Malta and Cyprus – EU outposts for UK companies

The uncertainties around the UK’s departure from the European Union continue to multiply even as the statutory date for ‘Brexit’ draws nigh. And as anyone following the tortuous negotiations for withdrawal will know, there has been precious little progress towards reaching a formal agreement on the terms of UK’s future trade relations with the 27 remaining EU Member States.

In the absence of any clear lead from either Westminster or Brussels, businesses in the UK are now having to consider their options under both a ‘deal and a ‘no deal’ Brexit scenario.

In practice Brexit will require negotiation of a wide range of new arrangements with the EU and other countries. This may result in the UK participating as a non-member in aspects of the EU on terms very similar to those currently in place, whilst other aspects are likely to be radically different. Similarly, negotiations with non-EU countries could play out in a number of different ways. Taken together, this amounts to a wide range of possible outcomes.

At Sovereign, we have been seeing an elevated level of enquires from UK-based firms that are looking to establish subsidiaries or branches in one or more of the remaining EU27 states in order to retain access to coveted European markets.

Sovereign has offices in a number of EU member states and close associations across the remainder, so we can assist with setting up any new structure that is required. We recommend Malta and Cyprus as the most favoured locations, but the specific circumstances of individual businesses will dictate where best to establish to secure rights of access to the EU bloc after Brexit.

Malta and Cyprus both have a close association with the UK. Cyprus gained its independence from the UK in 1960, a path that Malta followed in 1964. Both islands became full member states of the EU in 2004, adopting the euro as their official currency four years later.

English is one of Malta’s official languages, and legislative, judicial and company documents are available in English. English common law does not apply but its influence is strong in much of local commercial practice and regulation, especially in company law and in insurance and banking law, which closely follow English practice.

Malta’s tax system and its extensive double tax treaty network means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency. A Malta-incorporated company is considered to be ordinarily resident and domiciled in Malta and is subject to Maltese tax on its worldwide income at the nominal rate of 35%. However, through the application of a refund mechanism for shareholders of a Maltese company, the combined overall tax burden in Malta can be reduced to between 0% and 10%.

Malta grants relief from double taxation under the credit method on source-by-source and country-by-country bases. Maltese now has double tax treaties in force with over 70 countries, including the UK. In terms of domestic legislation, no withholding taxes are imposed on dividends, interest or royalties paid to non-residents, provided that various conditions are met. In addition, no Maltese tax is imposed on gains realised from transfers of corporate securities by non-residents.

To attract highly qualified personnel to Malta, it has introduced an incentive scheme targeting well-paid foreign executives, which offers a flat personal income tax rate of 15% on income up to €5 million. Any income over €5 million is received tax-free.

Cyprus’s competitive advantages include an effective legal system based on English Common Law principles and an attractive tax regime that offers a wide range of incentives and advantages both for companies and individuals. English was the sole official language before independence and proficiency in English is high with over 75% of people in Cyprus being able to speak English.

Cyprus business legislation is similar to that of the UK and, as a full EU member state, companies in Cyprus enjoy full access to European markets and EU trade agreements. The key benefit of a Cyprus company is the uniform 12.5% corporate tax rate, which is one of lowest in the EU. Cyprus is also fully compliant with EU and international standards and provides access to an extensive network of more than 60 double tax treaties worldwide, including South Africa, Luxembourg, Mauritius, Singapore, the UK and the US.

In addition, Cyprus offers a dividend participation exemption, levies no tax on profits from disposal of securities, no withholding taxes, no tax on capital gains under certain conditions and no succession taxes. It also provides a Notional Interest Deduction (NID) on investment in Cypriot companies and an attractive intellectual property (IP) regime.

A company is considered to be tax resident in Cyprus if its business is managed and controlled in Cyprus. It does not have to limit its operations to Cyprus. There is also no restriction in relation to the residence or the nationality of the owner.

Sovereign has long-standing offices in London, Malta and Cyprus and is very well placed to provide corporate services to UK companies looking to structure effective and efficient market entry into the EU. The services we provide range from business establishment, director services and company secretarial support, through to employee benefits, corporate and individual pension schemes, corporate and private client insurance, wealth solutions, accounting, payroll, as well as relocation assistance.

Every business is different and how you plan for the post-Brexit environment will reflect this. Sovereign can help you establish or move forward your planning process, looking at the risks and the opportunities. We can help you navigate what, for many, will be a period of considerable uncertainty. Contact us to find out how Sovereign can assist your business or that of your client.