Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Tax (4th edition)
There is a special taxation regime for companies under the Private Investment Law regime.
Brazil has several incentives targeting specific industries (e.g., technology, automotive, oil, etc.), transactions (e.g., exports) or geographic zones (Manaus, SUDENE, etc.). Even though the extensive number of incentives add complexity to the Brazilian tax system, if well used could provide for companies some extraordinary conditions difficult to be matched in the most developed countries.
Canada and most provinces offer several generous tax credits in a variety of sectors, including scientific research and experimental development (SR&ED), films, multi-media, electronic commerce, etc. Certain credits are predicated on the taxpayer’s undertaking to carry on business in a specific location in order to create an environment in which several businesses with similar goals are located nearby.
There are special tax regimes for non-profit entities and free-trade zones.
The Merchant Shipping (Fees and Taxing Provisions) Law of 2010, commonly known as the Tonnage Tax Law, provides shipowners, ship managers and charters that qualify under the said law in relation to qualifying ships (as defined in the law) engaged in qualifying shipping activities (as defined in the law) the possibility to be taxed on the basis of the tonnage of the vessel (however not all gains nor all activities can fall within the tonnage tax system). It should be noted that the current tonnage tax system expires at the end of 2019 but it is anticipated that it will be renewed. The Government is currently negotiating with the EU Commission however the exact amendments that will be introduced remain unknown.
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.
Category 2 (“Cat 2”)
Gibraltar offers the opportunity for high net worth individuals to obtain Cat 2 status which places a cap over the tax liability of that individual. Tax is applied to the first £80,000 of assessable income (including worldwide income) meaning that a Cat 2 individual will pay a maximum of £27,560 tax per annum, subject to a minimum payable of £22,000 per annum (current rates).
Conditions of obtaining Cat 2 status:
- The individual must be of substantial and sound financial standing and have a minimum net worth of £2 million.
- The Cat 2 individual must either own or rent Cat 2 approved residential accommodation in Gibraltar.
- The Cat 2 individual cannot have been resident in Gibraltar during the five years immediately preceding the year of assessment.
High Executive Possessing Specialist Skills (“HEPSS”)
HEPSS status is a special employment status available to those individuals who intend to relocate to Gibraltar and take up employment. The tax payable by a HEPSS is limited to the first £120,000 of earned income. This would mean that an individual with HEPSS status would pay a fixed rate of £29,940 tax per annum (current rates) regardless of how much they would earn from that employment.
Unlike Cat 2 status which applies to the individual, HEPSS status does not apply to the individual. The application is made by a company on behalf of an eligible employee.
Conditions for obtaining HEPSS Status
- Applicants must possess skills not already present in Gibraltar, their coming to Gibraltar must also help promote and sustain economic activity in Gibraltar.
- Applicants must earn more than £120,000.
- Applicants cannot have been resident in Gibraltar for the three years immediately preceding the application.
HEPSS individuals must live in a Gibraltar qualifying property (similar to those of Cat 2 residents).
A tonnage tax regime applies in respect of ship-owning com¬panies. The tax is calculated on the basis of the capacity and age of the vessel. In relation to vessels under Greek flag, the tonnage tax exhausts any further income tax obligation of the ship-owning company and its shareholders with respect to income arising from the operation and exploitation of the vessel. Since 1 January 2015, vessels flying flags of EU or EEA member states can also be within this regime in respect of defined types of vessels. With respect to vessels under for¬eign flags, tonnage tax is imposed only in relation to those vessels that are managed in Greece by companies which have established offices in Greece for such management, under a specially regulated regime.
A Greek cost plus regime for shared services centers allows the licensee companies to determine their taxable gross revenues on a cost-plus basis, provided they are engaged exclusively in the provision of specified intra-group services, such as consulting, data processing, HR management, procurement etc while the relevant cost-plus percentage –which cannot be inferior to 5%- is ascertained by virtue of a governmental decision following a documented application by the taxpayer. Companies licensed under such regime can also obtain grants as an incentive for developing new activities in Greece and creating new jobs.
Tax incentive has been provided for a period of 10 years on the profits from export of product or service for the units set up in Special Economic Zone prior to 1 April 2021.
Further, the Government has developed Gujarat International Finance Tech City which is India’s first International Financial Service Centre (IFSC). Several tax incentives have been provided for business carried out from IFSC.
There are certain other investment linked deductions wherein 100% of capital expenditure (other than on land, goodwill and financial instrument) is allowed in the year of incurrence.
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 (see question 18 below) and a general participation exemption regime.
There is a tonnage tax regime that applies to businesses in the shipping industry and provides for a determination of a deemed income broadly based on the characteristics of the ships employed (in lieu of the determination on the basis of the profits stemming from the financial statements).
There are no special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres.
Japan has National Strategic Special Zones system. 10 regions are designated as National Strategic Special Zones by the Japanese government. In the National Strategic Special Zones, certain special tax measures are applied to designated corporations engaging in certain types of business (e.g. special depreciation or tax credit for investment in certain facilities).
Japan also has the International Strategic General Special Zones system. Asian regions headquarter special zones established by the Tokyo Metropolitan Government is one such Zone. Foreign corporations that incorporate subsidiaries in the zones are entitled to special depreciation or tax credits, if certain requirements are met.
In 2017, Luxembourg opened the so called Freeport. The Freeport offers safe and secure storage for works of art, precious metals, wines, antiques, jewels, documents and archives (physical and digital), collection cars and other valuables.
For the goods as stored in the Freeport, a special VAT regime applies. In this respect and in line with the EU Customs and Tax Regulation, VAT and custom duties are suspended on goods introduced into the free zone from third countries or originating in the EU. The special tax regime is applicable as long as the goods remain stored in the Freeport.
Another interesting tax regime worth mentioning – next to the one applying to Luxembourg investment funds – is the one applying to securitisation companies. Under the LITL, payments or commitments to pay by a securitisation company to its investors (including shareholders) qualifiy as a tax deductible expense, so that the taxable basis of such company can be nil. That being said, careful attention should be paid to the impact of the ATAD 1 and 2 rules on securitisation structures.
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, and 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 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.
On December 31, 2018, a Decree with several fiscal incentives was published in the Official Gazette of the Federation, establishing for some taxpayers located in the border region a value added tax rate of 8 per cent and some benefits related to income tax.
Mexican tax laws do provide a favourable tax regime related to financial institutions. In this sense, interest payments deriving from loans between said institutions could be exempted from value added tax. Moreover, financial institutions could be subject to reduced income tax rates.
Also, some incentives are granted for national cinematographic and theatrical production, as well as for innovation (CONACYT). Also there are some incentives on the FIBRA (real estate investment trust) and on investments in risk capital and on the Maquila industry (IMMEX Program).
The Netherlands has two regimes for collective investment: the exempt investment institution (vrijgestelde beleggingsinstelling; VBI) and the fiscal investment institution (fiscale beleggingsinstelling; FBI).
The VBI is fully exempt from corporate income tax and is, as such, not considered a tax treaty resident.
The FBI is subject to corporate income tax at 0%. Therefore the FBI is liable to tax and may enjoy tax treaty benefits. In order to be able to apply for FBI status, certain requirements (e.g. activities of the entity, the (statutory) objective and shareholder requirements) have to be met. An FBI has to distribute all of its profits within 8 months after the end of the financial year.
Yes. There are different special taxation regimes. For instance, agriculture, aquaculture and agri-industrial companies are levied with a 15% corporate income tax, and a 4.1% dividends tax. There are also preferential regimes for companies situated in the most remote areas of the Andes and in some parts of the Amazon, which contemplate exemptions from Income Tax and VAT. Likewise, companies located in the so-called special development areas (“ZED”, per its Spanish acronym) may benefit from exemptions on income tax, VAT, excise tax, ITAN, etc. Finally, companies classified as middle and small companies may benefit from a 10% corporate tax rate on profits up to 15 Tax Units.
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.
State aid is provided to investors in form of the exemption in the income taxes for the implementation of a new investment.
Since 30 June 2018 income tax exemptions are available for investments located anywhere in Poland and the investment does not have to be located in the area covered by the special economic zones status. Tax exemptions will be granted upon a decision for the period of 10-15 years.
To be eligible for State aid each new investment will have to satisfy quantitative and qualitative criteria:
- Quantitative criteria – minimum value of investment expenditures necessary for the investor to incur. This value depends on the unemployment rate in the area in which the investment will be located and the size of the enterprise. The preferences are envisaged for micro, small and medium enterprises as well as investments in the field of modern business services or research and development (R&D) activities and investments located in particular areas (preferred towns);
- Qualitative criteria – every single investment will also be reviewed from the perspective of qualitative criteria and, to be granted support, it will principally have to score at least 60% points under these criteria - in higher aid intensity areas the threshold will be lower.
Portugal has an International Business Centre in Madeira (MIBC). Among the list of activities and companies which are allow the current legislation allows the incorporation of new entities in MIBC until 2020, which may benefit of a reduced CIT rate of 5%, applicable over the taxable income until the end of 2027. Such tax rate is only applicable to profits derived from operations exclusively carried out with non-resident entities or with other companies operating within MIBC (Profits derived of business carried out with Portuguese companies is taxed at the general CIT rate of 21%) and are limited to a ceiling placed upon the annual taxable income, which varies according to the number of employees.
The applicability of this special tax regime depends on compliance with one of the following requirements:
(i) Creation of o five jobs in the first 6 months of operation and undertake a minimum investment of €75.000 in the acquisition of fixed assets, tangible or intangible, in the first two years of operation;
(ii) Creation of six or more jobs in the first 6 months of operation.
The Department of Trade and Industry developed an industrial development zone ("IDZ") programme with the aim of attracting foreign and local direct investment in specific geographical areas in South Africa. IDZ's are geographically designed, purpose-built industrial estates that are linked to an international harbour or airport in South Africa and include a customs controlled area.
The Department of Trade and Industry subsequently developed the special economic zone ("SEZ") programme to further achieve South Africa's national and regional industrial development objectives. SEZ's may either be sector specific or multi-product specific and will include free ports, free trade zones, IDZs and sector development or specialised zones.
IDZs and SEZs have been accommodated in the applicable legislation.
Regarding direct taxation, The Vasque Country and Navarra have full autonomy, though they are subject to European Union jurisdiction. Direct taxation has lot of peculiarities in those territories.
Canary Islands has specific tax benefit in Corporate Income Tax.
VAT does not apply in Canary Islands, Ceuta and Melilla where there are special indirect taxes.
Currently, Swiss tax law still provides for several different special taxation regimes, described below. However as these arrangements for cantonal status companies are no longer accepted internationally they will be abolished as of January 1st 2020 pursuant to TRAF.
For cantonal income tax purposes only, the following special taxation regimes are still 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 their 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.
Moreover, 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 made during a limited period may be deferred and, in some instances, permanently excluded.
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. New zones were announced in 2016 and 2017 respectively. A time limit is imposed on locating one’s business in an Enterprise Zone. For example, those planning to locate to one of the Zones which began in April 2017 will need to have located there by March 2022 in order to qualify for a government-backed business rates discount.
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.
Aside from a very limited number of tax regimes related to specific industries (eg diamond and port), Belgium does not have such special taxation regimes.
To the extent that a company qualifies as an SME, it may benefit from an important number of favorable tax measures and incentives.
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.
Offshore services have been eliminated from the full exempted activities in this regime. Now Panama Pacific companies are allowed to perform administrative services that are subject to income tax at the reduced rate of 5%. Regarding indirect tax, Panama Pacific companies are obliged to pay VAT for services rendered by Panamanian companies that are not registered in the Special Economic Area of Panama Pacific.
- 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.
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).
- 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.
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.
- Multinational Headquarters Regime known in Spanish as Sede de Empresas Multinacionales (“SEM”): the regime provides full exemption on dividend and net worth tax. In addition, that SEM companies are not obliged to use fiscal printers for issuing their invoices. Export services provided to non-residents are exempt of VAT. Since 2019 SEM companies must now pay a reduced 5% income tax rate (the standard rate is 25%) on the net taxable income derived from the provision of the services. Taxes over income derived from services provided to Panamanian taxpayers will be paid via a 5% withholding made by the Panamanian taxpayer. SEM companies must apply transfer pricing rules to the services provided the other members of their economic group (residents and non-residents).
SEM entities are allowed 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.