Introduction of the Register of Overseas Entities (ROE)
August 2022 saw the introduction of the Register of Overseas Entities at Companies House, with all overseas entities who own properties in the UK being required to submit an application to the Registrar at Companies House detailing their beneficial owners unless they are exempt.
This relates to all properties owned on or after:
1 January 1999 in England & Wales,
8 December 2014 in Scotland; and
1 August 2022 in Northern Ireland
Update Statements
An update statement must be filed every year by all overseas entities on the Register of Overseas Entities. The update statement requires the overseas entity to confirm that all the information about the overseas entity on the register is still correct, and update anything that has changed.
What are the Implications of Not Filing Update Statements?
It is important to bear in mind that it is a criminal offence if an overseas entity does not file an update statement. The overseas entity ID will become invalid until such time as the record is brought up to date.
Timings
According to Government guidance, an overseas entities statement date is due within a year of the date that the overseas entity was registered, or within a year of the last update statement.
The overseas entity has 14 days from the “statement date” to file. After this, the filing will be considered to be late.
So for example, if the original application was registered on 22 September 2022 the first statement date will be 21 September 2023. The update statement will be due by 5 October 2023.
Overseas entities can find the updated statement by searching for the entity on the UK Companies House register.
What if nothing has changed?
An overseas entity must file an update statement even if there have not been any changes to the overseas entity and its beneficial owners during the update period. This confirms that the information on the register is correct.
What information needs to be reviewed and updated?
The overseas entity will be asked to review all the information shown on the register about the entity and its beneficial owners or managing officers. It must update any information that has changed.
The overseas entity may be asked to re-enter home addresses for individual beneficial owners and managing officers.
All information must be correct as at the date of the update statement.
Verification Checks
Verification checks must be completed on any information that is being changed and on any new beneficial owners or managing officers that are being added. Such information will need to be verified by a UK regulated agent, no more than 3 months before the date of the update statement.
We at Dixcart Legal are UK regulated agents and can assist with this process. Please contact us at: advice.uk@dixcart.com if you would like our assistance.
The verification process can take some time to complete and we therefore strongly recommend that you contact us well in advance of the statement date.
What if someone is no longer a registrable beneficial owner or managing officer?
As part of the update statement the overseas entity will need to tell Companies House:
The date that any registrable beneficial owner or managing officer ceased being so, during the update period, and make sure that the information is correct as at that date.
About anyone that both became and/or ceased to be a registrable beneficial owner during the update period. The information provided must be correct as at the date that the registrable beneficial owner ceased being one.
Companies House fees
The Companies House fee for filing the update statement is £120.
What happens if the update statement is late?
If an overseas entity does not file the update statement in time:
It will be committing a criminal offence and could be prosecuted or fined.
Its overseas entity ID will not be valid and it will not be able to buy, sell, transfer, lease or charge its property or land in the UK.
A note will be added to the overseas entities’ public record stating that it has not filed its update statement.
Who can’t currently use the update service?
At present the following cannot use the update service:
Where there are any trusts involved in the overseas entity; and
Where any beneficial owners or managing officers have their personal information protected at Companies House.
In such instances the overseas entity needs to file the update statement on paper, even if it does not need to make any changes to the trust information.
Additional Information
If you require any addition information regarding or assistance with a registration or filing an update statement, please contact the Dixcart office in the UK; advice.uk@dixcart.com
This Article briefly summarises the potential advantages of an Employee Ownership Trust (“EOT”), and why the use of an Isle of Man Trustee could be beneficial.
Any discussion regarding EOTs with Non-Resident Trustees must start with reference to the HMRC Open Consultation on this subject, which closed on 25 September 2023. The current rules leave the potential for a Non-Resident EOT to escape UK Tax liability regarding onward sale to third party purchasers. Whilst there is no evidence of widespread offshore EOT abuse, HMRC feel that some refinement of these rules is required.
Although we eagerly await the outcome of the Open Consultation, we thought it would be a good opportunity to revisit the basics of EOTs, their advantages and underline the value that a properly licensed and regulated Isle of Man Trustee can add to bona fide EOT planning.
1. What is an Employee Ownership Trust and Why Use One?
An EOT is a method of facilitating the employee ownership model and involves transferring ownership of a business into a Trust for the long-term benefit of all Eligible Employees.
The UK Government has incentivised transferring a business to its employees via an EOT with notable tax exemptions for the exiting owner. Under an EOT, majority shareholders can sell greater than 50% of the share capital to the Trust, receiving tax-exempt proceeds.
The circumstances and objectives of both the exiting owner and the business will typically determine whether an EOT is an appropriate solution. Common drivers for EOT planning include; where private owners are considering succession planning, to support growth plans and/or upon initiating a new venture.
EOTs should not be viewed merely as tax-planning tools. Their establishment should genuinely benefit the ongoing success of the business and its employees. The holistic benefits are explored in the next section.
2. What are the Advantages of an Employee Ownership Trust?
The most prominent benefits are divided into three main categories, as detailed below;
i) Benefits for the Business
Studies and real-world case studies have shown that employee ownership leads to enhanced trading performance.
Key outcomes for the business include:
Lower Absenteeism
A Happier Workforce & Increased Staff Wellbeing
Lower Staff Turnover and therefore reduced expenses in areas like recruitment
Faster Employment Growth
Increased Productivity
Better equipped to handle challenging market conditions as the workforce has an ‘owner’s mindset’
No third party acquisition, therefore the existing culture, values, and operations are preserved
Acts as a natural catalyst for succession planning
ii) Benefits for Owners
Exiting owners have compelling incentives to sell to an EOT, chiefly the potential for a Capital Gains Tax exemption on the disposal of their shares (a saving of up to 20%).
An internal sale process, through an EOT, also offers numerous practical advantages:
No need to find an external buyer
The sale price aligns with an independent market valuation, avoiding lengthy third-party negotiations
Pre-determined Sale and Purchase Agreement offers opportunity to tailor terms
Involving employees in the transition process, especially incoming Board Members, ensures a seamless handover
Transitioning to an EOT acknowledges the workforce’s contributions and preserves the owner’s legacy
iii) Benefits for Employees
All Eligible Employees benefit from the company shares, held in their name, through the EOT. As such, EOT-owned businesses offer both financial and non-financial advantages to their employees.
Employees can access a tax-free bonus of up to £3,600 annually.
Beyond the bonus, Eligible Employees have a voice in the business and can benefit from future profit-sharing once the EOT’s funding commitments are met. This longer-term financial incentive means employees can benefit from the business’ growth, driven by improvements in their increased engagement and commitment, in turn leading to greater trading performance.
3. Why Use an Isle of Man Trustee for your Employee Ownership Trust?
Professional Trustee Option for Employee Ownership Trusts:
The general issues regarding the appointment of Lay Trustees include lack of Trust expertise, conflicts of interest, the administrative burden of meeting obligations, the requirement to be objective and independent in the exercise of their duties and a need to maintain a legal and regulatory awareness.
Choosing a Professional Trustee removes all of these pitfalls and safeguards the EOT from potential mismanagement and legal non-compliance.
Isle of Man Professional Trustees for Employee Ownership Trusts
As at time of writing, no Inheritance Tax (IHT) charges arise, on the transfer of the exiting owner’s shares to an EOT, and the EOT is also exempt from the IHT Relevant Property Regime. Even where the exiting owner, company and employees are UK Tax Resident Domiciliaries, there is currently nothing to prevent the use of Non-Resident Trustees. In fact, there can be very compelling non-tax reasons for choosing Non-Resident Professional Trustees, such as those located in the Isle of Man. However, it is important to acknowledge that each case needs to be considered on its own merits – as with all things Trust related, one size does not fit all.
The Isle of Man is globally recognised as an exemplary international financial hub, boasting a stable political, economic, and regulatory landscape. With deep roots in intricate Trust and Corporate planning, the Island’s financial services sector is populated by seasoned professionals.
The Isle of Man and UK are separated by the Irish Sea, meaning Isle of Man Professional Trustees are truly independent from the EOT-owned UK business. However, The Isle of Man’s proximity and transport links mean that Trustees can promptly attend crucial UK meetings, offering an ideal blend of autonomy and accessibility.
4. How Can Dixcart Help with Employee Ownership Trust Planning?
Dixcart Isle of Man have been assisting with owner-managed businesses, complex Trust arrangements and intricate employee share ownership structures, for over 30 years – therefore, we are exceptionally well placed to assist with Employee Ownership Trusts.
By leveraging Dixcart’s expertise and quality focused services, we can; deliver an effective bulwark between the business and its ownership, providing checks and balances on the business, assurance against conflicts of interest and ensure that the rights and interests of the beneficiaries are always the first priority.
Get in Touch
If you would like to discuss how our Professional Trustee services can augment your Employee Ownership Trust planning, please feel free to get in touch with Paul Harvey at Dixcart: advice.iom@dixcart.com
If you’d like to read more on this topic, in greater detail, it’s available here: Employee Ownership Trusts: An Introduction.
Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority
The HMRC Open Consultation on the Taxation of Employee Ownership Trusts and Employee Benefit Trusts has just closed as at 25 September 2023 and includes a portion dedicated to the examination of Trustee Tax Residency – particularly the use of Non-Resident Trustees for Employee Ownership Trusts (EOTs).
Whilst there does not appear to be evidence of widespread abuse of offshore EOTs, HMRC feel there is still scope for offshore EOT planning to go beyond the intentions of Parliament and the purpose of the incentives available to EOTs. Therefore, some refinement of the rules may be in order to obviate the potential for escaping UK Tax liabilities that would be otherwise due on subsequent sales to third parties.
Whilst we eagerly await the outcome of the Open Consultation, we thought it would be a good opportunity to revisit the basics of EOTs, their advantages and underline the value that a properly licensed and regulated Isle of Man Trustee can add to bona fide EOT planning.
An EOT is one method of facilitating the employee ownership model. EOTs are a restricted form of EBT that is settled by a Company’s Founders or current owners and involves transferring ownership of a business into a Trust for the long-term benefit of all Eligible Employees.
The UK Government has incentivised transferring a business to its employees with notable tax exemptions. Under an EOT, majority shareholders can sell greater than 50% of the share capital to the Trust, receiving tax-exempt proceeds. The agreed sale amount is based on a business valuation carried out by an independent expert. Without a third-party buyer, this amount should reflect what the business can feasibly pay over an acceptable period.
Many owners choose a full 100% sale, while some keep a minority stake in the company for various reasons— ensuring legacy, ongoing income, to pass on the capital to loved ones as part of their personal Estate or even to make the sale more affordable for the business. It is important to understand that any subsequent disposal of retained shares to the EOT will not avail of the tax exemptions. If a minority stake is retained, provision should be made to protect shareholder interests from events, such as dilution.
Person(s) disposing of their Controlling Interest in the Company (i.e. more than 50% of the voting and equity rights).
Trustees
Can be sourced internally from Directors and employees of the Company, or externally by engaging independent Professional Trustees. Some EOTs may call for a mix.
Beneficiaries
All Eligible Employees of the company. This is a term defined within the Act as an employee or office holder of a Trading Company or principal company of a Trading Group. There are strict equality requirements.
The EOT facilitates indirect ownership of the Company’s shares. While Trustees legally own the shares, eligible employees hold the equitable title, enabling them to benefit from dividends, profits, and voting rights without direct share control. This provides benefits like administrative simplicity and increased stability.
EOT planning is undertaken for many reasons and circumstances and objectives will typically determine whether an EOT is an appropriate solution. Common drivers include where private owners, whether entrepreneurs or a family business, are considering succession planning, to support growth plans or upon initiating a new venture. However, EOTs should not be viewed merely as tax-planning tools. Their establishment should genuinely benefit the ongoing success of the business and its employees. The holistic benefits are explored in the next section.
2. What are the Advantages of an Employee Ownership Trust?
Driven by the UK Government and promoted by organisations like the Employee Ownership Association, employee ownership is now the UK’s leading SME ownership model. In 2022, there was a 37% increase, with half of all such businesses transitioning since 2021. From just 17 in 2014, the number of EOTs is now well over 1,000 and includes prominent firms like ARUP Group Limited, Adventure Forest Group Limited (Go Ape), and famously, the John Lewis Partnership PLC.
There are many benefits of employee ownership facilitated by EOTs, but simplicity I have divided the most prominent them into three main categories.
i) Benefits for the Business
The UK Government’s promotion of employee ownership stems from a core belief in its power to foster a resilient economy. This is grounded in the Nuttall Review’s assertion that incentivizing employees leads to enhanced trading performance. Key outcomes include:
Lower Absenteeism
A Happier Workforce & Increased Staff Wellbeing
Lower Staff Turnover
Faster Employment Growth
Increased Productivity
The EOT model speeds up employee engagement, typically translating into increased profitability and reduced expenses in areas like recruitment. It also improves the Company’s resilience, better equipped to handle challenging market conditions because the workforce now has a direct stake in the outcome, or an ‘owner’s mindset’.
Selling to employees via an EOT means the business’s existing culture, values, and way of operating can be preserved. In contrast, an external third-party might seek to integrate or change the business to fit their own strategies or corporate culture – possibly even placing the existing employees at risk of an exercise in rationalisation or contract renegotiations. This continuity is especially valuable for SMEs where the founding owners have played pivotal roles in the company’s governance, strategy, and overall trajectory from inception. Further, many SMEs do not have a comprehensive succession plan; EOT planning can often serve as a timely catalyst for undertaking succession planning, preparing the next generation of leadership for their roles.
The bespoke nature of an EOT sale offers a great deal of flexibility, from financing options to handover periods. Often, the sale price is spread over several years and is paid out of the business’s profits. Depending on the circumstances, this may also allow the Company to gear in a way that better aligns with the long-term interests of the business and its employees e.g. speeding up the route to profit-share by limiting the levels of debt financing required.
In essence, an EOT, under apt circumstances, is a robust strategy to ensure a business’s enduring success and stability.
ii) Benefits for Owners
Exiting owners have compelling incentives to sell to an EOT, chiefly the potential for a Capital Gains Tax exemption on the disposal of their shares.
An internal sale process through an EOT offers numerous practical advantages:
No need to find an external buyer.
The sale price aligns with an independent market valuation, avoiding lengthy third-party negotiations.
Pre-determined Sale and Purchase Agreement offer opportunity to tailor terms.
Involving employees in the transition process, especially incoming Board Members, ensures a seamless handover.
Transitioning to an EOT acknowledges the workforce’s contributions and preserves the owner’s legacy.
This approach provides the exiting owner clarity and certainty on aspects that there is typically less control over in traditional trade sales, such as the transaction terms, sale price, and exit date etc.
The arrangement of funding for the EOT sale can also be highly customised. Options include seller financing, external debt financing, engaging investors, or using the company’s retained earnings; a hybrid approach is common to optimise the outcome for all. However, the method of financing requires careful consideration and should ideally be advised.
In the right circumstances, an EOT sale offers owners an efficient exit strategy, granting more control over the sale, whilst also ensuring a lasting legacy.
iii) Benefits for Employees
All Eligible Employees benefit from the company shares held in their name through the EOT. As such, EOT-owned businesses offer both financial and non-financial advantages to their employees.
Participation Requirement: All employees, including those overseas, and in any company within a group structure, must be eligible for any qualifying bonus award at the point the award is determined.
Equality Requirement: Employees must participate on the same terms. Variables like remuneration, service length, and hours worked can determine the qualifying bonus. The equality requirement is infringed if the scheme wholly or mainly benefits directors or top earners.
Office Holder Requirement: Within an individual company payments will not be qualifying if directors or office holders and other employees connected with them exceed 2/5 of total employees.
HMRC’s Open Consultation considers key issues regarding the Income Tax-free bonus. Notably, the Employee Ownership Association points out that due to inflation, the real value of this tax-free bonus has decreased since 2014. They suggest a current appropriate limit should be £4,600+.
Beyond the bonus, Eligible Employees have a voice in the business and can benefit from future profit-sharing once the EOT’s funding commitments are met. This longer-term financial incentive means employees can benefit from the business’s growth, driven by improvements in their increased engagement and commitment, in turn leading to greater trading performance.
While the EOT benefits all Eligible Employees, the strict requirements do not prevent the business running other initiatives. For example, provision can be made for key staff to directly buy company shares outside of the Trust. This offers more individualised approach to recognition, aiding talent retention.
It is vital that employees are well-informed about the EOT and the incentive structure. The business should take a proactive approach to education, which can include regular communication from the Trustees and management regarding timelines and mutual benefits.
The business can choose to establish an Employee Council to facilitate optimal communication between the workforce and Trustees. The Employee Council represents the interests of the Eligible Employees, giving them a voice and a means to be informed about and influence the EOT’s activities. Specific rights and powers can be reserved for the Council within the EOT’s constitutional documents. For example, the power to veto certain actions, approve certain decisions or have the right to be consulted on certain matters. Alternatively, the Council’s role might simply be advisory in nature.
Finally, trade sales to external parties can be fraught with uncertainties. Conversely, the transition to an EOT is more straightforward as the employees are the purchasers, and they already possess a deep understanding of the company’s operations, culture, and vision, ensuring business continuity and hopefully stable growth.
In the appropriate context, transitioning to an EOT offers advantages not just to the business and the exiting owner, but also to all Eligible Employees. This structure can address talent retention and inflation-related wage concerns, promoting a resilient economy and a more equitable society.
3. Why use an Isle of Man Trustee for your Employee Ownership Trust?
The Trustees appointed to administer the EOT will hold Legal Title to the EOT Shares and owe the Beneficiaries a blend of Trustee Duties and Fiduciary Duties. These legal duties can be onerous and carry a level of liability. Particularly pertinent duties that must be considered, include:
To maintain and act in the interest of the Beneficiaries
The requirement to avoid conflicts of interest
To exercise reasonable care and skill
To understand and carry out their obligations in line with the terms of the Trust
To act fairly and with impartiality in their capacity as Trustee
While it’s common for EOT Trustees to be individuals or an external Professional Trustee, some businesses opt for a SPV to serve as a Private Trust Company (PTC). When this route is chosen, Trustees become the Directors of the PTC. While the PTC structure offers Limited Liability, safeguarding the Trustee Directors’ personal assets from legal action targeting the PTC, it does not provide an absolute shield. For example, in cases of criminal liability, failure of Fiduciary Duties or Gross Negligence etc. the Trustees can face personal, or even joint and several, liability.
Acting as a Trustee is a serious undertaking that can be complex and must be fully understood prior to appointment. Selecting the right Trustees for an EOT is crucial due to the potentially long-term nature of the appointment. Typically, candidates can be categorised into Lay Trustees and Professional Trustees. You can read more on the general differences between Lay and Professional Trustees here.
Lay Trustee Options for Employee Ownership Trusts:
Employee Trustees may be considered for as they are well placed to direct insight into the day-to-day operations and challenges of the business, bridging communication between the workforce and the Trust. Further, this appointment can provide an opportunity to develop talent to form part of the wider succession plan. Therefore, an Employee Trustee may add value in strategic decision-making and potentially promote an EOT-aligned culture, whilst preparing them for future responsibilities.
Businesses often also consider appointing Board-level Trustees. In particular, Non-Executive Directors can offer a balanced perspective on the strategic mind of the company, providing Board representation for the Trust and acting with increased independence.
Exiting owners may also be inclined to take up Trustee roles or appoint close associates, anticipating a retention of influence over the business. While this can initially seem logical, especially for Founders who deeply care about their company’s trajectory, it carries pitfalls. Ongoing control and influence for the exiting owner can hinder the business’s evolution and negate the genuine benefits of transitioning to an employee-owned model.
The HMRC Open Consultation considered exiting owner appointments and recommends limiting the participation of former owners and their close associates to a minority role. Any breach of this after disposal would be a disqualifying event, leading to an immediate CGT Tax charge to the trustees, or the former owner if within the first year following disposal.
However, the appointment of any Lay Trustee isn’t without challenges:
Trust Expertise: Lay Trustees might not have prior experience in Trust governance, fiduciary duties, or corporate oversight which require training and ongoing CPD commitments. This could mean a steeper learning curve, which can lead to errors or inefficiencies.
Conflicts of Interest: Employee or exiting owner trustees may find themselves in situations where the best interests of the Trust conflict with the immediate interests or sentiments of their colleagues or the Board. For instance, the exiting owner may have personal financial interests or other agendas that could conflict with the best interests of the Eligible Employees or the business’s long-term success. Further, whilst a NED is more independent, they are still employed by the company and far closer than an external party may ever be.
Administrative Burden: Serving as both an employee or NED and a Trustee can be demanding, especially when balancing professional and Trustee responsibilities.
Objectivity and Independence: A deep-rooted connection with the business is a double-edged sword. It can aid in understanding nuances but may also hinder unbiased decision-making. Further, where exiting owners or Board Members act alongside employee Trustees, it is important to acknowledge that these parties may tend to dominate important debates and decision-making, owing to strength of character and experience. Further, EOT Trustees will naturally face pressure from members of the business, which can make it difficult to maintain impartiality or to make unpopular but necessary decisions.
Legal and Regulatory Compliance: Trust governance often involves complex legal and regulatory responsibilities. Inexperienced Lay Trustees might not be familiar with these areas, potentially leading to non-compliance or legal issues.
Professional Trustee Option for Employee Ownership Trusts:
Selecting a Professional Trustee for your EOT fundamentally addresses various concerns related to trust management and risk mitigation. This choice safeguards the EOT from potential mismanagement and legal non-compliance by employing a third-party specialist whose core focus is trust governance.
A Professional Trustee, being entirely independent, guarantees impartial and unbiased decision-making, which is paramount in safeguarding the interests of the EOT beneficiaries and ensuring robust governance. They play a pivotal role in mediating conflicts, leveraging their extensive experience, and providing a fresh, external perspective to strategic planning.
Equipped with specialised systems and methodologies for efficient EOT management, they devote undivided attention to trust administration, ensuring no conflict with other roles and responsibilities. Importantly, unlike Lay Trustees, a Professional Trustee can deliver a continuous and stable relationship with the EOT in perpetuity, especially when a Trust Services Provider with low staff turnover is chosen, fostering a consistent, long-term business connection.
Isle of Man Professional Trustees for Employee Ownership Trusts
As at time of writing, no IHT charges arise on the transfer of the exiting owner’s shares to an EOT and the EOT is also exempt from the IHT Relevant Property Regime. Therefore, even where the exiting owner, company and employees are UK Tax Resident Domiciliaries, there is currently nothing to prevent the use of Non-Resident Trustees. In fact, there can be very compelling non-Tax reasons for choosing Non-Resident Professional Trustees, such as those located in the Isle of Man. However, it is important to acknowledge that each case needs to be considered on its own merits – as with all things Trust related, one size does not fit all.
Furthermore, the Isle of Man is globally recognised as an exemplary international financial hub, boasting a stable political, economic, and regulatory landscape. With deep roots in intricate Trust and Corporate planning, the island’s financial services sector is populated by seasoned professionals.
The Isle of Man and UK are separated by the Irish Sea, meaning Isle of Man Professional Trustees are truly independent from the EOT-owned UK business. However, its proximity and transport links mean that Trustees can promptly attend crucial UK meetings, offering an ideal blend of autonomy and accessibility.
4. How Can Dixcart Help with Employee Ownership Trust Planning?
Dixcart Isle of Man have been assisting with owner-managed businesses, complex Trust arrangements and intricate employee share ownership structures for over 30 years – therefore, we are exceptionally well placed to assist with Employee Ownership Trusts.
By leveraging Dixcart’s expertise and quality focused services, we can deliver an effective bulwark between the businesses and its ownership, providing checks and balances on the business, assurance against conflicts of interest and that the rights and interest of the beneficiaries will always be the first priority.
Get in Touch
If you would like to discuss how our Professional Trustee services can augment your Employee Ownership Trust planning, please feel free to get in touch with Paul Harvey at Dixcart: advice.iom@dixcart.com
Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.
Swiss Companies have an unrivalled reputation. It is important to understand the obligations of being a director of a Swiss company. It is these duties on which the foundation of the integrity of Swiss companies is based.
Amidst the global landscape of corporate governance, Swiss companies adhere to a standard model where the Board of Directors plays a central role. However, specific Swiss legislation dictates that a company must be represented by at least one individual domiciled in Switzerland, authorised to sign on its behalf.
Alternatively, this requirement can be fulfilled by two Swiss residents with joint signatory powers. While companies themselves cannot be appointed as directors in Switzerland, understanding the precise duties and liabilities of these appointed individuals remains critical.
The role of the director is to represent the company and to make all legal acts that may arise within the corporation’s purpose, but what are his/her duties and liabilities?
The Duties of Swiss Directors
Duties of Care
The board collectively and the directors individually are obliged to conduct their responsibilities with the prudence and diligence of a judicious businessperson, considering the company’s interests and leveraging the skills expected for their role.
Duty of Loyalty
Directors must prioritise the company’s best interests over their own or others, refraining from personal gain through corporate opportunities and promptly disclosing any conflicts of interest to the board.
Duty of Confidentiality and Transparency
Maintaining confidentiality is paramount, especially concerning sensitive company information. Directors are obligated to provide shareholders with all vital company information and reports on the financial standing and business operations.
Equal Treatment of Shareholders
Directors must afford the shareholders equal treatment in like circumstances.
General Management
Directors hold the responsibility of steering the company, establishing policies, and devising strategies to achieve the company’s objectives. They are also in charge of ensuring regulatory compliance, managing records, preparing annual reports, and maintaining relations with authorities.
Financial Management and Compliance with Statutory Obligations
Directors are accountable for the company’s financial management, entailing budget preparation, overseeing accounts, and making pertinent financial decisions. They must adhere to legal obligations concerning the company’s creditors, including the timely initiation of shareholders’ meetings, and proposing restructuring measures as needed, with requisite reporting to the court in cases of over-indebtedness.
The directors of a Swiss limited company owe their duties to the company as well as to the shareholders and to the creditors.
The Liabilities of Swiss Directors
The members of the board of directors, any delegates of the board and any persons engaged in the management of the company (including shadow directors), are personally liable to the company, its shareholders and creditors for any damage caused by intentional or negligent violation of their duties.
In addition to civil liability, the Swiss Penal Code provides for criminal liability of directors in the event of, amongst others; false statements, artificial reduction of assets to the prejudice of creditors, disclosing commercial secrets, mismanagement, and the failure to comply with accounting regulations.
Directors may be held responsible for decisions made or actions taken by the company and be exposed to financial and legal risks.
Financial risks: directors may be liable for financial losses suffered by the company due to their negligence or misconduct. They may also be liable for the company’s tax, social security, and trade debts.
Legal risks: directors may be liable for illegal acts committed by the company, such as violations of company law, competition law or environmental legislation and for non-compliance with labour and employment laws and regulations.
Tax and social security risks: directors may be liable for the payment of taxes and social security contributions due by the company and for errors in the reporting of taxes and social security contributions.
Summary
In the complex landscape of corporate governance, the adherence of directors to their designated duties is paramount. By conscientiously upholding ethical standards and fulfilling their roles diligently, directors can steer clear of potential liabilities while safeguarding the integrity and stability of their respective companies. Staying abreast of the latest legal developments and seeking professional legal advice are pivotal for directors to effectively discharge their obligations. For further information and expert guidance, reach out to Dixcart Switzerland at advice.switzerland@dixcart
LISTED COMPANY SERVICES PROVIDED BY DIXCART IN GUERNSEY
Background
Dixcart Trust Corporation Limited (‘Dixcart’) provides a suite of outsourced professional company secretarial services for listed companies that trade on worldwide stock exchanges. This includes the provision of a professional company secretary who will also advise on current governance matters.
What Services Can Dixcart Offer?
Provision of a chartered governance professional (ACG) (Chartered Secretary) with 20+ years of listed company experience with clients trading on stock exchanges in the UK, Canada, USA and Australia.
Management of Board & Committee meetings: pre-meeting discussion with Chairs; draft agendas; circulate meeting materials; attend and act as recording secretary; prepare initial ‘Matters Arising’ list from the meeting; and prepare minutes.
Assistance with ongoing regulatory compliance for the listed company.
Assistance in preparing AGM meeting materials.
Monitor corporate governance policies to ensure best practices are being maintained.
Undertake annual Board assessments and tabulate results in a confidential manner.
Administer compensation plans.
Function as warrant agent for the listed company.
Function as the liaison for the listed company with the registrar and professional advisors.
Minute Book custody in both hard copy and electronic format.
Provision of an administrative substance expected of operating companies.
Private Companies
Many private companies require their internal governance to be at the same level as that of a listed company, especially where the shareholders have invested significant financial capital. Dixcart can work with management and the Board of these companies to determine and implement an appropriate level of corporate governance policies and processes. This is particularly of interest to a private company that is seeking an exchange listing as part of its short to medium-term corporate strategy.
Attendance at Meetings
Many Board and Committee meetings are held by video conferencing platforms. However, as the Guernsey office is only a short flight to London and has excellent transport links to other key UK airports, this enables easy access to European and international connections, therefore attendance in person for Board and Committee meetings is easily facilitated.
What Advantages Does Dixcart Offer?
Dixcart provides effective and efficient solutions to listed company clients, using experience gained over 20+ years.
The cost-effective solution for a listed company is to outsource the company secretary role until there is a requirement to engage a full-time in-house person. Dixcart is well positioned in this market to provide an experienced company secretary, whether as an officer position or in an advisory role.
Further Information
For further information on this topic please contact your usual Dixcart adviser or speak to Shaun Drake in the Guernsey office: advice.guernsey@dixcart.com.
The Madeira International Business Centre (MIBC) offers several benefits to companies that are registered there, including a low corporate tax rate of 5%.
However, to qualify for these benefits, and reflecting the modern international tax planning landscape, companies must meet certain substance requirements. One of these requirements is that companies must make a minimum investment of €75,000 in fixed assets, tangible or intangible.
What Type of Investment can be used to Meet the €75,000 Substance Requirement for a MIBC?
There are many different investments that can be used to meet the €75,000 substance requirement. Some examples include:
Investments in tangible assets: This includes investments in land, building, and equipment. Please see exclusions below, regarding land and real estate.
Investments in intangible assets: This includes investments in intellectual property, such as copyright, patents and trademarks.
The specific investments that are most appropriate for a particular company will depend on the company’s business activities. However, the examples above provide a reference point for companies considering registering in the MIBC.
Financial investments and/or financial portfolios are excluded from the scope of the minimum investment criteria for MIBC companies.
Substance Over Form: The Importance of Associating Business Activity with the Type of Substance a Company Holds
An association between business activity and the type of substance is required to ensure compliance with the law – any inconsistencies may raise questions regarding the company’s tax liability, by the tax authorities.
The investment, which needs to be identifiable in nature, must be controlled and generate future economic benefits for the company. In addition, the investment must be productive or active, rather than passive in nature.
Can you Invest More than €75,000?
Yes, it is possible to invest more than the €75,000 minimum investment level. The investment must always be made at market-related terms.
Does Real Estate Fall Within the Scope of the Minimum Investment Criteria?
Only real estate, purchased in Madeira, falls within the definition (real estate, located outside Madeira, does not qualify for the MIBC minimum investment criteria).
However, investment, in property in Madeira (such as short-term accommodation), that is not used for the purpose of the specified business activity qualified under the scope of the MIBC, will not meet the investment requirement.
In addition, land in Madeira, will only qualify if the purpose is to build an office or other related business activity structure for the company.
When Does the Investment Need to be Made?
The investment, in fixed tangible or intangible assets, must be made in the first two years of activity. The investment should be made within the first two calendar years of activity (rather than the first 24 months of activity).
Although substance needs to be maintained during the operation of the company, only the gross amount of the investment is relevant. Subsequent depreciation, after initial acquisition, does not require new investment. Thus, the €75,000 is not a threshold that is required to be maintained annually.
Additional Tips Regarding Meeting the Investment Criteria
Here are some additional tips for meeting the €75,000 substance requirement:
Make sure that your investments are related to your company’s business activities. A link between the investment and the business activity needs to exist.
Keep good records of your investments.
Be prepared to provide evidence of your investments to the MIBC and to the Portuguese Tax Authorities.
By following these tips, you can increase your chances of meeting the €75,000 substance requirement and qualifying for the tax benefits offered by the MIBC.
To Conclude and Contact Information
If you are considering registering a company in the MIBC, it is important to speak to a qualified professional who can help you assess your specific needs and requirements.
Dixcart Portugal would be delighted to assist you with more information regarding MIBCs and substance. Please contact us on: advice.portugal@dixcart.com
New Swiss corporate law came into force on 1 January 2023.
The transition period for Swiss companies to adapt their articles of association and regulations to the new corporate law is two years from when the new law came into force.
This Article details the main amendments to a company’s articles of association to comply with the new legislation. This article covers non-listed corporations.
KEY CHANGES
Share Capital and Equity Distributions – Greater Flexibility
Foreign Currency
Share capital may be denominated in an approved foreign currency (EUR, USD, GBP or JPY). This was already permitted for disclosure in the financial statements and is particularly relevant for Swiss subsidiaries of foreign groups.
Nominal Value
The nominal value of shares can be any value greater than CHF 0, making unlimited splitting of shares possible.
Capital Band
The concept of a “capital band” is introduced. It allows the Board of Directors to increase or decrease up to 50% of the share capital, over a period of five years.
Interim Dividend Payments
The payment of dividends, from the profits for the current financial year, is explicitly permitted, when certain conditions are met.
Shareholders Meetings – Modernisation
Shareholder meetings can be held:
By electronic means (virtual meeting), as long as certain conditions are met;
Simultaneously in different locations;
Outside Switzerland;
In writing, by way of circular resolution, in ‘wet’ ink version or in electronic form.
Shareholders Rights – Strengthening
The threshold for placing items on the agenda and submitting motions is lowered to shareholders holding a minimum 5% of the shares.
Shareholders holding at least 10% of the shares or voting rights have the right to pose questions to the Board of Directors outside shareholder meetings and these questions must be answered within four months.
Shareholders holding at least 5% of the share capital or voting rights may inspect the company’s books, subject to the company’s legitimate confidentiality interests.
Board of Directors – Increasing Duties
The duties of the board of directors have been increased with regard to:
The holding of the general meetings of the shareholders.
The Board of Directors must ensure that meetings are properly conducted, when audiovisual means are used for Shareholder meetings:
The identity of the participants must be established;
Speeches, made at the general meetings must be broadcast live;
Technical problems, if any, must be mentioned in the Minutes of the General Meeting, while shareholders remain responsible for their own hardware/software;
The AGM Minutes and Notice have to include, in addition to the date and time, the form and place of the shareholder meeting.
Monitoring of the solvency of companies.
Swiss legislation uses three warning thresholds for the board of directors to monitor and manage the financial situation of the company:
Risk of insolvency;
Loss of capital;
Over-indebtedness.
An early warning system now requires the board of directors to closely monitor the solvency of the company and, if necessary, to act promptly.
In the situation of ‘loss of capital,’ a limited audit by a licensed auditor is required, even in the case of subordination of claims (at least at the stage of interpreting the seriousness of the claim).
Where there is well-founded concern about over-indebtedness, notification to the insolvency court can be deferred, if sufficient creditors agree to the subordination of their claims and if there is a reasonable prospect of restructuring within a short period (but no more than 90 days after the interim accounts have been audited), provided creditors’ claims are not jeopardized by any such a deferral.
A deferral of bankruptcy is no longer possible; hence, the restructuring moratorium is the only court-sanctioned restructuring procedure.
Conflict of interest disclosure and measures.
The law expressly provides, that members of the board of directors and the executive management, must inform the board of directors immediately and in full of any conflict of interest.
Additional Information
The Dixcart Office in Switzerland can provide a detailed understanding regarding Swiss corporations, their incorporation, management and administration. We can also detail the obligations that need to be met.
If you need further information and/or require guidance regarding completion of a Swiss corporate tax return, please get in touch: advice.switzerland@dixcart.com.
Switzerland is an attractive jurisdiction to start and operate a business, as a location for individuals and for family protection and safety.
Advantages include:
Located in the centre of Europe.
Economic and political stability.
High regard for personal privacy and confidentiality.
Most ‘innovative’ and “competitive” country in the world with various strong industries.
A well respected jurisdiction with an excellent reputation.
A high quality and multilingual local workforce.
Low rates of corporate tax for Swiss companies.
Premier destination for international investment and asset protection.
Major commodity trading centre in the world.
Hub for HNWIs, international families and a wide variety of professionals including: lawyers, family offices, bankers, accountants, insurance companies.
Swiss Company Taxation
Swiss companies have a zero-tax regime for capital gains and dividend income.
Trading companies have always attracted a local canton (region) tax rate.
Federal tax on net profit is at an effective rate of 7.83%.
There are no capital taxes at the federal level. Capital tax varies between 0% and 0.2% depending on the Swiss canton that the company is registered in. In Geneva, the capital, the tax rate is 0.0012%. However, in circumstances where there are ‘substantial’ profits, no capital tax will be due.
In addition to federal taxes, cantons operate their own tax systems. The effective cantonal and federal corporate income tax rates (CIT) are between 12% and 14%.
Swiss Holding Companies benefit from a participation exemption and do not pay income tax on profits or capital gains arising from qualifying participations. This means that a pure Holding Company is exempt from Swiss tax.
Swiss Withholding Tax (WHT)
There is no WHT on dividend distributions to shareholders based in Switzerland and/or in the EU (EU Parent/Subsidiary Directive).
If shareholders are domiciled outside Switzerland and outside the EU, and a double tax treaty applies, the final taxation on distributions will generally be between 5% and 15%.
Double Tax Treaties
Switzerland has an extensive double tax treaty network, with access to tax treaties with 100 countries.
About Swiss Companies
Share Capital
SA: Authorised share capital minimum: CHF 100,000
SARL: Authorised share capital minimum: CHF 20,000
Shares
SA: The identity of the shareholders is not publicly available.
SARL: Participations are registered. The identity of the shareholder is public.
Directors
There must be at least one director. Directors domiciled outside of Switzerland are permitted but, at least one manager signing individually on behalf of the company, must be Swiss domiciled. Corporate directors are not permitted.
The names and domiciles of the directors are public.
Incorporation
Approximately three weeks from receipt of all of the requisite information.
Shareholders Meetings
A meeting of the ordinary shareholders must be held once a year.
Accounting/Audit
Annual accounts are required. An annual audit may be required depending on the turnover of the company.
Annual Return
An annual return is required.
Advice and Additional Information
Dixcart has had an office in Switzerland for over twenty-five years and is well place to provide advice regarding the establishment of companies here. Please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com.
For many years the movement of a company’s jurisdiction of registration has been driven by the degree of success that International Finance Centres (IFCs) have achieved in implementing international standards. These standards are designed to combat money laundering, bribery and corruption and the financing of terrorism and are issued by the Financial Action Task Force (FATF).
The degree of success, the quality of legislation and the standard of on-going monitoring in an IFC affects how each jurisdiction is assessed by administrative authorities around the world.
The implementation of Economic Substance Requirements by IFCs and grey listings of jurisdictions has added further motivation to a growing trend for companies to consider relocating from their incorporated jurisdiction to jurisdictions which are higher ranked, as being fully compliant with international standards.
Why are Companies Migrating?
Economic Substance and Grey/Black Lists
Economic Substance Requirements (ESR) have now been adopted by most IFCs, in response to concerns raised by, amongst others, the European Union. These concerns relate to the possibility that IFCs might be used in structures designed to shift, then roll-up profits in a low or no-tax jurisdiction, where there is little true substance in relation to the operations supporting the core income generating activity.
Where an IFC has not satisfactorily implemented FATF and ESR, these jurisdictions are then at risk of being placed on one of the 450+ administrative lists around the world of ‘Grey’ or ‘Black’ ranked jurisdictions. The issue for structures in these jurisdictions is the impact on their ability to conduct financing and transaction activity, particularly banking, and their credibility in the global financial world.
Key practical difficulties in such jurisdictions include:
not being able to obtain banking and lending services;
missed investor opportunities or lack of investor interest and engagement; and
greater compliance scrutiny
each of which affect the ability of the structure to operate effectively, efficiently, and possibly even viably.
Considerations when choosing the IFC to Migrate to
There are three leading factors driving the choice of jurisdiction:
the tax harmonisation compliance track record of that IFC;
the practicality of operating from that IFC; and
the simplicity of the migration process itself.
Track record is often the first criteria assessed. It is important that the jurisdictions considered are white listed. Clients will also want certainty that the jurisdiction will remain white-listed, as the international standards mentioned previously, and global tax harmonisation rules continue to evolve.
Forums such as the Organisation for Economic Cooperation and Development (OECD) and assessment bodies such as MONEYVAL conduct periodic assessments to ensure that a jurisdiction has adhered to the highest level of standards, implementation and monitoring. These assessments provide key information when assessing corporate re-domiciliation.
Practical operation of the company from the chosen jurisdiction is the second consideration. Can the company and its activities be conducted in line with ESR, where appropriate and applicable, in an efficient and effective manner? Geographical location, time zone, access to markets, access to professionals, advisers and financial services, appropriately qualified directors and other personnel, as well as transport links are all important considerations.
Simplicity of corporate migration. The laws of the inbound jurisdiction need to permit corporate migration and the process should be simple and cost effective, to ensure that the process is commercially viable.
Guernsey offers these features.
Companies are migrating to jurisdictions where they can most readily comply with requirements such as substance. Corporate groups are consolidating multiple jurisdictional structures into single, or at least fewer, jurisdictions to create cost, compliance and substance efficiencies.
These considerations are not limited to the migration of existing structures, new structures are being established, which take into account the above trends and concerns.
Migration of Funds – Guernsey’s Fast Track Solution
It is not only corporations that are seeking to migrate to Guernsey, but also funds.
In recognition of the large number of expressions of interest from non-Guernsey domiciled fund managers seeking to relocate to Guernsey, the Guernsey Financial Services Commission has introduced a 10-day fast track application regime, to facilitate a simplified and speedy solution to migration.
Fund managers may wish to migrate to Guernsey for regulatory reasons, and /or to be geographically closer to UK/European operations, assets, and investors.
Guernsey’s Tax and Regulatory Standards Track Record
Guernsey’s tax policy is underpinned by strong general anti-avoidance rules and the adoption of a number of international tax standards. Some of the more relevant developments are detailed below;
December 2017 – EU Code of Conduct Group on Business Taxation for the EU Economic and Financial Affairs Council (COCG), confirmed Guernsey to be a co-operative jurisdiction which complied with the general principles of “fair taxation” and raised no concerns regarding Guernsey’s standards of transparency or implementation of measures to counter base erosion and profit shifting (BEPS).
During 2018, Guernsey worked closely with the COCG, EU Member States and the other Crown Dependencies to develop economic substance legislation, which was adopted in December 2018.
In 2019, the EU Council confirmed that Guernsey had met its commitment to introduce economic substance requirements and therefore removed Guernsey from the list of jurisdictions who had committed to make certain changes.
Guernsey has given its full support to the transparency principles central to the current G20, OECD and EU tax initiatives, and is working as part of the wider international community in the development and effective implementation of internationally agreed standards.
In 2004 Guernsey voluntarily entered into automatic information exchange and bilateral withholding arrangements respectively, with all EU Member States, under the European Union Savings Directive (2003/48/EC).
Guernsey committed in May 2013, to join the initiative of the G5 countries on establishing and piloting an international standard for automatic exchange of information between tax authorities.
In December 2013 Guernsey entered into an intergovernmental agreement with the United States of America in relation to the implementation of FATCA, which it implemented in June 2014.
In October 2013 Guernsey entered into an intergovernmental agreement with the United Kingdom in relation the United Kingdom’s own version of FATCA, which it also implemented in June 2014.
Guernsey joined in the joint statement on 19 March 2014 committing to the early adoption of the global CRS. On 29 October 2014 Guernsey was among over 50 jurisdictions to sign the OECD’s Multilateral Competent Authority Agreement in Berlin, as a further step towards implementation of the CRS.
Guernsey, along with over 50 jurisdictions, implemented the CRS into its domestic legislation with effect from 1 January 2016.
As a key member of the global community committed to transparency, Guernsey continues to implement developments in transparency and best practice, building upon its early adoption of FATCA and the CRS, and also being compliant with the BEPS minimum standards.
Data Protection
Guernsey is among a small group of third country jurisdictions that have been officially assessed as meeting current EU data protection standards and granted equivalence (“adequacy”), through individual Commission Decisions.
Next Steps
If any of the areas covered in this note are relevant to your or your clients, please get in contact to discuss the practical aspects, costs and timings of redomiciling structures to Guernsey. Please contact Steven de Jersey or John Nelson at advice.guernsey@dixcart.com
Madeira International Business Centre: A Business-Friendly Environment
The Madeira International Business Centre (MIBC) is a Portuguese government initiative that offers a number of benefits to companies that are registered with this body. These benefits include lower taxation, state-of-the-art infrastructure, and efficient local support services.
What Key Benefits Are Available Companies Registered in the MIBC?
One of the key benefits of registering a company in the MIBC is the lower taxation rate. Companies registered in the MIBC are subject to a rate of 5% corporate tax. This is significantly lower than the corporate tax rate in many other countries, making the MIBC an attractive option for businesses that are looking to optimise tax efficiencies.
The reason MIBCs enjoy a lower tax rate is because the regime is recognised as a form of state aid which has been approved by the EU Commission. The regime is compliant with the principles of the OECD, BEPS and the European Tax Directives.
In addition to low taxation, the MIBC also offers a number of other benefits to companies that are registered there. These benefits include:
State-of-the-art infrastructure: The MIBC is located in Madeira, which is a Portuguese island with a modern infrastructure, digital solutions, data storage, and a favourable business environment.
Efficient local support services: The MIBC has a number of support services available to companies, such as legal, accounting, human resources and tax advice.
Low operational costs: The cost of doing business in Madeira is relatively low, which can help to reduce companies’ overhead costs.
What Activities Can be Undertaken by Companies Registered in the MIBC?
The MIBC offers a wide range of business activities that can be conducted companies registered there. These activities include:
International services: This includes a wide range of activities, such as e-business and telecommunications, educational activities, technical and consultancy services.
International wholesale trading: This includes import and export of various goods such as trading of textiles, products and/or other items, including freight forwarding.
Ownership and maintenance of intellectual property: this may include acquiring, holding and managing IP rights (patents, trademarks, copyrights and other IP rights) and the commercialisation of intellectual property (licensing, franchising, sale of intellectual rights).
Industrial activities: This includes manufacturing, assembling, and warehousing activities within the MIBC’s industrial park.
Ship registration: The MIBC also offers a ship registration service, which allows you to register your commercial vessels and yachts in the Madeira International Shipping Register (MAR). Madeira has quickly grown to be the third largest shipping register in Europe.
It is important to note that financial services are excluded from the regime.
Why Choose the Madeira International Business Centre?
There are many reasons why you might choose to register a company in the Madeira International Business Centre. Here are just a few of the benefits:
Low taxation: Companies registered in the MIBC are subject to a corporate tax rate of 5%.
Exemption from withholding tax on dividend payments (to individuals not registered in Portugal or in a ‘tax haven’ jurisdiction).
Application of the participation exemption regime.
State-of-the-art infrastructure.
Efficient local support services.
Low operational costs.
Attractive location, Madeira is a beautiful island with a mild climate, making it a great place to live and work.
If you are looking for a business-friendly environment with low taxation and a favourable business climate, then the Madeira International Business Centre may be a great option to consider.
Reach out to Dixcart Portugal
If you are interested in learning more about the Madeira International Business Centre, please feel free to reach out to Dixcart Portugal for more information: advice.portugal@dixcart.com.
We would be happy to answer any questions you may have and help you get started.
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