Seychelles legislates key provisions to enable removal from the European Union list of non-cooperative jurisdictions
February 16, 2021
The Seychelles has taken the key steps in reforming its territorial tax regime to address concerns of the European Union (EU). Together with addressing the concerns of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum), these changes are intended to ensure that the Seychelles is removed from the EU’s list of non-cooperative jurisdictions (the “EU blacklist”) later this year.
- Refining the territorial regime to deliver on the needs of the Seychelles whilst allaying EU concerns
On 28 December 2020, following months of engagement with both the EU and the private sector, President Wavel Ramkalawan gave his assent to the Business Tax (Amendment) Act, 2020, which will come into effect when a notice is published in the Gazette. The Act refines the Seychelles territorial tax system, so that the exemption from tax for foreign income is suitably targeted. The Business Tax (Amendment) Act, 2020, will amend the Business Tax Act (Cap 20) to ensure the following applies for large companies:
- Activities performed abroad by a permanent establishment of a Seychelles company will be exempt from tax in the Seychelles, with income from activities that are not sufficient to qualify as a permanent establishment remaining taxable.
- Foreign income received on Seychelles’ based intellectual property will be taxable in the Seychelles, with a territorial exemption for income from patents (and equivalent rights) related to the level of research and development undertaken in the Seychelles connected to the creation of that patent.
- Foreign passive income will be exempt under the territorial regime where the Seychelles company receiving the passive income has adequate economic substance in the Seychelles.
Any foreign income that is subject to tax in the Seychelles, such as companies with insufficient economic substance or on non-patent intellectual property, will be taxed in the Seychelles, with a credit for foreign taxes incurred. The new conditions apply only to those companies which (with their affiliates) exceed a size threshold. The purpose of this size threshold is exclude small companies which do not have an impact on the EU market.
In addition, the Act updates the definition of “permanent establishment” to align with the latest model definitions of the Organisation for Economic Cooperation and Development (OECD) and the United Nations.
- Progress towards meeting Global Forum Standards
A further criterion for being removed from the non-cooperative jurisdiction list is a rating of “Largely Compliant” or higher by the Global Forum. Although rated “Largely Compliant” in 2015, the Global Forum delivered a “Partially Compliant” overall rating for Seychelles in 2020. Work has continued to strengthen availability, access, and exchange of information for tax purposes, particularly around the following concerns which contributed to the new rating:
- Beneficial Ownership Reporting
- Access to accounting information to exchange upon request
- Supervision and enforcement of the above.
To address these concerns, the Seychelles has undertaken a three-pronged reform approach: amend legislation as needed to set out the legal foundations of change, issue guidance and work with stakeholders to understand the new requirements, and build government capacity to facilitate practical implementation. The legislative changes include:
- The Beneficial Ownership Act, 2020 came into operation on the 28th August 2020 and has ensured that the definition of beneficial owners satisfies the Financial Action Task Force (FATF) and OECD requirement;
- The laws, which govern the availability of, and access to, accounting information for international business companies, trusts, limited partnerships and foundations operating in the international financial sector. All entities will need to keep accounting information in Seychelles together with the supporting transaction documentation. These requirements will also apply to entities, which are struck off and dissolved. All such data need to be kept up to date and must be kept for at least seven years; and
- Changes to the rules for supervision and enforcement.
The laws on availability of accounting information will be going through consultation phase and Government will be submitting the laws to the National Assembly over the coming weeks and will come into force once given the assent by the President. Guidance on how to comply with the law is being circulated to the industry for discussion before finalisation.
The above steps mark a critical point in the work on tax policy reform and the revised regime is now the subject of discussion with the EU’s Code of Conduct Group and the Global Forum. Once the new rules on availability of information have been passed, the Seychelles will test the system with firms to build a track record under the new system. Following the success of such testing, the Seychelles will be reviewed by the Global Forum, with the view to achieving a rating of “Largely Compliant” or above.
The timing of this review means that the Seychelles will not be in a position to satisfy the requirement of a “Largely Compliant” rating by the time that the EU’s non-cooperative jurisdiction list is reviewed by the Economic and Financial Affairs Council of the EU in their meeting this week.
Consequently, discussions with the Code of Conduct on the final details of the territorial regime are ongoing, with a view to the removal of the Seychelles from the non-cooperative jurisdiction list at the next review point in October 2021.