We are now in the third (and final?) month of the Investment Registration Scheme 2014 (IRS) that was launched in July. The scheme appears to be gathering pace as awareness grows and it approaches its closing date of September 30. Will it be extended? Probably. If only because momentum has just started to build as people bring their focus back to work matters after the summer break.
The IRS is not new to the island. There have been numerous such schemes, each extolling the virtues of wiping clean the past from a tax perspective and starting afresh.
In many ways, the presence of such schemes highlights the extent to which people will go to avoid paying tax and the challenges in trying to incentivise such people to bring their assets back into the real economy.
On the other hand the recurrence of such schemes also has the effect of promoting the idea that there will always be another opportunity to register undeclared assets.
This particular IRS comes on the back of a move in major financial centres to promote fiscal honesty. Switzerland, in particular, is going through some serious soul searching as it loses one of its main competitive advantages. It is no longer seen as a tax haven where assets can be held hidden from the tax man. Will banking secrecy be the next pillar to be lost in Switzerland?
It certainly looks that way from where I am sitting. Other financial centres are similarly challenged.
It therefore makes sense to consider the virtues of the present IRS seriously. From my experience, clients who have registered their assets see many benefits post the registration process, though the process itself could be a painful one, financially. Many a client has said that their quality of life has improved, sometimes substantially, once their assets are declared and taxed, at a reasonable 15 per cent. If nothing else, you are given a greater degree of financial freedom once you are able to use the fruit of your hard-earned labour.
The IRS is open to all people and companies who have eligible assets that as November 4, 2013 were undeclared. These assets are mainly financial assets such as deposits, shares, bonds, funds and life insurances.
The scheme also caters for immovable property, in Malta and overseas, and shareholders loans. For a one-time fee, payable to the government, these undeclared assets can be registered.
Once registered, all normal taxes (e.g.15 per cent FWT) are payable on the income/gains from those assets. The fee payable varies, depending on where these assets are held and what you intend to do with them post registration. If, post- registration, the assets are to remain in the same jurisdiction as they were pre registration, a fee of 7.5 per cent on the market value of the assets (except immovable property where this is calculated on the book cost) is payable.
If, post-registration, the assets are brought into Malta and invested here, then a fee of five per cent is due. There is a list of permissible assets that enables you to benefit from the five per cent fee.
These are stocks or bonds listed on the Malta Stock Exchange, property in Malta or cash deposits in euros in Malta. You are also permitted to utilise the funds to pay off certain loans. A commitment is also made to keep those investments for three years, otherwise your certificate can be nullified if you benefit from the five per cent fee but then send the assets overseas once again. The funds registered cannot be used for consumption purposes.
What is the benefit of the fee that is being paid? Essentially, as long as the assets that have been declared emanate from legitimate sources i.e. not from illegal activities, the act of registration in many ways absolves you from any obligations you may have had under the Income Tax Act, in relation to such assets. It is very important to acknowledge that the IRS does not in any way absolve those who may have avoided payment of VAT.
The IRS does not in any way absolve those who may have avoided payment of VAT
Will the Inland Revenue be aware of the fact that I have registered assets? The IR is not involved in any part of the registration process. The only people who will be aware of your registration are yourself, the registration agent and the Central Bank of Malta.
The latter two are covered by professional secrecy and under normal circumstances have no obligation to make any disclosures to the Inland Revenue. This is a system that has worked successfully in the past and is expected to function in this way going forward.
The registration process is relatively straightforward, though there is an amount of due diligence that the registration agent needs to undertake prior to issuing a certificate. Additionally, in some cases, the process can be made more complex if the underlying assets are not held in a straightforward way. Hence, it is important that those interested in taking advantage of the scheme contact a registration agent as early as possible.
To my mind, the IRS is both a key that opens a door to greater financial freedom and an insurance policy that helps protect your assets from the tax man. In the long run, it is not a heavy price to pay for such peace of mind.
The author is managing director of Curmi & Partners Ltd.