Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Tax (3rd edition)
Currently, Swiss tax law provides for several different special taxation regimes, described below. However, Switzerland has formally made a commitment to the European Union to abolish these regimes. Their elimination, along with a series of replacement measures, was part of the proposed Corporate Tax Reform Act III. However, the Reform bill was rejected by Swiss voters on 12 February 2017. A replacement bill, called ‘Tax Proposal 17’, is currently under development. In the meantime, we expect that the tax regimes described below will stay in force until at least 2020.
For cantonal income tax purposes only, the following special taxation regimes are currently in place:
- Holding company: Generally, a company qualifies as a holding company if its purpose is the ongoing management of investments in other companies and the company itself does not conduct any business activities in Switzerland. Additionally, either two thirds of its assets consist of participation in other companies or two thirds of its investments revenue must stem from participations. Holding companies are exempt from cantonal income tax and pay only federal income tax at an effective rate of 7.8%.
- Domicile company: If a company only has its statutory seat in Switzerland (without having offices and employees of its own), it may qualify as a domicile company. As for mixed companies (see below), only a percentage of a domicile company's foreign-sourced income is included in its Swiss tax base for cantonal tax purposes. Depending on the canton, the effective tax rate of a domicile company is around 8 to 10%.
- Mixed company: Companies may qualify as mixed companies if there business activity is primarily related to business abroad (i.e. typically 80% of gross profit and expenses are foreign-sourced) and any business activity in Switzerland is of a secondary nature. For cantonal tax purposes, Swiss-sourced income is fully taxed, whereas foreign-sourced income is only partially included in the taxable base for Swiss income tax purposes (depending on the extent of the business activities in Switzerland). The effective tax rate of mixed companies is, depending on the canton, between 9 and 12%.
Furthermore, both at a federal and cantonal level, the Swiss administrative tax practice provides for the following special taxation regimes:
- Principal company: A company may qualify as a principal company if it meets certain substance and margin requirements. Part of the principal company’s profits are allocated abroad (depending on the nature of its activity), hence only a portion of the overall profits are included in its Swiss tax base.
- Swiss finance branch: A Swiss permanent establishment of a foreign company may qualify as a Swiss finance branch if its annual average balance sheet amounts to at least CHF 100 million, at least 75% of the average total assets amount and gross income is related to financial services and the amount of loans and advances to Swiss group companies does not exceed 10% of the total assets. Swiss finance branches may deduct deemed interest expenses from their Swiss federal and cantonal income tax base.
Furthermore, the Swiss Federal Act on Regional Policy provides for tax incentives for creating or preserving jobs in certain regions of Switzerland. Following a recent reform, such tax relief is limited to an annual amount of CHF 95,000 per job created or CHF 47,500 per job preserved, for a maximum of ten years. The companies profiting from such tax relief and the number of jobs to be created or preserved are made public. In addition, most Swiss cantons may provide for full or partial tax holidays from cantonal and communal income tax for newly established businesses creating a certain amount of work places; these can last up to ten years.
Yes. The US tax system provides certain incentives aimed at encouraging economic growth and investment in distressed communities by providing certain tax benefits to businesses located within certain designated geographic locations. For example, taxes on capital gains from investments in qualified opportunity zones may be deferred and, in some instances, permanently excluded.
Canada does not have any special taxation regimes such as these. However, there are special tax credits available to encourage investment in certain activities in Canada, such as film and video production and scientific research and experimental development (see question 19).
There are no special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres.
The FTC provides for several specific taxation regimes covering various fields such as research and development or starting businesses. However, the FTC does not provide for specific provisions regarding financial services.
Here is an overview of some of these specific regimes:
- headquarters and centers of logistics of multinational companies: under prior agreement with the FTA, headquarters may determine their taxable profits according to their profit margin computed as follows: profit margin ratio applied to ordinary operating expenses;
- regime of starting businesses: under certain conditions, such a business may enjoy a total exemption of CIT for the first 23 months following the month it was set up and, for the next three 12-month periods, only 75% (1st period), 50% (2nd period) and 25% (3rd period) of profits will be taxed;
- young innovative business: SMEs engaged in significant research and development activities may be fully CIT exempted the first profitable year and, the following year or next profitable year, only half of the profits will be taxed; a tax credit for research and development may be granted which amounts to 30% of research and development expenses within the limit of EUR 100 million and 5% over this threshold.
- Tax free zones regime to revitalize economically depressed areas (as established by Decree or : under certain conditions a company carried out a new business in these areas can benefit from a temporary exemption of corporate income tax, business tax and property tax and sometimes reduced payroll taxes for the first five years.
The Merchant Shipping (Fees and Taxing Provisions) Law of 2010, commonly known as the Tonnage Tax Law, gives qualifying Cyprus-resident shipping and ship management companies the option to be taxed on the basis of the tonnage of the vessels they operate, simplifying and reducing the tax burden. It widens the range of exempt gains to include profits on the disposal of vessels, interest earned on funds and dividends paid directly or indirectly from shipping-related profits, in addition to profits from shipping operations.
In Brazil there are no special tax regimes for financial services or co-ordination centres.
There is a Free Trade Zone in Manaus where companies can enjoy federal, state and municipal tax benefits, for certain business.
Also, there are Export Processing Zones where companies can enjoy federal, state and municipal tax benefits for exporting business.
Germany does neither have special taxation regimes for enterprise zones nor favourable tax regimes for financial services or co-ordination centers. Rendering financial services, however, is generally exempted from VAT.
The taxation regimes differ essentially with respect to trade tax since every municipality has the opportunity to set out its own trade tax rate. The lowest trade tax rate possible is 7%.
In Helgoland (no customs territory of the EU) and in Büsingen (exclave in Switzerland) VAT and tax free shopping is possible.
Yes. Under domestic law, a so-called “preferred company” is entitled to a reduced corporate tax rate of 16% with respect to its “preferred income” (generally, income attributable to its “preferred enterprise”), which rate is reduced to 7.5% if the preferred enterprise is located in a specified development zone.
Benefits are generally not limited to a specific time period and there are generally no minimum investment requirements.
More significant reductions in the corporate tax rate generally apply to large companies, the profits of which are subject to a reduced 5% or 8% corporate tax, depending on the location of the manufacturing facility.
Dividends paid out of income attributed to a preferred enterprise are generally subject to tax at the rate of 20%, or such lower rate as may be applicable under a tax treaty.
There are certain other special taxation regimes, most notably a preferred tax regime offered to companies holding their intellectual property in Israel (question 18 below) and a general participation exemption regime.
The Federal Territory of Labuan is a federal territory of Malaysia best known as an offshore International Business and Financial Centre posed to enhance the attractiveness of Malaysia among international investors as well as Malaysian companies.
Under the Labuan Business Activity Tax Act 1990, Labuan entities (including Labuan companies, Labuan foundations established and registered under the Labuan Foundations Act 2010, Labuan Islamic foundations established and registered under the Labuan Islamic Financial Services and Securities Act 2010, Labuan Islamic partnerships as defined in the Labuan Islamic Financial Services and Securities Act 2010, Labuan limited partnerships and LLPs established and registered under the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010, Labuan Islamic trusts as defined in the Labuan Islamic Financial Services and Securities Act 2010, Labuan trusts as defined in the Labuan Trusts Act 1996) carrying on a Labuan business activity are subject to tax at the rate of 3 per cent for a year of assessment. Alternatively, taxpayers may elect to be charged to tax 20,000 ringgit or to be charged to tax in accordance with the ITA.
Several special economic regions (Northern Corridor Economic Region, East Coast Economic Region, Iskandar Malaysia, Sabah Development Corridor and Sarawak Corridor of Renewable Energy) are also established in line with the government initiative to spur economic growth and qualified persons in these regions enjoy specific tax incentives.
Yes, the government recently enacted a decree regulating the so called “special economic zones” to promote the economic growth of less developed areas of the country. Companies that operate through special economic zones are eligible for important tax incentives: (i) income tax exemptions (during the first 10 years and 50% reduction during the 5 years thereafter) (ii) VAT levied at a 0% rate on the acquisition of goods, hiring of certain services and leasing of tangible goods; (iii) VAT exemption upon importation of foreign goods and the acquisition or use or enjoyment of intangible goods; (IV) VAT exemption upon the use or enjoyment of tangible goods that are delivered abroad and the use within the special economic zone of independent personal services rendered by foreign residents; (v) no VAT applies on activities performed within the special economic zones; and (vi) exemption from foreign trade duties (limited to 60 months).
In order to promote the Mexican “maquila” industry, companies that operate under the IMMEX program are subject to certain incentives. In general, this program is an instrument which allows for the temporary importation of goods for transformation/repair which are exported thereafter, without covering the payment of general import tax and countervailing duties. For VAT purposes, companies under this regime will be able to obtain a certification to be tax-exempt from VAT upon the importation of raw materials destined to manufacturing processes and will also benefit from simplified customs procedures.
Additionally, non-Mexican residents carrying out transactions with companies under an IMMEX program will not be considered to have a permanent establishment in Mexico from manufacturing activities carried therein.
As per the oil and gas industry, companies are subject to specific tax rules. For instance, sector companies shall apply different deduction rules for investments, enabling them to deduct the 100% of the investment in one year. In addition, these companies shall be able to offset tax losses for a period of 15 years.
Financial services, are generally exempted from VAT. In 2017 a financial tax was however introduced. According to these rules, financial companies are subject to a tax rate of 25%, compared to the normal corporate tax rate of 23% (for 2018). In addition a 5% tax is levied on such companies' salary costs. These rules do to a large extent offset the advantage from the VAT exemption.
The Norwegian tonnage tax regime is a favorable tax regime for shipping companies. Under the regime income from shipping activities are not subject to ordinary business taxation. Companies taxed under the regime pays a moderate tonnage tax based on the net tonnage of relevant vessels under the regime. Companies within the regime may only engage in business activities relating to the chartering and operation of own vessels or support vessels. Further, there are limitations as to what assets the company may possess stating that the company cannot own non-shipping related assets.
The petroleum tax regime applies to all petroleum-related income on the Norwegian continental shelf. The petroleum tax regime is characterized by a high marginal income tax rate of 78%. The high tax rate is however to some extent offset by generous tax deductions.
SkatteFunn is a scheme that entitles enterprises subject to taxation in Norway a tax deduction for R&D costs, provided that the research program has been approved by the Research Council of Norway. For small and medium sized companies the scheme allows for a tax deduction of 20% of R&D costs, whereas for large enterprises the tax deduction is 18% of R&D cost.
Norwegian authorities offer a wide range of state aid for investments, R&D and development and exports through a regional development fund (Innovasjon Norge), supporting startups in Norway and abroad.
The employers' social security contributions are differentiated based on where in Norway the businesses are located, and the rates are lower in certain rural areas.
Panama has various investment incentives regimes that provide lower tax rates or exemptions. The following are the special regimes in our jurisdiction.
- Panama Pacific Special Economic Area: The Panama-Pacific Special Economic Area has been designed to be the Business Center of the Americas. It is located 40 minutes from Tocumen International airport, 10 minutes from the port of containers at the Pacific, 1 hour form the Colon Free Zone and 20 minutes from Panama City.
Some of the benefits the Special Economic Are Panama-Pacific offers are: Fiscal, immigration and labor incentives; simplified procedures for installation and operation, training for employees and special customs regimen.
Inside the offices of the Panama Pacific Special Economic Area Agency, the investor can find what is called an Integrated Systems for Procedures.
- Colon Free Trade Zone: Tax laws which apply to Panamanian source income do not apply to Free Zone operations. Income generated by re-exporting activities are exempted from the payment of income tax. Companies operating in the Colon Free Trade Zone, and from any other free trade area, are subject to a fixed dividend tax rate of 5%, applicable on the distribution of profits paid out from export and re-export transaction, as well as on the distribution of domestic income. Entities operating on this, or any other free zone, must have financial statements prepared in accordance with International Financial Accounting Standards and countersigned by a Panamanian Certified Public Accountant, for fiscal years starting after January 1st, 1997, and must file annual tax returns.
- Free Trade Zones: With the purposes of promoting investment and encouraging scientific, technologic, economic, and social development, Law 32 of April 5, 2011, implemented a new simplified regime for companies operating within established free trade zones. This law applies to both developers of the free trade zones, and companies within this areas, including manufacturers, service companies, technology companies, educational and research centers, logistic companies, and environmental services companies.
- Petroleum Free Zones: companies doing business in this special zone will be granted with the same fiscal treatment as the Colon Free Trade Zone entities.
- Call Centers Regime: CALL-CENTERS, duly registered with the Autoridad Nacional de los Servicios Públicos (“ASEP”), will obtain the same benefits conferred to Free Trade Zones under Ley 32 of April 5, 2011.
- Multinational Headquarters Regime known in Spanish as Sede de Empresas Multinacionales (“SEM”): the regime provide a full exemption from income tax on services provided to non-resident entities that do not derive Panama-source income, from dividend tax and from Panamanian VAT on export services provided to non-residents that do not generate taxable income in Panama.
Companies registered in the free trade zone regime are subject to: Dividend tax of 5% (they will only pay 2% of retained earnings tax if the business does not distributes dividends), annual tax based on 0.5% of the enterprise’s capital, and a selective tax on the consumption of some goods and services. Funding provided by financial institutions will be also subject to a 1% surcharge, referred as FECI (Special Compensation Fund for Interest).
Call-Centers performing business with clients not located in Panama and subject to their approval by the Public Utilities’ Regulating Office and by Panama’s Ministry of Commerce and Industry are exempted from income tax on income derived by attending clients not located in Panama.
Additionally VAT (ITBMS) is exempted on goods disposed within the premises and on the services performed by the call-center to clients not located in the Republic of Panama Call Centers are also exempted from tariffs on the importation of goods needed for their operations.
SEM entities are allow to provide back office services to companies that are part of the same economic group of the SEM, meaning that SEM entities are no permitted to offer services to third parties.
Foreign employees working in Panama for an MHQ are exempt from income tax on their wages and other remuneration that is not paid by the MHQ.
The Panama Pacific Special Economic Area, Call Centers Regime and the SEM Regime are under evaluation by the Panama Government as part of the BEPS compromise is to review those special regimes that might be harmful for tax purposes. Before the end of 2018 year, this special regime must be amended in order to accomplish with BEPS and OECD rules.
Yes, there are special taxation regimes applied for entities registered with special economic zones and those granted incentives by the Board of Investments.
In addition, regional operating headquarters (ROHQs) and regional headquarters (RHQs) are granted special tax rates. RHQs are not subject to income tax while ROHQs are subject to a lower income tax rate of 10% of taxable income.
A RHQ is an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally serves as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets, and which does not earn or derive income in the Philippines.
A ROHQ is a foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets. ROHQs may engage in any of the following qualifying services:
(a) General administration and planning;
(b) Business planning and coordination;
(c) Sourcing/procurement of raw materials and components;
(d) Corporate finance advisory services;
(e) Marketing control and sales promotion;
(f) Training and personnel management;
(g) Logistics services;
(h) Research and development services, and product development;
(i) Technical support and maintenance;
(j) Data processing and communication; and
(k) Business development.
Foreign banking, non-banking, financial and non-financial institutions may register RHQs and ROHQs.
Portugal benefits from the Madeira International Business Centre (MIBC) regime, which was already established for entities licensed to operate until the 31st of December 2014 and was extended to entities licensed to operate as from the 1st of January 2015 until the 31st of December 2027.
Apart from other advantages, such entities benefit from a reduced 5% CIT rate within certain activities and as long as certain conditions are met (number of employees hired, which is also the determinant of the maximum plafond of the taxable base subject to the reduced rate), as well as from a 50% deduction to their assessed tax, as long as at least two of the following conditions are met:
- They contribute to the modernization of the regional economy, namely through technological innovation of products and of manufacturing processes or of business models;
- They contribute to the diversification of the regional economy, namely through new value-added activities;
- They promote the hiring of highly qualified human resources;
- They contribute to the improvement of environmental conditions;
- They create, at least,15 jobs which must be kept for a minimum period of five years.
Non-resident shareholders of companies licensed to operate in the MIBC may also benefit from tax exemption on dividend and interest.
Exemptions on stamp duty, property tax, property transfer tax, and regional and municipal surcharges also apply, but subject to an 80% limitation per tax and transaction or period.
Tax benefits for MIBC licensed entities cannot exceed annually the highest of the following limits: (i) 20.1% of annual gross added value, (ii) 30.1% of annual labour costs or (iii) 15.1% of annual turnover.
Entities resident in the Autonomous Region of Azores may benefit from a contractual regime of incentives for investments with strategic relevance made in that territory. Apart from other advantages, eligible investments may benefit from:
- Deduction to the tax assessed of 30% of the expenses with the relevant investment, up to 90% of this tax;
- Exemption or reduction of Municipal Property Tax for up to 10 years on real estate used in the investment project;
- Exemption or reduction of at least 75% of the Municipal Tax on Onerous Property Transfers on the purchase of real estate to be used in the investment project.
The attribution of the mentioned tax benefits depends on the signature of an agreement between the promotor of the investment and the Autonomous Region of Azores and must be communicated to the European Commission.
At a national level there is also a contractual regime for granting tax benefits on relevant investment projects.
There are 18 free trade zones in Turkey where goods may be stored, manufactured, and re-exported under specific customs regulations and where the goods are not subject to customs taxes. Furthermore, as the free trade zones are considered to be outside of Turkey, earnings and many transactions are exempt from income tax and VAT.
There are also organized industrial zones and technology development zones, or “technoparks”, where enterprises are not fully exempt but enjoy certain incentives.
A few special tax and other incentives have been established in order to attract R&D activities and/or investments into Japan by foreign multinational enterprises. For example, the Tokyo metropolitan government, in cooperation with the Japanese national government, provides a regime called the Asian headquarters special region. There, if a qualifying foreign multinational enterprise establishes a Japanese corporation as a subsidiary based upon an approval of the Tokyo metropolitan government for the purpose of conducting R&D activities in Japan or establishing an Asian regional headquarters in Japan (i.e., as an intermediate holding company), that Japanese subsidiary can enjoy, among other benefits, special tax credit or special accelerated depreciation deduction for the investments made in machinery and buildings, along with total exemption of local transactional taxes such as real property acquisition tax, fixed property tax and city planning tax.
In addition, there are a few special taxation regimes that are equally applicable to Japanese businesses. One example is the special taxation regime for promoting increase of salary payments to employees, where, in general, taxpayers can enjoy tax credit of 15% (in some qualifying cases 20% or 25%) of the increased amount of the total deductible salary payments to their employees as compared to those of the immediately preceding fiscal year (applicable for fiscal years beginning by the end of March 2021). These measures reflect the economic policy referred to as “Abenomics” of the incumbent Prime Minister and his ruling party.
Generally, the tax exemption related to a certain geographical area or industry were eliminated from the tax legislation, the incentives being available for all the taxpayers operating in Romania (e.g. tax exemption for business profits re-invested in production equipment, IT and software). The only remaining special facilities are for companies operating in R&D which can benefit by an additional tax deduction of 50% of the R&D related expenses. Moreover, employees involved in R&D activities and IT programming are exempted from salary tax.
Established in 2012, enterprise zones are designated areas across England that provide tax breaks and government support. Examples of the benefits that may be available to businesses located in an enterprise zone are 100% enhanced capital allowances, government support to ensure superfast broadband throughout the zone and up to 100% business rate discount worth up to £275,000 per business over a 5-year period. The aims of the regime are to attract foreign investment into the country and to deliver long-term, sustainable growth across England. After early success, more enterprise zones are planned to be in place by April 2017.
Regulated banking entities in the UK are currently subject to an additional 8% “banking surcharge” in addition to their corporation tax. A large part of the financial services sector therefore suffers increased, rather than favourable, taxation.