Vistra completes European Network – on track for Global Expansion
In our January newsletter we announced the development of our Cyprus office as one of our main priorities. Today with the acquisition of ACSA in Cyprus we have reached another important milestone. Vistra now has eleven offices in ten jurisdictions with further expansion already in the pipeline. Now that our network in Europe has been completed, our next priority is to develop a substantial presence in East Asia.
In parallel with our geographical expansion Vistra will continue its Independent focus on delivering the highest Personal service to every client, every time, ensuring truly Global solutions.
In this newsletter we have a closer look at the advantages the Netherlands can bring in international tax planning. In addition we analyse the possibilities of the Jersey Foundation as a tool for estate and financial planning. Finally we tell the nail biting story of four months of conflicting announcements, ferocious lobbying and a last minute climb-down: the saga of the UK budget and the Resident Non Domiciled rules.
Bart Deconinck
Group Chief Executive
Vistra Acquires Corporate Services Business In Cyprus
At the beginning of April, Vistra announced that it had acquired 100% of ACSA Corporate Services, an independent corporate services provider based in Cyprus.
ACSA is an ideal addition to the Vistra network because it provides management services of the highest quality to an international corporate client base. The company has a personal and hands-on approach which, combined with its long standing expertise in international fiscal structuring and corporate services, enables it to offer its clients, and their advisors, the personal attention and professional management services they require.
The acquisition of ACSA is of key importance for Vistra as Cyprus is one of the fastest growing financial jurisdictions in the world and having a full, operational presence in Cyprus is a key element of the ongoing expansion of the Vistra network.
ACSA was established in 2005 by Arjan Schaapman and Adriaan Coppens, who will continue to lead the firm, which will shortly rebrand as Vistra. The pair founded ACSA because they recognized the tremendous opportunities that Cyprus has to offer international business, especially after its accession to the EU.
The company has gone from strength to strength and employs a dynamic team which will thrive under the Vistra ethos. The team at ACSA are highly experienced and have a very innovative approach to working, which goes hand-in-hand with achieving the levels of service that Vistra offers its clients around the world.
The existing Vistra business in Cyprus will soon be integrated into the newly acquired company and importantly, all Vistra clients will now be able to benefit from the wide range of business advantages that Cyprus offers.
With the acquisition of ACSA, Vistra now employs 190 staff worldwide and operates from 10 jurisdictions.
Please contact Arjan Schaapman on +357 25 817411 for more information about Vistra Cyprus.
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UK Budget – The winds of change do not blow as cold as initially feared
Towards the end of 2007 rumours began to circulate regarding the intentions of the Chancellor and UK Treasury to wield a very sharp sword against the perceived tax advantages of UK Resident Non Domiciled individuals in the 2008 Budget.
On the 18 January 2008 Her Majesty’s Revenue and Customs (HMRC) released its draft proposals which confirmed everyone’s worst fears and sent shockwaves through the Financial Services and Offshore Business sectors.
Whilst the draft legislation contained a number of proposals the ones that would have had the most severe impact on offshore service providers and their clients can be summarised as follows:
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The UK Government wanted to introduce a charge of £30,000 per year, payable by all UK resident but non domiciled persons who have been in the UK for 7 years or more.
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No more tax free remittances to UK resident non-domiciled beneficiaries, including capital gains made offshore.
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Potentially charging Capital Gains Tax on any UK assets held within offshore structures on an "Arising Basis" – i.e. as soon as a gain is made. Previously, tax was only charged when the gains were remitted to the UK.
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Possibly charging Capital Gains Tax on sale of Foreign Assets on a remittance basis. Previously treated as "Capital" and not taxed.
Upon release of this draft legislation Vistra decided a proactive rather than reactive stance would need to be taken and undertook an immediate project to identify which of it’s client’s could potentially be impacted by the new proposals, contacted them to advise of these developments and offering to assist in a full review of their circumstances and identify potential solutions.
Meanwhile, a ferocious amount of lobbying by the business community began, attempting to point out the inherent and long term dangers to the UK economy of implementing these changes. Much was written in the UK newspapers directing a significant amount of criticism at the Chancellor especially when many pointed out that the proposed changes, if implemented, would actually reduce the tax income to the Treasury rather than boost it.
Everyone therefore awaited with baited breath the televised speech of the Chancellor on 12th March 2008. Due to the intense focus on the Resident Non Domicile issue leading up to the speech it did receive mention with the Chancellor stating
"Mr Deputy Speaker, we welcome the contribution made by people born outside the UK who choose to come and work here. They are an important and central contributor to our economy’s growth and prosperity. They pay taxes on their earnings here and also pay tax on money they bring into the country from abroad.
But for those non-domiciled individuals or families who have chosen to make Britain their home, I believe that it is right and fair that they should, after 7 years, pay a reasonable charge to maintain the right to be taxed differently from other UK residents"
He went on to provide a very brief outline regarding the proposals and it came as great relief to many when he stated "..as I have said before, we will not seek to charge UK tax on offshore income or capital gains that is not brought into the UK..."
For the non-resident, the budget proposals essentially do not change the environment for inward investment into the UK. As a result, the various structures utilised for acquiring UK investment properties and UK companies, as well as the use of UK holding companies remain as they were.
The counting of days to determine residence in the UK will change under the new legislation. When an individual is present in the UK at midnight this will now be classed as one day of residence in the UK. Previously travel days to and from the UK were not counted.
The UK Government will proceed with the charge of £30,000 per year, payable by all UK resident but non domiciled persons (children excluded) who have been in the UK for 7 years or more out of the last 10. It will also be classed as a tax charge rather than a levy so taxpayers can (potentially) claim a credit against taxation in other tax-treaty jurisdictions. Any money brought into the UK to pay the proposed £30,000 annual charge will not be taxable (provided it is paid directly to HMRC).
Non-domiciliaries using the remittance basis will not be required to make any additional disclosures about their income and gains arising outside the UK. If they declare their remittances to the UK and pay tax on them, they will not be required to disclose information on the source of the remittances.
The main change for Trusts is that previously non-domiciled beneficiaries were able to "wash" UK and offshore capital gains through a trust and remit those gains tax free. However, from the 6 April 2008 this will no longer be the case.
Offshore Trusts will be allowed to elect to rebase assets to a 6 April 2008 market value, so long as the assets are held on that date. Effectively this will artificially crystallise unrealised gains in trusts tax free, which can be distributed and remitted. Only subsequent gains may be taxable, if remitted to the UK. Rebasing will not be available to individuals. The 18% Capital Gains Tax charge for trustees was also confirmed.
We feel that the initial proposals were extreme in the least and effectively eroded the competitive edge the UK has promoted to the resident non domicile market for so many years. However, after widening the focus to the overall economic impact of the measures as opposed to the (in our opinion flawed) calculation of increased taxation revenue and taking notice of the outcry from the business sector, the Chancellor has now sought the middle ground doing just enough to prevent a large migration of the wealthy resident non domiciles out of the UK and into seemingly more favourable jurisdictions such as Switzerland.
As a result, in our opinion, the UK has retained its status as a competitive tax jurisdiction for UK resident, non-domiciled individuals. Trusts therefore remain effective for both UK and offshore gains, as no restriction was made on UK gains, so long as the proceeds are not remitted. They also still remain very effective for Inheritance Tax Planning. The big bonus is of course the free rebasing, which for many wipes out unrealised latent gains.
Whilst the ideal scenario sought by the industry was a complete postponement for 6 or 12 months of the implementation of these proposals there was indeed some relief that the Chancellor had come to his senses and retracted some of his initial proposals. He went on to say in his speech "....there will be no further changes to this regime for the rest of this Parliament or the next......" thus providing some comfort and certainty for the immediate future. Although more than one observer pointed out the Chancellor’s extreme confidence that he could speak for the next Parliament may have been a little optimistic!
Please contact Andrew Taylor on +44 (0)1534 504700 or David Rudge on +44 (0)20 7268 2430 for further information.
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Vistra trio recognised as being top of their field
Vistra’s professionalism and dedication to customer service has been recognised by the inclusion of three of its members of staff in CityWealth’s "Leaders List".
Carola Breusch, Vistra’s Head of Corporate Services, Bart Deconinck, Vistra CEO and Peter Rice, a Senior Relationship Manager in Jersey have all been named as leading figures in the Private Wealth Management industry by CityWealth, a sector specific publishing company.
Carola has been recognised twice. She is listed as one of the "Top 20 Women In Private Wealth Management" and also shares the honour, alongside Bart, as being one of the top 20 "Leading Trustees". Senior Relationship Manager, Peter Rice is recognised as one of the Private Wealth Management industry’s "Prominent Figures".
This is CityWealth’s third annual "Leaders’ List" and has been drawn up following research with private clients and peers within the industry. According to CityWealth: "Those listed are generally acknowledged to possess a sterling reputation for expertise in their respective field, first-class client service, and top-notch products/services for wealthy families and individuals."
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Spotlight on... The Netherlands: a flexible jurisdiction
The Dutch have a strong tradition of innovation, being able to adapt and respond to opportunities in a flexible manner. This may well be due to a long history as a successful trading nation which developed an instinct enabling fast responses to challenges and developments in the marketplace in order to retain the competitive advantage. True to this tradition, the Dutch have created a number of innovative vehicles for attracting a large slice of the international and foreign investment market.
Advance tax rulings: low effective tax rates
The Netherlands has extensive experience of providing tax advantages to non-Dutch companies via the country’s extensive network of tax treaties. As a result, tens of thousands of Dutch companies have been incorporated, providing rewards for both the Netherlands and the companies involved.
Unfortunately, about eight years ago, the EU and USA jointly called for the Dutch government to bring an end to what they termed this "harmful taxation" trade. Initially, this looked like the death knell for the Netherlands as a major base for companies worldwide. However, the Dutch authorities showed their strength in flexibility as they quickly drew up plans for new tax rules that could be applied to companies of substance that carry real entrepreneurial risks, as it was felt by the US and EU that tax advantages should only be available to those countries which needed some relief due to the weight of risk that they carried.
The Dutch finance industry has responded to these new rules in an extremely positive manner and is once again able to offer tax structuring arrangements for Dutch registered companies.
Innovating with the past: the Dutch co-operative
The Dutch co-operative was initially developed to enable farmers to undertake some elements of their work together as a co-operative, whilst also being treated as individual entities for tax purposes.
A range of co-ops developed and then, over time, began to languish as they fell out of fashion as entities for taxation. Recently however, Dutch firms have been looking at the benefits offered by co-ops and focusing on how they can be used as a means of avoiding withholding tax on dividends. Specifically, the Netherlands does not levy withholding tax on outgoing interest or royalties but, depending on the specific tax treaty, the Netherlands reduces its statutory 15% dividend withholding tax down to 5 % or lower.
If clients are willing to invest a few more Euros to place an additional structure (a co-op) on top of their Dutch holdings, then the full Dutch dividend withholding tax is avoided.
Dutch Foundation; preserving your passive investments tax free
Another structure which investors can utilize is the Dutch Foundation (DF). The DF is a unique entity with no shareholders and, officially, no owners. The Board of Directors are the Foundation’s highest corporate power and although required by law to adhere to their founding purpose, DFs are not required to have a charity function which most other international jurisdictions require. Instead the DF can hold investments or operate as a business enterprise.
If the DF engages in business activities then it becomes subject to Dutch Corporate Income Tax. This has led us to query whether investments can be held in a legal entity that can enjoy the advantages of the tax treaties and still remain free of corporate income tax and withholding taxes? The answer is yes.
And the possible catch? Since the foundation has no real owners other than its Board of Directors specific and controlled legal arrangements must be made defining the purpose of the foundation and specifying the fiduciary agreements. This is an excellent mechanism for family companies to explore as well as a potential growth area in the preservation of non-domiciled tax exiles.
Dutch Corporate Income Tax (CIT) reductions
Being internationally competitive is extremely important to the Dutch and every year the country is ranked by the Secretary of State responsible for economic development in terms of its international ability to attract foreign investment. The tax structure is a key driver of this ranking.
The Netherlands’ international ranking for attracting direct foreign investment from transnational corporations has recently dropped from 59 to 85 out of 144 countries worldwide and, in light of this, the government has taken direct action to remedy the situation.
In 2007 the government proposed a set of new tax rules designed to increase the country’s international ranking. The CIT rate has been reduced to the 20-25½ % range, withholding tax on dividends is down from 25% to 15% and, in addition, the government has introduced special tax treatments for certain types of income: royalty income is now 15% CIT, group interest is now 5% CIT and real estate income has received an extension of the participation exemption.
The Dutch Antilles: a door out of Europe
Willemstad, Curaçao has been an incredibly popular offshore centre as it possesses a well connected infrastructure that enables it to operate efficiently with the Netherlands and the rest of the world.
However, pressure was placed upon the Netherlands to change the popular Dutch / Curaçao link and the island’s popularity diminished as it became less competitive against other jurisdictions and introduced an 8.3% taxation "penalty" on dividends. However, the weak Dollar rate against the Euro has made Curacao far more attractive as its currency is tied to the Dollar. This has made the island a much more viable solution as charges and fees are virtually running at a 50% discount to other jurisdictions.
Rounding up: contact Vistra Netherlands BV.
The Netherlands is to certain investors an unfamiliar jurisdiction, however, a range of offerings including excellent tax treaties, interesting and flexible corporate entities, a low rate of corporate income tax and safe offshore financial destinations in the Caribbean, means that the Netherlands makes an ideal financial centre offering a wealth of investment and financial opportunities.
For more information about ways in the which you might be able to take advantage of financial opportunities in the Netherlands, please contact Frans van Rijn on +31 (0)76 560 9900.
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Spotlight on... Jersey Foundations: a potential new tool for financial planning
New legislation introducing civil law foundations to the Island is soon expected to be introduced. A foundation has elements of both trusts and companies and it is expected that these vehicles will be of great interest to Vistra’s clientele, particularly those in which the concept of equity and therefore a trust, does not exist.
What is a Foundation?
Foundations combine the flexibility of a trust entity with the separate legal identity and transparency of a company. A Foundation has a separate legal personality and is able to hold its own assets, contract with third parties and sue and be sued in its own name and capacity. It does not have shareholders and holds the assets for the benefit of beneficiaries.
History
Foundations were created by Christendom’s need to manage its divine assets and endowments made to the Church were recognised as independent legal entities and separate from the donor and from the church. This concept was refined during the Middle Ages and Canon Law came to consider the Catholic Church to be a divine Foundation. In mainland Europe, the Foundation developed as the basis of religious congregations and convents.
In 1926 Liechtenstein created Family Foundations (for family members) and Mixed Foundations (for relatives and others). Modern development began in 1995 when Panama introduced the more flexible Private Foundations. This is the form of Foundation that most financial advisers are familiar with and these entities are extremely useful vehicles for international asset planning and commercial transactions.
Creation of a Foundation
A Jersey Foundation can be created when one or more persons or legal entities (Founders) formalises a Charter, which, is registered with the Jersey Financial Services Commission (JFSC). Through the charter, the founders undertake to make donations (Foundation Assets) for the benefit of Beneficiaries. Unlike other jurisdictions such as Panama, Jersey will not require a minimum level of capital to be held as assets of the Foundation. The Foundation assets will be managed by a Council consisting of individuals or a body corporate and they must include a qualified person who is registered in Jersey under the Financial Services (Jersey) Law, 1998 to carry out trust company business. Vistra (Jersey) Limited is therefore automatically registered as a qualified person.
Uses of Jersey Foundations
Foundations can be used for similar purposes as Trusts and include the following:
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Charitable purposes
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Asset management for and protection of persons at a disadvantage due to minority or incapacity
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Family and/or inheritance structuring. They can also be used to protect against fragmentation and outsiders gaining control of family businesses which are passed down through the generations or as a substitute for a will, circumventing complicated inheritance procedures
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As a means of guaranteeing payment of sums of money or assets to members of one or more families
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As a way of sponsoring scientific, humanitarian, philanthropic, religious or charitable activities or to manage funds reserved for the same
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Company ownership. They can serve as the owners of companies (in which capacity the Foundation is generally called a holding company or a parent company).
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Administration of employee benefits such as pensions and options
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As a substitute for pre-nuptial agreements
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To own and/or invest in shares, interests and stocks of private companies or other securities
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To collect royalties and other types of returns
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To own real estate or valuable movable property
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To insure assets against adverse situations, such as excessive taxes for those who reside where the assets are located, future claims by creditors, forced heirs or political or economic instability in the country where the client resides
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To manage bank accounts
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For any specific asset protection plan
Conclusion
Vistra already has experience in the establishment of Foundations in different jurisdictions and is able to provide comprehensive advice on subjects including their establishment, recommended jurisdictions and other regulatory and strategic issues.
We believe that Jersey Foundations will appeal particularly to clients from the Middle East and Asia who want more control over their assets than can be provided even by the new purpose trusts being introduced in Panama and Liechtenstein. Jersey Foundations are also expected to be a useful financial planning alternative in the light of the forthcoming changes to UK tax legislation for non-domiciled residents.
Please contact Tanya Scott-Tomlin on +44 (0)1534 504700 for more information.
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DISCLAIMER
The contents of this document are made available for information purposes only. Nothing within this document should be relied upon as constituting legal or other professional advice. Neither Vistra Holdings Limited nor any of its companies, subsidiaries or affiliates accept any responsibility whatsoever for any loss occasioned to any person no matter howsoever caused or arising as a result, or in consequence, of action taken or refrained from in reliance on any of the contents of this document.
This document must be read in conjunction with our Legal and Regulatory notice at http://www.vistra.com/notices.