to two years, with a right of renewal. Directors, middle management executives and other key personnel, as well as specialists (staff categories 1-3), may reside in the Republic without a time limit, provided they hold a valid temporary residence and employment permit.

For support staff, the restrictions applicable to the general employment of third country nationals in the Republic apply.

Family Members

Third country nationals with residence and employment permits, under staff categories 1-3 of the policy, have direct access to family reunification with their family members (spouse and minor children), provided that the relevant conditions of the Aliens and Immigration Law, Cap.105 as amended, are met.

In such cases, third country nationals who are family members (spouse and minor children) can enter and reside in Cyprus after the sponsor has followed the procedure for family reunification.

Additional Information

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

Dixcart Corporate Services

The Dixcart Group has been providing corporate services for over 45 years. Dixcart has extensive expertise in advising both private and institutional clients as to how to set up structures to best meet their needs and to match their circumstances. A number of structures feature companies in one or more jurisdictions as well as other asset protection vehicles, whilst many just feature companies.

Dixcart not only establishes the companies but also provides a comprehensive range of company management services. Such corporate services include:

• Day to day administration and company secretarial services
• Director services
• Registered office and agent services
• Tax compliance services
• Accountancy services
• Dealing with transactions, including all aspects of acquisitions and disposals

Introduction to Charalambos Pittas and Steven de Jersey

Charalambos Pittas from our Cyprus office and Steven de Jersey from the Guernsey office are two key members of the Dixcart Corporate team that we are introducing to you today.

Charalambos Pittas joined the Dixcart Group in 2018 and was appointed Operations and Finance Director of the Dixcart office in Cyprus. He is responsible for the operations of the office and supervision of all accounting functions for clients. He also provides support to the Managing Director to develop the office and the depth of services that it provides.

Steven de Jersey is a Director of Dixcart Guernsey and is a Member of the Institute of Chartered Accountants in England and Wales with over 25 years’ experience in the Guernsey Finance Industry. Steve joined Dixcart in 2018, after 13 years productively spent establishing, and developing the Guernsey office for a leading Guernsey service provider. His particular focus was advising and servicing the larger and more complex structures for both institutional and private clients. Guernsey is a very attractive location for structures due to its zero corporate tax rates for the majority of companies established on the island relating in tax transparent structures for investors.

Charalambos Pittas

Director

BSc, FCA

charalambos.pittas@dixcart.com

Charalambos holds a BSc degree in Accounting and Finance, and he qualified as a Chartered Accountant in 2002, having completed his training with KPMG. In 2003 he moved to an International Information Technology company listed on AIM and later on WSE, where he served as the Finance Director of Western Europe. In early 2008 he was appointed Financial Controller when he moved to a Reinsurance company listed on CSE, which was acquired in late 2008 by a NYSE listed company. Charalambos moved to an Administrative Service Provider company in March 2010 until October 2018, where he was the Risk Assessment Manager

His direct involvement with multinational and multicultural companies and his wide exposure to various regulated environments and international business have enhanced his professional capabilities. His expertise is of direct relevance to the structures seeking to establish themselves in Cyprus and he is experienced in providing all of the management and accounting support required.

Charalambos also travels to meet prospective new clients and to detail the advantages available to companies established in Cyprus and for High Net Worth individuals seeking to relocate there.

He is a member of the Dixcart Risk Committee, assisting in providing advice and support, relating to compliance to all of the offices across the Dixcart Group. He advises on the relevant due diligence requirements relating to business acquisitions and is expert in providing support to ensure that all compliance requirements are fully met.

He is a member of the Institute of Chartered Accountants in England & Wales (ICAEW) and the Institute of Certified Public Accountants of Cyprus (ICPAC).

Steven de Jersey

Director

ACA

steven.dejersey@dixcart.com

Steve is responsible for the business development of the Dixcart Guernsey office along with leading the Corporate and Fund offering and promoting corporate and listing services throughout the Group. He also specialises in the establishment and administration of all forms of domestic and offshore corporate vehicles, private investment funds, investment trusts, foundations and partnerships for corporate, institutional and private clients.

He has specific experience in relation to holding structures, mergers and acquisitions, migrations, restructuring, refinancing, reorganisations, joint ventures, disposals, debt and equity, private placements, and listings.

In addition, Steve is responsible for private client structures and works closely with local and international advisors in administering traditional trust and foundation structures as well as the more recent trend in the use of Limited Partnerships and Private Investment Funds. Steve also works closely with Locate Guernsey in order to aid individuals and families relocating to the island and potentially establishing a business here. He provides professional advice regarding each stage of relocating to Guernsey, aid in integrating into Island life and guidance to Guernsey’s beneficial tax regime.

Steve travels regularly to the UK, as well as other jurisdictions around the world in particular South Africa and works closely with the other Dixcart offices. He is regularly involved in organising networking events for professional contacts and clients.

In his spare time Steve enjoys an active life, being very involved in the rugby scene in Guernsey including playing for the Guernsey veterans’ team. Steve also plays for a local veterans’ football team as well as being a passionate motorsport fan.  He is also connected to the equestrian world with a close family member owning a horse and frequently competing in events locally and on the UK mainland.

Background: Cyprus Companies

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.

Companies enjoy a 12.5% rate of tax on trading and a zero rate of capital gains tax. In addition Cyprus has over 50 double tax treaties to assist with international tax structuring.

Tax Residency

A company that is managed and controlled from Cyprus is considered to be tax resident in Cyprus.

What is Notional Interest Deduction and When Does it Apply?

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 was introduced by Cyprus in 2015, to reduce discrepancies in the tax treatment of equity financing compared to debt financing, and to promote an incentive for capital investment in Cyprus. NID is deductible, in the same manner as interest expenses, but it does not trigger any accounting entries as it is a ‘notional’ deduction.

What Tax Advantages are Available Through the Use of Notional Interest Deduction?

NID is deducted from taxable income. It cannot exceed 80% of the taxable income, as calculated prior to Notional Interest Deduction, arising from the new equity.

• A company could therefore achieve an effective tax rate as low as 2.50% (income tax rate 12.50% x 20%).

Initially, the NID rate was defined as the 10 year government bond yield, as at 31 December of the year preceding the tax year the NID is claimed, of the country in which the new equity was employed, plus a 3% premium. This was subject to a minimum rate equal to the yield of the 10 year Cyprus government bond plus a 3% premium.

• Since January 1, 2020 the NID rate has been defined as the interest rate of the 10 year government bond yield of the country in which the new equity is invested, as published annually, plus a 5% premium. The interest rate of the Cyprus 10 year government bond will no longer be used as a general minimum rate. It is only deemed to be relevant, when the country in which the new equity is invested has not issued any government bonds, as of 31 December the year preceding the tax year the NID is claimed.

Additional Information Regarding the Taxation of Companies in Cyprus

The following sources of income are exempt from corporate income tax:

• Dividend income.
• Interest income, excluding income arising in the ordinary course of business, which is subject to corporation tax.
• Foreign exchange gains (FX), with the exception of FX gains arising from trading in foreign currencies and related derivatives.
• Gains arising from the disposal of securities.

Deductible expenses

All expenses incurred wholly and exclusively in the generation of income are deductible when calculating taxable income.

Additional Information

If you have any questions or would like additional information on this topic, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Background

With the advent of Brexit, the UK Government has been taking a number of steps to demonstrate it is definitely ‘open for business’ and to position itself as an attractive location for new and expanding companies.

In the Budget on 3 March 2021, the Chancellor announced two new first year allowances:

• A superdeduction of 130% on qualifying plant and machinery;
• A 50% first year allowance on qualifying special rate assets.

Who Qualifies for the Relief?

To qualify for either allowance, the expenditure needs to be made by a company within the charge to UK Corporation Tax.

As such, sole traders and partnerships do not qualify.

Which Expenditure Qualifies for the Relief?

The expenditure must be on new and unused items: second hand purchases will not qualify.

The categories of qualifying expenditure for the 130% superdeduction are very broad and include:

• Plant;
• Machinery;
• Furniture;
• Computer equipment;
• Software;
• Vans (cars do not qualify).

Purchases qualifying for the 50% deduction, are those which would normally be treated as ‘special rate’ assets with a lower rate of capital allowances:

• Air-conditioning and air-cooling systems;
• Hot and cold-water systems;
• Electrical systems, including lighting systems;
• External solar shading;
• Lifts, escalators and moving walkways;
• Space and water heating systems;
• Thermal insulation of buildings.

When Does Expenditure Need to be Incurred?

The expenditure must be made between 1 April 2021 and 31 March 2023.

The contract cannot have been entered into, prior to 3rd March 2021, when the superdeduction and 50% first year allowance were announced.

Hire purchase contracts are included as qualifying expenditure, provided that the asset is in use by the year end.

What About the Annual Investment Allowance?

The Annual Investment Allowance (“AIA”) currently gives a 100% deduction on expenditure up to £1m. It has recently been confirmed that this limit will remain until 31 December 2021.

It would therefore make most sense to claim the superdeduction on expenditure qualifying for the130% deduction, and use AIA for special rate expenditure. The 50% first year allowance could then be claimed on expenditure in the special rate pool above £1m.

What if the Asset is Sold?

The rules are complex but, broadly speaking, if the superdeduction is claimed and the asset is then sold before 31 March 2023, a balancing charge will be payable in order for the enhanced relief to be clawed back.

Similar rules apply to the 50% first year allowance.

What Action Points Might There be for the Company?

Where the company capitalisation policy means that certain assets are not capitalised, this may be worth revisiting.

It might be beneficial to capitalise all assets in order that the 130% superdeduction can be claimed, rather than a100% P&L deduction.

Additional Information

For additional information regarding how these new allowances can be beneficial to a company established in England or Wales, please speak to Paul Webb or Sarah Gardner, in the UK office: advice.uk@dixcart.com.

Background

There has been discussion for many years regarding potential major changes to the way that international corporation tax is collected.

Reforms have previously been proposed by the EU, the United States and the Organisation for Economic Cooperation and Development (OECD).

So What Has Changed Recently?

Much has changed during the past eighteen months, but the most significant factor in this debate, is the change in Government in the US and the arrival of Joe Biden as President.

Janet Yellen, the new US Treasury Secretary, is also pivotal to this initiative and has long been a supporter of moves by the OECD to level the international corporate tax playing field.

What is Proposed?

The new President has already announced plans for a big increase in taxes on the ‘offshore earnings’ of US businesses.

The US aim is to effectively stop countries using corporation tax as a competitive tool to attract investment:

1. The US is proposing to implement a minimum global tax on its companies. A key proposal is a 21% minimum tax rate on global earnings. The US administration also proposes to change the way this tax would be levied, removing a key allowance exempting earnings below a certain threshold, and collecting the tax for each jurisdiction that the company operates in.

Using Ireland as an example, this would currently mean US companies paying a top up of 8.5% in the US, having paid 12.5% corporation tax in Ireland.

There is, however, a long way to go before the details and the new US tax rate are agreed.

• Momentum is also building regarding the OECD minimum tax plan. The US position, favouring a global minimum rate being agreed by all countries at the OECD, is gaining support from a number of countries including the larger EU countries.

Exactly what level this rate might be set at is open to speculation. Until recently a rate of around 12.5% was considered possible, but with the US now supporting a minimum 21%, there is likely to be much debate.

Eventual agreement might be reached, at OECD level, on a lower rate, for example 15% or 18%, but this is highly speculative. Equally speculative, is the possibility that the US might subsequently be willing to sets its international corporate minimum tax rate at the agreed OECD rate, rather than 21%.

The OECD Digital Tax Sales Plan

Another central pillar of the OECD programme proposes that multinationals pay tax on what they sell through digital channels, in the markets where they sell these services.

This is a change to current rules where profit is declared and tax paid in countries from where the digital sales are managed.

The US has supported a version of this plan which will have a significant impact on US companies. The US administration might well hope that in return, this will help win support from Europe and other countries for its minimum tax rate plan.

Commentary

It is a matter of concern that larger nations are looking to dictate tax policy to smaller nations which use their tax system to compete for inward investment.  Larger nations do however have a legitimate concern with regards to the artificial diversion of profits to low tax centres.

The combined efforts of the OECD and the US  mean that it is likely that they will use their influence to introduce a minimum international corporation tax rate.

Additional Information

Dixcart provides effective solutions for protecting wealth. For more information please contact advice.uk@dixcart.com or your usual Dixcart adviser.

Legal Background

The Cyprus AML Law 188(I)/2007 has recently been amended to introduce into local law, the provisions of the 5th AML Directive 2018/843.

The Law provides for the establishment of two central registers of Beneficial Owners:

• Beneficial Owners of companies and other legal entities (the ‘Companies Central Beneficial Owner Register’);
• Beneficial Owners of express trusts and other legal arrangements (the ‘Trusts Central Beneficial Owners Register’).

The two Registers commenced on 16th March 2021.

The Companies Central Beneficial Owners Register will be maintained by the Registrar of Companies, and the Trusts Central Beneficial Owners Register will be maintained by the Cyprus Securities and Exchange Commission (CySEC).

Obligations

Each company and its officers must obtain and keep, at the registered office, adequate and current information about the Beneficial Owners. These are defined as individuals (natural persons), who directly or indirectly have an interest of 25% plus one share, of the issued share capital of the company. If no such individuals are identified, the senior management official must be similarly identified.

It is the responsibility of the officers of the company to electronically submit the requested information to the Companies Central Beneficial Owner Register, no later than 6 months after the date of launch of the Companies Central Beneficial Owner Register. As detailed above, the Registers commenced on 16th March 2021.

Access

The Beneficial Owner Register will be accessible by:

• Competent Supervisory Authorities (such as ICPAC and Cyprus Bar Association), the FIU, the Customs Department, the Tax Department and the Police;
• ‘Obliged’ entities e.g. banks and service providers, in the context of conducting due diligence and identification measures for relevant clients. They should have access to; the name, month and year of birth, nationality and country of residence, of the Beneficial Owner and the nature and extent of their interest.

Following the Judgement of the Court of Justice of the European Union (CJEE) access to the Register of Beneficial Owners for the public is suspended. For more information, see a relevant announcement.

Penalties for Non-compliance

Non-compliance with the obligations can lead to criminal liability and administrative fines of up to €20,000.

How Dixcart Management (Cyprus) Limited can assist. If you or your Cyprus entity are in any way affected by the implementation of the Beneficial Owner Register or would like any additional information, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com