Transferring an offshore entity to Malta or Cyprus: Amicorp makes it easy
In this Aminews we describe the benefits and ease of re-domiciliation from an offshore jurisdiction to either of two European Union ones – Malta or Cyprus.
There are various reasons why a company or other legal entity would want to change its jurisdiction, these including changes in the political, economic and fiscal environment, and the recent drive towards transparency and compliance. This has meant that companies are looking for more “robust” locations such as Malta and Cyprus.
However, these are not the only reasons for re-domiciliation. Other factors include:
- Simplifying group structures (merging and/or consolidating vehicles and regulatory licenses);
- Addressing capital adequacy and solvency requirements;
- Taking the opportunity to dispose of non-core business;
- Developing core business and associated infrastructure;
- Ability to create better governance, create enhanced substance activities with added value in a near-shore location;
- With the POEM moved to near-shore, there is less risk that POEM is in country of the UBO;
- Supports more optimal transfer pricing;
- Investments in EU and OECD entities will in many countries not be subject to CFC rules;
- Asset protection through Trusts, as well as segregation of assets legislation for the likes of investment funds and securitization vehicles where applicable;
- Geographical risk spreading, such as hospitality and healthcare investments from outside the EU;
- Offers a center of excellence in niche markets, such as the small to medium companies and start-ups;
- A flexible but robust and reputable financial services sector; and
- Finally, whilst not the subject of this article, companies are also relocating to Malta and Cyprus due to “Brexit”.
Choosing the right country
Once the decision is taken to re-domicile, the next step is to choose the right country, taking into account factors such as:
- Sovereign credit rating: this will give an insight into the level of risk associated with the new country;
- Political stability: the entity would want assurance that the political environment is a business friendly and stable one on which to build a long-term vision;
- Markets access: choosing the right country can also result in new markets penetration, for example to enter the EU market through one of its member states;
- Operating costs: set-up and recurrent costs need to be competitive, ensuring that the long term advantages of the new country outweigh the total costs and taxes; and
- Fiscal environment: a fiscally stable and competitive country, with transparent incentives, allowances, tax rebates and extensive double taxation agreements will be an added benefit.
In most cases, the easiest option is to incorporate a new entity in a second country whilst closing down the one in the first country. However, this is not always possible where for example a company wants to retain its trading history or it has a number of open contracts. In such cases, provided that both countries recognize this concept in their respective law, re-domiciliation would be the choice.
MALTA: Reasons and examples of re-domiciliations
Malta is an EU member state offering political and economic stability as certified through the main credit rating agencies which repeatedly rate it as an “A” country. It has a robust banking system and has one of the best performing EU GDPs.
When re-domiciling to Malta, a company will become subject to Maltese law and regulations and is treated as ordinarily resident and domiciled in Malta for tax purposes. This will allow it to benefit from Malta’s extensive double-taxation treaty network with over 70 countries. The country is also the only EU member state which adopts the full imputation tax system through which shareholders are entitled to claim refunds on the tax paid by the company. Refunds vary in line with the source out of which the dividend is being distributed, this potentially enabling shareholders to reduce the effective tax rate to 10%, 5% or have such income exempted from tax. There are also tax exemptions or benefits offered to special categories of employees.
The country offers a well-developed telecommunications and IT infrastructure, a highly productive, multi-lingual and well educated workforce. Office space is offered at relatively low rents and employee remunerations are cost competitive, especially when compared to other developed EU jurisdictions. Malta also ranks in the top positions when it comes to the best places to live and work in.
All the above, as well as its continuous success in keeping its regulatory framework in line with the changing demands of the industry and with the requirements laid out at EU level, is facilitating a commercially secure business environment. This in turn is helping international investors setting up or transferring their businesses, such as:
- Corporates looking for cost-effective and tax efficient solutions for their:
- International structuring;
- Treasury units; and
- Non-core activities.
- M&A transactions, this including an increasing interest from outside the EU;
- Securitization transactions enabling a number of possible advantages to originators and investors;
- Investment funds and asset managers, in which Malta is consistently ranked as one of Europe’s top domiciles;
- Ship registration, with the Maltese flag being the most popular in Europe;
- Aircraft registration, with Malta now committed in replicating its shipping success in aviation;
- Trusts and foundations, whereby Malta operates an Anglo-Saxon trust concept within a civil law framework, modernized in line with international trends;
- Wealth management, this combining the economic and fiscal advantages with the high quality of life. Such advantages can also include:
- Yacht and private aircraft registration;
- Residence programs, offering a flat tax rate of 15% to individuals such as foreign entrepreneurs, intellectuals, athletes or consultants who could establish a second residence in Malta. Such programs will allow visa-free travel throughout Europe’s Schengen zone +; and
- Citizenship through investment in property and financial assets.
- Qualifying recognized overseas pension schemes, this making Malta the main market for UK expats’ pensions.
According to 2014 figures, 75% of the companies re-domiciled to Malta are from outside the EU, with 33% involved in property activities, 19% in private investment companies and 14% were holding companies.
The reputation and integrity of the country is now well established and Malta is well known for the robustness of its legal, statutory and regulatory framework. As a result Malta is proving ever more appealing for businesses looking to re-domicile from an offshore to a safe and stable EU onshore jurisdiction.
The re-domiciliation process: MALTA
The general steps will include the entity to provide:
- A certificate of good standing issued by the Registrar of the first country;
- A Board resolution confirming the intention to re-domicile and the person(s) who will be authorized to execute the change; and
- The latest 3 sets of audited financial statements.
Once all the required documentation has been accepted by Malta, the Registrar will issue a provisional registration certificate. Following the strike-off of the entity from the first country, Malta will issue a final registration certificate. In cases where the entity carries out a licensable activity, such as for example investment, additional requirements would be applicable.
CYPRUS: Benefits to re-domiciliation
The Cypriot economy has quickly recovered from the banking crisis of 2013 and market confidence is restored. The economy is growing at a real GDP rate of 2.9% in 2016 and is expected to further increase. Cyprus’ credit rating was also recently upgraded by S&P to BB+.
Business and Tax Benefits of Cyprus
- Member of the EU since 2004 and the Euro currency zone since 2008;
- Strategic geographical location at the crossroads of Europe, Asia and Africa;
- Transparent and effective common law legal system;
- Wide DTT network with more than 50 countries;
- Several reciprocal agreements are in place for investor protection with many countries, in addition to the full range of common law protection tools;
- Low corporate tax rate at 12.5%, one of the lowest rates in the EU;
- No WHT in Cyprus on payments of dividends, interest, and royalties to non-residents (apart from royalties paid for IP economically utilized in Cyprus);
- No Capital Gains tax in Cyprus except for sale of real estate situated in Cyprus (or company owning real estate in Cyprus unless listed);
- Full participation exemption for tax resident companies on dividend income (subject to non-stringent conditions);
- No taxation on profits from the sale of securities;
- No Controlled Foreign Companies (CFC), thin capitalization, transfer pricing or substance legislation;
- Unilateral tax credit relief irrespective of the existence of a tax treaty;
- No taxation on liquidation of a Cyprus company;
- Notional Interest Deduction (NID), which applies as a deemed interest expense on newly injected capital and can reduce the effective tax rate to up to 2.5%; and
- Ideal for business people and entrepreneurs due to abundance of high-skilled professionals at low salary levels.
Other Lifestyle Benefits of Cyprus
- High standard of living yet at low cost;
- Modern road infrastructure and connectivity via air and sea;
- Low crime rate;
- High standard of private schools and universities;
- Hospitable people and excellent cuisine;
- Ideal for retirees due to the stable, warm climate;
- Advanced medical centers; and
- Ideal for athletes due to optimum climatic conditions for training.
Additional Benefits of Cyprus for Individuals
- Incentives and tax benefits for high-earning employees that relocate to Cyprus;
- Entitlement to claim Cyprus tax residency after spending more than 183 days in Cyprus, which allows for 50% exemption from income tax for 10 years for remunerations exceeding EUR 100,000; and 20% for smaller amounts for 5 years
- Flat tax rate of 5% for retiree pensions;
- Resident non-domiciled status effective, whereby interest, royalties and dividend income, whether sourced in or outside Cyprus not subject to Special Defence Contribution (SDC);
- Dual citizenship allowed;
- Visa free travel to over 168 countries worldwide;
- Express procedure of 3 months to obtain citizenship with minimum investment of EUR 2 million;
- Investment may be released after 3 years of holding. (Investing, not donating funds);
- Permanent residency can be granted simultaneously with citizenship;
- No official data on citizenship applications, thus all applicants’ details remain confidential; and
- Citizenship may be granted to spouse, financially dependent children of up to 28 years old and parents of applicant.
The re-domiciliation process: CYPRUS
The offshore company must appoint a local approved representative to assist with the re-domiciliation process in Cyprus. The application to be filed with the Registrar and accompanied with a number of documents including:
- Memorandum and articles of association of the company;
- Certificate of good standing;
- List of current members and directors of the company; and
- An affidavit by a director of the company confirming the company has notified the relevant authority in its current jurisdiction of its decision to re-domicile to Cyprus.
A temporary certificate will then be released confirming that the offshore company has re-domiciled to Cyprus and can continue its business activities in line with the laws of Cyprus. Within six months of this, the offshore company must present the Registrar with evidence from the relevant authority that it is no longer registered in the jurisdiction of its incorporation. Once this has been satisfied, a certificate of continuation confirming that the company is registered in Cyprus is issued.
How Amicorp can assist with the re-domiciliation process
Amicorp Group is available to assist with any queries you might have in relation to relocating from an offshore jurisdiction to Malta or Cyprus. We can assist in the set-up and on-going maintenance of entities as well as with personalized and family support in your relocation, citizenship and residency needs. In addition, with offices in more than 30 countries, Amicorp offers global solutions and expertise to meet your on-gong global needs.