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Lump-sum taxation and residence permit in Switzerland

Articles, Immigration, Latest News, Tax,

Foreigners who take up residence in Switzerland for the first time or after an absence of more than ten years may opt for a special tax regime provided that they will not carry out any gainful activity in the country. In doing so, they will benefit from the application of a special method for the assessment of their income and wealth, which is an expenditure–based taxation. This special regime is more generally known as “lump-sum taxation”. It is applied at Federal level and in some cantons, more particularly in the West part (French speaking part) of Switzerland. Opting for lump-sum taxation regime will generally be a decisive criterion for the grant of a residence permit to applicants from non EU countries who are under the age of 55 and have no specific personal relation to Switzerland.

Lump-sum taxation has raised a rather intensive controversy in Switzerland during the year 2014 and even earlier. Until very recently the system was under the attack of certain political parties and organizations that launched popular initiatives (typical democratic rights provided by Swiss constitution), in several cantons and at Federal level, calling for lump-sum taxation to be abolished. The canton of Zürich, for instance, had to abolish lump-sum taxation in 2009 as a result of a cantonal popular initiative that collected a majority of votes against this tax regime. The reasoning of the opponents to lump-sum taxation is that the system would not be consistent with the constitutional guarantee of equal treatment. In other words, tax payers benefitting from lump-sum taxation – who cannot be Swiss citizens – are considered to be taxed on a more favourable way than other tax payers – mainly Swiss citizens – who are taxed under the ordinary regime.

This is not the place to enter into the controversy even though there are many reasons to consider that foreigners taxed on a lump-sum basis in Switzerland are not actually in the same situation as Swiss nationals and other foreigners who are taxed under the ordinary regime. Therefore different situations allow different treatments, in particular when it relates to taxation. Furthermore, economic considerations surrounding lump-sum taxation show that this system brings a lot of benefits to the local economy which recovers most of the expenses, quite actual and significant, incurred by lump-sum taxpayers for their living at their place of residence. This explains why the business community strongly opposed the abolition of lump-sum taxation.

Finally, on November 30th, 2014, the initiatives to abolish lump-sum taxation at Federal level and in the canton of Geneva were strongly rejected by the population at both levels. So far there are no other cantonal initiatives against lump-sum taxation pending in other cantons.

It is now very clear that lump-sum taxation will remain in force in Switzerland, at Federal level and in some cantons, more particularly in the French speaking part of the country (for instance in the cantons of Geneva, Vaud and Valais). However, following the abolition of this special regime in some cantons of the German speaking part of Switzerland, Confederation had already taken the lead in tightening the conditions for the application of lump-sum taxation at Federal and Cantonal levels. In this respect amendments, effective as at January 1, 2016, have been made to the Federal Direct Taxation Act (DFTA) and to the Federal Act on the Harmonization of Direct Taxation at Cantonal and Communal levels (DTHA).

For the sake of clarification, it is worthwhile noting that Swiss tax system provides for tax jurisdiction at three levels, Federal, Cantonal and Communal. Taxation is however made by Cantonal authorities who act for themselves and, by delegation, for the Confederation and the home municipality of the tax payer. Confederation levies tax on income only, while cantons and municipalities levy tax on income and wealth.

 

Principles applicable to lump-sum taxation at Federal level (art. 14 DFTA) and at Cantonal and Communal levels (art. 6 DTHA)

  • Expenditure-based taxation (lump-sum taxation) replaces ordinary taxes on income and wealth.
  • The system is available only for foreigners who set up domicile in Switzerland for the first time or after an absence of ten years. Swiss nationals cannot benefit from this tax regime.
  • Spouses living in the same household must both meet the requirement for lump-sum taxation.
  • The portion of expenditure–based taxation replacing the ordinary income tax is calculated on the basis of the annual expenditure / living costs of the tax payer, in Switzerland or abroad, for himself and for his family members or other people dependant from him and living with him. Taxes are levied on the highest of the following amounts:
  • The minimum amount set by the law, which may not be less than CHF 400’000.- for Federal direct taxation. (Cantons have to set in their legislation, at their discretion, the amount of the minimum assessment basis);
  • Seven times the annual rent or annual deemed rental value of the home of the main tax payer;
  • For other tax payers living for example in a hotel or in a pension: three times the price of the annual pension for food and housing at the place of residence of the tax payer.
  • Tax is levied at ordinary tax rate.
  • Cantons are free to determine how cantonal wealth tax is covered by lump-sum taxation.
  • The amount of taxes due on the basis of the lump-sum assessment must be at least equal to the total of income and wealth taxes that would be charged to the tax payer if he would be taxed on following items, under the ordinary regime:
  • Real estates in Switzerland and the income generated by such assets;
  • Movable assets located in Switzerland and the income generated by such assets;
  • Financial assets invested in Switzerland, including debts secured by real estate and the income generated by such assets;
  • Copyright, patents and similar rights exploited in Switzerland and the income generated by such rights;
  • Retirement pensions, annuities and other pensions from Swiss sources;
  • Foreign income for which the tax payer requires partial or full exemption of foreign taxes based on any double taxation treaty entered into by Switzerland with the country where taxes are levied.
  • If the income from a foreign state is exempted provided that Switzerland levies taxes on such income, applying the rate for global income, Swiss taxes are calculated not only on the basis of the income mentioned above but on the basis of all items of income from the state at source or attributed to Switzerland based on the relevant double taxation treaty.

 

Specific conditions at Cantonal level (limited to the Cantons of Geneva, Vaud and Valais):

Minimum annual assessment basis, i.e. lump-sum amount, set forth by law:

  • Geneva: CHF 300’000.-
  • Vaud: CHF 300’000.-
  • Valais: CHF 220’00.-

However, in practice lump-sum taxation is granted based on higher minimal amounts, as follows, by approximation:

  • Geneva: CHF 350’000.-
  • Vaud: CHF 350’000.-
  • Valais: CHF 280’00.-

So far, the above cantons have not set forth any specific condition in order to assess wealth separately, in addition to tax assessment based on expenditures.

Comments

As explained above, renouncing to any gainful activity is a key condition in order to benefit from lump-sum taxation. Therefore, foreigners who become new Swiss taxpayers under this special regime are not allowed to take up any employment in Switzerland, should it be with a third person/entity or with a legal entity under their control, for instance as shareholder or beneficial owner of such entity. The same applies to any independent gainful activity. For the time being carrying out gainful activity outside Switzerland is still allowed. The conditions in this respect might become more tightened in the future, at least at Cantonal level. According to existing practice, lump-sum tax payers are still authorised to be a member of a Board of directors of a company in which they have interests (equity and/or loan), in the capacity as “observer” for the purpose of monitoring their investment. However they may neither participate to corporate decisions nor receive any remuneration for their position within the company. In any way one must remain careful in this respect. The practice, more particularly at Cantonal level, could develop new and stricter requirements.

 

Lump-sum taxation and residence permit

Any foreigner who decides to take up domicile in Switzerland with or without any gainful activity must obtain a residence permit.

Residence permit for gainful activity must be obtained from the first day of activity. Residence permit without any gainful activity is necessary after a continuous stay of 90 days in the country.

For European citizens, obtaining a residence permit with or without gainful activity is a simple and swift process based on the agreement between Switzerland and the European community supporting the free movement of persons.

For citizens from non EU countries, the process is less straightforward. Residence permit with gainful activity requires a labour market survey to verify that there is no one available on local market and in the EU countries to take up the position. Authorizations are reserved for people at executive level for positions that will help develop the local labour market. For residence permit without gainful activity, the applicant must be over 55 and justify good ties with Switzerland. If none of these two prerequisites are met, the applicant may still show that he will be of a significant interest to his home canton in terms of taxation.

In this context, lump-sum taxation is frequently combined with the application for residence permit without gainful activity. Indeed, for non EU applicants who are not 55 of age or older and who have no ties to Switzerland, opting for lump-sum taxation is generally the only route to the grant of a residence permit without gainful activity. One must however be aware that the lump-sum amount must be of some significance in order to create a tax interest for the canton. Currently, the minimum amount of the lump-sum taxation basis is in the order of CHF 800’000.- to CHF 1’000’000.- depending on the Canton of residence. One can note therefore that the minimum assessment amounts (CHF 400’000.- at federal level) or seven times the housing expenses as lump-sum amount might not be sufficient when applying for a residence permit.

For practical reasons, it is advised therefore to obtain first a lump-sum taxation agreement with relevant Cantonal tax administration in order to be able to apply then for a residence permit in front of the population office of the Canton of residence.

Conclusion

The recent confirmation of the lump-sum taxation system in Switzerland will quite certainly result in a renewed interest for foreigners who see the country as a possible place for immigration. In addition the political and economic stability in the country combined with a high quality of life will continue to make Switzerland a first choice for immigration.

Tax planning considerations for Tier 1 (Investor) migrants

Articles, Immigration, Latest News, Tax,

The UK encourages foreign direct investments by granting high net worth individual investors and their families the right to reside temporarily in its territory, with the associated tax benefits of the resident ‘non-dom’ regime. And after a qualifying period, whose length depends on the amount invested in the British economy, the individual and their kin can obtain indefinite leave to remain (ILR) in the UK. Later, they can even apply for British citizenship.

The Immigration Rules that regulate the process are extremely complex and subject to frequent and unexpected changes. The most significant amendments became effective on 6th November 2014 following an extended period of scaremongering and rumours, which mostly turned out to be true. The new rules doubled the investment threshold and only gave panicked HNW migrants 20 days to apply under the old rules or face an expensive revision of their investment plans.

The Home Office’s explanatory notes are comprehensive; however, clients rarely submit visa applications themselves. Usually they engage a triad of advisors who are experts in the fields of UK immigration law, financial and tax planning. It is not a coincidence that the tax consultants are right at the end of the list — experience has shown that despite moving to a high-tax country, seeking comprehensive tax advice often comes as an after-thought, when the investments are made and the arrival dates are set. This article highlights the primary tax planning considerations relevant to non-domiciled investors at different stages of the UK immigration process for high-value migrants.

Immigration

There are two pathways that such high-value migrants can take — Tier 1 (Investor) and Tier 1 (Entrepreneur), although this article focuses on the planning opportunities for the former. These differ in the size of the investments and the commitments on behalf of the migrant. The Home Office’s website (http://tinyurl.com/ldtl8cw) explains the regimes in detail and contains policy guidance documents (http://bit.ly/1yIoFKt), extracts from which the author used in writing this article.

The Tier 1 (Investor) category is for high-net-worth individuals who can afford to invest at least £2 million in the UK. The investor does not need a job offer in the UK nor is he required to prove a good command of the English language although the latter will be required when applications for ILR and settlement are made. Broadly, the funds must be his own savings or belong to his spouse or a partner — the Rules no longer permit borrowing the funds. According to Home Office’s statistics (http://bit.ly/1GvfGTu) in 2013, the Chinese received the largest number of investor visas, followed by the Russians; the rest of the nationalities trailing behind. Anecdotal evidence suggests a significant number of the investors being wives of wealthy foreigners; the latter, together with the couple’s children being her dependants, who are free to visit the UK as they please without any commitments as to the duration of visits or making the investments.

For the sake of completeness, Tier 1 (Entrepreneur) is for non-European migrants who want to invest in the UK by setting up or taking over, and being actively involved in the running of, a UK business or businesses. Broadly, the applicant needs to invest £200,000 in a UK company and comply with a host of other requirements, including speaking English to a certain standard and having enough money to support himself in the UK. This route is attractive to younger entrepreneurs who might have sufficient savings and are prepared to actively manage the business and create jobs in the UK. In fact, certain graduate entrepreneurs are allowed to apply with only £50,000. With the recent tightening of the rules allowing foreign students to seek work in the UK after finishing their studies, the Entrepreneur visa has become especially popular with parents willing to help their children to stay in the UK.

Both routes allow the migrant to apply for the ILR after a continuous residence period in the UK of five years. This can be reduced to three years for the investor who invests £5 million or the entrepreneur who makes extraordinary progress with developing his business. A further reduction to two years is available to the investor who invests £10 million. Interestingly, the Rules only allow the main applicant to reduce the length of time before he applies for the ILR and exclude his dependants, who need to wait the whole five year period before submitting the application. There are also strict requirements regarding the number of days that the migrant can spend outside the UK in any 12-month period (http://bit.ly/1ndkzW5). Failing to meet them will result in the inability to apply for the ILR and settlement.

Statutory Residence Test

Taxation in the UK primarily depends on a person’s residence status. Since April 2013, residence has been determined under the statutory residence test (SRT). The SRT is explained in brochure RDR3 (http://tinyurl.com/SRTRDR3), which also contains useful practical examples, which are worth reviewing by anyone attempting to ascertain their residence situation. The SRT establishes residence status according to the number of days that an individual spends in the UK during the tax year that runs between 6 April and 5 April of the following calendar year. Residents generally pay tax on their worldwide income and gains, whilst non-residents are generally only taxed on income from sources in the UK. However, individuals resident but not domiciled in the UK can elect to be taxed on the remittance basis where non-UK income and gains are only liable to tax when directly or indirectly remitted (brought) into the UK.

On its own, an individual’s immigration status or current nationality has no bearing on his UK tax liability whatsoever. The investor should be treated as a regular typically non-domiciled taxpayer who requires the usual pre- and post-arrival tax planning measures. Nevertheless, tax advice should take into account two considerations that pertain to the granting of the Tier 1 (Investor) status.

Firstly, assume that the end goal of most investors and their families is to settle in the UK. To achieve this they must spend at least 185 days in every 12-month period in the UK starting from the day of arrival in the UK under the newly issued leave to enter. This immediately denies the benefit of the UK-residence planning techniques based on the extended periods of absences from the UK. As a result, most tax planning measures should be undertaken before the investor’s arrival in the UK during Stage one as explained below.

Secondly, the Rules require the investors to physically bring the investment funds into the UK. Unless these are derived from clean capital, accumulated during the period of non-UK residence, the investor will suffer the consequences of making a remittance of foreign income or gains, which will be taxed at the appropriate rates. Further remittances might occur where the investor pays for the services rendered to him in the UK, such as immigration advisors’ and solicitors’ fees. Taxation of remittances can be avoided under the business investment relief as described below; however, the expense of planning for the minimisation of the tax burden might nullify the tax benefits it aims to achieve.

The Tier 1 (Investor) process

It is possible to split the Tier 1 (Investor) immigration process in three stages. Stage one is preparatory during which the migrant collects documents and submits the visa application. As Stage two, the investor arrives in the UK after receiving leave to enter the country. Stage three involves the migrant making the investment, which will permit him to remain in the UK and to apply for the extension of his stay until he can apply for the ILR and later for citizenship. There might be a period of several months between Stages one and two during which the investor stays in his home country waiting for the outcome of the application. The migrant typically has up to three months from the day of his arrival in the UK to fulfil the requirements of Stage three. The investor should plan to remain non-UK resident at Stage one and even partly through Stage two; and during this period of non-residence he should aim to perform the larger share of his tax planning strategy.

During Stage one the applicant prepares and submits documentary evidence of his ability to invest at least £2 million in the British economy. This amount must be in cash and kept in a regulated financial institution (typically a bank) in the UK or overseas. Sometimes instead of clear funds the future migrant has an asset portfolio that includes capital assets and undistributed income, but the Home Office will not take these into consideration. Funds held by companies or trusts are equally excluded. The investor should convert these assets into cash: any gains accumulated in securities and properties should be crystallised by selling them; where there is a right to receive income — dividends, interest, salary, royalties, business profits — this right should be exercised and the proceeds received into a bank account.

It might seem reasonable only to create sufficient cash to fund the £2 million investment. In fact, when converting assets into cash or receiving income, the investor might be subject to a double tax liability, determined by his current tax residence and the source of funds, although this might be reduced under double tax agreements or domestic tax exemptions. However, any non-UK gain that is crystallised and non-UK income that the investor receives after he becomes UK resident will be liable to UK’s fairly high taxes unless the taxpayer claims the remittance basis of taxation and does not bring the funds to the UK. As a result, the migrant might face the situation where he cannot pay for his life in the UK without incurring a significant tax cost.

‘Clean capital’

Conversely, income and gains received before becoming resident form so-called “clean capital”. If the investor loans clean capital to someone, the loan principal will always remain clean capital when repaid to the investor (but note the position with regard to loan interest below). Gifts received from related and third parties are also clean capital provided they are not considered to be a form of hidden income or gains distribution. In practice, some UK-resident investors live off the gifts made to them from their non-UK resident spouses, who earn income and gains not liable to UK tax. Clean capital will not be taxed in the UK, whether brought in its territory or not. However, in the case of an investor’s death, clean capital kept in a UK bank account will form his UK-situs asset liable to 40% inheritance tax. Therefore, it might be prudent to bring to the UK only the amounts necessary to fund current expenses.

Clean capital should be credited to a separate bank account and never mixed with non-UK income and gains that might be derived after assuming UK residence. In fact, considering that income and gains are taxed differently in the UK, they should also be kept in separate bank accounts. Moreover, if clean capital generates income — say it has been loaned and the investor receives interest — this should be paid to the income bank account and not into the clean capital account to avoid tainting it. Counterintuitively, the same cannot be done with gains generated with the use of clean capital. For example, if clean capital is used to buy shares, any gain realised on their future disposal will always form part of the proceeds and it cannot be segregated from clean capital by being paid to a separate bank account. There are methods that allow for such separation of gains involving the use of several connected trading entities or loaning clean capital to a bank to secure a bank loan, which will later be used to acquire capital assets.

If the investor runs out of clean capital he might have no choice but to bring foreign income and gains to the UK and face the prospect of the maximum 45% taxation. He can borrow from an overseas lender provided that the loan is made on commercial terms and the interest is serviced from UK-source income or gains. It had been possible to borrow under security of non-UK income and gains; however, in August 2014 this possibility was revoked.

There is no requirement or in fact possibility to declare clean capital to the UK tax authorities (HMRC) upon becoming UK resident. Equally, there is no requirement to report the use of clean capital on UK’s tax returns. However, the taxpayer should keep documents that reflect dates and methods of creation of non-UK income and gains to prove that they were received while he was non-UK resident and thus form his clean capital. Such documents include bank statements, sale and purchase agreements, loan agreements. They might be necessary in case of a future dispute with HMRC.

The Rules also allow the investor to rely on money that is owned either jointly with or solely by his close relative (spouse or partner). If the close relative is a lower rate taxpayer then, subject to the rules of their residence jurisdiction, the investor can gift the assets to the relative, which she can dispose of subject to the payment of a smaller amount of tax.

Provided the requirements of stage one are satisfied, the investor will receive the leave to enter the UK as a Tier 1 (Investor). The arrival to the UK should be timed with regards to the residence planning considerations as discussed next. At the same time the investor should not delay his arrival in order to satisfy the continuous residence requirement required to apply for the ILR at the end of his stay.

‘Connecting factors’ of tax residence

Under the SRT UK residence may be acquired automatically if the individual spends over 182 days in the UK, has a home in the UK or works in the UK on a full-time basis. If the investor is not UK-resident automatically, he might be resident under the sufficient ties test, which looks at the connection ties that the individual has with the UK. The relevant factors include having a family resident in the UK, presence of UK accommodation, working in the UK and length of visits to the UK in the preceding tax years. The more UK ties the investor has — the less number of days he can spend in the UK during the tax year without becoming a UK tax resident. It is also possible to be automatically non-UK resident under a separate set of circumstances. Residence is determined for the entire tax year starting from 6th April regardless of the taxpayer’s relocation date. However, there is a possibility to split the tax year and only begin UK tax residence from the day of arrival in the UK.

Experience shows that in the tax year of arrival in the UK, most investors have two connection ties: they acquire a home in the UK and their families become UK resident. The SRT allows them to stay in the UK for up to 120 days without becoming resident here provided they are not UK resident automatically. However, there are plenty of pitfalls and before determining his residence situation, the investor should avoid buying accommodation in the UK or entering into long-term leases, moving family and sending children to school and spending over 90 days in the UK in any tax period. Additional planning opportunities might be offered by the tie-breaker clause in the residence article of the double taxation treaty that the UK might have with investor’s residence State, although complications might arise stemming from the mismatch between the tax years’ periods. HMRC provides an interesting explanation of this rule in part INTM154040 of its International Manual (http://tinyurl.com/INTM154040).

Under Stage three the investor must invest £2 million by way of UK Government gilt-edged securities, share capital or loan capital in active and trading companies that are registered in the UK. The minimum investment threshold must be met only when the investments are made and there is no need for a top-up if their value falls during the continuous ownership period. It is also possible to rely on the existing investments, however, the Home Office will only count those that have been made in the UK in the 12 months immediately before the date of the application. Otherwise, the investor will have to make “fresh” investments, which might trigger tax consequences in the UK or in his residence State if to do so he would have to realise assets pregnant with gains.

Remittance rules and Business Investment relief

Provided that the investment comprises clean capital accumulated during Stage one, there will be no UK tax consequences on bringing the funds in the UK. In the opposite scenario, where the investments consist of foreign untaxed income and gains made after the date of first becoming UK tax resident, these will constitute remittances, on which the investor will be taxed at his applicable income tax rate. HMRC explain the meaning of remittance in part RDRM33140 of its Residence, Domicile and Remittance Basis Manual (http://tinyurl.com/RDRM33140).

Individuals who choose security over higher returns might prefer UK Government gilts, which can also be tax advantageous — there is no UK capital gains tax on their disposal and the coupon can be structured in a way that does not attract interest taxation when paid to non-UK tax residents. Also some gilts are exempt assets for UK inheritance tax purposes. Others invest through international banks that form a balanced portfolio of low risk quoted securities. UK-resident taxpayers are taxed on dividends they receive and gains derived from disposals. These methods are preferable for individuals with large amounts of clean capital that they can bring and invest in the UK without any tax consequences.

Investors with non-UK income and gains that will be taxed on remittance to the UK and who are not averse to risk might instead buy shares of UK trading unquoted companies or provide the funds to such companies as loans. The only limitation is that the companies cannot be mainly engaged in property investment, property management or property development, although it does not prevent investment in, for example, construction firms, manufacturers or retailers who own their own premises.

If they satisfy terms of the business investment relief (http://bit.ly/1wq9Wj6) the invested amounts shall not be treated as remittances and shall not be liable to UK tax. There are additional income tax and capital gains tax reliefs such as EIS, SEIS and VCT intended to encourage investment in the shares of unquoted trading companies. Finally, if the investor is appointed director or taken on as an employee of the company in which he has invested, he might be able to receive a substantial reduction on futuredisposal of its shares under the terms of the ‘Entrepreneurs’ Relief’ where the personal tax rate may be 10% on gains made.

Thus pre-arrival tax planning for a Tier 1 investor is a complex matter that should be done prior to finalising immigration plans. Future migrants should consider their medium to long-term planning strategy, which includes residence planning, creation of clean capital and acquisition of assets in the UK.

Moving to the UK from France

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Some statistics rank London as the fourth largest ‘French’ city by population, and the number of French individuals moving to the UK is growing. This is not surprising – the UK offers a highly favourable tax regime for ‘non-domiciled’ individuals moving to the UK, while entrepreneurs, professionals and high net worth individuals in France are subject to tax rises.

However, crossing the Channel is not always plain sailing. Without careful planning, individuals moving to the UK may continue to have French liabilities and may not be able to take full advantage of the UK’s favourable regime.

In this briefing note we set out ten key tips and traps which should be considered as part of any plan to move to the UK. Charles Russell Speechlys’ Private Client tax specialists in London and Paris are ideally placed to advise individuals considering such a move.

Make sure you cease to be resident in France

This requires more than boarding the Eurostar at the Gare du Nord. Breaking French residency also does not simply mean spending less than six months of the year in France. You also need to take steps to demonstrate that your home has moved from France to the UK, and that your centre of personal and economic interests has moved. Factors that will be taken into account for these tests include where you have property available for your use, where your spouse and children are living, from where you manage your assets, where is your wealth mainly located, where you hold bank accounts and where your statements are received, for example.

Make sure you become resident in the UK

Similarly, you cannot assume that stepping off the Eurostar at St Pancras will cause you to be UK tax resident. The UK has a complex residence test, which is broadly based on the interaction between the number of nights spent in the UK and other connections with the UK. The UK tax year runs from 6 April to 5 April and if you arrive towards the end of a tax year, you may find that you will not meet the conditions to be regarded as UK resident during that year. Conversely, in other circumstances you may arrive part of the way through the year and find that you are treated as having become resident from 6 April. Detailed advice is essential.

Structure your accounts to take advantage of the UK remittance basis of taxation

UK residents are generally liable to tax on their income and gains on a worldwide basis. However, non-domiciled individuals (those who come from outside the UK

and do not intend to make the UK their permanent home) can choose to pay tax on the remittance basis. This means that they are only liable to UK tax in respect of their non-UK income and gains to the extent that they “remit” (ie bring) such funds to the UK.

Complex rules determine the tax treatment of remittances to the UK from “mixed” funds, ie non-UK accounts containing a mixture of capital, income and capital gain. By setting up a series of non-UK bank accounts in the correct manner, UK resident non-domiciliaries can ensure that their foreign income and gains remain outside the UK, while “clean” capital which is not subject to tax can be used for UK expenditure. If implemented correctly, this can enable UK resident non-domiciliaries to live in the UK at a very low tax cost.

Review investments and investment wrappers

Many French residents hold investments through an assurance vie, ie life insurance “wrapper”. The UK has a special regime for the taxation of life insurance products. Unless the policy has been designed with UK tax rules in mind, it is likely to be taxed as a “personal portfolio bond” meaning that policyholder will be subject to highly punitive tax charges in respect of gains which are deemed to arise on an annual basis. Individuals holding such policies should consider encashing them on arrival in the UK, or altering the terms to make them UK compliant.

More generally, certain directly held investments may receive unfavourable UK tax treatment. For example, gains realised on the disposal of “non-reporting” funds (including hedge funds and most non-UK collective investments) are subject to income tax rather than lower capital gains tax rates. It is advisable to review investment mandates in light of UK tax considerations.

Consider the French exit tax

Individuals holding shares giving a right to 50% of a company’s net profit or with a global value exceeding € 800,000 are subject to an exit tax in respect of unrealised gains, on ceasing French residence. The tax is automatically deferred if you move to another EC country such as the UK, but will be crystallised if certain triggering events occur within 15 year such as leaving the EC or, sale of the shares.

It may be possible to restructure a shareholding in a family business through a non-French holding company in order to mitigate the consequences of the exit tax for a future sale of the business. This might involve establishing a Luxembourg holding company having sufficient substance, which we can implement through our Luxembourg office.

Check company directorships

If you are a director of a non-UK company, then there may be a risk that following your move to the UK, the company could be regarded as “managed and controlled” in the UK and thereby subject to UK corporation tax. Even if you retire as a director, you could still be treated as a “shadow director” if the board

acts in accordance with your instructions. It is essential that corporate structures are reviewed carefully to protect against this risk.

Protect UK real estate from inheritance tax

London property is expensive, and the purchase of a property is often easily the single largest item of expenditure by individuals moving to the UK. UK property is subject to 40% inheritance tax on death and so the tax bill can prove costly. There are, however, opportunities to structure the purchase of a property in such a way that its value is protected from inheritance tax. It is essential to take advice before the purchase because the opportunities for tax mitigation are severely limited once a property has been bought.

Review marriage contracts

A French marriage contract will not generally be respected in English divorce proceedings. In certain circumstances, the starting point for the division of assets between a couple in the English divorce courts will be a 50/50 split. Our Family team can advise on putting in place a “mid-nuptial” agreement to protect your assets.

Put in place a Will

If you acquire property in the UK, you should put in place a suitable Will to ensure that it will pass to your chosen heirs smoothly and in a tax efficient manner.

Your move to the UK may also have implications for your estate outside the UK. From August 2015, an EU regulation will alter succession laws in France. The operation of this regulation is not straightforward but, broadly, it could result in English law governing the disposition of your French assets, if you are resident in the UK at the time of your death. It is therefore important to review your estate planning, following moving to the UK.

Don’t forget France when estate planning

Much tax and estate planning in the UK involves trusts. However, trusts can have very disadvantageous consequences where assets or beneficiaries in France are involved. A typical UK estate plan might result in punitive tax charges for French heirs or in relation to French assets. Estate planning needs to have regard to both the French and UK systems.

Immigration Act 2014 – Compliance By Private Landlords

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The Immigration Bill received Royal Assent on 14 May 2014 and the provisions relating to letting of private property are gradually being introduced. From 1 December this year private landlords will be required to check the immigration status of tenants both before they rent, and on an ongoing basis. A trial of the checking system will begin in areas of Birmingham, Wolverhampton, Dudley, Walsall and Sandwell with the rest of the country likely to follow in 2015.

Most residential tenancies will be caught by the Act, but it will not apply to student accommodation, leases over seven years in length, social housing or rental agreements entered into before the Act came into force or which are subsequently renewed, as long as there is no break in occupation. These requirements will place increased burdens on landlords with the failure to comply leading to potential fines. Both current and new landlords should understand the requirements and plan how to comply with them when entering into new tenancy arrangements.

The measures sit alongside the government’s wish to crack down on landlords who provide substandard or illegal accommodation to tenants. Landlords who fail to comply with the checking requirements under the Act will be faced with fines of up to £3,000 for repeat offending, with no right of appeal. The Home Office’s draft Code of Practice on Civil Penalties for landlords and their agents provides useful guidance.

The obligation is on landlords to review tenant documentation to determine whether a tenant has a ‘right to rent’. Follow up checks will also be required, especially if the tenant’s right to remain in the UK is time limited. Landlords must report to the Home Office if their checks show that an individual does not have a right to rent. If unsure, landlords will have the right to request a rent check through the Home Office Landlord’s Checking Service, which is intended to respond to the request within 48 hours. A landlord will then have a statutory defence for the first 12 months against a penalty under the Act if they receive the green light from the Home Office. If the Checking Service replies saying the landlord cannot let the property to the proposed tenant, the landlord will need to file a report with the Home Office, failing which a fine may be imposed.

Responsibility can be transferred by agreement to, for example, the managing agent so the terms of any agency agreements landlords may have should be reviewed to ensure the agent will comply with the landlord’s’ responsibilities under the Act. It is likely that agents will charge for this service.

Those with a ‘right to rent’ include British citizens, nationals of an EEA State, Swiss nationals and those with leave to enter and remain in the UK (provided the leave does not expressly prohibit renting UK property).

Although Immigration and Security Minister James Brokenshire has announced that the right to rent checks will be ‘quick and simple’, the Royal Institution of Chartered Surveyors has raised concerns over the burden to be placed on landlords in policing immigration and the way in which the measures will be implemented. The Institution has made clear it feels the checking mechanism could involve unnecessary red tape and potentially unintended consequences. Although systems will no doubt evolve to deal with the increased bureaucracy, some growing pains should be expected.

The Home Office has suggested that landlords may end up benefiting from lower losses of rental income because of more stringent checks, but the administration involved may be quite demanding. Landlords will be required to do checks each year throughout the term of the tenancy, and to store information obtained from tenants, which will need to comply with the Data Protection Act. Some concerns have been raised that this could lead to discriminatory practices in favour of British citizens as well as higher costs for landlords.

Although it seems likely the Act will not be rolled out nationwide until after the general election next year, current and potential landlords should start to think about how they will comply with the Act’s requirements. If a landlord uses a managing agent, the terms of the agency agreement should be reviewed to ensure the agent will comply with the landlord’s’ responsibilities under the Act. This may also mean an increase in agent’s fees.

It remains to be seen how the reforms will be implemented in practice. Standard systems will likely evolve to deal with the requirements under the Act, but landlords should start thinking about how to manage the transition now, be alive to the ongoing responsibilities it will impose, and be aware of the additional costs they may incur.

Tier 1 (Investor) Visa – The Price Goes Up

Articles, Immigration, Latest News

The UK Government has at last published the changes that are being made to the Tier 1 (investor) visa route, and we can confirm that the minimum financial threshold is being increased to £2 million. This will not apply to existing holders of the visa.

In a ministerial statement, James Brokenshire, the Immigration Minister, said that the Government will also consult on what sort of investment the route should encourage in order to deliver real economic benefits to the UK.

This route, which is designed for ‘high net worth individuals making a substantial financial investment to the UK’, has been around for more than 20 years and was the subject of a report earlier this year by the Migration Advisory Committee (“MAC”), who had been asked by the Government to consider whether ‘the investment thresholds were appropriate to deliver significant economic benefits for the UK’.

The MAC made a number of recommendations and today’s announcement confirms that the Government have taken some of them on board.

Details of the changes were today laid before Parliament and they are:

  • The financial threshold has been raised from £1 million to £2 million. This recommendation is really just an adjustment for inflation
  • The ‘topping-up ‘ rule, that penalised investors twice in the event of a sustained drop in the stock market, has been removed.
  • The 75:25 split of the investment funds, allowing for up to £250,000 to be invested in any assets (including the investor’s home), rather than the restricted class of qualifying investments into which at least £750,000 has to be investment, has also been ended. This is effectively just the correction of an anachronism from 20 years ago, when £250,000 could buy a reasonable apartment in central London
  • The existing provision under which the required investment sum can be sourced as a loan is being removed.

No changes have been made to the current class of ‘qualifying investments’ that have to be made in order to comply with the rule. The MAC made a number of recommendations how to widen this class to bring more targeted economic benefit to the UK, but the Government has not yet grasped the issues and will have a formal consultation on this specific aspect of the rule ‘in due course’.

The changes will come into force on 6 November 2014 and will only apply to applications made on or after that date. They will not apply to existing holders of this visa, who will continue to only need to invest £1 million but will remain subject to the current rules including the topping-up rule and the 75:25 split.

Anyone who wants to qualify for the lower £1 million threshold needs to move quickly and finalise and submit their applications before 6 November 2014. Our expert immigration team is on standby to assist as many of our clients who wish to file their applications now in order to secure the lower investment threshold.

For further information and to view my previous articles please click below:

Changes to Tier 1 (Investor) visas for the UK – what you need to know

Tier 1 (Investor) Visa – now the Home Affairs Select Committee gets in on the Act

EB-2 India Retrogression – Visa Office On Priority Dates, Demand, And Predictions

Articles, Immigration, Latest News,

Charles (“Charlie”) Oppenheim, Chief of the Visa Control and Reporting Division, U.S. Department of State, shares his analysis of current trends and future projections for the various immigrant preference categories with AILA (the American Immigration Lawyers’ Association).

Below are highlights from the most recent “check-in with Charlie”, reflecting his analysis of current trends and future projections for the various immigrant preference categories.

Following an initial infusion of new visa numbers in October, some of Charlie’s predictions for this fiscal year are already coming to fruition in the November Visa Bulletin as reported in our blog of September 16, 2014.

EB-2 India Retrogression

As Charlie predicted, EB-2 India will retrogress to February 15, 2005 as of November 1, 2014. Individuals born in India with EB-2 priority dates earlier than May 1, 2009 should file their adjustment of status applications before the end of October. No forward movement in this category is predicted for the foreseeable future.

EB-5 China

EB-5 China became current at the start of the new fiscal year in October, but as Charlie predicted last month, it will at some point become necessary to establish a cut-off date for EB-5 China, possibly as early as May 2015. Charlie will be speaking at a conference in San Francisco on October 23 and will have additional information to report to the public at that time.

EB-3 China “Downgrades”

The cut-off date for EB-2 China is December 8, 2009, approximately three weeks earlier than the cut-off date for EB-3 China, which is January 1, 2010. Charlie predicts that we are likely to see a cut-off for EB-2 China earlier than EB-3 China for a few months and that this is likely to prompt those with priority dates close to or within the EB-3 cut-off to file I-140s in the EB-3 category. This phenomenon is likely to last for a few months until these cases make it through USCIS, at which time the increased demand for EB-3 China will require a correction to that cut-off date.

Predictions for Forward Movement in the Preference Categories

As explained in the November Visa Bulletin, modest forward movement in the family-based preference categories of a few weeks to two months per month is possible. These predictions are based on information available in early October and will continue to be updated as the months progress and new information regarding the supply and demand for visas in the family-based categories becomes available.

In the employment-based preference categories, there is currently no movement predicted for EB-2 India, though EB-2 China is expected to progress by three to five weeks per month. Rapid advancement is expected in EB-3 China for the next few months until the correction described above kicks-in. A one or two week movement per month is expected for EB-3 India. EB-3 Mexico is expected to remain at the worldwide cut-off, as is EB-3 Philippines though for the Philippines, a roll-back might be necessary later in the fiscal year should demand increase dramatically.

Questions Regarding Unused Visa Numbers

An AILA member posed a series of questions following news reports of an estimated 200,000 unused visas which could be recaptured through administrative action.

Charlie agrees that there are approximately 220,000 family and employment-based visas that have gone unused, most of which can be attributed to the period between 1992 and 1997. Prior to the “dot com bubble,” demand was usually insufficient to use all of the available employment-based visa numbers in any given fiscal year. Since then, the increase in demand for labor in the IT sector and improved interagency processes have contributed to greater use of employment-based visa numbers in the fiscal year for which they were allocated. In the past, such unused numbers have only been recaptured through legislative action.

AILA’s Observations on Visa Allocation, Priority Date Movements, and Opportunities for Further Interagency Cooperation

In terms of immigrant visa allocation and usage, the State Department’s principal goal is to fully utilize all visa numbers that are available each fiscal year. Priority dates, therefore, move forward and backward based upon what is known about current and future supply and demand in the various categories. The more complete and reliable information the State Department has, the more precisely it can adjust cut-off dates to ensure full depletion of visa numbers and anticipate workload spikes. Relevant facts may include the number of visas pending at the National Visa Center and at consular posts, the number of approved I-140s attached to pending adjustment of status applications, processing times at USCIS and at posts, etc.

Although there has been significant interagency cooperation in recent years, there are still opportunities for improved efficiency and collaboration. The State Department does not have full visibility to pending I-485 cases at USCIS, nor information as to whether there are EB-2 upgrades or EB-3 downgrades pending for the same foreign national. Better interagency data sharing would allow the State Department to advance priority dates more quickly in some cases, and may have other benefits, such as preventing backlogs at the NVC, and avoiding phenomena such as that which occurred in the summer of 2007 with adjustment of status applications. Applying supply chain management principles to interagency engagement presents another opportunity to build upon the efficiencies already achieved.

The Scheme For The Naturalisation Of Investors In Cyprus

Articles, Immigration, Latest News

This article explains the options available to non-Cyprus citizens through which they can, by exception, apply for the acquisition of Cypriot citizenship. This scheme has been available since the 24th of May, 2013 to non-Cypriot non-EU residents who would like to get EU citizenship which will enable them to move around Europe without the need for any kind of visa. Further, having an EU passport makes the issuance of any visa, around the world, much easier to obtain.

The relevant law, provides for six methods through which an applicant may obtain their Cypriot citizenship and at the same time their EU citizenship. This article will only examine four out of six methods – one of them is not an option we would advise our clients to pursue.

1. Direct Investments:

The applicant must proceed with a Direct Investment in Cyprus of at least €5.000.000. Direct Investments for the purposes of this Scheme are considered to be:

  1. The purchase of properties (houses, offices, shops, hotels etc or a development of a similar nature, excluding under-developed land);
  2. The purchase of businesses or companies that are based and are active in the Republic of Cyprus;
  3. The purchase of companies registered in the Republic of Cyprus;
  4. The purchase of financial assets (e.g. bonds / securities / debentures registered and issued in the Republic of Cyprus, including those to be issued by the Solidarity Fund on the basis of the Establishment of a National Solidarity Fund Law of 2013);
  5. Participation in a company/consortium of companies that has undertaken to carry out a public project.

Any Direct Investment as stated above in (a) – (d), must remain to the possession of the applicant for a period of at least three years. In the case of a share or bond portfolio, it must be ensured that the amount of the value of the portfolio for three years period will not fall below the amount of €5.000.000.

It should be noted that the Minister of Interior has the power to reduce the amount required for Direct Investment to €2.000.000 for non-Cypriot citizens, who can demonstrate their participation in a scheme investing in real estate within the territory of the Republic of Cyprus, for a total value of at least €10 billion.

Or

2. Deposits in banks:

The applicant must have (a) a personal fixed term deposit(s) for a period of three years with Cypriot Banks or (b) deposits belonging to privately owned companies or trusts with Cypriot Banks, in which the applicant is the beneficiary owner. Such deposits must be of at least €5,000.000.

3. Business Activities:

The applicant must be a shareholder or beneficiary owner of a company or companies the management of which must be in the Republic of Cyprus and that over the last 3 years, prior to submitting the application for the citizenship, has paid to State Treasury (i.e. corporate tax, V.A.T. or other fees and charges etc) together with remuneration for the purchase of business services (legal, accounting, auditing etc) for the amount of at least €500.000 per annum.

Alternatively, in the case where the applicant is a shareholder or beneficiary owner of a company or companies that (a) have activities in Cyprus, (b) have established central offices in Cyprus and (c) employ at least five Cypriot citizens, then the minimum amount that must be paid for the above (direct revenue – corporate tax, V.A.T. or other fees and charges etc and remuneration for the purchase of business services – legal, accounting, auditing) is reduced to at least €350.000 per annum for the last three years preceding the submission of the application for citizenship.

In the case where the applicant is a shareholder or beneficiary owner of a company or companies that (a) have activities in Cyprus, (b) have established central offices in Cyprus and (c) employ at least ten (10) Cypriot citizens, then the minimum amount that must be paid for the above (direct revenue – corporate tax, V.A.T. or other fees and charges etc and remuneration for the purchase of business services – legal, accounting, auditing) is reduced to at least €200.000 per annum for the last three years preceding the submission of the application for citizenship.

It should be noted that for every such company (or companies) an application under this scheme may be filed for a maximum two shareholders.

Or

4. Persons whose deposits with the Bank of Cyprus (BoC) or Cyprus Popular Bank (CPB) have been impaired due to the measures implemented in both Banks by the resolution of 15th March 2013

Any person that suffered a loss of at least €3.000.000 from his deposits in BoC or CPB due to the resolution of 15th March 2013, may apply for a citizenship under this scheme.

Where a depositor of BoC and or CPB suffered a loss less than €3.000.000 he may apply under this scheme if he proceeds with an additional Direct Investment (A.2) or Mixed Investments or a Donation to a State Fund (A.1) for the balance of the required amount of the said criterion.

Having outlined the methods available, each potential applicant should make sure that:

  1. he has a clean criminal record;
  2. he is not listed by the European Union as wanted or has his assets freezed within the EU;
  3. he has a Residence in the Republic of Cyprus the market value of which must be at least €500.000 plus V.A.T.

The documents and information that should be communicated to us in order to proceed with the preparation of the application for any applicant who wishes to obtain the Cypriot citizenship, apart from the documents evidencing the investments and or donations required under the schemes (for which we can provide you or request) described above each applicant must be in a position to provide us with the following information and or documentation so as to complete the relevant Forms on behalf of the client:

  1. A certified color copy of the applicants’ passport;
  2. Proof of residential address (utility bill, bank reference letter);
  3. Occupation (preferably a CV) and details of business address and/or name and address of employer (if a director, names and addresses of companies concerned);
  4. If the applicant had previously been a national of another country, it should be disclosed with relevant documentation;
  5. Particulars of parents:
  • father’s full name in country of his birth;
  • present address (if living);
  • nationality (if dead, at time of death);
  • mother’s full name before marriage in country of her birth;
  • Present address (if living);
  • Nationality (if dead, at time of death).
  1. Marital status and particulars of husband or wife:
  • state if single/married/widower/widow/divorced;
  • if married, state date and place of marriage;
  • if marriage dissolved, give date and place of issue of relative Court Order or Judgment;
  • husband’s full name/wife’s maiden name before marriage;
  • give particulars concerning husband/wife: nationality, present address (if living), date of birth and place of birth.
  1. Statement regarding residence or public service:
  • full details of residence during the last eight years (including postal address in each case by date);
  • total time of residence in the Republic of Cyprus;
  • the applicant should also disclose the Countries he visited during his residency in Cyprus;
  • if the applicant worked in a Public Service of the Republic of Cyprus he must disclose the (a) Government Department by which employed, (b) his capacity under which he was employed, (c) the period he was employed.
  1. The applicant must state whether he intends to live in Cyprus or any other Country.
  2. If the applicant is subject to any legal proceedings either of Civil or Criminal nature he must disclose the nature of proceedings, date, place and outcome.
  3. State the date and give details in case of a settlement with any creditors, bankruptcy or discharge from bankruptcy procedure.
  4. If the applicant applied previously application for Naturalization with the Republic of Cyprus or any other Country it must be disclosed.
  5. Particulars of children:
  • full name, date of birth, place of birth and present place of residence of children who have not attained the age of twenty-one years and who are to be registered as citizens of the Republic of Cyprus.
  • full names, date and place of birth and present place of residence of other children.
  1. A reference letter from a Cypriot citizen (other than the advocate, agent or a relative of the applicant) is necessary.

It should be noted that all applications are examined by the Council of Ministers who have the sole discretion to approve or reject an application.

Our law firm can assist any person(s) that would like to obtain Cypriot citizenship or examine any other options available such as permanent residence in Cyprus

Work Permits Under Wet Lease Agreements For Oil Exploration Operations: Secondment Is A Solution For Exemption

Articles, Energy and Natural Resources, Immigration, Latest News,

As part of exploration operations of multinational companies, wet lease agreements are gaining more importance especially in oil and gas industry and foreign carriers who takes part in such operations are still not clear about either their employees require work permit or not, in cases where they entered into a subcontractor and wet lease agreement with Turkish air carriers for air transport works to be conducted under exploration operations.

The approaches mostly concentrate on classification in status of flying and non flying personnel and the flying field since the operations are offshore. In this article you will find out more specific about what Turkish law requires and how to interpret the law under those two spotlights.

In response to the questions of that; if the wet lease operations be deemed as international since the exploration is offshore, we require to look through the legislation that defines the establishment of operation. Pursuant to the article 2 of the Turkish Labor Law, the unit wherein the employees and material and immaterial elements are organized with a view to ensure the production of goods and services by the employer is called the establishment and all premises used by reason of the nature and execution of the work and organized under the same management, including all facilities annexed to the establishment such as rest rooms, day nurseries, dining rooms, dormitories, bathrooms, rooms for medical examination and nursing, places for physical and vocational training and courtyards as well as the vehicles are deemed to be part of the establishment. Accordingly wherever the flying field is by means of offshore or onshore it is obvious that the establishment of operations is deemed to be local since the base and accommodation facilities are located in Turkey.

The principal legislation on work permits are Law on Work Permits for Foreigners (Law No 4817) and the Regulation on the Implementation of the Law on Work Permits for Foreigners that set forth the terms and conditions and exemptions of obtaining work permit. Pursuant to the article 4 of the Law No 4817 unless otherwise provided in the bilateral or multilateral agreements to which Turkey is a party, the foreigners are obliged to get permission before they start to work dependently or independently in Turkey. Following to aforesaid interpretation that the wet lease operations are deemed to be local even the exploration is offshore, it is obvious that article 4 of the Law No 4817 also requires work permits for foreign personnel during the period they work in Turkey even they will be kept on payroll of foreign companies or work independently.

Pursuant to the article 8 of the Law on Work Permits for Foreigners i) foreigners, who are married with a Turkish citizen and live in Turkey with their spouses with marriage bond, or to foreigners, who have settled in Turkey after their marriage bond has finished after at least three years, and to the children thereof from a Turkish citizen spouse; ii) those who have lost their Turkish Citizenship within the framework of the 19th, 27th and 28th articles of the Turkish Citizenship Law and their subordinates; iii) foreigners that were born in Turkey or have come to Turkey before reaching their majority according to their national laws, if they don’t have a nation, according to the Turkish legislation and that have graduated from vocational school, high school or university in Turkey; iv) foreigners that are accepted as an emigrant, refugee or nomad according to the Residence Law v) citizens of the countries that are a member of the European Union and to the spouses and children thereof who are not citizens of the countries that are a member of the European Union; vi) those who are working at the service of the diplomats, administrative and technical personnel that are commissioned in the foreign governments’ embassies and consulates in Turkey and in the representations of the international establishments, and to the spouses and children of the diplomats and administrative and technical personnel commissioned in the embassies, consulates and representations of the international establishments in Turkey, provided that they are within the framework of the principle of reciprocity and they are restricted with the duration of the commission; vii) foreigners who will temporarily come to Turkey for a period of over one month with the aim of scientific and cultural activities, and for a period of over four months with the aim of sports activities; viii) foreigners at the position of key personnel to be employed in the works of goods and services purchase, having a work made or operating a facility, with contract or tendering procedures by the ministries and public institutions and establishments authorized by law; ix) stateless persons and those who granted refugee status by the Ministry of Interior upon application for international protection are exempt from work permits.

Since there is no clause for exemptions for independent and permanent employees defined by the Law on Work Permits for Foreigners and in reference to the article 22 of the Law stipulating that procedures and bases regarding giving, restricting and canceling every kind of working permission, the foreigners to be exempted from work permits and how the notification obligations are to be fulfilled are arranged according to the Regulation on the Implementation of the Law on Work Permits for Foreigners to be issued according to the Law, the requirement of work permit should be handled under article 55 of the Regulation on the Implementation of the Law on Work Permits. Accordingly; i) foreigners who are exempts due to bilateral or multilateral agreements to which Turkey is a party; ii) foreigners who domiciles outside of Turkey and will come to Turkey for less than one month for the purpose of scientific, cultural and artistic activities, or for less than four months for the purpose of sporting activities; iii) foreigners who will come to Turkey to give training for usage, maintenance and repairs of imported machines and equipments, or to receive the equipments, or to repair the cars that are malfunctioned in Turkey, provided that they will not stay in Turkey for more than three months commencing on the entrance date and provided they submit the relevant documents; iv) foreigners who will come to Turkey for giving training for usage of imported or exported goods provided that they will not stay in Turkey for more than three months commencing from the entrance date, and provided they will submit the relevant documents in that regard; v) foreigners who will work at the circus or at expositions, which are operating outside the scope of licensed tourism enterprises, provided that they will not stay in Turkey for more than six months commencing on the entrance date and provided they will submit the relevant documents in that regard; vi) foreigners who will come to Turkey to give training at universities and public institutions, provided that term of their stay shall be limited to the term of the training and in any case they will not stay in Turkey for more than two years, and provided they will submit the relevant documents in that regard; vii) foreigners who notify to the relevant authorities that they will provide services in the field of socio-cultural, technological and education, provided that they will not stay in Turkey for more than six months; viii) foreigners who will come to Turkey within the scope of programs conducted by the European Union Education and Youth Programs Central Presidency; ix) foreign trainees within the scope of the international trainee programs provided that the Ministry, Ministry of Internal Affairs, Ministry of Foreign Affairs and Higher Education Council have agreed on term and scope of this program; x) foreign representatives of tour operators, provided that their term of duty shall not be longer than eight months; xi) foreign football players whose applications are accepted by the Turkish Football Federation and General Directorate of Youth and Sports, other athletes and trainers who will stay in Turkey during the term of their agreement; xii) foreign seamen who work at ships that are sailing outside the cabotage line and registered to Turkish International Ship Registry; xiii) foreign experts who work at projects conducted within the scope of the Turkey European Union Monetary Cooperation Program are exempted from work permit during their working period reserving the conditions of special laws and providing the foreigner and the employer fulfill the other obligations arising out of other laws. Exemption periods are not extended under Turkish law.

As obviously seen the Law and the Regulation limits the exemptions and no referral to flying and non-flying employee under wet lease agreement exists. Therefore pursuant to the article 22 (2) of the Regulation on Commercial Air Carriers the operator is allowed to employ foreign flight crew and technicians temporarily providing an approval from Ministry of Labor and Social Security and in compliance to the Law and the Regulation. However the majority of the personnel serving as pilot, technician, cabin crew and dispatchers for the operators conducting their operation with twenty or more seats aircrafts should be Turkish within one year period of the issuance of the Aircraft Operating License and keep those conditions during their operations. Pursuant to the article 22 (4) of the Regulation on Commercial Air Carriers in cases where it is not covered by the Law No 4817, the permits for foreign personnel assigned only for overseas operations on Turkish registered aircrafts are evaluated by Directorate General of Civil Aviation separately. This means that the requirements under the Law No 4817 and the Regulation on the Implementation of the Law on Work Permits for Foreigners should also be fulfilled for flying personnel under aviation legislation as well in cases unless exempted by special laws.

The Special Law Changing the Conditions

Turkish Petroleum Law (Law No 6491 ) which may count as a special law by means of the Law No 4817 and the Regulation on the Implementation of the Law on Work Permits for Foreigners and in consideration of the exploration operations. Pursuant to the article 15 of the Law No 6491, a petroleum right holder may employ expatriate professionals for petroleum operations in Turkey for a maximum of 6 months with the assent of the Ministry of Energy and Natural Resources and the residence permit for work purposes to be issued by the Ministry of Interior, without prejudice to the provisions of specific laws and provided that foreigners and the employees realize the obligations stemming from other laws and by being exempt from the provisions of the Law. If the duration of employment exceeds six months necessary permits shall be taken as per the Law.

The definition of the “petroleum right” is also defined under article 2 of the Law No 6491 as any of the rights arising from an investigation permit, an exploration license or a production lease and the petroleum right owner shall be deemed as the holder of investigation permit, exploration or production license.

In interpretation of the aforementioned legislation it can easily be said that foreign commercial air carriers whom entered to a wet lease agrement with a local commercial air carrier requires to obtain work permit for its employees however if there is a triple secondment agreement between the petroleum right owner, Turkish air carrier and foreign carrier, this can be overcome in scope of the exemption defined under the Turkish Petroleum Law.