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In April 2023, the Trust Property Control Act (TPCA) was amended to require trusts to submit a register containing prescribed information about beneficial owners (BO Register) to the Master of the High Court.
This amendment was introduced to address deficiencies highlighted by the Financial Action Task Force (FATF) when South Africa was grey listed.
In addition to these trust-related requirements, new rules regarding the disclosure of beneficial ownership for assets owned by companies were also implemented.
These measures aim to enhance transparency and combat financial crimes.
Although the new rules under the TPCA came into effect on 1 April 2023, neither the legislation nor the Master of the High Court initially specified a deadline for submitting BO Registers.
However, trusts have reportedly been slow to comply. Recently, the Master’s website was updated to set a firm deadline of 15 November 2024 for submission.
Failure to submit the BO Register constitutes an offence. Trustees found guilty of non-compliance could face penalties, including fines of up to ZAR 10 million and/or imprisonment for up to five years. This underscores the importance of ensuring timely compliance with the BO Register submission requirements.
While it remains uncertain whether the Master will actively enforce these sanctions in practice, trustees are strongly advised to prepare and submit their BO Registers promptly.
Even if a trust misses the deadline, it is better to comply as soon as reasonably possible to avoid potential legal and financial consequences.
The definition of a beneficial owner under the TPCA can be ambiguous.
At a minimum, the founder and the trustees of a trust are considered beneficial owners.
However, beneficiaries are not automatically included within this definition.
Trustees should carefully assess their obligations and consult the relevant guidance to ensure compliance.
If you have any queries about this article on South Africa’s Beneficial Register, or tax matters in South Africa more generally, then please get in touch.
Alternatively, if you are a tax adviser in South Africa and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
On 31 July 2024, the Cayman Islands introduced the Beneficial Ownership Transparency Act 2023 (BO Act) along with the Beneficial Ownership Transparency Regulations, 2024 (BO Regulations).
Alongside these regulations, guidance titled Guidance on Complying with Beneficial Ownership Obligations in the Cayman Islands (BO Guidance Notes) was also made available on the General Registry’s website.
This new framework, known as the New BO Regime, revises the rules for entities registered in the Cayman Islands.
For those involved in private client structures, especially with trust arrangements and underlying companies incorporated in the Cayman Islands, these changes may have significant implications.
This article explores what the New BO Regime entails and how it may impact trusts and other wealth management entities.
The New BO Regime broadens the types of Cayman Islands entities required to comply with beneficial ownership reporting obligations.
Under the new rules, some entities that were previously exempt now fall within scope, meaning more wealth structuring vehicles, including foundation companies and private trust companies (PTCs), must adhere to these requirements.
While trusts themselves are exempt from registration, companies or other entities under a trust, known as “Trust Underlying Entities,” must comply with beneficial ownership reporting if they meet certain criteria.
Under the New BO Regime, several types of entities are classified as “Legal Persons” and fall within the scope of the regulations, including:
Entities designated as Legal Persons must maintain a Register that identifies their beneficial owners.
The BO Act sets out who qualifies as a “Registrable Beneficial Owner.” This includes individuals or legal persons who:
In the absence of a Registrable Beneficial Owner, a senior managing official, like a director or CEO, must be listed as the contact person on the Register.
For each Registrable Beneficial Owner, the following information must be provided:
The Register needs to be updated monthly to ensure compliance.
The responsibility for maintaining and filing the Register lies with the Legal Person itself, typically in collaboration with a corporate services provider (CSP). Failure to comply with these reporting requirements may lead to civil or criminal penalties.
The New BO Regime enforcement begins in January 2025, providing a grace period for entities to meet compliance obligations.
Trustees of trusts with a Trust Underlying Entity may need to report beneficial ownership details if there are no other identifiable Beneficial Owners.
Trustees must meet specific criteria, demonstrating ultimate control over the trust’s activities, unless this control is limited to advisory or managerial functions.
Foreign trustees also need to report details of a nominated individual within their organisation.
Foundation companies commonly used in private wealth structuring may also require review.
Depending on the constitutional documents, a Registrable Beneficial Owner could be the Supervisor, founder, or another individual with control.
For PTCs, previously exempt unlicensed PTCs now fall within scope, requiring identification of Registrable Beneficial Owners.
Privacy and Future Changes
However, draft regulations are under consultation, exploring a possible framework for public access in the future.
If public access is introduced, requests will be subject to a “legitimate interest” test to safeguard against risks like extortion or violence.
The New BO Regime places a significant regulatory responsibility on entities and individuals managing trusts and wealth structures in the Cayman Islands.
With the January 2025 deadline approaching, private clients, trustees, and wealth management advisors should carefully assess their current structures to ensure compliance.
If you have any queries about this article on beneficial ownership, or tax matters in the Cayman Islands, then please get in touch.
Alternatively, if you are a tax adviser in the Cayman Islands and would be interested in sharing your knowledge and becoming a tax native, there is more information on membership here.
On 10th July 2024, Taiwan’s Ministry of Finance (MOF) issued a new tax ruling which clarifies the obligations and reporting procedures for both onshore and offshore trustees concerning Controlled Foreign Corporation (CFC) trust income.
This ruling supplements previous guidance by outlining the responsibilities of trustees regarding the settlor or beneficiary’s CFC trust income, starting from the 2024 fiscal year.
Earlier, on 4th January 2024, the MOF had issued a tax ruling which provided a calculation method and guidance for CFC reporting.
This guidance applies to any settlor using shares or capital of a foreign-affiliated enterprise based in a low-tax jurisdiction (the “Shares of Foreign Enterprise in Low-Tax Countries”).
Under Article 92-1 of the Taiwan Income Tax Act, trustees are required to report such holdings.
The latest Ruling further elaborates on the specific procedures trustees must follow when reporting income from such trust assets.
Trustees are now required to report trust income to the MOF under the following conditions:
Trustees must submit a comprehensive report of all trust assets, including but not limited to the property inventory, revenue and expenditure statements, and the statement of trust benefits accrued and payable to beneficiaries.
This requirement pertains specifically to trusts that include Shares of Foreign Enterprises in low-tax jurisdictions.
It’s important to note that while all trust property must be declared, only the CFC trust income is taxed in advance.
The taxation of other trust property remains on a “cash basis.” The MOF is expected to release a CFC filing form for trustees, which will become the standard format for such reports.
Trustees are required to begin reporting the trust income of settlors or beneficiaries from the fiscal year 2024 onwards.
The report for each fiscal year must be submitted by the end of January of the following year, meaning the first report, covering fiscal year 2024, is due by 31st January 2025.
Offshore trustees who are unable to file the report themselves may appoint an agent to assist with the process.
Trustees must apply for a uniform tax ID number from the tax authorities to facilitate the reporting process.
Specific instructions on which tax authorities trustees should apply to will be provided.
Trustees who fail to meet their reporting obligations under Article 92-1 of the Income Tax Act, the CFC rules, or the new Ruling will face penalties under Article 111-1 of the Income Tax Act.
These penalties include fines amounting to 5% of the under-reported or undeclared trust income, with a maximum fine of NT$ 300,000 and a minimum of NT$ 15,000.
Additionally, trustees who fail to accurately file tax withholding returns or issue the necessary documents and certificates will incur a fine of NT$ 7,500.
They must also submit corrected filings within a specified timeframe to avoid further fines, which are calculated as 5% of the current year’s trust property income, subject to the same fine limits.
The new Ruling has significant implications for offshore trustees, who are now required to adhere to Taiwan’s reporting obligations.
Previously, Taiwan’s participation in the Common Reporting Standard (CRS) network was limited, making it difficult for the MOF to access foreign tax information, except through bilateral agreements with countries such as Japan, the UK, and Australia.
Following this Ruling, offshore trustees must review their Taiwanese clients’ offshore asset structures and assess their CFC risks to ensure compliance.
There is some uncertainty about whether trustees need to report income for the first half of 2024, particularly if the trust relationship is terminated shortly after the Ruling’s issuance.
Preliminary discussions with the MOF suggest that if a trust is terminated after 10th July 2024, and a successor trustee takes over, the previous trustee may not be penalised, provided the successor trustee reports the income for the entire year.
Further clarification from the MOF is anticipated.
If a trust has beneficiaries both in and outside of Taiwan, and the trustee cannot confirm the beneficiaries’ tax residency status, they must report all beneficiaries and their respective income to the MOF.
Each beneficiary is responsible for declaring their overseas income based on their residency status.
How the MOF will enforce penalties against foreign trustees without a physical presence or business agent in Taiwan remains to be seen.
There is some ambiguity regarding whether offshore trustees of special purpose trusts need to declare the trust property, especially when no specific beneficiaries are designated.
According to an earlier MOF ruling , if a trust has no specified beneficiaries and the settlor does not retain the right to designate them, the trustee is responsible for reporting the trust’s assets under Article 5-1 of the Estate and Gift Tax Act.
The trustee would also be subject to income tax on the income derived from such trust property.
Thus, if a settlor establishes an offshore special purpose trust that meets these conditions, and there is no income generated during the trust’s term, none of the beneficiaries should be treated as Taiwanese tax residents, and the trustee would not be required to report the trust property.
The recent MOF Ruling on CFC trust income reporting necessitates careful attention to compliance.
Trustees must thoroughly analyse the financial details of the CFC, identify the beneficiaries, and review the trust property to ensure accurate reporting.
It is recommended that anyone potentially impacted by these changes should engage professional assistance.
Concerned about the new trustee reporting obligations in Taiwan? Find your international tax advisor here to navigate these changes effectively. For tailored Taiwan tax advice, get in touch with our experts today.
Cyprus has become a premier destination for creating trusts, thanks to its robust legal framework and generous tax incentives.
The concept of a trust, considered one of the most significant legal innovations in English jurisprudence, allows individuals and corporations to meet various objectives, such as asset protection, estate planning, and confidentiality.
In Cyprus, the legal system supports a wide range of trust types, including fixed trusts, discretionary trusts, and charitable trusts, each designed to serve different needs.
One of the most notable trust structures in Cyprus is the “international trust.”
Following the 2012 amendments to the International Trusts Law 69(I)/92, Cyprus has become one of the most competitive jurisdictions for establishing international trusts, offering unique benefits compared to other locations.
This type of trust allows individuals to take advantage of the country’s favorable legal and tax environment while enjoying significant flexibility.
To create a Cyprus international trust, certain criteria must be met:
The term “resident” refers to someone who resides in Cyprus for more than 183 days in a tax year or a company that is managed and controlled within Cyprus.
Setting up a Cyprus international trust provides numerous benefits, including:
These trusts offer an excellent solution for high-net-worth individuals seeking strategic asset planning, particularly for those with complex family arrangements.
Settlors can reserve certain powers when establishing a Cyprus international trust.
These powers might include the ability to revoke or alter the trust, appoint or remove trustees or other key positions, or give specific instructions to the trustee.
Cyprus international trusts can continue in perpetuity, as the rule against perpetuities has been excluded.
The 2012 amendments to the Cyprus International Trusts Law have positioned Cyprus as a leading jurisdiction for setting up international trusts.
The comprehensive legal framework provides unparalleled protection and flexibility, allowing settlors, trustees, and beneficiaries to structure their family or business arrangements to meet their unique needs and objectives.
With these advantages, Cyprus stands out as an attractive destination for creating trusts with significant tax benefits and legal security.
If you have any queries about this article on Cyprus Trusts, or tax matters in Cyprus more generally, then please get in touch.
If you are a tax adviser – whether from a legal or accountancy background – then we would love to discuss how you can become one of our ranks of Tax Natives.
All you need is your local tax knowledge of Cyprus and any other regions around the world!
For more information please see here or get in touch.
Israel’s parliament has passed new legislation that introduces significant reporting obligations for trustees and new tax residents, marking a notable shift in the country’s tax regulation framework.
These changes, which aim to enhance transparency and prevent tax evasion, will come into effect over the next few years.
Starting from the 2025 tax year, trustees of taxable Israeli trusts will be required to file annual reports detailing the trust’s ‘controlling individuals.’
These individuals include the settlor, trustees, protector, and beneficiaries, as well as the controlling individuals of any beneficiary corporations. This information must be included with the trust’s annual tax return.
Additionally, from 1 January 2026, all trustees residing in Israel must report the trust’s controlling individuals and their places of residence to the Israeli tax authorities.
This requirement is mandatory even if the trust is not subject to Israeli reporting and taxation, such as when none of the settlers or beneficiaries are Israeli residents.
The reports must be submitted within 90 days of the creation of the trust, or by April 2026 for trusts established before the implementation of this amendment.
The legislation also alters the reporting exemptions for new Israeli tax residents and veteran returning residents.
Previously, these individuals enjoyed a ten-year exemption from reporting foreign assets and income after becoming Israeli residents.
Under the new law, this exemption will be abolished for individuals who become Israeli residents starting from 1 January 2026.
Although these new residents will still benefit from a tax exemption on foreign-earned income during the grace period, they are now required to report this income.
The amendments extend to the rules governing controlled foreign companies (CFCs).
Under the current framework, a foreign company is not considered an Israeli resident during the exemption period if it is controlled and managed by an individual who is a new or returning tax resident.
The new legislation grants the Israeli tax authority the power to demand that such CFCs provide necessary information or file tax returns in Israel, enhancing the government’s ability to monitor and tax these entities.
These legislative changes underscore Israel’s commitment to tightening its tax regulations and aligning with global standards to combat tax evasion and enhance financial transparency.
Trustees, tax residents, and entities affected by these changes should prepare to comply with the new requirements.
It is advisable for stakeholders to consult with legal and tax professionals to understand the full implications of these amendments and ensure compliance with the updated regulations.
The introduction of these reporting obligations reflects a broader trend of increasing tax regulation and enforcement seen in jurisdictions worldwide, as governments seek to secure revenue and prevent tax base erosion.
As the effective dates for these changes approach, affected parties will need to stay informed and take proactive steps to adapt to the new regulatory landscape in Israel.
If you have any queries about this article on the New Reporting Requirements for Trustees and New Tax Residents, or tax matters in Israel more generally, then please get in touch.
In a significant regulatory update, the Canadian federal government has introduced new trust reporting requirements effective for taxation years ending after 30 December 2023.
The first reporting deadline for trusts with a 31 December 2023, year-end is 2 April 2024.
This development introduces an expanded scope of reporting, bringing a wider array of trusts under the purview of mandatory filing, including certain bare trusts.
Here’s what you need to know about these new requirements and their potential impact.
The amendments mandate more extensive filing for trusts, including those that were previously exempt under certain conditions. Key changes include:
More trusts are now required to file T3 trust income tax and information returns, extending to certain bare trusts previously exempt.
Most trusts must provide additional information, including details about trustees, beneficiaries, settlors, and anyone with influence over the trust’s decisions.
The new rules specifically target express trusts resident in Canada or foreign trusts deemed resident, eliminating previous exemptions for certain types of trusts.
However, a list of “listed trusts,” such as registered charities and mutual fund trusts, continues to enjoy exemptions.
Trusts mandated to file under the new rules must complete the new Schedule 15, disclosing comprehensive information about the involved parties.
This includes their names, addresses, taxpayer identification numbers, and their roles within the trust.
Failure to comply with these updated reporting requirements could lead to substantial penalties, especially in cases of gross negligence.
Penalties are pegged at 5% of the trust’s property value or $2,500, whichever is higher.
In a move to facilitate a smoother transition, the Canada Revenue Agency (CRA) has announced a waiver for the normal failure-to-file penalty for the 2023 taxation year, specifically for trusts qualifying under the bare trust exclusion.
Given the significant changes and the potential for hefty penalties, it’s crucial for trustees and beneficiaries to familiarize themselves with the new requirements.
This includes understanding which trusts now need to file, the expanded information requirements, and ensuring compliance to avoid penalties.
For those involved in trust administration or planning, staying informed about these developments and their implications is essential.
This article merely serves as a starting point, but further guidance and clarification from the CRA may be necessary as taxpayers work to comply with the new framework.
If you have any queries on this article around Canada’s Enhanced Trust Reporting Regulations, or Canadian tax matters more generally, then please get in touch.
Business Assets Disposal Relief (“BADR”), formerly known as Entrepreneurs Relief, is an important relief in the UK tax system.
The relief offers significant savings (though not as significant as it once did!) on capital gains from the sale of qualifying businesses.
BADR is primarily accessible upon the sale of shares in a private trading company, assuming specific conditions are met.
A fundamental criterion is the notion of the “personal company.”
This concept encompasses individuals who have been directors or employees holding a minimum of 5% of the company’s shares for at least two years leading up to the sale.
Notably, before 2019, the required holding period was one year.
The scope of BADR also extends to trustees, particularly when dealing with life interest trusts.
Here, the relief is applicable if the trustees sell shares in a company that is the personal company of the life tenant — the beneficiary entitled to the trust’s income.
The catch, however, lies in meeting the personal ownership requirement of 5% of the shares by the life tenant.
The stringent nature of BADR’s conditions was starkly highlighted in the First Tier Tax Tribunal case of Trustees of the Peter Buckley Settlement v HMRC.
Here, in tax year 2015-16, the settlement lodged a claim for Entrepreneurs’ Relief (ER), now BADR, on the disposal of a solitary share in Peter Buckley Clitheroe Ltd (PBCL) dated 8 November 2015.
PBCL acted as a trading entity with Peter Buckley (PB) serving as a director from its inception until 9 November 2015.
The company’s equity was comprised of one Ordinary voting share initially allocated to PB but subsequently transferred to the settlement on 9 September 2012.
In January 2018, HMRC initiated an inquiry into the settlement’s ER claim and, by May 2021, issued a Closure notice.
This notice rejected the settlement’s ER claim and imposed an additional Capital Gains Tax (CGT) liability of £251,280.
HMRC contended that to legitimately claim ER on the share sale, PB was required to personally possess a minimum of 5% of PBCL’s shares for a year within the three-year period preceding the settlement’s share disposal, a criterion that was unfulfilled since the sole PBCL share was in the settlement’s possession since 2012, not in PB’s personal capacity.
The trustees appealed to the First Tier Tribunal (FTT).
The FTT established that PB, in his capacity as a trustee of the settlement and not as an individual owner, held the sole PBCL share.
The trustees, despite having the authority to terminate the settlement in PB’s favor, did not execute this before 8 November 2015.
Consequently, the PBCL share was invested in the settlement immediately before its sale.
Given that PB did not personally own the PBCL share as mandated by s169S(3) TCGA 1992, HMRC’s rejection of the ER claim was justified.
The tribunal underscored that the legislative intent was clear: to qualify for ER, PB had to personally hold at least 5% of the shares and voting rights in PBCL for one year within the three years before the disposal, which he did not, leading to the disallowance of ER and the dismissal of the appeal.
The complexities of trust ownership and the stringent requirements of BADR converged to result in the trustees being denied relief on the sale of company shares, leading to a significant tax liability.
This case serves as a crucial reminder of the meticulous planning required when considering shareholding structures, especially in the context of trusts.
In conclusion, while BADR presents a valuable opportunity for tax savings, its intricate conditions and interplay with trust structures underline the need for diligent planning and expert guidance.
As entrepreneurs and trustees seek to navigate these waters, proper tax advice remains key.
If you have any queries about this article on Business Asset Disposal Relief for Trusts and Trustees or any UK tax matters, then please get in touch.
The Cayman Islands offers a unique form of statutory trust called a “STAR Trust,” which stands for Special Trusts Alternative Regime.
STAR Trusts, as governed by Part VIII of the Trusts Act (revised).
A STAR trust might provide increased flexibility when compared to traditional trusts. This might include in the following areas:
The key uses of STAR Trusts include:
Technical requirements for STAR Trusts include explicit written creation, clear intent to opt-in to the STAR Regime, and the same legal framework as traditional trusts except where variations are introduced by the STAR Regime.
Enforcers play a unique role in STAR Trusts, with their standing to enforce the trust being reserved as a right or duty. Enforcers have the same rights and remedies as beneficiaries under ordinary trusts, providing them with significant control and oversight.
Trustees of STAR Trusts must include at least one trust corporation, as per Cayman Trusts Act requirements.
STAR Trusts ensure certainty and reform of purposes, allowing the trust terms to confer powers to resolve uncertainties.
The Cayman court has jurisdiction to reform the trust when execution becomes impossible, impractical, or obsolete.
While they cannot directly own land in the Cayman Islands, they are permitted to hold interests in entities that own land for business purposes.
Practical uses for STAR Trusts include creating special purpose vehicles, orphaning private trust companies, holding operating companies with limited trustee involvement, and supporting social benefit projects.
Recognition of these vehicles outside the Cayman Islands has generally been positive, with most countries recognizing them as valid trusts.
Due to the flexibility and versatile nature of STAR Trusts, they are expected to play a significant role in offshore transactions and arrangements for the foreseeable future.
If you have any queries about this article, trusts or the Cayman Islands, then please get in touch.
On 31 January, HMRC changed its guidance on unauthorised unit trusts, including Jersey Property Unit Trusts (JPUTs).
This new guidance has perhaps put a cat among the pigeons.
Previously, HMRC advised that neither authorised nor unauthorised unit trusts needed to be registered on HMRC’s trust register unless the unit trust became liable to certain UK tax liabilities.
However, the guidance for unauthorised unit trusts has now changed, meaning that JPUTs may need to be registered even if they don’t have a liability to UK tax.
JPUTs will need to be registered if they acquire UK land directly or intend to do so since 6 October 2020.
There are only two situations in which a JPUT may need to be registered: when it becomes liable for UK tax or when it acquires UK land after 6 October 2020.
If a JPUT is required to be registered, the relevant information, including contact details for each trustee and unit holder, will need to be compiled and submitted via HMRC’s online system.
The change in HMRC’s guidance means that many more JPUTs will be required to be registered on HMRC’s trust register.
Trustees and advisers should urgently check whether they have any trusts which should now be registered, and ensure they comply with the registration requirements.
Although HMRC is currently adopting a light-touch approach to penalties, trustees and advisers should not rely on this and should ensure they comply with the registration requirements.
If you have any queries relating to JPUT or tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The EU introduced trust sanctions in respect of Russia last year. However, the effect of these sanctions has had international impact.
Despite announcing its intention to introduce trust sanctions some time ago, the UK trust sanctions, provided for in Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (“The Regulations”), only came into force last month.
However, there are some important differences between the regimes.
The UK sanctions include a prohibition on providing trust services to or for the benefit of a person connected with Russia or to a ‘designated person’ (unless the services were provided immediately prior to the regulations coming into force).
The Regulations came into force on 16 December 2022. They amend the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855).
The amendments define “trust services” as follows:
A person is broadly considered “connected with Russia”:
The EU’s sanctions focus on the nationality or residence of a trust’s settlor or beneficiary. As such, there are some notable differences.
Firstly, under the UK’s rules, a private individual who is a Russian national but is resident elsewhere will not automatically be considered connected with Russia for these purposes.
The UK rules also provide helpful guidance about when trust services are “for the benefit” of a person. This includes circumstances where services are provided to a person:
The new rules are ‘forward-facing’. As such, these sanctions won’t apply to trust services that are already being provided under an existing relationship at 16 December 2022. A key question is whether additional or different work can be provided under this existing relationship or whether a ‘new instruction’ is a new relationship?
Additionally, The Office of Financial Sanctions Implementation (“OFSI”) has confirmed that it will consider granting licences for trust work if that work falls within certain exceptions. This might include charitable pursuits.
Of course, UK trust provides, and those providing services in Crown Dependencies and British Overseas Territories, will need to be mindful of these sanctions. In terms of how they might apply to new relationships and the extent to which new instructions by existing clients within the scope of these rules might constitute a new relationship.
If you have any queries on UK expands Russian sanctions to trust services or UK tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article