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Seychelles – Business Tax (Amendment) Act, 2020

Business Tax (Amendment of Eleventh Schedule) Regulations, 2021

 

 

Business Tax (Amendment) Act effective from 15th September 2021.

As a result, Seychelles came up with a unique solution, whereby instead of introducing a stand-alone Economic Substance law it has made amendments to its existing tax law, the Business Tax Act.

 

In order to understand the impact of the new BTA amendments on Seychelles IBCs consideration should be given to two aspects:

  • Taxation
  • Economic Substance

Source of Income (S.5 of BTA)

As mentioned above, prior amendments the Seychelles territorial tax system did not consider foreign income as subject to Seychelles taxes.

The amendments to BTA introduced new rules for taxation of foreign source income in specific cases for certain types of companies –

S.5(1) –

“An amount derived by a resident person, other than a company-member of a multinational group, in carrying on a business, is derived from sources in Seychelles if derived from activities conducted, goods situated or rights used in Seychelles.”

New S.5(1A)

“An amount derived by a resident person that is a company to which the Eleventh Schedule applies is derived from sources in Seychelles if derived from —

(a) activities conducted, goods situated or rights used in Seychelles;
(b) activities conducted outside Seychelles unless attributable to business carried on through a permanent establishment of the person outside Seychelles;
(c) income derived from an intellectual property right held in Seychelles, other than qualifying income from a patent or a right functionally equivalent to a patent;
(d) passive income, other than that referred to in paragraph (c), generated outside Seychelles except to the extent that the resident company is a qualifying company in accordance with the Eleventh Schedule.”

In other words, S.5(1A) introduces taxation and certain economic substance elements for the IBCs which are members of multinational group (MNG companies).

Multinational Group

The key element in determining tax status and applicability of economic substance requirements is a definition of a multinational group (MNG) , which itself comprises of the following definitions:

  1.  Group
  2. Ultimate Parent Entity
  3. Consolidated Financial Statements

For the full list of new definitions please refer to Annex 1.

If the IBC is not a member of MNG there is no need to apply S.5(1A) of the BTA.

Such companies fall only under the scope of S.5(1), meaning if non-MNG company does not derive income from activities conducted, goods situated or rights used in Seychelles, its’ taxation status is not affected by the changes and such company is also outside the scope of substance requirements.

Eleventh Schedule

The Eleventh Schedule applies only to enterprises that are members of MNG. Eleventh schedule is not applicable to non-MNG companies.

The schedule introduces taxation and economic substance elements described below.

Taxation

The following types of income derived by MNG companies will be now subject to Seychelles taxes –

  1. Active income from commercial activity, unless such activity is undertaken by PE outside Seychelles. See definition of PE in Annex 2
  2. Income derived from IP, other than qualifying income from a patent or a right functionally equivalent to a patent
  3.  Passive income (dividends, interest and capital gains), generated outside Seychelles, unless the company is a qualifying company.

From the practical perspective a company which a member of MNG (MNG company) shall consider what type of income it derives outside Seychelles.

As we can see from above, the MNG company with active income derived from PE activity outside Seychelles is out of scope of S.5(1A)

MNG companies deriving income from IP will be subject to Seychelles taxes, regardless if such companies have PE outside Seychelles or not.

Holding companies, investment companies that are members of MNG will also be out of scope of S.5(1A) for tax purposes if they fall under qualifying companies definition.

Qualifying company – a company that has adequate economic substance

Economic Substance Requirements

It is important to note that economic substance requirements directly affect taxation status of MNG companies that derives passive income outside Seychelles. Substance requirements do not apply to companies with other types of income.

If the MNG company does not arrange for its economic substance in Seychelles, then its passive income will be subject to Seychelles taxes.

A company shall be regarded as having adequate economic substance if —

(a) it has complied with filing requirements applicable to it under the Companies Act, 1972 (Cap. 40) or the International Business Companies Act, 2016 (Act 15 of 2016);
(b) it has adequate human resources and premises in Seychelles for holding and managing the investment assets; and
(c) in the case of a company other than a pure equity holding company or a real estate holding company it, in respect of any assets it acquires, holds, or disposes of —
(i) takes necessary strategic decisions; and
(ii) manages and bears principal risks in Seychelles; and
(iii) incurs adequate expenditure relating to the acquisition, holding or disposal, as the case may be.

The above requirements in paragraph (b) and (c)(ii) may be fulfilled if they are outsourced by the company provided that the company is able to demonstrate adequate supervision and that the relevant functions or activities are conducted in Seychelles.

Special treatment for MNG companies which are either pure equity holding company (PEHC) or a real estate holding company (REHC) – the economic substance requirements are the same as in other jurisdictions (compliance with above-mentioned laws and having locally licensed registered agent and registered office in Seychelles). Such companies will be out of scope of S.5(1A) for tax purposes.

What are the tax obligations if company income is subject to taxation in Seychelles?

There are different taxes in Seychelles:
Business Tax
25% applicable to the income amount up to 1,000,000SR , and
30% for the amount exceeding 1,000,000SR

WHT Dividends payable
to non-resident – 15%
to resident – 0%

WHT Interest, royalty – 15%

It is important to note that Seychelles BTA is based on self-reporting mechanism. No special reporting returns or other forms are introduced by the amendments.

If the MNG company is subject to tax in a financial year it would need –

  • to register for TIN
  • arrange for annual audited financial statements
  • submit Tax Return
  • pay applicable taxes

If the Seychelles company is not subject to Seychelles tax, no special reporting is required. Seychelles Revenue Commission is yet to come with the Guidelines which will further explain applicability and practical implementation of the amendments.  We will keep you informed as and when we are noticed of any further updates.  

 

How this affects your company in Seychelees:

do we invoice

what do they provide

whjat needs doing

 

 

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