By Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank
When purchasing offshore property, you may here the terms leasehold and freehold. Discover if either is the best way to help you own property in another country.
Purchasing offshore real estate is one of the most practical investments that one can make. The key is to determine where to find the right type of commercial or residential property and identify what it would take to make the purchase.
Since laws regarding real estate ownership vary from one country to the next, finding out if you can own property and what type of ownership is possible must take place before you begin looking. The good news is that there are countries, with Belize being a good example, that make it possible for persons other than citizens to purchase real estate.
As you learn more about owning offshore property, you are likely to hear the terms leasehold and freehold mentioned. The differences are significant, so make sure you understand the meaning of each one. Here is some information that will help.
What is a Leasehold?
You are probably familiar with the term “lease.” This will help you understand what is meant by a leasehold. Essentially, this type of property ownership conveys the property to you for the timeframe set forth by the purchase contract. At the end of this period, the property is once again fully in the control of the person or entity that sold the property to you.
One of the characteristics of a leasehold is that you are considered the owner for the duration of the contract. Even so, the seller maintains a stake in the property and is considered an owner. In the event you should default on the contract terms, the property will revert to the seller. This is true even if there are still years to go before the contract duration is completed.
How a Leasehold Works
You may purchase a leasehold outright or you may secure a mortgage and make installment payments according to the mortgage contract schedule. In some instances, there may be no need to secure a mortgage. The property owner, usually called the freehold owner, may set up a series of payments that you make directly. These payments may continue for a certain number of years before the financial obligation is set.
The duration of your leasehold is found within the agreement governing the ownership. For example, you may be extended a duration that ensures the property remains in your possession for the rest of your life. It may also specify a specific number of years and allow for the transfer of the leasehold to your descendants. The leasehold duration generally ranges between a decade up to 99 years.
Leasehold Property Maintenance and Upkeep
While you have control of the property, the freehold owner may still have some obligations that must be met. These often have to do with general property maintenance and upkeep. Those responsibilities are usually specified in the contract terms and conditions.
It is not unusual for the freehold owner to continue to take care of structural issues with any buildings on the property. That means if the roof needs replacing, the freehold owner will manage that rather than the leasehold owner. Damage to the building’s framework would also remain the responsibility of the freehold owner.
Don’t assume that the leasehold owner will not have some responsibilities. Taking care of the landscaping and basic tasks common to upkeep will likely be his or her responsibility. The contract is likely to assign specific tasks to the leaseholder even as some are reserved for the freehold owner.
Making Use of a Leasehold Property
Since the ownership is temporary rather than permanent, it is not a good idea to assume that you can do anything that you want with the property. There are likely to be limitations on what can be done in terms of adding new structures, making permanent changes to the existing ones, or making any drastic changes to the property itself.
That does not mean you couldn’t make changes to the property. If the freehold owner agrees, you can certainly do so. Just remember that it is not a unilateral decision.
Understanding Freehold Property Ownership
With a freehold, you purchase the property in perpetuity. That is, the property will not revert to the previous owner at some point in the future. If you fulfill the financial obligation to the seller, you are free to do with it as you please.
With this type of purchase, the previous owner relinquishes all claims to the property, or any buildings found within the property boundaries. The upkeep, repairs, and maintenance of the property is now firmly your responsibility. The same is true for maintaining insurance and paying any taxes due.
What Can Be Done with a Freehold?
A freehold means that you can develop, alter, or add to elements on the property at will. There is no need to seek permission from anyone other than the local government. Any building or property codes that apply must still be observed. Other than that, feel free to add on to an existing structure, demolish everything and build something new, or whatever else you would like.
A freehold property can be conveyed to anyone that you like. That means you can prepare a last will and testament that leaves the property in the hands of a family member, a friend, or anyone else. It is yours to pass on in whatever way you would like.
Choosing the Right Country for Your Offshore Property Holdings
Look closely at what is required by national governments as it relates to the ownership of real estate. Some nations are more welcoming than others to foreign ownership. For example, you may find it difficult to secure freeholds in some countries while leaseholds are more common.
At other times, you’ll find that there are few if any barriers to expats or citizens of other nations purchasing freeholds. That happens to the be the case in Belize. You can continue to be a citizen of countries like the United States or Canada and still purchase property that’s completely yours.
Remember that financing a freehold or leasehold purchase is simpler when you approach a lender within that nation. Mortgages for foreigners are often available at terms that are competitive with other approaches to financing.
Consider establishing checking or other accounts that will make remitting payments on the mortgage all the easier. Once everything is in place, all that’s left to do is enjoy your property.
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Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition.
You can follow his posts on trends shaping the banking and financial services industry on Twitter: @luigiwewege
Bitcoin tumbles 17% as doubts grow over valuations
By Tom Wilson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – Bitcoin tumbled 17% on Tuesday, sparking a sell-off across cryptocurrency markets as investors grew nervous at sky-high valuations and leveraged players took profit.
The world’s biggest cryptocurrency suffered its biggest daily drop in a month, falling as low $45,000. Bitcoin was last down 11.3% at 0939 GMT.
The drop extended a slump of nearly a fifth from a record high of $58,354 hit on Sunday – though bitcoin remains up around 60% for the year.
“The kinds of rallies we’ve been seeing aren’t sustainable and just invite pullbacks like this,” said Craig Erlam, senior market analyst at OANDA.
Ether, the world’s second largest cryptocurrency by market capitalisation that often moves in tandem with bitcoin, also dropped more than 17% and last bought $1,461, down almost 30% from last week’s record peak.
Cryptocurrency markets have been running hot this year as big money managers and companies begin to take the emerging asset class seriously, piling money into the sector and driving confidence among small-time speculators.
A $1.5 billion investment in the crytocurrency by electric carmaker Tesla this month has helped vault bitcoin above $50,000 but may now lead to pressure on the company’s stock price as it has become sensitive to movements in bitcoin.
Rising government bond yields over recent days have hit riskier assets, spilling over into leveraged bitcoin markets, said Richard Galvin of crypto fund Digital Asset Capital Management.
“Markets were quite hit from a leverage perspective so that didn’t help,” he added.
U.S. Treasury Secretary Janet Yellen, who has flagged the need to regulate cryptocurrencies more closely, also said on Monday that bitcoin is extremely inefficient at conducting transactions and is a highly speculative asset.
Critics say the cryptocurrency’s high volatility is among reasons that it has so far failed to gain widespread traction as a means of payment.
Analysts said key price levels have played a large part in determining the direction of crypto markets.
“Because we’re so lacking in fundamentals, it’s the big figures that have proved to be support and resistance points,” said Michael McCarthy, chief strategist at brokerage CMC Markets in Sydney.
“$50,000, $40,000 and $30,000 are the key chart levels at the moment. If we see it heading through $50,000, selling could accelerate.”
(Reporting by Tom Westbrook; Editing by Jacqueline Wong and Nick Macfie)
The future of cryptocurrency in the eCommerce industry
By Josh Brooks, Head of Marketing at OnBuy.co
With some of the biggest names in the business turning to cryptocurrencies, it’s becoming harder to ignore just how influential and impactful these could be on the eCommerce industry – and likely sooner than you’d think.
Although relatively immature, cryptocurrency is making huge shakes in the retail sector, and certainly looks like it’s here to stay. Some of the largest multinational enterprises have already dipped into this new digital playing field and many others are following suit. Just last week, Tesla announced that it had bought $1.5 billion worth of Bitcoin to hold on its balance sheet, and is planning to allow its customers to use this coin to pay for cars. But it doesn’t end there. In the same week, Mastercard disclosed its plans to let merchants accept some forms of cryptocurrencies through its network later on this year, which will convert traditional money to digital currency before entering the companies’ systems. Other leading enterprises making the move to embrace cryptocurrency include Square, who already give users of its Cash App access to buy Bitcoin, and Fuse.io, who recently partnered with Monerium to create a platform for entrepreneurs to turn “communities into economies” via a blockchain.
In the aftermath of last week’s announcements, the price of Bitcoin surged to a record of $48,297, highlighting the problematic volatility of cryptocurrencies. While it’s undeniable that its erratic fluctuation in value holds substantial implications on its profitability, there’s still an ever-increasing buzz around cryptocurrency in the eCommerce world. Before delving into that, it’s first worth noting exactly what cryptocurrency is.
What is cryptocurrency?
In short, cryptocurrency is a form of digital currency that’s independent from banks and governments. Instead of being regulated by a central control, cryptocurrency uses encryption techniques to control its use and administer its release. Transactions are verified by a decentralized system and then distributed on a blockchain (a digital public ledger) as a public account of records. This prevents the user from spending the coin multiple times, acting as a check and balance to regulate use.
Cryptocurrency can be bought through a broker, traded online, transferred between peers using ‘cryptocurrency wallets’ or mined, all of which is typically recorded on a blockchain. Although Bitcoin (BTC) is the most well-known cryptocurrency, there are many other types of digital currencies available under the name of ‘Altcoins’, a blanket term used for all Bitcoin alternatives. These include Ethereum (ETH), Litecoin (LTC), Ripple (XRP), Neo (NEO) and thousands of others that have emerged since 2018. Some Altcoins use a peer-to-peer exchange system like Bitcoin, while others use unique mechanics that can offer different levels of protection and privacy. For example, some coins don’t use a blockchain at all, offering fully private transactions, while some offer pseudo-anonymous transactions in the form of encrypted data.
The term ‘cryptocurrency’ was coined as a neologism made up of the root word ‘crypto’, meaning ‘secret’, and ‘currency’, the system of money for a specific region or country. This stands as both its name and definition in one, representing a hidden – or secret – system of money.
The benefits of using cryptocurrency in eCommerce
Both centred around tech, it would be fair to assume that cryptocurrency and eCommerce have the potential to complement each other quite nicely – and, in a few cases, they already are. Cryptocurrencies, particularly Bitcoin, are already infiltrating the eCommerce industry, offering an innovative, viable and streamlined digital solution for many existing blockers. With the ability to appease consumer demand for immediacy and security, while expanding market share for retailers, cryptocurrencies could prove extremely beneficial for the eCommerce industry if adopted efficiently. More and more companies have grown to understand these benefits, leading to a surge in consumer attention, and it may not be long before we start to see the commercial use of cryptocurrency as standard.
One of the biggest problems eCommerce companies face during globalisation is having to adjust prices and currencies to accommodate the individual fiats of each country. Fiat money is the government-issued currency used as standard in any given country, like British pounds or US dollars. While OnBuy is circumventing this concern for its retailers by providing auto-currency conversion and using PayPal to process global payments, cryptocurrencies also negate this concern entirely as they can be used in every country of the world without having to adapt prices or currencies, making global expansion far more streamlined for businesses. Further to that, there’s a vast, ever-growing community of people using cryptocurrencies across the world, offering an entirely new market share to target. Through accepting this method of payment, via a digital wallet or credit card platform, eCommerce companies could delve into this new market and appeal to a greater volume of consumers.
Due to the blockchain, it’s difficult to reuse or counterfeit cryptocurrencies and cancel a transaction once it’s complete (without the consent of the retailer). This not only gives retailers more control, but also offers them greater protection against fraud, as there’s no central control that could withdraw the funds from their account without consent. In addition to this, the encryption technology used by cryptocurrencies also offers a greater level of security for buyers’ data, preventing the likelihood of cyber-attacks.
Cryptocurrency is processed immediately, unlike bank transactions which can take a few days to process, giving the retailer instant access to funds. This allows companies to streamline their cash flow, which is particularly beneficial for those with aggressive expansion plans. What’s more, this allows for instantaneous shipping of products once the required payments have been made, allowing for a fast-tracked delivery service which is particularly appealing to buyers.
Blockchains not only affect transactions but the exchange of useful information to the buyer, too. Retailers can use the blockchain to make associations, track inventory and create personalised, targeted offers and discounts to buyers. Not only that, they can issue redeemable reward points to returning customers whenever they hit a particular spending threshold. These special offers and loyalty programs can attract more customers and further expand their market reach.
Is the eCommerce market ready for cryptocurrency?
Although the commercial use of cryptocurrency has many advantages, which are becoming increasingly apparent as it infiltrates the eCommerce sector, there are some substantial risks associated with it that are currently hindering its mainstream adoption. More commonly used by the major tech giants and technologically-advanced buyers (the minority), rather than large-scale brands or smaller, independent retailers, cryptocurrency may not be suitable for the current commercial scene as it stands today.
Due to the nature of cryptocurrency exchange and additional coin generation, the market value of cryptocurrencies fluctuate erratically. This makes cryptocurrency far less reliable than fiat currency. This poses many potential issues for both buyers and sellers alike, particularly with the valuation of goods and services, and it gets even more complicated in the case of returns. If a customer buys a product for X-amount of coin and wants to return this item a few weeks later, but the value of the cryptocurrency fluctuates in this time, how much coin would the seller return to them? In these cases, the seller could make a loss or they could lose custom through their buyers making a loss and, with a lack of a consensus in the community, there’s no right or wrong way to go about this situation, making it all the more difficult.
Lack of trust
One of the biggest blockers preventing the mainstream adoption of cryptocurrency is the lack of trust surrounding it. This is not just down to the lack of an established central control, but also media scepticism and the use of technological lexis which is largely misunderstood by the average consumer. There’s a general air of uncertainty around cryptocurrencies, bolstered by fears of illegalities, which provides retailers no guarantee that consumers will use these provisions if adopted, leaving questions as to whether it’s even worth the risk.
How financial industries are responding to cryptocurrency
Gone are the days where traditional banks could brush off cryptocurrency as a passing craze. The market for cryptocurrencies has grown at a tremendous rate in recent years, and is now worth over £1 billion. As such, banks and other traditional financial institutions are having to face the reality that cryptocurrency is likely here to stay, and have already begun exploring adaptations to keep up with competition.
In 2019, JPMorgan Chase launched their own cryptocurrency, JPM Coin, which harnesses cryptocurrency’s instantaneous nature, offering faster transaction settlements and funds transfers between clients – and they’re not the only ones. In fact, more than 100 banks across the world have tested instant payments via Ripple (XRP), and activity shows no sign of slowing down soon.
It’s unsurprising that cryptocurrency is gaining international interest, particularly as it allows for hassle-free, cheaper foreign exchange. Currently, the foreign exchange system is time-consuming, expensive and requires a nostro account, a corresponding foreign bank account which holds the domestic currency of the country where the funds are held. With cryptocurrency, funds are automatically converted to coin and changed to the destination currency in seconds, omitting costly holding fees while significantly shortening the exchange process. Bitbond, a German online bank, are already harnessing this technology, using Bitcoin as a bridge asset to transfer loan amounts into the destination country.
As understanding around cryptocurrency grows, the benefits of its technologies are becoming clearer. From faster payment processing to the facilitation of international cash transfers, enhanced data protection and reduced overhead and operating costs, it would be remiss of financial institutions to not explore the dynamic technologies and systems that cryptocurrencies provide.
How stablecoin is shaping the future of cryptocurrency in eCommerce
The volatile nature of cryptocurrency is one of the more substantial blockers that has prevented its adoption in the eCommerce world, but that may all be about to change at the hands of stablecoin. Stablecoins attempt to tackle unreliable price fluctuations by pegging the value of cryptocurrencies to a more stable asset, typically fiat money. These are more commonly known as ‘fiat-collateralised stablecoins’, where a reserve is created to securely store the asset backing the cryptocurrency, essentially serving as collateral. As such, stablecoins offer the best of both worlds, providing the instant process and privacy of transactions made with cryptocurrencies, while offering the volatility-free stable valuations of fiat currencies
There are four key variants that are necessary for the mainstream adoption of cryptocurrencies in eCommerce: development and accessibility of the appropriate technology, consumer demand, corporate champions and an accountable regulatory central control. All aside from the latter are currently available, courtesy of stablecoin. If the final variant emerges over the course of the next few years, cryptocurrency certainly has the potential to successfully breach the eCommerce industry.
Interestingly, the aforementioned partnership between Fuse.io and Monerium may well be the start of this necessary transition to standardise cryptocurrency. This partnership aims to bring regulated fiat money to Fuse.io’s “low-fee” and “high throughput” blockchain, supporting micro-economies with a scalable, cost-effective payment solution. However, unlike stablecoins, the digital money will be “unconditionally” redeemable at any time, with funds capable of transferring directly into bank accounts without the need for counter-parties. This announcement has certainly excited the tech world, and it has the potential to act as a catalyst for the mainstream adoption of cryptocurrency if proven successful.
This market is still very much untapped, but the future is certainly looking bright. As such, eCommerce managers and those in the industry should closely monitor news about blockchains and cryptocurrencies, and create a contingency plan for the easy implementation of such in the event that they do become more widely adopted and standardised.
Josh Brooks, Head of Marketing at OnBuy.com – the fastest-growing marketplace in the world and one of the fastest-growing tech startups in South West England, bringing innovation to the eCommerce industry. Developing future solutions involving cryptocurrency and fintech is one of the areas of expertise for OnBuy.
VAT domestic reverse charge set to impact over 1.2 million construction workers from 1st March
- HMRC’s new VAT domestic reverse charge for building and construction services comes into effect from 1st March 2021
- Construction firms could see disruption in trader/supplier relationships as well as potential issues with cash flow due to the change
HMRC’s new VAT domestic reverse charge for building and construction services comes into effect from 1st March 2021. With this in mind, specialists from Chartered Accountancy practice, Sheards Accountancy delve into the impact the legislation will have on both the construction and property industries.
The reverse charge will apply to all CIS registered businesses buying and selling construction services that are subject to CIS reporting, apart from those that are zero-rated, up to the point in the supply chain where the customer is the end-user. At this point, the normal reporting and collection of VAT resumes.
Where the reverse charge applies, rather than the supplier charging and accounting for the VAT, the recipient of those supplies accounts for the VAT. In practice, this will mean that where there is a chain of contractors/subcontractors working on a building project, for example, none of those entities will add VAT to their invoices, other than the main contractor who is invoicing the end-user of the property.
Currently, in Great Britain, there are 290,3741 registered construction firms with 1,279,000 people employed in the industry. The construction sector has a monthly output of £14,014 million2 with an average weekly earning in the industry of £6481. But the industry has faced a number of challenges in recent years, which saw 3,502 insolvencies1 in the construction sector in 2019, equating to around a fifth of all insolvencies.
Kevin Winterburn, director at Sheards Accountancy commented: “The changes are a response to what HMRC have described as significant VAT fraud in the industry but they do in a way reflect a lack of trust to those operating in the sector from HMRC. The changes could have huge impacts on a company’s cash flow, so it’s essential that construction workers speak to their advisors, traders and suppliers ahead of 1st March.”
One of the biggest challenges for businesses in the sector is cash flow and a recent survey revealed that 1 in 53 construction companies say cash flow is a constant problem, with 84%4 of construction companies reporting that they had problems with cash flow. When the VAT domestic reverse charge comes into play on the 1st March 2021, experts predict this could have a negative impact on the already stretched cash flow issues in the construction industry, so it’s important for firms to review their existing work pipelines and relationships to prepare for the change.
Specialists from Sheards Accountants share their top considerations to prepare for the VAT domestic reverse charge changes:
From a supplier point of view the legislation change will mean:
- You will need to continue to validate sub-contractors for CIS purposes as usual
- You will need to check and validate your CIS services customer’s VAT status
- You will need to check if you have confirmation that your customer is the end-user – keep a record of it
- If the customer isn’t VAT registered – no change to the current process, charge 20% VAT on income
- If the customer is VAT registered but also an end-user – no change to the current process, charge 20% VAT on income
- If the customer is VAT registered but is not an end-user– reverse charge VAT is applied
From a customer point of view, the legislation change will mean:
- You will need to inform your supplier whether or not you are the end-user
- If you are the end-user, you will be charged 20% VAT and you will be able to reclaim it if you are VAT registered
- If you are not the end-user and the invoice is subject to CIS, the supplier’s invoice should be subject to reverse charge and you can’t reclaim any VAT on it
Review your existing trader relationships. It’s more important than ever to have a clear picture of all the traders and various suppliers you could work with on a project. Reviewing the various traders you will work with ahead of beginning a project will allow you to identify where the VAT should and should not be.
From the 1st March 2021, invoices will have to state that the reverse charge is being applied and no output VAT should be charged. The VAT-registered customers will then need to charge themselves VAT and then claim relief in the normal way. They will do this by using the reverse charge tax rate.
If you are on the flat rate scheme – you may need to leave before 1st March 2021. This should be discussed with your accountant beforehand.
Looking further down the line at work which will begin after the 1st March but which might have already been agreed in contracts, these may need to be reviewed in order to reflect the changes. Contracts should clearly state where VAT is being charged and it’s important that any existing contracts are amended to avoid any issues with payment once a job is complete.
Projects existing prior to 1st of March will need split treatment if they are continuing post 1st of March. If you’re unsure of how to do this, speak to your accountant.
Kevin summarises: “The VAT domestic reverse charge has been a long time coming and it’s something everyone in the industry has been aware of since 2019. But with the 1st March quickly approaching, it’s important for firms in the construction and property industries to start implementing changes to the way they work to make sure they are covered.
“We hope by highlighting the key considerations for everyone in the industry, including suppliers and customers, the changes and responsibilities of each party will be clearer.”
To find out more about the VAT domestic reverse charge please visit: https://www.sheards.co.uk/news/sheards-blog/archive/article/2021/January/vat-domestic-reverse-charge-for-building-and-construction-services
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