Preparing for a Sale - When to Take Action (Help Needed)

[Allenk]

Hi

I've got some website assets sitting in a Malta company. It's just a holding company for CGT reasons.

While it's just a holding company, while we grow the value of the websites I'd like to remain the director and secretary as this will save quite a bit in fees over the next 5 to 10 years.

However, should we want to sell the websites, I'd like to get a local director and work to improving the POEM to make it more robust, so that when the sale occurs it's more robust.

How long in advance would I need to take these steps before the sale?

What are the major steps you'd recommend I take?

I look forward to your experience and insights!

 

[Sols]

I'd base the decision on the risks involved, which include the level of aggression and competence of your local tax authority. In most cases, I'd make the switch now. You don't want your local tax office to come claim the Malta company is tax resident wherever you are, especially if there's an exit and that creates a taxable event (for the company) where you live.

Local director and secretary for a holding company should just be a few thousand EUR a year, assuming the work required is little to none. You can often negotiate the price offered by service providers, if you can clearly outline effort and risk for them.

With no offense intended, if a few thousand EUR/year isn't in budget for the next 5”“10 years, my next question would be whether forming the Malta company was the right decision at this time.

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This is the probably the answer to your question.

 

[Allenk]

Sols said:
I'd base the decision on the risks involved, which include the level of aggression and competence of your local tax authority. In most cases, I'd make the switch now. You don't want your local tax office to come claim the Malta company is tax resident wherever you are, especially if there's an exit and that creates a taxable event (for the company) where you live.

Local director and secretary for a holding company should just be a few thousand EUR a year, assuming the work required is little to none. You can often negotiate the price offered by service providers, if you can clearly outline effort and risk for them.

With no offense intended, if a few thousand EUR/year isn't in budget for the next 5”“10 years, my next question would be whether forming the Malta company was the right decision at this time.
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Hi Sols

Thanks for the reply.

My query is that until there is a sale of anything it's not a taxable event, and a sale will take time to prepare for. We also have no plans to sell in the next 7 years.

We have the budget to pay for it, but I'd rather spend the money on something else if I can, especially when you multiply the saving by 7 or 10!

That's why I was asking what steps I'd need to take and when to make the POEM more robust before a sale in 7 years?

 

[uplana]

If you need to avoid the long reach of the tax authorities, I would sell at least 2 years before exiting. It makes the most sense and can also be much better explained afterward.

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[Allenk]

uplana said:
If you need to avoid the long reach of the tax authorities, I would sell at least 2 years before exiting. It makes the most sense and can also be much better explained afterward.
Click to expand...

What do you mean by this? Am I correct in saying: You sell, then keep working on a contract, and then exit?

 

[CyprusLawyer101]

I think he wanted to day "change" not "sell"

 

[Allenk]

CyprusLawyer101 said:
I think he wanted to day "change" not "sell"
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Ha ha. That makes a lot more sense! 🙂

 

[Sols]

Allenk said:
That's why I was asking what steps I'd need to take and when to make the POEM more robust before a sale in 7 years?
Click to expand...

Best to check what local law says. Check with a local tax adviser how you can ensure tax residence doesn't become a problem in the future.

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This is the probably the answer to your question.

 

[Gediminas]

Allenk said:
Hi

I've got some website assets sitting in a Malta company. It's just a holding company for CGT reasons.

While it's just a holding company, while we grow the value of the websites I'd like to remain the director and secretary as this will save quite a bit in fees over the next 5 to 10 years.

However, should we want to sell the websites, I'd like to get a local director and work to improving the POEM to make it more robust, so that when the sale occurs it's more robust.

How long in advance would I need to take these steps before the sale?

What are the major steps you'd recommend I take?

I look forward to your experience and insights!
Click to expand...

Hey,

Malta will never challenge your company”˜s substance, so your question is addressed to the country that might be interested in the taxation of capital gains if they suspect that a Maltese company lacks substance. Different countries have different practices, but the main principles are the same. Having a nominee director (local service provider) nowadays does not help to build a substance, since tax authorities are aware of the nominee institute.

More and more international tax laws (like the 4th anti-tax avoidance directive) say that a local director means a decision-maker working for one company, but not a nominee.

In my view, you have few options, either when you see that a sale is coming, to increase economic substance significantly (to hire two employees, to rent an office, to pay adequate salaries, etc.) or to spend more time in Malta and to document every step in Company's activities: to arrange shareholder meetings, to prepare minutes, to prepare resolutions for every decision, to prove that you were in Malta, when all this happened, to sign agreements from Malta, etc.

You should also check DTT between your tax residency country and Malta, particularly about the permanent establishment.

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[Allenk]

Gediminas said:
Hey,

Malta will never challenge your company”˜s substance, so your question is addressed to the country that might be interested in the taxation of capital gains if they suspect that a Maltese company lacks substance. Different countries have different practices, but the main principles are the same. Having a nominee director (local service provider) nowadays does not help to build a substance, since tax authorities are aware of the nominee institute.

More and more international tax laws (like the 4th anti-tax avoidance directive) say that a local director means a decision-maker working for one company, but not a nominee.

In my view, you have few options, either when you see that a sale is coming, to increase economic substance significantly (to hire two employees, to rent an office, to pay adequate salaries, etc.) or to spend more time in Malta and to document every step in Company's activities: to arrange shareholder meetings, to prepare minutes, to prepare resolutions for every decision, to prove that you were in Malta, when all this happened, to sign agreements from Malta, etc.

You should also check DTT between your tax residency country and Malta, particularly about the permanent establishment.
Click to expand...

Thanks for taking the time to do a detailed reply. I appreciate it.

When you say: "

Gediminas said:
You should also check DTT between your tax residency country and Malta, particularly about the permanent establishment.
Click to expand...

If the Maltese company is held by a Guernsey pension trust, but I'm based in South Africa, which DTT would I need to look at?

It's a great idea travelling to Malta and documenting everything beforehand. That's a gold nugget right there!