Ireland, Cyprus and Malta are all sovereign members of the European Union and offer either very competitive ‘flat’ rate corporate tax rates of 12.5% in the case of Ireland and Cyprus or in Malta very generous tax rebates in respect to the external distribution of dividends resulting in an ‘effective’ corporate tax rate of only around 5.5%.
The suitability of each jurisdiction of course depends on many factors but in all cases genuine local management and control is essential if both tax treaty and EU directive benefits are to be garnered. For example, in the case of a trading company it may well be necessary not only to have a local managed office, fiscally resident professional director (normally an accountant or lawyer), dedicated secretary, local telephone number etc. but also genuine and appropriate staff in the selected country.
It should also be noted that there should always be an underlying business and not just tax case for relocating all and/or part of particularly an existing business. In the case of the SCF Group we believe we are in a unique position to satisfy the above requirements as we have our own in-house management centre in Ireland, very close to the Dublin M50 ring-road, a chartered accountant director resident in Cyprus and long established legal and accountancy relationships in Malta.
Ireland is by far the largest of the selected jurisdictions not just in physical size or population but also in terms of overall economic development and per capita gross national product. For companies trading in the computer, pharmaceutical, medical or agricultural sectors it is probably without a European peer and has a reputation for having a skilled, hardworking workforce supported by a relatively (at least in comparison to general European norms) non-bureaucratic , pro-business environment. In addition, Ireland has shown that it has a robust economic model managing to negotiate itself out of the Euro bailout faster than any of the other affected countries and without social discord. It should also be remembered that Ireland not only has a strong EU presence but is the favoured jurisdiction for US corporations seeking a European or indeed World headquarters operation. Ireland has, perhaps not surprisingly, very strong tax treaties with the United States, Canada, Australia and New Zealand and is probably the most prestigious of the lower EU tax jurisdictions but this should be tempered by the fact that the local Revenue Commissioners really (and quite rightly) wish to see genuine local benefits be it at an employment, banking or investment perspective. It should also be noted that ‘passive’ holding activities/investments are not covered by the 12.5% corporate tax regime but rather a far less favourable 25% corporate tax regime. To find out if Ireland is suitable for your company and/or perhaps as a relocation centre for existing business activities please contact either our Irish or London offices.
Cyprus was undoubtedly the most negatively affected sovereign state during the bailout crises perhaps with only its Greek cousin to the North-West having suffered to any comparable extent. Certainly confidence in the Cypriot banking system was severely compromised as was the veracity of some of its trading practices with Russia. However, notwithstanding these severe setbacks Cyprus is still a full sovereign member state of the EU and hence its companies fully benefit from EU directives such as 90/435 (the parent subsidiary directive which allows dividends to be sent without withholding tax from one EU country to another) and the interest directive 03/49 (which allows interest on loans to again be paid without any withholding tax). In addition, Cypriot companies are more cost effective than in either Ireland or Malta whilst banking concerns can be alleviated by simply establishing a bank account outside of Cyprus for one Cypriot company. In précis, Cyprus is down but not out as a tax planning jurisdiction. Ironically, Cyprus is still an ideal base from which to conduct business with what were formally called the COMECON countries due to its excellent double taxation treaty network with most of Eastern Europe. It is however not recommended for those with significant business in North America due to historical ‘grey’ listing with the IRS and Revenue Canada.
Malta operates a more sophisticated tax system than Cyprus and also benefits from not having as much exposure to Russian banking deposits. The key to using a Maltese company is that whilst the indigenous corporate tax rate of 35% doesn’t sound like an attractive proposition, the effective tax rate where shares are held by a tax efficient external company can come down to as little as 5.5%. This is done by the local tax authorities providing a tax rebate when dividends are distributed but it should be noted that accountancy costs tend to be higher and of course it is necessary also to set-up the external share owning companies. Malta is an ideal base for those doing business in North Africa or indeed the Middle East but has also built up a sizeable financial services sector particularly in respect to online gambling and FX companies.