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Principality of Monaco Bank confidentiality New 2010 VAT Rules

THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLAND January // February // March 2010

De Vittori of Switzerland: Our new offices in Miami


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EDITORIAL Dear colleagues and clients, We are happy to present the March edition of Facts & Figures, the magazine produced by De Vittori of Switzerland. In the following pages, you will find an overview of the Monaco tax system with regard to both individuals and companies and an article about two fundamental amendments to the Income Tax Law and the Special Contribution for Defence (SDC) Law, passed by the Cyprus Parliament on October 22, 2009. These amendments have made Cyprus even more attractive to investors. Special attention is paid to corporate law in Cyprus and Estonia and to the various incentives for foreign investments granted by the legislation in those countries. Furthermore, an informative article details the new VAT rules, explaining the changes that have taken place since January 1st 2010 regarding the collection of this tax. Finally, after a report about the latest news from Switzerland and from the world, we will bring you to Miami, where De Vittori of Switzerland has opened its second office in the United States. In conclusion, we would like to remind you, our loyal readers, that we await your contributions. If you have any suggestions or proposals, please do not hesitate to write us. This will help us produce a more interesting and varied magazine. Alessandro Pumilia Editorial Director


De Vittori of Switzerland

We’re your right-hand man… and often also your left!

18. 6.


inside this issue

11.

6.

Taxation

11.

Taxation

14.

26.

30.

18. 26.

Principality of Monaco

Estonia

Economy New 2010 VAT Rules

Economy Bank confidentiality

News from Switzerland

28.

News from the world

30.

De Vittori of Switzerland Our new offices in Miami


Principality of Monaco

T

he Principality of Monaco is the smallest sovereign State in the world with the exception of the Vatican. The country’s economy is based on the absence of direct taxes and on banking secrecy, which are its hallmark. The following is an overview of the Monaco tax system with regard to both natural persons and companies. Natural persons Situations may be as follows: - natural persons of any nationality whatsoever, with the exception of French nationals, residing in the Principality are not subject to any income tax; - French natural persons residing in Monaco for tax purposes: by virtue

The Principality of Monaco allows some substantial tax relief for the purpose of encouraging the setting up of companies in the Principality. Specifically, said relief translates into the following tax rates:

of the treaty signed by the two States, are subject to taxation in France on income earned in Monaco. In fact a French natural person who has transferred his residence for tax purposes to the Principality is considered to have kept his residence for tax purposes in France. Legal persons The objective of the tax structure is to provide tax relief for businesses, including companies, that carry out their activities in the Principality and this approach is supported by a strongly-incentivizing tax structure. Furthermore, it should be said that the only direct tax levied in the Principality of Monaco is the corporate income tax (Impot sur les bénéfices). It is to be noticed that application of this tax is irrespective of the type of company, but rather is influenced by the following two variables: - localization of business activities; - type of business.

In summary - companies that carry out commercial or industrial activities who realize more than 75% of proceeds in the Principality are exempt from direct taxes (Impôt sur les bénéfices); - companies which realize at least 25% of proceeds outside the Principality - including through an intermediary - are subject to a 33.33% rate (the same rate that is applicable in France); - lastly, companies whose business - carried out in Monaco earns proceeds which come from artistic/literary production or from patents and trademarks, are subject to tax. Therefore in Monaco, only as of the sixth year does a company which realizes 25% of its turnover of business outside the Principality (or which realizes proceeds from exploitation of immaterial rights) begin to pay taxes.

Source Fiscalità Internazionale, IPSOA, November/December 2009

FIRST TWO YEARS OF ACTIVITY

=

ZERO RATE

THIRD YEAR

33,33% OF 25%

=

8,33%

FOURTH YEAR

33,33% OF 50%

=

16,67%

FIFTH YEAR

33,33% OF 75%

=

25%


On October 22, 2009, the Cyprus Parliament passed two fundamental amendments to the Income Tax Law and the Special Contribution for Defence (SDC) Law that makes Cyprus even more attractive to investors.

earned as investment income was taxed at 15%. b.After the amendment: the interest earned as investment income is taxed at 10% under the SDC Law. The effective tax rate on both types of income becomes 10%.

1. CORPORATE PORTFOLIO INVESTORS

a.Prior to the amendment: dividend income received by a Cypriot tax resident company from abroad was subject to a 15% SDC if the percentage of holding was less than 1% in the payer company, regardless of whether other exemption criteria were met. b.After the amendment: the 1% holding is abolished, so that investors can qualify for the participation exemption relating to their portfolio holdings, regardless of the percentage and period of their holding. 2. COMPANIES EARNING INTEREST

There are two types of interest received that are recognised by the legislation: (a) interest received in the normal course of business (e.g. Financing companies), taxed at 10% under Income Tax Law; (b) interest earned as investment income (e.g. on cash deposits). a.Prior to the amendment: interest

3. COLLECTIVE INVESTMENT SCHEMES

a.Prior to the amendment: interest earned by Collective Investment Schemes (CIS) was subject to effective tax at 15%. b.After the amendment: interest income is subject to effective tax rate at 10%.

Cyprus

Amendments to the Income Tax Law and Special Defence Contribution

4. INVESTMENT INTO A CIS Units in a CIS held by an investor fall within the definition of “titles� under the wider definition of financial securities. Gains from trading or disposal of financial securities are not subject to tax in Cyprus. These amendments will come into force immediately with retroactive effect to January 1st, 2009.

Source Aspen Trust Group, Nicosia

7.


Cyprus Investment Firms CIF European capital markets are becoming integrated: the EU directives, the Markets in Financial Instruments Directive (MiFID) and the Prospectus Directive, have facilitated the process. MiFID delivers a range of benefits which include cross-border access to national retail markets, improved transparency across EU capital markets and a level playing field for investment firms across the EU. It is also creating a more coherent regulatory regime across Europe. The “Single EU Passport” facilitates trading in the EU and protects investors from the excesses of secondary markets. A Cyprus Investment Firm (CIF) is able to operate within the EU and take advantage of the harmonisation rules prevailing. The implementation of the rules has resulted in new business opportunities, as more services are interchangeable. Investors can now register their investment vehicle in Cyprus, an established tax efficient EU member state, and make use of the capital market opportunities. What follows is the procedure to set up a CIF, including the advantages of setting-up and working from Cyprus. THE INVESTMENT FIRMS LAW The Cyprus Investment Firms Law 144 (I) 2007 (the “Law”) provides the legal framework for the provision of investment services as well as for the registration, regulation of operations and supervision

of Cypriot Investment Firms (CIF). Under the provisions of the Law, the following entities may provide investment services on a professional basis: - CIF: investment firms operating within Cyprus, excluding credit institutions, provided that the CIF has obtained the appropriate authorisation from the Cyprus Securities and Exchange Commission (CySEC) - Credit institutions established in Cyprus: provided that the credit institutions have received an authorisation from the Central Bank of Cyprus (CBC) in accordance with the provisions of the Banking Acts 1997 to 2000 for the provision of investment and ancillary services - Investment firms with their registered offices outside Cyprus: whether rendering investment or ancillary services through a branch or operating on a cross border basis without a branch, provided they have been granted a licence from the regulators of an EU member state INVESTMENT SERVICES Investment services include any of the following services: - reception and transmission of orders in relation to one or more financial instruments; - execution of orders on behalf of clients; - dealing on own account; - portfolio management; - investment advice;


- underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; - placing of financial instruments without a firm commitment basis; - operation of Multilateral Trading Facilities (MTF). ANCILLARY SERVICES - afekeeping and administration of financial instruments for client accounts, including custodianship and related services such as cash/collateral management; - granting credits or loans to an investor to carry out a transaction with one or more financial instru ments; where the firm granting the credit or loan is involved in the transaction with one or more financial instruments; where the firm granting the credit or loan is involved in the transaction; - advice with undertakings on capital structure, industrial stra tegy and related matters and advice and services relating to mergers and purchases. - foreign exchange services where these are connected to the provision of investment services; - investment research and financial analysis or other forms of general recommendations relating to transactions in financial instruments; - services related to underwriting.

financial instruments, and which for that reason may not at any time place themselves in debt with their clients, may have an initial capital of: (a)€80.000 or (b)€40.000 and professional indemnity insurance covering EU member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking representing an amount of at least €1.000.000. An initial capital of at least €1.000.000 is required if a CIF provides one or more of the following investment services and/or performs the following investment activities: (a)dealing on own account (b)underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis (c)placing of financial instruments without a firm commitment basis (d)operation of a Multilateral Trading Facility (MTF) A CIF that is also registered under the Insurance Services Law to provide insurance intermediary services in the insurance sector must comply with the requirements of the Law and in addition must have an initial capital of:

MINIMUM SHARE CAPITAL An initial capital of at least € 200.000 is required if a CIF provides one or more of the following investment services and holds clients’ money and/or clients’ financial instruments: (a)reception and transmission of orders in relation to financial instruments; (b)execution of orders on behalf of clients; (c)portfolio management; (d)provision of investment advice. A CIF that provides investment services as stated above but does not hold clients’ money and/or clients’

(a)€40.000 or (b)€20.000 and professional indemnity insurance covering EU member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least €500.000 PROCEDURE FOR LICENSING The business objective of a CIF should be the provision of those investment and ancillary investment services for which it has received a licence by CySEC. a)a business plan, which should include a description of the opera-

tions, the organizational structure, forecasts for the first two financial years and the names of at least two experienced and reliable persons who shall run the business; b)draft Memorandum and Articles of Association and such as they are expected to be formulated after the granting of the CIF authorization; c) excerpt of the criminal record, certificates of non-bankruptcy and resumes of the members of the board of directors, the executives and shareholders possessing a qualifying holding, as well as their answers to a questionnaire issued by the CySEC; d) draft internal regulations (Operations Manual) depending on the investment and ancillary services which the company proposes to provide; e) draft organisational structure of the applicant company; f) description of the applicant’s computer network and electronic infrastructure; g) draft regulation in accordance with acceptable practices for the prevention of the legalisation of the proceeds of criminal activities. CySEC reserves the right to request the submission, together with the application, of any additional documents not listed above. If the shareholders possessing a qualified holding in the applicant company (10 percent or more) are legal entities, then CySEC will also require the details for all natural persons - ultimate beneficial shareholders. CySEC will reach a decision within four months following the submission of a duly completed application, on either granting a CIF authorisation or refusing the application. During this four month period CySEC may request additional information or clarifications regarding the application submitted. CySEC must be satisfied with the paperwork submitted including: - content of the manuals; - due diligence information provided for legal and physical

9.


shareholders and personnel; - sufficiency in quantity and quality of the staff to be employed;

CRITERIA FOR SUCCESSFUL APPLICATION

on a full time/part time basis as described in the applicant’s organisational chart; - heads of the core services departments must possess relevant professional competence certificates from the Ministry of Finance of Cyprus. CIF has a 12 month period subsequent to the issue of the licence to comply with the above requirement.

In general, in order to grant a CIF authorisation CySEC must be satisfied that the applicant company has and maintains throughout its operation:

After the granting of the authorisation, CIF must comply with the on-going obligations provided by the law and the relevant CySEC directives.

The main shareholders, managerial staff and internal auditors may be called for personal interviews with the Chairman of CySEC.

- the minimum capital required under the Law; - shareholders possessing a qualifying holding or otherwise capable of exercising an influence over the management and business strategy must be fit to ensure the sound and prudent running of the company; - two experienced and reliable persons* to manage its business, and that the said persons are capable to fulfill their duties. One of these two executives should be employed by the company on a full time basis and live in Cyprus. They should both be accessible and available to appear before the Commission with reasonable notice; - adequate technical and financial resources; - appropriate control and safeguarding arrangements for electronic data processing and adequate internal control mechanisms; - reliability, experience, professional skill and professional diligence of the persons who direct its business; - adequate structures and mechanisms in order to guarantee the protection of investors’ assets and eliminate any conflict of interest that may arise between the company or the staff and clients’ interests; - full-fledged office with established telecommunication and PC network, staffed with employees

* Experienced and reliable persons* to be appointed as directors of CIF are not defined in the Law. However, a manager will need to have the following qualities: 1. experience of at least three years in the financial services sector in the market(s) where the company will be operating; 2. he/she will need to possess adequate academic background and practical experience; 3. he/she should be in a position to appreciate the nature of the business which the applicant plans to undertake and duly comprehend the nature of the tasks undertaken; 4. he/she should also know at least another European language, English is a must in most circumstances.

is as follows: ordinary shares, founder’s shares, preference shares, options on titles, debentures, bonds, short positions on titles, futures/forwards on titles, swaps on titles, depositary receipts on titles (ADR and GDR), rights of claims on bonds and debentures (rights on interest of these instruments are not included), index participations, if the index derives from participation, re-purchase agreements or Repos on titles (where the agreement concerns the sale and re-purchase of titles and the price of purchase and sale is at market rates), participations in Russian OOO and ZAO, US LLC provided that they are treated as corporations for tax purposes, Romanian SA and SRL, Bulgarian AD and OOD as well as units in open-end and closed-end collective investment schemes including investments trusts, investment funds, mutual funds, unit trusts, real estate investments trusts, international collective investments schemes or ICIS, Undertakings for collective investments in transferable securities or UCITS.

TREATMENT OF FINANCIAL INSTRUMENT AS “TITLES” A long awaited circular was recently issued by the Income Tax Authorities of Cyprus that lists the financial instruments that fall within the definition of “titles”contained in the Income Tax Law N118 (I)/2002. The legislation stipulates that any gain on the disposal of titles is exempt from income tax in Cyprus. No minimum participation threshold is required. The full list of financial instruments that fall within the definition of titles

Source George Philippides


TAX ADVANTAGES

CIF ARE SUBJECT TO TAX IN AN IDENTICAL MANNER AS ANY OTHER CYPRUS ENTITY. IN SHORT, WHAT IS ESPECIALLY SIGNIFICANT FROM A TAX PERSPECTIVE ARE THE FOLLOWING: • corporation tax rate of 10 percent for all entities– the lowest rate in the EU • no tax on disposal of titles, whereby titles are defined as shares, bonds, debentures, units, founder and other titles of companies or legal persons and rights thereon • participation exemption system on dividends/profits from abroad • no withholding taxes on payments of dividends, interest, and -in most cases- on royalties paid to non residents • no holding period requirements for the participation exemption on dividends or for the exemption of tax on the disposal of titles • absence of any withholding taxes of interest payments made abroad • absence of withholding taxes on dividend payments from Cyprus • no thin capitalisation rules • relative simplicity and certainty of Cypriot tax regime • favourable network of tax treaties with nearly 40 countries OTHER ADVANTAGES • it is an EU member state and compliant with EU laws and regulations • a public company in Cyprus can list easily on any stock exchange within the EU and benefit from “Single EU Passport” access to European Securities Markets • recognition as a mature financial services centre with a developed infrastructure, a resilient economy, highly qualified professionals and minimum formalities • licensing in Cyprus and the existence of a regulatory framework improves transparency and legitimacy with regard to shareholders, authorities and others • legislation has been put in place and is constantly under review to regulate and harmonise operations in the financial services sector • has a pool of highly educated and qualified professionals who can advise clients and provide expert support

11.


In 2009 Estonia was considered one of the most competitive and open economies in the world by OECD. The most widely spread types of legal entities chosen for establishing a business in Estonia are: - Private Limited Company (Osaühing – OÜ) - Public Limited Company (Aktsiaselts – AS) PRIVATE LIMITED COMPANY (OSAÜHING – OÜ) Registration is optional For private limited companies. The transfer of shares of a private limited company must be attested by an Estonian notary public. The minimum share capital is EEK 40,000. The Estonian Commercial Code prescribes that the minimum nominal value of a share for a private limited company has to be EEK 100. Each shareholder of a private limited company can have one share. The management structure of the public limited company consists of two layers, the shareholders’ general meeting and the management board. PUBLIC LIMITED COMPANY (AKTSIASELTS – AS) For a public limited company the minimum share capital is and EEK 400,000. The minimum nominal value of a share for a private limited company must be EEK 10. The shares of public limited companies must be registered with the Estonian Central Register of Securities. There are no requirements for a contract upon the transfer of shares of a public limited company. Procedures to account for changes in the Estonian Central Register of Securities are handled by banks acting as the securities’ account managers upon the request of the account holder. The management structure of the public limited company consists of three layers, the shareholders’ general meeting, the supervisory board and the management board. Generally, the liability of shareholders for the limited company’s obli-

gations is limited to their payments into the company’s share capital.

VAT The standard VAT rate is 20%, and the reduced rate is 9%, but there are several transactions subject to 0% rate several and exemptions. The VAT accounting period is the calendar month, and VAT should be declared and paid within the 20th day of the following month. Transactions subject to the O% VAT rate - Export of goods and intra community supplies. - International services - Goods placed into free zones or free warehouses or certain goods listed in Annex V of the Directive 2006/112/EC placed into a VAT warehouse. - International transport services, international passenger services. - Supply of aircraft operating on international routes. - Supply of sea-going vessels for navigation on high seas. - Provision of services on board vessels or aircrafts during international transport. - Supplies of goods and services under diplomatic and consular arrangements. VAT exempt transactions - Securities and financial services (with an option to tax domestically). - Immovable property or parts thereof (with an option to tax). - Insurance transactions. - The leasing or letting of immovable property or parts thereof (with an option to tax). - Universal postal services. - Betting, lotteries, and gaming. - Certain education services. - Health and welfare. Transactions subject to the 9% VAT rate - Books and certain periodicals (with few exceptions). - Listed pharmaceuticals. - Accommodation services (with few exceptions).

REAL ESTATE TAX AND LAND TAX The only property tax that is imposed in Estonia is Land tax. Land tax must be paid annually and is calculated on the basis of the estimated value of the land at rates between 0.1 and 2.5%, depending on municipality. The tax is paid by the owners of the land, or sometimes by the users of the land, in 3 installments by 31 March and 1 October. There is no property tax. Property transfers are generally subject to state and notary fees. Transactions in real estate are generally exempt from VAT, but there are some exceptions CORPORATE INCOME TAX Undistributed profits are not taxed. This exemption is applied on both active (i.e. main activity) and passive (i.e. dividends, interest, royalties, etc.) types of profits. In the same way capital gains from the sale of all types of assets, including shares, securities and immovable property are exempted. This tax regime applies to Estonian companies and permanent establishments of foreign companies that are registered in Estonia. The taxation of corporate gains is postponed until the profits are distributed as dividends or deemed profit distributions, such as transfer pricing adjustments, expenses and payments that do not have a business purpose, fringe benefits, gifts, donations and representation expenses. Distributed profits are in general subject to 21% corporate income tax (21/79 on the net amount of profit distribution). For the Estonian Jurisdiction this tax is seen as a corporate income tax and not as a withholding tax: for this reason the tax rate is not affected by any applicable tax treaty. Exemption (Inter-company dividends) Dividends distributed by Estonian companies are subject to exemption from corporate income tax if paid out of: - Dividends received from Estonian, EU, EEA and Swiss tax resident companies (except from


Estonia tax haven companies) in which the Estonian company has at least 10% shareholding. - Profits attributable to a permanent establishment (“PE”) in EU, EEA or Switzerland. - Dividends received from all other foreign companies in which the Estonian company (except from tax haven company) has at least 10% shareholding, provided that either the underlying profits have been subject to foreign tax or if foreign income tax was withheld from dividends received. - Profits attributable to a foreign PE in all other countries provided that such profits have been subject to tax in the country of the PE. Fringe benefits, expenses not related to business and transfer pricing Fringe benefits are taxable at the employer level with income tax at the ratio of 21/79 and social tax at 33%. In general all benefits provided to employees are taxed as fringe benefits. Expenses and payments not related to business activity are taxed at a ratio of 21/79. If the value of a transaction between a resident company and its associated party doesn’t reflect

market conditions, the difference is subject to taxation.

attractive jurisdictions for the world of Yachting:

Withholding taxes on payments to non-residents Estonia imposes withholding taxes on the following payments made to non-resident persons. - Dividends 0% - Interest 0%, 21% - Royalties 0%,10%* - Services provided in Estonia 10% - Rental payments 21%

- The procedure for the registration of a craft in Estonia is very simple, quick and cost effective. - For residents of the EU, it is easy to meet the necessary requirements to qualify as Crew on a craft in Estonia. - There is a favourable Tax system that lessens the financial burden that could arise with the detention of a craft. - Estonia has stipulated many Treaties and Conventions with foreign States such as Italy, the UK, and Isle of Man.

* 0% rate applies if the recipient is resident of another EU country or Switzerland, owning more than 25% of the company paying royalties for more than two years and the royalty is at arm’s length. Withholding tax rates may be reduced by Double Taxation Treaties. Withholding tax becomes payable as the payment is processed.

There are facilities to meet the range of needs that arise from the funding, purchase and registration of a vessel as well as its maintenance and the management of the crew, especially during the competition season.

YACHT AND VESSELS Managing a yacht is, from many points of view, similar to managing a business. For many reasons, Estonia is one of the most

Source Francesco Olcelli

13.


New VAT rules came into effect in all EU countries on 1 January 2010. The most significant changes relate to: 1. The rules for determining the place where a service is supplied and which country can therefore tax these services. 2. The refund of foreign (EU) VAT incurred during cross border transactions within the EU. 3. Reporting obligations and listings.

Place of VAT taxation (services supplied to a VAT-taxable person)

Until 31st December 2009

From 1st January 2010

Main rule

Taxation in the country where the supplier is established

Taxation in the country where the customer is established, under the reverse charge rule

Exceptions

Until 31st December 2009

From 1st January 2010

Services related to real estate (including services of estate agents and holiday accommodations)

Taxation in the country where the real estate is located

Taxation in the country where the real estate is located

Passenger transport services

Taxation in EU1* proportional to the distance covered in EU1*

Taxation in EU1* proportional to the distance covered in EU1*

Services and ancillary services relating to cultural, educational events etc., including the services of the organizers

Until 31st December 2010 Taxation in the country where the services are physically carried out

From 1st January 2011 Taxation in the country where the customer is established1

Restaurant and catering services

Taxation in the country where the services are physically carried out

Taxation in the country where the services are physically carried out

Short-term hiring of means of transport (no more than 30 days)

Taxation in the country where the supplier is established and the means of transport are used (the same or another EU member state)

Taxation in the country where the means of transport are actually put at disposal of the customer

Restaurant and catering services physically carried out on board ships, aircraft or trains during the section of a passenger transport operation effected within the EU

Taxation in the country where the restaurant and catering services are physically carried out

Taxation in the country where point of departure is located.

1 As an exception, services carried out for fairs and exhibitions from the 1st January 2011 will be taxable in the country where the events take place. *Any EU country.


De Vittori of Switzerland

Economy

New 2010 VAT Rules

Place of VAT taxation (services supplied to a non-VAT-taxable person) Until 31st December 2009

From 1st January 2010

Main rule

Taxation in the country where the supplier is established

Taxation in the country where the customer is established

Exceptions

Until 31st December 2009

From 1st January 2010

Services supplied by intermediaries

Taxation in the country where the underlying transaction is supplied

Taxation in the country where the underlying transaction is supplied

Taxation in the country where the real estate is located

Taxation in the country where the real estate is located

Taxation in the place of departure of the transport Taxation in EU1* if the point of departure is in EU1*

Taxation in the place of departure of the transport Taxation in EU1* in proportion to the distance covered in EU1*

Taxation in EU1* proportional to the distance covered in EU1*

Taxation in EU1* proportional to the distance covered in EU1*r

Taxation in the country where the activities are physically carried out

Taxation in the country where the activities are physically carried out

Taxation in the country where the services are physically carried out

Taxation in the country where the services are physically carried out

Taxation in the country where the services are physically carried out Taxation in the country where the supplier is established

Taxation in the country where the services are physically carried out Taxation in the country where the means of transport are actually put at the disposal of the customer2 Taxation in the country where the services are physically carried out

Services related to real estate, (including services of estate agents and holiday accommodations) Transport of goods in the EU Transport of goods in EU1* for delivery Passenger transport services Services and ancillary services relating to cultural, educational events etc., including the services of the organizers Ancillary transport activities such as loading, unloading, handling and similar activities Valuations of and work on movable tangible property Hiring of means of transport Restaurant and catering services

Taxation in the country where the services are physically carried out

Restaurant and catering services physically carried out on board Taxation in the country where the ships, aircraft or trains during the out for services areexhibitions physically from carried 1As an exception, services carried fairs and theout section of a passenger transport 1st January 2011 will be taxable in the country where the events take operation within the EU place. *Any EU country. Immaterial services supplied to a customer established out of the EU No taxation Electronically supplied services by a supplier established outside of the EU

Taxation in the country where the customer is established

Point of departure of the passenger transport operation

No taxation Taxation in the country where the customer is established

2 As an exception, from the 1st January 2013, the long-term hiring of means of transport will be taxable in the country where the customer is established. Moreover, specific rules will apply to the hiring of pleasure boats. *Any EU country.

15.


1

To a customer established in the EU

VAT-taxable customer

Non-VAT-taxable customer

Reverse charge rule*

VAT EU1*

2

To a customer established outside the EU

Non-VAT-taxable customer

VAT-taxable customer

VAT EU1*

o VAT except if actual use in EU1*

*Except actual use outside the EU. *Any EU country.

New 2010 VAT Rules

STANDARD SERVICES CHARGED BY YOUR COMPANY


STANDARD SERVICES CHARGED BY YOUR COMPANY

1

De Vittori of Switzerland

Economy

By a supplier established in the EU

Reverse charge rule except use outside the EU

2

By a supplier established out of the EU

Reverse charge rule except use outside the EU

Our VAT specialist can help businesses meet these new obligations and assist them in implementing the new rules in the most VAT efficient manner.

17.


Economy

Bank Confidentiality In many western European countries it was traditionally accepted that the relationship between a banker and his client was privileged and information about this relationship could not be released without specific legal authorization. However, in recent years bank confidentiality has regularly come into the spotlight. The most current episodes have centered around the efforts made by the United States, Germany, the UK and other countries to obtain details of undeclared income earned by their citizens from investments held abroad. Banks located in Switzerland and Liechtenstein have come under particular scrutiny in this area. The protection of government revenues is not the only reason for seeking access to financial details that, otherwise, would remain confidential. All countries are trying to track funds that may be used to support terrorist activity. The United States has demonstrated particular zeal in this area. These measures create tension between the government, with its right to maximise its revenues and empower its law enforcement agencies, and the individual’s right to privacy for his personal and financial affairs. These tensions create legal difficulties even when they arise in a purely domestic arena. The conflicts can become acute where they arise – as they frequently do – in a cross-border context. In such a case, the government’s right to raise revenue, to help detect crime and to seek information in support of those objectives will be governed by its national law, whilst the taxpayer can enjoy a right to confidentiality under the law of another country in which a relevant financial account is held. OVERVIEW CONCERNING BANK CONFIDENTIALITY: Austria Austria has a highly developed

banking system and maintains a high degree of banking anonymity. Austria is a member of the European Union and is a country highly recommended for those seeking a stable banking environment and that do not have significant dealings with Germany. Austrian law expressly recognises and protects a bank’s duty of confidentiality with respect to information received by or relating to its customers. This duty is primarily governed by s 38 (1) to (4) (scope and exceptions) and s 101 (criminal liability) of the Banking Act (BWG) and supplemented by several provisions of a procedural nature such as the Revenues Penal Code and the Criminal Procedure Code. Section 38 (5) of the BWG, a provision of constitutional law, affords special protection to the provisions of s 38 (1) to (4) of the BWG by stipulating that an amendment of these provisions requires - similar to an amendment of a provision of constitutional law - a quorum of at least 50% and a majority of twothirds of the deputies to the National Counsel. Since 1 January 1994, the provisions on bank secrecy have been partly amended, in particular with regards to money laundering, as Austrian law and banking practices initially permitted the opening of anonymous accounts in certain cases. In order to avoid the abuse of the Austrian banking system for the purpose of money laundering, in 1989, Austrian banks agreed on the wording of a uniform declaration, according to which each bank voluntarily undertook a number of duties to prevent such abuse. These duties were expanded by another declaration on additional duties of diligence in 1992, the compliance with which was still voluntary. Due to increasing national and international political pressure, as well as the fact that Austria became a full

member of the EEA in 1994 and of the EU in 1995, most of the duties contained in the above-mentioned two declarations were implemented into s 39ff of the BWG. Furthermore, money laundering was rendered a criminal offence. By amendment of s 40 of the BWG, with effect from 1 November 2000, the potential to open anonymous accounts was finally abolished: BWG, s 40 (1), no 1. This was supplemented by a new s 40 (6), according to which no payments may be made on existing savings accounts unless the bank registers the identity of the account holder. As of 30 June 2002, savings accounts of still unidentified holders need to be particularly labelled by the bank and no payments into and no withdrawals from such accounts are permissible unless the holder has been identified. As of 1 January 2002, the amount at which banks are required to register the identity of their customer in connection with cash transactions (does not include an ongoing business relationship between bank and client) was changed from ATS 200,000 to **[euro] 15,000. As of 31 October 2000, this requirement to register also applies to payments into and, as of 30 June 2002, to withdrawals from savings accounts in cases where the amount paid in or withdrawn exceeds **[euro] 15,000. Since 1 October 1998, the requirement to register the identity of a customer exists if there is a reasonable suspicion that the client is engaged in transactions for money laundering purposes: BWG, s 40 (1), no 3. The bank’s duty of confidentiality Section 38 (1) of the BWG reads: “The credit institutions, their shareholders, organ members, employees, as well as persons otherwise becoming active for the credit institutions, are prohibited from disclosing or exploiting secrets which were entrusted


De Vittori of Switzerland

to, or to which access was made available for, them on the basis of the business relationship with clients or on the basis of s 75 (3) hereof exclusively (Bank Secrecy). If, in the conduct of their official activities, organs of public authorities or of the Austrian National Bank, receive information which is subject to the Bank Secrecy, they shall maintain the Bank Secrecy as an official secret from which they may be released only in one of the cases set forth in s 38 (2). The duty of confidentiality applies without limit as to time.”

“Secrets” are facts, proceedings and conditions of factual or legal nature which are known to a limited group of persons only

The provisions contained in BWG, s 38 contain elements of private as well as public administrative law. The expressly stipulated confidentiality obligation on the part of public authorities which gain access to information which is subject to bank secrecy or the supervision of the banks’ compliance with the provisions on bank secrecy within the framework of the general supervision of banks certainly constitute elements of public administrative law. On the other hand, BWG, s 38 also defines the scope of a duty of private law which forms part of every contractual relationship between a bank and its customers. Views are split on whether or not the duties imposed by the statutory bank secrecy can be contracted away in whole or in part. The elements contained in the above s 38 (1) of the BWG can be described as follows: BWG, s 1 (1) defines as a credit institution (hereafter bank) as whoever is authorised to conduct banking transactions (explicitly enumerated and defined in s 1 (1) of the BWG) on the basis of the BWG or any other provision of federal law. Views are split on whether the bank secrecy also applies to institutions which conduct banking transactions without

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authorisation, i.e., which have not received the necessary banking license. The Austrian National Bank is not subject to the bank secrecy provisions of the BWG, but to its own provisions. Finance institutions, i.e. institutions authorised to conduct specific financial transactions as defined in BWG, s 1 (2) without qualifying as credit institutions, as well as contract insurance businesses, are principally also not subject to the bank secrecy. It is the prevailing view that the term ‘shareholders’ as used in s 38 of the BWG means all shareholders of a bank, including shareholders of banks which are publicly traded. ‘Organ members’ are the holders of offices which are provided for in the applicable corporate law. A trustee in bankruptcy is deemed an organ member of the bank. “Persons otherwise becoming active for the banks” are physical and other persons which are not integrated into the banks’ internal organisation, including outside counsel, other experts as well as other banks employed for the implementation of banking transactions. Physical persons may be simultaneously shareholders, organ members, employees of, or persons otherwise becoming active for, the same bank. “Secrets” are facts, proceedings and conditions of factual or legal nature which are known to a limited group of persons only and to which other interested persons cannot gain access at all or can gain access with difficulty only. Furthermore, an objective interest to keep the facts in question secret is required, but regularly presumed on the part of the clients. “Clients” are persons that deal with the banks in the context of banking transactions. Such transactions may not actually “end”. Since bank secrecy is unlimited in time, it continues to exist after termination of the contractual relationship, and even after the death (or liquidation)

of the client. If a bank gains access to a secret relating to a client in a manner other than through the business relationship, there is no duty of confidentiality upon the bank pursuant to bank secrecy. Non-clients, and therefore those not directly entitled to bank secrecy, are third parties. Although the banks receive confidential information from clients related to these third parties they are nevertheless obliged to keep this information confidential. “Disclosing” a bank secret generally, means making it known (or allowing it to become known by refraining from taking reasonable action to prevent disclosure). There is controversy regarding to whom bank secrets may be disclosed, on the grounds that such persons would also be subject to bank secrecy with respect to any relevant information disclosed (for example, other bank employees etc). One view is that a bank secret may only be disclosed to others within the same organisation (bank) with reasonable grounds for learning about the secret in question, such grounds depending on the relevant internal organisation. The opposing view advocates that bank secrets may be freely passed on within the same organisation (bank) provided that the recipients of the information are strictly bound by bank secrecy. Another controversial question is whether bank secrecy shall prevail over the (bank’s) supervisory board or the shareholders’ right to information. “Exploiting” a bank secret is generally interpreted as an economic exploitation to the detriment of the bank’s client. One of the leading issues is that a bank is entitled to use clients’ secrets for its own business dispositions, provided such use does not adversely affect the client in question, and for its own dispositions towards the clients even if that affects them adversely and, finally, for its usual counselling of other clients, provided that the secret is thereby not indirectly disclosed or that the clients in question are not otherwise


adversely affected. Bank secrets disclosed to courts or other public authorities become official public information and generally must not be exploited by the latter as a basis for the initiation of proceedings of any kind. To this extent the (transformed) bank secrecy prevails over the general duty of public authorities for mutual assistance. Furthermore, official secrecy is lifted once a trial has commenced. The Caribbean & Panama In virtually all of these jurisdictions there are statutes or, in the case of British Colonies, ordinances which generally require strict confidentiality from bankers. A breach of such confidentiality will often result in penal consequences. In addition, virtually all of this area’s exempt and international business corporations allow for bearer shares, do not require any form of annual accounts and maintain few details on public record. On the negative side, many of these are developing countries located close to South America and hence, can be sometimes be associated with various illicit transactions. Panama has very strong bank secrecy laws. Within Panamanian Legal Code, Article 74 of Decree 238 prevents the Panama banking commission from conducting investigations on individual clients. Any information uncovered during its regulatory activities cannot be revealed, unless subpoenaed by a Panama court order. Anyone in violation of this law is subject to Article 101 which states: “Any person who furnishes information in violation of this Cabinet Decree, or who violates any of the prohibitions established in it, for which no specific punishment is provided for, shall be subject to a monetary fine as determined by the Banking Commission, without prejudice to applicable criminal and civil liabilities.” Article 170 goes even further: “Any person that in the course of his occupation, employment, profession or activity obtains knowledge of confidential information that in the event of being made public could

inflict damages, and such person discloses that information without the consent of the concerned party; or in the case that disclosure of such information were not necessary to safeguard a higher interest, shall be punishable by imprisonment of 10 months to 2 years or a comparable fine, and the inability to practice his occupation, employment, profession or activity for not more than 2 years.” Cyprus When establishing an offshore company or a branch of a foreign company in Cyprus, details of beneficial ownership must be provided to both the registration agent and the Central Bank of Cyprus. However, if nominee Directors and shareholders are used, no information need be on public record except that relating to the said nominees. At the time of registration, personal bank references and passport photocopies will be required along with details on the type of business activities. Under local law, information pertaining to beneficial owners cannot be released under threat of penal consequences. In addition, the accounts submitted to the Central Bank at the end of the financial year are also strictly confidential. Nevertheless, the Cypriot authorities will release information if illicit transactions are involved once the proper procedures have been followed; however, Cypriot courts will not enforce another country’s civil tax claims. Gibraltar Gibraltar has introduced similar money laundering legislation to both the Isle of Man and Jersey. However, unlike these two jurisdictions, Gibraltar is part of the European Union and it has no double taxation treaty network and gained a very negative reputation in the 1980’s due to a number of high profile scandals. Non-resident companies are not subject to the same level of due diligence or monitoring as exempt companies. As with all other respectable European offshore jurisdictions, information will be released if illicit transactions are claimed. Most

of the recent UK Criminal Justice Act provisions tightening money laundering and anti-drug enforcement regulations are currently being redrafted for local implementation. Guernsey The Guernsey Financial Services Commission (G.F.S.C.) has made this jurisdiction one of the most closely monitored in Europe. It should also be noted that Guernsey has a tax treaty with the United Kingdom and that this contains exchange of information provisions relating to tax avoidance. Banks must provide beneficial ownership details to the G.F.S.C. In addition, on the formation of companies, specific questions are asked as to whether the entity is being formed for UK tax avoidance purposes and, if so, exactly the taxes in question. As with all other respectable European offshore jurisdictions, information will be released if illicit transactions are claimed. Most of the recent UK Criminal Justice Act provisions tightening up money laundering and anti-drug enforcement regulations are currently being redrafted for local implementation. Jersey The regulatory position of Jersey is very similar to Guernsey except that the information that must be supplied to local company registration agents does not directly include information about a clients UK tax position. Nevertheless, the provisions for the exchange of information are almost identical to those for Guernsey (Art. 1 0, Jersey/UK Double Taxation Treaty, 1952) and banks are closely monitored. Jersey has a highly sophisticated banking and financial service jurisdiction with an emphasis on banks to “know” their clients. Liechtenstein Liechtenstein is not a member, or an associated member, of the European Union and only has one double taxation treaty with Austria. Under their most recent banking legislation, passed on 21 October 1992, both present and former bank staff as

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well as government officials cannot disclose any banking information to third parties. If one of the numerous local legal entities, including Anstalts, Aktiengesellschafts and foundations, are needed, it is highly recommended that local lawyers be employed since any non-authorized disclosures would result in penal consequences. For the same reasons, the employment of local lawyers is also recommended when personal or foreign company accounts are being opened. Obviously, Liechtenstein, like all other respectable jurisdictions does not wish to be associated with illicit/criminal activities and, provided sufficient evidence is illustrated, will release any information requested. Furthermore, any cash deposits over 500,000.00 Swiss Francs will be subject to strict source verification. Nevertheless, it should be noted that the Liechtenstein authorities would not assist third party inquiries relating to foreign tax obligations. If a foreign company opens an account, full banking confidentiality will still apply; however, it is then necessary to consider the disclosure rules for that jurisdiction. The banking secrecy in Liechtenstein is actually called bank client secrecy, since it is based on the protection of individual privacy. This is a basic attitude and a tradition in Liechtenstein. However, bank client secrecy is waived in the case of criminal acts. The Liechtenstein financial sector has zero tolerance for criminal assets. In contrast to tax fraud, tax evasion is an administrative offense in Liechtenstein, not a criminal offence. This approach is based on the conception of citizens as trustworthy and well-informed persons, not as entities to be administered. Luxembourg Luxembourg has one of the most sophisticated banking systems in Europe combined with complementary offshore and tax planning companies. The jurisdiction has a high degree of banking anonymity. Luxembourg is a member of the European Union and is highly recom-

mended for those seeking a stable banking environment and who do not have significant dealings with Germany or France. Monaco Managers and employees of banks operating in the Principality are bound by the rules of professional secrecy. A breach of these rules may be prosecuted under the provisions of Article 308 of the Penal Code. This commitment is designed to protect customers’ interests and create the confidence required for the banking sector to operate effectively. In their relationships with depositors and borrowers, banks obtain extensive information on customers’ financial statuses, business affairs and private lives. They have a duty to preserve the confidentiality of all information concerning transactions—notably investment activities—and accounts (existence, balances, etc.). The same rules apply to portfolio management firms. As in all countries with an organized financial system, professional secrecy does not apply to information requested by the banking industry’s supervisory authorities, who themselves are bound by secrecy rules, or by local legal authorities involved in a criminal investigation. Pursuant to the 1963 tax treaty between France and Monaco, the only other exception to professional secrecy concerns persons with France as their fiscal domicile. Singapore Section 47 of the Banking Act of Singapore prohibits the disclosure of customer information except in accordance with a legal requirement or certain other instances. Breach of the provision may attract financial penalties and, in the case of individual bank officers, a prison term of up to three years. Section 47 of the Banking Act states: 1.Customer information shall not, in any way, be disclosed by a bank in Singapore or any of its officers to any other person except as expressly provided in this Act. 2.A bank in Singapore or any of its

officers may, for such purpose as may be specified in the first column of the Third Schedule, disclose customer information to such persons or class of persons as may be specified in the second column of that Schedule, and in compliance with such conditions as may be specified in the third column of that Schedule. 3.Where customer information is likely to be disclosed in any proceedings referred to in item 3 or 4 of Part I of the Third Schedule, the court may, either of its own motion, or on the application of any party to the proceedings or the customer to which the customer information relates — a.direct that the proceedings be recorded on camera; and b.make such further orders as it may consider necessary to ensure the confidentiality of the customer information. 4.Where an order has been made by a court under subsection (3), any person who, contrary to such an order, publishes any information that is likely to lead to the identification of any party to the proceedings shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $ 125,000. 5.Any person (including, where the person is a body corporate or an officer of the body corporate) who receives customer information referred to in Part II of the Third Schedule shall not, at any time, disclose the customer information or any part thereof to any other person, except as authorised under that Schedule or if required to do so by an order of court. 6.Any person who contravenes subsection (1) or (5) shall be guilty of an offence and shall be liable on conviction — a.in the case of an individual, to a fine not exceeding $125,000 or to imprisonment for a term not exceeding 3 years or to both; or b.in any other case, to a fine not exceeding $250,000. 7.In this section and in the Third Schedule, unless the context otherwise requires — a.where disclosure of customer infor-


De Vittori of Switzerland

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De Vittori of Switzerland


mation is authorised under the Third Schedule to be made to any person which is a body corporate, customer information may be disclosed to such officers of the body corporate as may be necessary for the purpose for which the disclosure is authorised under that Schedule; and b.the obligation of any officer or other person who receives customer information referred to in Part II of the Third Schedule shall continue after the termination or cessation of his appointment, employment, engagement or other capacity or office in which he had received customer information. 8.For the avoidance of doubt, nothing in this section shall be construed to prevent a bank from entering into an express agreement with a customer of that bank for a higher degree of confidentiality than that prescribed in this section and in the Third Schedule. 9.Where, in the course of an inspection under section 43 or an investigation under section 44 or the carrying out of the Authority’s function of supervising the financial condition of any bank, the Authority incidentally obtains customer information and such information is not necessary for the supervision or regulation of the bank by the Authority, then, such information shall be treated as secret by the Authority. 10.This section and the Third Schedule shall apply, with such modifications as may be prescribed by the Authority, to a merchant bank approved as a financial institution under section 28 of the Monetary Authority of Singapore Act (Cap. 186) as if the reference to a bank in this section were a reference to such merchant bank. Switzerland This is perhaps the most famous banking centre in the world and still continues to attract large numbers of high net worth clients; principally because of the ability and reputation of the banking community. As in Liechtenstein, cash deposits over 500,000.00 Swiss Francs must be verified and non-authorized

disclosure of confidential information by bankers and associated officers will result in penal consequences. Where there is evidence of activities that would be considered criminal under Swiss law, third parties can seek redress and set-aside the normal confidentiality. However, it should be noted that tax avoidance and exchange control violations are not criminal activities in Switzerland and hence, cannot compromise standard confidentiality. Furthermore, as a result of pressure from the United States, it is no longer possible for Swiss lawyers to open numbered accounts under their names for the benefit of undisclosed clients. On incorporation, a Swiss company can maintain anonymity by employing nominees; normally supplied by a local fiduciary company. Switzerland can provide many benefits to the business professional and a high level of confidentiality although this is sometimes hindered by the relatively high costs involved. Banking secrecy arises from civil law, especially the contractual obligation of the banker to keep the personal information of his or her client confidential. The privacy of the client is also protected by the general provisions of the Swiss Civil Code concerning personal privacy (articles 27 et seqq.) and by the law on data protection. Moreover, banking legislation considers the confidentiality of the banker under civil law as a professional obligation, the violation of which is punishable (Art. 47 of the Banking Act). Rules on information exchange Regarding international relations, Switzerland has two ways to exchange information in tax matters. Information exchanged between tax authorities is carried out by way of “administrative assistance”, based on bilateral double taxation agreements (DTAs). Information between justice authorities can be exchanged by way of “mutual assistance”. Mutual assistance is rendered in accordance with the Federal Act on International Mutual Assistance

in Criminal Matters. In international terms, Switzerland has a very dense network of more than 70 DTAs. These agreements also provide for the exchange of information necessary for applying the agreement. The agreements in force up until the spring of 2009 did not provide for full administrative assistance as set out in Art. 26 of the OECD Model Tax Convention on Income and Capital because Switzerland, years ago, recorded its objection to this. In the wake of the globalisation of the financial markets and in particular against the backdrop of the financial crisis, international cooperation in tax matters has globally gained in importance. Therefore, in March 2009, Switzerland stated that it was willing to adopt Art. 26 of the OECD Model Convention. This made it possible to exchange information for tax purposes with other countries in individual cases and upon specific and justified requests, and irrespective of whether the offence is a tax offence. Implementation of this decision will ensue within the scope of the bilateral double taxation agreement. Between April and September 2009 Switzerland renegotiated new DTAs with twelve countries providing for expanded “administrative assistance.” By adopting Art. 26 of the OECD Model Convention, Switzerland implemented the obligations contained in the report of the OECD Committee on Fiscal Affairs on access to banking information for tax purposes. This expanded administrative assistance provides for the exchange of information necessary to enforce the domestic law of the States parties in cases of fraud. Moreover, Switzerland has committed itself in a memorandum of understanding on the bilateral Taxation of Savings Income Agreement to conclude “administrative assistance” provisions with EU member States within the framework of double taxation agreements. These provide for exchange of information in cases of tax fraud or similar offences. Negotiations to this effect have meanwhile been concluded with several EU members.

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Switzerland

January 2010 SPBA SEEKS LAW ON SWISS TAX INFORMATION EXCHANGE The Swiss Private Bankers Association (SPBA) has urged parliament to adopt – as quickly as possible – a federal law pertaining to administrative assistance in tax matters. Emphasizing the pressing need for

a specific new law, President of the Geneva Private Bankers Association, Anne-Marie de Weck, explained that such a law would serve to provide much needed clarification for both the federal administration and the courts on how to interpret the country’s recently renegotiated double taxation agreements (DTAs), which now conform to the Organization for Economic Cooperation and Development’s (OECD) standard. While the SPBA has underlined the fact that it is fully in favor of the ratification of further double tax agreements conforming to the OECD standard, it has nevertheless urged the government not to proceed at such speed. It has also questioned whether or not it is prudent to offer extended cooperation in tax matters to non-member states. Acknowledging the fact that the Federal Council had already established certain criteria prior to the renegotiation of the DTAs, the SPBA stated that, in the light of recent events, a law is imperative if legal security is to be guaranteed – a traditional advantage on which the reputation of the Swiss financial center has been built. The SPBA raised concerns regarding the wording contained in the new bilateral agreement currently being negotiated with France, fearing that France could demand information from Switzerland without specifying in which banking establishment the account is held. Switzerland would then be obliged to carry out the necessary research, the association pointed out. Alluding to the recent case of data stolen from an HSBC bank in Switzerland, which was subsequently passed to French authorities, the SPBA also stressed the need for the Swiss authorities to refuse administrative assistance in such instances. According to the SPBA, further evidence of the urgent need for clarification is the recent ruling by the Federal Administrative Court that the order issued by the Financial Market Supervisory Authority to disclose UBS

client information to US authorities was unlawful. January 2010 REVISED DOUBLE TAXATION AGREEMENTS - FEDERAL COUNCIL ADOPTS FURTHER DISPATCHES Bern, 20.01.2010 - Today the Federal Council adopted five further dispatches on double taxation agreements (DTAs) which are in line with international standards on administrative assistance in tax matters. The revised DTAs provide numerous benefits for the Swiss economy. A request will be made to parliament to approve them and have them subject to optional referendum. The Federal Council adopted the dispatches on the revised DTAs with Austria, Luxembourg, Norway and Finland, as well as the dispatch on the new DTA with Qatar. These DTAs contain an extended administrative assistance clause in accordance with Art. 26 of the OECD Model Convention and consistently implement the Federal Council decision of 13 March 2009 on the new agreements policy. On 27 November 2009, the Federal Council adopted the dispatches on the revised DTAs with the USA, Denmark, France, Mexico and the UK in an initial batch. Double taxation agreements facilitate the activities of the export sector. They promote investment in Switzerland and thereby contribute to prosperity in Switzerland and in the partner countries. Reductions in withholding tax and zero rates for dividends, interest and royalty payments to avoid double taxation, as well as the introduction of arbitration clauses within the scope of mutual agreement procedures are amongst the negotiated economic benefits of the revised DTAs. In addition sanctions and fiscal discrimination are avoided. The cantons and the business associations concerned have welcomed the completion of the DTAs which have been revised up to now. Source Federal Department of Finance FDF

News from Switzerland

December 2009 DOUBLE TAXATION AGREEMENT BETWEEN SWITZERLAND AND BANGLADESH IN FORCE Bern, 17.12.2009 - The double taxation agreement between Switzerland and Bangladesh entered into force with the exchange of the instruments of ratification. The agreement is intended to enable the avoidance of double taxation in the field of income tax. The agreement contains provisions on the avoidance of double taxation and contributes to the favourable development of bilateral economic relations. In particular the DTA improves legal protection for companies and limits withholding tax in the area of dividend, interest and royalty payments. The agreement was signed on 10 December 2007. In accordance with Swiss practice at the time at which the DTA was signed, it contains an article on the exchange of information, which merely envisages the exchange of information on the proper application of the agreement. An extended exchange of information in accordance with the OECD standard was therefore not agreed with Bangladesh. This was not requested by Bangladesh either, even after the Federal Council decision of March 2009 on the new administrative assistance policy. Given that a swift entry into force of the DTA was deemed desirable, also on the part of Switzerland’s private sector, the decision was taken to forgo further negotiations on the extension of administrative assistance. Both contracting states have agreed to implement the agreement in the form in which it was signed.


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De Vittori of Switzerland

Looking ahead, going beyond


News from the world

World December 2009 Luxembourg, Germany Add Information Exchange Protocol To DTA On December 11, 2009, Luxembourg’s Finance Minister, Luc Frieden, and his German counterpart, Wolfgang Schäuble, signed a protocol amending the double tax agreement (DTA) between the two countries. The DTA, which prescribes the two countries’ taxing rights with regards to investors in the respective countries, was amended to include tax information exchange protocols, in line with the OECD standard. The amendment will allow the two countries’ tax authorities to request information pertaining to tax crimes, and in civil tax matters. Negotiations towards the DTA revision were rapid, with the two ministers agreeing upon provisions to be included in the agreement in November, shortly after the formation of the new German government. After signing the treaty, Frieden said that signing the treaty was far more than agreeing an amendment to the DTA – rather, it was a symbol of continued friendship between Luxembourg and Germany, and he emphasized the importance of the relationship between the two countries. Frieden announced that the text would soon be tabled in Luxembourg’s parliament, alongside similar agreements reached with other nations, for enactment no later than March 2010.

Among the measures they thought would be helpful in boosting productivity as the economic recovery progresses were tax incentives for companies investing in technology and innovation, particularly small and medium-sized enterprises. In addition, while the jobs credit scheme was considered to have been a success in protecting employment, it was felt that incentives to train workers would also provide added productivity in industry. There were also suggestions of assistance to the service sector, a growing part of Singapore’s economy. As an incentive, allowing the deduction of specific costs involved in a services business was discussed. A capital gains tax in Singapore was mooted as a possibility, if only to counter speculation within the property sector. On the other hand, it was also pointed out that one of Singapore’s competitive strengths internationally was its lack of such a tax. Some participants were concerned at the disparity, to Singapore’s disadvantage, between the rates of personal income tax in Hong Kong and Singapore, and between Singapore’s top marginal personal income tax rate at 20% and its 17% corporate tax rate in 2010, which could lead to some arbitrage. The official Economics Strategies Committee is expected to release its budgetary recommendations later this month, while the government’s budget is normally produced in February.

January 2010 Business Wants Tax Incentives In 2010 Singapore Budget In a situation where Singapore’s government will probably maintain its expansionary stance in its 2010 budget, various tax proposals were discussed at a pre-budget meeting of business leaders organized by the Institute of Certified Public Accountants of Singapore.

January 2010 Jersey Proposes New Regulations For Market Traded Companies The Jersey Financial Services Commission on January 14 published a consultation paper on two new Orders proposed under the Companies (Jersey) Law 1991. The two Orders stem from the recent decision of the States Assembly to make the Companies (Amendment

No. 4) (Jersey) Regulations 2009, which will, among other things, amend the Companies Law to provide a registration and oversight regime for auditors of market traded companies and provide for market traded companies to be required to follow certain prescribed accounting standards when preparing their accounts. The first Order, the Companies (Audit) (Jersey) Order, will prescribe: • what information the Register of Recognized Auditors must contain, what form it must take, and other ancillary matters relating to the keeping of the Register by the Commission; • what the rules governing the conduct of the audit of market traded companies by Recognized Auditors must contain; and • certain independence requirements that all auditors of Jersey companies must satisfy. The second Order, the Companies (GAAP) (Jersey) Order, will prescribe which “generally accepted accounting principles” (GAAP) a market traded company shall use when preparing its accounts. The accounting principles proposed are: • Canadian GAAP; • Japanese GAAP; • United Kingdom GAAP; • United States GAAP; and • International Financial Reporting Standards Subject to ministerial approval, the intention is that both Orders will come into force on April 5, 2010 (the same date as the States Assembly is expected to be asked to bring the Regulations into force).

Source Low tax net

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De Vittori of Switzerland

We were born great‌ and keep on growing


MIAMI: our new offices In recent years Miami, the secondlargest city in Florida, has become an important international financial center and a crossroads for cultural and linguistic exchanges between North, Central and South America, to such an extent that it has been called the Capital of the Americas. Miami’s Latin atmosphere has made it one of the most visited cities in the world and the third gateway to the United States, after New York and Los Angeles. As well as a large Latin American population, the city hosts one of the six largest Italian communities in the United States, recognized for their activities in the worlds of fashion and ship manufacturing. Miami’s port, known as the Cruise Capital of the World and Cargo Gateway of the Americas, is one of the most important aspects of the city’s economy and that of the state of Florida. Every year four million travellers and over nine million tons of goods pass through the city and its port. Many multinational companies, such as American Airlines, Disney, Exxon, FedEX, Microsoft, Oracle and Sony, have chosen Miami as their strategic base for conducting business with Latin

America. Many other large companies, such as Burger King and DHL, have their head offices in the vicinity of this important city. Furthermore, the largest concentration of international banks in the United States is located in Miami’s city center. In 2003, Miami hosted the FTAA (Free Trade Area of the Americas) negotiations. The city is the main candidate as the permanent location for FTAA headquarters. For all these reasons, De Vittori of Switzerland has opened an office in Miami, located on the prestigious Lenox Avenue, where it will handle numerous international services for the Americas, Europe and the Far East. Our offices in Miami provide the following services: - Incorporation and management of American companies - Incorporation and management of companies worldwide - Local assistance to foreign clients - Business Center services - International contracts - Introduction to the American financial market

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AMERICAN COMPANIES The U.S. has always enabled simple, easy procedures for setting up business activities. American companies are universally recognized and accepted thanks to the USA’s excellent reputation. Limited Liability Companies (LLC) LLC companies are the preferred type of company for entrepreneurs doing business in the United States due to their simple and flexible articles of incorporation. An LLC company can be used as: - a company with business purposes of trading traditionally as well as online; - an import/export or trading company; - a company that holds brands, patents or websites; - a company that creates online and offline software; - a company that provides services; - a subsidiary or a company that holds shares in other foreign companies; - an operative USA unit of companies from countries with favourable tax laws; These are the main features of an LLC company in the United States: - it can be managed by managing partners or external administrators; - it can have one or more partners, natural or legal persons; - a legal person can be a managing partner; - capital may be paid in with money or different types of assets; it does not have to be paid up front; individual shareholders are only liable for the amount of capital put into the firm, but not paid; - it can have generic articles of incorporation for the purpose of carrying out all types of legal activities; - shareholder and management meetings may be held in any country in the world, either by attending in person or by proxy; - thanks to correct planning, an LLC company can enjoy substantial tax benefits up to almost total tax abatement. An American LLC could be a good starting point from which to expand activities to Central and South America. Many Latin American jurisdictions offer substantial advantages to foreign entrepreneurs. An example of this would be Uruguay. URUGUAY Since 1991, the year that Argentina, Brazil, Uruguay and Paraguay stipulated the Asunción Treaty, Uruguay has become a reference point for entrepreneurs who operate in the MERCOSUR free trade area, which Venezuela joined in 2006.


TAX LAWS FOR TRADE AND INTERNATIONAL SERVICE COMPANIES By reason of resolution no. 51 of 19 March 1997, companies that perform trading and international services enjoy a favourable tax regime, on condition that their intermediation or service activities produce financial effects outside the state’s territory. For example, in the event of purchase and sale of goods, said goods must not originate in Uruguay, nor may they be imported onto that country’s territory. Under this regime, the so-called “intermediation margin” generated by purchases and sales of goods and services has to be taken into account when creating a taxable base. Only 3% of that margin is taxed at the ordinary 25% rate, therefore the effective tax rate is 0.75% of the operating margin (3% x 25%). Example: Proceeds from transfer of goods and/or performance of services outside Uruguayan territory Price of goods and services transferred or performed outside Uruguayan territory Intermediation margin Quota of the intermediation margin taxable in Uruguay (3%) Company tax (25%)

10,000

9,000 Dividends distributed by companies that perform intermediation activities, to shareholders who are 1,000 not residents in the state territory, are subject withholding taxes at source of 7% on 3% of the dividends. 30 The applicable withholding tax rate is therefore 0.21% of total dividends distributed. 7,5 THE TAX REGIME IN THE FREE TRADE ZONES AND ACCESS TO THE MERCOSUR AREA MARKET Goods originating abroad introduced into a free trade zone are not subject to border taxes in Uruguay. For taxation purposes, introducing Uruguayan goods is treated like exporting. Vice versa, goods introduced into Uruguay from a free trade zone are subject to a levy tax like imports from countries outside MERCOSUR, based on the rate established in countries that are part of that common market. Exploiting the free trade zones provides favourable entry into markets in countries that are part of the MERCOSUR area. Broadly speaking, goods originating in one of the countries of the area imported into another member country are not subject to a levy tax, unlike goods that originate in countries which are not part of MERCOSUR, for which there are customs taxes that vary from 0 to 20% of their value as ascertained by customs.

Our offices in Miami are at your disposal to answer all your enquiries.

MIAMI

and the American companies

33.


Published by De Vittori of Switzerland - Lugano Director Alessandro Pumilia

The information in this brochure is subject to change without notice. Application of the information to specific circumstances requires the advice of professionals who must rely upon their own sources of information before providing advice. The information is intended only as a general guide and is not to be relied upon as the sole basis for any decision without verification from reliable professional sources familiar with the particular circumstances and the applicable laws in force at that time.

Design Giovanna Capoferri

THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLAND January // February // March 2010


Facts & Figures - De Vittori of Switzerland