April 2007

Confidentiality Crises for British Banks ... Is it Time for you to Act?

From time to time we like to bring clients up to date with new legislation or any changes to the status quo, which we feel is relevant. In the latter half of last year there was an article that appeared on the web site of the Financial Times that caught our eye and which may have wide ranging repercussions in the long run.

It concerned details of a court case between the UK Inland Revenue and Barclays Bank. The Court held that Barclays should pass over details of their UK domiciled clients who hold personal offshore accounts at the bank’s offshore centres in the Isle of Man and the Channel Islands.

Although not of direct concern to most of our clients it is a significant development and one, which has concerned a number of professionals, both UK domiciled and/or resident. In light of this, we will attempt to calm any fears whilst also offering a potential solution. However, there is little doubt that within the foreseeable future this ‘Net Casting’ will extend beyond simple offshore personal accounts and will include offshore corporate accounts ….. Certainly the wise and cautious should start re-considering their banking facilities if confidentiality is of paramount importance.

Historically, the SCF Group have worked closely with a number of leading UK Clearing banks including Barclays Bank, Nat West, the Royal Bank of Scotland etc., and whilst we have no doubts that they are top level banks providing a high level of service to clients and that they will continue to do so, the aforementioned is a worrying development. Further, we feel it is no coincidence that the Inland Revenue initially targeted the UK’s biggest bank (Barclays) in this test case. Having won the case, it may well be that the Revenue go after other UK banks in the future, indeed we feel that it would be unlikely that the Revenue will stop at Barclays.

It may well be that in due course and buoyed by this success they will indeed look to force other UK bank’s offshore subsidiaries or operations to comply.  This appears to be their most likely route, i.e. issuing legal proceedings in the UK courts against banks with large operations in the UK to try and legally compel them to release information of their clients’ details who hold accounts in the neighbouring or traditional UK offshore centres with their corresponding offshore subsidiaries or branches.

“ …… there is little doubt that within the foreseeable future this ‘Net Casting’ will extend beyond simple offshore personal accounts and will include offshore corporate accounts ….. Certainly the wise and cautious should start re-considering their banking facilities if confidentiality is of paramount importance”

As already highlighted, although only, and categorically, applying to personal accounts it is felt that it may only be a matter of time before the Inland Revenue seek disclosure from the banks of their corporate accounts, which obviously would affect our clients.

Whilst not wishing to alarm our clients or cause panic we do believe it may be worth considering ones banking options, especially by any clients who may be UK domiciled and resident. That would probably be the first group that the Revenue would look to pressure the banks into releasing any information held. Although there is no talk whatsoever of this, it may be that as more legislation is bought in and rules are tightened up, banks in neighbouring offshore centres are forced to comply. A lot of this can be attributed to this post 9/11 era of increased due diligence, anti-terror and money laundering laws, whereby authorities look to tighten up and exert further pressure where possible on financial institutions and offshore banking centres.

As mentioned, we here at The SCF Group have taken this on board and believe that we have come up with a potential alternative should clients feel uneasy at this development and wish to consider changing banks.  We strongly recommend that those clients who are UK domiciled and resident and who bank in the Isle of Man, either at Barclays or other banks such as Royal Bank of Scotland International and HSBC where we have also placed a large number of clients over the last few years should indeed proceed accordingly and make the change.

“….. the time is to Act Now!”

Without a doubt, the time is to Act Now if you are UK domiciled or perhaps permanently resident. Being the proactive Group that we are, we have looked high and low to locate a safe, quality bank for our clients to work with in the future: The leading contender is the Luxembourg bank Dexia: A bank with whom we have worked for about three years now and have found extremely efficient. Should you wish to investigate matters more please contact your Consultant.

Information on Dexia Bank in Luxembourg …. Our recommended choice for Clients concerned about the current turn of events

Dexia Banque International a Luxembourg is the oldest bank in Luxembourg and was established over 150 years ago. It is a AA+ rated bank with an excellent reputation and has offices in a number of countries. Interestingly, it was partly responsible for printing some of Luxembourg’s bank notes until the advent of the Euro in 2000.

DEXIA B.I.L.  provides a broad spectrum of products and services such as retail banking, private banking services which takes the form of wealth and portfolio management and trading on various financial markets. 

Dexia ranks amongst the top 15 banking groups in the Euro zone and as already mentioned, we are pleased to have worked with them over the last 3 years or so. In that time we have helped a large number of clients to open corporate bank accounts there so as to enable them to run their businesses smoothly and effectively.

We find them to be both efficient and responsive to our clients’ needs whilst offering a high level of customer service. Their staff are pleasant and professional and most are English speakers. We have had positive reports from almost all of our clients in their dealings with the bank.

 In addition, it is possible to have internet banking for corporate accounts and credit cards can also be issued.

All in all, we consider Dexia B.I.L. to be a good partner for The SCF Group in our ongoing efforts to provide the highest level of efficiency and customer service to our clients and this fits well with Dexia who share the same ethos as ourselves.

The fee for carrying out this change is £750 and this includes helping to complete all the required bank forms and due diligence necessary to establish the new account i.e. having the forms signed by the nominee directors and ensuring Dexia have all the due diligence documents they need such as certified passport copies on the beneficial owners and certified copies of the company documents as well as providing minutes confirming the formal closing down of the account at the current bank.  A Certificate of Good-Standing can also be provided where required.

The whole process should take no more than 2-3 weeks or so depending on how quickly the paperwork can be finalised and it should be fairly straightforward. We would look to get the new account set up and then it would simply be a case of transferring the funds to Dexia before providing the minutes confirming the closing of the old account.

SCF EXPANDING TO NEW OFFICE...

Within the next few months SCF will be moving to its new and bigger office overlooking the Thames at Imperial Wharf. The location was selected because of its excellent facilities, prestige and convenience especially for those flying in to London!

MOVING ON...

Janson Lotery, the SCF Group’s most senior tax consultant will be moving on to run his family’s business but is still going to keep an active interest in SCF and his extensive client base. The Directors of SCF in particular wish to thank Janson for his long and exemplary service over the years and wish him the best! In fact, it is rumoured that SCF clients might get a discount at his flower shop in the New Kings Road!

With sadness, Jacob Sanchez, our long standing Administrations Manager, is leaving the SCF Group. Jacob joined SCF in 2001 and has been a very highly regarded member, whose dedication has been greatly appreciated and everyone at the SCF Group will wish him the very best of luck for his future endeavours.

NEW FACES...

We are delighted to introduce our newest additions to SCF:

Simon Heggs BA (Hons);dip.law Offshore Sales Consultant (London Office)

Steven Shen MBA, Company Secretary/Financial Controller (London Office)

Bogna Wleklinska MA, Office Administrator (London Office)

Anya Novak MA Law, Trainee Consultant (London Office)

Agnieszka Gajewska MA, Receptionist (London Office)

PROMOTION FOR CHARLES BAKER TO NON-EXECUTIVE DIRECTOR

We are pleased to announce that after 6 years of dedicated and successful service, Charles’s contribution has been recognised with a deserved promotion. Charles will of course still remain on hand for his clients, however, his direct replacement, Simon Heggs will be filling Charles’s sales shoes!

Charles Baker M.A. (Hons), Group Non-Executive Director

The Isle of Man; transition to zero% corporate tax

As a demonstration of the commitment to maintain the Isle of Man's position as one of the most advantageous tax planning jurisdictions in the world the Manx Parliament recently expended it's zero corporate tax rate to almost all sectors of the economy. Of all companies incorporated in the Isle of Man only the banking and property sectors remain taxable companies, and even then at 10%, matching the lowest rates available within the EU.

The changes made by the Isle of Man have transformed it into a legitimate tax planning jurisdiction, particularly for non-domiciled individuals taking advantage of the UK personal tax benefits. The Isle of Man's participation in the VAT network would allow an individual to trade freely across Europe without suffering the VAT charge on purchases. Any European reseller would be forced to look to Cyprus or Ireland as an alternative and suffer 10% and 12.5% corporate tax rate. The Isle of Man also boasts some of the best legal, financial and banking facilities of all the offshore jurisdictions allowing for smooth and efficient running of the company and bolstering its reputation.

Perhaps the greatest single area of benefit for companies is for internet suppliers of goods and services. The continuing influx of banks and major financial service providers, due to the tax benefits, has brought with it an insurgence of skilled labour particularly in regard to computing and IT. This abundance of skilled professionals has turned the Isle of Man into one of the leading interned service providers in the world. There has been a huge influx of internet gaming and retailers into the Isle of Man using it as a conduit to launch its products into Europe, without suffering the corporate tax liability of the EU nations. Although tax law on internet services is still in its infancy the international trend it to ascribe a provider's permanent establishment based on its server location. Web hosting in the Isle of Man, as long as an international client base is available, is presently enough to secure Isle of Man domicile for a company and avail of the zero corporate tax any many have been quick to take advantage of this.

Any concerns that this would have a negative impact on the Manx economy are quickly comforted upon a closer examination of the continual growth of the Island. With a AAA credit rating and an expected growth in GDP of 5% the temporary reduction in Government revenue will soon be absorbed by the Islands robust economy. In fact, as a matter of Manx law the Manx Government is prohibited from running a deficit, a law I am sure a few of the larger nations in the world would love the opportunity of enforcing . Unlike its closest rivals within the sphere of the EU it's participation in the European VAT system affords it the Isle of Man the flexibility to offer such benefits. Jersey and Guernsey, however, still rely on direct income and corporate taxes, and, as such, are unlikely to follow the Isle of Man's example. The corporate tax extension is also just the first in a number of tax overhauls which have seen a cap on personal income tax of £100,000 and may see a cap on corporate tax for banks in the future.

The single most encouraging indication of the future of the Manx zero tax companies can be seen in the developing relationships with the EU and OECD nations. The Isle of Man is in continual negotiation with the major nations in Europe, agreements have already been made with the Nederlands and a tax treaty is presently under negotiation. Should it be possible to establish a tax treaty with The Nederlands, coupling the treaty already in existence with the UK, the Isle of Man could soon be a key part of every tax planning structure for business within the EU. If you believe you could benefit from an Isle of Man company or would like to know more, please do not hesitate to contact our Consultant Simon Heggs simon@scfgroup.com. 
 

To Bear or not to Bear-The future of Bearer Shares in the BVI

On January 1, 2007, all the existing IBC's were automatically re-registered under the new Business Companies Act ( “BC Act”).  The companies that have been automatically re-registered under the BC Act retain a grace period up to the end of 2010 to immobilize their bearer shares or to amend the Memorandum and Articles of Association (M&A) to eliminate the power to issue bearer shares.   

However, as of the year 2008, the license fees for companies that have the power to issue bearer shares will be increased to US$600.00.  In the year 2010, the increase will be to US$1,100.00

In order to avoid the payment of these increased fees, the company must amend its Memorandum and Articles to eliminate the power to issue bearer shares, cancel any existing bearer shares and issue new registered shares.

The companies have the option of either filing in the Registry of Corporative Affairs only a notice of the Amendment to the M&AA to eliminate the power to issue bearer shares; OR filing the Notice and also adopt a Memorandum and Articles that includes the changes approved in the Resolution. 

Therefore if the company chooses to adopt a new Memorandum and Articles, the company has the option to fully comply with the new Business Companies Act 2004 and to adopt the new model of Memorandum and Articles in accordance to the new legislation.  In these cases, the Registry of Corporative Affairs will issue a Certificate in this respect.  We recommend that you follow this course of action. 

Source: Icazalaw, BVI, February, 2007

Option 1: £150 for filing notice
                £150 issuance of new shares and Deed Of Trust
                £50 Courier
Option 2: £250 for filing of notice and change of M&A's
                £150 issuance of new shares and Deed Of Trust
                £50 Courier

To arrange for your company’s shares to changed to registered shares before the license increase, please contact your consultant to discuss the process.

SPANISH TIGHTEN THE SCREW ON PROPERTY COMPANIES………NEXT MOVE WILL BE TO TARGET SPANISH RESIDENTS WORLDWIDE INCOME. TIME TO ACT IS NOW!!

Changes in Spanish taxation which affect homeowners took effect from 1 January and make an offshore company structure far less attractive.

On the plus side, following pressure from the European Commission, the Spanish government has reduced capital gains tax (CGT) from 35% for non-residents to 18% to bring it into line with the rate paid by Spanish residents.

The change came about because foreign taxpayers complained that the system discriminated against non-residents by applying a higher rate of CGT to them than to residents.

Withholding tax which a property purchaser must pay to the tax office on account of the potential CGT liability of a non-resident seller is also reduced.

This comes down from the existing 5% of the purchase price to 3%, to take account of the reduction in CGT from 35% to 18%.

There are other important changes too which will make it disadvantageous to hold a Spanish property in an offshore company.

The new income tax does away with the special system regulating asset holding companies and replaces it with much higher taxes.

These were often property companies owned by at least one person with most of their assets not affected by ‘economic activities’. The letting of property was not considered an economic activity unless the company had an employee and premises dedicated exclusively to carrying out business.

Under the former system any non-resident owner of real estate in this type of company would benefit from the same CGT tax rate as individual residents, currently 15%, if assets were disposed of by the company after one year.

‘Under the new regime, for companies with a net turn over below €8 million, corporate profits will be taxed at 25% up to €120, 202 profit and the reminder at 30%,’ said Rafael Berdaguer of Rafael Berdaguer Abogados, of Marabella, Spain. There will be a transition
period so that owners can opt to wind up the company and acquire the property in their individual names. The payment of Stamp Duty is exempted, CGT and the Plusvalia Tax will be deferred up to the moment the individual transfers the property in future. Individual owners can benefit form the 18% CGT rate when they sell.’

A new Tax Fraud Prevention Act requires buyers and sellers of property to include their Fiscal Identification Number when registering property transactions. For the Land Registry to register a transaction, the title deed must include the Fiscal Identification Number (NIF or NIE in case of non-residents) and the means of payment for the purchase price.

Also, in order to subscribe to basic utilities (water, telephone, electricity, gas, etc.) it will be necessary to provide the reference number on the property’s Local Rates Bill (Referencia Catastral).

‘This Act also includes important changes affecting offshore companies from a list of jurisdictions (the so-called Black List) which were subject to an annual tax pf 3% on the rateable value of the property.

‘The new law enlarges the list to include not only companies on the Black List, but also those from jurisdictions of practically nil taxation or those with which Spain has not worked out a double taxation treaty with provisions for exchange of information,’ Berdaguer warned.

‘There will be a transition period so that owners can opt to wind up the company and acquire the property in their individual names. The payment of Stamp Duty is exempted, CGT and the Plusvalia Tax will be deferred up to the moment the individual transfers the property in future. Individual owners can benefit from the 18% CGT when they sell.’

A new Tax Fraud Prevention Act requires buyers and sellers of property to include their Fiscal Identification Number when registering property transactions. For the Land Registry to register a transaction, the title deed must include the Fiscal Identification Number (NIF or NIE in case of non-residents) and the means of payment for the purchase price.

 Also, in order to subscribe to basic utilities (water, telephone, electricity, gas, etc.) it will be necessary to provide the reference number on the property’s Local Rates Bill (Referencia Catastral).

‘This Act also includes important changes affecting offshore companies from a list of jurisdictions (the so-called Black List) which were subject to an annual tax of 3% on the rateable value of the property.

‘The new law enlarges the list to include not only companies on the Black List, but also those from jurisdictions of practically nil taxation or those with which Spain has not worked out a double taxation treaty with provisions for exchange of information,’ Berdaguer warned.

Source: Citywire.com, February, 2007

COMPANIES HOUSE EXPERIENCES SURGE IN UK FORMATIONS

It has been stated by the FT this Month, that Companies House has experienced a surge in UK company formations due to the closing of loopholes shortly for ‘Umbrella’ Companies. These ‘Umbrella’ Companies are ‘Managed Service Companies’ that allow contractors to operate outside of IR35 restrictions to help minimise tax and national insurance contributions.

Should you be currently operating through a ‘Managed Service Company’, urgent action would be recommended to give time to arrange, if appropriate, for your own company to be established, banking arrangements made and ready to invoice.

Our UK Formations consultant, Mariusz, is ready to help and take your order today! Please contact Mariusz at mariusz@startingmybusiness.biz or on +44 (0) 207 352 2274.

Customer Survey:

As part of its commitment to our Clients, SCF is inviting its clients to partake in a short Customer Survey to see how we can better meet your needs …. All participants will get a free “How to Buy a Spanish Property” Book!

Please answer the following questions out of 10, with 10 being the best mark.

1. How did you find the information and knowledge levels of your consultant?
2. Were you quickly and accurately replied too?
3. How would you rate the banks and their products/services you have received an introduction with?
4. How accurate was your management, i.e. invoicing, contract signing, etc, catered for?

Finally, what additional features/services would you like to receive from the SCF Group?

Please email comments either directly to your consultant or to offshore@scfgroup.com.