Understanding Seychelles Tax Treaties – A Simple Guide

The beneficial tax system in Seychelles has offered a prominent space to foreign investors to set up their wide-ranging businesses in this insular state. Also, the business-friendly environment and political stability have further contributed to this offshore corporation’s popularity among wealthy corporations and individuals.

Moreover, Seychelles tax treaties exempt you from paying taxes twice. This means your tax payments get reduced by a large margin. And what business doesn’t want that?

Whether you are thinking of structuring an International Business Company in Seychelles or already have one established, this blog is a must-read. It explains how the tax treaties work and what it has in store for you.

Why Should You Care About Seychelles Tax Treaties?

As an investor or a business owner, you definitely have a lot on your mind. But when it comes to taxes, the more information you have, the better decisions you can make. Here are some provisions of double tax treaties in Seychelles that make you want to care about them.

-         The royalties, interests and dividends registered by your offshore company gets exempted from taxation.

-         For companies established in Seychelles, there is no capital gains tax imposed.

-         Each state permits a credit for the taxes of the other country. The idea here is to cut the company residents’ fees in the country.

-         For worldwide profits of companies in Seychelles, a low rate of 1.5% is set.

Your comprehension of the taxation system in Seychelles can help you easily open your company and start doing business. Indeed, there are multiple tax benefits for specific types of companies, the DTT or double taxation treaties fortify the business environment and the beneficial conditions available in the state.

How Does Seychelles Handle These Tax Deals?

Seychelles has signed 11 Tax Information Exchange Agreement (TIFA) and 28 Double Tax Treaties (DTT) with jurisdictions, including Belgium, Bahrain, China, Bermuda, Ethiopia, Botswana, Sri Lanka, Singapore, Vietnam, Thailand, United Arab Emirates, Guernsey, Isle of Man, Vietnam, Zambia and so on. The benefit of these treaties is that they prevent double taxation. Also, they facilitate tax cooperation across jurisdictions.

The presence of such treaties leads to reduced withholding tax rates in cross-border payments.

Besides, Seychelles operates a territorial tax system. This means, companies and residents get taxed on income sources within Seychelles. And fear not; your foreign-source income remains exempt from local taxation.

Then there is the 183-day rule. You need to spend a minimum of 183 days in country during a tax year to be considered a tax resident in Seychelles.

Lastly, recent changes in global tax standards have given rise to economic substance obligations for certain entities. This means the companies must have real activities in Seychelles to gain the perks from favourable tax treatments.

What Does This Mean for Your IBC?

The main benefit here for the Seychelles International Business Company is the reduction or elimination of withholding taxes on cross-border payments. These include interest, dividends and even royalties. 15% is the general withholding tax rate for such income streams. However, it is often reduced hugely by a DTA or double taxation agreement. And there are multiple DTAs in place in Seychelles, like Mauritius, the UAE and SA.

Another perk here is avoiding double taxation. When there is no DTA, you could be required to pay tax on the same income in Seychelles and the source country. With DTA in place, you only pay tax in one jurisdiction. Or, you might receive credit for taxes you pay abroad.

Which Treaties Should Be on Your Radar?

Below is a selection of important countries with which Seychelles has signed DTTs. They are very relevant if your IBC deals with investments or entities in these jurisdictions.

Well, these were just a few of the 28 DTTs and 11 TIFAs. Make a note that all of these work uniquely. So, before you seek any benefits, ask an expert to check the details.

How to Set Up Your IBC the Smart Way

Here are some essential steps to keep in mind to strategically plan the IBC taxation process.

1- Economic activity

It is imperative that your IBC demonstrates genuine business activity in Seychelles. That is how you can evade scrutiny and benefit from tax benefits.

Here is what you can do –

-         Maintain a local office

-         Employ staff

-         Hold board meetings within the country

2- Tax residency certificate

This certificate, availed through the Seychelles Revenue Commission, can come in handy in accessing treaty benefits. It can also help prove to other jurisdictions that your IBC is a tax resident of Seychelles.

3- Know your income

Different types of income get treated differently under tax treaties. Understand these distinctions so you can optimise your tax outcomes easily.

4- Keep an eye on anti-abuse rules

Countries and tax authorities have anti-avoidance rules. They help prevent companies from setting up IBCs just for tax benefits. So, see to it that your IBC has a real business purpose. Also, it should comply with substance requirements.

How to Actually Use These Treaties

Well-defined initiatives are critical for the successful implementation of Seychelles tax treaties. That is how you can unlock perks like avoidance of double tax and withholding taxes. Follow this simple roadmap:

-         Recognise whether Seychelles has a tax treaty with countries you earn your income from. The idea here is to avoid any high taxes.

-         Prove that your IBC is a tax resident of Seychelles by obtaining a tax residency certificate.

-         Whatever local operations you conduct, keep the records of the same. That way, you can prevent “treaty shopping” flags.

-         Maintain records of every tax you paid, income and treaty claims.

Final thoughts

Whether you are a new investor or an entrepreneur who wishes to go offshore, Seychelles tax treaties are your best bet. The favourable location, effective regulatory regime and robust economy add to the stand-out characteristics of Seychelles’ business-friendly environment. Also, with proper planning and following the regulations, you can evade double taxation and maintain your hard-earned money for something better.