The UK’s super-rich ‘non-doms’ are planning to ship out and Malta is being touted as the next tax haven. But tax havens are berated worldwide for fiscal warfare. By Matthew Vella.
Welcome the non-doms, the new ‘dons’ of an international network of tax-dodgers.
The nondomiciled residents of London, the super-rich who took up residence there to pay low rates of taxation on their overseas multi-million earnings, may be considering a move to places like Malta and Switzerland.
The reason? A fresh crackdown from the UK Labour government to block nondomiciled residents from using overseas trusts to hide earnings from the taxman.
In the UK, non-doms are British citizens whose interests lie abroad and can therefore register for “non-domiciled” status, meaning they do not pay tax on earnings made outside the UK.
Under plans due to take effect in April, anyone who has claimed non-dom status for seven of the past 10 years will have to pay an annual fee of £30,000 to keep this privilege.
Critics claim the measure will force non-doms’ businesses to move overseas and discourage leading international businessmen from working in Britain, because non-doms have been the key to London’s rise to become a global financial centre.
But the tax would also generate £550 million by 2011 for the British exchequer. The UK has some 111,000 non-doms whose offshore mortgages and trusts will be banned under the new laws, and will not be able to pass off UK earnings as tax-free income generated overseas.
The clampdown on non-domiciled status has not only sparked a furious debate among City financiers, but also a rush on where most of these foreign-born businessmen will be moving out. Switzerland and Malta are being touted as possible getaways.
The website of ClarisGlobal, the international financial services group, pitches Malta as an option for non-doms on its website. “Malta is receiving welcome attention with its favourable remittance-based tax residence schemes. Malta’s attractiveness as a financial centre has soared following the Mediterranean island’s adhesion to the European Union in 2004. This stands to win for Malta a fair share of London’s exodus of non-doms following the latest changes.”
Good infrastructure, high-quality “Mediterranean yet European lifestyle”, sound legal, banking and finance services and a favourable residence scheme with no minimum stay requirements makes Malta the ideal tax haven for the world’s richest, especially with property prices that are much cheaper than London’s.
ClarisGlobal’s subsidiary in Valletta reports an “increased interest” from UK professional advisers examining options for clients. “We have received more inquiries from such intermediaries, especially as further details of the planned crackdown have emerged in the past three weeks,” says Priscilla Galea, of Claris Trustees & Fiduciaries, in a statement.
Dr Jean-Philippe Chetcuti, tax partner at Chetcuti Cauchi Advocates, says London firms “are getting nervous calls from their clients, and they’re contacting people like us.”
The associates of ClarisGlobal in South Africa, Crusader Rock, are also actively pitching Malta as the ideal solution for South Africans. Well-off South Africans can get permanent EU residency in just four months without even having to live in Malta for a minimum amount of time. Residence is guaranteed as long as they have a minimum income of €14,100 and an additional €2,350 for each dependent. They must then purchase an apartment for not less than €75,000 or alternatively, lease it out at a minimum rent of €4,230.
Crusader Rock says non-doms would then have to pay a flat rate tax of 15% on all income, less personal allowances, received in, or remitted to, Malta from either local or foreign sources, subject to a minimum €4,230 per annum. Income not transferred to the non-dom’s Malta bank account and capital gains fall outside the scope of Maltese tax.
James Bowling, manager of Crusader Rock, says the Malta option bypasses reams of red tape. “It’s getting more difficult to get residence in Europe – there’s a lot of red tape. But in Malta the barriers to entry are lower than in other countries in the European Union.”
The company claims it has close to 100 clients eager to take advantage of the opportunity.
But tax havens, even Malta, do not enjoy an enviable reputation amongst policymakers worldwide.
In the USA, an Obama-backed bill has listed Malta in a crackdown on tax evaders residing in the world’s 35 tax havens, listed by the Organisation of Economic Cooperation and Development.
Most of these tax havens are micro-states who have pledged with the OECD their commitment to “improving transparency and establishing effective exchange of information in tax matters.”
They are Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Cyprus, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liberia, Malta, Marshall Islands, Mauritius, Montserrat, Nauru, Netherlands Antilles, Niue, Panama, Samoa, San Marino, Seychelles, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines, Turks & Caicos Islands, US Virgin Islands and Vanuatu.
Tax havens effectively allow foreigners to dodge their own taxation laws back home. To do this they must set up a base inside favourable tax regimes that will protect the source of their earnings behind a cloak of confidentiality and secrecy.
For these micro-states, they are an easy source of tax revenue from millionaires who will easily pay a fraction of their earnings instead of coughing some 45% of it back home.
The Malta Financial Services Authority has vehemently defended the country’s reputation. In a letter to the Guardian back in 2004, MFSA chairman Joseph Bannister categorically denied Malta was a tax haven, because justifiably there is no banking secrecy and the island enjoys regulatory transparency.
But in rude economic terms, non-doms shifting their earnings across countries is pure economic warfare and a direct subversion of the redistribution of income, especially in developing states. Tax havens allow super-earners to escape their responsibilities to the societies on which they and their wealth depend.
Apart from millionaires who make their earnings at home but refuse to pay their tax to the public coffers, kleptocratic rulers in poor countries often find refuge for their looted earnings in tax havens.