Category: Corporate Services

2024 offers a spectrum of business opportunities for the world ahead and Madeira offers great potential – even more so for a small archipelago island in the Atlantic Ocean.

Putting Madeira on the map for ambitious entrepreneurs has never been as exciting as now – as the world moves to an environment where substance is of importance coupled with a minimum global tax rate, Madeira stands out as a winner.

Why does Madeira Benefit from a 5% Tax Rate Compared to the Rest of the World?

Madeira has been able to benefit from a taxation rate of 5%, with the approval of the European Commission, and is included in the OECD whitelist, as the purpose is to provide for the development and diversification of this small island economy. The International Centre of Madeira (IBC of Madeira), the jurisdiction which regulates Madeiran companies, has been formally approved by the European Commission as a State Aid Regime and thus is allowed to benefit from the low tax rate.

The 5% is particularly attractive since the rate is applicable until the end of the year 2028.

What sort of Companies Can Operate in MIBC in 2024?

2024 is adjusting quickly to new realities, with the tide turned against the pandemic, new themes and trends are quickly arising, providing new possibilities for business opportunities.  We provide below some examples of business ventures that may be undertaken in the island of Madeira, through the IBC:

• Technology

Unlimited potential lies with the sort of companies that may be created in the technology space through the IBC of Madeira. Selling hardware and software products to international markets is of great interest.

Granular examples of these include; technology for the tracking of overseas shipments, cybersecurity products and/or services, technology for direct air capture which may be sold after development, the selling of 3D printed bone implants, selling of virtual influences, among other possibilities, plus the endless possibilities of housing services in an IBC for the metaverse.

In terms of future technology, the Madeiran IBC may be used; by companies developing  drones that will be used to monitor crops or perform delivery of foods, medicines, books and other items. It is worth pointing out that Madeira has a Technology college with young graduates which makes it convenient to employ a local workforce. This may be more cost effective for start-up operations sensitive to prices, due to the low costs of living in Madeira.

• Trademarks

The underlying potential of earning income from a trademark is  never ending and varies widely – whether it is a word, phrase, symbol, design or a combination of things that identifies your brand, trademarks are a great way to earn income in a tax efficient way in the IBC of Madeira.

Companies may set up group structures whereby the operational and trading activities occur in the respective jurisdictions and these companies make a payment to the Madeiran company who owns the trademark. The income from the use of the trademark is then subject to the beneficial tax rate of 5%.

• Telecoms

With a young population of educated Madeiran locals, setting up a call centre in the tropical island may be of interest. International companies, hotel, insurance or bank groups, among others, who require call centres, may set up their operations in the island and benefit from the lower tax rate for the income earned by the company for telecoms communication.

What makes this option very attractive is the fact that there are many young people in Madeira who are highly educated and able to speak more than two languages – English being one of them! Further to this, and as mentioned already, Madeira has a low basic salary (one of the lowest in Europe) – making it a feasible financial option for businesses. Lastly, Madeira shares the same time zone as London, one of the world’s most important financial districts – and it is therefore easier, from an operational point of view, to do business with the same time zone.

• Media

Companies are rushing to win back customers post the pandemic. As more ads become digital, the benefit of having a Madeira IBC company to sell such digital advertisements may be very favourable. Other examples of companies that may be created in the IBC to earn income include; digital installations to generate data that may help companies hone their marketing, generating mobile ads and earning royalty income from photographs taken.

• Entertainment

More drama is expected in the entertainment industry in 2024, as films are being released simultaneously on streaming services and cinemas – viewers are looking for entertainment post the pandemic. Creating production in Madeira is a great way of making use of the island’s natural beauty, not even mentioning the stunning ‘levadas’ – whether you are a TikTok influencer earning income from advertising roles or a producer wishing to provide services from Madeira or creating content in Madeira, the 5% income tax regime may be deemed highly beneficial.

As the gaming industry continues to experience tailwind, with talk around the Metaverse becoming more and more of interest, netizens can work, shop and play. The creation and sale of gaming products through the right to explore may be done through an IBC company of Madeira, and may be of particular interest with a high number of qualified graduates from the Madeira Technology University.

• Retail

Trading is one of the most popular options for a Madeira IBC. Typical structures include the exporting of goods from one place and importing to the next place, with the trading operations occurring in an IBC of Madeira. With online businesses on the rise, this form of trading is proving to be more and more popular.

• Food and Farming

As the world expands rapidly with a growing population and a shortage of food, the Madeira IBC may be used to recycle food. It is known that millions of tonnes of food is wasted a year. Start-ups are racing to rectify this issue by creating upcycled food by using bits of food that fall through the cracks of the food system in order to create something new. Using a Madeira company to sell such systems may be of particular interest and may be seen as a gateway into the European market to achieve this objective.

What Substance is Required to Incorporate an IBC company in Madeira?

Please refer to the article: Three Types of Portuguese Company Advantages and Criteria for more details of the related substance criteria to establish a company in the island of Madeira.

View our easy to read guide provides a summary regarding the advantages an MIBC offers and the criteria to be met.

How May Dixcart Help?

Operating in Madeira since the late 1980s, Dixcart was one of the first company service providers on the island, to assist businesses to establish within the IBC. We continue to have an office in Madeira and have subsequently also opened an office on the Portuguese mainland, in Lisbon.

Please reach out to our specialists to find out more should you have any questions: advice.portugal@dixcart.com

Note the above is not considered tax advice and is purely for marketing purposes to understand the possibilities of using an MIBC structure and that the facts and circumstances need to be evaluated by an appropriate professional with the necessary skill and competence prior to implementing such structure.

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.

The corporate tax rate in Cyprus 12.5%, which is amongst the lowest in Europe.  Another feature is that Cyprus companies are not subject to Capital Gains Tax. In addition, Cyprus has over 60 double tax treaties to assist with international tax structuring, finally, as a member of the EU, Cyprus has access to all European Union Directives.

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 production of income are deductible when calculating taxable income.

Additional Information

If you would like additional information about the notional interest deduction and the advantages it can offer, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Background

Dixcart Trust Corporation Limited provides a suite of outsourced professional company secretarial services for listed companies which 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 22 years of listed company experience with clients trading on stock exchanges in the UK, Canada, USA, and Australia.
• Management of Board and Committee meetings: pre-meeting discussion with Chairs; draft agendas; circulate meeting materials; attend and act as recording secretary; prepare initial ‘To Do’ list from the meeting and provide minutes.
• Assistance with ongoing regulatory compliance for the listed company.
• Assistance in preparing AGM meeting materials.
• Provide advice on corporate governance practices, including the preparation of a full suite of corporate mandates / charters / policies.
• Monitor corporate governance compliance 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, professional advisors and corporate stakeholders.
• 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, the Dixcart Guernsey office is only a short thirty-five-minute flight to London by air and has excellent transport links to other key UK airports, which enables easy access to European and international connections, 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 22 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.

With sources reporting almost €3billion of foreign investment in Portugal for 2021, it goes without saying there is significant interest in this Western European country attracting all sorts of companies, from large tech companies to restaurateurs showcasing their cooking talent for our taste buds to indulge!

In 2021 Lisbon welcomed more than 40,000 attendees at the Web Summit, as host of this highly esteemed annual technology conference – it is no surprise that Portugal has been labelled the new European Tech hub. The tech industry, like many other fields, has seen the powerful potential Portugal has to offer, and we have seen large companies like Amazon and Google take advantage of this by setting up companies in Portugal.

In addition, Portugal has also become a large tourist attraction with many coming to experience the food and wine that Portugal is very well known for.

What makes Portugal a great place to incorporate a company?

In addition to the increased international commercial interest, Portugal has an extensive network of double taxation treaties with various other jurisdictions around the world (with more than 70 agreements in place). This enables cooperation regarding taxation between respective jurisdictions and the smooth enforcement of respective tax laws.

Portugal is also part of the European Union and therefore has free access to the European market.

English is widely spoken in Portugal making it seamless for business to be conducted with local employees or partners and even more importantly, making it easy to perform international business activities.

Another beneficial aspect relates to inbound and outbound distributions made. Under the participation exemption; dividends and capital gains may be exempt from taxes provided certain criteria are met.

The criteria is summarised as follows:

• Hold the shares for a consecutive period of one year;
• Hold directly/indirectly 10% of the shares/voting rights;
• Subsidiary is not resident in a Portugal black-listed tax jurisdiction; and
• The subsidiary is not exempt from corporate income tax or has a tax rate of at least 60% of the standard Portuguese corporate income tax rate (12.6% calculated as 21%×60%).

Portugal, undoubtedly, ticks many of the key characteristics as an ideal location for a holding or operating company, to be established and maintained.

What type of company can be formed in Portugal?

Portugal has three types of company that can be incorporated, and it is important to understand the differences, as the substance criteria vary widely, as well as the implications in relation to corporate income tax.

Companies may be incorporated through; Portugal mainland, the island of Madeira, or the International Business Centre of Madeira (also based on the island of Madeira).

What corporate income tax rates are applicable for these types of company?

The corporate income tax rates are summarised below for the three types of company:

	Portuguese Mainland Company	Madeira Company	International Business Centre of Madeira Company (for international activity)
First €25,000 of taxable income	17%	11.9%	5%
Taxable income above €25,000	21%	14.7%	5%

What substance criteria are applicable?

Although Madeira and Portugal do not have specific substance requirements to comply with, to take advantage of its double taxation treaty network, as mentioned above, substance does need to be maintained.

Detailed below are some examples of how this may be achieved:

• Maintaining an open and active bank account;
• A registered office address and/or premises for the exclusive use of the company;
• A qualified director and/or permanent employee;
• Making important business decisions in Portugal and evidencing these through minutes of board meetings; and/or
• Ensuring sufficient commercial activity occurs in Portugal for the related business.

Specific substance criteria required for the International Business of Madeira (IBCM) are as follows:

1. Following the incorporation of the company:
   1. Within the first 6 months of activity, the IBCM company must hire at least, one worker, and undertake a minimum investment of €75,000 in fixed assets, within the first 2 years of activity. OR;
   2. If it hires six employees, during the first 6 months of activity, it will be exempt from undertaking the minimum investment of €75,000.
2. On an ongoing basis, the company must have at least one full time employee on its payroll, paying Portuguese personal income tax and social security. This employee can be the Director or a Board Member of the IBCM company.

Additional information and assistance from Dixcart

Dixcart can assist you in advising how additional substance may be maintained as well as providing advice on how a double taxation agreement for the respective jurisdiction is applicable in Portugal.

In addition, Dixcart has extensive experience in the incorporation of companies and we look forward to working with you as a client in the future.

Please reach out to Dixcart Portugal if you have any questions: advice.portugal@dixcart.com.

Malta is a popular choice for companies and new businesses as it is a reputable EU jurisdiction and ‘sunshine’ island, with an ‘outdoor’ lifestyle in a clean and safe ecological environment.

The sustainability movement exemplifies the positive impact that individuals can have on their environment. Dixcart aim to contribute to this cause by supporting the island’s foremost organisations which are working towards preserving our environment.

In this article, we consider eco-friendly projects and the opportunities that are available in Malta. 

1. Corporate Social Responsibility (CSR) projects

If you are looking for a way to enhance your company’s CSR profile, we can provide an opportunity for your team to make a positive change that will last much longer than their trip to Malta. Set up a company in Malta, with Dixcart’s assistance, and drive research and development to focus on eco-friendly projects.

Specific financial support is available to reduce single-use plastic usage at events taking place in Malta. Over the past few years, businesses in Malta have done much to reduce the amount of single-use plastic at events. Biodegradable alternatives to plastic cutlery, plates, and straws, for outdoor events, is in demand. 

Currently there is a financial aid scheme, that offers shops in Malta up to €20,000 to transition to retailing plastic-free and reusable packaging alternatives. 

This eco-friendly retail investment grant will cover up to 50% of the expenses incurred in moving away from single-use packaging to a more sustainable method of consumption.

At the beginning of 2022, the Maltese Government stopped the importation of plastic cotton bud sticks, cutlery, plates, straws, beverage stirrers, balloon sticks, and polystyrene containers and cups.

The project also aims to incorporate innovative and sustainable technology, such as solar paving, smart benches, and smart solar bins.

• Encourage enterprises to invest in sustainable and digitalised operations

The demand for greener travel will continue to increase in the future, and so will the expectations of ‘green’ travellers, who will demand more than the traditional water and energy-saving measures. These developments will put destinations and travel companies under increased scrutiny by discerning holidaymakers, and destinations and service providers who demonstrate a tangible commitment to the natural environment will become even more attractive.

To further encourage enterprises to invest, businesses in Malta can benefit from up to €70,000 to implement projects which lead to more sustainable and digital processes.

The ‘Smart & Sustainable Scheme’, managed by Malta Enterprise, incentivises more competitiveness and better use of resources, enhancing the economic activity of these businesses.

Through the Smart & Sustainable Scheme, businesses are entitled to receive 50% of the total eligible costs, up to a maximum €50,000 for each relevant project.

Businesses fulfilling the criteria for this scheme may also benefit from a tax credit of up to €20,000 for each product which satisfies at least two of the three conditions, as detailed below:

1. New investment or an expansion in Gozo.
2. A project that an enterprise will implement in a start-up phase.
3. A reduction in carbon usage by the enterprise, as determined through an independent auditor.

If a project satisfies one of the above criterion, the tax credit will be a maximum €10,000.

        3. Water quality and Blue Flags awarded local beaches

The quality of water is also an essential aspect of the sustainability of tourism. Following the investment in the purification process of sewage water at various outfall treatment centres, the quality of sea water around the Maltese Islands has improved. It is now considered one of the best in Europe. This is also being reinforced by the increase in the number of Blue Flags awarded to local beaches.

€150 million funding, the biggest ever, for a project in Malta, is enabling the Water Services Corporation to produce more water, recycle used water, and improve energy efficiency.

Desalination plants are being upgraded, and more seawater can be processed. This means that far less water will need to be taken out of ground-based sources – about four billion fewer litres each year. In Gozo, a plant using advanced ‘reverse osmosis’ technology boosted daily water production by nine million litres a day.

These initiatives are known collectively as the ‘Net Zero Impact Utility’ project, and they are cutting edge in terms of sustainable water production usage across Malta and Gozo. EU investment in this project has helped make this “holistic” and sustainable approach possible.

Malta Tourism Authority’s ‘Eco-certification Scheme’ creates more awareness and promotes sound environmental practices amongst hotel operators and other providers of tourist accommodation. This voluntary national scheme has now expanded from initially being just hotels to include other forms of accommodation. As a result, it is credited with raising standards in environmental practices within this highly important sector.

The Future of the Green Economy in Malta

In 2021, the European Commission unveiled the ‘New European Bauhaus’ initiative, an environmental, economic, and cultural project aimed to design ‘future ways of living’ in a sustainable manner. The new project is about how we live better together with the environment, after the pandemic, while respecting the planet and protecting our environment. In addition, it is about empowering those who have potential solutions to the climate crisis.

The Malta Government plays an active role in deciding how financial resources are allocated between competing uses, at present and in the future. Infrastructure development is one such future-focused investment, including plans to invest in Malta’s industrial zones and estates. There are also schemes to support start-ups through venture capital. The support and strategies aimed at a green transition feed into and support a greener economy.

Your eco-friendly start-up or extending an existing business in Malta, can be part of these exciting changes and a ‘new page’ in the NextGen post-pandemic economy.

Additional Information 

If you would like further information regarding eco-friendly projects for research and development and the opportunities available through Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta, or to your usual Dixcart contact.

Background – What the UK Offers as a Tax Efficient Jurisdiction

The UK is one of the world’s leading financial countries given its financial services industry and its robust corporate law and governance frame works. This information concentrates on its highly competitive corporation tax system for holding companies.

One of the UK Government’s key ambitions has been to create the most competitive tax system in the G20. It has developed strategies to support, rather than hinder, growth and to boost investment.

Through the implementation of these strategies the Government is aiming to make the UK the most attractive location for corporate headquarters in Europe.

In order to achieve this the UK Government has created an environment where:

• There are low corporate taxes
• Most dividend income is tax exempt
• Most share disposals are tax exempt
• There is a very good double tax treaty network to minimise withholding taxes on dividends, interest and royalties received by a UK company
• There is no withholding tax on the distribution of dividends
• Withholding tax on interest can be reduced due to the UK’s double tax agreements
• There is no tax on profits arising from the sale of shares in a holding company by non-resident shareholders
• No capital duty is applicable on the issue of share capital
• There is no minimum share capital
• An election is available to exempt overseas branches from UK taxation
• Informal tax clearances are available
• Controlled Foreign Company Legislation only applies to narrowly targeted profits

Tax Advantages in More Detail

• Corporation Tax Rate

Since 1 April 2017 the UK corporation tax rate has been 19% but will increase to 25% with effect from 10^th April 2023.

The 19% rate will continue to apply to companies with profits of no more than £50,000 with marginal relief for profits up to £250,000.

• Tax Exemption for Foreign Income Dividends

Small Companies

Small companies are companies with less than 50 employees that meet one or both of the financial criteria below:

• Turnover less than €10 million
• Balance sheet total of less than €10 million

Small companies receive a full exemption from the taxation of foreign income dividends if these are received from a territory that has a double taxation agreement with the UK which contains a non-discrimination article.

Medium and Large Companies

A full exemption from taxation of foreign dividends will apply if the dividend falls into one of several classes of exempt dividend. The most relevant classes are:

• Dividends paid by a company that is controlled by the UK recipient company
• Dividends paid in respect of ordinary share capital that is non-redeemable
• Most portfolio dividends
• Dividends derived from transactions not designed to reduce UK tax

Where these exemption classifications do not apply, foreign dividends received by a UK company will be subject to UK corporation tax. However, relief will be given for foreign taxation, including underlying taxation, where the UK company controls at least 10% of the voting power of the overseas company.

• Capital Gains Tax Exemption

There is no capital gains tax on disposals of a trading company, by a member of a trading group, where the disposal is all or part of a substantial shareholding in a trading company or where the disposal is of the holding company of a trading group or sub-group.

To have a substantial shareholding a company must have owned at least 10% of the ordinary shares in the company and have held these shares for a continuous period of twelve months during the two years before disposal. The company must also have an entitlement to at least 10% of the assets on winding up.

A trading company or trading group is a company or group with activities that do not include ‘to a substantial extent’ activities other than trading activities.

Generally, if the non-trading turnover (assets, expenses and management time) of a company or a group does not exceed 20% of the total, it will be considered to be a trading company or group.

• Tax Treaty Network

The UK has the largest network of double tax treaties in the world.  In most situations, where a UK company owns more than 10% of the issued share capital of an overseas subsidiary, the rate of withholding tax is reduced to 5%.

• Interest

Interest is generally a tax deductible expense for a UK company providing loans for commercial purposes. There are, of course, transfer pricing and thin capitalisation rules.

Whilst there is a 20% withholding tax on interest, this can be reduced or eliminated by the UK’s double tax agreements.

• No Withholding Tax

The UK does not impose withholding tax on the distribution of dividends to shareholders or parent companies, regardless of where the shareholder is resident in the world.

• Sale of Shares in the Holding Company

The UK does not charge capital gains tax on the sale of assets situated in the UK (other than UK residential property) held by non-residents of the UK. 

Since April 2016 UK residents have paid capital gains tax on share disposals at a rate of 10% or 20%, depending on whether they are basic or higher rate taxpayers.

• Capital Duty

In the UK there is no capital duty on paid up or issued share capital. Stamp duty at 0.5% is, however, payable on subsequent transfers.

• No Minimum Paid up Share Capital

There is no minimum paid up share capital for normal limited companies in the UK.

In the event that a client wishes to use a public company, the minimum issued share capital is £50,000, of which 25% must be paid up.  Public companies are generally only used for substantial activities.

• Overseas Branches

A company may elect to exempt from UK corporation tax all of the profits of its overseas branches that are involved in active operating business.  If this election is made, branch losses may not be offset against UK profits.

• Controlled Foreign Company Rules

Controlled Foreign Company Rules (CFC) are intended to apply only where profits have been artificially diverted from the UK.

Subsidiaries in jurisdictions detailed on a wide list of excluded territories are generally exempt from CFC taxation if less than 10% of the income generated in that territory is exempt from or benefits from a notional interest deduction.

Profit, other than interest income, in all remaining companies is only subject to a CFC charge if a majority of the business functions relating to assets used or risks borne are performed in the UK; even then only if taxed at an effective rate less than 75% of the UK rate.

Interest income, if taxed at less than 75% of the UK rate, is subject to a CFC taxation charge, but only if it arises ultimately from capital invested from the UK or if the funds are managed from the UK.

An election can be made to exempt from CFC taxation 75% of the interest received from lending to direct or indirect non-UK subsidiaries of the UK parent.

Introduction of a New UK Tax – Directed Towards Large Multinational Companies

On April 2015 the UK introduced a new Diverted Profits Tax (DPT) which has also been called the “Google Tax.” It is aimed at countering aggressive tax avoidance by multinational companies, which historically has eroded the UK tax base.

Where applicable, DPT is charged at 25% (compared to the corporation tax rate of 20%) on all profits diverted from the UK.  It is important to note that this is a new tax and is entirely separate from corporation tax or income tax and, as such, losses cannot be set against the DPT.

Conclusion

The UK continues to be regarded as a leading holding company jurisdiction. Due to the number of tax benefits that are legitimately available, its access to capital markets, its robust corporate law and governance frame works.

The recently introduced Diverted Profits Tax is directed towards a specific and limited group of large multinational organisations.

Which UK Services can Dixcart Provide?

Dixcart can provide a comprehensive range of services relating to the formation and management of UK companies. These include:

• Formation of holding companies
• Registered office facilities
• Tax compliance services
• Accountancy services
• Dealing with all aspects of acquisitions and disposals

Contact

If you would like further information on this subject, please contact advice.uk@dixcart.com, or your usual Dixcart contact.

Background

Dixcart has been approached by many clients wanting to redomicile their companies from other jurisdictions to the UK. 

Re-domiciliation is the process by which a company moves its domicile from one country to another by changing the country under whose laws it is registered.

Changes Being Put in Place to be able to Re-domicile a Company to the UK

Currently, as of February 2022, it is not possible to redomicile a company to the  UK, which has meant that Groups wishing to move business to the UK have had to undertake re-organisations, often crystallising liabilities. 

All this is likely to change in the near future.

The UK Government is determined to strengthen the UK’s position as a global business hub with an open and competitive free market.  The UK Government therefore intends to make it possible for companies to move their domicile, and to relocate to the UK, bringing it in line with other common law countries such as; Canada, New Zealand, Australia, Singapore and a number of US States.

Why is the UK Attractive to Corporates?

Clients are attracted to the UK as the UK is a leading destination for investment and business. It has world class regulatory systems, robust corporate law and governance, as well as a competitive corporate tax system especially for holding companies.  Please see our Information Note The UK – A Truly Excellent Holding Company Regime.

A Need to Enhance Reputation

Some Groups with companies incorporated, for historic reasons in offshore jurisdictions, all be it legitimately, have suffered reputational damage by being cited in the Panama and Pandora papers.  As a result many are  keen to redomicile to protect themselves from reputational damage.

Benefits of Re-domiciliation

The act of re-domiciliation enables a company to maximise continuity of its operations while enabling it to shift its place of incorporation.  This enables its corporate history, intellectual and other property rights, contracts and regulatory approvals to remain intact, despite the companies re-domiciliation.

What Happens Next?

The UK Government have just completed an initial consultation and legislation for the introduction of a UK Corporate Re-domiciliation Regime is expected within the next year.

Additional Information

If you would like further information on this subject, please contact Paul Webb: advice.uk@dixcart.com at the Dixcart office in the UK, or your usual Dixcart contact.

The Unshell Bill

The European Commission met on 22 December 2021 in Brussels, to discuss the Unshell Bill, the so called anti-tax avoidance Directive 3 (“ATAD 3”), to address the misuse of “shell”, or letterbox, companies that have been created for improper tax purposes.

The purpose is to discourage the use of “shell” companies, where there is little or no business activity, and/or where the vehicle is being used for aggressive tax planning or tax avoidance and evasion purposes. It will mean that in the future, deemed shell companies will not be able to access tax relief and related benefits, if certain criteria are met. The proposal is relevant to all businesses; small, medium and large.

The Misuse of Shell Companies

The misuse of shell companies exists in various forms and presents an opportunity to abuse tax obligations.

Shell companies are typically created to generate a financial flow through the respective company, in jurisdictions with no or very low taxes or where taxes are circumvented in some way. In other cases, individuals make use of shell companies to shield assets and real estate from taxes, either in the country in which they are resident or where the property is physically located.

Key Components of the Bill

The proposed Directive, once adopted, must be transposed into national law by the Member States before 30 June 2023, to come into effect from 1 January 2024.

This Directive sets out transparency standards, so that entities that merely exist ‘on paper’ can be more easily detected by the respective tax authorities.

The EU Commission proposes to introduce a filtering system to determine whether a company is deemed to be a shell company or not.

Companies that meet three gateway ‘cumulative’ requirements, will need to disclose information in their tax return to validate the company’s substance. This information will include providing supporting evidence regarding the company’s premises and bank accounts as well as the tax residency of its directors and employees.

The Indicators or Gateways

The key indicators or gateways are highlighted below:

Consequences of Gateways Being Met

If all three gateway specifications, as detailed above, are met, and there is a subsequent failure to meet the substance validation requirements, from the information provided in the relevant tax return, the company will be deemed a shell company and will not be able to access tax relief and any related benefits.

In addition, companies will not be able to obtain a tax residency certificate or will receive a certificate to say that it is a “shell”. The “shell” entity will be regarded as a “flow entity” and thus any payments to third countries, for example, will not be treated as flowing through the “shell” entity. Withholding tax will be applicable in the state of the “shell’s” shareholder/s.

Opportunity to ‘Appeal’

It is worth noting that companies will be able to rebut the presumption of shell status, through the submission of additional evidence. This information is likely to include additional data relating to the non-tax reason/s for its existence, as well as other additional evidence that is considered valid.

Sharing of Information

Member State authorities will automatically share information, regardless of whether companies are deemed to be a shell or not.

In addition, one EU Member State may require another EU Member State to carry out a tax audit for a company that is deemed to have shell company characteristics.

Penalties

In addition to the penalties that will be imposed and defined by the individual  Member State(s), a penalty payment of at least 5% of the turnover of the company in the relevant tax year, will be imposed, for failure to comply with the notification obligations and/or false declarations on the tax return.

Summary

The introduction of this proposal will; provide more transparency among Member States, will ensure that shell companies have legitimate reasons for their existence, and will ensure a more even playing field for European businesses.

Dixcart Compliance Advice and Further Information

Dixcart professionals in the Dixcart Portugal office, as well as in our other Dixcart offices are fully conversant with this draft EU Directive.

We can provide detailed advice regarding transparency and compliance to our clients. If you require additional information, please contact Lionel de Freitas or Monica Santos at the Dixcart office in Portugal: advice.portugal@dixcart.com.

Background

Malta has long been a popular choice for companies and new businesses and is a reputable EU jurisdiction. An exceptional package of support and financial incentives is available to innovative companies seeking to establish themselves and/or extend operations within Malta.

 Companies based in Malta have access to national and EU funding. Dixcart Malta can assist with applications to Malta Enterprise, the Government agency which offers support to companies at different stages of their lifecycle.

Please see below a summary of the support, grants and repayable loans that are available, the Dixcart office in Malta can provide further details: advice.malta@dixcart.com

1. Research and Development Feasibility Studies

Research and development initiatives are associated with high risk, and therefore R&D Feasibility Studies are a vital component, to determine that the critical elements of the proposed research project are based on sound principles.

Businesses, employing at least two full-time employees, and intending to carry out an Industrial Research and Experimental Development Project may benefit from financial assistance.

A cash grant is available, for six month projects, to cover the salaries of research personnel, and costs associated with undertaking ‘contractual research and technical knowledge’.

• Businesses carrying out R&D Feasibility Studies can receive up to €50,000 per project, up to a maximum 70% of eligible costs, depending on the size of the business. Aid is capped at €5,000 per full-time employee employed by the applicant at the time of application. In situations where an applicant established his/her company in the twenty-four months preceding the date of application, a grant of up to €20,000, may still be approved, irrespective of the number of full-time employees.

2. Cash Grant Towards Wage Costs 

This grant is designed to support industrial research and/or experimental development carried out to gain knowledge that leads to the development of innovative products and solutions.

Two grants are available:

• A cash grant on wage costs of up to €500,000.
• A tax credit on; instruments, equipment (depreciation costs) and materials and supplies, relating to a contractual research and technical knowledge project that last up to thirty-six months. This grant is available up to a maximum 25-60% of eligible costs, depending on the size of the business.

3. Aid for Research and Development Projects

This incentive allows companies to claim tax credits on costs incurred directly or indirectly in carrying out an R&D project or projects relevant to the company’s trade. Eligible projects must seek to make advances in a field of science or technology through the ‘resolution’ of scientific or technological uncertainty.

• Pre-approval, prior to the commencement of a project, is not required for this grant. This grant is available up to a maximum of 45% of eligible costs, depending on the size of the enterprise with a maximum €15million per project being available. 

4. Financing for Business Development

This incentive is targeted towards companies engaged in; manufacturing, industrial services, digital technology, biotechnology, or in other innovative or high value-added operations, as approved by Malta Enterprise.

• The maximum aid available per business is €200,000 over three rolling fiscal years. The approved financing must be directly related to the operation of the business. It can be used to cover; relocation costs of key personnel, payroll costs, lease and rental of real estate, services directly related to the business operations, rights and licenses, relocation of tangible assets, procurement of tangible assets and utility costs.

5. Skills Development Scheme

This scheme is specifically designed to help companies to provide training to create and update the skills and knowledge of their workforce.

• Support is available in relation to eligible costs, as follows; wage costs of trainees and trainers, direct contact hours of training service providers, air travel expense to send trainees to foreign training locations, air travel expense to bring trainers to Malta, rental of training rooms, tools, and equipment. The grant available  is a maximum of eligible costs; 70% for a ‘small’ business, 60% for a ‘medium’ business, and 50% for a ‘large’ business. The maximum grant available is €2,000,000 per Skill Development Project.

6. Start-up Finance

• Grants of up to €400,000 are available in Malta, unless the business is an innovative business, in which case the potential grant increases to a maximum €800,000.

The following criteria apply:

• the company (following an evaluation by an external expert) must be producing/developing new products/services/processes which are substantially improved OR
• Research and development costs represent at least 10% of the firm’s operational costs, in at least one of the three preceding years, or, in the case of a start-up, in the audit of the fiscal year, preceding the grant.

This ‘grant’ is offered as a repayable advance, unless the company is interested in taking part in the ‘Accelerator Programme’, please speak to Dixcart Malta for further information: advice.malta@dixcart.com.

The repayable advance support can be used to cover several eligible costs:

• Co-investment in payroll costs: to finance up to 75% of the full-time employees’ salaries.
• Co-investment linked to private equity: equivalent to 50% of the increase in share capital from unrelated parties, universities or non-profit research centres or related enterprises. The increase in share capital needs to occur following approval by Malta Enterprise, and not later than twelve months from acceptance of the advance. Disbursements can occur in tranches, linked to milestones established in the initial business plan.
• Support in relation to working capital: up to €200,000, increasing to up to €400,000 in the case of innovative companies.
• Support for the procurement of tangible and intangible assets: Malta Enterprise may award up to 75% of the costs to procure; machinery, equipment  and amortizable, intangible assets. Intangible assets must not exceed 50% of the total investment and are defined as being limited to the procurement of; patents, licences, and know-how.

7. Support Linked to Crowdfunding

• A repayable grant of up to 50% of a project or equity financing increase, that is also being funded through a successful crowdfunding campaign.

The grant may not exceed the amount requested through the campaign, and the beneficiary must notify that s/he has received assistance from ‘Malta Enterprise’. If the beneficiary raises more funds than those featured on the platform, the difference can be deducted from the repayable contribution.

Additional Information 

If you would like further information regarding the support measures for research and development and the opportunities available through the jurisdiction of Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office, in Malta or to your usual Dixcart contact.

Background

Companies based in Malta have access to national and EU funding.

Dixcart Malta can assist with applications to Malta Enterprise, the Government agency which offers support to companies at different stages of their lifecycle. Schemes are available depending on various criteria, including the nature of the project/operation.

Which Sectors are Eligible for Funding?

The main funding options are available for the following sectors: hi-tech, artificial intelligence, advanced manufacturing, life sciences, education and training, digital innovation and data science.

The hi-tech sector is defined to include: 

• Data hosting services 
• Payment gateway services
• Cybersecurity 
• Cloud-based applications 
• Behaviour analytics 
• Automated multilingual customer service development 
• Big data and AI-driven financial analytics and insights 
• Autonomous, decentralised and intelligent system design 
• Digital games 
• Fintech 
• MedTech

How Are Funding Decisions Reached?

Each situation is assessed on its own merits with Malta Enterprise reviewing numerous criteria and reaching a final decision on a case by case basis.

AI Strategy

The national AI strategy of Malta sets out the long-term objective as being to transform Malta into a leading economy in the field of AI by 2030. This maps the path for Malta to gain a strategic competitive advantage in the global economy as a leader in the AI field and has been built on the following three strategic pillars: 

• Investment, start-ups and innovation 
• Public sector adoption 
• Private sector adoption – three strategic enablers: education and workforce, ethical and legal, and ecosystem infrastructure.

New Niches 

Malta is becoming a home to technologies that will shape the future. Technologies such as: 

• Distributed Ledger Technology (DLT) including blockchain 
• MedTech including bioinformatics and medical imaging
• Artificial Intelligence, mainly with a focus on machine learning, natural language processing and speech
• Internet of Things and 5G
• Biometrics 
• Virtual Reality and Augmented Reality 

Malta as a Technology Test Bed

Due to its relatively small size and population, Malta is an ideal micro test bed to enable solutions and service providers to prove their concepts.

Malta incentivises companies to introduce innovative technologies and to help build a new infrastructural future. The Government of Malta continues to invest in bringing the latest technologies to Malta to ensure continuous connectivity.

Malta The Tech Hub in the Mediterranean 

Malta Enterprise is the Maltese Government’s economic development agency, responsible for attracting Foreign Direct Investment whilst also assisting businesses to set-up, grow and continue to expand.

This is achieved through various fiscal and financial incentives that are managed and administered by the agency.

The Advantages Offered by Maltese Companies

In addition, a number of benefits, including several tax efficiencies are available to international companies established in Malta and these are explained fully in the Dixcart Article: What Are the Advantages Available to Companies Established in Malta?

Malta’s Expat Population

Malta as a jurisdiction appreciates the positive contribution being made by expats in helping to achieve its ambitious AI and technology objectives. 

25% of Malta’s population are expats living and working in Malta:

• Expats are active across all economic sectors
• Qualified non-residents are employed in roles that cannot be filled by the local labour market 
• Through the newly launched ‘Qualifying Employment in Innovation and Creativity Tax Programme’, qualified non-residents who earn an annual minimum employment income of €52,000 and pay income tax in Malta, are eligible to a flat tax rate of 15% for a maximum period of three years.

 Additional Information

If you require further information regarding setting up a company in Malta and would benefit from a one-stop-shop of corporate services, including support with funding applications, please speak to Jonathan Vassallo at the Dixcart office in Malta: advice.malta@dixcart.com.