Presentation on theme: "By Phani Schiza Antoniou"— Presentation transcript:
1 By Phani Schiza Antoniou The Netherlands and Luxembourg: The high profile players in the market of UkraineGlobalserve SeminarNovember 2013By Phani Schiza Antoniou
2 Netherlands, the country EU memberHighly strategic commercial location that makes it the “Gateway to Europe”Natural hub for logistics and headquarter functionsHigh educated, multi cultural and multi-lingual workforceHigh level of infrastructureGood economic and financial climate
3 Netherlands, the country One of the major and reputable international Business centersExtensive Network of double Tax Treaties; 90!!Good Banking systemTax Rulings possible
4 A Dutch B.V BV=Private company with limited liability Set up by a notary (make up of their articles)Official Permission of Minister of JusticeMinimum share capital is €1Registered in the Chamber of CommerceDirector can be also legal entityMin director/ shareholder 1Director can be non Dutch resident but for management and control purposes Dutch director is advisable
5 Summary of Dutch Tax Rates Corporate Income Tax upto €Corporate Income T above €20%25%Tax on Dividends received0% if participation exemption applies i.e 5% minimum shareholding in the subsidiary held as participation not as an investmentRoyalty income5 %Capital gains tax in the case of disposal of participation0% if participation exemption applies i.e 5% minimum shareholding in the subsidiary, held as participation not as investmentProfit from the trading in securities20-25%Withholding tax on dividends other than EU or Treaty countries15%Withholding taxes on interest, royalties0%
6 Summary of the Dutch tax system GENERALCorporate Income Tax rate=25%Taxable income ≦EUR 200,000=20%Innovation box income taxed at 5%Average ETR of Dutch multinational: Between 8% and 20%
7 Summary of the Dutch tax system No withholding tax on interest and royalty paymentsDividend withholding tax =maximum 15%Qualifying dividends to EU or 0% treaty country=0%No capital taxes
8 Summary of the Dutch tax system CORPORATE INCOME TAX SPECIFICSTax loss carry forward: 9 yearsTax loss carry back:1Thin cap: 3 to 1 or the group’s debt-to-equity ratioInterest deduction limitations when eroding the Dutch taxable basis of operating subsidiariesThese rules do not affect international structuring
9 Summary of the Dutch tax system INNOVATION BOXOffers attractive opportunities to lower the ETR for income allocable to intangible assets to 5% if:The intangible assets are self developed, which includes contract research for the risk and benefit of the tax payer and participation in R&D activities by means of cost-contribution arrangements (but excludes marketing intangibles created by the tax payer, such as brand names, logos and assets alike)The intangible assets are purchased, provided the purchased intangible asset loses its independence and is merged into a new self developed intangible asset.At least 30% of expected income can be attribute to patents/registrations obtained for the intangible asset
10 Summary of the Dutch tax system Test per intangible asset, to be met at the end of the first year of applying for the Innovation Box for an intangible assetNo upfront approval of Dutch tax authorities is required, so Innovation Box can be applied for by ticking a box in the Dutch corporate Income tax return. However, in order to determine income to be allocated to Innovation Box, consultation with Dutch tax authorities upfront is highly recommended.
11 Summary of the Dutch tax system PARTICIPATION EXEMPTION100% income (dividend income and capital gains)exempt from Dutch corporate income tax if it concerns an investment in shares of at least 5% of the nominal paid-in capital, unless it concerns a portfolio investment company(no minimum holding period)
12 Summary of the Dutch tax system SUBSTANCE REQUIREMENTSFocus should be on substance requirements set by the jurisdiction that pays to a Dutch holding company;Presence of local operationsKey executives 'agenda for travel to the holding company jurisdictionThe Dutch tax authorities published the following list with minimum substance requirements that should be met by so-called financing flow-through ruling companies:At least 50% of the Board of Directors(BOD) MEMEBRS SHOULD BE Dutch residents(live and work there)and of a certain professional level and the company has adequate staff (itself or from 3rd parties)for performing the functionsAll key strategic/material decisions of the BOD should be taken in the Netherlands, such as the entering into contracts and signing of documentsThe main bank account should be held in the NetherlandsThe bookkeeping is maintained in the NetherlandsThe address of the company should be in the Netherlands and the company is not considered a resident in another state on the basis of a tax treatyThe company has sufficient equity considering its activities and the risks to be absorbed by the company.
13 DOUBLE TAX TREATY WITH UKRAINE DIVIDEND*o% applies if min shareholding 50% and at least $ investment** 5% applies if at least 20% shareholdingIn all other cases 15%0%*/5**%/15%INTEREST*2% rate applies to interest paid on loans granted by a banking institution and financial or to interest paid by the purchaser of machinery and equipment to the seller in connection with a sale on credit; the 10% rate applies in all other cases.2*/10%ROYALTIES* 0% rate applies to royalties paid for a copyright of scientific work, a patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. The 10% rate applies to royalties paid for the use of, or the right to use, a copyright of scientific work, (including cinematograph film and films or tapes for radio or television broadcasting).0*/10%
14 DOUBLE TAX TREATY WITH RUSSIA DIVIDENDIf 25% ownership in the subsidiary Russian company and minimum investment of€ 750005*%/15%INTEREST0%ROYALTIES
15 Why Luxembourg?Providing a platform to the EU: a founding member of the EU with many EU institutions located on is landPopulation & Workforce: Multicultural and multilingual population becoming the source of highly trained working forceHigh standards of living and safetyBusiness friendly tax framework (large number of double tax treaties (64), the lowest VAT in Europe etc.)Enable flexibility and transparency in doing businessSolid legal and regulatory frameworkInternationally established financial and investment fund centre: with more than USD 2.5 trillion in assets (2nd as an investment fund centre in the world and 1st in Europe)
16 Why Luxembourg? Politically and socially stable Established in the fund management market: Easy access to fund management groups and decision makers with long-standing experience in attracting international companies; USD 300 billion assets under management; A market leader in product innovation for UCIT and non-UCIT fundsOutstandingly developed banking system:Strategic location in EuropeTransport: Highly efficient infrastructure and logistical network (e.g. airport, railway);Known for pro-business legislation and administration with government encouraging businessSound macroeconomic fundamentals. It is the richest country in Europe and second richest in the world as per per capita income, one of the 11 AAA rated countriesThe international market in a single place: access to a market of over 100 million consumers within a 250 km radiusA base for Islamic productsWide range of double tax treaties 64!
17 Types of Luxembourgish vehicles .Regulated by CSSF (Commission de Surveillance du Secteur Financier) vehicles:SIF (Specialised Investment Fund)SICAR (Risk Capital Investment Company)Unregulated by CSSF vehicles:SOPARFI (Société de Participation Financière)SPF (Private Wealth Management Company)SPV (Securitisation Vehicle)
18 Types of legal forms of investment vehicles .Public Limited Liability Company- (S.A)Private Limited Liability Company- (SARL)Partnerships-(S.N.C.)Limited partnerships- (S.C.S.)Partnerships Limited by Shares or Cooperative companies- (S.C.A.)Cooperative Company Organised as a public Limited - (COOPSA)European Company (SE)
19 SOPARFI Société de Participations Financières .Société de Participations Financièresa normal and fully taxable commercial companyprimary activity is being a holding company and financing activityit benefits from “participation exemption/affiliation privilege” in respect of some or all of its investmentsIt can also perform commercial, industrial and financial activities which are subject to VATCan be incorporated as SA public limited co or as SARL the limited liability company or as limited partnership by shares SCA
20 Characteristics of SOPARFI Registered office or central administration in LuxembourgMinimum Share Capital (in any currrency): depends on the form of the business (S.A./S.C.A. vs S.à R.L)Directors: minimum of 1 for SARL; a minimum of 1 for SA but only if the shreholder is also 1, otherwise 3 directors are needed; they an be natural persons or corporate bodies; of any nationalityBUT even if they do not have to be residents of Luxembourg the majority is recommended to be so in order to comply with the rules of “permanent establishment”No need of a company secretaryShareholders minimum of 1Authorization: based on qualifications and experience of the person in charge of the business if it will be used for commercial financial and industrial activitiesReporting: Annual audit is compulsory and the abbreviated accounts are filed and accessible to he general publicFlexible thin capitalisation rules: compliance with a debt/equity ratio of 15 percent equity / 85 percent debt, or alternatively 1 percent equity/14 percent interest-free loan/85 percent interest-bearing loan, is required when financing participations. If a higher ratio is maintained, then it may be considered as non tax deductible and would potentially be subject to Luxembourg 15 percent dividend withholding tax. No thin capitalisation rules need to be respected for intra-group financingCharacteristics of SOPARFIRegistered office or central administration in LuxembourgRegistered and bearer shares of various classesMinimum Share Capital (in any currrency): depends on the form of the business (S.A./S.C.A. vs S.à R.L)Directors: minimum of 1 for SARL; a minimum of 1 for SA but only if the shreholder is also 1, otherwise 3 directors are needed; they an be natural persons or corporate bodies; of any nationalityBUT even if they do not have to be residents of Luxembourg the majority is recommended to be so in order to comply with the rules of “permanent establishment”No need of a company secretaryShareholders minimum of 1Reporting: Annual audit is compulsory and the abbreviated accounts are filed and accessible to he general public
21 Thin capitalisation rules .Flexible thin capitalisation rules: compliance with a debt/equity ratio of 15 percent equity / 85 percent debt, or alternatively 1 percent equity/14 percent interest-free loan/85 percent interest-bearing loan, is required when financing participations. If a higher ratio is maintained, then it may be considered as non tax deductible and would potentially be subject to Luxembourg 15 percent dividend withholding tax. No thin capitalisation rules need to be respected for intra-group financing
22 Main tax benefits from using Lux cos Dividend received, liquidation receipts and capital gains tax realised by a Luxembourg company are fully exempt from income tax subject to the participation conditions below:The subsidiaries are fully taxable EU cos applying EU parent subsidiary directiveOr if non EU cos, they are taxed at income tax rate at least 10.5% and for which the foreign tax base is similar to LuxembourgIt has at least 10% shareholding in the capital of the subsidiary or at least investment of €1.2 million is made for exception from dividends. For exemption from capital gains tax a minimum investment of € 6 m is requiredMinimum holding period 12 months
23 Double Tax Treaty between Luxembourg and Ukraine of 1997 never ratified Ukraine and Luxembourg signed a tax treaty on 6 September 1997, but the treaty is not yet in force. When in effect, the treaty provides for a 0% rate on dividends paid to a company that holds directly at least 50% of the payer for an uninterrupted period of three years and has an investment of at least USD 1 million (or its equivalent in the national currency) in the capital of the payor and the dividends are derived from an industrial or a commercial activity. A 5% rate will apply where dividends are paid to a company (other than a partnership) that holds directly at least 20% of the payor; otherwise, the rate will be 15%. A 2% withholding tax will apply to loans granted by banks and other financial institutions, and 10% in all other cases. A 5% rate will apply to patent and trademark royalties and a 10% rate for copyrights.
24 New Double Tax Treaty between Luxembourg and Russia in effect as from 2014 DIVIDENDIf 10% ownership in the subsidiary Russian company and minimum investment of€5*%/15%The new treaty which is to be put in effect as from 2014 has reduced the WHT on dividend from 10% to 5% under conditions like Cyprus and NertherlandsINTEREST0%ROYALTIES
25 Main tax benefits from using Lux cos No withholding tax on interest paymentsBenefit from EU interest, royalty and dividend DirectiveWithholding tax of 15% for dividend paid to non EU cos and non Treaty cos which do not meet the participation exemption criteriaFavourable IP regime for royalties at the effective tax rate of 5.85% through 80% income exception from tax arising either from royalty income or capital gains from the sale of Intellectual property rights, copyrights patentsFlexible thin capitalisation rules #Corporate tax rate at 28.8% consisting of 20 % or 21% corporate tax if above € net profit plus surcharge to the employment fund plus municipal tax . Minimum flat tax € 3210Net wealth tax 0.5%on worldwide net assets but there are exemptionsLosses are carried forward indefinitely
26 Comparison of Luxembourg and Dutch Tax Rates Luxembourg companyDutch companyCapitalIt has minimum amount and has to be paid in advance according to the type of companyNo minimumCorporate tax28.8%20 % upto €25% above €Tax on Dividends receivedO% if participation exemption applies i.e10% minimum shareholding or a minimum of € 1.2 m investmentFor at least 12 monthsEU co or if non EU to be taxed at tax rate at least equal to 10.5%0% if participation exemption applies i.e5% minimum shareholding in the subsidiaryheld as participation not as an investmentRoyalty income5.85%5 %
27 Comparison of Luxembourg and Dutch Tax Rates Luxembourg companyDutch companyCapital gains tax in the case of disposal of participationO% if participation exemption applies i.e10% minimum shareholding or a minimum of € 6 m investmentFor at least 12 monthsEU co or if non EU to be taxed at tax rate at least equal to 10.5%0% if participation exemption applies i.e5% minimum shareholding in the subsidiary,held as participation not as an investmentProfit from the trading in securities28.8%20-25%Thin capitalisation rules15:85 equity /debt1:3 equity /debtWithholding tax on dividends other than EU or Treaty countries15%.
28 Comparison of Luxembourg and Dutch Tax Rates .Luxembourg companyDutch companyTax loss carried forwardindefinite9 yearsEU dividend , interest and royalty directivesYesExtensive network of DTT6490DTT with Russia :WHT on dividend5%*/15%*10% participationAnd € investment*25% participationAnd € investmentWHT on royalty and interest0%Exchange of informationLimitation of treaty benefitsWill not apply provided substansive business in one of the states