Tax governance Seychelles hopes to be removed from ‘EU blacklist’ later this year |26 February 2021
Seychelles has taken the key steps in reforming its territorial tax regime so that it can be removed from the European Union (EU) list of non-cooperative jurisdictions later this year.
According to an EU statement released on Monday this week, Seychelles along with Botswana and Eswatini are still on the EU list of tax havens after having “refused to engage in dialogue with the EU or to address the shortcomings in good tax governance”.
Likewise, according to the same statement, Morocco and Namibia have been removed from the European Union’s list of tax havens after they successfully implemented reforms to bring their tax systems up to the EU’s required standards.
The institution in Brussels believes that Seychelles has a “major problem of transparency” in tax matters. It has been seen that Seychelles’ territorial tax system for the last 40 years has allowed income earned in Seychelles to be taxed in Seychelles among other issues to be corrected.
It was in 2017, that the twenty-seven EU member states agreed to establish a list of uncooperative developing countries and territories in tax matters. The list is part of the work of the EU to fight against tax fraud and tax evasion. The evaluation criteria used relate mainly to tax transparency, tax fairness and the implementation of the Minimum Standards for the Transfer of Profits (BEPS).
Commenting on the EU statement, a press release from the Ministry of Finance, Economic Planning & Trade (MFEPT) states that Seychelles has taken the key steps in reforming its territorial tax regime to address concerns of the EU.
“Together with addressing the concerns of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum), these changes are intended to ensure that the Seychelles is removed from the EU’s list of non-cooperative jurisdictions (the “EU blacklist”) later this year,” says the press release.
Refining the territorial regime to deliver on the needs of the Seychelles while allaying EU concerns
On December 28, 2020, following months of engagement with both the EU and the private sector, President Wavel Ramkalawan gave his assent to the Business Tax (Amendment) Act, 2020, which will come into effect when a notice is published in the Gazette. The Act refines the Seychelles territorial tax system, so that the exemption from tax for foreign income is suitably targeted. The Business Tax (Amendment) Act, 2020, will amend the Business Tax Act (Cap 20) to ensure the following applies for large companies:
1. Activities performed abroad by a permanent establishment of a Seychelles company will be exempt from tax in the Seychelles, with income from activities that are not sufficient to qualify as a permanent establishment remaining taxable.
2. Foreign income received on Seychelles’ based intellectual property will be taxable in the Seychelles, with a territorial exemption for income from patents (and equivalent rights) related to the level of research and development undertaken in the Seychelles connected 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 the Seychelles.
Any foreign income that is subject to tax in the Seychelles, such as companies with insufficient economic substance or on non-patent intellectual property, will be taxed in the Seychelles, with a credit for foreign taxes incurred. The new conditions apply only to those companies which (with their affiliates) exceed a size threshold. The purpose of this size threshold is to exclude small companies which do not have an impact on the EU market. In addition, the Act updates the definition of “permanent establishment” to align with the latest model definitions of the Organisation for Economic Cooperation and Development (OECD) and the United Nations
Progress towards meeting Global Forum Standards
A further criterion for being removed from the non-cooperative jurisdiction list is a rating of “Largely Compliant” or higher by the Global Forum. Although Seychelles was rated “Largely Compliant” in 2015, the Global Forum delivered a “Partially Compliant” overall rating for the country in 2020. Work has continued to strengthen availability, access, and exchange of information for tax purposes, particularly around the following concerns which contributed to the new rating:
• Beneficial Ownership Reporting
• Access to accounting information to exchange upon request
• Supervision and enforcement of the above
To address these concerns, Seychelles has undertaken a three-pronged reform approach: amend legislation as needed to set out the legal foundations of change, issue guidance and work with stakeholders to understand the new requirements, and build government capacity to facilitate practical implementation. The legislative changes include:
• The Beneficial Ownership Act, 2020 came into operation on August 28, 2020 and has ensured that the definition of beneficial owners satisfies the Financial Action Task Force (FATF) and OECD requirement;
• The laws which govern the availability of, and access to, accounting information for international business companies, trusts, limited partnerships and foundations operating in the international financial sector. All entities will need to keep accounting information in Seychelles together with the supporting transaction documentation. These requirements will also apply to entities, which are struck off and dissolved. All such data need to be kept up to date and must be kept for at least seven years; and
• Changes to the rules for supervision and enforcement.
The laws on availability of accounting information will be going through consultation phase and Government will be submitting the laws to the National Assembly over the coming weeks and will come into force once given the assent by the President. Guidance on how to comply with the law is being circulated to the industry for discussion before finalisation.
Next steps
The above steps mark a critical point in the work on tax policy reform and the revised regime is now the subject of discussion with the EU’s Code of Conduct Group and the Global Forum. Once the new rules on availability of information have been passed, the Seychelles will test the