There has been a bit of a shakeup in the world of offshore investments in the UK. The rules that govern offshore investment required to upgrade, and the British government has proposed some changes to the existing offshore funds regulations, Offshore Funds (tax) Regulations 2009, which came into force on December 22, 2009. These changes will mean big changes for some and not much for others. But what exactly are these changes?
Changes in Offshore and definition of ‘substantial interest’
The new regulation has changed the definition of the previous fund. Before the definition before the money was tied to the regulatory definition of a ‘collective investment’ under FSMA 2000 rules. However, some offshore funds do not meet all the FSMA requirements. This means that some funds were not classified correctly, leading to favorable conditions for some investors, where the fund is almost FSMA requirements taxes.
In addition, in order to be registered, investors must have a ‘substantial interest’ in the offshore fund. The definition of ‘substantial interest’ has always been rather vague which leads to confusion and unequal treatment of investors, and so the government has decided to scrap it.
In place of the old nomenclature, the government has introduced a ‘mutual fund’ test systems. Non-UK funds classified as “mutual funds” under the new testing system is also defined as an offshore funds if they are also classified as not UK parties with respect to tax calculation.
It is clear, however, that previous investors that were keeping track material interests in offshore funds can be badly under the new rules. The government has made arrangements for any investment not the type of material 1 December 2009 to ensure that this does not happen.
Distribution and reports
Distribution and non- suspension have been re-defined as reporting and non-reporting, with almost all existing offshore funds defaulting to non-reporting, with reporting status requires subsequent application. Reporting funds required to report at least 90% of all reportable income within 6 months of each period as investors and HMRC. Failure to report income will potentially lead to loss of status reporting. Reporting fund status is desirable because it offers a higher degree of tax certainty and increased ease of administration.
What’s the effect?
All investors who were subject to tax deductions for investments under the previous rules will be affected by the new rules. In addition, all investors in non-UK funds that were not previously subject to tax will now need to recheck their obligations, as the definition of the previous Fund has changed and “material interest ‘rule has been abolished.
For on taxes, all income tax for the tax year 2009/10 will be subject to the new regime. Capital gains tax will only affect the capital gains made on or after 1 December 2009. Corporation tax will be exposed for accounting periods ending on or after 1. December 2009.