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Switzerland to End Corporate Tax Breaks

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Swiss Cabinet Presents Plans for Corporate Tax Reform

  • Notional Interest Deduction on Equity
  • Reduction of Headline Corporate Tax Rate
  • Royalty Box Schemes Under Attack by OECD
  • $1.8 Billion Estimated Swiss Revenue Shortfall

The Swiss government has made plans to abolish certain tax privileges for international firms and introduce a royalty box and an interest-adjusted profit tax.

Swiss Finance Minister Eveline Widmer-Schlumpf said the aim of the reform is to adapt the fiscal policy to international standards, boost Switzerland’s competitive edge as an attractive business location and encourage companies to continue to make an important contribution to funding the tasks of the government, cantons and local authorities.

Switzerland has been under pressure from the Organisation for Economic Co-operation and Development (OECD) and the European Union for the past ten years to review its preferential corporate tax policy.

Switzerland has three levels of taxation:  federal, cantonal and municipal.  Under ordinary circumstances, Swiss tax rates historically ranged from 11.5 percent -24 percent, depending upon the canton.  Pursuant to certain beneficial federal and cantonal tax regimes, however, the effective tax rate (ETR) for a foreign multinational could be as low as 0 percent – 10 percent.

About 25,000 firms – holding companies, mixed companies and management companies – are granted special tax breaks by Switzerland’s 26 cantons. The firms are either exempt from tax or subject to lower rates for the activities they engage in outside the country.

Royalty Box

A key pillar of the reform is the introduction of so-called royalty boxes – a method of preferential tax treatment for certain types of profits, notably royalties from a patent.

The OECD is due to define the legality of royalty boxes by the end of next year amid calls to abolish their use.

But Widmer-Schlumpf is confident that the practice will not be scrapped as Britain, Luxembourg and Belgium are defending their corporate fiscal regimes.

“The question is not whether royalty boxes will continue to exist or not. The question is how they will be defined. Switzerland might have to adapt its law accordingly,” she said.

Adrian Hug of the Federal Tax Authorities hinted that Switzerland could maintain its corporate tax system for a while if the international community needs more time to find a consensus.

Widmer-Schlumpf maintained that Switzerland has to act now to give investors the necessary legal security.

“Many international companies would leave Switzerland,” she warned.

The planned reform is expected to lead to a shortfall in revenue to the tune of CHF1.7 billion ($1.8 billion) annually for the federal authorities. The finance ministry plans to offset the costs without spending cuts but by introducing a capital gains tax on securities. It also suggests increasing the number of federal tax inspectors from about 300 to about 370.

The overhaul of corporate taxes also has a major impact on the fiscal rates of the country’s largely autonomous 26 cantons and on the system of financial payments between rich and less affluent cantons.

Summary of Present Swiss Tax Regimes and Likely Fate as a Result of Swiss Tax Reform

Model

Authority

General Description

Current Tax Features

EU Commission View

OECD

View

Likely Effect of Swiss Tax Reform

Holding Company

Cantonal

Company or Swiss branch of a foreign company engaged in long term holding and administration of certain qualifying participations; no Swiss business activities

Federal participation exemption on certain dividends and capital gains income; cantonal tax exemption; ETR ~0% for income from qualifying investments and 7.8% on other activities

 

Alleged to constitute unlawful state aid because income from certain activities is taxed solely at the federal level

Pursuant to BEPS Action 5 – “Counter Harmful Tax Practices,” identified as potentially harmful

To be abolished

Domiciliary Company

Cantonal

Company limited to the performance of administrative functions in Switzerland

Beneficial tax rates on qualifying participations and certain foreign source income;

ETR ranges from 0%-10% depending upon  type of income

Criticized because it may result in unequal treatment of domestic versus foreign sourced income

Pursuant to BEPS Action 5, identified as potentially harmful

To be abolished

Mixed Company

Cantonal

Corporations primary business is abroad (i.e., 80% or more of income foreign source / 80% or more expenses are paid outside Switzerland)

Beneficial tax rates on qualifying participations and certain foreign income and partial tax relief based on cantonal benefits; ETR 0%-11% depending upon type of income

Concern that home country profits are shifted to Switzerland

Pursuant to BEPS Action 5, identified as potentially harmful

To be abolished

Nidwalden IP Box

Nidwalden Canton only

Available to companies resident in the canton and which own IP

Reduced ETR of 8.84% on net royalty income

IP Boxes in general are suspected by EU Commission of unfairly benefiting mobile businesses without creating corresponding research and development activities; the Commission’s general probe of patent box regimes is ongoing.

 

 

Assuming that patent boxes are ultimately determined to comply with EU rules this regime may survive

Principal Company

Federal

Available to companies that meet either the Domiciliary or Mixed Company status at cantonal level but that also sell through an affiliated company commissionaire or limited risk distributor

Certain income exempt from tax;

ETR can be as low as 0%-9%

 

Pursuant to BEPS Action 5, identified as potentially harmful

To be abolished

Swiss Finance Branch

Federal

Company acting as internal affiliate group “bank” due to the volume of financing including loans, hedging and cash pooling

Certain beneficial deductions are permitted and the company can also apply for Domiciliary or Mixed Company regimes;

ETR 3%-4%

Currently N/A

Certain financial instruments and interest deductions have been identified as problematic in BEPS Action 2 – “Neutralize the effect of hybrid mismatch arrangements” and Action 4 – “Limit Base Erosion via Interest Deductions and Other Financial Payments”

To be abolished

Timing

Timing of implementation and the length of any grandfathering period is not yet certain.  The Swiss government anticipates completing the first draft of the legislation, as well as the consultation process, by the end of 2014; entry into force will occur sometime after 2018, following parliamentary debate and the requisite referendums.  At present, the grandfathering period is estimated to last from 2018-2020.

Malta Tax Treaties Malta Company ServicesMalta Holding Companies Taxation 

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Acumum – Legal & Advisory – Malta’s International Law Firm

Meet Acumum – Legal & Advisory at Monaco Yacht Show!

Monaco Yacht ShowMeet Acumum – Legal & Advisory in Monaco!

The current Maltese Government has, upon its election, given a commitment to ensure that Malta becomes a center of service excellence and a Maritime hub – a commitment that shows all the signs of being fruitful, with hundreds of owners opting to register their vessels in Malta.

In addition, with Fitch’s Sept 14 affirmation that Malta has retained its ‘A’ country rating, Malta’s regulatory stability, as well as the wide spectrum and availability of services have all been conducive to this trend. The fairly simple registration procedure balanced by a serious maritime administration have been a primary driver of this trend; as has the financial stability and regulatory environment been important. Indeed, while being open to owners of any nationality, the Malta Maritime Register is a well respected flag in all major ports around the world and is compliant with all major international conventions.

These four factors have been – and continue to be – an essential feature of Malta becoming an increasingly large Superyacht flag in Europe and around the world. The advantages of registering in Malta are wide and varied – and the tax incentives for non-domiciled owners together with the attractive VAT scheme are among the important factors to be considered. More information about Malta’s attractive yacht registration rules can be accessed here.

Malta’s VAT Scheme Malta’s favourable VAT scheme allows a yacht to be registered under a finance leasing scheme, which can result in the reduction of VAT to as little as 5.4% of the yacht’s value, dependent on her size. Such scheme entails the setting-up of a financial lease of a period of between 1 and 3 years.  Taking advantage  of this scheme requires adequate structuring and following of the necessary procedures and requirements, but  is highly achievable with proper advice. Benefits of the low-VAT leasing scheme for the yachting industry are described in more detail here.

To  take advantage of the VAT scheme requires the incorporation of a Malta company; this procedure is straightforward and uncomplicated. With the correct advice and having all the required documentation available, incorporation can be achieved within 2-3 days. Yachts are high-value assets that require competence and professionalism in management. Acumum aims to provide the owner with a range of services such as: structuring and incorporation, management, provision of advice (legal, tax and otherwise) and assistance in liaising with maritime, customs and tax authorities. Acumum is a young international law firm and advisory firm located in the tax efficient EU jurisdiction of Malta.  Composed of senior lawyers authorised to practice in different jurisdictions, both in Europe and the world, having a wide network of contacts and collaborators enabling a far-reaching service.

The choices available are wide and far-reaching, providing clients with a number of options depending on their own residence as well as the intended region for use of the yacht. Services are varied and suited to provide clients with a single point of contact concerning their yacht: legal advice, accountancy, management and other related services. Such a variety of services is provided irrespective of the yacht’s flag or where she is berthed.

Acumum is attending the Monaco Yacht Show (MYS) in September.

The MYS is the most important yacht show of the year, bringing together hundreds of service providers, yacht owners (both current and prospective), agents, yacht builders and other stakeholders in the industry – it is set up as a networking event for owners and other stakeholders alike. It is held in the beautiful Port Hercule, the home of the largest Superyachts in Monaco – perhaps in the Mediterranean; the boats on display range in size from around 65 feet to over 250 feet – spanning a wide range of High-Net-Worth and Ultra-High-Net-Worth owners.  Many yachts berthed in this beautiful port fly the Maltese flag.

Dr Geraldine Spiteri, Head of Marine & Aviation at Acumum, would be delighted to provide more information on the advantages of registering and managing of a yacht in Malta as well as the services that Acumum can provide. Geraldine can be contacted on +356 9985 8000 or by email: spiteri@acumum.com

Malta Retains ‘A’ Fitch Rating

Malta, EUMalta Retains ‘A’ Fitch Rating

LONDON, September 12 

Affirms Malta’s Long-term foreign and local currency Issuer Default Rating (IDRs) at ‘A’. The Outlooks are Stable. The issue ratings on Malta’s senior unsecured foreign and local currency bonds have also been affirmed at ‘A’. The agency has also affirmed Malta’s Short-term foreign-currency IDR at ‘F1′ and the Country Ceiling at ‘AAA’.

As one of the most stable and one of the few EU jurisdictions to report increased growth, Malta’s economy has received added boost by retaining its ‘A’ Fitch credit rating.  As Fitch states in respect of 2013: [Malta's] “economy grew by 2.9%, better than 2012 (1.1%) and higher than the euro zone average (negative 0.4%).”

Further praise by Fitch that Malta’s economic growth will continue to outperform the euro zone, averaging at 2.5% in 2015-16.

Main Highlights:

  •  1H14 real GDP grew by 3.5%
  • Expects above potential growth averaging 2.5% in 2015-16, continuing above the eurozone average
  • Unemployment rate of 5.7% in July was below both the ‘A’ median and the eurozone average
  • General government gross debt (GGGD) peaked at 72% of GDP in 2013 (73% in 2014-15 previously) and will decline marginally in the medium term, reaching 70% of GDP by 2020

The rating, was welcomed by Malta’s Minister for Finance, Prof. Edward Scicluna, stating “Fitch’s country rating for Malta, wherein it reaffirmed Malta at ‘A’ with a stable outlook, confirms the country’s economic growth as sustainable and geared to keep outperforming other EU states on GDP growth and employment” and that “Fitch projects the deficit to decline further to 2.5% of GDP in 2014 and 2015. Nevertheless, Government is confident that Malta will again exceed various international institution’s expectations with regard to the deficit-to-GDP ratio, and we remain committed to reducing the deficit to 2.1 per cent as targeted in the 2014 Budget”.

Malta – A Fiscally Competitive EU Jurisdiction

To find out more about the Malta, please

 

Malta Shipping Register – An Option Worth Choosing

Malta Shipping Register – An Option Worth Choosing

.Transport Malta

 

  • Updated Regulatory Fee Calculator
  • Low Cost Corporate Structures
  • Tax & VAT Efficient Jurisdiction
  • Protection for Financiers & Mortgagees

Update Regulatory Fee Calculator

Transport Malta has recently updated the regulatory fee calculator for registering a vessel in Malta.

The automatic calculator enables individuals to establish fees for the registration of a vessel under the Maltese flag – allowing for certainty in cost planning when deciding to register a vessel.

Malta has committed itself to the welfare of seafarers of any nationality who are working on Maltese flagged ships, by becoming a signatory to the Maritime Labour Convention, which came into force internationally on the 20th August 2013. As such, there are no restrictions on the nationality of the master, officers or crew, making it easier to recruit for a Maltese ship.

Ships and yachts may be registered on behalf of legally constituted corporate bodies or entities irrespective of nationality – all that is required is the appointment of a Malta authorised representative agent.  Acumum can act as the Malta Representative Agent at competitive fee rates.

Transport Malta’s updated maritime regulatory fee calculator can be found here.

Setting Up a Shipping or Yacht Company in Malta

Malta companies can be set up with minimal costs; €245 share capital, €240 registry fee. A competitive tax and VAT European jurisdiction, Malta has a number of very attractive fiscal incentives for the yachting industry  - encouraging commercial operation of these high-value assets. For more information: Malta Companies.

Furthermore, the VAT scheme allows for importation of the yacht into the EU at advantageous VAT rates – as little as 5.4%, depending on the size of the yacht. For more information: Yacht VAT Scheme.

Other advantages are: no restrictions on the sale or transfer of shares of a company owning Maltese ships, or on the sale and mortgaging of Maltese ships; neither are there trading restrictions. Preferential treatment is also given to Maltese ships in certain ports. This freedom allows for efficient transactions and for peace of mind, making it an attractive registration option for both those wishing to obtain finance and financiers alike.

Malta Shipping Registry

As a shipping register, Malta has achieved significant and consistent growth since it was established and is now one of the largest registries in the world in terms of tonnage.

Malta has long established itself as a flag of confidence: it is viewed as a serious and efficient maritime administration, adhering to and enforcing all major international conventions. The Flag State Inspectorate ensures adherence to international standards, while the registry provides services around the clock, seven days a week, for urgent matters.

Further, Malta boasts sound multilateral and bilateral relations, earning its reputation as a widely respected flag around the world. The flag is also actively participant in international shipping fora, including the International Maritime Organisation and the Comite’ Maritime International.

For more information, please contact Geraldine Spiteri, Head of Maritime, spiteri@acumum.com | +356 2778 1700 Ext 102.

Chartered Institute of Taxation

Chartered Institute of Taxation

Tax Adviser Magazine – Chartered Institute of Taxation

Acumum’s Managing Partner, Geraldine Noel, has been invited to provide the Malta editorial for the Tax Adviser magazine,the Chartered Institute of Taxation’s official publication.

The Malta editorial provides an overview of the main tax and other fiscal benefits that Malta can provide both individuals and companies.

To read the full article, please go to The Tax Adviser: http://www.acumum.com/chartered-institute-taxation/

About Malta: a full member of the European Union, Malta, an ex British colony is strategically situated in the Mediterranean.

Malta is a highly competitive jurisdiction in respect of tax and other fiscal benefits, some of which are:

  • 5% effective corporate tax rate
  • No withholding, no entry or exit taxes
  • Limited capital gains
  • No transfer pricing or CFC legislation
  • Remittance system for foreign vehicles
  • Low set up costs – i.e. hedge funds, captive insurance companies etc

About Acumum: a full service law firm located in Malta, Acumum engages highly experienced lawyers, advocates, tax advisers and accountants. Managed by Geraldine Noel, an English barrister – registered in Malta, Acumum’s areas of expertise includes:

Aviation, Corporate Services, Financial Services, Insurance, Maritime & Yacht, Residence and Relocation, Tax Structuring (individual & corporate),  Trusts & Wealth Planning….

If you would like to know more about Malta and our services, kindly contact Geraldine Noel: gnoel@acumum.com | Skype: acumum