1 January 2019 several acts that substantially change tax regime of International Business Companies (offshore companies, IBC companies), as well as of companies with special license and funds, have entered into force.
IBC companies regulation
The most important issue of tax reform in Seychelles is the change of IBC companies regulation provided by International Business Companies (Amendment) Act 2018. In accordance with this Act:
- the prohibition for IBC companies to carry on business activity in the territory of Seychelles, as well as the prohibition to own immovable property situated in Seychelles, have been abolished. Like previously, IBC companies are not entitled to carry on certain activities (banking, insurance, mutual fund, corporate services, securities business, gambling) without license;
- the requirement to include the provision that IBC company undertakes not to carry on activity in Seychelles in the Memorandum and Articles of Association has been abolished;
- IBC company cannot be struck off the Register if it operates in the territory of Seychelles;
- if IBC companies generate Seychelles-sourced incomes they must provide a written notice of such income to the Registrar within one month from the date of receipt of such income and then submit annual return together with audited financial statements to the same competent authority within one year from the date of receipt of such income;
- the liability of IBC companies for non-provision of written notice of Seychelles-sourced income and annual return has been established. The liability is a fine in the amount of 100 USD for non-provision of documents itself, and 25 USD for each day of delay of provision of documents.
Tax regime of IBC companies
In accordance with Business Tax (Amendment) Act, 2018 Seychelles has applied territorial tax regime. It means that companies incorporated in Seychelles (both resident and IBC companies) that generate Seychelles-sourced income are subject to business tax in Seychelles.
Independently of tax residency of parties to the transaction and of the place of such transaction, Seychelles-sourced incomes are:
- incomes derived from business activity in the territory of Seychelles;
- incomes derived from assets situated in Seychelles;
- incomes derived from rights used in Seychelles.
Standard business tax rates have not been amended and are as follows:
- 25% for the first 1 000 000 rupees (73 000 USD);
- 33% for the amount exceeding 1 000 000 rupees (73 000 USD).
In addition to business tax, IBC companies that generate Seychelles-sourced income are subject to withholding tax if it distribute profits to non-residents, and to value added tax in particular cases.
If IBC company generates income not sourced in Seychelles, it is not required to submit annual return and to pay business tax. Also, in light of establishment of territorial tax regime, the legislator has designed an exemption from withholding tax requirement for companies that generate income only outside of Seychelles and then pay dividends to its shareholders or beneficial owners, and also interest or royalties.
Companies with special license (CSL) regime
Tax regime of CSL companies was amended as follows:
- Business tax rate of 1.5% for worldwide income of CSL companies will apply until 30 June 2021 only to those companies that obtained a special license on or before 16 October 2017. Afterwards, CSL companies will be subject to the same tax regime that applies to IBC and resident companies, that is territorial tax regime;
- In the same way, withholding tax rate 0% will apply until 30 June 2021 only to those CSL companies that obtained a special license on or before 16 October 2017. Afterwards, the standard withholding tax rate of 15% or reduced rates for different types of income will be applicable;
- Business tax rate 1.5% and withholding tax rate 0% are not applicable to incomes generated by using of assets introduced in CSL company after 17 October 2017.
The amendments to Mutual Fund and Hedge Fund Act 2008 also were enacted. In accordance with these amendments:
- Licensed fund administrators must carry on their activity in the territory of Seychelles, which means that
- fund administrator has adequate number of suitably qualified employees in Seychelles;
- fund administrator incurs adequate amount of operating expenditures for activities in Seychelles.
- In addition to this, the activity may be deemed to be carried on in Seychelles if fund administrator’s front-office is situated abroad, but middle-office and back-office are situated in the territory of Seychelles. For purposes of this regulation the following definitions have been designed by the legislator:
- Front-office – office in which client meetings are held, products are sold and customer services are provided;
- Middle-office – office in which clients due diligence is conducted, business processes, risk management and accounting outsourcing are controlled;
- Back-office – office that manages activity of the front and middle-offices, and also provides administrative services, such as HR and legal support.
The initiative to organize tax reform in Seychelles appeared due to necessity of bringing national legislation to correspondence with standards established by Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI BEPS), as Seychelles has signed this treaty previously.
This is not the single example of abolishment of offshore regime or it’s substantial transformation in 2019. Thus, British overseas territories (British Virgin Islands, Bermuda and Cayman Islands) and crown dependencies (Jersey, Guernsey, Isle of Man) have already enacted or are in process of enacting economic substance rules, at the same time Seychelles and Belize have applied territorial tax regime.