New Resource : Changes To Taxation Of Seychelles
Important Announcement For Seychelles Companies With Special License (CSL) and International Business Companies (IBC)
On 5 October 2021, the European Union announced that it had removed Seychelles from the EU list of non-cooperative jurisdictions for tax purposes (also known as the EU blacklist).
This comes after Seychelles implemented recent legislative changes relating to beneficial owner records, accounting records and tax systems, (amongst others), for Seychelles registered companies and entities.
The recent legislative changes that are relevant to Seychelles IBCs and CSLs included the following:
- International Business Companies (Amendment) Act, 2021
- Companies (Special Licences) Amendment Act, 2021
(Both these Amendment Acts are enacted on 6 August 2021)
(This Amendment Act was gazetted on 14 September 2021 to take effect on 15 September 2021)
Main Changes To IBC and CSL
1. Changes to the taxation of Seychelles IBCs and CSLs
On 16 September 2021, Seychelles finalised refinements to its tax regime to allay concerns of the EU and the OECD in order to secure its removal from the EU blacklist on 5 October 2021.
Seychelles Business Tax Act (Cap 20) was amended to ensure that the following applies to companies that are members of a multinational group:
- Activities performed abroad by a permanent establishment of a Seychelles company will be exempt from tax in Seychelles, with foreign income from activities that are not sufficient to qualify as a permanent establishment remaining taxable in Seychelles.
- Foreign income received in Seychelles based on intellectual property will be taxable in Seychelles, with a territorial exemption for income from patents related to the level of research and development undertaken in Seychelles in connection 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 Seychelles.
Any foreign income that is subject to tax in Seychelles, such as companies with insufficient economic substance or on non-patent intellectual property, will be taxed in Seychelles, with a credit for foreign taxes incurred.
In addition, the definition of “permanent establishment” was amended to align with the latest model definition of the OECD and the United Nations.
Further to the above, with effect from 30 June 2021, all CSLs will cease to enjoy the 1.5% business tax concession and exemption of withholding tax on payments to non-Seychelles residents.
The normal corporate tax rate in Seychelles is 30% and the withholding tax rate is 15%.
As the above changes are potentially impactful and wide-ranging, there are currently a lot of areas that still await clarification from the authorities and our Seychelles agent. We will revert as and when we receive any updates.
2. Bi-Annual Accounting Records to be kept at Seychelles
All Seychelles entities are now required to send copies of their accounting records to Seychelles (bank statements, ledgers, invoices, receipts, contracts etc). The records must be sent to Seychelles on a bi-annual basis. Entities have 6 months to submit (lodge) existing accounting records with their registered agent in Seychelles.
Accounting records will NOT be filed with the authorities and will NOT be open for PUBLIC INSPECTION.
The new requirement favours small holding companies with few transactions from year to year. Large holding companies (those with a turnover of 50 million Seychelles Rupees or USD 3.7 million) will be required to prepare and send Financial Summaries to Seychelles in addition to the accounting records. (Financial Summaries are still to be defined by the authorities).
Financial Summaries are only required for the year ending 31st December 2021 and future years. If a company already prepares financial statements (audited OR unaudited), these can be provided instead of a financial summary.
Companies can send untranslated or uncertified underlying documents. There is no need to translate underlying accounting documents that are not in English or French.
Companies should soon start sending their underlying accounting records to us for the years 2020 and 2021 and also for earlier years going back up to 7 years if a company is old (send whatever is available) because the FSA will start filing inspections in February 2022.
It is important to note that accounts, ledgers and bank statements are included as accounting records and these can be useful for meeting the requirements for earlier years. It is also important to note that if a company is 7 years or older the FSA may want to see 7 years’ worth of accounting records.
Dormant companies may send a declaration signed by a director that the company has been dormant for a particular period. However, the definition of Dormant is currently very restrictive and includes only companies with no accounting transactions. (The current view is that this is not very likely for companies on the register as there would definitely be company formation & maintenance expenses, such as licence fees, registered agent charges etc).
The FSA will begin inspections in February 2022.
As CSLs are currently already under the requirement to be audited, the timelines above do not apply to CSLs. CSLs should continue to send its accounting records and financial statements to their Seychelles auditors with a copy to the Registered Agent.
This is to ensure that the records are indeed being kept for 7 years as not all auditors may be actually keeping the records for that long or they may not be backing up the files.
Please note that non-compliance will result in heavy fines and penalties ranging from USD 5,000 to USD 10,000 per breach.
Other Changes To IBC and CSL 2021
1. All companies that have accumulated at least one year of striking off period on 1st January 2022 will be deemed dissolved. This will be done automatically but it means companies will have less time to be restored.
2. Where a CSL fails to pay its annual fee before the due date, the fee increases by 10% within 3 months and 25% thereafter.
3. For IBCs and other entities, most penalties have been changed to “not exceeding” USD 5,000 or USD 10,000. The FSA will issue a graduated rates table. Whilst the change appears to cap the penalties (which is a good thing), please do note that FSA is also given the power to charge the full amount of penalties.
4. CSLs can be converted into IBCs and vice versa.
5. CSLs are not restricted in their activities anymore.
6. CSLs can now have 1 shareholder and 1 director.
7. CSLs now have up to 6 months to submit accounts and annual returns. Annual returns and accounts can be signed by one director if authorised by other directors.
8. CSL’s late filing penalties are now capped at USD 10,000.
9. Every existing CSL, regardless of whether or not the validity of its special licence has expired, shall comply with sections 15 (annual return submission) and 23 (annual fee payment), within 3 months of the commencement Amendment Act. This is an extra grace period.
Whilst there are quite a lot of changes, not all are applicable to you and certainly, not all are applicable immediately. Our intention is to focus on the bigger challenges namely the changes to the taxation of Seychelles IBCs and CSLs.
Please also note that some points will need to be clarified by the authorities and it is possible that there will be additional small changes as a result. We will forward important guidelines and further changes as we receive them.
If you are having doubts about your current Seychelles structure or related due to this announcement, please do not hesitate to get in touch with us.