One of the basic rules about taxation in Seychelles is that profits or incomes only qualify as taxable if earned or deemed to have been earned from a Seychelles source. Also, capital gains, dividends, interests, or other incomes derived from another country is not taxable.
In July 2018, a new progressive individual income tax was introduced to replace taxes such as the flat 15 percent tax rate imposed on non-resident persons. Being a progressive rate tax rate, tax payable depends on the amount of compensation an employee earns every month.
The government is still working on policies to broaden income tax applications on other income earned in the country, such as interests and dividends derived from savings.
Offshore companies tend to get some tax exemptions depending on their sources of income and place of control. They operate under the International Business Companies Act, which dictates the rules of formation, registration documents, and fees to be paid, among other details.
While these companies are exempted from business tax and other forms of tax, they are expected to pay tax on non-monetary benefits provided to employees. Note that employees working for offshore companies are not exempted from taxation, whether resident or non-resident. The employer must hold this taxation and remit to tax authority like any other business.
The government’s revenue in Seychelles comes from both direct and indirect taxes. These taxes include income tax, corporate tax, trade tax, value-added tax, immovable property tax, excise, and presumptive tax.
The 15 percent Value Added Tax is the major source of government revenue in Seychelles, while the business tax rate is not more than 33 percent. Taxes are usually based upon all residents and companies regardless of whether their addresses are registered or under management.
Business Tax Act Seychelles
The Seychelles Business Tax Act 2009 regulates how a company gets taxed. The initial Act 1987 states that residents, non-resident companies, and other businesses that are not corporates must pay business taxes from any income earned from the country.
A corporate is considered a resident it was formed in the country. However, if a company was not incorporated in Seychelles but conducts business here or its fundamental management is located here, or the shareholders who control the voting power reside here, then its deemed resident.
The income subject to business tax include earnings from sole proprietorships, partnerships, companies, and trust estates. The business tax is subjected to:
- Rental proceeds
- Profits from business dealings
- Lease premiums
- Interests, fees, and commission
Luckily, businesses also enjoy some tax reliefs from deductions allowed from taxable income. It helps reduce the tax burden whereby the incurred expenses in the financial year get deducted. The allowable deductions according to Business Tax Act 2009 include:
- Contributions towards a pension scheme
- Professional fees paid to tax experts
- Salaries and wages — this does not include payment to owners or partners
- Losses incurred in previous years as long as they haven’t been carried forward for more than five years
- Royalties paid to non-residents as long as withholding tax has been made
- Expenses incurred in repairing business premises or machines as long as it’s not a capital expenditure
- Bad debts that have been written off —note that allowances for bad debts are not deductible
- Depreciation for fixed assets
- Interest incurred on borrowing expected to produce the business income
If all businesses and partners have registered their losses, they are subject to business tax refunds per year in Seychelles. Business taxes allocated to companies must be paid on or before the due date set on Business Return Act in Seychelles. All businesses and companies in Seychelles must obtain VAT numbers and file VAT returns.
The Business tax rate on the first SR 1 million taxable income is 25% and 30% for income above SR 1 million. The business tax rate imposed on sole traders and partners on the first SR 150,000 is 0%, 18.75% on income between SR 150,000 to 1 million, and 33% on taxable income above SR 1 million.
Seychelles Company Act
All companies in Seychelles except some offshore corporates are governed by the Companies Act 1972. These could be private corporates limited by shares, guarantee, or both and unlimited corporates though these are quite rare. Public companies also fall under the same Act through the formation to their operations.
On the other hand, Offshore companies are governed by the International Business Company act 1994. A few offshore companies are not allowed to use the IBC form to register their businesses and thus operate under the Company Act instead. These include insurance companies, banks, and mutual funds. Any offshore company that wants to leave Seychelles is free to do so.
All companies in Seychelles must provide Articles and a Memorandum of Association together with their registration fee to the Company Registry. Also, IBCs must maintain proper accounting records, showing all the transactions completed in a given accounting period. This is all per the IBC Amendment Act 2011.
Seychelles Withholding Tax
According to the Business Tax Act 2009, non-residents earning incomes such as dividends, interest, royalties, natural resource gains, technical service fees, or insurance premium from a resident in Seychelles must pay a tax. In some cases, interest paid to a resident by a resident in Seychelles may also be subject to taxation.
However, this tax is collected from the payer, the resident entity, or individual rather than from the payee. This is known as withholding tax. The payer withholds the tax amount from the gross pay provided to the receiver.
The payer is responsible for remitting the withheld tax to Seychelles Revenue Commission and must disclose it on the Business Activity Statement (BAS) prepared monthly. Withholding tax must be remitted within 21 days after the month in which the tax was supposed to be withheld ends. Since withholding tax qualifies as a final tax, the income from which it was withheld is not accountable to business tax.
Is Seychelles a Tax Haven Country?
Seychelles is a tax haven country, and it offers various tax benefits to offshore companies. The advantages have been shown: it doesn’t levy corporate taxes on businesses and companies that do not operate in the country.
Offshore businesses are not subjected to income tax, capital gains tax, interests, royalties, and dividends on general income generated worldwide. Apart from favorable tax regimes for offshore companies Seychelles as a tax haven guarantee privacy and confidentiality to investors.
Other advantages include relishing the benefits of its robust economy, flexible business laws and regulations, and an extensive offshore banking system. While IBCs are the main forms of offshore incorporations in Seychelles, one must know that there are limitations on business activities you can conduct in the country.
Seychelles Offshore Tax Haven
Acquiring residency in Seychelles is far more beneficial since you can be earning your income from other countries and still enjoy tax-free incomes. Since 1994, when offshore businesses came into existence, the country has experienced tremendous economic growth.
Being a tax haven risks a country being termed as a tax avoidance enabler, which can lead to broken relationships with other nations. Unfortunately, in 2017, Seychelles was among the countries added to the tax haven blacklists by the European Union. A country only gets lifted from the list after making new tax reforms.
Luckily for Seychelles, according to a report provided by IBFD 2020, they got a 68.5 percent Haven Score and are only responsible for less than one percent of corporate tax abuse globally. Also, in the year 2021, European Union decided to remove Seychelles from the tax haven blacklist together with Anguilla and Dominica.
Seychelles remains one the best tax havens in Africa, and this has been made easy by its ability to sign treaties with other nations. The tax treaties allow other governments involved to trust that Seychelles is not allowing offshore companies to evade tax while depriving the home country revenues thereof.
Seychelles Tax Treaties
A tax treaty is a bilateral agreement negotiated and agreed upon by two countries to solve double taxation and tax avoidance issues. When Seychelles signs a treaty with another country, the terms applied to active and passive incomes of citizens in Seychelles and the other country involved.
The income tax treaties specify the amount of tax that each country should apply to the taxpayer’s income, estate, capital, and wealth.
Seychelles Double Tax Treaties
Seychelles signed its first treaty with the Netherlands in August 2010, but it only became effective in May 2012. This was a Tax Information Exchange Agreement. Other countries that signed a similar agreement with the Netherlands include Guernsey, Norway, Iceland, Sweden, Denmark, and the Faroe Islands.
Today, Seychelles has at least 28 signed double tax treaties with China, Indonesia, the United Arab Emirates, Mauritius, Qatar, South Africa, Zambia, and Botswana. This is according to a report provided by Seychelles International Business Authority.
The report also states that Seychelles has other signed agreements with other countries which are not yet effective. These include Malawi, Belgium, Kuwait, Lesotho, Sri Lanka, and Zimbabwe. At the same time, the agreement with Mozambique, Kenya, Egypt, Swaziland, Morocco, Pakistan, Namibia, Tunisia, and Portugal has already been negotiated.
This signing of treaties plays a key function in developing the country’s economy. The government is looking forward to increasing its double tax treaty network to continue being a key financial hub across the Indian ocean.
There are considerable advantages to businesses and individuals who reside in Seychelles or have set offshore businesses based on the signed treaties between Seychelles and their country of origin. It helps Seychelles plan how to protect corporations and persons against double taxation on income derived from different countries. Double taxation agreements allow the business environment to be stable and favorable to operate.
Wrapping It Up
Seychelles has a stable and straightforward tax system for citizens and foreigners. Some people say that it is unfair how some businesses are getting taxed in Seychelles, but they forget about the allowable deductions for tax purposes. However, they need to rebalance the businesses tax to ensure sustainability for businesses operating in the country.
Seychelles is a tax haven that has proven its responsibility to curb tax avoidance for foreign and local investors. For instance, being removed from the tax haven blacklist in 2021 shows they are willing to make reforms when the need arises. The numerous double tax treaties are also a plus characteristic from this tax haven.
It is the responsibility of every investor seeking residence or considering starting operations in Seychelles to understand their tax liability in advance. The good thing is that Seychelles Revenue Commission has most of the tax guidelines on their website. For more details, one can always visit their offices.