A guide to the Elmo International Retirement Plan

Transcription

1 A guide to the Elmo International Retirement Plan

2 Contents Pg 3: What is the Elmo International Retirement Plan? Pg 4: Pension legislation Pg 5-6: Malta DTAs Pg 7: Malta QROPS benefits Pg 8: Suitability and borrowing Pg 9: The future of Malta QROPS Pg 10: Contact us

3 What is the Elmo International Retirement Plan? Elmo International Retirement Plan The Elmo International Retirement Plan is a retirement scheme approved by the Malta Financial Services Authority (MFSA) in Malta. The Plan is written under a master Trust Deed with Elmo Pensions Limited of Abate Rigord Street, Ta Xbiex, XBX 1111, Malta acting as Retirement Scheme Administrator (RSA), licensed by the MFSA. Elmo International Retirement Plan is an overseas pensions scheme that HM Revenue & Customs (HMRC) recognises as being eligible to receive a transfer of UK pension rights without attracting a tax charge. The Elmo International Retirement Plan is registered with HMRC reference QROPS The scheme was established by a Deed of Trust dated Scheme Structure The Elmo International Retirement Plan (the retirement scheme) is written under a Trust Deed with members joining the scheme by way of a deed of adherence. By joining the Retirement Scheme the members agree to abide by the rules attached to the Deed. The plan particulars are outlined in a key features document which will be issued to new members along with the application form. A copy of the Deed and Rules will be available to members upon request. The scheme is a defined contribution scheme whereby the level of benefits available will be dependent on the size of the fund at retirement. It is a personal pension scheme where no employment status is required and the assets of each member are used only for the benefit of that member. The scheme can accept transfers of pension schemes from the UK and EU and can also accept additional contributions. However, there is no requirement to make further contributions. If additional contributions are made then additional source of wealth and source of funds documentation will be required.

4 Pension legislation How does Malta comply? After the introduction of QROPS Malta spent several years discussing the compatability of its pension legislation with HMRC. Whilst other jurisdictions jumped in and then later had to explain to HMRC why they complied, Malta had established this at the start and therefore it didn't receive the ongoing scrutiny that other jurisdictions have had to endure. With regard to the conditions of tax recognition for QROPS Malta conforms in the following ways: Therefore, it more than complies with the QROPS legislation. Malta has a regulator in the MFSA who regulates pension schemes. Due to this there is no requirement for Malta to adhere to the 70% income for life rule but it chooses to do so as its legislation restricts the Pension Commencement Lump Sum to 30%. Malta does not provide for tax relief on contributions to pension schemes, but it does levy a tax on pension income. The schemes are registered with the tax office The schemes are open to residents and non residents Non residents are taxed on the same basis as residents except where a DTA exists

5 Malta DTAs DTAs allow Malta to pay income gross Malta has for many years, partly due to its EU membership, been building up its portfolio of double taxation agreements (DTAs) with many other countries. DTAs are agreements between two countries on how to treat income arising in one country for residents of another. For example how is pension income received in Malta treated for a resident of Spain? The DTA sets out who has the taxing rights, so it does not end up that both countries tax the income, resulting in double taxation. The MFSA website shows a list of DTAs and categorises them into those that are in force, those that are waiting to be ratified and those that are under negotiation. Not all DTAs are written the same, so they need careful consideration to see what basis they operate under. Pension income is often dealt with under Clause 18, but if this relates to occupational schemes only, then the "other income" clause, usually 21, should be referred to. The majority of DTAs cater for the tax being chargeable in the country of residence of the member, though some are shared jurisdictions where Malta would have the option to tax. If Malta is the country which taxes income of the member, then the country of residence will not.

6 Malta DTAs Why a DTA is important The countries where Malta will deduct tax are: South Africa Hong Kong India If you live in, or are moving to, one of the following countries you will need specialist advice as there are many factors that need to be taken into account. Canada USA Australia New Zealand South Africa Hong Kong Due to the high tax rates in Malta, it is very important to check whether a DTA exists and is efficient before committing to a Malta QROPS. Malta requires all members to be registered for tax and complete tax returns. This may be seen as an advantage as it does show a regulated tax system. On the other hand it can be a disadvantage as there may be cost implications, the members will have to prove where they are resident and the information will almost certainly be shared with the tax authorities of those countries. Therefore, it isn t sufficient just to make sure a DTA exists. You need to understand how it is written.

7 Malta QROPS benefits Why use a Malta QROPS? There are a variety of benefits to a QROPS: Currency options No inheritance tax Enhanced lump sum No lifetime allowance No scheme death charge Escape UK pension regulations Consolidation of pension schemes Gross income payments (with DTA) Protection of assets from divorce / bankruptcy Also there are benefits specific to Malta that other QROPS jurisdictions don't have. Early retirement age Malta has retirement ages from 50 to 70. This makes Malta unique in being able to offer a retirement age of 50, but this is only for those members who have been non-uk resident for more than 5 years. It remains uncertain whether Malta will retain the early retirement age in the future. Programmed withdrawals Like the UK's flexible drawdown, Malta has a pension income system by which additional amounts can be taken. The difference between Malta's system and the UK's system, is that in Malta the income is treated as a lump sum and is not taxable. The rules for programmed withdrawals say that providing there is sufficient income to pay the member s pension, then 50% of the balance can be taken as a lump sum. But what is sufficient income? For Maltese residents this has been set at 50,000 euros, but for non-residents no amount has been set. Providers have set the amount based on UK rules at 12,000 euros per annum. Therefore, a pension fund of around 240,000 euros is needed to qualify for programmed withdrawals. As it is additional income, it is wise to only use it after 5 years non-uk residency.

8 Suitability and borrowing QROPS suitability Who does a Malta QROPS suit? It would have to be a member living in a country with a DTA with Malta, otherwise the high rates of tax will make it inefficient as a jurisdiction. A Malta QROPS would be suitable for someone who wants the flexibility of income and retirement, with a well regulated, English speaking jurisdiction, in a European time zone. Although Malta has some advantages over other QROPS jurisdictions in what it can offer, some of the usual QROPS features are not available, making it unsuitable for some people. Some of the features not available are: Self investment Malta does not allow the member to direct the investments of the scheme in any way. A financial adviser will be required to advise the trustees on the investments. Even a fund manager managing billions of pound funds cannot manage his own pension scheme. As such, a Malta QROPS will not be suitable for those wishing to gear up their pension scheme. Malta and the US One specific sector that Malta is certainly suitable for is US residents. Due to the DTA between Malta and the US, Malta is one of the only QROPS jurisdictions that can cater for US residents efficiently. The treaty benefits that allow this are: Income and gains role up tax free and are only taxable in distribution Tax is only due in the US and not in Malta Income not taxable in Malta will not be taxable in the US. This works particularly well when combined with programmed withdrawals To achieve the treaty benefits, at least 75% of the scheme members must be Malta or US residents. Therefore, you will find specific schemes that cater solely for US residents. Borrowing A Malta QROPS cannot borrow for any reason (apart from short term liquidity). Therefore, it has to purchase any investments without leverage or gearing and has to purchase commercial property without the use of a mortgage.

9 The future of Malta QROPS Malta and the EU Malta being a member of the European Union gives a strength to its QROPS. Firstly, the requirement to agree DTAs has benefitted Malta. Secondly, it allows transfers of UK pension schemes for EU residents to be seen as a transfer of a pension, as opposed to setting up an offshore trust, as non-eu QROPS may be viewed. Finally, there is the possibility in the future that HMRC will attempt to stop QROPS. But given that QROPS are an EU requirement, it is unlikely that QROPS will cease. However, it could be that QROPS will only be allowed within the EU. Malta will be perfectly placed for this. Malta QROPS in the future Malta will continue to develop as a jurisdiction. There will be additional clarification of the reporting rules and processes.

10 Contact us Elmo Pensions Ltd Triq l-abate Rigord, Ta' Xbiex XBX 1111, Malta Tel: