Seychelles Preferential Tax Regimes – NOT HARMFUL
January 28, 2019
Friday 25th January 2018: On 24th January, 2019, the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) of the OECD approved the Progress Report on its assessment of harmful tax practices of 57 preferential tax regimes, in 24 jurisdictions.
The Progress Report shows that Seychelles meets the requirements of Action 5 of the BEPS standard, following the assessment of eight (8) of our preferential tax regimes by the Forum on Harmful Tax Practices (FHTP). Action 5; on harmful tax practices where jurisdictions are assesssed on any preferential regimes they may have against international standards to determine if this preferential treamtment is harmful to the rest of the international community.
The regimes reviewed include:
(i) International Business Companies (IBC)
(ii) Companies (Special Licenses) (CSL)
(iii) Export Services under the International Trade Zone (ITZ)
(iv) Offshore banking (Segment 1 banking license)
(v) Non-domestic insurance business
(vi) Reinsurance business
(vii) Securities business under the Securities Act
(viii) Fund Administrator
In order to meet the BEPS Action 5 recommendations, several fundamental legislative amendments had to be made to these regimes, which also necessitated redefining of the Seychelles tax system. The legislative amendments are as follows:
(i) The Business Tax Act has been amended to move Seychelles tax system to a territorial system. Other amendments included the removal of the concessionary tax rate of 3% for offshore banking business and the removal of tax exemption in respect of reinsurance businesses.
(ii) The International Business Companies Act has been amended to allow IBCs to carry on business in Seychelles. The tax exemption clause under the IBC Act has been removed. Only IBCs deriving "Assessable Income" in Seychelles will be required to submit Annual Returns and Audited Accounts (in line with the Companies Ordinance 1972) to the FSA.
(iii) The Companies (Special Licences) Act has been amended to remove the 1.5% business tax concession and withholding tax exemptions applicable to CSLs. However, CSLs incorporated on or before the 16th October 2017 may still be able to enjoy these tax concessions and exemption until the 30th June 2021 (other limitations apply).
(iv)The licensable Export Services activities under the International Trade Zone Act has been amended to remove the activities falling within the scope of the OECD work on BEPS. Under the revised export services regime, the holder of an Export Services License will not be allowed to provide any service other than repair and reconditioning of goods, warehousing and rental of storage space or logistic services provided that these activities relate to goods physically handled in the zone, in Seychelles.
Export Services operators licensed on or before the 16th October 2017 may still be able to enjoy all concessions and exemptions accorded under the International Trade Zone Act until the 30th June 2021 provided that the benefits do not extend to assets or activities introduced on or after the 17th October, 2017.
(v) The Insurance Act has been amended to remove tax exemption provisions applicable to non-domestic insurers. Non-domestic insurers licensed on or before the 16th October 2017 may still be able to enjoy these tax concessions and exemption until the 30th June 2021 (other limitations apply).
(vi)The Securities Act and Mutual Fund & Hedge Fund Act have been amended to require licensees to meet the minimum substance requirements in order to benefit from the concessionary tax rate afforded under these legislations. The Regulations provides that the substantial activity requirements shall be met if the licensee under the Securities Act and fund administrator undertakes its core income generating activities in Seychelles by employing, a reasonably adequate number of suitably qualified persons to carry out the core activities. The licensees are also expected to incur an adequate amount of operating expenditures for such activities.
In view of these amendments Seychelles remains committed to uphold its adherence to international norms and best practices and will continue to monitor and supervise the new regimes in line with its mandate.
During the January 2019 meeting, the European Commission (EU) gave a brief overview of the EU listing process. The European Commission outlined the timelines applicable to the EU listing process for jurisdictions that have committed to amend or abolish certain regimes by 31 December 2018. The review of the EU list of non-cooperative jurisdictions for tax purposes will be conducted at the Code of Conduct Group meeting on 30 January 2019, and the amendments to the list will then be proposed at the ECOFIN meeting on 12 February 2019. As has been the practice previously, the Code of Conduct Group will take into account the results of the FHTP that are available by 30 January 2019 to the extent that the criteria are the same, including the outcomes of the January FHTP meeting. However, the European Commission noted that the Code of Conduct Group would make their own assessments for regimes where a finalised result is not available by 30 January 2019.
The BEPS project is an international obligation, which Seychelles committed itself to at the request of OECD in 2016 to conform to international standards on tax matters in relation to the implementation of measures against tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
The project includes fifteen (15) Actions; four of which are minimum standards and should be implemented by all countries within a set time - these are
- Action 5 countering harmful tax practices more effectively,
- Action 6 Preventing Tax treaty abuses,
- Action 13 Country by Country Reporting and
- Action 14 Mutual Agreement Procedures in relation to disputes on bilateral Double Taxation Avoidance Agreements.
The Ministry of Finance, Trade, Investment and Economic Planning, Financial Services Authority and Seychelles Revenue Commission would like to thank all stakeholders who have contribute to the finalization of the regimes and will continue to work closely with them during the 2019 for the other actions.
The full OECD report can be accessed on the following link: https://community.oecd.org/community/beps/action_5