Dear Valued Client,
We previously informed you that the Seychelles Business Tax Act (via the Business Tax (Amendment) Act) (“BTAA”)[1] has been updated in order to satisfy the European Union’s (“EU”) requirements on Economic Substance (“ES”). Relevant Guidance Notes have recently been published by the Seychelles Revenue Commission (“SRC”).
In this communication, we will provide an update on the key changes under the BTAA and assist you to determine whether your Seychelles International Business Company (“IBC”) falls in scope of Economic Substance obligations in the Seychelles.
(A) What has changed under the BTAA?
The Seychelles has historically operated a territorial tax regime, meaning that only income sourced in the Seychelles was liable to tax in Seychelles. Any income derived outside the Seychelles was considered as non-Seychelles sourced income and not taxable.
Under the latest updates, the exemptions from tax for foreign sourced income have been specified as follows:
- Profits of Seychelles companies generated by overseas permanent establishments* are not taxable in the Seychelles. However, profits from overseas activities that do not create a permanent establishment abroad are taxable in the Seychelles.
- Foreign-sourced passive income (including dividend, interest, rent, and capital gains) is tax exempt in the Seychelles, provided the company has adequate economic substance in the Seychelles (only if the company is in scope of ES as defined under (B) below).
- Foreign-sourced passive income from Intellectual Property will be taxed in the Seychelles, except for qualifying income from patents or equivalent.
*The definition of a permanent establishment is aligned with the latest model definitions of the Organisation for Economic Cooperation and Development (“OECD”) and the United Nations.
(B) How to determine whether your Seychelles IBC falls in scope and needs to establish Substance?
According to the latest updates, a Seychelles IBC falls in scope of ES if the company is:
- a member of a multinational group (“MNG”); AND
- the company is deriving passive foreign-sourced income in a given financial year.
Firstly, to qualify as a MNG, a Seychelles IBC has to satisfy ALL of the below three criteria:
- Part of a Group: any group that includes two or more enterprises; and
- Multinational: the tax residence of such enterprises are in different jurisdictions, or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction; and
- Accounting consolidation: consolidating of accounts is required by the ultimate parent company^ of the MNG.
^Ultimate parent company means an entity of a MNG that owns directly or indirectly a sufficient interest in one or more other group entities.
Secondly, the Seychelles IBC has derived passive foreign-sourced income in a given financial year from September 2021 (i.e. when the BTAA came in force). As specified under A(ii) and A(iii), these types of passive foreign-sourced income are taxable in the Seychelles.
Therefore, if a Seychelles IBC fulfils the above mentioned two requirements, the company is considered to be in scope and is required to establish adequate Economic Substance in the Seychelles.
(C) How to determine whether your Seychelles IBC falls out of scope and does not need to establish Economic Substance?
If a Seychelles IBC does not meet the above two requirements under part B, or the company is only deriving active foreign-sourced income, as specified under A(i), then the Seychelles IBC is deemed to be out of scope and no Economic Substance is required.
(D) What actions do you need to take if your IBC is in scope?
All in-scope companies are required to establish adequate Economic Substance in the Seychelles.
For companies that are pure equity holding companies or real estate holding companies, “light substance” is expected to be required.
While the criteria (determining the adequate type of Economic Substance to be implemented by companies) remains to be ascertained by the SRC, we expect Economic Substance to include the following:
(a) for a company to complete all of its local statutory filings; and
(b) for a company to have adequate human resources and premises in the Seychelles for holding and managing its assets, which will likely be satisfied by an IBC having a Seychelles registered agent and registered office.
For companies that are not a pure equity holding company or real estate holding company, they will need to establish full Economic Substance, which includes (a), (b) above as well as the below:
- in respect of any assets it acquires, holds, or disposes of, to take necessary strategic decisions and manage and bear principal risks in Seychelles; and
- incur adequate expenditure relating to the acquisition, holding or disposal, as the case may be.
If the Seychelles IBC is holding intellectual property, the requirements are expected to be more onerous.
Next steps
No immediate actions are required.
More clarification is required from the SRC, including (but not limited to):
- Possible filing obligations and relevant timing;
- Adequate Economic Substance criteria for IBCs that fall in-scope; and
- Any actions required by IBCs that are deemed to be out-of-scope.
In the meantime, the above is a general overview in determining whether a Seychelles IBC needs to establish Economic Substance under the new legislation – and an (unofficial) flow chart is available here to assist your understanding. Our expectation is that most Seychelles IBCs will not need to establish ES – but some additional filings may be required.
We will closely monitor developments in this area and will further communicate with you in due course. Please stay alert for subsequent communications.
Contact us
If you have any questions regarding the above, please reach out to your regular Vistra contact or email us here.
Best regards,
The Vistra Company Formation Team
[1] The Business Tax (Amendment) Act, 2020 came into operation on 15 September 2021, here is the Commencement Notice. The subsequent amendment to the BTAA can be found here for reference.
