The International Tax Round | Spring 2020
Welcome to the spring edition of The International Tax Round, which offers concise updates on cross-border tax developments.
In this edition, we provide updates on citizenship by investment and the changes to the reporting of trusts, among others.
I welcomed in the New Year in Miami, which seems a long time ago now. Whilst there, I discovered more about the tax reforms that are due to impact the Miami real estate market, which made me realise that it’s not just the UK that experiences never-ending changes to property tax laws. It’s a global topic of conversation.
Since being back, Brexit is still causing much uncertainty as we await conclusions on trade agreement negotiations, which means the full impact will not be felt until 2021 at the earliest.
In other news, you may have seen that the UK has risen to 12th place in the Tax Justice Network (TJN) 2020 financial secrecy index, from 23rd place in 2019. The UK’s network of overseas territories and crown dependencies was the main factor in this change, with the Cayman Islands occupying the top spot. The TJN’s index ranks jurisdictions according to levels of public transparency over such things as the beneficial ownership of companies, combined with the scale of their trade in international financial services.
As always, I hope you find this edition useful and I look forward to sharing more with you over the coming year.
Citizenship/ residence by investment
An individual can obtain a residence card, or even citizenship in a second country through local investments. This could be an investment of a certain amount in an institution or in government bonds, or by purchasing property. This is perfectly legal and allows individuals to use either of their residence statuses or citizenships whenever required, for example, when providing information to a financial institution. However, this of course has consequences when the said institution is required to report the individual’s residence/nationality to the relevant fiscal authority through the Common Reporting Standard (CRS). Although citizenship by investment is often done for legitimate reasons, the OECD is aware that it is sometimes used to misrepresent an individual’s jurisdiction and is advising institutions to delve deeper into the country of residence which the individual declares. We leave you to conclude as to the implications of this…
The UK is expanding its requirement for trusts to register under its Trust Registration Service (TRS). At present, the requirement to register has been limited to trusts who have an imminent UK tax liability only. However, with effect from 10 March 2020, it is proposed that newly created trusts will need to register within 30 days of creation, irrespective of whether or not they have a UK tax liability. Additionally, all trusts currently not registered under the TRS will need to register by 10 March 2022, again regardless of whether or not they need to pay UK tax.
The defining criterion for the registration of non-EU trusts is for the trust to own UK real estate or to have a business relationship with a UK “obliged entity” (an entity obliged to register under the UK’s Money Laundering regulations). It is proposed that there will be certain exemptions. A new penalty regime for late registration will also be introduced. Read more about these changes here.
The proposed legislation has just concluded a consultation period and we await the final version shortly.
Brexit – business as usual
While the UK officially left the EU on 31 January, for VAT purposes, it is as though the UK is still in the EU, at least until 31 December 2020.
This means that it is really business as usual in the UK for VAT, including supplies of goods and services to and from the EU, and Intrastat reporting, at least for the next 11 months. Distance selling rules are also unaffected.
In addition, VAT incurred in the UK can be recovered on a VAT return as normal using the portal; MOSS will still apply for digital sales to the UK, and for the purposes of TOMS, VAT on the profit margin will still be at the standard rate.
The big challenge will be 2021. Hopefully, the new rules that will apply between the UK and the EU will be agreed upon and published in time. It is possible that for VAT at least, there will be a soft landing. This will be welcomed if there are wholesale changes, which is likely to be the case considering that the UK is meant to be leaving the customs union and single market.
New CGT rules on property
Non-residents have been required to pay Capital Gains Tax (CGT) on disposals of UK residential property within 30 days since April 2015, unless the individual is under Self-Assessment, in which case the normal Self-Assessment payment date applies.
- From 6 April 2019 this is also applied to indirect disposals of interests in a ‘UK property rich’ entity. An entity is ‘property rich’ if at the time of the disposal, 75% or more of the value of the asset disposed of derives directly or indirectly from UK land (whether commercial or residential) – more on this can be read here.
- Since April 2019, gains on the disposal of any UK commercial property held by a non-resident ‘person’ are taxable. The property is rebased to its market value as of 5 April 2019 when calculating the gain
- From 6 April 2020, all CGT due by non-resident individuals on disposals of UK land and property, and on indirect disposals of interest in UK property rich entities, must be paid within 30 days even if the individual is under Self-Assessment
Non-resident companies are also now subject to corporation tax on any gains made. Read more about this change here.
New Stamp Duty Land Tax on the horizon for non-residents
Property professionals and prospective overseas buyers should prepare for yet another change in the Stamp Duty Land Tax (SDLT) regime. There have been no formal announcements yet, but it is anticipated that a 3% surcharge for non-resident buyers of residential properties will be introduced. The government had earlier consulted on a 1% surcharge, but no date has yet been set. No doubt we will know more on our budget day, which is set for 11 March 2020. Those overseas buyers who are in the final stages should look to ensure completion takes place on or before 11 March and should certainly ensure that they reach exchange on or before that date.