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Here's Information about European members of the British Commonwealth - Gibraltar, Guernsey, The Isle of Man, Jersey & The United Kingdom - with Various Features that can be Useful for Tax Reduction, Asset Protection, Investments, Banking and a Wide Range of Other International Personal and Business Tactics & Strategies.
Gibraltar was the first European jurisdiction to offer the exempt company which allows a company to be controlled and managed from Gibraltar and still be able to enjoy preferential tax status there. It is probably the most cost-effective European jurisdiction. It is not however as well established as its European competitors and as a full member of the EC pressure may be brought to bear at some time in an attempt to force Gibraltar to harmonize its taxes with order member states. There is a long standing dispute with Spain over Gibraltar and as consequence the citizens of Gibraltar have indicated that they may ask for full integration into the UK. This, combined with the fact that Gibraltar is a now considered part of the UK, has certain business advantages for current and future European business planning.
The Gibraltar Tax Exempt Company
A company incorporated in Gibraltar which is owned by non-residents of Gibraltar and does not transact business with other Gibraltar resident companies or individuals is eligible to apply for tax exempt status in Gibraltar. Upon successful application the company is issued a certificate which guarantees exemption from Gibraltar taxation for a period of 25 years, provided that the company complies with the conditions of tax exempt status and pays an annual duty to the Gibraltar Government of GBP 225. At the end of every year, the exempt company must file a statement attesting to the fact that the company has complied with the conditions applicable to its exempt certificate.
An exempt company is convenient to administer due to the fact that it may have locally appointed directors and may maintain Bank accounts within Gibraltar. Thus the whole of the administration may be located within Gibraltar which helps to prevent the assumption that the company may be tax resident anywhere else. Companies are registered under UK Common 1929 Act, introduced locally as The Companies Ordinance. Registration takes 5 to 7 days, bearer shares are not allowed and shelf companies are available.
Non-Resident Gibraltar Companies
A company which is incorporated in Gibraltar, owned by non-residents of Gibraltar and managed and controlled by directors who reside and hold their board meetings outside of Gibraltar will be considered as non-resident.
A non-resident company is not subject to Gibraltar corporation tax except on that part of the profit which is remitted to Gibraltar. In practice this means that a non-resident company may be exempt from Gibraltar corporate taxation, except for a minimal GBP 200, provided that it does not maintain Bank accounts within Gibraltar.
The Gibraltar Qualifying Company
This type of company is similar to the exempt company but, instead of being non tax paying, the company elects its own rate of tax as long as that rate is 2% or above. This type of company can be useful where it is necessary to show that a certain minimum level of taxation has been paid in order to gain relief from taxation in another country. For example, the taxation systems of certain countries provide that if taxation above a certain minimum level has already been paid on income remitted to the home country then no further taxation will be charged on those profits by the home country.
The Qualifying Company can therefore elect to pay the required minimum level which would allow that income to be remitted to the home country without further taxation being suffered on arrival. A Qualifying Company must lodge an amount of GBP 1,000 with the Gibraltar Government as a guarantee against payment of future taxation.
The Gibraltar 1992 Holding Company
This company was specifically created to take advantage of European Union ("EU") Directive 90/435. In simple terms, this Directive states that dividends may be paid by a subsidiary company located in one EU state to a parent company located in another EU state without the imposition of withholding tax as long as the recipient parent company is not capable of being exempt from tax. The prohibition against tax exemption would mean that the exempt and non-resident Gibraltar companies are not suitable to receive dividends from a subsidiary in another EU state so the 1992 Holding Company was created.
The 1992 Holding Company pays 35% tax on all profits except on dividend income received. Dividends paid out of the 1992 Holding Company are subject to a 1% withholding tax. This type of company can be particularly advantageous for non EU countries who are investing within the EU and are expecting to receive dividend income. As can be seen the effective rate of tax on that dividend income will be 1% when remitted out of Gibraltar or zero tax when held within Gibraltar.
Gibraltar is unique amongst offshore jurisdictions in incorporating asset protection provisions in the general body of legislation regarding the solvency of individuals. It is generally thought that having asset protection provisions under the Bankruptcy Ordinance gives settlors better protection than if similar provisions were promulgated under a separate trust ordinance or like legislation.
To gain the additional asset protection offered under the Bankruptcy Ordinance it is necessary to officially register the trust with the Financial & Development Secretary. However, this does not bring about a loss of confidentiality as the only details which need to be registered are the name of the trust, the name and address of the trustee, the date and duration of the trust and country of ordinary residence of the settlor. Specifically, it is not necessary to register the name of the settlor or details of the trust assets.
For a trust to be registered the trustees must show that they have made full inquiry into the financial background of the settlor and are satisfied that the settlor is solvent at the date of transferring the assets into trust and remain solvent after that transfer. These requirements are designed to stop Gibraltar trusts being used when a settlor is already under attack by a creditor or is potentially or actually insolvent. This approach has ensured that only quality trust business comes to Gibraltar which is of benefit to the reputation of the jurisdiction and to all settlors of Gibraltar trusts
Passporting Into The European Union
A consequence of Gibraltar's membership of the EU is that measures will shortly be introduced which will result in the recognition by other member states of institutions licensed in Gibraltar in certain areas of financial services such as insurance and collective investment funds. Thus, any financial institution which is licensed by Gibraltar will be able to freely market its services without restriction in any other EU member state and to relatively easily set up branch operations in other EU member states.
Gibraltar enjoys one of the most advanced telecommunications systems of any offshore jurisdiction. The availability of fully digitalised telecommunications is becoming an increasingly relevant factor in the choice of jurisdiction. Operating costs from a communications point of view are comparable with many of Europe's continental telephone systems and this together with the ready availability of cheap office space, excellent tax breaks and attractive southern Mediterranean living style makes Gibraltar an ideal location in which to set up an international business which can easily be marketed via telephone, fax and e-mail.
Ship And Yacht Registration
Its status as an offshore tax haven combined with its British Dependent Territory status render Gibraltar one of the most ideal locations in which to register a ship or pleasure craft. A ship registered in Gibraltar is entitled to fly the Red Ensign. Gibraltar is also one of the few remaining jurisdictions which issues a "blue book". Gibraltar has a very competitive fee structure for the registration of vessels and although Gibraltar is a full member of the EU it remains outside the EU VAT area so boats imported into Gibraltar would not be subject to VAT. For these reasons there has been a notable upturn in registration of pleasure crafts in Gibraltar.
Gibraltar normally imposes high levels of taxation on individual residents but, in an effort to encourage high net worth individuals to relocate to Gibraltar, has introduced the status of High Net Worth Qualifying Individual. This special status may be granted only to persons who have not otherwise resided in Gibraltar in the previous five years. Upon successful application for this special status only the first GBP 45,000 of that individual's worldwide income is subject to Gibraltar tax with the proviso that the minimum amount of tax paid in any one tax year if GBP 10,000. This results in a maximum tax liability in any one year of under GBP 20,000.
To qualify for this status the individual must:
(a) have a Gibraltar property available for his use in at least 7 months out of each calendar year. It is normal for property to be purchased but possible for property to be leased;
(b) must reside in Gibraltar for a minimum of 30 days each year.
The application procedure is quite straightforward and the status can be speedily granted. For those with substantial worldwide incomes Gibraltar offers one of the lowest rates of tax in the world.
Gibraltar is a full member of the EU so similar requirements are imposed on banks incorporated in Gibraltar as those for UK banks. However, Gibraltar has certain distinct advantages:
(a) Banks can obtain exempt status and therefore operate completely free of tax;
(b) The costs of office space and staff are considerably lower in Gibraltar;
(c) There are currently no banking applications pending in Gibraltar so the time-scale between the application for and granting of a banking license can be considerably reduced.
The major part of the costs would be incurred in having to employ two executive directors/managers with the requisite experience and in installing the computers and systems which are appropriate for a banking institution.
Guernsey is the second largest Channel Island after Jersey. It also enjoys a high degree of respectability in the worlds financial circles. There are no political parties and the constitution dates back to 1205. It boasts one of the largest reinsurance markets in the world. The commercial law is constantly reviewed and updated.
An International Company may qualify for tax exemption in Guernsey. (see Isle Of Man below) The minimum capital duty is 50 pounds and the annual fees to the government are 600 pounds. Registration can be accomplished within a week. Shelf companies are not available. The companies name must end with the word Limited. Certain words, e.g. "Insurance", "assurance", etc. require further approval.
ISLE OF MAN
Companies are formed under the UK common law: introduced locally as The Companies Acts of 1932 to 1993. The Isle of Man enjoys a high degree of respectability in the worlds financial circles. There are no political parties and the constitution dates back to 1205. It boasts one of the largest reinsurance and asset management markets in the world. The commercial law is constantly reviewed and updated.
An International Company may qualify for tax exemption in the Isle of Man and yet be registered for VAT for European trading purposes and get the benefit of certain tax treaties very useful for companies trading within the EU. Bearer shares are not permitted and beneficial owners must be disclosed. The minimum capital duty is 28 pounds and the annual fees to the government are 705 pounds for non resident exempt and 345 pounds for non-resident. Registration can be accomplished within a week. Shelf companies are not easily available. The companies name must end with the word "Limited". Certain words (e.g. "Insurance", "Assurance" etc.) require further approval.
The Isle of Man is one of the few offshore areas which forms part of the EU for customs and VAT matters. Although the Island itself is not an EU member, it is associated with the UK for VAT and customs purposes and a Isle of Man company can therefore be an ideal offshore vehicle for trading within the EU. The ability to register for VAT is essential, in various situations:
* Any company which is registered within the EU whose turnover exceeds the legal minimum must register for VAT in its home jurisdiction. Thereafter that company must charge VAT on any invoice to another EU company. If the recipient company is not registered for VAT then it will have to pay the VAT and this cannot be claimed back. If the recipient company is registered for VAT then the recipient company may claim back the VAT it has paid so if a company trades within the EU it is essential and advantageous to be registered for VAT.
* Where a group of consultants sets up an offshore company to bill for their services supplied within the EU they may find that their clients are unhappy paying them unless they are registered for VAT. This is because without the payee being VAT registered the paying company will not be able to zero rate the payment. Additionally if the payee is VAT registered the service company can claim VAT back on equipment purchased which is to be used for the business of the company and cannot if it is not registered.
A common practice to save tax is to re-invoice for goods extracting profit offshore. If goods are purchased from one EU company and sold to another then it is essential that the company in the middle is registered for VAT so that the seller can zero rate the goods. For example, if goods were being purchased in Germany and sold in France and the client wished to take the profit offshore to avoid tax then a non VAT registered offshore company would have to physically export the goods outside the EU and then re-import those goods to France. If the offshore company were VAT registered then the goods could move directly from Germany to France and all invoices raised could be zero rated thereby cutting down on administration and creating a cash flow advantage. The re-invoicing must have economic substance in order to withstand audit by tax authorities and requires good documentation and planning. An Isle of Man VAT number is indistinguishable from a UK VAT number and can be applied for by a Isle of Man or foreign registered company which operates from the Isle of Man.
Ships which are majority owned by companies or individuals resident in the EU and certain British dependent territories can apply for registration in the Isle of Man. The Isle of Man is not deemed to be a flag of convenience and has a quality register maintaining high standards based on UK legislation and offers a practical approach to Maritime rules and regulations. The Isle of Man register is part of the British register and the British Red Ensign is normally flown on Isle of Man yachts. Fees are competitive and are set only to recoup administrative costs. There are no annual tonnage taxes.
Resident Property Owning Companies
Companies receiving income from trading or investment purposes would generally be structured as exempt or non-resident so as to pay a flat rate tax or duty instead of a percentage tax on profits. However if a company is to be completely dormant only holding a property, it may be wise to structure it as a resident company. Resident companies pay 20% tax on profits but as the company would have no income, there would be no current tax liability and future potential tax liabilities could be handled by appropriate planning.
The entry clearance and general residency requirements of the Isle of Man are very similar to those of both the UK and Republic of Ireland. Unlike Jersey there are no special residency permit or financial constraints placed upon prospective permanent residents. The tax rate for Isle of Man residents is 20% on their world-wide income. There may also be significant capital gains and inheritance tax savings, however British nationals may not be able to avail themselves of all the potential fiscal benefits as a result of the Islands lone Tax Treaty with the UK.
The Isle of Man can provide significant tax savings for organizations which trade within the EU and may do so on a disclosed basis. It is particularly useful for publicly listed companies and investment funds. It is not recommended for persons needing complete privacy nor is it a low cost solution.
Jersey is the largest and most southerly of the Channel Islands of the coast of England and 23km off the west coast of France. It is one of the world's foremost offshore centers wit h a long history of security and stability. The authorities seek only the cream of the offshore business. There is a highly sophisticated infrastructure of trust companies, banking services, accountants, lawyers etc. An exempt company can pay a flat tax of British Pounds 500 and filing fee of 120 per year. Beneficial ownership must be disclosed to the authorities prior to registration, however, absent evidence of criminal conduct is not to be disclosed. There is some controversy concerning whether disclosures were recently made following proper procedures.
Companies are registered under the Companies Law of 1991 in approximately 3 days. All company names must finish with the word "Limited" or "Ltd". No par value and bearer shares are not possible. There is a capital duty of 0.5% and there is no restriction on where meetings are to be held. There is a double tax treaty with the UK, Guernsey and a limited one with France.
Trusts may be formed using any name as there is no trust registry. Trust income from outside of Jersey would not be subject to any Jersey tax.
Jersey is very useful for companies which need to deal with the public but is not appropriated for clients needing maximum privacy nor is it a low cost solution.
The UK is the worlds second largest tax haven after the USA. Even during the worst years of old left wing socialist Labor government, the City's nominee to head the Bank of England got the job. Foreign nationals who held external accounts with UK financial institutions could trade tax free from London. Until the mid l990s the UK even had legislation permitting the registration of exempt international companies on the model of Cayman and the Isle of Man. The people in charge understood that to try to tax the international businessman would only result in the money flows going elsewhere. Those who could not vote with their feet would vote with their money.
Centuries of running an empire taught the British business and accounting practices which, while diplomatically giving lip service to taxing everyone, in fact gives rank its privilege. The US learned this lesson much later and only from the early 1980s exempted foreign nationals not resident in the US from tax liability on earnings from capital invested in the USA. Being a much larger economy, the US was able within the eight years of the Reagan administration to overtake the UK for the number one spot of the worlds tax haven. Nevertheless the UK is clearly number one in Europe and has the advantage of a more civilized approach then the USA. You can expect the police in London to give you a fair warning. The US authorities like to make test cases.
Substantial tax benefits accrue to UK residents who are not UK domiciled. It is possible for a non-UK national who has no UK capital or income to live indefinitely within the UK and legally avoiding paying any UK tax. This has resulted in London having a larger number of expatriate millionaires then the rest of Europe's capitals combined. This also explains London real estate prices and the UK's popularity as a corporate headquarters for firms investing into the EU. To this one must add the civility of the administrators and the advantage of speaking English.
A person who is UK resident but not UK-domiciled for tax purposes, pays income tax only on income and capital gains which arise within the UK and foreign income which is remitted to the UK. This allows a non-UK domiciled person to reside in the UK free of tax as long as they have a foreign source of income. Most wealthy investor can arrange their affairs so as to qualify. Furthermore if a non-UK domiciled individual creates an offshore trust with non-UK assets then these assets will be exempt from UK taxation.
The UK corporation tax rates are the amongst the lowest in the EU. Tax is levied at 23% on a UK company which has net profits under GBP 300,000 and 33% where profits are over this figure.
UK Non-Resident Companies
Generally speaking, a UK company is taxable on its world wide income. However, in certain cases, a UK incorporated company may be classified as non-resident for tax purposes, and therefore non taxable in the UK on non UK source income. Such a company must be managed and controlled from a country with which the UK has signed a double taxation treaty. By careful selection of the country from which the UK company is managed it may therefore be possible to create a non-taxable UK entity. For example, Portugal has a suitable tax treaty with the UK so a UK company managed from Madeira, a part of Portugal, would neither be taxable in Madeira nor the UK.
UK International Headquarters Company ('IHC')
Another recent innovation, by statute in l994, has created the UK IHC. This status may be accorded to ordinary UK companies which are at least 80% beneficially owned by non-residents. An IHC is a useful vehicle for the collection of foreign dividend income as, in general terms, a full credit is given against UK tax for any tax paid on the remitted profits before arrival in the UK Thus as long as the dividend income has already suffered tax at a rate higher than or equal to the applicable UK rate (33%/24%) no UK tax will be payable on that income either on arrival or on distribution. For example, a Danish subsidiary of a UK IHC would pay tax on its profits at 34%. If the Danish subsidiary distributed profit by way of dividend to the IHC parent no further tax would be levied on arrival in the UK because a credit would be given for tax paid in Denmark. This makes the UK IHC an attractive holding company vehicle for investment into Europe or otherwise and in many cases will be more attractive than competitive structures available through the Netherlands, Austria, Switzerland etc.
It is sometimes desirable to have a UK company structured for international trade as opposed to establishing a pure and visible offshore structure which may cause unwanted publicity and tax department interference from the countries in which the beneficial owners reside or where the company is effectively trading. To meet this need , there is the low tax UK company option. A UK company established for international trading purposes may only be liable for corporation tax on 10% of its profits provided that the UK company is structured in a way that it acts an agent to its offshore principal. This relationship does not have to be disclosed to any foreign tax department or foreign third parties.
The UK company can still be registered for VAT, conduct its banking activities in the UK The company must not be:
(a) owned by UK residents;
(b) managed from the UK; or
(c) conduct any trading operations within the UK.
If the company meets these tests, then 90% of its profits may be paid to an offshore company principal without liability to UK taxation,
It is becoming increasingly difficult for companies which are not registered for VAT in a EU member state to trade with other companies in the EU. Most offshore jurisdictions are outside the EU VAT area and therefore are not easily able to make the necessary VAT registration. The Isle of Man, Ireland and Madeira are exceptions. However, it is possible for companies to register for VAT in the UK by setting up a UK limited company which acts as its VAT agent.
It is necessary to make an application to the Bank of England in order to set up a bank in the UK. Amongst other requirements it would be necessary to set up an office in the UK staffed by two responsible executive officers. These officers would necessarily have to have a detailed knowledge of banking procedures and would therefore expect to be paid salaries of between 35,000 and 70,000 Pounds Sterling. Suitable office space would have to be located, administrative support staff would have to be hired and computer systems would have to be installed which are sufficiently sophisticated to run all facets of a normal banking operation. The minimum required capital of a UK bank is 5 million ECU's (approximately US$4,000,000) all of which would have to be paid in and maintained as unimpaired reserves The typical time from application to granting of license would be unlikely to be less than six months and more likely to be in the order of one year.
The UK is typical of many of the onshore jurisdictions and similar standards would apply in all other EU countries as standard criteria have been adopted under the applicable EU directives on banking. It is difficult to estimate the costs of setting up a bank in the UK but it would be unlikely that these would be less than US$120,000 and, as described, substantial annual running costs would necessarily be incurred. Additionally, the worldwide profits of the bank would be taxable at the normal UK rate of 33%. Similar costs and procedures would be experienced in the USA, Canada and other mainstream onshore jurisdictions. These high costs, taxes and time delays may be avoided by combining a UK holding company with and offshore financial institution with a UK representative office. In such a case the offshore company could not accept deposits in the UK but could refer client to the offshore company's office elsewhere.
The New Labor
There is some indication that the new administration may expand the tax net. There has been talk about changing the tax system to a residency test and the Inland Revenue has had its powers significantly expanded. Consistent with long standing tradition however this is being done with sufficient warning so that it is possible to plan around the proposed changes and so maintain the status quo.
This document was excerpted, modified & otherwise prepared by the 'Lectric Law Library ('LLL) from materials supplied by Baltic Banking Group - www.BalticBankingGroup.com Copyright 1998 - 2002 'LLL & BBG, all rights reserved.