amercia first, black list, common reporting standard, companies, compliant, confidentiality, crs, eu, offshore, rates, redomicile
For many years, Offshore Property Companies have been a popular solution, although sometimes practices could be a bit “grey” in nature. Due to repeated problems with tax evasion, Portuguese legislation eventually changed, penalising these structures. Offshore Companies began to suffer an array of punitive measures that turned them untenable. Other than direct ownership, property buyers are faced with a choice between Non-Resident Companies, registered in a foreign jurisdiction not on Portugal’s “black-list”, or Resident Companies, domiciled in Portugal.
However, the legislative landscape continues in flux. EU initiatives are instigating further change. Yesterday’s solution can become tomorrow’s problem, leading many owners to consider redomiciling their Delaware companies to Portugal.
The Demise of Offshore Company Confidentiality
Portugal has applied the recent EU directive, implementing the Beneficial Ownership Register Regime. This new legislation requires the declaration of a company’s beneficial ownership information which is to be shared with other countries as part of the Common Reporting Standard. The new regime is far-reaching and will include offshore companies holding Portuguese property in jurisdictions such as Delaware.
Declarations include the entity subject to registration, information on all shareholders, the identification of managers, directors, and officers responsible for the running of the company, Beneficial Owners’ information as well as the declaring entity or individual. Information must be kept up to date. Any alterations must be reported within 15 days of the change.
Failure to comply with this new legislation is punishable by fines between €1,000.00 and €50,000.00. Also, any person making false statements in the Beneficial Owner Declaration will be held criminally and civilly liable for damages.
New EU criteria for Tax Haven Blacklist
In early 2017, the European Council resolved that it would determine a common EU registry of non-cooperative jurisdictions by the end of the year. To be considered compliant for tax transparency, a country needs to commit to implementing the Common Reporting Standard (CRS). It must also have agreements in place for the automatic exchange of tax information with all EU member states as well as achieve an OECD rating of “largely compliant”. By the end of the year, this EU-wide classification will replace the country-by-country “black-lists” that currently abound throughout the European Union.
The United States, after instigating dramatic international changes in fiscal transparency with the introduction of “FATCA” (Foreign Account Tax Compliance Act), now refuses to be part of the worldwide Common Reporting Standard, leaving Delaware high in the ranking of Least Transparent Offshore Jurisdictions.
“Although the United States has been a pioneer in defending itself from foreign secrecy jurisdictions, it provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction.” (Tax Justice Network
Imminent Danger: punitive rates
Unless the US makes an unexpected reversal in its current uncooperative policies, Delaware may soon find itself amongst the EU classification of tainted black-listed jurisdictions. The United States has already appeared on a provisional list of 92 countries earlier this year designated as probable tax havens by the European Union, as reported by France-Presse and Radio France Internationale. According to one of the sources, the EU Commission has sent requests for clarification on activities considered to be “risky” prior to the publication of the definitive blacklist scheduled on 05 December 2017.
Properties held in Delaware Companies, once a sanctioned solution within the expatriate community in Portugal, could soon become a scourge. Portuguese properties held in Delaware companies could face a ±20 fold increase in their standard rates bill plus similar amounts again due under the new “AIMI” levy. Rather than rates of 0.4%, these structures may face highly punitive taxation of 7.5%. For example, a property with a rateable value of €300,000 could pay an annual property tax of €22,500 rather than €1,200. Coupled with the new Additional IMI levy, the yearly assessment could double, reaching €45,000.
While several “dominos” have as yet to fall before reaching such a worst-case scenario, Delaware Company owners should be mindful of the storm clouds gathering on the horizon and study strategies – such as redomiciliation to Portugal – before panic stampedes the marketplace.