Confidential Offshore Financial Services
In-Depth Information About Seychelles
Location
Seychelles is an archipelago consisting of 115 of the most picturesque islands in the world, located about a thousand miles off the eastern side of Africa (just to the south of the equator).
Lying in the coastal area of the Indian Ocean, along the African continent, Seychelles is favorably positioned between the prime manufacturing and trade channels of Africa, Asia and Europe. This allows it to provide an exceptional platform for foreign investment into these important global areas of commerce.
Furthermore, Seychelles does not experience hurricanes like many other offshore jurisdictions, such as Mauritius and all of the Caribbean nations.
Political Structure
Seychelles is comprised of a multi-party political system, having an executive President as head of state and government. The Cabinet of 13 ministers, which also includes the Vice-President, is under the control of the President.
Legislative authority is vested in a National Assembly. This lawmaking body contains 32 members, 26 of whom are chosen straight in constituencies, with the balance on a comparative basis, as per the results of the National Assembly elections.
Seychelles holds memberships in the United Nations, the Commonwealth, the African Union, and La Francophonie. There are embassies of Seychelles in Paris, Brussels, New York, New Delhi, Pretoria, Beijing, and London, as well as many honorary consulates throughout the world.
Economy and Infrastructure
During the era of 1970’s and 80’s, Seychelles was a single-party socialist country. Designed to alleviate the economy and lessen its vulnerability to external shocks, commercial activity was centralized in the hands of around 30 parastatal organizations (corporations having a majority of their shares held by the Government).
The country has evolved away from centralized planning to an open market economy, with increasing private investments. As part of the effort to strengthen this capitalist system, the country’s infrastructure, including health and education, has been revamped to create a strong foundation for future economic growth. Since 2006, the government has continued to privatize government-held assets, ranging from production activities to monetary services.
In 1997, Seychelles became part of the Common Market for Eastern and Southern Africa (COMESA). In support of COMESA’s strategic goals, Seychelles focuses on increasing national production to compete globally, addressing supply-side limitations related to infrastructure, as well as maintaining peace and security, among others. Combined, the COMESA member countries have a population of more than 389 million, producing annual import and annual export totals of approximately one US billion, respectively.
In May of 2009, Seychelles joined the COMESA Free Trade Area (FTA). Seychelles is well-positioned to benefit from several key initiatives, such as:
– COMESA Customs Union
– COMESA Common Investment Area
– Common Market
Since gaining independence in 1976, per capita output in Seychelles has grown about seven-fold, compared to the old near-subsistence level. Primarily, this increase was spawned by the tourism industry, which employs about 30% of the labour force (agriculture today only employs around 3% of the Seychellois labour force).
Starting in 2008, shortly after the world economic crisis, the government of Seychelles made the control of the budget deficit a priority, especially by curbing social welfare costs and expanding the privatization of national enterprises.
The Seychelles administration has an extensive hand in economic life. The government owns public companies involved in the distribution of petroleum-based products, banking, importation of essential products, telecommunications and many more. Since 2010, the Index of Economic Freedom has been increasing each year (a measure of the degree of limited government, rule of law, regulatory efficiency, market openness as well as other factors).
In recent years, Seychelles has promoted foreign investment to modernize hotels and other services. Most recently, the government established the Seychelles International Business Authority (SIBA) to encourage the growth of the offshore financial sector (through offshore company formation and foreign investment) and passed several new regulations (such as the International Corporate Service Providers Act, the International Business Companies Act, the Securities Act, theMutual Funds and Hedge Fund Act, amongst others).
Population, Language and Culture
Seychelles population is 87,785, as per 2012 census. Its population makes it the second smallest state of Africa.
Seychelles people belong to diverse ethnic groups such as Asian, African and European. The combinations of these groups are called Creole. Seychelles people speak different languages because of their diverse religious backgrounds. The state has three authorized languages:
– English
– French
– Creole
Seychelles culture is a colorful tapestry, a fusion culture. Most of the people in Seychelles belong to diverse religions and thus have different lifestyles and customs. The art, food and music is lively and festive.
Exchange Control
The Seychellois rupee (SR) is the national currency of Seychelles. In 2008, the SR was allowed to float freely, rather than be tied to a set of international currencies, in the hopes of attracting an increasing number of foreign investments to the Seychelles economy.
In 2001, the latest foreign exchange laws were announced by the Seychellois government. The Foreign Earnings Regulation Act and the Exchange Control Act were amended to reject unlawful foreign exchange activities and to make sure that all foreign exchange activities and transactions were certified and, to a certain extent, supervised by the Central Bank of Seychelles.
The major purpose of the Foreign Earnings Regulation Division is to make sure that all foreign exchange coming into country legally goes through the banking system and allotment of the foreign exchange is moderately distributed by the commercial banks as per the directives issued to these banks.
Visitors in Seychelles make payments in foreign currencies for hiring of boats, cars, lodging, travel agents, tour operator services, inter island services, visiting state parks and nature reserves. In most places, credit cards can also be used. It is not mandatory for tourists to switch currency when entering the state. In fact, they can exchange only little amounts for their secondary expenses outside tourist places and hotels.
Type of Law
Seychelles has a mixed-jurisdiction system of law that makes it quite unique. The civil law is directed by a Civil Code, which was derived from the French Napoleonic Code. There is no British common law aspects in Seychellois civil law.
In criminal law, however, there are significant similarities to British criminal law. Procedural law is mainly British-based. British courtroom procedures also share great likeness to those of Seychelles procedural law.
Laws are passed primarily through legislation. The Seychelles legislative division is headed up by the National Assembly. It holds the power to develop, alter and revoke all laws except for some sections of the Constitution of the Republic of Seychelles. This Constitution is the ultimate law of the state; therefore, particular chapters, such as ones that address individuals’ constitutional rights, can be revised only through a referendum.
The Seychellois Civil Code lays out the principles and laws relevant to handling civil disputes. Matters not explicitly addressed through legislation may be explained or proposed through case law developments, but to date no branches of the law have been formed purely using case law, as in the British common law system.
Principal Corporate Legislation
The International Business Companies Act 1994 governs the operations of offshore companies. Seychelles has continually improved this original document to serve the needs of offshore corporate investors, through more than ten amendments in the past 20 years.
Seychelles recently passed three new very important pieces of legislation: the Mutual Fund Act 2008, Securities Act 2007 and Insurance Act 2008. All build upon excellent existing products and reflect “best practices” born from the benefit of insight into other similar products in competing jurisdictions and leading international experts who assisted in crafting the legislation.
Benefits of Seychelles Offshore Company Formations
As a rapidly-rising offshore tax haven, Seychelles boasts the following advantages for international investors and business people to set up offshore companies:
– A 100% self-governed democratic republic
– it gained its independence from the United Kingdom in 1976
– remains an independent member of the UK Commonwealth, but is under no authority of the British Crown
– it is also under no jurisdiction of the European Union
– Full member of the United Nations
– Well-respected and established offshore jurisdiction
– Favorable corporate laws offering an array of sophisticated, modern & flexible offshore products
– Solid banking secrecy, considered one of the best jurisdictions for protecting the privacy of its foreign investors
– Free from undesirable measures and exchange agreements
– Holds 46 tax treaties, all compliant to OECD standards
– Expanding Double Taxation Avoidance Treaty Network
– Names of company directors and shareholders are not placed in the public registry
– Offers lenient policy on reporting interest incomes to overseas tax authorities
– Issues an innovative “Special Licence” company that can be used to take full advantage of Seychelles’ growing network of double taxation agreements
– No exchange controls
– Fiscal Incentives
– A skilled, professional and bilingual population
– Modern communication network
– Excellent sea and air links with Europe, USA, Asia and Africa
– Convenient time zone coincides with major financial centers from East Asia to Western Europe (+ 4 GMT)
– Reliable telecommunications infrastructure geared toward business and is continually enhanced
– Residence permit and work permit are available for foreign investors
– British styled educational system, private schools and peaceful living environment for families
Features of Seychelles Offshore Law & Regulations
– Hybrid between Civil Law and Common Law
– Affordable fees for government licensing
– Tax-free International Business Companies (IBC)
– Special License Companies (CSL) – resident companies with 1.5% tax
– Modern, up-to-date body of laws that allows for and regulates offshore banking, offshore companies, protected cell companies, limited partnerships, mutual funds, and hedge funds
– Rapidly-expanding network of Double Taxation Avoidance treaties with Bahrain, Barbados, Botswana, China, Cyprus, Indonesia, Malaysia, Mauritius, Monaco, Oman, Qatar, South Africa, Thailand, U.A.E, Vietnam and Zambia
– Incorporate (form an time IBC) in only 24 hours
– Government committed to positioning Seychelles as a top international offshore financial center
Why Choose Seychelles as an Offshore Tax Haven
The independent democratic republic of Seychelles, with its stable political system, offers one of the most attractive complete offshore packages, created and supported by one of the most auspicious legal and regulatory authorities in the offshore global arena.
Seychelles diligently encourages local and foreign investment; thus it offers:
– Low government fees
– Tax-resident low-tax and non-resident tax free structures
– A growing matrix of tax treaties used for investment into other countries
– An international trade zone
Located approximately 1000 miles east of Africa, Seychelles is not in the cyclone belt, giving it an advantage over other natural disaster-prone jurisdictions, such as Mauritius and all of the Caribbean territories.
Seychelles keeps on flourishing as a global offshore financial center. With its efficacy and command of the offshore industry, its broad range of offshore products and services, and its devotion to persistent innovation, Seychelles is poised to be the premier choice in the offshore world.
If you are looking for a tax haven with a solid secrecy policy, attractive offshore business laws, Seychelles may be the perfect choice for your next offshore company formation.
Things to Consider About Seychelles Offshore
– Restrictions on bearer share issuance which requires local registered agent to “immobilize” them. (We recommend the setting up of a Panama foundation as sole shareholder or, if unrestricted are a must, a Panama company).
– Limited number of local banking options; accounts are not as easy to open as in prior years (but still possible despite additional paperwork requirements).
– Network of Double Taxation Agreements, with OECD approved language that include Mutual Legal Assistance agreement language, which weaken Seychelles as the best asset protection haven.
Seychelles Company Formation
Overview of a Seychelles IBC
Seychelles offers attractive offshore formation opportunities through an International Business Company (IBC) to businesses seeking the benefits of a secure, confidential and tax-free environment.
Seychelles has been offering clients offshore formation packages since the passing of the International Business Companies Act in 1994, and has grown rapidly in the sector due to its flexible structure, exceptional protection regulations and enabling legislation, making it among the best jurisdictions for offshore company formations.
The republic of Seychelles is compromised of over 100 islands, located a thousand miles east of Africa in the Indian Ocean; and unlike other natural disaster-prone offshore jurisdictions such as the Caribbean, the island lies far away from the cyclone belt.
Seychelles is part of the British Commonwealth, and benefits from a stable political environment enabling the offshore sector with comprehensive offshore packages, created and supported by one of the most auspicious legal and regulatory authorities in the offshore global arena.
Seychelles is a flourishing offshore financial center; its formation market has become one of the fastest growing company registries in the world due to its efficacy, innovation and its broad range of offshore services.
Investors and businesses are flocking to Seychelles, taking advantage of its low cost, strict confidentiality laws and flexible incorporation regulations making the formation process simple and efficient.
If you are looking for a jurisdiction with firm privacy regulations and tax-free opportunities in a supportive offshore environment, Seychelles may be the perfect choice for your next offshore company formation.
Advantages & Top Uses of a Seychelles IBC
Advantages
There are a number of advantages that make a Seychelles IBC a unique and attractive place to establish an IBC.
– Reasonable and set license fees
– No minimum capital requirement
– Only one shareholder or director is mandatory
– An IBC may own or manage a Seychelles-registered vessel or aircraft
– Low government fees
– Tax free structures
– A growing matrix of tax treaties used for investment into other countries
– An international trade zone
– No corporate tax
– Not required to file accounts
– Records are not publicly accessible
– Asset protection
– Well-respected and established offshore jurisdiction
– Favorable corporate laws offering an array of sophisticated, modern & flexible offshore products
– Solid banking secrecy, considered one of the best jurisdictions for protecting the privacy of its foreign investors
– Free from undesirable measures and exchange agreements
– Holds 46 tax treaties, all compliant to OECD standards
– Names of company directors and shareholders are not placed in the public registry
– Offers lenient policy on reporting interest incomes to overseas tax authorities
– Issues an innovative “Special License” company that can be used to take full advantage of Seychelles’ growing network of double taxation agreements
– No exchange controls
– Fiscal Incentives
– A skilled, professional and bilingual population
– Modern communication network
– Residence permit and work permit are available for foreign investors
– A skilled, professional and bilingual population
Top Uses
A Seychelles IBC has many potential business uses. An offshore company can be used for, including but not limited to:
– International trading
– Asset protection
– Tax avoidance
– Protection of intellectual property
– Estate planning
– Holding Company
– Financial management
– Leasing of other assets
Key Corporate Features of a Seychelles IBC
| Seychelles Company | Corporate Details |
| General | |
| Type of Entity | LLC |
| Type of Law | Based on British Common Law and French Civil Law |
| Governed by | International Business Companies Act 1994 |
| Registered Office in Seychelles | Yes |
| Shelf company availability | Yes |
| Our time to establish a new company | 1 Business Day |
| Minimum government fees (excluding taxation) | USD 100 |
| Corporate Taxation | No |
| Access to Double Taxation Treaties | No |
| Share capital or equivalent | |
| Standard currency | USD (local currency Seychellois Rupee SCR) |
| Permitted currencies | Any |
| Minimum paid up | No minimum |
| Usual authorized | USD 50,000 |
| Bearer shares allowed | Yes (but required to be immobilized by theregistered agent) |
| No par value shares allowed | Yes |
| Directors | |
| Minimum number | One |
| Local required | No |
| Publicly accessible records | No |
| Location of meetings | Anywhere |
| Corporate directorship allowed | Yes |
| Shareholders | |
| Minimum number | One (which can be the Director) |
| Publicly accessible records | No |
| Corporate shareholder allowed | Yes |
| Location of meetings | Anywhere |
| Company Secretary | |
| Required | No |
| Local or qualified | No |
| Accounts | |
| Requirements to prepare | Yes |
| Audit requirements | No |
| Requirements to file accounts | No |
| Publicly accessible accounts | No |
| Recurring Government Costs | |
| Minimum Annual Tax / License Fee | USD 100 |
| Annual Return Filing Fee | NA |
| Other | |
| Requirement to file annual return | No |
| Migration of domicile permitted | Yes |
Requirements for Incorporation of a Seychelles IBC
The only requirements that need to be filed with the Registry are a Memorandum and the Articles of Association, which can be filed together or within 30 days of incorporation.
Taxation of a Seychelles IBC
There are a number of tax incentives for establishing a Seychelles International Business Company including:
– Zero tax on all profits derived outside of Seychelles
– No stamp duty on exchange of shares or the sale of any assets
– Zero personal income tax
– Zero corporate tax
– No capital gains tax
– No sales tax
– No withholding tax
– No value added tax
– No import of export tax
Corporate Details of a Seychelles IBC
Language
The name of the company may be in any language; however an official translation into English or French is required if the name is in another other language.
Privacy and Confidentiality
The only records delivered to the Registrar are the Memorandum and Articles of Association, which have no reference to the beneficial owner, directors, officers or shareholders.
Principal Corporate Legislation
The International Business Companies Act 1994 governs the operations of offshore companies. Seychelles has continually improved this Act to serve the needs of offshore corporate investors through a number of amendments. Seychelles recently passed three new very important pieces of legislation: the Mutual Fund Act 2008, Securities Act, 2007 and the Insurance Act 2008.
Capital
Standard capitalization for a Seychelles IBC is USD 50,000. Share capital and total shares are unlimited. There are no minimum or maximum capital requirements for a Seychelles IBC.
Licensing Fee
The licensing fee is USD 100
Shares
Shares of the Seychelles corporation may be issued in a variety of forms including: Par or No Par Value, Voting or Non-voting, Preferential or Common, Nominal or Bearer. Shares may be issued for money or for other valuable consideration, may be issued before any payment is made, and can be issued in any currency.
Shareholders, Directors and Officers
Only one director and shareholder are required and can be the same person. Nominee shareholders and directors are permitted. No statutory requirement for officers; however, if officers are required they can also be directors and shareholders. Shareholders and directors may be of any nationality and reside in any country. Directors and shareholders may be either a natural person or a corporate entity.
Meetings of Shareholders and Directors
Seychelles IBC’s are not required to hold annual shareholder meetings or board meetings. When a meeting of shareholders and directors is held, a proxy may represent a shareholder or director and speak or vote on his behalf. If meetings of an IBC are held, then the company shall keep: Minutes of the meeting of its shareholders and directors; and the records and Minutes of any meetings must either be kept at the registered office or another place chosen by the directors as long as this place is disclosed to the Registrar.
Taxation and Fees
Seychelles International Business Companies are zero tax entities as long as profits are derived outside of Seychelles. All annual renewal fees are due on the anniversary of the company. Government fees are fixed for life. IBC’s are exempt from stamp duty on exchange of shares or the sale of any assets.
Corporate Books and Records
Annual filings or accounts and financials are not required. There is no requirement to have an auditor.
Registers
A Register of all directors must be kept and maintained. A Share Register must be kept and maintained.
Currency
There are no currency limitations or foreign exchange controls
Name Requirements
A Seychelles IBC name must indicates limited liability. Some examples include: Ltd, Corp, S.A., S.A.R.L., Bhd, Pty, NV., A.G., GmbH, LLC, Limited, or Corporation.
Name Restrictions
The name of a Seychelles IBC cannot suggest the patronage of the Seychelles Government, such as “Republic”, “Government”, “ or “national” cannot not be used. Similarly, names that include Bank, Assurance, Building Society, Chamber of Commerce, Foundation, and Trust may not be used without special permission or a special license.
Restrictions
A Seychelles IBC is restricted from carrying out any business inside the country, involved in real estate property, carry on banking as defined in the Financial Institutions Act 1984, a trust business, insurance company, the business of providing the registered office for companies. There are also restrictions on bearer share issuance, which requires a local registered agent to “immobilize” them. (We recommend the setting up of a Panama foundation as sole shareholder or, if unrestricted bearer shares are a must, a Panama company).
Seychelles CSL – Special Licence Company
Overview of a Seychelles Special Licence Company (CSL)
The Seychelles CSL is a Seychelles domestic company, incorporated under the Companies Act 1972, which is granted a special licence under the Companies (Special Licence) Act 2003 (“the CSL Act”).
Unlike the Seychelles IBC (which is a tax exempt entity and non-resident for Seychelles tax purposes), the CSL is a tax resident of the Seychelles and may carry on “permitted” business inside as well as outside of Seychelles. However, the permitted business requirements are such that CSL status is only granted where the Company is to hold investments, or provide services to clients, outside of Seychelles.
The CSL has substantial appeal (particularly to international groups), as a tax-efficient vehicle for permitted uses under the CSL Act including, in particular, use as an intermediary holding company, to hold and license out intellectual property or as a services company (e.g. management, consultancy, etc).
Key Corporate Features of a Seychelles CSL
| Seychelles CSL | |
| General | |
| Political Stability | Very Good |
| Legal System | Common Law/Civil Law Hybrid |
| Disclosure of Beneficial Owner to Registrar | Yes |
| Disclosure of Beneficial Owner to Registered Agent | Yes |
| Migration of Domicile Permitted | Yes (Incoming and Outgoing) |
| Non-English Language Names Allowed | Yes |
| Operational Objects | Specific to intended business |
| Tax Resident | Yes |
| Tax on Worldwide Profits | 1.5% |
| Access to Double Taxation Avoidance Treaties | Yes |
| Corporate Requirements | |
| Minimum Shareholders | Two |
| Minimum Directors | Two |
| Bearer Shares Allowed | No |
| Corporate Directors Allowed | No |
| Company Secretary Required | Yes |
| Standard Authorized Share Capital | USD 1,000 (up to USD 100,000) |
| Minimum Paid Up Capital | 10% of authorized share capital |
| Corporate Seal | No |
| Local Requirements | |
| Registered Office/Agent | Yes |
| Local Secretary | Yes |
| Local Directors | No |
| Local Meetings | No |
| Government Registry of Directors | Yes, not public |
| Government Registry of Shareholders | Yes, not public |
| Annual Requirements | |
| Audited Accounts | No |
| Annual Filing of Returns | Yes |
| Annual Meeting | No |
| Meeting Location | Anywhere, proxy also allowed |
| Incorporation Time | 2-4 weeks depending on the time it takes for the client to return the application and supporting docs |
Tax Advantages of a Seychelles CSL
– A CSL is liable for Seychelles business tax at the rate of 1.5% on its world-wide taxable income (which, when a CSL is accessing a Seychelles Double Taxation Avoidance Agreement, may be fully avoided when tax credits apply – for example, if not less than 1.5% foreign withholding tax has been paid in respect of income received by a CSL). “Taxable income” means assessable (gross) income less allowable deductions.
– A CSL is exempt from Seychelles withholding taxes on dividends, interest and royalties
– A CSL is exempt from stamp duty on property transfers, share transfers and other business transactions
– The fiscal exemptions granted to a CSL under the CSL Act shall be guaranteed for ten years from the date of incorporation of a CSL and shall continue in force thereafter unless otherwise provided for by written law (the statutory guarantee period is anticipated to be extended to 20 years)
– The CSL (unlike the IBC) has access to Seychelles’ steadily expanding network of double taxation avoidance agreements (“DTAs”) – including China, Thailand, Indonesia, Malaysia, Cyprus, South Africa, Botswana, Mauritius, Oman, etc. Details of any specific Seychelles DTA are available upon request. Seychelles DTAs with China and Indonesia are particularly attractive in terms of available tax relief.
Components of a Seychelles CSL
Directors
– Minimum number of directors: 2
– Corporate directors permissible: yes
– Local director requirement: no (However, having all or a majority of Seychelles resident directors, is essential where a CSL intends to access a Seychelles Double Taxation Avoidance Agreement)
– Publicly accessible records of directors: yes
– Location of directors meetings: anywhere
Shareholders (members)
– Minimum number of shareholders: 2
– Corporate shareholders permissible: yes
– Local shareholder requirement: no
– Location of shareholders meetings: anywhere
– Details of shareholders are required to be filed with the Seychelles Government Registry, however such information is not publicly accessible
Beneficial owners (clients)
– Details of beneficial owners are required to be filed with the Seychelles Government Registry, however such information is not publicly accessible
– Shares may be held by a nominee on behalf of beneficial owner client (provided the beneficial owner’s details are also disclosed)
Company Secretary
– Seychelles resident Licensed Company Secretary required
Share Capital
– Standard currency: USD (but any other convertible currency is permitted)
– Registered shares (Bearer shares not permitted)
– At least 10% of the authorized share capital must be issued and paid up. Therefore and unless a client requires a higher share capital, “standard” authorized capital is $100 comprising 100 shares of $1 each; of which not less than 10 shares being issued and paid up on subscription
Accounts and Returns
– Audit requirement: yes
– Requirement to file annual audited accounts: yes
– Requirement to file annual company return: yes
– The filed Accounts and company return are not publicly accessible
Miscellaneous
– Confidentiality: use of nominees is permitted, and whereas shareholder and beneficial ownership name and address are required to be disclosed to the Seychelles Government Registry, such information is subject to strict confidentiality obligations on the Registrar and will not be accessible pursuant to any public search of the Registry
– A CSL is required to have a registered office and a licensed Company Secretary in Seychelles
– A Company Seal is optional
– A CSL is required to hold an Annual General Meeting
– Trading restrictions: A CSL may carry on permitted business inside as well as outside of Seychelles, as authorized by its “special licence” and the objects clause of its Memorandum and Articles of Association. Certain activities may not be carried out by a CSL without the appropriate additional licence – such as mutual fund activity
– A Seychelles CSL has the same powers as a natural person, including the right to sue and be sued. It is a separate legal entity with limited liability and has perpetual existence
– Provision for “redomiciliation”: a foreign company or Seychelles IBC may be continued as a CSL – and a CSL may redomicile to another jurisdiction
– A CSL’s name must end in the suffix, “LIMITED”, to denote limited liability
– A CSL is a Seychelles resident for taxation purposes
– Any charge, mortgage or other security interest created by a CSL over its assets is required to be registered pursuant to the provisions of the Companies Act 1972 (sections 92 and 93)
– A CSL is required under the Companies Act 1972 to maintain various registers at its registered office, including a Register of Members and a Register of Directors and Secretaries
Using a CSL as a Vehicle for Doing Business in China
China tax changes
China’s recently enacted Enterprise Income Tax (“EIT”) Law (effective from 1 January 2008) introduced a new uniform income tax regime which applies to both foreign and domestic enterprises. Under the EIT Law, foreign investors are now exposed to higher Chinese taxes than in the past. China is also becoming increasingly serious about tax collection (Chinese tax collection was up by approximately 30% for year ended 2007).
Under the EIT Law Chinese companies are generally subject to 20% Chinese tax on payments to non-residents. It is anticipated that many foreign owned businesses will enjoy a concessionary 10% withholding tax rate, but which may be further reduced using a Double Taxation Avoidance Agreement (“DTA”).
Seychelles / China DTA
Use of a Seychelles CSL, in conjunction with the Seychelles / China DTA, provides significant scope to reduce Chinese tax exposure. The Seychelles / China DTA caps Chinese withholding tax on dividends at 5% and 10% on interest and royalties, provided that the CSL has its effective management in Seychelles (and the CSL is not tax resident in China). In contrast, while the Hong Kong / China DTA also caps Chinese withholding tax at 5% if the Hong Kong company owns 25% or more of the shares in a Chinese company, the Hong Kong / China DTA only caps Chinese withholding tax at 10% if the Hong Kong company owns less than 25% of a Chinese company. The Seychelles / China DTA therefore has a distinct advantage over the Hong Kong / China DTA in such cases, which will be relevant to Chinese investment mutual funds and other non-controlling foreign investors.
Another significant benefit under the Seychelles / China DTA is avoidance of Chinese tax on capital gains made by a CSL selling shares held by it in a Chinese company if the CSL holds less than 25% of the issued shares in the Chinese company and the assets of the Chinese company do not principally consist of immovable property (real estate). Once again, this will be of interest to China oriented mutual funds and other non-controlling investors. China has already indicated plans to enforce taxing of capital gains on Chinese share disposals.
A further attractive benefit under the Seychelles / China DTA is that no tax is payable in Seychelles (on Chinese-sourced income of the CSL) if Chinese withholding tax of at least 1.5% is paid on payments made by a Chinese company to a CSL. That is, under the Seychelles / China DTA withholding tax paid in China can be credited and set-off against the 1.5% Seychelles business tax payable by the CSL to fully discharge all business tax liability in Seychelles.