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InternationalClient
September 2015
In this issueRadical changes for ‘non-doms’Three major changes to the taxation of non-UK domiciled individuals were announced in July – page 2
The taxation of residential propertyAll UK residential property, regardless of how it is owned, will be subject to inheritance tax from 2017 – page 5
Tax jurisdictions around the worldWhich countries have the most beneficial tax arrangements for inbound migrants? – page 7
International Client
Editor’s comment
Offshore tax evasion Page 4
Radical changes announced for individuals who are non-domiciled Page 2
In brief Page 1
Welcome to the September 2015 edition of International Client.
This edition has a particular focus on the UK’s Summer Budget – the first under a
purely Conservative government for almost 20 years. It took most commentators by
surprise: the significant number of changes and the radical overhaul of some long-
standing tax rules were both unexpected.
Despite the government’s pledge not to raise certain headline rates of tax, that
counted for little with those taxpayers brought within the Chancellor’s sights. A
shake-up of the tax regime for non-UK domiciled individuals was announced, to take
effect from 6 April 2017, as well as changes to the inheritance tax treatment of UK
residential property held by ‘non-doms’ through corporate structures. Tax relief was
reduced for individual landlords with residential property letting businesses, and
income tax rates on dividends increased for many entrepreneurs and investors.
In this edition of International Client we consider these UK developments, and provide
an overview of other potentially attractive tax jurisdictions. We also describe
the impact of the Anson tax case on UK resident investors in US Limited Liability
Corporations, entities which are popular with US private equity and other venture
capital funds.
Should you wish to discuss any of the issues raised in this newsletter, please contact
me or your usual Saffery Champness partner.
Ben Melling
Changes to the taxation of UK residential property Page 5
Alternative tax jurisdictions around the world Page 7
Switzerland: a tax update Page 6
Taxpayer win overturns UK tax treatment of LLCs Page 12
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September 2015
In briefGreece amnesty for funds held in Switzerland
The Greek government has proposed a tax amnesty covering funds held in Swiss banks by Greek citizens. A flat 21% rate of tax would be levied by the Greek authorities on hitherto undeclared funds, which would then be legitimised and could be repatriated to Greece.
This proposal follows a similar amnesty by Italy and is intended to discourage the flow of funds from Switzerland to other offshore jurisdictions prior to the introduction in Switzerland of automatic information exchange. The relevant Greek-Swiss agreement has yet to be finalised.
Israel’s deadline postponed for foreign trusts
The reporting deadline for trusts settled by non-Israeli residents which have one or more Israeli-resident beneficiaries has been postponed until 31 December 2015. Such trusts, dubbed ‘Israeli Beneficiary Trusts’, have to register with the Israel Tax Authority and then elect to be taxed on one of two bases. This follows a reform of the tax rules for such trusts in 2013. They can either be taxed on income annually at a flat rate of 25% (with no further tax on distributions), or the trust itself will not be taxed but resident beneficiaries will suffer 30% income tax. This extension supersedes earlier deadlines of 31 December 2014 and 30 June 2015.
New Zealand tax on short-term residential property gains
In New Zealand, capital gains tax will apply to disposals of residential property that has been held for less than 24 months, where the property in question is acquired on or after 1 October 2016. Occupying a property as a main residence should mean that any subsequent gain remains exempt under the new rules. The
intention is to reduce house price inflation resulting from property investors entering the market. Non-residents will be required to register for tax purposes before they can acquire real property and there is a proposal for withholding taxes to be applied on sale.
New non-domicile tax regime in Cyprus
Cyprus is introducing the concept of domicile to its tax system, with the intention of creating certain tax reliefs for Cypriot resident non-domiciled individuals. Income tax on dividends is to be capped at 12.5% for such persons. High earning expatriates will be able to benefit from an extension of their current favourable tax regime, from five years to 10. In addition to the existing attractive corporation tax regime, a tax deduction for equity finance will be introduced, similar to that available for debt finance. These measures are part of a wider attempt to stimulate inward investment to the country.
Mauritius information exchange
Mauritius has signed the Organisation of Economic Co-operation and Development’s (OECD’s) Convention on Mutual Administrative Assistance in Tax Matters. This means it is committed to implementing the Common Reporting Standard, involving the automatic exchange of information between territories by 2017.
Hong Kong’s one-off tax break
Following the recent Hong Kong budget, a bill has been passed giving employees, companies and unincorporated businesses a one-off tax break of up to 75% for the year 2014-15. The reduction applies to salaries tax, tax under personal assessment, and profits tax. In addition, certain higher tax allowances will be carried forward to the 2015-16 year.
Australia to introduce withholding tax on non-residents
Draft legislation has been published to introduce a withholding tax on disposals of real property by non-resident investors in Australia. A withholding tax at 10% on capital gains is proposed and if the legislation is passed, withholding will apply from 1 July 2016. The obligation to withhold will rest with the buyer, but disposals of residential property where the sales proceeds are less than AUS$2.5 million will be exempt from the new rules.
UK corporation tax rate to fall to 18%
A single rate of corporation tax of 20% for all sizes of companies was adopted from 1 April 2015. The UK’s corporation tax rate is set to fall from its current rate of 20% to 19% for the year beginning 1 April 2017, and then to 18% for the year beginning 1 April 2020. These reductions continue a downwards trend in UK corporation tax rates, consistent with the government’s stated aim of making the UK an attractive jurisdiction for business.
UK ‘offshore asset moves’ penalty
A new penalty was introduced in the UK earlier this year for moving assets from one offshore jurisdiction to another, with the aim of penalising tax evasion. The new rules impose tax-geared penalties of up to 300% of any under-declared tax, depending on the offshore tax jurisdictions involved. The penalty will be imposed where there is: a deliberate error or failure, resulting in an underpayment of income tax, capital gains tax or inheritance tax; a ‘relevant’ offshore asset move; and, where the main purpose, or one of the main purposes, of the offshore asset move was to prevent or delay the discovery of the error or failure by the UK tax authorities.
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International Client
Radical changes announced for individuals who are
non-UK domiciledIn the UK’s Summer Budget on 8 July, the Chancellor announced three major changes to the taxation of non-UK domiciled individuals (non-doms) which will apply from 6 April 2017.
The changes are as follows:
1. Non-doms resident in the UK for more than 15 out of the previous 20 tax years will be treated as domiciled in the UK for income tax, capital gains tax (CGT) and inheritance tax (IHT) purposes.
2. Individuals born in the UK with a UK domicile of origin, who later leave the UK and acquire a non-UK domicile of choice, will always be treated as UK domiciled upon their return. The new rule will apply even if the return is before 6 April 2017. Trusts created during a period of non-residence will no longer be treated favourably for UK tax purposes once the settlor returns.
3. UK residential property owned indirectly by non-doms, for example through an offshore company, partnership or offshore property trust, will be liable to UK IHT.
Currently, UK resident non-doms can claim the remittance basis of assessment, and only pay tax on UK income and gains, plus any overseas income and gains they remit to the UK. Overseas income and gains which are not remitted escape UK tax. However, when the changes are introduced in April 2017, UK resident non-doms will pay UK tax on their worldwide income and gains once their period of residence exceeds 15 years.
The previously proposed three-year lock-in period for people claiming the remittance basis of assessment is not to be introduced after all.
The chart on page 3 compares the current position with the proposed new rules.
What action should UK resident non-doms take now?
The full details of this reform are not yet available, although the first consultation document and draft legislation are expected in September. Non-doms will have approximately 18 months to prepare for the changes, before they take effect in April 2017.
Some non-doms may decide that they wish to leave the UK, in which case they will need to consider the rules on residence and non-residence, as well as the relative attractions of other jurisdictions. We may see more families living apart, for example with one spouse and the children residing in the UK and the other living abroad. However, the holding of wealth through offshore trusts created whilst
not domiciled would appear to remain highly beneficial, given the likely benefits in terms of income tax and CGT deferral, and IHT avoidance.
Owners of UK residential property will need to review any holding structures. The government clearly wants owners to ‘de-envelope’ their properties, and does not consider the Annual Tax on Enveloped Dwellings rules a sufficient deterrent to the use of corporate structures. There are potential CGT and Stamp Duty Land Tax costs associated with de-enveloping, but the government has indicated that it will consider these as part of the consultation on the proposals. Some form of restructuring relief is a possibility.
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September 2015
A comparison of the current position and the proposed new rules for non-doms
Current rule Proposed change from 6 April 2017 What the proposed change means
UK resident non-doms can claim the remittance basis regardless of how many years they have been UK resident, provided they retain their non-dom status.
A remittance basis charge of £30,000, £60,000 or £90,000 is payable if the individual is resident for at least seven of the preceding nine tax years, 12 of the preceding 14 tax years, or 17 out of the preceding 20 tax years respectively.
A UK resident, non-dom who is resident in at least 17 of the last 20 tax years is deemed to be UK domiciled for IHT purposes only.
Non-doms resident in the UK for at least 15 of the preceding 20 tax years (long-term non-doms) will be deemed to be domiciled in the UK for income tax, CGT and IHT purposes.
There will be no ‘grandfathering’ provisions.
The technical briefing note states that “non-doms who have set up an offshore trust before they become deemed domiciled in the UK under the 15-year rule will not be taxed on trust income and gains that are retained in the trust and such excluded property trusts will have the same IHT treatment as present”. This appears to be a relaxation of the existing anti-avoidance rules which deem income of an offshore trust to be that of the settlor (if also a potential beneficiary), subject to a remittance basis claim.
Long-term non-doms will be taxed on their worldwide income and gains and will be subject to IHT on their personally owned worldwide assets.
The £90,000 charge will no longer be applicable as anyone living in the UK for more than 15 years will be taxed on their worldwide income and gains.
It will take a minimum of five years of non-UK residence to lose deemed UK domicile status.
An individual born in the UK with a UK domicile of origin can acquire a non-UK domicile of choice, return to the UK and be UK resident, but retain their non-UK domicile status.
An individual with a UK domicile of origin will always be treated as UK domiciled if they resume UK residence, provided they were born in the UK.
It appears there is no change to individuals born and brought up in the UK who inherit a non-UK domicile at birth, ie second generation non-doms. Their domicile status will be determined by their personal circumstances.
Anyone born in the UK who has a UK domicile of origin cannot live abroad, acquire a foreign domicile, and retain that domicile if they later return to the UK.
Trusts created by an individual with a non-UK domicile of choice will be treated as created by a UK domiciled individual from the date of their return to the UK.
This affects all “returning non-doms” from 6 April 2017, including those who returned before that date.
A non-dom, or a trust created by a non-dom, can own UK residential (or commercial) property via a non-UK incorporated company, with the property remaining outside the scope of UK IHT.
A non-dom, or a trust created by a non-dom which owns UK residential property through a non-UK incorporated company or partnership, will be liable to IHT on the value of the property.
All UK residential property, other than property owned collectively, will be subject to UK IHT.
The legislation to cover this proposal is likely to be very complicated.
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International Client
Offshore evasionand an update on disclosure facilities
With an ever-increasing global focus on transparency and information sharing, and with the Common Reporting Standard due to come into effect in 2017, the UK government is increasing its focus on offshore tax evasion.
Tackling offshore evasion: four consultations
The UK government announced its No Safe Havens strategy for tackling offshore evasion in April 2014. Four consultations followed in July 2015:
1. Strengthening civil deterrents for offshore evaders;
2. A new corporate criminal offence of failing to prevent the facilitation of offshore tax evasion by agents;
3. A new criminal offence for offshore evaders; and
4. A civil sanction for enablers of offshore evasion.
The four consultations set out proposals for tougher penalties, including: a 10% penalty based on the value of the asset on which tax was evaded (which could be more significant than the unpaid tax liability, interest and penalties), and a 100% asset-based ‘special’ penalty on application to the Upper Tax Tribunal.
There are also proposals for the wider public naming and shaming of offshore evaders who make prompted disclosures. Draft legislation has been published setting out a proposed strict liability criminal offence for any person who fails to notify HM Revenue & Customs (HMRC) of chargeability to income or capital gains tax, or fails to pay their tax. Likewise, for individuals who file incorrect returns. No account is to be taken of intention in determining criminal liability, but the draft legislation does envisage a reasonable excuse/care defence. A person found guilty of the new offence could be imprisoned.
LDF deadline brought forward
The deadline for registering for the Liechtenstein Disclosure Facility (LDF) has been brought forward from April 2016 to 31 December 2015. The 31 December 2015
deadline remains for registrations under the Isle of Man, Guernsey and Jersey Disclosure Facilities.
‘Last chance’ disclosure facility
A tougher ‘last chance’ disclosure facility will be available until mid-2017 (before the first data exchange takes place under the Common Reporting Standard). Details of this facility have not been released, but it is expected that it will impose penalties of at least 30% (compared to 10% under LDF for the 10 years to April 2009). In addition, it will offer no guarantee of immunity from prosecution.
The future
The consultations demonstrate that the UK government and HMRC are clear that they will actively pursue offshore tax evaders. The new strict liability criminal offence means that an individual could be given a criminal conviction without having criminal intent.
Anyone who is concerned regarding their position, including non-UK domiciled individuals, should seek advice.
Draft legislation has been published setting out a proposed strict liability criminal offence for any person who fails to notify HMRC of their chargeability to tax, or fails to pay their tax.
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September 2015
Changes to the taxation of UK
residential propertyIn addition to recent changes to the taxation of UK residential property, from April 2017 UK residential property is to be brought within the inheritance tax net, regardless of how it is owned.
The recent changes include:
y The Annual Tax on Enveloped Dwellings (ATED) is levied on the value of UK residential property owned by non-natural persons (broadly companies) and worth more than £2 million (from April 2013), £1 million (from April 2015) and £500,000 (from April 2016). There are certain reliefs available, for example third party commercial letting.
y 28% ATED-related capital gains tax (CGT) is levied on the disposal of properties which have been subject to ATED.
y 15% Stamp Duty Land Tax (SDLT) is due on purchases of residential properties within the charge to ATED (subject to the same ATED reliefs) and an increase in the highest rate of SDLT on non-corporate purchases from 7% to 12%.
y Gains realised by non-residents on disposals of UK residential property after 5 April 2015 are subject to non-resident CGT (NRCGT). The rates differ between individuals and trustees (28%) and companies (20%). There are no reliefs potentially available, other than main residence relief.
The proposed changes include:
y From 6 April 2017, tax relief for loan interest for an individual’s residential lettings business will be restricted over a four-year period to the basic rate of tax.
y From 6 April 2017, all UK residential property, however owned, will be within the scope of UK inheritance tax (IHT).
These changes do not apply to commercial property, where ownership through a non-UK resident company still offers CGT and IHT protection for non-domiciled owners. See the May 2015 issue of International Client for more details.
Inheritance tax changes
IHT currently applies on death (40%) or on transfers into trust (20% on transfer, plus 6% IHT every 10 years) on all directly held UK property, regardless of the domicile of the owner. These charges do not apply to foreign assets held by non-UK domiciled individuals. For these purposes, non-UK property currently includes shares in a non-UK incorporated company (whether owned directly, or via an offshore trust), irrespective of whether the underlying company assets include UK residential real estate. From April 2017, IHT will apply to all UK residential property, regardless of how it is held. The government wants to encourage de-enveloping, but after 2017 corporate ownership will remain effective in protecting other UK asset classes from IHT.
Unwinding current structures
The government introduced the three ATED-related charges with the stated policy objective of preventing SDLT avoidance and encouraging the ‘de-enveloping’ of UK residential property structures. When the ATED charges were introduced, many such structures were retained: the downside was an ATED charge, but the status quo avoided the potential IHT exposure of direct ownership, as well as tax charges on de-enveloping. Increases to the ATED charge and the introduction of an effective IHT ‘look through’ for the ownership of UK residential properties mean that many individual owners will now re-assess the merits of corporate ownership.
It will not be straightforward to unwind existing structures, and both tax and practical considerations will need to be kept in mind.
These include:
y How to transfer the property. There will be income tax consequences, for example, if it is passed out of the company by way of dividend, or possibly CGT due if distributed on a winding up.
y Whether SDLT will be due, and the impact of any debt in the structure.
y Possible ATED-related CGT liabilities.
y NRCGT exposure.
y The impact of offshore anti-avoidance rules, and potential ‘double-counting’ of gains.
y For rental properties, a comparison of tax rates on rental income; a non-UK resident company pays income tax at 20% compared with 45% by trustees, and up to 45% for an individual.
The government is to consult on these changes, including potential reliefs for the tax charges on de-enveloping, which have hitherto had the effect of discouraging the practice.
Insurance could be taken out to cover a future IHT liability and, in most cases, a debt used to fund a property purchase should be deductible against its value for IHT purposes. It remains to be seen whether a deduction for debt will continue to be available after a corporate structure with debt is unwound. We hope this scenario will be considered as part of the government’s consultation on these changes to be published later this year.
Owners of UK residential property in corporate structures should seek professional advice and review their structures well in advance of 6 April 2017.
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International Client
Switzerland:a tax update
Switzerland voted against the introduction of a federal inheritance and gift tax of 20% in a referendum held in June 2015.
Currently, Swiss inheritance and gift taxes are imposed at a cantonal level. In most cantons they are not levied in respect of gifts to spouses, parents and children. However, the proposals put forward in the recent referendum meant that inheritance and gift taxes would have applied to all estates worth more than CHF2 million and gifts of more than CHF20,000, regardless of the recipient (although a spousal exemption was proposed).
There was also concern about how much relief would be available for businesses; the rate only being lower than 20% if the business had been carried on for at least 10 years.
The outcome of the referendum rejecting inheritance and gift taxes follows earlier rejections of proposals to abolish the special lump-sum tax regime (‘régime du forfait’), applying at federal level and in some cantons. Broadly, this alternative tax regime levies tax based on the taxpayer’s expenditure, rather than their worldwide income.
More stringent eligibility criteria are due to be introduced at federal level from 1 January 2016, but the ‘forfait’ will remain attractive for individuals with the requisite level of income and assets, and who do not need to be economically active in Switzerland. The country also enjoys long standing political and economic stability.
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September 2015
Alternative tax jurisdictions
around the worldIn the UK’s Summer Budget, the Chancellor announced a series of planned changes to the taxation of non-UK domiciled individuals, which were mainly of relevance to long-term non-domiciled residents.
As discussed in our article on page 2, the stated intention is that non-UK domiciled individuals who have resided in the UK for more than 15 years should be treated as domiciled here for tax purposes. The new rules will be subject to consultation and some of the details may change before they come into force in April 2017. Regardless of this, the remittance basis of taxation will remain in place and the UK will therefore continue to offer an attractive tax regime for shorter term non-domiciled residents.
Around the world, many other countries also offer beneficial tax arrangements for inbound migrants.
In this article, we take a closer look at the tax regimes for non-domiciled individuals in five countries: Malta, Singapore, Australia, the USA and Switzerland (see pages 8-11). Alongside various tax reliefs and exemptions, we have included a flavour of
the non-tax related considerations which attract individuals to these jurisdictions. In our experience, it is very rare that tax alone drives an individual to relocate.
Individuals may be aware of Switzerland’s ‘forfait’ tax regime and the US’ principles of taxation, but they may be less familiar with the number of special tax reliefs available in Malta, Australia’s temporary resident regime, and Singapore’s remittance basis of taxation. What all of these jurisdictions have in common is a business-friendly, politically stable environment.
We are grateful to the assistance provided by colleagues in the Nexia International network, who have provided an insight to the tax rules in their respective jurisdictions. Please contact the Nexia contributors, whose details are in the table overleaf for professional advice or for further information.
Individuals may be aware of Switzerland’s ‘ forfait’ tax regime and the US’ principles of taxation, but they may be less familiar with the number of special tax reliefs available in Malta, Australia’s temporary resident regime, and Singapore’s remittance basis of taxation.
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International Client
Malta Singapore Australia US Switzerland
Nexia contributor Karl Cini, Partner, Tax and International Client Services Nexia BT E: [email protected] T: +356 2163 7778
Lam Fong Kiew, Tax Director Nexia TS Tax Services Pte. Ltd E: [email protected] T: +65 6597 7293
Sean Urquhart, Partner – Taxation Consulting Nexia Australia E: [email protected] T: +61 2 8264-0755
John P. Pridnia, Principal Rehmann Robson E: [email protected] T: +1 231 759-5001
Andreas Baumann, Owner ABT Treuhandgesellschaft AG E: [email protected] T: +41 44 711 90 90
Are there any special tax regimes or exemptions for inbound migrant individuals?
Malta operates a remittance basis of taxation for individuals resident but not domiciled in Malta. A non-domiciled individual is subject to tax on Maltese source income and on foreign income remitted to Malta. Non-Maltese capital gains are not taxable even if remitted.
Malta also offers other special tax regimes:
Global Residence Programme (GRP): designed to attract individuals who are not EU, EEA or Swiss citizens. They are required, amongst other conditions, to buy or rent immoveable property in Malta. Qualifying individuals pay tax at 15% on foreign source income on the remittance basis.
The Residence Programme Rules: similar to the GRP but designed to attract nationals of the EU, EEA or Switzerland.
Highly Qualified Persons Programme: eligible persons working for companies licenced by certain Maltese regulators. Flat rate of 15% applies to employment income, provided the minimum annual income is €81,500 for 2015, adjusted every year for inflation. The flat rate applies to income of up to €5 million. Any excess is tax-exempt.
The Malta Retirement Programme (MRP): designed to attract EU, EEA and Swiss pensioners. A flat rate of 15% on remitted foreign source income applies. Certain straightforward conditions need to be satisfied.
United Nations Programme Rules: United Nations pensions are exempt and 15% tax applies to remitted foreign source income.
Singapore, in general, adopts a modified territorial system of taxation (similar to a remittance basis).
Singapore source income is taxable as it arises and foreign source income when remitted to Singapore.
Generally, foreign income received in Singapore on or after 1 January 2004 is not taxable, except in some circumstances.
Certain exemptions are available for employment income:
y A non-resident individual, other than a director, exercising an employment in Singapore for not more than 60 days per calendar year is exempt from income tax.
y Area representatives of non-resident companies who reside in and use Singapore as a base are liable to tax on earnings from time worked in Singapore, subject to certain qualifying conditions.
y Not Ordinarily Resident individuals enjoy:
- Time apportionment of Singapore employment income subject to certain conditions; and
- Exemption from employer’s contribution to non- mandatory overseas pension or social security funds, subject to limitations.
A ‘temporary resident’ regime exists.
Most foreign income is not taxed in Australia, except income earned from employment performed overseas for short periods while temporarily resident (subject to foreign tax relief):
y A temporary resident is generally not liable to capital gains tax (nor is treated as having made a capital loss) unless the asset is ‘taxable Australian (real) property’.
y Interest paid to foreign residents (for example, foreign lenders) is not subject to withholding tax.
y Controlled foreign company record keeping obligations are partly removed.
Non-resident individuals are required to report US source income and pay tax.
There are complex rules related to residency for non-US citizens or Green Card holders, based on days of presence in the current year and the previous two years.
Once residency has been established, the individual reports and is taxed on worldwide income, with a credit for taxes paid on same income in a foreign jurisdiction.
The ‘forfait’ or lump sum tax regime exists for foreign nationals who take up residence in Switzerland for the first time or after 10 years of absence. They may not be employed in Switzerland. A lump sum payer does not suffer tax on worldwide income and wealth; instead tax is calculated on the annual expenditure incurred by the taxpayer, their spouse and any dependent children.
The minimum amount is based on the housing costs:
y For taxpayers residing in their own household, the lump-sum is at least five times the annual rent paid (if the house/ apartment is rented).
y For other taxpayers, the lump-sum will be at least twice the annual amount for lodging and food.
Why do individuals come to live in your jurisdiction (including tax and non-tax reasons)?
Malta, has a very rich history and a great number of historic sites. As a member of the EU, it is an ideal place to take up residence, offering a range of benefits to individuals, given its advantageous tax regime and competitive cost of living.
Tax paid by a company is partially creditable to the non-Malta resident shareholder, reducing the overall effective tax rate in Malta to 5% or lower in some instances.
Singapore is attractive given its political stability, rule of law, business-friendly environment, advanced infrastructure and the lack of foreign currency restrictions.
The tax system in Singapore provides significant opportunities for wealth creation. Tax rates are low, foreign-sourced income can be accumulated tax free, and there is no capital gains tax.
Australia is a multicultural society with more than 43% of Australians either born overseas or having a parent born overseas. Other benefits include:
y Low population density
y A benign climate
y Great healthcare and low unemployment (around 6%)
y A temporary tax residents regime
Generally, it’s not the tax policy that brings people to the US to work and live.
It is likely to be one of the jurisdictions with the highest tax burdens and more complex set of tax laws.
It would most likely be the opportunity for employment, chance at a different or better life and economic opportunities which attract people to the US.
Switzerland is a liberal and open minded country. As a federal country it offers legal certainty. Its multilingual population has the highest rate of foreign nationals in Europe. Other benefits include:
y A moderate tax system, with good public health and education systems
y Low criminality
y A beautiful and varied landscape
y A good central Europe location
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September 2015
Malta Singapore Australia US Switzerland
Nexia contributor Karl Cini, Partner, Tax and International Client Services Nexia BT E: [email protected] T: +356 2163 7778
Lam Fong Kiew, Tax Director Nexia TS Tax Services Pte. Ltd E: [email protected] T: +65 6597 7293
Sean Urquhart, Partner – Taxation Consulting Nexia Australia E: [email protected] T: +61 2 8264-0755
John P. Pridnia, Principal Rehmann Robson E: [email protected] T: +1 231 759-5001
Andreas Baumann, Owner ABT Treuhandgesellschaft AG E: [email protected] T: +41 44 711 90 90
Are there any special tax regimes or exemptions for inbound migrant individuals?
Malta operates a remittance basis of taxation for individuals resident but not domiciled in Malta. A non-domiciled individual is subject to tax on Maltese source income and on foreign income remitted to Malta. Non-Maltese capital gains are not taxable even if remitted.
Malta also offers other special tax regimes:
Global Residence Programme (GRP): designed to attract individuals who are not EU, EEA or Swiss citizens. They are required, amongst other conditions, to buy or rent immoveable property in Malta. Qualifying individuals pay tax at 15% on foreign source income on the remittance basis.
The Residence Programme Rules: similar to the GRP but designed to attract nationals of the EU, EEA or Switzerland.
Highly Qualified Persons Programme: eligible persons working for companies licenced by certain Maltese regulators. Flat rate of 15% applies to employment income, provided the minimum annual income is €81,500 for 2015, adjusted every year for inflation. The flat rate applies to income of up to €5 million. Any excess is tax-exempt.
The Malta Retirement Programme (MRP): designed to attract EU, EEA and Swiss pensioners. A flat rate of 15% on remitted foreign source income applies. Certain straightforward conditions need to be satisfied.
United Nations Programme Rules: United Nations pensions are exempt and 15% tax applies to remitted foreign source income.
Singapore, in general, adopts a modified territorial system of taxation (similar to a remittance basis).
Singapore source income is taxable as it arises and foreign source income when remitted to Singapore.
Generally, foreign income received in Singapore on or after 1 January 2004 is not taxable, except in some circumstances.
Certain exemptions are available for employment income:
y A non-resident individual, other than a director, exercising an employment in Singapore for not more than 60 days per calendar year is exempt from income tax.
y Area representatives of non-resident companies who reside in and use Singapore as a base are liable to tax on earnings from time worked in Singapore, subject to certain qualifying conditions.
y Not Ordinarily Resident individuals enjoy:
- Time apportionment of Singapore employment income subject to certain conditions; and
- Exemption from employer’s contribution to non- mandatory overseas pension or social security funds, subject to limitations.
A ‘temporary resident’ regime exists.
Most foreign income is not taxed in Australia, except income earned from employment performed overseas for short periods while temporarily resident (subject to foreign tax relief):
y A temporary resident is generally not liable to capital gains tax (nor is treated as having made a capital loss) unless the asset is ‘taxable Australian (real) property’.
y Interest paid to foreign residents (for example, foreign lenders) is not subject to withholding tax.
y Controlled foreign company record keeping obligations are partly removed.
Non-resident individuals are required to report US source income and pay tax.
There are complex rules related to residency for non-US citizens or Green Card holders, based on days of presence in the current year and the previous two years.
Once residency has been established, the individual reports and is taxed on worldwide income, with a credit for taxes paid on same income in a foreign jurisdiction.
The ‘forfait’ or lump sum tax regime exists for foreign nationals who take up residence in Switzerland for the first time or after 10 years of absence. They may not be employed in Switzerland. A lump sum payer does not suffer tax on worldwide income and wealth; instead tax is calculated on the annual expenditure incurred by the taxpayer, their spouse and any dependent children.
The minimum amount is based on the housing costs:
y For taxpayers residing in their own household, the lump-sum is at least five times the annual rent paid (if the house/ apartment is rented).
y For other taxpayers, the lump-sum will be at least twice the annual amount for lodging and food.
Why do individuals come to live in your jurisdiction (including tax and non-tax reasons)?
Malta, has a very rich history and a great number of historic sites. As a member of the EU, it is an ideal place to take up residence, offering a range of benefits to individuals, given its advantageous tax regime and competitive cost of living.
Tax paid by a company is partially creditable to the non-Malta resident shareholder, reducing the overall effective tax rate in Malta to 5% or lower in some instances.
Singapore is attractive given its political stability, rule of law, business-friendly environment, advanced infrastructure and the lack of foreign currency restrictions.
The tax system in Singapore provides significant opportunities for wealth creation. Tax rates are low, foreign-sourced income can be accumulated tax free, and there is no capital gains tax.
Australia is a multicultural society with more than 43% of Australians either born overseas or having a parent born overseas. Other benefits include:
y Low population density
y A benign climate
y Great healthcare and low unemployment (around 6%)
y A temporary tax residents regime
Generally, it’s not the tax policy that brings people to the US to work and live.
It is likely to be one of the jurisdictions with the highest tax burdens and more complex set of tax laws.
It would most likely be the opportunity for employment, chance at a different or better life and economic opportunities which attract people to the US.
Switzerland is a liberal and open minded country. As a federal country it offers legal certainty. Its multilingual population has the highest rate of foreign nationals in Europe. Other benefits include:
y A moderate tax system, with good public health and education systems
y Low criminality
y A beautiful and varied landscape
y A good central Europe location
10
International Client
Malta Singapore Australia US Switzerland
What is the top rate of income tax for individuals for investment income (interest and dividends)?
35% applies to investment income but dividends are subject to a credit for the tax suffered by the distributing company.
Interest income may be limited to withholding tax at 15% in some instances.
Dividends paid by Singapore companies are exempt from income tax.
Certain types of interest received by individuals are tax exempt, eg interest on deposits with approved banks and approved finance companies in Singapore and interest on qualifying debt securities.
49% applies on income exceeding AUS$ 180,000.
There is no separate rate for dividend or interest income.
Certain dividends are entitled to a tax credit which can reduce the tax payable.
Witholding tax of 10% applies to a payment from an Australian resident to a person offshore.
39.6% is the top rate of federal tax. State taxes may also apply.
Qualified dividends and long-term capital gains (assets held for 12 months or longer) are eligible for a 15% tax rate.
The Alternative Minimum Tax (AMT) can lead to higher marginal tax rates assessed on investment and other income.
Top rate of income tax is 11.5% at a federal level. The maximum rates for cantonal income tax vary from canton to canton between 12% and 30%.
Therefore, maximum combined rates are between 23.5% and 41.5%.
For dividends from a company in which the individual owns a minimum 10% share, federal and cantonal income tax is reduced by up to 50%.
What is the top rate of employment income tax (and social security)?
Progressive tax rates with an exempt portion apply. 35% on income exceeding €60,000.
Social security contributions for employees are 10% paid by employee and 10% paid by the employer. Self-employed contributions are 15%. Both are subject to a cap.
20% (income exceeding S$320,000)
Non-residents are taxed on their employment at a flat rate of 15% or progressive resident tax rates (ranging from 0% to 20%), whichever is higher.
Social security or Central Provident Fund (CPF) contributions are mandatory for Singapore citizens and permanent residents who are employed in Singapore. The highest contribution rate is 20%. Expatriates are exempt from contributing.
49% for income exceeding $180,000
Medicare Levy applies on a progressive basis at 2%, along with a Medicare Levy Surcharge if eligible private health insurance cover is not maintained.
Employment tax (Social Security and Medicare Tax) is assessed on the first $118,500 of earned income in 2015 at a rate of 15.3% with one half being paid by the employee and one half paid by the employer.
There is an additional 0.9% Medicare Tax imposed on those with more than $200,000 in earned income ($250,000 for married filing joint taxpayers).
Combined top rate between 23.5% and 41.5% (same rate as for investment income).
Social security amounts to 12.5%. mandatory occupational pension between 7% and 18%, depending of the age of the person. Contributions are normally split equally between employer and employee.
What is the rate of capital gains tax?
Maximum rate of 35%
Capital gains are aggregated with other income and charged to income tax.
No capital gains tax Capital gains are aggregated other income and charged to income tax.
A 50% discount for residents is available on the gain on assets held for more than 12 months.
Non-residents or temporary residents are not entitled to the 50% discount.
Short-term capital gains (assets held for less than 12 months) are aggregated other income and charged to income tax (top rate 39.6%).
For longer-term capital gains, a rate of 15% applies unless Alternative Minimum Tax applies, which increases the marginal rate.
No capital gains tax
Is there an annual wealth tax and what is the rate?
NoNo No No Yes. Wealth tax is imposed at a cantonal
level, based on the taxable wealth at calendar year end. Rates vary substantially from canton to canton (0.001% to 1%).
Is there an estate tax/inheritance tax and what is the rate?
There is no estate tax, however transfers of immoveable property, shares and investments are subject to tax. Inheritance tax is charged at the rate of 5% of the market value in case of immoveable property or shares in companies which hold immoveable property, and 2% on shares in companies which do not hold immoveable property.
No No
No base cost uplift on death for Australian resident beneficiaries (ie deceased’s base cost is inherited). Base cost uplift only applies if the deceased acquired the asset before 20 September 1985. Certain exclusions apply for the former main residence of the deceased.
Yes. 35% tax rates for estates valued above $5,430,000 (per individual).
There are fairly complex laws dealing with gifting and inheritance, but with proper planning, most individuals can ensure that most of their wealth can be sheltered from inheritance tax.
No estate taxes at a federal level
All cantons, except the canton of Schwyz, have an estate or inheritance tax. Rates vary substantially from canton to canton.
Direct descendants are normally not taxed. The tax rates depend on the degree of kinship and may be as high as 40%.
11
September 2015
Malta Singapore Australia US Switzerland
What is the top rate of income tax for individuals for investment income (interest and dividends)?
35% applies to investment income but dividends are subject to a credit for the tax suffered by the distributing company.
Interest income may be limited to withholding tax at 15% in some instances.
Dividends paid by Singapore companies are exempt from income tax.
Certain types of interest received by individuals are tax exempt, eg interest on deposits with approved banks and approved finance companies in Singapore and interest on qualifying debt securities.
49% applies on income exceeding AUS$ 180,000.
There is no separate rate for dividend or interest income.
Certain dividends are entitled to a tax credit which can reduce the tax payable.
Witholding tax of 10% applies to a payment from an Australian resident to a person offshore.
39.6% is the top rate of federal tax. State taxes may also apply.
Qualified dividends and long-term capital gains (assets held for 12 months or longer) are eligible for a 15% tax rate.
The Alternative Minimum Tax (AMT) can lead to higher marginal tax rates assessed on investment and other income.
Top rate of income tax is 11.5% at a federal level. The maximum rates for cantonal income tax vary from canton to canton between 12% and 30%.
Therefore, maximum combined rates are between 23.5% and 41.5%.
For dividends from a company in which the individual owns a minimum 10% share, federal and cantonal income tax is reduced by up to 50%.
What is the top rate of employment income tax (and social security)?
Progressive tax rates with an exempt portion apply. 35% on income exceeding €60,000.
Social security contributions for employees are 10% paid by employee and 10% paid by the employer. Self-employed contributions are 15%. Both are subject to a cap.
20% (income exceeding S$320,000)
Non-residents are taxed on their employment at a flat rate of 15% or progressive resident tax rates (ranging from 0% to 20%), whichever is higher.
Social security or Central Provident Fund (CPF) contributions are mandatory for Singapore citizens and permanent residents who are employed in Singapore. The highest contribution rate is 20%. Expatriates are exempt from contributing.
49% for income exceeding $180,000
Medicare Levy applies on a progressive basis at 2%, along with a Medicare Levy Surcharge if eligible private health insurance cover is not maintained.
Employment tax (Social Security and Medicare Tax) is assessed on the first $118,500 of earned income in 2015 at a rate of 15.3% with one half being paid by the employee and one half paid by the employer.
There is an additional 0.9% Medicare Tax imposed on those with more than $200,000 in earned income ($250,000 for married filing joint taxpayers).
Combined top rate between 23.5% and 41.5% (same rate as for investment income).
Social security amounts to 12.5%. mandatory occupational pension between 7% and 18%, depending of the age of the person. Contributions are normally split equally between employer and employee.
What is the rate of capital gains tax?
Maximum rate of 35%
Capital gains are aggregated with other income and charged to income tax.
No capital gains tax Capital gains are aggregated other income and charged to income tax.
A 50% discount for residents is available on the gain on assets held for more than 12 months.
Non-residents or temporary residents are not entitled to the 50% discount.
Short-term capital gains (assets held for less than 12 months) are aggregated other income and charged to income tax (top rate 39.6%).
For longer-term capital gains, a rate of 15% applies unless Alternative Minimum Tax applies, which increases the marginal rate.
No capital gains tax
Is there an annual wealth tax and what is the rate?
NoNo No No Yes. Wealth tax is imposed at a cantonal
level, based on the taxable wealth at calendar year end. Rates vary substantially from canton to canton (0.001% to 1%).
Is there an estate tax/inheritance tax and what is the rate?
There is no estate tax, however transfers of immoveable property, shares and investments are subject to tax. Inheritance tax is charged at the rate of 5% of the market value in case of immoveable property or shares in companies which hold immoveable property, and 2% on shares in companies which do not hold immoveable property.
No No
No base cost uplift on death for Australian resident beneficiaries (ie deceased’s base cost is inherited). Base cost uplift only applies if the deceased acquired the asset before 20 September 1985. Certain exclusions apply for the former main residence of the deceased.
Yes. 35% tax rates for estates valued above $5,430,000 (per individual).
There are fairly complex laws dealing with gifting and inheritance, but with proper planning, most individuals can ensure that most of their wealth can be sheltered from inheritance tax.
No estate taxes at a federal level
All cantons, except the canton of Schwyz, have an estate or inheritance tax. Rates vary substantially from canton to canton.
Direct descendants are normally not taxed. The tax rates depend on the degree of kinship and may be as high as 40%.
12
International Client
Taxpayer win overturns
UK tax treatment of LLCsThe UK’s Supreme Court has decided that a US individual and UK resident taxpayer is entitled to tax relief in the UK under the US/UK double tax treaty on US income arising from a US Limited Liability Corporation (LLC).
The keenly anticipated judgment in the Anson case has reversed the long-standing position taken in relation to US LLCs by HM Revenue & Customs (HMRC). Investors in US venture capital and private equity funds are likely to be particularly interested in this case, together with those who hold interests in LLCs established in the US or elsewhere.
What are Limited Liability Corporations?
LLCs are a popular choice of business or investment vehicle among US individuals and investors in US investment funds. They are corporate vehicles offering limited liability to their members.
However, LLCs have historically presented difficulties for taxpayers resident in the UK. For US tax purposes, the members of an LLC are typically taxed on the profits of the LLC as they arise – that is to say the LLC is treated as ‘transparent’ for US tax purposes (similar to a partnership).
HMRC’s previous stance was that an LLC was ‘opaque’ for UK tax purposes (similar to a company). In practice, this meant that a UK taxpayer would pay tax on profits from the LLC in the US, and then again in the UK when a distribution was received. Because HMRC took the view that the tax was paid on different sources of income, relief for tax suffered in the US was not available in the UK.
Background to the case
The taxpayer argued that he should be entitled to relief in the UK for the US tax suffered on his LLC profits, under the US/UK double tax treaty. He argued that the US tax was borne on the same income as that liable to tax in the UK. HMRC contended that the income was not his, but instead belonged to the LLC; the US tax was on different income to that taxed in the UK, and therefore double tax relief was not available.
The case was initially heard at the First Tier Tribunal, where the taxpayer won. At the Upper Tribunal and then the Court of Appeal, HMRC’s appeal was allowed, but this decision
13
September 2015
It is important to note that the ruling will not automatically affect every LLC, since the judgment was very dependent on the application of the Delaware Limited Liability Corporation Act and the situation may be less clear cut in other states and other countries.
Positive consequences arising from the case
Negative consequences arising from the case
Distributions from LLCs are not taxable, but the LLC profits are taxed as they arise, with double tax relief available.
UK resident companies receiving exempt distributions from LLCs may now be taxable on the underlying profits instead.
LLC losses may be allowable to offset against other profits in the UK.
UK source income arising to LLCs may now be taxable on an arising basis for UK resident non-UK domiciled members.
Non-UK domiciled individuals may be able to remit distributions from LLCs to the UK, where they previously would have dismissed this route due to the additional tax arising.
Taxpayers may be liable to UK tax on the disposal of assets by LLCs, where previously they would only have been taxable on the sale of interests in the LLC.
has now been superseded in the Supreme Court in favour of the taxpayer. Since the Supreme Court is the UK’s highest court, the ruling cannot be overturned without specific legislation.
The narrow consequence of this judgment is that double tax relief is available in the UK, ie a UK resident taxpayer can take credit for the US tax suffered on the profits of a US LLC. This should reduce the maximum effective rate of tax suffered in many cases.
What now?
Taxpayers should check to see if they can make historic claims for double tax relief, typically going back up to four years.
It is important to note that the ruling will not automatically affect every LLC, since the judgment was very dependent on the application of the Delaware Limited Liability
Corporation Act and the situation may be less clear cut in other states and other countries.
The implications of the case are much wider than double tax relief claims alone. The change in the UK’s treatment of LLCs for tax purposes could have significant implications. While this case offers some taxpayers the opportunity to claim tax repayments, the ruling may present pitfalls for others, and in particular for UK resident non-UK domiciled individuals.
We expect HMRC will be updating their guidance on LLCs as this judgment contradicts their stated position (in both their manuals and guidance notes).
The table above outlines where we see the potential consequences for different taxpayers, including individuals, trustees and companies. However, it is strongly recommended that owners of LLCs review how this case affects their own specific circumstances.
Saffery Champness is regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. Saffery Champness is a member of Nexia International, a worldwide network of independent accounting and consulting firms. No responsibility for loss occasioned to any person acting on or refraining from action as a result of the material in this publication can be accepted by Saffery Champness. © Saffery Champness, September 2015. J6038.
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