CORPORATE INCOME TAX

‘ Its almost here! Yes the corporate income tax rules have been expected for sometime now and while we wait for the print, we can only begin to imagine the potential restructuring to comply with the rules.?

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Whether its checking intercompany pricing to ensure they are properly commercial, or drafting or amending intercompany agreements to ensure they are fit for purpose and whether the company can support a claim should the taxman drop by for a chat or whether its confirming the compensation payments made to related persons are also on a commercial basis and properly documented- much is to be done.?

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As for business ownership and financing: those owning Mainland and Freezone companies will need to ensure that only Freezone/ offshore income is earned by a Freezone company if the concessional tax rate is to be accepted. This won’t be simple because as well as complying with substance rules for the Freezone company, consideration needs to be given which Freezone company customer contracts produce (applying the new source rules) Freezone/ offshore income or which produce Mainland income. Doing this requires reviewing each contract and the functionality undertaken and where it was undertaken which produces the profit. One outcome may be incorporating a new company and moving client contracts across. This requires time and documents to implement.

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Businesses owning real estate also will face issues. It will be necessary to determine whether the company is carrying on a real estate business or a simple investment business. The income from the former will be taxable but not likely from the latter. Where the line is to be drawn may not be clear but we can rely on rules from other countries as being a good place to start.??It may be prudent to split off the investment properties into a new company and this takes time to implement.?

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With trading profits becoming taxable a company’s financing also becomes relevant. The greater the capital and lower the debt, the great the tax and the lower the capital and the higher the debt, the less the tax. Simple though this sounds there are many rules to counter so called over leveraging and many rules to navigate to ensure the cost of debt is arm’s length.?

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Reviewing the business or family investments and structures will take time and identifying the issues to be resolved may not be immediately obvious. If a restructure is required then working out how to fix the problems and drafting the documents and implementing will require much care!?

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We would be delighted to discuss the issues with you and after that chat, should you wish to consider in more depth we will introduce you to Dr Peter Wilson our colleague who is on top of these issues.