The Business Tax (Amendment) Act, 2020 (BTAA)
Background
The Seychelles BTAA has updated the Business Tax Act to comply with the European Union’s Economic Substance requirements. The changes aim to ensure that Seychelles International Business Companies (IBCs) meet the criteria for economic substance, and all other legislative changes and related reporting requirements that have been introduced in the last couple of years, to improve the availability, access, and exchange of information for tax purposes as required by the Global Forum on Transparency and Exchange of Information for Tax Purposes. More details can be found in our previous Seychelles updates.
Whilst the BTAA came into force on 15 September 2021, the Seychelles Revenue Commission (SRC) has only recently published Guidance Notes on the changes under the BTAA. This article will provide an overview of the key amendments and help determine if your Seychelles IBC falls within the scope of having to comply with the economic substance obligations.
Changes under the BTAA
Previously, Seychelles operated under a territorial tax regime, meaning only income sourced within the country was subject to taxation. Foreign-sourced income was exempt from Seychelles taxation. However, pursuant to the BTAA updates, exemptions for foreign sourced income have been specified as follows:
- Profits generated by the Seychelles IBCs through overseas permanent establishments are not taxable in Seychelles.
- Foreign-sourced passive income, including dividends, interest, rent, and capital gains, is tax-exempt in the Seychelles if the Seychelles IBC has adequate economic substance.
- Foreign-sourced passive income from Intellectual Property is generally taxable in the Seychelles, with certain exceptions for qualifying income from patents or equivalents.
Determining Scope for Economic Substance
To determine if your Seychelles IBC falls within the scope of having to comply with the economic substance requirements, each Seychelles IBC would need to consider the following:
- The Seychelles IBC must be a member of a multinational group (MNG).
- The Seychelles IBC must derive passive foreign-sourced income in a given financial year.
To qualify as an MNG, the Seychelles IBC must meet all of the following criteria:
- Be part of a group consisting of two or more enterprises.
- Have enterprises with tax residences in different jurisdictions or include an enterprise resident in one jurisdiction but subject to tax through a permanent establishment in another jurisdiction.
- Accounting consolidation is required by the ultimate parent company of the MNG.
If the Seychelles IBC meets these criteria and earns passive foreign-sourced income, it falls within the scope and is obligated to establish adequate economic substance in the Seychelles.
Exemption from Economic Substance Requirements
If your Seychelles IBC falls within the scope of having to comply with the economic substance requirements, the following actions are necessary:
- Establishing adequate economic substance in the Seychelles.
- For pure equity holding IBCs or real estate holding companies, “light substance” is expected, including local statutory filings, and having a Seychelles registered agent and registered office.
- Other IBCs need to establish full economic substance, including the strategic decision-making, risk management, and expenditure requirements relating to asset acquisition, holding, or disposal.
- Additional obligations and timing:
- Await further clarification from the SRC regarding filing obligations and relevant timing.
- Stay updated on the criteria for adequate Economic Substance for in-scope Seychelles IBCs.
- Review any actions required for Seychelles IBCs deemed to be out-of-scope.
Next steps
While immediate action may not be required, it is crucial to monitor developments in economic substance requirements for Seychelles IBCs. Most Seychelles IBCs are expected to be exempt from establishing economic substance, but some additional filings may be necessary. Clients with entities in other offshore jurisdictions such as Bermuda, BVI, Cayman and Marshall Islands, may already be familiar with the respective economic substance reporting requirements, and can anticipate what reporting may be expected for their Seychelles IBC.
Please stay alert for subsequent communications as we expect further guidance to be issued soon. In the meantime, should you wish to explore redomiciling or winding-up your Seychelles IBC, or if you have any questions or require further assistance, please reach out to your regular Marbury advisor, or contact us via info@marburys.com.