Effect of the UK VAT hike

As announced earlier, VAT in the UK will rise from its current 17.5% to 20% on January 4th, 2010.

From having one of the lowest rates of VAT in the EU, the UK will now move to the middle of the list. This change is expected to bring an increase in revenue from GBP12.1bn in 2011 to GBP13.4bn by 2014/15. The burden will be borne by both the pockets of the consumers and the profits of businesses. Introducing increase on January 4th will make life even harder for the retailers as this is the notoriously slow post-Christmas period. However, the KPMG/Synovate Retail Think Tank stated that the overall fiscal changes will have a much greater impact on consumer spending than the increase of the VAT rate.

Bahamian Judge defends the offshore world

The Ecuadorian banking authorities requested help from The Bahamas in the investigation of the Ortega family, the owners of the recently collapsed commercial bank.

The family had a number of international business companies and funds registered in the Bahamas. As a response to this request, the Supreme Courte judge, Justice Neville Adderley, stated:
\"The court takes judicial notice that the Financial Services Sector has long been recognized as the second most important economic sector in The Bahamas next to tourism in terms of employment and contribution to the Gross Domestic Product.\"
\"It has gained, and had done so by 1995, an international reputation as a non-tax international financial centre known for bank secrecy which produced numerous financial products including international business companies, trusts, mutual funds, and other vehicles to facilitate the lawful and legitimate avoidance of taxes, proper estate planning, private wealth management, and private banking. This proved attractive to and was extensively utilized by citizens and institutions of high tax jurisdictions including Ecuador.\"
\"We must resist the temptation to pin a badge of fraud on persons who make use, legitimate use, of offshore jurisdictions like The Bahamas.\"
\"We see today the manifestation of frustration of the high tax countries in not being able to keep up with the various legitimate schemes devised by and for international financial centres like The Bahamas.\"
\"Specifically, what some have called a heavy-handed and unilateral approach has been taken by the countries of the Organization for Economic Cooperation and Development (OECD) vis a vis the international financial centres (which when located outside the OECD have the depreciative label of \"tax havens\"). They have devised various lists: the \"white list\" \"grey list\" and the \"blacklist\". These initiatives appear to be designed to set new evolving standards of disclosure in financial services required by the OECD countries irrespective of the legislative framework of the respective offshore jurisdictions.\"
\"It has long been settled in English and international law that there is nothing wrong with a person so ordering his affairs to lessen his burden of taxes by lawfully avoiding (in contradistinction to evading) or otherwise making lawful use of offshore jurisdictions. I would doubt that as a matter of practice or prudence professional advisors who devise legitimate schemes to avoid taxes or otherwise to lawfully avoid provisions of the laws of their countries first discuss the details with the authorities of their countries... as legislators would very likely plug the legal loopholes.\"
\"The court does not accept, therefore, without other admissible evidence that failure to discuss with or disclose to the regulators of their home countries the details of lawful schemes of avoidance (or which they believe to be lawful) set up in international financial centres like The Bahamas is in itself a badge of fraud or an indication of dishonest intent.\"

Private DTAs in Switzerland

Switzerland is likely to pass an act which means it will recognise private double taxation agreements (DTAs).

Such agreements are usually entered into by two countries, but in this case will be entered with private institutions in territories which are not recognised as states by Switzerland - similar arrangements are also in place in countries such as Belgium, Singapore, Sweden and the U.K. This type of agreement will only be possible in cases where international law precludes the signing of a treaty. The act will probably only apply to a few territories and the relevant parliamentary committees will be consulted in advance.

Uruguay to stay on the grey list

Only 5 of the 12 information exchange agreements negotiated by Uruguay have been signed.

For this reason the country will continue to be on the grey list of the Organisation for Economic Co-operation and Development (OECD). The agreements which have been signed are with Germany, Mexico, Portugal, Spain and France, while those awaiting signature are with Korea, Finland, Switzerland, Malta, Liechtenstein, India and Belgium. The agreement with Hungary is still under review as it does not fit the OECD model. Apart from the negotiations already underway with Malaysia, Chile and Luxembourg, no further talks are planned for the near future.

Gibraltar: can it survive in its new format?

Gibraltar finds itself in exactly the position the EU wants to force upon offshore companies: on the very edge of Europe.

And although geographically it is close to Spain, administratively it belongs to Great Britain, and, according to the latest referendum, the people of Gibraltar wouldn\'t have it any other way. Gibraltar is one of the very few places within the European Union where offshore companies, in the classic sense of the term, can still be incorporated. Up until 2006, the so-called \"exempt company\" was the most popular corporate format among clients. The possibility existed since 1967 for companies registered in Gibraltar, but owned by foreigners and with no activities in Gibraltar to receive tax exemption from the otherwise 35% tax on profits. On February 18th 2005, the United Kingdom came to an agreement with the European Commission over the gradual phasing out by December 31st 2010, in several steps, of the companies incorporated earlier and operating under the tax \"exempt\" status. Even in the past, the granting of \"exempt\" status was not automatic. In order to achieve this status and thus be subject to a fixed 400 GBP tax per year, companies had to go through an approval process. The agent who incorporated the company had to initiate the process with the Financial Services Commission, the local financial authority, and see it through to the end. As part of the process, it was necessary to provide detailed information and certification regarding the owners and beneficiaries of the Gibraltar company. In future, it will no longer be possible to form companies with this status, or rather it will only be possible to form companies with partial exempt status, and even those will only enjoy the beneficial taxation until the end of 2010. There is, however, another type of company, the so-called \"nonresident\" company, and the agreement with the EU did not restrict the formation of this company type. The main point of these companies is that they are incorporated in Gibraltar, but are managed from abroad, so the managers are not resident for tax purposes in Gibraltar. In this case, as the companies do not qualify as local (resident) companies, they are not subject to the 400 GBP fixed tax payable by the \"exempt\" companies. Of course, in today\'s ever-changing climate, it is difficult to say exactly how long it will be possible to incorporate and maintain this type of company. Whatever happens, it is important to emphasise that Gibraltar offers a totally unique type of company within the EU, in that it is possible to incorporate and operate a tax-free company within the EU. It can also be stated that the annual accounting requirement is relatively simple, requiring the filing of a financial report which is much less complicated than in other EU member states. So it is not necessary to spend serious amounts of money for monthly accounts. And as the \"exempt\" companies were also unable to take advantage of the benefits offered by double taxation treaties, the \"nonresident\" company form is by no means a weaker possibility for those wishing to incorporate in Gibraltar.

UK to cut red tape

On August 5th the UK Business Secretary, Vince Cable, announced a comprehensive package of new measures that would reduce unnecessary government intervention and improve the relationship between businesses and the government.

From September 1st the ‘One-in, One-out system\' will come into play. According to this rule, if ministers would like to introduce a new regulation imposing additional costs on businesses or the voluntary sector, they would first have to find a regulation currently in force and with the same value which could be removed. This trade-off will make the change less painful. Other measures include: new Principles of Regulations, Regulatory Policy Committee and Your Freedom website, which will allow the public and businesses to express their opinions. According to Cable, \"by ensuring regulation becomes a last resort, we will create an environment that frees business from the burden of red tape, helping to create the right conditions for recovery and growth in the UK economy.\"

New Zealand helps Vanuatu comply with international standards

On August 4th a Tax Information Exchange Agreement was signed between New Zealand and Vanuatu.

This came at the same time as the introduction of a new passport system in Vanuatu. Officials from New Zealand have been helping their neighbouring island since 2008 to develop a passport system that would reduce identity fraud and other crimes. According to New Zealand\'s Prime Minister, John Key, this will also allow the citizens of Vanuatu to take advantage of economic opportunities overseas. This is all part of Vanuatu\'s efforts to strengthen cooperation in the field of tax evasion and further comply with modern international standards.

Northern Ireland needs a tax cut

The current rate of profit tax in Northern Ireland is 28%, the same as the rest of the UK.

The problem is that it\'s only neighbour on the island has a corporate tax rate of only 12.5%. As a result, the Republic of Ireland attracts a lot of investors and Northern Ireland is currently the poorest region of the UK with low wages, low productivity and very high unemployment. The Northern Ireland Economic Reform Group suggested earlier this year that the rate of tax be lowered to match the rate of its neighbour, so that companies would not be tempted to jump over the border. This suggestion, however, was rejected by the government. There are plans to lower the rate of corporate tax in the UK to 24%, but it is unlikely that this will be enough to boost economic growth in Northern Ireland.

Isle of Man becomes more transparent

From July 27 2010 the two agreements signed between the Isle of Man and New Zealand entered into force.

The tax information exchange agreement and the double tax treaty were ratified by the Isle of Man at the end of last year. Now the High Commission in London has confirmed that New Zealand has also completed their ratification process. These two agreements bring Isle of Man closer to meeting the international standards for transparency and information exchange.

Australia to lower company tax

The coalition opposition, led by Tony Abbott, has promised to cut the tax on company profit from its current rate of 30% to 28.5%.

This is in response to the existing government\'s commitment to lower the tax to 29%. The aim is to create a better tax climate in Australia and attract investors. It may all seem very promising, but at the same time there is a proposition of a 1.7% levy on taxable profits over AUD 5m to fund the increase in paid parental leave. So for the bigger companies this means a simultaneous tax cut and tax increase, which will eventually cancel each other out. It seems that there will be a cut in company tax, but whether it will have any positive effect on Australia\'s economy is hard to say.

The role of company directors

Many of our clients take advantage of our optional company director services. A number of names exist for this service in international practice, but the original name used in Anglo-Saxon terminology is \"nominee director\".

From the legal point of view, however, there is no such thing as a purely nominee director, that is, a person who is only a director on paper. Similarly, it is not possible for two separate people, one nominally and the other in reality, to fulfil the same role. The person who appears on the corporate documents as the director is the real and true director of the company. This is still the case even if the director involved issues a limited or general power of attorney to any of the people involved in the company. None of the duties or obligations of the director are transferred to the attorney; the attorney is merely acting on behalf of the director. There are certain cases, however, such as meetings of the board of directors, where the director must, in practice, appear and vote in person. In addition to the preparation of the various powers of attorney and minutes of meetings, the most common task of the directors is the signing of the company\\\'s commercial contracts. This is an everyday occurrence in the world of international companies. As the directors we provide are native English speakers, the contracts that they sign are also in English. If a document was prepared in any other language, then it must be accompanied by an English translation. It is very common for the place of signing of such contracts to be some European capital or city. This, however, is only possible if the director was actually there at the time when the contract was signed. If not, then only the place of residence of the director (where he actually lives) can appear in the contract. It is also important that the real signature of the director appears on the documents. If somebody else signs the director\\\'s name - without his knowledge - then that is forgery, even if it is the shareholder or owner of the company who does it. This would also be rather pointless, as the director\\\'s signature can be ordered from any LAVECO office for a relatively modest fee; our colleagues send the documents to the director, who signs them and returns them by courier. If you would like to receive more information on this service, or would like to order this service, please contact our colleagues in one of the LAVECO offices listed below.

Investing without taxes on interest and dividends

One of the most common uses of offshore companies worldwide is in the area of investment transactions.

This can be seen in the fact that today more than 50% of the world\'s financial transactions are arranged through the bank or brokerage accounts of offshore companies. The rate is so high because the number of currency-related speculative or derivative transactions for which tax-free offshore companies are used amounts to several billion dollars each day. Offshore companies are no less popular among investors who trade in stocks and shares on the various stock exchanges of the world. In certain countries, such as the United Kingdom, for example, real estate speculators also take advantage of the advantageous tax regulations. In many cases, the offshore company is merely used to hold funds deposited in its bank account, with the interest accruing over a period of time. Why are these companies so popular in the transactions mentioned above? The reason is twofold. Firstly, these foreign companies enjoy exemption from capital gains tax, whereas in many countries local companies do not. The other area of taxation where these companies enjoy legal exemption is in the dividend and interest type of taxes. In many countries the rates of tax in these cases can be as high as 20-35%. It is obvious, therefore, that in certain cases it is more profitable for investors to accumulate money through the bank or brokerage account of an offshore company, rather than through a personal account. This same situation arose in Hungary following the changes in taxation introduced in Hungary on September 1st 2006. Foreign companies are not subject to the 20% tax on interest, so, compared to local tax residents, the funds in the account of a foreign company increase even more, with an extra fifth remaining in the hands of the investor.

Offshore asset protection vehicles: the Panama foundation

The Panama asset protection foundation is a legal entity which can not carry on business activities, but instead can manage and turn to profit the resources placed at its disposal.

The foundation can own immovable and movable property alike, such as houses, apartments, shares, securities, money in bank accounts, antiques, precious metals etc. The Founder of the Panama foundation may be any natural or legal entity, or other body without legal personality. The Founder signs the official formation documents, which include the names of the members of the Foundation Council - the body which manages the foundation. This body must consist of at least three individuals or one company. Following their appointment, they are authorised to act in all matters concerning the foundation. And just like the board of directors of a company, the members of the Council can also issue power of attorney in regard to foundation matters. Anybody would be justified in asking why you need a \"foundation\" for this, when an offshore company with a fixed annual tax and bearer shares also provides a perfect vehicle for asset protection. Such a company can be incorporated, for example, in Belize, or the Seychelles, and even a share company registered in Panama - a Corporation - can issue bearer shares. The important difference, in comparison with a company, is that a company issues shares, and thus someone will be the owner. And if that someone, the owner, is taken to court, then the courts may confiscate his / her property. In the case of the foundation, this danger does not exist. The foundation only has \"Beneficiaries\", and their beneficial rights can not be the subject of legal action, so the assets of the foundation are totally secure.

The difficulties of opening bank accounts

LAVECO Ltd. offers its clients bank account opening services in a number of jurisdictions.

These can be divided into two distinct groups - those where the person opening the account must appear in the bank in person, and those where it is sufficient to send certified copies of the necessary documents to the bank. Whichever variation we choose, it can be stated that the whole process of opening bank accounts has become much more complicated and expensive than it was in the 1990s. The reason behind this is that the banks themselves, in the name of the fight against money-laundering, are now obliged at international level to ask clients for more documents and certificates, both at the time of opening the account and during its subsequent operation, and to ask detailed questions about the nature of the activities pursued. They often require bank reference letters, or references from lawyers or other professionals, regarding the person(s) operating the account. Similarly, those operating accounts are often required to provide recent utility bills as proof of residential address. The most common requirement in regard to companies is that the certified corporate documents must not be more than 30-90 days old (this varies from bank to bank). Many banks now also require companies to prove their continued existence and the authorisation of directors or attorneys operating accounts through the provision every year (or every other year) of a fresh certificate of good standing. And in a relatively new development, some banks in eastern Europe have also started asking new clients to provide a detailed business plan. As a result, there can be a number of stumbling blocks when it comes to opening a bank account. Many disgruntled clients have come back to us saying that this or that bank, for no reason at all, refused to open an account for the company they had purchased from us. As the banks are free to choose who they will and who they won\'t sign contracts with, it is difficult to say what the problem was. It is a fact, however, that a lot of time and energy can be wasted if we don\'t approach the subject in the right way. The special banking relationships nurtured by the experts at LAVECO Ltd. over the last 15 years allow us to help our clients open bank accounts in several European banks relatively quickly and with the minimum of fuss. Naturally, this is a service which must be paid for. The fee for the service, however, is significantly less than the amount you would have to be pay in air fares and expenses if you travel to somewhere like Cyprus to open an account. So, it is worth taking advantage of the knowledge and experience of our colleagues, who can guide our clients through the bank account opening labyrinth with speed and professionalism.

The question of “place of management” in international law

A thorough examination of the tax laws of most countries will reveal an interesting definition, which may be very important to the very existence of offshore companies.

 The definition of the place of management appears, in various different forms, in the tax laws of both western and now eastern European countries. If a company registered in one country is managed or run from another country, then various tax consequences may apply as a result of the \"place of management\". According to the laws of the second country, it may be that because the foreign company is being run from that country, then it is classed as having a \"permanent establishment\" there, and may be subjected to taxation on all income arising from that establishment. It is possible, therefore, that a company such as a Bahamas company, which would otherwise be totally tax-free, would be subject to taxation in Germany, for example, because the company\'s sole director is resident in Germany, and the company is managed from there. According to English tax laws, if the majority of a foreign company\'s directors are resident in England, then that foreign company is subject to English taxes, as, according to English law, since the strategic decisions affecting the management of the company are made in England, the company is managed from England. English law places the emphasis on the place where strategic decisions are made. German law, on the other hand, treats the term \"place of effective management\" differently. According to the German (or continental) version, it is not the place where strategic decisions are made which counts, or not this alone, but the place where the daily administration and running take place (signing of contracts, preparation and sending of invoices etc.). The German version is clearly much stricter than the English one. Hungarian corporate tax law tends to follow the English version, stating that the place of management is the place where the management of the company establishes the administrative centre, although this is not strictly the case in all areas. The latest draft of the Russian tax laws considers people granted with full power of attorney and the right to act in the company\'s name (and who actually use these) in the same light as directors. If in this way, therefore, the management of a company takes place in Russia, then the so-called profit centre is situated there, and the company will be subject to Russian taxes. The above examples show that globalisation also leads to harmonisation of tax laws at international level, and makes consultation with more and better equipped experts more and more important in the field of international tax planning.

Do offshore companies have to pay tax on royalties in the country of source?

Royalties and other similar fee types constitute a special income category.

As it is difficult to put an exact price on an intellectual product, the legal systems of most developed countries allow for the imposition of a supplementary tax on royalties paid from that country to foreign entities. The principle is that the local company must deduct the amount of the supplementary tax from the total amount of the royalty, and must forward this amount to the local tax authorities. The amount of this tax varies from country to country; the Dutch, for example, do not deduct tax from royalties paid to foreign entities, whereas the English deduct 23%, and the Hungarians 18%. If, however, the payment is made to a country which has signed an agreement for the avoidance of double taxation (DDT) with the country making the payment, and the company is able to take advantage of the terms of this agreement, then, provided that the agreement allows for a lower rate of tax, then this lower rate of tax can be applied. In many cases the rate of tax can be reduced to either 0, 5 or 10 %.

Panama on the way off the OECD grey list

Panama has finalised negotiations with Luxembourg regarding the signing of an agreement for the avoidance of double taxation.

This will be their 9th such agreement, bringing them closer to the possibility of being removed from the Organisation for Economic Cooperation and Development grey list. Panama has already set dates for negotiating further agreements with Portugal, Singapore, Korea, Ireland and the Czech Republic. Negotiations may also commence with Canada, Bulgaria, Hungary, Portugal, the UK, Cyprus, Germany, and Switzerland. Following pressure from OECD and G20, Panama has also agreed to enter into negotiations with several countries regarding tax information exchange agreements.

VAT rates rise in Spain

On July 1, 2010 rates of Value Added Tax in Spain were increased in accordance with an earlier proposal.

Spain operates a 3-tier system of VAT rates, with the standard rate and two reduced rates: the first reduced rate is applicable to general food, health and sport services, hotel accommodation, restaurant services and admission to cultural events and the second one to the so-called \"basic necessities\" such as bread, books and medicines. The first reduced rate was increased from 7% to 8%. The second rate currently stands at 4% and was not affected by the new budget. The standard rate, however, was increased by 2% from 16% to 18%. There are fears that this will lead to rises in prices. The government hopes, in this way, to generate an additional EUR 5.15 billion of revenue, EUR 1.9 billion of which will already be achieved in 2010.

Can an offshore company - IBC – purchase real estate?

The short answer to this question is yes.

It is stated quite clearly in the basic documents of most IBCs that the company is entitled to purchase real estate in any country in the world, except its country of incorporation. In the country of incorporation it may only maintain the property required as its registered office. Therefore, from the point of view of the country of incorporation, there is no problem. In practice, however, the situation is much more complicated in the country where the company wishes to purchase real estate. The administrative requirements of the country in which the real estate is to be purchased can make the process much more difficult. In some countries the purchase of real estate by foreign entities is subject to licence, or at least approval. In these cases, the ownership rights of the offshore company are only recorded once the licence has been obtained. Therefore, it is advisable to consult a legal adviser with experience of the laws of the country in which the real estate is situated before choosing an offshore solution for the purchase of property.

Use of an offshore company for contractual work purposes

The essence in this case is that a company incorporated in country A (company A) entrusts a company from country B (company B)

with the task of turning the raw materials bought by company A into a finished product, according to the manufacturing methods laid down by company A, and returning the finished product to company A. The finished product is then offered for sale by company A, generally in country A, or in the country in which company A forwards it for selling. It is an important condition that company B should never own either the raw material or the finished product, both of which should remain the property of company A at all times. Company B merely invoices company A for the contracted work, once the finished product has been handed over to the consignor. This type of contractual work is based on the fact that labour costs are lower in some countries than in others. By taking advantage of this the consignor is able to have his products manufactured much more cheaply than at home in, say, Germany or Italy. The economies of some eastern European countries are bolstered considerably by a large number of such foreign trade transactions. It goes without saying that the consignor is not limited to Italy and Germany. There is no reason why this role cannot be fulfilled by an offshore company. The offshore company provides the raw materials and the manufacturing instructions (in the clothing industry, for example, this could entail cutting and sewing patterns), and once it has received the finished products, it pays the fees for the contracted work to the Hungarian or Romanian company. The goods are then sold in other European or overseas countries.

The company which cannot be blacklisted

The tax authorities of many western European and North American countries have introduced so-called blacklists.

The purpose is to list those countries which do not tax the income of companies which are registered in those countries, but do not actually operate there. The state is also trying to use administrative tools create obstacles to tax emigrants. The problem arises when say, for example, a German company receives an invoice for consultancy services from a company registered in the Bahamas. In the course of routine tax checks, the German tax authorities will highlight this invoice in the files, irrespective of the real content and value of the service; the invoice will then be recorded as non-deductible expenses, which will lead the authorities to launch a thorough investigation, as they find the origin of the invoice suspicious. It is not the content of the invoice or even the amount which are suspicious, but the fact that the partner company is registered in the Bahamas, which is instantly recognisable from the address on the invoice. German companies are now all too familiar with this problem, and, in order to avoid any possible inconvenience, generally speaking will not accept invoices for services from offshore companies. Countries from Eastern Europe have recently begun to follow suit, and several have now adopted blacklists similar to those mentioned earlier. In February 1999 the Russian Central Bank adopted a blacklist consisting of 49 countries. Subsequently, the authorities in Belarus and the Ukraine also adopted the Russian list. The way in which the tax authorities work in these countries is different from in western countries, as it is the bank\'s task to check all outgoing payments; this in itself is a very difficult task for the banks. Given the current situation, therefore, how can this problem be resolved? At the beginning of the 1990s it was possible to use a company from any of the offshore jurisdictions to do business without fear of reprisals. Today, however, the situation is totally different. In the eyes of the tax authorities, and often even those of business partners, such companies are now unacceptable partners, with whom it is not possible to enter into agreements. Towards the end of the decade, several solutions to the problems described above appeared on the market; these solutions, while \"offshore\" in appearance, used structures which, strictly speaking, were not offshore.

Tax Reforms in the UK

Nobody in the United Kingdom was prepared for the outcome of the elections. For the first time in years neither party could gain enough votes to form the government.

 

As a result, a coalition government was formed. The two parties, The Conservatives and the Liberal Democrats, are planning some tax reforms. Some experts believe that Capital Gains Tax, currently at 18%, might go up as high as 40%, but with \"generous exemptions\" for profits made by businesses. Changes planned for Income Tax will benefit the lower-paid, as the threshold will be raised to 10 000 GBP annual income. Regarding National Insurance, employers will be happy to hear that the planned 1% increase will not take place. Unfortunately, there is no good news for employees as the suggestion to reverse the 1% increase is not supported by the new government. Another trade off that the new government has agreed on is for the Conservatives to drop their plan to raise the threshold for inheritance tax to 1m GBP, while the Liberal Democrats have to drop their plans for \"mansion tax\" - a tax levied on properties costing more than 2m GBP. Last but not least, VAT is expected to be hiked by the end of 2011 from the current 17.55 to 20%. This will bring an extra 11.5bn GBP into the Treasury which will help deal with the deficit. But on the other hand, it will affect almost all areas of consumer spending and will cost families 425 GBP on average per year.  

 

Кипр: оффшор внутри ЕС?

Есть такая страна на стыке трех континентов – Европы, Азии и Африки, - и имя ей Кипр.

С точки зрения территории и населения, это одно из самых маленьких государств Евросоюза. Те, кто уже посещали южную часть острова, заселенную в основном греками, видели, что уровень жизни здесь однозначно высок: на 800 000 человек приходится 600 000 автомобилей. Государственный бюджет в 2008 году по всем прогнозам будет профицитным, инфляция в стране низкая. О безработице говорить практически не приходится, поскольку существует она лишь на бумаге и составляет 3,3%, но при этом ежегодно на Кипр приезжает на работу 80 000 иностранцев, которые трудятся в основном в сферах туризма и сельского хозяйства.

В течение многих лет движущей силой кипрской экономики был туризм. Сейчас эта ситуация изменилась. Самой доходной отраслью в государстве стали финансовые услуги. Ежедневный доход Регистрационной Палаты Кипра порой достигает 1 миллиона евро. Да, кстати – с 1 января 2008 года евро стал государственной валютой Кипра.

Группа компаний LAVECO основала свою дочернюю компанию на Кипре в 1999 году. Мы уже довольно долго наблюдаем за существующей там экономической системой, которая не просто применяла очень низкие ставки налога, но сохранила их и после вступления страны в ЕС, что является абсолютно уникаль-ным явлением. Финансовые результаты нескольких прошедших лет показали, что для маленького госу-дарства такая стратегия безусловно выгодна. Международные инвесторы могут со спокойным сердцем размещать там компании, поскольку для их деятельности есть всё необходимое – как стабильная, пред-сказуемая финансовая система, так и хорошее юридическое обеспечение.

Преимущества налоговой системы Кипра для компаний-резидентов.

КОМПАНИИ-РЕЗИДЕНТЫ: Компаниями-резидентами с точки зрения налогообложения считаются компании, которые зарегистрированы на Кипре, и управление которыми – принцип „management and control”- осуществляется также с Кипра. Только компании-резиденты являются субъектами налога с прибыли, договоров об избежании двойного налогообложения, и только они могут получить европейский номер НДС (VAT number).

• Ставка налога на прибыль составляет 10% и является самой низкой в ЕС.
• Дивиденды, полученные кипрской компанией, обычно не включаются в базу для налогообложения на Кипре. Закон о налогах относит этот тип дохода к специальным, не облагаемым налогом, видам дохода.
• Дивиденды, выплаченные кипрской компанией, не подлежат налогообложению на Кипре, т.е. налог на дивиденды на Кипре не платится, вне зависимости от того, частным лицам или компаниям выплачиваются эти дивиденды.
• Прибыль от сделок с ценными бумагами обычно не облагается налогом на Кипре. Сделки с ценными бумагами достаточно широко трактуются кипрскими налоговыми органами. К ним будет относится, к примеру, и продажа уставной доли в компании с ограниченной ответственностью, зарегистрированной не на Кипре.
• В базу налогообложения на Кипре включается только 50% дохода от процентов с выданных кредитов в том случае, если речь идет не о финансировании внутри одной группы компаний и не о кредитовании, осуществляемом в рамках основной деятельности компании, т.е. финансовой деятельности.
• Заработная плата или вознаграждение, выплаченные частным лицам – нерезидентам Кипра, не облагаются налогом в том случае, если деятельность, за которую они выплачиваются, осуществлялась вне Кипра.
• Компании, являющиеся резидентами на Кипре с точки зрения налогообложения, могут получить общеевро-пейский НДС-номер, который способен в значительной степени упростить процесс приобретения и продажи товаров и услуг на территории ЕС. Однако, получение европейского НДС номера не является автоматическим, налоговые службы в каждом отдельном случае изучают компанию, круг ее партнеров и проверяют, насколько фактическая ее деятельность и место управления соответствуют заявленным в налоговые органы.
• Административные правила и система расчета расходов компании исключительно либеральны. Хотя, в соответствии с международными стандартами, каждая компания должна сдавать годовой отчет и аудит, но при этом многие понятия, привычные для других европейских стран, неизвестны на Кипре: здесь нет никаких ограничений на получение компанией кредита от ее учредителей, не контролируются и не санкционируются сделки с участием оффшорных компаний, не ограничиваются расчеты по полученным компанией кредитам.
• Кипр имеет исключительно широкую сеть договоров об избежании двойного налогообложения. В настоящий момент заключено 43 таких соглашания, что обеспечивает благоприятный режим работы зарегистрированных на Кипре компаний, и в первую очередь холдинговых структур.

Преимущества налоговой системы Кипра для частных лиц-резидентов.

ЧАСТНОЕ ЛИЦО-РЕЗИДЕНТ КИПРА: частное лицо считается резидентом Кипра в том случае, если проводит там в общей сложности более 183 дней в году.

• Заработная плата и подобные ей доходы частных лиц-резидентов Кипра до 19 500 евро в год не облагаются подоходным налогом.
• Частным лицам-резидентам, так же как и компаниям, не нужно платить налог на прибыль от продажи ценных бумаг, вне зависимости от того, каким образом осуществлялась эта продажа – через биржу или минуя ее. Исключением из этого правила является только прибыль от продажи недвижимости и ценных бумаг компаний, владеющих недвижимостью (объяснением этого является принцип, согласно которому доход от прода-жи недвижимости облагается налогом там, где эта недвижимость находится, даже если продается не сама недвижимость непосредственно, а акции компании, ею владеющей).
• Частные лица-резиденты Кипра не платят налог на подарки.
• Наследники частных лиц-резидентов Кипра не платят никаких налогов или сборов на наследование.

Tax resident status in Cyprus

At the end of February 2009, the tax authorities in Cyprus refused to confirm the tax residence – and rejected the related request for a Certificate of Tax Residence – for one of our companies in which the directors were not resident in Cyprus for tax.

We can conclude from this that this is likely to be the standard practice in the future, with rejected applications for all those companies in which the company management can not be seen to be carried out by directors resident in Cyprus. And without such a certificate, the company can not benefit from the advantageous conditions offered by the agreements signed by Cyprus for the avoidance of double taxation.

Unlike the majority of European Union members, who base the tax residence of a company on the place of registration, Cyprus employs the “management and control” system, focusing on the actual place of management. In this way, a company registered in Cyprus is only actually resident for tax purposes, if the company is also managed from Cyprus. The tax authorities do not have a fixed method of deciding on tax residency, but in the management and residency test to decide whether or not the company was managed from Cyprus, the following factors are generally taken into consideration:

- the tax residency of the majority of the directors

- the place where the major decisions regarding the operation of the company are taken and where minutes recording such decisions are signed

- the place of signature of trading contracts

- the place where invoices in the company name are issued and by whom

- the location of the company’s bank account

- the persons authorised to manage the bank account

- whether or not the company has issued a general power of attorney, allowing somebody outside Cyprus to act on behalf of the company

- whether the company directors have issued any specific powers of attorney, and with what rights

- the place where the company’s original corporate documents and stamp are held

- whether or not the company has telephone and fax numbers and an email address in Cyprus

- whether or not the original documents relating to the administration of the company can be found in Cyprus

This list of conditions is particularly complex, and accordingly numerous factors should be considered before an accurate decision can be reached. In our experience, however, the tax office are not keen to go into too much detail in the decision-making process, and generally choose the simple route: if the majority of the directors are private individuals resident in Cyprus for tax purposes, then the company is also usually considered to be tax resident in Cyprus.

As taking advantage of the agreement for the avoidance of double taxation is, after the “prestige of being registered within the European Union”, one of the major reasons for the registration of companies in Cyprus, from now on LAVECO Ltd. only recommends to its clients the formation of companies in which the majority of directors are resident in Cyprus.

For existing companies, and in particular those which have obtained an EU VAT number, we recommend that, if this is not already the case, changes be made in the board of directors, appointing a majority of Cyprus residents, in order to satisfy the requirements listed above. Another potential problem is that companies which have obtained an EU VAT number could have this number revoked by the VAT office, if the company is not being managed from Cyprus; if a company is not resident for tax purposes, then it does not have the right to have an EU VAT number.

If you would like to receive more information on the procedure for making changes in the board of directors, please contact one of our customer service representatives in the offices of LAVECO Ltd.

Despite this, in a recent survey by the international firm of consultants, KPMG, of the opinions of 400 European financial specialists, Cyprus came out in first place in the list of European countries based on the total tax environment.

EU - Information exchange or withholding tax?

Despite the OECD's efforts to have complete clarity and information exchange, certain countries are still unwilling to co-operate. This time, however, it is not a small Caribbean financial centre, but EU and OECD member states! Instead of having to exchange information on tax matters with other member states, Austria, Belgium and Luxembourg will tax the savings of residents of other member states held in their banks. The rate of withholding tax will increase gradually from the 15% to be introduced from January 2004 to 35% by January 2010. Similar rates may also be applied by non-EU member states such as Switzerland, Liechtenstein, Monaco, San Marino and Andorra. The move, as well as causing alarm among investors, has proved unpopular with the financial (offshore) centres targeted by the OECD, who again feel that there is a policy of one rule for the OECD and another rule for everybody else.

Russia - Information exchange with UK and Switzerland

Russia is likely to sign agreements on mutual assistance and information exchange with the UK and Switzerland in the near future. Representatives from the Russian Government's Financial Intelligence Unit have been in talks with the UK Treasury Department and their Swiss counterparts, and are thought to be close to signing agreements with both countries.

The British Virgin Islands - Restrictions on bearer shares

The BVI Financial Services Commission has proposed restrictions on the issuance of bearer shares. Rather than totally banning their use, as has happened in some jurisdictions, the aim of the proposed legislation is to stop the abuse of bearer shares by money-launderers and international criminals. The proposals would mean all bearer shares being held by "custodians", in order to limit the mobility of the shares. The custodian must be a licensed financial institution, approved by the Commission. The legislation would apply not only to new companies, but also to existing ones, who would have to make the necessary changes within two years or risk being wound up.

Companies formed in 2002

Below is a list of the number of offshore companies formed last year in the major offshore jurisdictions. Not all jurisdictions make this information publicly available, so we are unable to provide figures for such jurisdictions as Liechtenstein, the Cook Islands etc. The list does not include “offshore” companies incorporated in the USA (Delaware corporations, LLCs in various states), as these are not officially offshore companies.

List according to number of companies incorporated

Position	Jurisdiction	Companies formed in 2002
1	British Virgin Islands	51 234 *
2	Hong Kong	38 862 **
3	Panama	16 659 †â€
4	Cyprus	7 500 **
5	Cayman Islands	7 000 #
6	Belize	4 425
7	Gibraltar	3 470
8	Bahamas	3 458
9	Samoa	3 000 #
10	Jersey	2 833
11	Isle of Man	2 805 â€
12	Seychelles	2 500
13	Mauritius	2 232
14	Bermuda	1 657 *
15	Guernsey	1 303
16	Anguilla	1 238 *
17	Turks & Caicos	1 203
18	St. Vincent	959
19	Brunei	800 #
19	Antigua	800 #
21	Malta	689
22	Curaçao	545
23	Barbados	525
24	Niue	452
25	Vanuatu	417
26	St. Lucia	408
27	Labuan	364
28	Hungary	300 #
29	Aruba	192
30	Alderney	36

* : 2001 figures
** : Offshore + local
† : + 59 LLCs
†† : + 1 765 Private foundations
# : Approximate figure


List of jurisdictions in alphabetical order

Jurisdiction	Companies formed in 2002
Alderney	36
Anguilla	1 238 *
Antigua	800 #
Aruba	192
Bahamas	3 458
Barbados	525
Belize	4 425
Bermuda	1 657 *
British Virgin Islands	51 234 *
Brunei	800 #
Cayman Islands	7 000 #
Curaçao	545
Cyprus	7 500 **
Gibraltar	3 470
Guernsey	1 303
Hong Kong	38 862
Hungary	300 #
Isle of Man	2 805 â€
Jersey	2 833
Labuan	364
Malta	689
Mauritius	2 232
Niue	452
Panama	16 659 †â€
St. Lucia	408
St. Vincent	959
Samoa	3 000 #
Seychelles	2 500
Turks & Caicos	1 203
Vanuatu	417

* : 2001 figures
** : Offshore + local
† : + 59 LLCs
†† : + 1 765 Private foundations
# : Approximate figure

Panama increases annual tax

Panama has recently introduced new legislation increasing the fixed rate annual registration fee for offshore companies. The new rate will be 250 USD per year, replacing the previous amount of 150 USD.

New company format in the Seychelles

With the introduction of new offshore legislation, the Seychelles continue to develop as a serious financial services centre. Among the new legislation was the Companies (Special Licenses) Act, which will allow for the incorporation of low tax companies. These companies will be taxed at 1,5 % on their world-wide income, but will also be able to take advantage of any treaties for the avoidance of double taxation signed by the Seychelles.

Due diligence on banking activities in the Cayman Islands

Despite protests from some long-standing account holders, the Cayman Island authorities are insisting on tighter due diligence controls on all those who bank in the islands. All account holders, both new and old, are required to provide proof of identity and physical address, as well as details of their banking activities.

Increased annual tax in Delaware

The state of Delaware, USA, has increased the amount of fixed annual tax to be paid by corporations and LLCs. The annual tax on corporations has increased from 50 USD to 60 USD per year, while the tax on LLCs has been raised from 100 USD to 200 USD per year. The changes were introduced in the summer, and, as the taxes in Delaware are payable for the calendar year, also apply retrospectively to companies whose anniversary of incorporation falls between January 1st and the date on which the changes came in to force.

Will Cyprus be an attractive financial centre in the future?

In the spring of 2002 our colleague in Cyprus wrote a thesis with this title at Nottingham Trent University in England. This happened when the changes in the tax laws which were approved by a vote of the Cypriot parliament in July were still only in the planning stage. Certain points were only made known at the last moment, taking many experts in the field by surprise.

A tense period of waiting swept across Cyprus leading up to the vote, with nobody knowing what the future might hold. Would the offshore business be killed off, or not? Would joining the EU mean the end for a business which was extremely important to the island, or would it be possible to survive and carry on in the future? Nobody knew anything, but everybody tried to keep abreast of developments. One week the representatives of one of the banks in Cyprus came to us for advice, the following week a different team appeared, trying to find out what was happening, whether the old clients would remain and new ones would come if taxes were raised. This was all after they had held numerous forums and seminars outlining the expected changes and possible problems and possibilities that EU membership would bring.

The tension visibly eased to a degree when the new changes in the law were accepted in July, 2002, and the main modifications became clear. The essence is as follows: the difference between offshore and non-offshore companies has officially ceased, or rather will cease to exist. From January 1st 2003, all companies will pay a uniform rate of 10 % tax on profits. Companies which were formed  and had started operating before December 31st 2001 can continue to pay tax at the earlier rate (4.25%) until December 31st 2005. The rate of 10% was fixed with the imminent EU membership in mind, as this was the minimum requirement from Brussels with regard to taxation. The tax rates in several current and future EU member states are set around this figure; in Ireland, for example, the rate is 12.5%, and in Hungary from January 1st 2004 the rate is 16%. The Cypriots, however, have still adopted the most attractive rate.

At the declaration level, there is no difference between local companies and offshore companies. In practice, however, this is not strictly true, as the incorporation of a local company (which actually operates in Cyprus) is more complicated than in the case of an offshore company, and local companies are also subject to VAT, as well as some additional “stealth” taxes. To the outsider this may not be immediately apparent, even if that person is an expert on the EU; the differences and points of interest may only come to light in the office of a lawyer or accountant during the course of a possible company formation.

At the same time, the differences are not apparent to foreign tax authorities either. Provided that it is managed from Cyprus, a Cyprus offshore company may take advantage of the agreements for the avoidance of double taxation signed by Cyprus. One important difference is that according to the new laws is that to qualify for tax residency it is not enough for the company to be registered in Cyprus – major managerial decisions regarding the company must be made by the directors in Cyprus. The Cypriots have probably copied the British “management control” test model in this. If a company meets the above conditions, then it can request a Tax Residence Certificate from the tax authorities in Cyprus, and can then use this abroad to prove that it has the right to make use of the agreement for the avoidance of double taxation signed by Cyprus.

The three main areas where the beneficial tax rates offered by the agreements are used are in the redistribution of income from dividends, interest and royalties. According to the current agreements (not yet taking EU membership into account), the country of source may also tax the above types of income, but the rates offered by the agreements, which are generally more advantageous than local rates, are usually used. So until now it was definitely worth considering this type of holding structure, where a Cyprus company was used to own and finance a foreign subsidiary. And these benefits will also apply in the future, and it will still be worth using a Cyprus company as a parent holding company in relationships between Europe and North America.

According to the law changes of 2001, dividend income is not included as income in Cyprus. As a result, it is not even included in the tax base, and is treated separately in financial statements and the annual accounts. At the same time, when a Cyprus company pays a dividend to its owners, there is no further withholding tax, as long as the owners are foreigners. In practice, therefore, a dividend received from abroad can pass freely through the Cyprus company into the hands of the ultimate beneficiary.

Interest payments received from abroad are subject to tax, but only 50% of the payments received will be taxed. On the other hand, interest payments made abroad at normal market rates can be freely deducted as an expense. The most recent tax changes do not include regulations regarding subsidiary-capitalisation in Cyprus. At the same time, it is important to note that financing can not just take place freely, as the Cyprus company may only take part in the financing of its own group of companies. However, it is not totally clear what is meant by the term group of companies. 

The Cyprus company will continue to be a perfect vehicle for the collection of royalties because of the agreements for the avoidance of double taxation. This is true, even if fees from royalties count 100% as income and are subject to tax. In this case, too, royalties paid abroad can be relatively freely deducted, and the company in Cyprus paying the royalty is not required by law to apply a withholding tax.

The 2001 tax changes also include numerous new aspects with regard to personal income tax and VAT, which time and space will not allow us to list here. We can, however, make two clear statements about the new position of Cyprus:

1.      In Central-Eastern European relations, companies incorporated in Cyprus offer some of the most advantageous taxation possibilities with regard to parent companies and subsidiaries.
2.      Cyprus offers the lowest rates of profit tax in the EU, and payments made to foreigners from income attract the lowest levels of tax. And all this is accompanied by an extremely client-friendly and liberal accounting system, based on the permissive Anglo-Saxon traditions, rather than the stricter continental model.

But why is all this important? On May 1st 2004, the European Union will expand, with ten new members being admitted; as a result, an enormous common market will come about, made up of 400 million, albeit not equal, people. This will be the world’s biggest market-place – bigger than the USA and whose consumer potential will even exceed, for the time being at least, that of China. One of the major factors in the EU market-place price war will be tax. The use of legal tax benefits can provide a considerable plus for all those producers and consumers whose business transactions are carried out through countries with lower rates of taxation. On a 100 EURO transaction the difference between 15 or 20% VAT can be very important; in the same way, it can make a huge difference if a company pays only 10% profit tax in Cyprus as opposed to 30% in England.

A wave of tax migration will begin within the EU, which will clearly lead to astute companies taking their business to countries with lower rates of tax, such as Cyprus. The signs are already there, and it is the British who have made the first moves. This is not surprising as the island was part of the British Empire until 1964, and the ties between the two countries are still very strong, and the Cypriots have always tried hard to maintain the Anglo-Saxon legal traditions. Re-settlement to Cyprus will be particularly beneficial in the case of trading companies, as they can possibly redistribute their profits to greater advantage.

One thing is clearly visible even today: the days of “paper companies” in Cyprus are over. It will probably not be possible within the EU for a Cyprus company to write all sorts of invoices to western European buyers without some kind of control. Tax authorities will be able to check the authenticity of Cyprus companies more thoroughly, and see whether or not they are real companies with a real physical presence. The solution of having a Cypriot lawyer represent the company as its director will probably not be the ideal answer either. It is not possible for every second Cyprus company to have a lawyer as its director, and the practice of having 500 companies registered in one office is not too plausible, and there isn’t even a name-plate at the entrance. A more competent visiting tax inspector, private detective or journalist will spot the fact that this is a “paper company” before he even walks through the front door.

So what is the solution? In short, the answer is probably a real physical presence. A small commercial office, run by real flesh and blood people (if possible not Cypriots), in a separate office with its own name-plate, and not just pretending to operate, but actually giving and receiving business proposals, and arranging advertising and invoices. Apart from checking the actual physical presence, foreign authorities will have very little legal reason to inspect the books and administration of the company. Taking the tax advantages into consideration, it turns out that a medium-sized Italian manufacturer would benefit from re-locating at least part of the trading arm of its business to Cyprus, in the form of a small two-man office. And Italy is not the only country within the European Union with high rates of tax.

But what advantages can be gained by an eastern European client from running a Cyprus company? Over recent years Cyprus has been repeatedly condemned and criticised. They said it was the money-laundering capital, a regular haunt of the Russian Mafia, a notorious tax haven, and so on. As a result, there were people who decided not to choose Cyprus for the incorporation of their companies. The rumours with regard to Cyprus were particularly prevalent among the Russians. Recently it was claimed that the Central Bank of Cyprus automatically reports people who buy offshore companies to the Russian authorities. In the light of such an article, it is difficult to explain that this is only possible in the case of serious crime and in accordance with the terms of the legal agreement between the two countries, and certainly does not happen automatically. Even within Cyprus this does not happen automatically. The law dictates that the Central Bank is not authorised to hand over details of the beneficial owners to local commercial banks, and this law is strictly adhered to.

Without going over the reasons again, we would like to repeat the main points described above: On May 1st 2004 Cyprus will become a member of the European Union. Anyone who has a Cyprus company will automatically have an EU company in the EU member with the lowest rate of tax, and which has signed an agreement for the avoidance of double taxation with the majority of CIS countries. People may continue to scoff at the idea of Cyprus, quoting the example of the girl with loose morals who gets married, only to continue in exactly the same way as before. This type of moralisation will only bring a smile to the faces of the money men. The west will not waste too much time on the question of morals. The east, however, will fall behind if they fail to see and take advantage of the tax possibilities of a United Europe. In a country where there is an old, well-established tradition of providing service to foreigners, a pleasant climate regarding both nature and taxation, competent professionals, in short everything you need for success in business. In short: VIVE LA CYPRUS! Why not?

BVI companies and bearer shares

The situation regarding BVI companies with bearer shares has taken another twist. The Government now looks set to extend the deadline for the “immobilisation” of bearer shares (or the exchange of bearer shares for registered shares) until December 31st 2010. It will still be possible to issue bearer shares, but the annual tax payable will increase from the current 300 USD to 1000 USD, and the bearer share certificates will have to be deposited with an approved custodian. In addition, amendments will have to be made to the Memorandum & Articles of Association removing the possibility for the company to issue bearer shares. If the amendments are not made, then the higher rate of annual tax will be applicable. The deadline for these amendments to be made is January 1st 2008. In the case of new companies, the new rates of annual tax, and changes in the Memorandum & Articles of Association will apply from January 1st 2005.

Taxes levied on German companies are among the highest in Europe

According to a report by the German finance minister, taxes levied on German companies are among the highest in Europe. The aggregate of consolidated taxes paid by German companies in local and state taxes currently stands at 40%. The same report also shows that the gap between taxes in Germany and the 10 new EU member states is continuing to grow. At the same time, during their preparations for entrance into the common market, the new member states were making great efforts to reduce the amount of tax levied on companies.

Luxembourg changes laws related to holding companies

As expected, Luxembourg will make significant changes in its laws in the near future, to bring laws on royalties and dividends in line with an EU directive on this topic. In line with EU directives, there will be no withholding tax levied on dividends if a company holds at least 25% of the authorised capital of another company, or if a third company holds at least 25% of the capital in two other companies. In this case, both companies will be subject to tax on their incomes. Luxembourg would also like to go even further, and the changes to be introduced mean there will be no withholding tax on royalties paid to non-resident companies, and Luxembourg holding companies incorporated according to the terms of the law of 1929 will not be subject to such withholding tax either. The withholding tax on royalties is currently 10% (unless an agreement for the avoidance of double taxation signed between Luxembourg and the country concerned provides for a different rate). In line with the directive, the laws will come into force retrospectively, with effect from January 1st 2004. In addition, Luxembourg must also harmonise its laws on “harmful tax practices” with the EU regulations. According to the new laws, a holding company will lose its tax-free status if it receives 5% or more of the dividend paid by a tax-free or low-tax company. 11% is considered to be a suitable level of taxation. Existing holding companies, operating according to the law of 1929, will probably be granted a period of grace until 2011.

New tax concessions to be introduced in the Isle of Man

The decision of the Isle of Man parliament to provide companies involved in astronautical and aeronautical engineering with a zero tax rate has created significant interest among such companies in the United Kingdom. The new rate will apply to all those companies which produce, operate, sell and otherwise work with products required for sending rockets, satellites and other objects into space. This also includes teaching and training directly related to this field. The zero rate of tax was introduced earlier for companies involved in a series of activities, including marine shipping and insurance. The government plans to introduce the zero tax rate for companies operating in all spheres by 2006.

Switzerland manages to retain control of bank secrecy on deposited funds

Switzerland has managed to retain control of bank secrecy on deposited funds, despite EU efforts to change this in the fight against money laundering and tax evasion. At an EU-Swiss summit held in Berne, certain agreements were signed whereby Switzerland was granted exemption from the obligation to report on accounts held by EU-resident citizens, as laid down by EU laws. In cases where clients do not consent to details regarding tax payment being given to the police or tax authorities, information will not be released, as money laundering and tax evasion do not constitute crimes under Swiss law. This will not apply, however, to funds deposited as the proceeds of “blatantly obvious crime”. Furthermore, tax on interest on funds deposited by citizens of EU member states will be increased to such a level that investors will be discouraged from depositing funds. The EU is seeking to force Switzerland to sign up to, or at least accept, the terms of the Schengen agreements, whereby they would at least show a willingness to co-operate mutually with the police forces of the EU members. Without the co-operation of the Swiss, the EU would be unable to introduce the control of bank accounts by 2005, and would be unable to force other non-EU states such as Liechtenstein, Andorra and the Isle of Man to adopt such measures. The agreements and conditions mentioned above refer to private bank accounts. The EU directives do not apply to company accounts.

BVI

The government of the BVI have increased the amount of annual tax payable by international business companies (IBCs) incorporated in the BVI. From January 1st 2005, the annual tax will increase from 300 USD to 350 USD. The change will apply not only to new companies, but also to existing ones.

2005-01-01

Liechtenstein, San Marino and Monaco have followed Switzerland in signing agreements with the European Union concerning savings taxes.

  

The agreements, based on the agreement signed by Switzerland, will lead to tax being withheld on interest payments to EU individuals. The rate will be 15% for the first 3 years, rising to 20 % for the following three years and 35% thereafter. 75% of the withheld will be transferred to the authorities of the individual’s member state of residence, with the remaining 25% being retained by the country in which the tax was withheld.

No tax will be withheld if the individual involved authorises the disclosure of information to his home tax authorities.

The agreement also covers the exchange of information in cases of fraud or similar activity.

2005-01-01

Foundations in the Channel Islands

In their continued attempt to modernise, and maintain their status as an important financial centre the Channel Islands (particularly Jersey and Guernsey) are considering the introduction of legislation on foundations.

While traditionally concentrating on the common law trust, the financial sector has seen the possibilities offered by the foundation, particularly for clients from civil law jurisdictions where the trust is less well known and not so easily accepted.

The Channel Islands are following the lead of a number of jurisdictions which have recently introduced legislation on foundations.

2005-03-02

The UK LLP - an interesting solution

The UK Limited Liability Partnership is finding favour with increasing numbers of clients, for a number of reasons. This company form was popular initially with professionals in the UK, attracted by the draw of limited liability, but it is being used more and more in regard to international tax planning. The company (partnership) must be formed by at least two members, but as these can be corporate members and there are no restrictions on their place of residence, this opens the door to a number of possibilities for trading, without being liable to UK tax (if, for example, the partners are non-UK resident for tax purposes, the company has no activity in the UK and receives no funds from the UK, then the company may not be liable to tax in the UK). The company does have to file accounts in the UK, and the structure must be carefully planned if the company is not to be liable to UK tax. For more information, please feel free to contact our offices.

2005-03-02

EU Savings Tax - deadline approaches

As we have mentioned earlier, the EU Savings Tax Directive has been accepted and is due to come into force on July 1^st 2005. From that day, EU member states, together with Switzerland and Liechtenstein, will begin to exchange information on bank accounts held by residents of member states (where information is not exchanged, a tax on interest will be withheld). It should be noted that the directive applies only to the accounts of private individuals, and not to accounts opened in the name of companies.

2005-03-02

End of the line for Gibraltar tax-exempt companies

The EU have passed a decision on the fate of the tax-exempt status in Gibraltar. The agreement reached means that the tax-exempt status will come to an end in 2010. The system was considered as contravening the EU’s rules on State Aid, and thus distorting competition.

Under the agreement, existing companies will continue to enjoy their benefits until December 2010, provided that there are no changes in ownership or activity. Any change in ownership or activity before June 30^th 2006 will lead to benefits ending on December 31^st 2007; any such changes after June 30^th 2006 will lead to the immediate ending of such benefits. It will still be possible for new entrants to apply for tax-exempt status up to June 30^th 2006, but they will only enjoy the benefits until December 31^st 2007. The number of new entrants will also be limited.

2005-03-02

Exempt Status changes

On 21 January 2005, the EC Commission announced its view in relation to Gibraltar’s Exempt Status Company under state aid rules and also terms for the continuation of the Exempt Status Company under certain conditions leading to its phasing out by 31 December 2010. These terms have been the subject matter of intensive negotiations and agreement with the EC Commission. The Gibraltar Government has therefore accepted these terms and has requested the UK Government (as the Member State responsible for Gibraltar’s external affairs), on behalf of the Gibraltar Government, to formally notify the EC Commission of the acceptance of the agreed appropriate measures.

The terms of the agreed appropriate measures for the continued operation of the Exempt Status Company are as follows :

1. The total number of exempt companies will be of 8,464.

2. Existing exempt companies will be able to continue to benefit from their tax exempt status until 31 December 2010.

3. Existing exempt companies that change legal or beneficial ownership and/or activity between 19 February 2005 and 30 June 2006 will be able to benefit from their tax exempt status until 31 December 2007.

4. Existing exempt companies that change legal or beneficial ownership and/or activity after 30 June 2006 will lose their tax exempt status.

5. New exempt companies can be formed up to 30 June 2006. This will be on the following basis :

5.1 In 2005, the number of new exempt companies that can be formed shall not exceed 60% of the number of exempt companies leaving the regime in 2005, or in any event 823.

5.2 From 1 January to 30 June 2006, the number of new exempt companies that can be formed shall not exceed 50% of the number of exempt companies leaving the regime during that period, or in any event the number of exempt companies admitted in 2005.

6. New exempt companies will be able to continue to benefit from their tax exempt status until 31 December 2007.

7. Regular reports shall be submitted to the EC Commission certifying compliance with the above.

For the purposes of the foregoing, an existing exempt company is one which enjoys tax exempt status on or before 18 February 2005 and a new exempt company is one that acquires such tax exempt status between 19 February 2005 and 30 June 2006.

2005-03-22

Companies formed in 2004

Below is a list of the number of offshore companies formed last year in the major offshore jurisdictions. Not all jurisdictions make this information publicly available, so we are unable to provide figures for such jurisdictions as Liechtenstein, the Cook Islands etc. The list does not include “offshore” companies incorporated in the USA (Delaware corporations, LLCs in various states), as these are not officially offshore companies.

List according to number of companies incorporated

Position	Jurisdiction	Companies formed in 2004
1	Hong Kong	65 558
2	British Virgin Islands	54 361
3	Panama	25 760 *
4	Cyprus	11 586
5	Cayman Islands	7 000 **
6	Belize	6 286
7	Bahamas	6 784 ***
8	Seychelles	4 098
9	Samoa	3 700 **
10	Gibraltar	3 142 #
11	Jersey	2 439
12	Isle of Man	1 939
13	Mauritius	1 780 **
14	Anguilla	1 300
15	Guernsey	1 141
16	Bermuda	1 055
17	Brunei	1 060 **
18	St. Vincent	986
19	Labuan	490
20	St. Lucia	380
21	Antigua	300 **
22	Barbados	237 ##

* : + 3 050 Private foundations
** : Approximate figure
*** : Offshore + local
# : 2003 figures
## : IBCs


List of jurisdictions in alphabetical order

Jurisdiction	Companies formed in 2004
Anguilla	1 300
Antigua	300 **
Bahamas	6 784 ***
Barbados	237 ##
Belize	6 286
Bermuda	1 055
British Virgin Islands	54 361
Brunei	1 060 **
Cayman Islands	7 000 **
Cyprus	11 586
Gibraltar	3 142 #
Guernsey	1 141
Hong Kong	65 558
Isle of Man	1 939
Jersey	2 439
Labuan	490
Mauritius	1 780 **
Panama	25 760 *
Samoa	3 700 **
Seychelles	4 098
St. Lucia	380
St. Vincent	986

* : + 3 050 Private foundations
** : Approximate figure
*** : Offshore + local
# : 2003 figures
## : IBCs

2005-03-29