The EU’s Code of Conduct Group has declared some of the latest provisions in Seychelle’s tax regime as harmful.
Further adjustments are to be expected and ought to be updated to comply with best practices by the end of this year to bring them into line with international standards.
Seychelles is one of the six jurisdictions that had to apply modifications to remain compliant with the OECD (Organization for Economic Cooperation and Development), more specifically BEPS (Base Erosion and Profit-Shifting project) requirements.
A letter, sent on February 1, 2019, to authorities in Seychelles by the Code of Conduct Group, outlines the progress made by territories on changing potentially harmful preferential regimes.
The letter reports that Seychelles delivered on its promise to change or abolish preferential tax measures for International Business Companies (IBCs), international trade zones, special license companies, offshore insurance, offshore banks, securities business under the Securities Act, and fund administration business.
The Government of Seychelles has passed amendments to some essential Acts modifying the International Business Company (IBC) Regime to territorial taxation as of 1st of January 2019.
- The Business Tax (Amendment) Act, 2018;
- The International Business Companies (Amendment) Act, 2018;
- The Companies (Special Licenses) (Amendment) Act, 2018;
However, the Code Group considers that the following changes are equally harmful to the tax settings for IBCs:
- Only Seychelles source income of a Seychelles IBC would be subject to tax.
- An IBC that makes only income overseas and derives no income from activities in Seychelles can avoid taxation completely.
Within the letter, the Code of Conduct Group requires authorities in Seychelles to make a high-level commitment to eliminate or amend the relevant preferential regimes, without introducing grandfathering schemes to reduce the impact on non-resident businesses.
Nonetheless, the Code Group considers that modifications to the tax settings for IBCs, which guarantee that foreign income is exempt from tax, are harmful.
Challenging the provisions, the Code Group wrote: “Against this background, we would welcome to receive a commitment at a high political level that Seychelles will amend or abolish this regime by December 31, 2019, without any grandfathering mechanism.”
” Finally, the Code of Conduct Group would like to inform Seychelles that no further replacement with measures of similar effect or delays will be accepted when assessing at the beginning of 2020 whether the requested commitments will have been implemented.”
Failure to comply will get these international financial centers on the EU’s blacklist as a non-cooperative jurisdiction for tax purposes.
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