An other consequence of the BEPS 

 

Luxembourg has modified its IP favorable regime, due to the numerous companies owning IP rights or IP licenses without having a real presence in Luxembourg.

 

The law from December 18th, 2015 has adapted the Nexus approach as defined in the BEPS Action 5 report.

 

The favorable IP regime will only apply to companies having a substantial economic activity and presence in Luxembourg for the development (R&D) of the IP right or license.

 

In other words, there must be a direct “nexus” between the income receiving benefit and the activity contributing to that income.

 

The abolishment of the former regime is foreseen for July 1st, 2016, with progressivity until June 30th, 2021.

 

It raises some questions for the future of some companies already “present” in Luxembourg, as holding companies or in a group of companies.

 

Our office has a specific expertise in the analysis of the actual structure of the IP rights and can give the specific recommendations to be followed for a better approach on the long term of the detention of IP rights and license. We will be delighted to offer our advice in this context.

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The European Anti-Tax Avoidance Package (suite)

 

We continue to examine the ATAP (Anti-Tax Avoidance Package) from the European Commission, as it is a very important package of rules for the future of international tax planning.

 

The Starbucks/Google/and other giant companies cases have been recently under the spotlight of the daily newspapers, obliging the authorities to formulate some rules in order to fight against certain (legal) mechanisms and vehicles permitting business owners to benefit from a tax erosion within the group.

 

Article 6 of the ATAP is extremely challenging for the future of some international tax planning, as he will oblige some Member States to modify some internal rules and/or implement some specific anti-avoidance rules.

 

Conform Article 6, it will be impossible to continue to exempt a taxpayer from tax on profits distribution (dividends) from an entity registered in a non-EU country, if this entity is subject to a tax rate less than 40% than the rate applicable to the taxpayer in its Member State.

 

It will also be impossible to continue to exempt a taxpayer from tax on the gains resulting from the disposal of shares held in a non-EU country vehicle, if this entity is subject to a tax rate less than 40% than the rate applicable to the taxpayer in its Member State.

 

As an illustration, if we take the tax rate in Belgium (roughly 34%), the anti-tax avoidance rule will be applicable if the entity in the non-EU country has a tax rate of less than 20%.

 

However, it is mainly considered (cfr the explanatory memorandum to the Directive) that the EU average statutory tax rate will be used after the implementation of CCCTB (the Common Consolidated Corporate Tax Base Directive).

 

Since the EU average statutory tax rate is 22,25% in 2015, it means that the anti-tax avoidance rule will be applicable only when the foreign entity will be taxed at a tax rate of less than 13,35%...

 

Our office has a specific expertise in the examination of the actual structure of group of companies and in the specific recommendations to be followed by anticipation with the evolution of the international tax rules. We will be delighted to offer our advice in this context.

 

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The European Anti-Tax Avoidance Package

 

Our former information letters are regularly insisting about the most probable evolution of the international tax planning mechanisms.

 

We have mentioned the OECD global initiative called “Common Reporting Standards” (C.R.S.) adopted in the European Union by way of a Directive. The automatic exchange of information will be implemented by 2017.

 

We need to be now extremely attentive to a new arsenal developed recently by the European Commission. The 28th of January 2016, the European Commission has presented its ATAP (Anti-Tax Avoidance Package).

 

In this newsletter and in the future ones, we will expose some main principles of this ATAP, which will have major consequences as well for the internal rules as for the future tax planning.

 

A crucial modification will be the consequence of the Article 5 of the ATAP, which will make difficult the tax jurisdiction transfer without ownership change. The idea is to prevent the tax base erosion : many Member States have already tax exit rules, but not the UK, not Germany, not the Netherlands, not Belgium, not Spain…

 

In these countries, the ATAP will have as consequence that the internal law will include an exit tax rule.

 

For sure, the exit tax rule will need to be conform the CJEU case law, which consider as contrary to the freedom of establishment the immediate taxation of unrealized gains on transfer as well as the immediate taxation on the transfer of assets between Member States within the same legal entity.

 

But in each case, the insertion of an exit tax rule in the Belgian or Netherlands or UK law will oblige to eventually (re)consider the structure as adopted in some group of companies.

 

Our office may assist you in the examination of the actual (or future) structure of your group of companies. We will be delighted to offer our advice in this context.

 

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The FATCA regulations : consequences

 

As mentioned in our former information letter, since 2013, conform the Foreign Account Tax Compliance Act (F.A.T.C.A.), the foreign financial institutions are obliged to automatically exchange information regarding “specified US persons” with the US tax authorities (the well-known I.R.S).

 

The US has adopted a similar legislation, relative to the exchange of information regarding the UK residents with the HMRC.

 

In 2014, the OECD has adopted a common global standard for the automatic exchange of tax information between the countries (as they did it for the double tax treaties with the OECD model).

 

This OECD global initiative has been called “Common Reporting Standards” (C.R.S.) and has been adopted in the European Union by way of a Directive. The automatic exchange of information will be implemented by 2017.

 

Under the CSR regime, the reporting obligations for the financial institutions will be roughly the same as implemented in the FATCA regulation. It means that it will even affect the “controlling person of a trust” or “life insurance products” etc.

 

Just to give an idea of the political pressure in this file, almost 100 countries have already signed the CSR initiative and for 56 of then, the automatic exchange of information will start next year, in 2017, and will be relative to all account information as from January 1st, 2016.

 

Our office may send you the list of the 56 “early adopter” countries, and the list of the other signing countries. We will be delighted to offer our services for helping you to answer this fundamental question : “are you compliant ?”.

 

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The FATCA regulations

 

Since 2013, conform the Foreign Account Tax Compliance Act (F.A.T.C.A.), the foreign financial institutions are obliged to automatically exchange information regarding “specified US persons” with the US tax authorities (the well-known I.R.S).

 

Different offshore voluntary disclosure programs (O.V.D.P.) have been proposed for these specified US persons, since many persons were not aware that they were still US taxpayers.

 

Many expatriates of the US, however having their residence and paying their taxes since many years in their new country of residence, are still obliged to declare their worldwide incomes to the US tax authorities. Individual expatriation rules are complex : the Foreign Investors Tax Act of 1966, the Health Insurance Portability and Accountability Act of 1996, the 2003 JCT Report, the American Jobs Creation Act of 2004, the Heroes Earnings Assistance and Relief Tax Act of 2008, all those Acts are the reason why some people are up at night !

 

You have been resident in the US and you have left the US since 8 years, or more. Are you out of the scope of the US tax authorities ?

It is less than certain.

 

Our office has assisted clients in the analysis of their situation towards the US tax authorities. In some cases we have organized the appropriate declarations with our lawyer in NY . We will be delighted to offer our services in this context.

 

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The Belgian tax regime and the multinationals

 

The European Commission has made the announcement that the Belgian “excess profit tax regime” constitutes an illegal State aid.

 

The benefit arises from tax rulings but is considered as in contradiction with the arm’s length principle and the profits would have been taxed where they have been generated…

 

The individual tax rulings granted by Luxembourg, Ireland, the Netherlands and now Belgium are investigated by the European Commission in order to examine the cases where the tax advantage given by the tax ruling artificially reduces the company’s tax burden and can be assimilated to state aid.

 


All this in fully in line with the OECD guidelines, and specifically with the BEPS rules as elaborated recently.

 

It is still a question how the States will amend their rulings policy in these matters.

 

And it is still a question why the European authorities are making a huge cleaning of the tax practices in their territories, when the US continue to give their multinationals a large access to offshore practices in some of their own territories in full contradiction with the BEPS rules.

 

 

In each case, since some companies are using Belgian rulings as made public, it is important to examine in deep details if the granted rulings are in the scope of the potential risk.

 

Our office has assisted major international groups in the analysis of some tax rules as potentially being considered as state aid, in and outside of Europe. We will be delighted to offer our services in this context.

 

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An important case applicable to the relations between foreign Companies and Chinese Companies

 

 

Many entrepreneurs have incorporated a Hong-Kong company for trading in China, or are willing to do it.

 

The existence of double treaties between Hong-Kong and Belgium, Luxembourg, Swiss, … contribute to the use of such intermediary companies.

 

Naturally, as already exposed in the 2015 newsletters, these vehicles must be “real”.

 

Some supplementary traps may arrive, especially since the Chinese authorities are conducting deep investigations in some cases.

 

 

As an illustration, a recent case reported in China.

A foreign company had concluded contracts with a Chinese company, specifying that the services to be rendered by this foreign company should be performed outside China.

However, after due investigation, the Chinese authorities have observed that many employees of the foreign company were regularly in China, for meetings in the offices of the Chinese company. After a deep examination of the file, including a control of the passports of the employees of the foreign company, the Chinese authorities have concluded that the foreign company has provided services in China for periods aggregating more than six months per year, which constitutes a permanent establishment in China…

 

The foreign company has been therefore considered as an enterprise subject to income tax in China…

 

Again, this example shows the necessity to be extremely carefully when using a foreign company. The interest of using some interesting niches in some double tax treaties may quickly give way to tax nightmares !

 

 

Our office has developed an expertise in a deep and specific assistance in the planning of incorporation of NewCo’s (new companies). We will be delighted to offer our services in this context.

 

We wish you a fantastic New Year.

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Some changes regarding the Belgian VAT

 

From January 1st, 2016, the Belgian VAT legislation will be modified due to three pieces of legislation adopted by the Belgian Parliament.

 

A. First of all, the small business exemption is raised from 15K € to 25K €.

 

This new rule will benefit to Belgian resident companies, the non resident companies with a Belgian VAT number are still excluded from this exemption.

 

B. Secondly, as from the 1st of January 2016, the point at which VAT is chargeable is clarified.

 

The new rule is changing the method used to determine the tax point.

 

The issuance of the invoice is the general rule, no matter when the supply occurs (before or after the issuance of the invoice).

 

The exceptions are :

 

a) when a payment is received before the supply (even a partial payment), the VAT will become due at the moment of the payment.

 

b) when no invoice is edited before the 15th of the month following the month of supply, this date is the date at which the VAT will become due.

 

C. And finally the VAT Code is changed in order to comply with the Skandia America case (European Court of Justice).

 

Article 19bis is consequently abolished.

 

The services rendered by a non EU parent company to its branch (member of the VAT group) falls within the scope of the VAT.

 

 

Our office has developed an expertise in the analysis of VAT application for a company acting in different countries or being a member of a group of companies. We will be delighted to offer our services in this context. We are also assisting in the more delicate context of VAT controls and litigation.

 

 

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Security of investments

 

It has been a long week in Paris, with some conferences in the margin of the CAP21 dedicated to the environment in Africa and with the 2d International Forum for investors in Africa.

 

The security of the investments has been a kind of “common theme” in the different discussions and debates.

 

As an advisor of entrepreneurs since decade in Africa, I have met this recurrent theme since a long time.

 

An investment in an African country must always be conducted via a company based in a country having signed an Investment Protection Treaty with the country where the investment will be made.

 

Regarding the security of the applicable law, we always try to make a contractual reference to a law offering the best advantages for the investor.

 

Regarding the security of the competent jurisdiction, we always try to insert a clause in the contracts giving the competence to arbitrator(s).

 

The best security however is the quality of the correspondent / partner / distributor… And our experience is decisive for the appreciation of it.

 

 

Our office has developed an expertise in the challenging of the potential partners in Africa, and in the formalization of the relations. Our job is to secure your assets, and to evacuate the risk. We will be delighted to offer our services in this context.

 

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Short focus on India

 

Liberalization of India’s economy is an ongoing process.

 

Recent changes in the existing regulations have been introduced with the clear goal to improve the flow of foreign funds into the Indian economy.

 

In India, Foreign Direct Investment may be “under the automatic route” : it means that no Central Government permission is required. The exhaustive list of investment requiring a Central Government permission was very long…

 

However, this list has been reduced by the recent changes in the regulations relative to Foreign Direct Investment.

 

It is a very good news for all the entrepreneurs willing to invest in India and reluctant to the complexity of the Indian administrative regulations relative to investments outside of the “automatic route”.

 

As an example, foreign investments in the plantation sector (coffee, tea, rubber, palm oil, olive oil,…) are now under the automatic route.

 

As from now, a manufacturer will be permitted to sell its products through wolesale, retail, and even e-commerce without administrative approval.

 

100% Foreign Direct Investment is now permitted under the automatic route in Limited Liability Partnerships operating in sectors and/or activities where 100% Foreign Direct Investment is allowed. Furthermore, there are no FDI-linked performance conditions.

 

India is a highly complex territory for the entrepreneurs, but extremely interesting, especially when we all know that the population of India will exceed very soon the Chinese population.

 

Our office has developed an expertise in the identification of the best opportunities in the sectors “under the automatic route”. We offer the most appropriate structure to the foreign direct investments that you should be interested to do in India. We will be delighted to offer our services in this context.

 

 

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The world of finance

 

The world of finance has changed, deeply, and it is an ongoing process.

 

 

There are today sources of data on consumer behavior that companies can use to predict creditworthiness. More precise and efficient than the traditional approach of “credit ratings”.

 

As an illustration : PayPal do a very accurate and real time credit score in less than a second just based on the eBay purchase track record of a client…

 

And there are so many other similar sources of consumer data : that’s the business of the “Big Data” companies, and it will affect considerably the approach of a consumer.

 

 

The same (r)evolution has affected the world of payment, with the arrival of the crypto-currencies.

 

The crypto-currencies are offering huge advantages to the consumers : no more different currencies, no more change risks, no more banking systems, no more excessive costs and no more complex and slow administrative process.

 

The crypto-currency’s companies have found an universal way to transfer value and also to protect people : the coins are designed to work in an untrusted, networked environment, however nobody is able to steal the coins of anyone.

 

 

Thanks to clients and friends, our office follows this fantastic evolution with a special eye for the potentially numerous African applications. We will be delighted to offer our services in this context.

 

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The distribution agreements

 

The distribution agreements must be written carefully.

 

Many of then are transnational.

 

As an example, an exclusive distribution agreement may be concluded and signed between a German manufacturer and a Belgian distributor.

 

A “third-step” approach is necessary to correctly evaluate the situation.

 

First step : the Judge of which country will be competent to receive the case ?

 

Second step : will this Judge be competent to treat the case and give a sentence ?

 

Third step : which law the competent Judge will use to give his sentence ?

 

 

Regarding the first question, the Council Regulation Nr 44/2001 of 22 December 2000 disposes in its Article 2 as a principle that “persons domiciled in a Member State shall, whatever the nationality, be sued in the courts of that Member State”.

 

However the Belgian law of 27/07/1961 relative to the exclusive distributorship excludes expressly in its Article 4 the competence of any foreign Judge in case of breach of distributorship agreements.

 

This kind of trap must be taken into consideration, when starting a discussion with a potential distributor in Belgium.

 

 

Our office has given the appropriate advice to many clients willing to start a commercial relationship with Belgian companies. We will be delighted to offer our services in this context.

 

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What about a personal localization in the UK ? (part 3/3)

 

The Remittance system means that income and gains are treated as “remitted” to the UK –and taxed in the UK- if money or property is brought to, received in, or used in the UK by or for the benefit of a relevant person (the taxpayer, the taxpayer’s spouse or husband, the children,…)

 

In the recent years, some developments and/or evolutions of the remittance basis system can be summarized as follows :

 

A. The option for the remittance basis taxation needs to disclose together the offshore structures where the UK resident is beneficial owner.

 

HM Revenue & Customs said it will not require disclosure of the source of funds remitted from offshore trusts to non-domiciled beneficiaries, using the remittance basis. Some advisors have considered that the HMRC will not open any enquiries into the tax affairs of non-domiciled beneficiaries. We do not share this analysis. We think that the HMRC will always have the right under the Self Assessment regime to enquire into a person’s tax return to ensure the right amounts have been declared and the right tax paid.

 

B. Since April 6th, 2013 a new statutory residence test (SRT) has been implemented.

 

The ordinary residence regime has been abolished. The new rules clarify the (non) residential status and make it harder to abandon the UK residence status. To leave the UK, a form P85 must be filled and submitted to the HMRC.

 

Even for the non UK Resident living abroad of the UK more than 183 days p.a. (and even more than 90 days p.a.), the new SRT –including the new temporary non resident rules- obliges to cut firmly the ties with the UK. The status of permanent non-resident will be obtained when a definite break from the UK will be observed and when any remaining ties with the UK will let appear a clear change in the pattern of life of the former UK resident.

 

C. The UK FATCA.

 

The Foreign Account Tax Compliance Act is designed to prevent tax evasion by individuals using offshore banking facilities.

 

It requires Financial Institutions of a country A to provide information to the tax authorities of a country B regarding financial accounts held by individuals of a country B in the country A.

 

Financial institutions in the Crow Dependencies of the UK (Jersey, Guernesey, Isle of Man) and the Overseas Territories (Anguilla, Bermuda, BVI, Cayman, Montserrat, Turks&Caïcos, Gibraltar) will automatically provide information relating to the financial affairs of UK resident clients (“reportable accounts” in existence on or after 30/06/2014). The exchange deadline is fixed at the 30/09/2016.

 

An alternative reporting arrangement exists for the UK resident non domiciled.

 

Our office has assisted many clients to start a new life in the UK, and to manage properly their assets with or without UK companies. We will be delighted to offer our services in this context.

 

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What about a personal localization in the UK ? (part 2)

 

Following our last info, many questions have been sent regarding some practical aspects of the specific UK regime of “non domiciled residents” in the UK.

 

Let’s go in deeper details for answering the questions received.

 

The “remittance basis” status is given without claim to individuals receiving not more than 2K GBP of foreign incomes or gains into foreign bank accounts.

 

If an individual being “non UK domiciled but UK resident” has foreign income or gains of 2K GBP or more, and/or brings money to the UK, a Self-Assessment tax return must be prepared and sent to the HMRC.

 

In this Self Assessment tax return, the individual will claim the “remittance basis” by ticking the appropriate box.

 

Claiming the remittance basis allows the individual to be taxed on a remittance basis on investment income arising outside the UK, and on pensions arising abroad (except the Irish pensions).

 

The income resulting from a self-employment activity carried on wholly overseas is eligible for the remittance basis.

 

The capital gains tax is only due on capital gains that arise in the UK : the remittance is treated as made first out of the chargeable gain (an individual sells shares for 10K €, the chargeable gain is 5K €, he remits 8K € in the UK, the remittance will consist only in the 5K €). It is to be noted that bearer shares in UK companies are treated as located in the UK for Capital Gains Tax purposes.

 

An annual charge of 30K GBP is to be paid for this regime if the individual is a long-term resident. Anyone who is resident since less than seven years can claim the remittance basis without paying 30K GBP.

 

Just to remind it, the Remittance system means that income and gains are treated as “remitted” to the UK (and taxed in the UK) if money or property is brought to, received in, or used in the UK by or for the benefit of a relevant person (the taxpayer, the taxpayer’s spouse or husband, the children,…).

 

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What about a personal localization in the UK ?

 

Many articles have been written about the very specific regime of “non domicilied residents” in the UK, even in the daily newspapers with the Russian oligarchs benefiting from this tax system. Let’s clarify this regime.

 

In the UK, three status concepts co-exists with three different individual’s tax liabilities :

 

-residence (status of an individual in one tax year),

-ordinary residence (status of an individual on a regular basis),

-domicile (country regarded as the individual’s permanent home).

 

The residence status is determined in accordance with different tests. The first and automatic test is the fact for an individual to spend more than 183 days in the tax year in the UK.

 

The domicile is a general concept in the UK. A person’s domicile is the country from where the individual comes and where the individual would eventually return after its residence in the UK. The concept of domicile in the UK is consequently not the same as in our “continental” countries where the domicile is a legal concept generally assimilated with the place of residence.

There are three types of domicile:

  • domicile of origin (domicile of the father, of the ascendant family)

  • domicile of choice (domicile of the spouse with her husband)

  • domicile of dependency (domicile of the children up to age 16)

 

The domicile is only relevant to UK tax liability if the individual is resident or ordinarily resident in the UK.

 

A UK resident may be “non domiciled”, it means that its domicile is abroad.

A non domiciled status can confer tax advantages.

The “non UK domiciled but UK resident” may be taxed on a remittance basis.

 

Claiming the remittance basis allows the individual to be taxed on the money “remitted” in the UK: if eligible, the individual may pay UK tax only on the income or gains brought to the UK.

To summarize, the Remittance means that income and gains are treated as “remitted” to the UK if money or property is brought to, received in, or used in the UK by or for the benefit of a relevant person (the taxpayer, the taxpayer’s spouse or husband, the children,…)

 

From an inheritance point of view, the individuals who are not domiciled in the UK are subject to inheritance tax liability only on property situated in the UK. This rule is in line with the new European Directive (in force since July 2015, but not applicable to the UK, Ireland and the Denmark).

 

Our office has assisted many clients to start a new life in the UK, and to manage properly their assets with or without UK companies. We will be delighted to offer our services in this context.

 

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Some practical aspects regarding how to conduct your business from Mauritius

 

 

In our precedent messages, we have insisted about the substance requirement for incorporating a Mauritius company and managing it efficiently.

 

Several of you have had the chance to be with me a week ago during a special event in the presence of the President of Mauritius. We have heard that this requirement is a priority for Mauritius, and it is a very good sign for the business climate in Mauritius.

 

From a practical point of view, the double tax treaties are crucial, and the succesfull re-negotiation of the treaty with India was important. We are waiting impatiently for the ratification of the treaty with Nigeria. But an other important issue is the “import-export” of goods and equipment.

 

Fortunately, Mauritius has signed many trade agreements.

 

Mauritius is member of the COMESA. It means that Mauritius companies may export the products on a duty free, quota free basis, within this Free Trade Zone regrouping the following countries : Burundi, Comores, Djibouti, Egypt, Kenya, Madagascar, Malawi, North Sudan, Rwanda, Seychelles, Uganda, Zambia, Zimbabwe.

The products are considered and accepted as having a COMESA preferential origin if they are respecting some requirements to be submitted to the Mauritius Ministry of Industry and Commerce for receiving the COMESA certificate of origin.

 

Important to note that a 90% tariff reduction is applicable to imports from non-FTA COMESA countries : DRC, Eritrea, South Sudan, Swaziland.

It means that some products from DRC or Eritrea may arrive in Mauritius with a 90% tariff reduction as long as they are covered by a valid Certificate of Origin.

 

Furthermore, Mauritius is member of the SADC. It means that Mauritius companies may export the products on a duty free basis to Botswana, Lesotho, Madagascar, South-Africa, Tanzania, Zambia.

It helps a lot if you are trading (or willing to trade) with South-Africa or Tanzania.

 

Mauritius is also member of AGOA (duty free access when exporting eligible products to the US), and of the Interim Economic Partnership Agreement with the European Union (except for the sugar and the rice, eligibility to a duty free and quota free access tot the EU).

 

Mauritius has signed a specific free trade agreement with Turkey and Pakistan.

 

Finally, Mauritius offers a freight subsidy scheme to Africa. Under conditions, Mauritius offers a subsidy of 25% of the freight cost per container exported (capped at 300$ per container of 20 feet) to a list of 43 African ports.

 

In the use of Mauritius as a safe interface between some African countries and importers/distributors/final consumers from many countries in the world, the knowledge and the use of the trade agreements is helping a lot. Our office has assisted many companies to properly organize the flows of their products and equipments.

 

We are waiting impatiently the African Free Trade Zone…

 

Next week : some developments about inheritance rules.

 

 

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Mauritius tax system

 

We have seen a company may be incorporated in Mauritius under license GBC 1 or GBC 2 (Global Business License).

 

The GBC 2 must have “offshore” activities : it means that the GBC2 cannot have activities in Mauritius. Its management and activities are located outside of Mauritius.

 

The GBC2 will have no tax to pay, and consequently a GBC 2 cannot be eligible to the benefit of the Double Tax Treaties.

 

 

A “GBC 1” is a body corporate registered in Mauritius and is licensed by the Financial Services Commission as holding a Category 1 Global Business License to conduct business outside Mauritius.

 

Corporate tax in Mauritius is at 15% (so, the GBC1 is eligible to the double taxation agreements).

 

However, the GBC1 is entitled to a tax credit equivalent to the higher of the actual foreign tax suffered (underlying tax) or 80% of the Mauritius tax on its foreign source income (including dividends, interests and other income). Where written evidence is not presented to the MRA showing the amount of foreign tax paid, the amount of foreign tax paid is nevertheless presumed equal to 80% of the Mauritius tax.

 

With an applicable tax rate of 15%, combined with a foreign tax credit of 12% (80% x 15%), the effective tax rate for the GBC1 will be a maximum of 3%.

 

Foreign source income is defined as income which is not derived from Mauritius and includes income derived by a GBC1 company from its transactions with non-residents or its transactions with corporations holding a Category 1 Global Business License.

 

The incomes deriving from Mauritius will be taxed at the usual rate of 15%.

 

 

 

Our office has a deep knowledge of Mauritius and its legal system. We are sustained by highly respected local correspondents. Since 20 years, we have developed a network in Mauritius which will assist you to the success.

 

Next week : the practical advantages of Mauritius.

 

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Mauritius as a realistic location ?

The word is globalized and people are moving. People needs to move.

 

Mauritius has been used as a “tax heaven” as well as the Bahamas, Panama, the British Virgin Island,…: many people have incorporated “offshore companies” in those “tax heavens”, with the only goal to avoid paying tax in their country of residence. Typically those companies have been too often “empty shells” managed from outside the country of incorporation, generally managed in the country of residence of the beneficial owner hidden behind nominee shareholders and directors…

 

Fortunately for its future, Mauritius has made a U-turn.

 

 

The Financial Services Commission controls seriously the licenses given to the companies in order to operate, and the licenses given to the “Management Companies” incorporating the companies in Mauritius.

 

Mauritius has also developed a growing network of double taxation agreements.

 

Mauritius can now be identified as an appropriate location for establishing a company when doing business with Asia, India, Europe, and above all… Africa.

 

In this short notice we will summarize which company you may incorporate in Mauritius. Later, we will detail the tax rate and the fantastic opportunity of a Mauritius company if the vehicle is consistent and adapted to your project. And finally we will detail the practical interests of doing business from Mauritius.

 

 

In Mauritius, a company may be incorporated under license GBC 1 or GBC 2 (Global Business License).

 

The GBC 2 has more a vocation to act as an offshore company, has no tax to pay, and consequently cannot be eligible to the benefit of the Double Tax Treaties.

 

Consequently, we recommend the use of the companies under license GBC1.

 

A “GBC 1” is a body corporate registered in Mauritius and is licensed by the Financial Services Commission as holding a Category 1 Global Business License to conduct business outside Mauritius.

 

There is no minimum or maximum capital requirement and the share capital can be expressed in any currency other than the Mauritian Rupee.

 

A GBC1 has to be administered at all times by a “Management Company” and hs to be controlled and managed in Mauritius.

 

The following indicative list of criteria has to be complied with:

 

  •               The company must have at least 2 directors, resident in Mauritius, of sufficient qualifications to exercise its function with independence of mind.

 

  •               The company will maintain at all times its principal bank account in Mauritius.

 

  •               The company will keep and maintain at all times its accounting records at its registered office in Mauritius.

 

  •               The company will prepare its statutory financial statements and cause same to be audited in Mauritius.

 

  •               The company will provide for meetings of directors to include at least 2 directors resident in Mauritius.

 

 

Our office has a deep knowledge of Mauritius and its legal system. We are sustained by highly respected local correspondents. Since 20 years, we have developed a network in Mauritius which will assist you to the success.

 

Next week: the tax system in Mauritius.

 

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Some news from Congo-K

 

 

In the Democratic Republic of Congo, the Minister of Justice and the Minister of Finance have signed a new law relative to the formal incorporation of the limited companies (SPRL).

 

Thanks to that Ministerial Decree Nr 002/CAB/MIN/014 and Nr 243/CAB/MIN/FINANCES/2014 from December 30/2014 :

 

  1. it is not more obligatory to ask the intervention of a Notary for the incorporation of the bylaws, the bylaws may be drawn up by private deed,

 

  1. the amount of capital is not more fixed at a minimum of 1 million FCFA (2K $), the associates may be fix the capital conform their own estimation of what is exactly needed,

 

  1. the proof of payment of the capital may now result from a bank attest, and not more from a notary attest.

 

Consequently, the incorporation of Ltd companies in DRC will be easier.

 

The only problem results from the fact that the Ministerial Decree do not cover the bylaws modifications. Article 10 of the AUSCGIE remains applicable to the modifications of bylaws, and this article requires the Notary intervention…

 

We suppose that this problem will be adjusted soon, in order to be in line with the new law.

 

Our office has a strong expertise in Africa, and in Congo-K. Since more than 15 years, we have accompanied with success a few companies in their development in Congo-K. Our intervention is discrete, and our knowledge of the reality of the country is your best asset for being successful in this development.

 

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The “modern” international tax planning

 

As mentioned in our former informative mails, the use of commercial companies in a country different from the country of residence of the incorporator must be managed very carefully.

 

When we have identified the countries where you are potentially comfortable for incorporating a company, we need to check the existence of a Double Taxation Agreement (DTA) between your country of residence and the country of potential incorporation.

 

The DTA are those tax agreements between State members enacting the rules for the avoidance of double taxation in some particular case : capital gains, royalties, interests, dividends,…

 

The use of the DTA (double taxation agreements) give access to acceptable solutions.

 

In some cases, the DTA are offering “tax niches”.

 

It is the case with the DTA signed by Hong-Kong with Belgium or Luxemburg e.g.

 

Furthermore, some national laws are offering some specific mechanisms, very advantageous from a tax point of view, and however still eligible for the benefits of the DTA’s.

 

As an illustration of it, it is the case for the tax treatment of IP rights in Belgium, Luxemburg, Netherlands, Spain or Ireland e.g.

 

After having identified your business, your comfort zones, your business strategy, our thoughts are focused on the potential mix between the use of specific national mechanisms and the use of DTA’s and European Directives.

 

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Tax optimization or Tax fraud ?

 

As mentioned in our former informative mail, the use of commercial companies in a country different from the country of residence of the incorporator must be managed very carefully.

 

The use of “empty shells” is potentially constitutive of tax fraud.

 

The use of companies in countries of lower taxation is a temptation, but the incorporation of a company in a country Y by a tax resident of the country X implies that the company must be effectively located in the country X, with consistency and an acceptance of all the consequences deriving from the localization.

 

It is extremely important since the tax authorities of high tax burden countries have developed a wide and adequate legal arsenal of anti-avoidance rules in order to contrary and block the use of vehicles giving a lower tax burden to their owners.

 

And this arsenal is completed today by very efficient investigation process making extremely uncertain and unsecure the future of the promoters of empty shells (so called by us “ghost structures”).

 

The limit between the choice of a lower tax burden and the tax fraud is thin.

 

Our questions are generally the following.

 

First of all : do you have a real and effective business project or business development involving two or more countries ?

 

Secondly : has the incorporation of a company, in a country where you do not have your residence, an economic benefit for your business ?

 

Thirdly : do you feel comfortable with the use of a company in such country where you do not have your residence ? Where should you prefer to see this new company to be incorporated ? And : is it really safe for your business development and for your personal life ?

 

Fourth : do you think that your turnover and your margin are sufficient to meet the costs involved by such a new vehicle ?

 

If your answer to these questions is still “yes”, you probably will not take too much risk when incorporating a company in a country where you do not have your residence.

 

Our intervention highlights the guidelines to be respected, and gives clarity about the different ways that you can take.

 

It is our goal to give you a proper advice in order for you to avoid any risk in your business development.

 

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Tax Residence

 

The tax residence is not the same concept as the legal residence. 

 

It is not because you are officially in the register of residence of a country X that you are tax resident of the country X, even if it is generally the case.

 

The tax residency depends of various criteria :

 

- localization of the residence of the spouse/husband and/or children (family home, school,…),

- place where you are residing effectively more than 183 days per year,

- and some other complementary criteria (main bank e.g.) convincing definitely the tax authorities.

 

For the physical person, the system is generally based on a worldwide taxation of the revenues and not “remittance based”. Consequently, a person residing in the country X is generally taxed on the incomes received worldwide.

 

However, some countries have a special tax system, based on the money remitted to the country. The “remittance base” system is the UK system. We will come back later on this extremely complex system.

 

 

The tax resident of a country X may incorporate a company in an other country Y.

This vehicle will be taxed in the country of incorporation.

 

As for the physical persons, the tax regime of the companies is generally based on the worldwide incomes perceived by the company, but it may be different in some countries, quickly qualified as “tax heavens” : the taxation hits only the incomes resulting from the activities localized in the country of incorporation, the other incomes (resulting from activities localized “off-shore”, outside of the jurisdiction of incorporation) are exonerated in the country of incorporation.

 

Progressively those “off-shore” regimes have been dismantled under the pressure of multiple stakeholders, because of various reasons and through the implementation of numerous anti-avoidance national rules.

 

National rules are so considering that the incorporation of a company may have been simulated : a company incorporated in a country Y by a tax resident from a country X is managed in reality in the country X. Consequently the tax authorities from the country X repatriate (and tax) in the country X the incomes of this company.

 

In the recent years, the tax authorities have obtained quite good results against such constructions where the companies are in reality pure empty shells. With the actual investigation systems (through internet e.g.), it is quite easy to establish if a company has a reality, a consistence, or not.

 

A company without substance is a fiction, and this fiction comes potentially in the criminal field…

 

The use of commercial companies in a country different from the country of residence of the incorporator must be managed very carefully.

 

It is our goal to give you a proper advice in order for you to avoid any risk in your business development.