EUROPEAN RESIDENCY AND CITIZENSHIP-Providing for your family and future generations
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EUROPEAN RESIDENCY
AND CITIZENSHIP –
Providing for your family
and future generations
BREXIT –
The End of the Beginning
UPDATES FROM OUR
Global Office Network
COPORATE SERVICES – PRIVATE CLIENT SERVICES – RETIREMENT PLANNING
CONTENTS SOVEREIGN REPORT NO.52
3 | C
EO’S REPORT – by Gerry Kelly, 4 | F
ROM THE CHAIRMAN – by Howard Bilton,
Chief Executive Officer of the Sovereign Group Chairman of the Sovereign Group
INSIDE SOVEREIGN
5 | Sovereign Corporate Services – 7 | overeign Private Client Services
S 9 | overeign Retirement Planning
S
increasing in substance – safe, sustained growth in a – 2020 vision
fast changing world
OFFICE REPORTS
11 | hina’s new foreign investment
C 14 | ong Kong 2019 – a turbulent
H 18 | ingapore – steady as she
S
law year goes!
11 | yprus – tax residency and
C 15 | auritius recognised as
M 19 | outh Africa relaxes policy on
S
trusts compliant with EU tax good loop structures for individuals
governance principles
12 | ibraltar – the gateway to the
G 20 | verview of the Middle East
O
UK 16 | alta positions itself as the
M
‘Blockchain Island’ 21 | MART funds – Smarter than
S
13 | rowth and Evolution for
G the average Experienced
Sovereign in Guernsey 17 | ortugal – The World’s
P Investor Fund
Leading Destination
22 | EUROPEAN RESIDENCY AND CITIZENSHIP – Providing for your family and future generations
25 | B
REXIT – the end of the 26 | S
AF REPORT – Making things 28 | CONTACT AND INFORMATION
beginning better!
®Sovereign Media (IOM) Limited 2020 Editor Christopher Owen
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, Design Joanne Bae
recording or otherwise, without the prior written permission of the Sovereign Group. The information provided in this report does not constitute advice and no responsibility will be
accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it. Printer Asia One Printing
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CEO’S REPORT SOVEREIGN REPORT NO.52
CEO’s Report
Gerry Kelly A positive approach has been seen in almost all the jurisdictions
Chief Executive Officer where Sovereign is located, whether in Europe, Asia, the Middle
The Sovereign Group East or Africa. All have followed the EU and OECD guidance on
new substance requirements, but there is still scope for selecting
one or more jurisdictions as a result of the changes enacted.
I n most jurisdictions in which we operate, the trust and
corporate services industry is now used to being challenged on
several fronts by international pressure. Initially, plans to enforce
Typically, the new laws include requirements to manage the
business and conduct ‘Core Income Generating Activities’ (CIGA)
economic substance rules caused industry-wide alarm. It was locally, as well as guidance on the numbers and experience of
even feared that the very future of several international financial local staff and overall expenditure in the jurisdiction. This has led
centres was in doubt. to the threat of sanctions receding and in some cases previously
blacklisted countries have been reinstated.
This has not happened and, as we review how economic
substance has been implemented across the world, the process Mauritius, for example, has taken active steps to radically
has not proved as negative as first thought. Perhaps a more overhaul its previous company law regime in order to comply with
reasonable outcome may result. I am certainly of this view and new economic substance requirements. New rules now govern
am increasingly optimistic about the way forward. its international company sector – the Global Business Licence
regime – where companies become licensees and are presented
The dash by a number of low tax jurisdictions to introduce new with clear guidelines relating to substance. These include both
legislation began in earnest following the publication of new the number of suitably qualified persons who may carry out the
substance guidelines by both the EU and the Organisation for CIGA locally and whether such work can be outsourced to a local
Economic Co-operation and Development (OECD). Both were management company.
seeking to impose new global standards so that low-tax countries
were prevented from attracting profits from elsewhere without Banking in the same jurisdiction as a company’s place of
any corresponding economic activity – real local substance – incorporation is an increasingly important consideration in future
being proven. planning. Over 20 banks operate in Mauritius and, in addition
to traditional banking services, they offer a range of specialised
The EU drew up a blacklist of jurisdictions that had not yet services ranging from custodial services to cross-border activities.
introduced economic substance legislation, while the OECD’s
BEPS project set out a range of business activities, including Sovereign is committed to ensuring that its corporate clients meet
several typically offered by the low-tax jurisdictions such as substance rules. As a group, we now employ close to 500 staff in
headquarters activities, financing, leasing, insurance, shipping over 20 offices worldwide. A growing proportion of these staff are
and holding structures. fully qualified and boast legal, accounting and banking expertise.
Most affected jurisdictions started implementing new rules The recent opening of an office in Riyadh is a demonstration of
by 2018 and this effort is ongoing. As a result of innovative Sovereign’s commitment to the Middle East, our fastest growing
legislation by many, the most negative effects have, in the main, regional market. Saudi Arabia is an exciting new market and
been avoided. In fact, recently issued guidance has shown that Sovereign is now well placed to assist international companies with
not as many companies will be adversely affected as was feared. all their market entry and growth requirements.
Readily available solutions will allow international business Economic substance is of growing importance but the feared
owners to ensure they remain compliant with the new rules, but consequences have not materialised. Sovereign can provide
professional advice should be sought at an early stage. With our reliable, professional advice on these matters from the outset;
global presence, Sovereign is able to provide solutions through readers should contact their local office for a ‘no obligation’
one or more of our offices, depending on specific circumstances. discussion without delay.
This may involve re-domiciling part or all of an existing structure
but the costs and management time involved should be
considered money well spent to ensure compliance.
3
FROM THE CHAIRMAN SOVEREIGN REPORT NO.52
From the Chairman
By Howard Bilton, Chairman of the Sovereign Group
R ecent times have not been easy for those of us who live and
work in Hong Kong. Last year we had the protests. Now we
have, like many other places, the coronavirus. We recognise the
signed between Hong Kong and Mainland China for the reciprocal
recognition and enforcement of judgments in civil and commercial
matters. The commencement date is not yet announced.
motives of the demonstrators but we question some of their
methods. For the moment they remain silent, possibly because Litigation in China is fraught with difficulties. The strength of
of the virus. Hong Kong is that UK law applies for at least another 30 years
so anyone investing into China via the tax-efficient Hong Kong
Hong Kong remains well placed to deal with the new virus. route can now litigate in Hong Kong under UK law and then
Remember, we were previously affected by swine flu and then execute that judgment in China with little further procedure.
SARS. The authorities here took immediate action over COVID-19 This is a massive advantage.
and seem to have it under control but the situation obviously
changes on a daily basis. Our sympathies go to all affected. The other matter dominating the news around the world has
been Brexit. By the time you read this, the UK will have formally
Despite this, we remain confident in Hong Kong’s long-term left the EU with a withdrawal deal. The easy bit is over. Now for
future and it appears that investors share this sentiment. There the trade negotiations. The removal of some of the uncertainty
are a record number of listings scheduled for the Hong Kong has already had an impact. It seems that house prices in London
Stock Exchange this year, no reduction in the number of new are again on the march and commentators are predicting the
companies coming to Hong Kong (despite many of them seeking biggest annual rise for a considerable time. That may or may not
reassurances) and our Hong Kong office had one of its busiest be a good thing, but it is certainly an indication of the renewed
years ever. confidence of investors in London and the UK.
In our view, civil unrest is almost always caused by economic It also now appears that the Trump administration and China may
factors. In Hong Kong over one million people live below the official be starting to settle their differences over trade and row back on
government poverty line. That is both a surprise and a disgrace for the damaging tariff war. As someone once said: “Now this is not
one of the richest cities in the world. We continue to try and assist the end. It is not even the beginning of the end. But it is, perhaps,
through the Sovereign Art Foundation which has now raised over the end of the beginning.” If this proves to be the case, it will be
US$9 million that we have used to help disadvantaged children relief all around and more good news for Hong Kong.
around the region and in Hong Kong in particular.
Pressure on offshore financial centres (OFCs) to improve
Thanks to all SAF supporters for assisting our efforts in helping transparency and stop abusive tax practices continues to mount
to make Hong Kong a better and fairer place, not least through but there are still many legitimate ways to structure your affairs
our ‘Make it Better’ programme which offers empowering offshore to reduce tax. OFCs can still play a big part in that. The
learning activities to children from the lowest income families end is not nigh and never will be! All onshore countries continue
and those with special educational needs. Of course we can’t to encourage us to save through our pensions, to insure our lives
solve all the social problems in Hong Kong or elsewhere, but that and give to charity. Using these ‘products’ – often offshore – can
should not and does not stop us doing what we can. result in large and legitimate tax savings. You know where to
come if you wish to explore available opportunities.
Hong Kong’s importance as the gateway to China was further
strengthened on 1 January last year when an arrangement was
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INSIDE SOVEREIGN - CORPORATE SERVICES SOVEREIGN REPORT NO.52
This ensures that they have real
economic substance in the place where
they are incorporated and can operate
safe in the knowledge that they are
in full compliance with their local and
international obligations.
Sovereign Corporate Services – increasing in substance
By Nicholas Cully, Group Sales Director
A s with any business, a new year brings
new opportunities, new challenges
and new focus. After a particularly tough
These three ‘pillars’ are now clearly
defined on the homepage of our new
website, which was launched at the end of
generating activity in its place of residence
and have adequate people, premises and
expenditure in its place of residence.
2018, 2019 proved to be busier than ever: 2019, and the Corporate Services section
the ongoing administrative burdens shows just how far Sovereign has evolved There are two key stages to establishing
imposed by the US Foreign Account Tax from the days when simply registering how an entity might be impacted by
Compliance Act (FATCA), OECD Common and administering companies was often substance regulations in any given
Reporting Standard (CRS) and the EU’s the sum total of our involvement. So, jurisdiction. Firstly, is the entity in scope of
General Data Protection Regulation what has led to this change? the new law, and secondly, if it is in scope,
(GDPR), were further exacerbated by does it meet the substance requirements?
the arrival of the OECD’s new economic Even before the substance rules were We have significant experience in
substance rules. These have led to a introduced in 2018, substance was gathering and reporting company data
significant shift in focus for Sovereign becoming more and more important and are helping our clients understand
and our competitors. and the OECD, the US and the EU were and respond to the new legislation.
collectively cracking down on ‘tax havens’
At the start of the last decade, our core and ‘harmful tax practices’, even going so In preparation for these changes over
business was the setting up of offshore far as to put a number of jurisdictions on many years, Sovereign’s advice to clients
companies and trusts for individuals a so-called ‘blacklist’. has developed and has focused more on
and companies who were looking to ‘onshore’ jurisdictions where companies
structure their assets in the most tax- The economic substance requirements are set up to trade and provide services
efficient way. Fast-forward 10 years and vary depending on the actual activity of the rather than simply for business or personal
Sovereign’s business has diversified into company. In general economic substance structuring purposes. We are now setting
three key business strands – Corporate includes a requirement for the company up more onshore companies than offshore
Services, Private Client Services and to be directed and managed in its place companies in places such as the UAE, China
Retirement Planning. of residence; to conduct core income- and Saudi Arabia, and an ever increasing
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INSIDE SOVEREIGN - CORPORATE SERVICES SOVEREIGN REPORT NO.52
number of our clients are trading entities As we travel the globe looking for new a far more attractive proposition for
from the US, the UK, South-East Asia and opportunities, we have also seen a big international businesses. As the country
Europe that are looking to expand their increase in interest in the residency continues to open up, we see a huge
businesses into new markets. and citizenship by investment (RCBI) opportunity for companies looking to
schemes. Last year saw the launch of our invest there but also for Saudi-based clients
Inevitably these clients want Sovereign RCBI division, which provides clients with that are looking to benefit from our other,
to set up their company for them, but assistance in applying for and obtaining more private client-focused products.
increasingly they are also relying on us residency, or ultimately citizenship, in
to provide them with ongoing assistance Portugal, Malta, Cyprus and Gibraltar. With the development into new markets
in respect of their accounting, payroll, and the increase in the amount of
labour and immigration, HR consultancy Whether we are contacted through our administration and compliance work
and insurance requirements. This ensures corporate services, private client or required to onboard a company, we see
that they have real economic substance retirement planning strands, this is a that the move towards ‘onshore’ business is
in the place where they are incorporated fantastic ‘add on’ because so many clients set to continue. And with this development,
and can operate safe in the knowledge in certain parts of the world find that their our compliance systems and procedures
that they are in full compliance with their existing citizenship or residency doesn’t have become increasingly important in
local and international obligations. provide them with sufficient flexibility ensuring that both our existing and new
when it comes to their ability to travel. clients can meet the regulatory changes
Naturally, this move onshore has also led As the RCBI market has become more with the minimum of disruption.
to a shift in our client demographic. We competitive, these schemes have become
are now receiving more enquiries from increasingly affordable and are no longer We are also seeing an increase in the
East and West Africa and have undertaken restricted to the high net worth segment. amount of collaboration between our
business development trips in the past In Portugal, for example, the purchase of offices, as our clients become more global.
year to Rwanda, Kenya, Ghana and a property for €250,000 offers residency Often, a client will require the assistance
the Cote d’Ivoire. Only a few years ago and visa-free access to the EU. and services of multiple offices, whereas
these markets were virtually unknown in the past they would more commonly
to Sovereign but we have quickly come A further development in the last year has have dealt with one. This is a sign of
to the realisation that there are a lot of been the opening of our office in Riyadh, the times and is extremely positive for
businesses in these vibrant regions that Saudi Arabia. Traditionally, Sovereign our business. As a result of this shift we
are looking to expand into the Middle and clients have looked to the United Arab have also seen Gibraltar-based Sovereign
Far East. There is huge potential in other Emirates, and Dubai in particular, to Insurance Services and Sovereign Wealth
parts of the world too – South America establish regional headquarters, but with expand into Malta and Dubai respectively
and Central Asia spring to mind – and our the opening of Saudi Arabia through in order to be able to service clients from
products and services are well suited to Mohammad bin Salman’s ‘Vision 2030’ more than one location. Substance is
assist clients in these emerging regions. initiative, the Kingdom has become here to stay and so are we.
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INSIDE SOVEREIGN - PRIVATE CLIENT SOVEREIGN REPORT NO.52
Sovereign Private Client – safe, sustained growth in a fast
changing world
By Victoria Kent-Baguley, Tax Counsel
W ith the advance of technology,
communications and international
co-operation, the world is said to be
and overseas jurisdictions – to hold
assets and investments in a way that will
help to grow wealth now and preserve it
Sovereign Group of companies hold over
30 professional licences around the world,
which are testament to our high standards,
getting smaller. This is certainly true in for future generations. knowledge and professionalism.
the international tax sphere. To help fight
against tax evasion and protect the integrity While some clients are based only in a Last year, Sovereign Trust (Hong Kong)
of tax systems, governments around the single location, many are international became one of the first firms to be
world have introduced new information families with assets and family members formally licensed as a Trust or Company
gathering and reporting requirements. spread across different countries. Service Provider (TCSP) under Hong
Sovereign has broad experience in Kong’s newly-created licensing regime.
Data sharing between countries reached managing trusts and estates with Sovereign has been lobbying the relevant
unprecedented heights in 2019, while complex structures involving assets and authorities for many years to introduce
compliance requirements are increasing beneficiaries in multiple jurisdictions, licensing in Hong Kong to ensure that
and penalties are becoming tougher. as well as the legal, tax and compliance standards within the industry are
Fiscal transparency is here to stay and issues that arise when the laws of several consistent and in accordance with best
the major headache now faced by tax jurisdictions may apply. international practice.
authorities is how to process effectively
the volume of data coming their way. Sovereign’s founding vision was for This commitment was recognised at the
a trust company that was focused influential International Adviser Global
Sovereign Private Client Services provides on safe, sustained growth, balancing Financial Services Awards in 2019, when
trustee services, wealth management and competitiveness with the maintenance Sovereign was named as ‘International
succession planning to internationally of best professional practice. We review Retirement Provider’ of the year – for the
mobile families and entrepreneurs. our products and services and make second time – as well as being shortlisted
Directly represented in over 20 locations improvements for the benefit of our clients in the ‘International Trust and Estate
worldwide, the group’s main administration on an ongoing basis, while continuing to Planning Firm’ and ‘Best International
centres are in Gibraltar, Hong Kong, Isle of invest in our systems and in training for Retirement Product’ categories.
Man and Dubai. Other Sovereign offices our staff to ensure that they are up-to-
are strategically located across Europe, the date with the latest laws and regulations. In 2019, Sovereign has launched a new
Middle East, Asia and Africa. UK Corporate and Trustee Services
We are committed to ensuring that Centre to operate alongside its existing
Sovereign designs and implements Sovereign and its clients always remain UK Pensions Services Centre on the
structures – trusts, foundations, in full legal and fiscal compliance in a fast Wirral Peninsula in North West England.
companies and funds in both domestic changing regulatory environment. The Sovereign Corporate & Trustee Services
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INSIDE SOVEREIGN - PRIVATE CLIENT SERVICES SOVEREIGN REPORT NO.52
(SCATS) will incorporate and administer
UK companies, including Family
Investment Companies (FICs), as well as
providing trustee services to UK trusts.
These new UK services will complement
our Self-Invested Personal Pension (SIPP)
and Small Self-Administered Scheme
(SSAS) administration capabilities in the
Wirral and add to Sovereign’s growing
footprint in the UK.
UK limited companies can be used for
a variety of domestic and international
trading activities, regardless of the
beneficial owners’ place of residence.
UK companies are generally taxed at
significantly lower rates than individuals
and partnerships, and shareholders also
benefit from limited liability status. The
UK has signed over 130 double tax treaties,
the largest treaty network in the world. As
a result, UK companies are highly effective
as holding vehicles, enjoying reduced
or even zero withholding tax (WHT) on
dividends paid from overseas subsidiaries.
A FIC can provide an alternative to a trust
by enabling parents to retain control We review our products
over assets whilst accumulating wealth
in a tax-efficient manner and facilitating
and services and make
future succession planning. FICs are also improvements for the benefit
highly effective vehicles for domestic and
foreign individuals to invest in the UK of our clients on an ongoing
property market. With careful planning, basis, while continuing to invest
it is possible to structure an investment
company in such a way that it resembles in our systems and in training
a trust but without giving rise to the
punitive tax charges.
for our staff to ensure that they
are up-to-date with the latest
The international regulatory landscape
saw a lot of changes in 2019 and this laws and regulations.
will continue in 2020. European Union
member states had until January 2020
to implement the Fifth Anti-Money
Laundering Directive (AMLD 5), the
latest in the EU’s arsenal for combatting
financial crime. The UK intends to
implement the Directive despite Brexit.
a ‘legitimate interest’, which includes implemented in domestic legislation
The Fourth Anti-Money Laundering “preventive work in the field of anti-money by 1 July 2020 but provides for
Directive (AMLD 4) placed a requirement laundering, counter terrorist financing and implementation with retrospective effect
for companies and taxable trusts to obtain associate predicate offences undertaken from 25 June 2018. These rules therefore
and hold information on their beneficial by non-governmental organisations and effect arrangements currently in use.
ownership and to register this information investigative journalists.”
with a central national register. This DAC6 introduces a notification obligation
register is accessible to competent These changes mean that trustees in on intermediaries (and in certain cases
authorities, Financial Intelligence Units particular will face substantial investment taxpayers) in relation to certain cross-border
(FIUs) and obliged entities for customer in terms of operations, systems, processes arrangements that represent “potentially
due dligence purposes. and time to enable them to obtain the aggressive tax planning” and provides for
relevant information, complete initial the exchange of that information between
AMLD 5 expands the scope of the registrations, maintain accurate and up- member states. It is designed to provide
beneficial ownership register to include to-date records and comply with ongoing tax authorities with early knowledge of tax
all trusts, regardless of whether they reporting requirements. avoidance arrangements so they can be
incur a tax consequence, and also to swiftly countered.
any legal arrangement that is similar to The EU has also introduced an additional
a trust. AMLD 5 requires public access level of disclosure designed to detect These regulatory developments will cause
to data on the beneficial owners of legal potentially aggressive tax planning further procedural and administrative
entities such as companies, but not trusts. with an EU cross-border element. The changes for Sovereign and its clients, but
Instead, members of the public wishing requirements come from European they will not cause concern. As the sector
to access trust data need to demonstrate Directive (DAC6), which needs to be evolves, so do we.
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INSIDE SOVEREIGN - RETIREMENT PLANNING SOVEREIGN REPORT NO.52
Sovereign has committed substantial
capital expenditure to introduce a new
state-of-the-art pension administration
system across the organisation in 2020.
This will be a market leading software
system that includes web portals for
members, introducers and employers.
Sovereign Retirement Planning – 2020 Vision
By Claire Du Feu, Sovereign Pensions
2 019 proved to be another busy year
for Sovereign’s retirement planning
business, both in building on our
saw the implementation of new pension
rules in the UK, Guernsey and Malta.
In both our roles as pension product
One of Sovereign’s underpinning values
is its commitment to investing in the
training and development of its staff. We
successful product launches of 2018 and providers and as professional trustees, recently arranged for 43 senior members
in gearing up for a substantial programme Sovereign continues to work closely of our international team to attend a
of investment for 2020 and beyond. with all relevant industry bodies and training programme organised by the
regulators, to ensure full compliance with Institute of Directors. This included an
The breadth and depth of Sovereign’s legislation and regulation and to provide in-depth examination of the key duties,
service provision was recognised at the optimal customer service and peace of roles and legal responsibilities of board
influential International Adviser Global mind to our clients. members, as well as the board’s role in
Financial Services Awards 2019, where corporate governance and strategy.
Sovereign was again named as ‘International To protect our members’ interests, we
Retirement Provider’ of the year. Beating have recently introduced a commission In 2020 Sovereign plans to launch its own
off stiff competition, Sovereign was cap to limit the amount that investment in-house training programme for pension
singled out for its “innovation, continued advisers are permitted to earn from a administration staff under the ‘Sovereign
investment, service and commitment to member’s pension. This is also designed to Academy’ brand, which is designed to
the industry sector”. align the international market place with ensure that technical excellence and
that of the UK and the retail distribution knowledge is embedded across the
The regulatory environment in which we review (RDR) commission regime, which whole business. The programme will
operate continues to evolve. In 2019 we came into force at the end of 2012. draw from both external consultants, as
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INSIDE SOVEREIGN - RETIREMENT PLANNING SOVEREIGN REPORT NO.52
well as Sovereign’s in-house specialists,
covering all areas of retirement planning
administration.
At the same time, Sovereign has
committed substantial capital
expenditure to introduce a new state-of-
the-art pension administration system
across the organisation in 2020. This
will be a market leading software system
that includes web portals for members,
introducers and employers. This will
mean Sovereign can readily comply with
the data-driven nature of the industry,
while also enhancing the experience for
its clients and introducers alike.
Sovereign’s pension business made
a number of acquisitions in 2019,
and more are planned for 2020. The
market is undoubtedly consolidating as
increased regulation, capital investment
requirements and distribution costs have
put pressure on smaller, owner-managed
businesses. Sovereign continues to grow
and now has more than 15,000 pensions
under administration.
Sovereign Pension Services (UK), which
conducts Sovereign’s UK SIPP and SSAS
administration business, joined the UK which employers can enrol their employees which is marketed in conjunction with the
government-backed STAR initiative in from 2021. Employers who already provide Isle of Man offering, as well as its varied
2019. This aims to improve industry their employees with a pension scheme range of personal pension arrangements.
standards while reducing pension transfer may be able to continue with their current As Sovereign broadens its range of
times for defined contribution pension arrangement if the scheme qualifies and retirement planning solutions beyond
schemes. Participating firms benefit the level of contributions that the employer trust and contract-based QROPS, our
from greater certainty when dealing with is making is consistent with the required Malta office will further be launching
other providers, leading to fewer queries contribution rates that the government a scheme for local employers based in
and reduced administration costs, while will apply. Malta that will leverage the experience
consumers will benefit from better and technical knowledge of our staff to
communication, uniform standards and Employers may also decide not to opt administer local corporate plans. Our
improved transparency. into the States’ default secondary pension Gibraltar team also now operates as
scheme and instead either establish their trustee for more than ten local employers’
Regulated by the UK Financial Conduct own qualifying scheme or join an existing pension schemes, including a number of
Authority, the UK administration business qualifying scheme that is offered by a high profile gaming companies.
is already a member of the Pensions Scams regulated provider.
Industry Group (PSIG) and the Association Our fully compliant and highly competitive
of Member Directed Pension Schemes Sovereign is a specialised and experienced retirement planning products – both
(AMPS). It is also a subscriber to the ORIGO pension provider that is fully regulated by the personal and occupational pension
pension transfer system. Participation Guernsey Financial Services Commission schemes for the local and international
in such industry initiatives underlines for the formation and management of markets – continue to be serviced by
Sovereign’s commitment to the sector pension schemes. We have positioned our specialist administration teams
and its desire to conduct its business with ourselves to provide cost-effective and from administration hubs in Gibraltar,
customer outcomes at the forefront. tax-approved retirement solutions to suit Guernsey, IOM, Malta and the UK.
the specific needs of Guernsey-based
There has been increased focus across employers in satisfying the secondary Our dedicated retirement planning
a number of jurisdictions on the pensions requirements. These include international business development
introduction of ‘secondary pensions’ multi-employer occupational pension team continue to provide a technical
legislation as governments seek to meet plans, bespoke occupational pension plans ‘on the ground’ support network to our
the challenge of state pension provision and multi-member retirement annuity introducers from our international office
for an ageing demographic. Such regimes trust schemes. network throughout Europe, Africa, the
are similar to the UK’s ‘auto-enrolment’ Middle East and the Far East.
regime, introduced in 2012, which made it All such solutions are approved by
compulsory for employers to enrol eligible the local Guernsey Revenue Service Sovereign’s retirement planning products
workers automatically into an occupational and therefore qualify for tax relief for remain underpinned by our focus on
pension scheme. Employers are also individual contributions, as well as for ‘adding value’ through in-house access
required to contribute to these schemes. deductions for contributions paid by an to technical, legal, fiscal, investment, and
employer. This expansion of the product wealth planning specialists. Sovereign
In Guernsey, the current expectation is that range, complements our Guernsey Retirement Planning continues to prosper
the Guernsey States will make available a office’s existing occupational offering to and grow, investing in staff, systems and
default secondary pension scheme into international (non-Guernsey employers), business for the future.
10OFFICE REPORTS SOVEREIGN REPORT
SOVEREIGN REPORTNO.50
NO.52
in a different format. We do see that the
outbreak is pushing the government to a
more digital approach which we applaud.
Any move to level the playing China is a market where there has
field should have a positive always been a substantial local company
advantage, so any move to level the
impact on foreign companies’ playing field should have a positive
ability to do business in China impact on foreign companies’ ability
to do business in China and be more
and be more successful. successful. Now that the law is in effect,
foreign investors will have to wait and see
how it will actually be implemented over
China’s new foreign investment law the next 12 months.
The US and China signed what they billed as
Mark Ray The FIL seeks to level the playing field a preliminary trade agreement on 15 January
Managing Director between foreign and domestic companies 2020 in an attempt to lessen trade tensions
Sovereign (China) Ltd in regards to applying for licences (Article that have weighed on global markets. It
30) as well as participating in government echoes many of the issues addressed by
procurement projects (Article 16), two the FIL, including criminal penalties on
S ince joining the World Trade
Organisation in 2001, China has faced
substantial criticism from the international
substantial hurdles previously facing
foreign invested enterprises in China.
Article 15 provides that foreign investors
anyone caught stealing commercial secrets
and a broad commitment for China to
stop pressuring US companies to share
business community and governments should be given equal opportunity to technology with local joint-venture partners
in respect of its lack of IP protection, participate in the formulation of standards. and for the Chinese government to stop
forced technology transfers and failures to supporting or directing Chinese firms to
implement fair market policies. In terms of managing foreign investment, buy up strategic technologies by acquiring
Article 4 states that the government foreign companies.
At the end of 2019, the National People’s should use China’s Negative List to ensure
Congress passed the new Foreign that foreign investors are treated on a par The Trump administration said the
Investment Law (FIL), which is a new with domestic investors during the initial key new element was the enforcement
guiding document to govern foreign stages of setting up. The Negative List is mechanism. Rather than rely on a slow-
investment in China. It pledges to “build a comprehensive list of restrictions on moving World Trade Organisation dispute
a market environment of stability, foreign investment determined by the system, the new agreement enables the
transparency, predictability, and fair State Council. US to impose tariffs or other measures
competition” for foreign investors and within 90 days if officials decide China is
was brought into force on 1 January 2020. The FIL contains measures (Article 20) to breaking its promises.
protect foreign investments from arbitrary china@SovereignGroup.com
The FIL replaces several other laws expropriation. However, it also provides that
governing foreign direct investment – the state may, under special circumstances,
the Wholly Foreign-Owned Enterprises expropriate or requisition the investment of
Law (also known as the Foreign-Capital foreign investors for the public interest. Any
Enterprises Law), the Sino-Foreign Equity such actions must be in accordance with
Joint Ventures Law and the Sino-Foreign legally prescribed procedures and offer “fair Cyprus – tax
Contractual Joint Ventures Law – with the and reasonable compensation”.
purpose of accelerating market opening residency and trusts
reforms and eliminating inconsistencies There are still a number of significant
in the enforcement of laws. questions attaching to the new law. For
example, it defines foreign investment as George Ayiomamitis
Since 1 January 2020, all WFOE’s and JV’s “investment activity directly or indirectly Managing Director
have been simply categorised as Foreign carried out by foreign natural persons, Sovereign Trust (Cyprus) Ltd
Invested Enterprises (FIE’s). This includes enterprises or other organisations”.
investors originating from Hong Kong, It is unclear precisely what “indirect
Macau and Taiwan. investment” means. This and other areas Cyprus is at the forefront
of ambiguity may provide local authorities of best practice in the
The new law seeks to address many with scope to interpret the law and make
common complaints by foreign investors, implementation less consistent and area of trusts. It is a
such as explicitly banning forced technology transparent for foreign investors. reputable international
transfers and includes provisions to protect
foreign investors’ IP and commercial secrets Although the new law is seen as a positive financial centre with very
from their joint venture partners. step, it is not yet certain whether the attractive opportunities
new provisions will simply be ‘on paper’
Article 22 explicitly bars Chinese JV or if they will actually be enforced,
for setting up and
partners from stealing IP and commercial providing meaningful change to the operating a trust.
secrets from their foreign partners and business environment. Foreign investors
also prohibits government officials from will need to wait and see to determine
using administrative measures to pursue
forced technology transfers. Article
39 further makes government officials
what practical implications the new law
will have. Moreover due to the current
outbreak of COVID-19, some changes
W hether it is clients with concerns
about the continued uncertainty
over the manner of the UK’s exit from the
criminally liable if they do so. will be implemented quicker, slower or EU or clients with concerns about political
11OFFICE REPORTS SOVEREIGN REPORT NO.52
or economic stability in other parts of the offer a strong tradition of enforcing
world, we have seen a marked increase in trusts, an English common law system, Gibraltar – the
inquiries about the options for personal a high reputation for trust business and
tax residency in Cyprus. favourable taxation for trusts. gateway to the UK
Residence is probably the most widely Cyprus is at the forefront of best practice
used criterion for the taxation of in the area of trusts. It is a reputable John Blake
individuals by governments around the international financial centre with very Managing Director
world, but the rules vary considerably attractive opportunities for setting Sovereign Trust (Gibraltar) Ltd
from jurisdiction to jurisdiction. up and operating a trust. The recently
amended International Trusts Law of
Why Cyprus? Besides the lifestyle, Cyprus builds on the well-established The recent Gibraltar-
climate, sophisticated infrastructure English principles of equity and has UK DTA is a major
and highly educated, cosmopolitan created one of the most attractive trusts
population, there are also a number of legal frameworks in the world. milestone that reflects
significant tax benefits associated with how serious Gibraltar
being resident in Cyprus – particularly The original Law restricted the availability
for individuals who opt to become non- of Cyprus International Trusts (CITs) such has become in its
domiciled tax residents. that neither a settlor nor any beneficiary ambition to trade with
could be a permanent resident of Cyprus.
There is no tax on worldwide dividend This was inconsistent with the EU principle
leading economies.
and interest income for non-domiciled of free movement of persons and capital,
individuals for 17 years, no tax on gains and these restrictions were therefore
arising from the disposal of investments –
shares, bonds, etc. – and no withholding
tax on the repatriation of income as
relaxed, together with the prohibition
on ownership of immovable property in
Cyprus, when the Law was amended.
T hese are interesting times for
Gibraltar. The transformation has
been underway for a number of years, but
dividends, interest and royalties. Cyprus in recent times the ‘Rock’ has emerged
has no estate duty, wealth tax, gift tax or The procedure for establishing a CIT as a serious and mature player on the
inheritance tax. trust is now straightforward and can be world stage, and one that continues to
arranged in a relatively short period of punch well above its weight. Not only has
There are many further advantages to time. The settlor and the beneficiaries Gibraltar been effectively recognised by
relocating to Cyprus and establishing tax must not be tax residents in Cyprus during Spain, for the first time in its history, but
residency – the tax incentives for expatriate the year preceding the year of creating a it has also entered into its first double
employees taking up residence in Cyprus, CIT and at least one of the trustees must taxation agreement (DTA), with the UK.
for instance. There is a 50% income tax be a permanent resident of Cyprus.
exemption of remuneration from any Whilst Gibraltar’s tax regime is highly
office or employment in Cyprus that The Cyprus International Trust is now competitive – like most small jurisdictions
exceeds €100,000 per annum, applicable the structure of choice for non-resident that have to fight to survive in the wider
for 10 years, for an individual who was not settlors. Succession, heirship or other world – it may come as a surprise that
previously tax resident in Cyprus. laws applicable in foreign jurisdictions Gibraltar is ranked as far down as 28th
do not affect the validity of a CIT or the in the Tax Justice Network’s Corporate
These are just some of the benefits that transfer of property to the trustee of a Tax Haven Index 2019, below many of the
Cyprus has to offer but it is the timeframe CIT. The settlor has the right to reserve leading industrial nations including the
for the tax residency that will really grab many powers, while a CIT can now last UK (ranked 13th), Belgium (16th), China
your attention. In 2017, Cyprus amended for an indefinite period and the income (19th), France (22nd), Germany (24th),
its Income Tax Law to provide that an can be accumulated without limitations. USA (25th) and Spain (27th).
individual who is physically present in The law governing a CIT can be changed
Cyprus for more than 60 days in a year to another foreign law. It is positive that the Gibraltar Socialist
of assessment and does not reside in any Labour Party won the recent election,
other single state for a period exceeding CITs are widely employed in what may be retaining power for a third term. This reflects
183 days can elect to be tax resident in loosely termed ‘family situations’ but also a politically stable environment, where the
Cyprus in that tax year. Known as the in commercial and business transactions economy is thriving and the relationship with
‘60-day rule’, applicants are required only and as a vehicle for charitable and other the UK is becoming ever closer. Gibraltar
to declare their intention to reside within purposes. The CIT is now one of the best is Sovereign’s home and we are certainly
the tax year of the application. available options worldwide and it is optimistic about the future – so much so
worth mentioning that Sovereign Group’s that we are making a further commitment to
Since the initiation of the 60-day rule, office in Cyprus is fully licensed to act as Gibraltar by investing in larger premises.
Sovereign has seen a sharp increase a professional trustee.
in the interest of individuals choosing cy@SovereignGroup.com The regulatory landscape in which
Cyprus for tax residency purposes. Brexit we operate is becoming ever more
has certainly played a role to this, but challenging. Initiatives such as FATCA
other reasons like high rates of income (US Foreign Account Tax Compliance
tax in applicants’ home countries have Act), CRS (OECD Common Reporting
also triggered this interest. Standard) and DAC6 (EU Mandatory
Disclosure Regime) reflect a new age
Many different countries worldwide of transparency and substance that
have enacted trust legislation but when individuals and firms such as ours can
establishing a trust it is essential that either embrace or ignore at their peril.
the legislation should be up-to-date,
including contemporary trust concepts, Sovereign supports such initiatives. For
and that the jurisdiction should also some time we have been providing clients
12SOVEREIGN REPORT NO.52 OFFICE REPORTS
with the support and services to create this fast-moving area of business. permanent staff and one contractor in
real economic substance. Sovereign has Guernsey.
developed a compelling suite of corporate There are now 13 FinTech businesses
services to assist the entry, growth and operating as licensed DLT providers in During 2019 we saw this pattern repeated
sustainability of businesses in all major Gibraltar, with numerous applications in with further diversification of services and
international finance centres. the pipeline. This may not sound a lot, but product development resulting in increased
in Gibraltar the number of DLT providers new business. This has been complemented
These include structuring employee benefit now equals that of licensed investment by targeted acquisitions of small local books
packages and incentive plans for attracting managers, auditors and banks, and of business, which we have successfully
and retaining key staff, accounting services, exceeds that of e-money institutions. integrated into the business.
payroll, bespoke insurance packages,
corporate and personal pension plans, As we continue through 2020, we Until recently, the bulk of our client
obtaining local licences and permits, and can foresee further recognition and base and business under administration
assisting with executive relocation. understanding of blockchain solutions was international, but in the past year
and Sovereign is well positioned to offer Sovereign has developed and launched
Historically it was not in Gibraltar’s a range of services to assist FinTech new products specifically for the domestic
interest to pursue double taxation business to establish in Gibraltar, from market in Guernsey. These include a
agreements, but that has now changed. initial consultation to providing full multi-member pension arrangement that
So the recent Gibraltar-UK DTA is a corporate services assistance. has proved successful, attracting more
major milestone that reflects how serious gib@SovereignGroup.com than 50 Guernsey-resident members
Gibraltar has become in its ambition to since its establishment in 2018.
trade with leading economies. More are
now likely to follow. Sovereign is also now providing corporate
services to Guernsey employers, including
Despite the sombre mood in Gibraltar payroll services for local companies and
immediately after the 2016 UK referendum 2019 – Growth and their resident employees. We are further
on EU membership, the attitude to Brexit promoting our multi-jurisdictional
is now extremely positive. We expect evolution for service capacity to other local corporate
business to increase post-Brexit. Gibraltar service providers (CSPs) that have clients
truly will be the location of choice for Sovereign in Guernsey requiring services from other jurisdictions
European (and non-European) businesses in which they cannot assist directly.
to establish in to access UK markets.
Stephen Hare Looking forward, the most significant
Likewise, the UK and Spain signed a tax Managing Director development in the Guernsey pensions
agreement that is designed to provide Sovereign Trust (Channel Islands) Ltd industry for many years fast approaches
clarity for businesses and individuals that with the introduction of the new
straddle the two jurisdictions. Under the ‘Secondary Pensions’ regime anticipated
agreement, individuals and companies in
Gibraltar will have to pay taxes in Spain
if they conduct most of their business
S overeign Trust (Channel Islands)
reached a significant milestone in 2019;
it has now been operating in Guernsey
in 2022. This will be a compulsory
workplace pension system that is similar
to the UK’s ‘Auto-Enrolment’ regime,
there. It was a highly significant milestone for ten years. During that time we have introduced in 2012, which made it
because it was the first bilateral treaty enjoyed periods of rapid growth but also compulsory for employers to enrol their
over Gibraltar in more than 300 years. faced challenges that have required us eligible workers into a pension scheme.
to develop new products and services
Unlike the vast majority of service providers in order to maintain growth and stay Sovereign will be launching specific
in Gibraltar, Sovereign has a global competitive. It is a tribute to Sovereign’s products to cater to this opportunity,
footprint. This enables us to service mobile versatility that we now employ 43 having already diversified its offering in
multi-nationals and individuals on a global
basis. Our offices across Europe, Asia,
Africa and the Middle East do not act as
separate ‘silos’. Rather they work together
to offer a truly cross-border service.
Finally, Gibraltar’s purpose-built
Distributed Ledger Technology (DLT) The range of products and
framework has now been in effect
since 1 January 2018. One of the first services that we can provide
pieces of legislation of its kind globally,
the framework has been designed to
is now more extensive than
provide an efficient, safe and innovative ever and includes personal and
regulatory framework for firms that use
DLT – also known as ‘blockchain’ ¬– for corporate pension plans for
the transmission or storage of value
belonging to others.
both local and international
companies, end of service benefit
The framework positions Gibraltar as a
jurisdiction that facilitates innovation, solutions, trusts, foundations,
whilst ensuring it continues to meet its managed companies, corporate
regulatory and strategic objectives and
understands the modern need for robust payroll and much more.
and speedy interaction with regulators in
13OFFICE REPORTS SOVEREIGN REPORT NO.52
recent times to include the provision of have achieved an overall compliant result
corporate pension plans, in addition to Hong Kong 2019 – in the current round of FATF evaluation.
personal pension schemes. This is expected
to further strengthen Sovereign’s domestic a turbulent year In line with increasing regulation in Asia,
service offering and local client base. the business of Trust and Corporate
Service Providers (TCSP) became
The range of products and services Marcel Treurnicht licensable in 2018. One year into the new
that Sovereign Guernsey can provide Legal Counsel regime 6,812 TCSP licences have been
is now more extensive than ever and Sovereign Trust (Hong Kong) Ltd issued, including Sovereign Trust (Hong
includes personal and corporate pension Kong) Ltd. The authorities have also
plans for both local and international successfully prosecuted three companies
companies, end of service benefit solutions,
trusts, foundations, managed companies,
corporate payroll and much more.
2 019 was undoubtedly a tumultuous
year for Hong Kong. The first half of
the year was stable if somewhat subdued,
and three individuals for carrying on
a trust or company service without a
licence, and four individuals for knowingly
with modest economic growth between or recklessly providing false information
We also look forward to the proposed 0.5% and 0.6%. Tensions between the to the Registrar of Companies.
introduction of a Limited Liability Company US and Mainland China over trade and
(LLC) structure in Guernsey following a technology led to an economic slowdown In addition, one TCSP licensee has been
public consultation to gauge the level of in Asia. Even so the unemployment rate disciplined for failing to verify customers’
demand and potential economic benefits, in Hong Kong remained steady and the identities and failure to identify beneficial
which concluded in September 2019. property market remained buoyant. owners. This prompt action by the
authorities indicates a resolve to enforce
LLCs offer legal personality and limited Unfortunately the economy contracted the new TCSP regulations with an emphasis
liability in a tax transparent structure with, in sharply by 2.9% in the third quarter on the existing AML and CTF Ordinances.
many jurisdictions, the opportunity to elect due to widespread protests after
to be taxed in the same way as a corporation. the government tried to introduce a In more good news for the TCSP industry,
LLCs are commonly used in the US as controversial bill enabling extradition the Court of Final Appeal handed down a
structures for trading businesses, holding to China. Particularly hard-hit were the ruling on the important case of Zhang
vehicles and special purpose vehicles in tourism, retail and catering industries. Hong Li and Another v DBS (Hong Kong)
finance and investment structures. Ltd and Others on 22 November. The
Protest activity decreased before basic facts of the case are that a company
The US LLC is recognised as providing district council elections were held on called ‘Wise Lords’, which was owned by
a flexible hybrid structure, combining 24 November and the voting day was a trust, made investments into high risk
features of both US corporations and calm and peaceful. There was a record financial products in the years leading up
partnerships. An LLC may be formed for turnout of 71% of registered voters to 2008. These investments were largely
any lawful business purpose, or activity, and Democrats took 17 out of 18 seats, funded with credit.
whether or not for profit. which was widely seen as a vote of ‘no
confidence’ in the HKSAR government. When the global financial crisis struck in
In the past 12 months, Sovereign Chief Executive of Hong Kong Carrie Lam 2008, the investments collapsed leading
Guernsey has also developed solutions said the government would “seriously to large losses. Parties to the trust then
aimed at corporate clients in the Gulf reflect” on the election results and, for began proceedings against the trustee
Cooperation Council (GCC) region, to now, an uneasy peace prevails. (DBS) and the corporate director of Wise
assist with making provision for end- Lords for breach of duty in respect of
of-service liabilities and/or to provide Meanwhile on 4 September, the Financial failure to intervene in the investments.
a centralised plan to accommodate Action Task Force (FATF), a global inter-
employer and employee savings. governmental body set up to combat The trust deed contained so-called
money laundering and terrorism ‘anti-Bartlett’ clauses, which provide for
We have also seen an increase in the financing, issued its Mutual Evaluation trust-owned companies to be managed
number of individuals, particularly UK Report for Hong Kong, China 2019, which independently by relieving the trustee
residents, looking to relocate to Guernsey. followed a comprehensive review of Hong from any duty to enquire into or interfere
Sovereign is in a position to offer entry Kong’s anti-money laundering (AML) and in the management of underlying
services to those relocating to the island, counter-terrorist financing (CTF) regime. companies within a trust structure when
at both the personal and corporate level. an investment manager is appointed.
Overall the report was positive and Hong
We are now celebrating the fifth year of Kong’s AML/CTF regime was assessed The Court of First Instance and the Court of
the Sovereign Art Foundation Students to be compliant and effective – the first Appeal both found that the trustees could
Prize. In these five years we have seen jurisdiction in the Asia-Pacific region to not rely on the anti-Bartlett clauses and
the competition go from strength to
strength, with increased interest from
the local education community and an
excellent standard of entries annually.
Hong Kong’s AML/CTF regime was
The competition has also grown in assessed to be compliant and
terms of support from local businesses,
with a number of sponsors enabling effective – the first jurisdiction in the
its continued growth. This year’s prize
featured the first auction of artworks
Asia-Pacific region to have achieved
submitted into the competition. We are an overall compliant result in the
proud to able to promote the Foundation
and support this worthy charity. current round of FATF evaluation.
ci@SovereignGroup.com
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