Malta 5% structure – reduce fixed cost and unshell (ATAD3) proof it

[A1988]

Just one remark regarding the non-dom status, there is no mention of that in any laws in Malta. Instead, they use remittance basis for your income, i.e. smth that was not remitted to Malta should not be taxed there. Overall, it is not possible to qualify somehow for non-dom status, you can only think of yourself as having one. And than you would need to prove that in the case of any problems with tax authorities. Given that Malta is in the EU, any issues with their authorities put you in quite uncomfortable position across the whole Europe IMHO.

You are totally wrong, non dom status is clearly written in cfr website, please find the link below. If you are making a statement then I would request you to provide a source. Here is the cfr link.

https://cfr.gov.mt/en/individuals/P...ual who is resident,that is remitted to Malta.

 

[RAGAV]

Technically active trading does not qualify as holding shares, hence you will pay 9% over 1m aed, which in itself is decent amount. Dubai is not malta or cayman islands anymore.

Thanks for your response.

Yes, active trading is very different from holding shares. I am not worried about 9% tax.

So, any freezone like Meydan or others (in Dubai) that allow holding shares as an activity should be acceptable, right? Can you suggest few reputed options at less than 20K AED?

I was worried about choosing an activity that does not exactly match with my active trading activity and implications if found by regulators/authorities. Is that a concern if I open an LLC and trade in company account? Do you suggest paying myself a salary as an employee of the LLC and trade in company account?

Also, I don't plan on hiring office space, staff etc.

 

[A1988]

Thanks for your response.

Yes, active trading is very different from holding shares. I am not worried about 9% tax.

So, any freezone like Meydan or others (in Dubai) that allow holding shares as an activity should be acceptable, right? Can you suggest few reputed options at less than 20K AED?

I was worried about choosing an activity that does not exactly match with my active trading activity and implications if found by regulators/authorities. Is that a concern if I open an LLC and trade in company account? Do you suggest paying myself a salary as an employee of the LLC and trade in company account?

Also, I don't plan on hiring office space, staff etc.

It does not work there like that, i suggest you go and live there for a while and do some research, the way you are talking and asking questions I am sure you dont know how it works there. If you are tight with money and thinking of getting everything cheap then trust me dubai is not a cheap place. You will be better off living in malaysia or somewhere there.

 

[lili247]

@PhantomOf ThePits Regarding the « professional trader » issue in CH.

Imagine someone who is tax resident in UAE, sells his business and everything he got, and buys some accumulating s&p ETF., basically has all his net worth in accumulating ETFs.

Then the guy moves to CH.

He does not trade, does not do anything with futures, derivatives, nothing. At the beginning of each year, he does one sell order of 200k chf and lives with that for the year. That’s the only one trade for the whole fiscal year.

But he does not have any other income, so 100% of the « income » is from selling some ETF once a year.

In your opinion, is the guy considered a professional trader in CH ?

 

[daniels27]

In your opinion, is the guy considered a professional trader in CH ?

There are rules laid out in a Kreisschreiben. And I paste for you in German:

https://www.estv.admin.ch/dam/estv/....pdf.download.pdf/dbst-ks-2012-1-036-d-de.pdf
Die Steuerbehörden gehen in jedem Fall von einer privaten Vermögensverwaltung bzw. von steuerfreien privaten Kapitalgewinnen aus, wenn die nachfolgenden Kriterien kumulativ erfüllt sind.

1. Die Haltedauer der veräusserten Wertschriften beträgt mindestens 6 Monate.
2. Das Transaktionsvolumen (entspricht der Summe aller Kaufpreise und Verkaufserlöse) pro Kalenderjahr beträgt gesamthaft nicht mehr als das Fünffache des Wertschriften- und Guthabenbestands zu Beginn der Steuerperiode.
3. Das Erzielen von Kapitalgewinnen aus Wertschriftengeschäften bildet keine Notwendigkeit, um fehlende oder wegfallende Einkünfte zur Lebenshaltung zu ersetzen. Das ist regelmässig dann der Fall, wenn die realisierten Kapitalgewinne weniger als 50% des Reineinkommens in der Steuerperiode betragen.
4. Die Anlagen sind nicht fremdfinanziert oder die steuerbaren Vermögenserträge aus den Wertschriften (wie z.B. Zinsen, Dividenden, usw.) sind grösser als die anteiligen Schuldzinsen.
5. Der Kauf und Verkauf von Derivaten (insbesondere Optionen) beschränkt sich auf die Absicherung von eigenen Wertschriftenpositionen.

Sind diese Kriterien nicht kumulativ erfüllt, kann gewerbsmässiger Wertschriftenhandel nicht ausgeschlossen werden. Die entsprechende Beurteilung erfolgt hierbei auf Grund sämtlicher Umstände des konkreten Einzelfalls (vgl. Ziff. 4).

And translated

In any case, the tax authorities assume that the asset is being managed privately or that the private capital gains are tax-free if the following criteria are met cumulatively.

1. The holding period for the securities sold is at least 6 months.
2. The transaction volume (corresponds to the sum of all purchase prices and sales proceeds) per calendar year does not total more than five times the securities and credit balance at the beginning of the tax period.
3. The achievement of capital gains from securities transactions is not necessary to replace missing or lost income for living expenses. This is usually the case if the realized capital gains are less than 50% of the net income in the tax period.
4. The investments are not financed with debt or the taxable capital gains from the securities (such as interest, dividends, etc.) are greater than the proportional interest on debt.
5. The purchase and sale of derivatives (particularly options) is limited to the hedging of one's own securities positions.

If these criteria are not met cumulatively, commercial securities trading cannot be ruled out. The corresponding assessment is made on the basis of all the circumstances of the specific individual case (see section 4).

Hence, he is NOT on the safe side, but fulfills 4 out of 5. A deeper analysis would be necessary.

Nach ständiger Rechtsprechung des Bundesgerichts ist immer auf Grund der Gesamtheit der Umstände des Einzelfalls zu beurteilen, ob private Vermögensverwaltung oder selbständige Erwerbstätigkeit vorliegt (ASA 71, 627; 69, 652 und 788, mit Hinweisen). Eine schematisierte Vorgehensweise führt „nur in denjenigen Fällen zu einem sachgerechten Ergebnis, bei denen die Verhältnisse klar und eindeutig sind. In den übrigen Fällen ist die Tätigkeit jeweils nach wie vor in ihrem gesamten Erscheinungsbild rechtlich zu beurteilen.“ (2C_868/2008).

According to the consistent case law of the Federal Court, it is always necessary to assess whether private asset management or self-employment is involved on the basis of the totality of the circumstances of the individual case (ASA 71, 627; 69, 652 and 788, with references). A schematic approach "only leads to an appropriate result in those cases where the circumstances are clear and unambiguous. In the other cases, the activity must still be assessed legally in its entirety." (2C_868/2008).

He is not working and only holdig 1 type of asset that is being sold annually for living expenses, in the same way as you pull money from a savings account. Given the fact, that X spends most of his days laying on the beach/snow and (this is important) is not engaged in any way professionally at any invested company/etc., it is not a professional activity. The matter would be deemed differently if X was working as CXO for an invested company.

If you want to be sure, you can apply for a private letter ruling. But this case seems pretty clear to me. Call the Zürich Tax Office on Monday, they will give you their 2 cents free of charge.

 

[lili247]

Yes I’ve seen those criteria and indeed criteria 3 would not be fulfilled in that situation, however they say that the rules are not definitive :

« If these criteria are not cumulatively met, the existence of professional securities trading cannot be ruled out. This assessment must be based on the entirety of the specific case’s circumstances (see section 4). »

If guess the only way is to get a tax ruling, or maybe ask some accountant in the canton that knows the tax administration staff very well but that would be a lot of uncertainty.

 

[daniels27]

Yes I’ve seen those criteria and indeed criteria 3 would not be fulfilled in that situation, however they say that the rules are not definitive :

« If these criteria are not cumulatively met, the existence of professional securities trading cannot be ruled out. This assessment must be based on the entirety of the specific case’s circumstances (see section 4). »

If guess the only way is to get a tax ruling, or maybe ask some accountant in the canton that knows the tax administration staff very well but that would be a lot of uncertainty.

I am not sure why the title read something about Malta. But for Switzerland, feel free to ask. Do you have a clear description with details about the case? I can ask. Also filing a ruling is fairly simple, you can do it yourself or ask me for help. Please PM or open a thread with a proper name. I am not opening anything with Malta, Cyprus, UAE unless there really is not anything else to open.

 

[PhantomOf ThePits]

@PhantomOf ThePits Regarding the « professional trader » issue in CH.

Imagine someone who is tax resident in UAE, sells his business and everything he got, and buys some accumulating s&p ETF., basically has all his net worth in accumulating ETFs.

Then the guy moves to CH.

He does not trade, does not do anything with futures, derivatives, nothing. At the beginning of each year, he does one sell order of 200k chf and lives with that for the year. That’s the only one trade for the whole fiscal year.

But he does not have any other income, so 100% of the « income » is from selling some ETF once a year.

In your opinion, is the guy considered a professional trader in CH ?

As @daniels27 wrote, best is to try to get a tax ruling in the canton you want to live - then you are on the safe side.
But first would be to call Steueramt in your canton and tell them you're basically a Privatier (living off your money).
I'd say in some cantons it would not be considered prof Wertschriftenhaendler as you basically live like Retiree.

Also, if you are below 65, keep in mind even if your 200k CHF from your selling your ETFs once a year would NOT be considered income, you'd still need to pay AHV (Retirement contribution) on your assets which can be up to 26k CHF/yr (max rate based on your net assets above 9m CHF).

https://www.expatica.com/ch/finance/retirement/ahv-switzerland-pensions-1089118/

Switzerland has wealth taxes and depending which canton and how many assets you have, it can add up to quite some amount even if you have 'no income':
https://www.taxolution.ch/swiss-tax-guide/wealth-tax/

Here you can calculate your Swiss taxes based on the place (state/municipality) you consider living (there can be HUGE differences depending on income/assets):
https://www.estv.admin.ch/estv/en/home/fta/tax-statistics/calculate-taxes.html

 

[JackAlabama]

@PhantomOf ThePits Regarding the « professional trader » issue in CH.

Imagine someone who is tax resident in UAE, sells his business and everything he got, and buys some accumulating s&p ETF., basically has all his net worth in accumulating ETFs.

Then the guy moves to CH.

He does not trade, does not do anything with futures, derivatives, nothing. At the beginning of each year, he does one sell order of 200k chf and lives with that for the year. That’s the only one trade for the whole fiscal year.

But he does not have any other income, so 100% of the « income » is from selling some ETF once a year.

In your opinion, is the guy considered a professional trader in CH ?

It is 200k income in the form of realized cap gains. (since he has no other income).

If he has a job paying lets say 410k / pa, the 200k would be capital gains tax free (less 50% of total income).
If the job only pays 50k, the 200k become cap gains again due for tax.

it has been mentioned: 3.The achievement of capital gains from securities transactions is not necessary to replace missing or lost income for living expenses. This is usually the case if the realized capital gains are less than 50% of the net income in the tax period.


You have to operate it all under (your own) company setup in a cheap cantone.

 

[RAGAV]

It does not work there like that, i suggest you go and live there for a while and do some research, the way you are talking and asking questions I am sure you dont know how it works there. If you are tight with money and thinking of getting everything cheap then trust me dubai is not a cheap place. You will be better off living in malaysia or somewhere there.

Thanks for your post.

I found lot of websites and articles listing approximate LLC license cost in range of 12 K to15K AED per year. So, I wanted to check if any suitable freezone license can be obtained in that price range.

My main concern was around compliance in terms of my activity being considered within the scope of the license.

Ignoring the budget, can you provide few decent freezones that grant license for "holding of shares" and would not raise any issues for me in the future?

===========================

This has been my experience in last one month of my research. You may ignore it.

I have never been there so not sure how it works. I have been searching for lot of information in reddit and other forums.

I spoke to around 10 - 12 business set up consultants, couple of NRIs (non-resident Indians) residing in UAE, Sarwa customer service (local securities broker offering trading in US markets), a practicing CA and couple of people who assist in opening bank accounts.

Business consultants: None of them were suggested an activity that exactly describes active derivatives trading in international regulated exchanges. Some of them told me that you can choose investment category license. Couple of them told me that there are people who take some kind of visa (either through Freezone LLC or freelancer) and just reside there in UAE without any genuine business activity. They keep renewing their visas to extend their stay and are financially comfortable to sustain their lifestyle. Few of them told me that people take license and use it as a vehicle to stay in UAE and
suggested that I can do the same and trade in my personal account as I am using my personal funds.

I did not know how much to trust these consultants because they have a vested interest in making me open a business through them. So, they might hide consequences of compliance issues if my activity is deemed to be outside the license by authorities. I would have to face the potential fallout if any questions are raised about my activity.

NRIs told me that you can open a Freezone LLC for visa purpose and trade in personal account to keep things simple (without audits, compliances etc). No permission or license is needed for trading personal funds.

Sarwa customer service: Told me that I don't need any license to trade options in US markets in my personal account.

The practicing CA told me that I can take any investment license or freelancer license and then register for Corporate tax because my activity is defined as a business activity. Actual tax liability would depend on total profits.

 

[daniels27]

It is 200k income in the form of realized cap gains. (since he has no other income).

If he has a job paying lets say 410k / pa, the 200k would be capital gains tax free (less 50% of total income).
If the job only pays 50k, the 200k become cap gains again due for tax.

it has been mentioned: 3.The achievement of capital gains from securities transactions is not necessary to replace missing or lost income for living expenses. This is usually the case if the realized capital gains are less than 50% of the net income in the tax period.


You have to operate it all under (your own) company setup in a cheap cantone.

As mentioned, the 5 criteria are like a safe harbour rule. If you don't meet them, it still depends on your circumstances. If anybody has a clear case and honest interest, I will call the canton of choice for you.