Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Tax (2nd Edition)
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.
Australia does not have any special taxation regimes in the sense alluded to in the listed examples. However, there is a range of special purpose provisions targeted at particular activities or circumstances which confer concessionary tax treatment. These include (but are not limited to):
- Managed investment trusts (MIT) and Attribution managed investment trusts (AMIT) regimes – The MIT provisions were introduced to encourage foreign investment into Australia and enhance the competitiveness of Australia’s fund management industry. MITs and AMITs are specific types of Australian trusts afforded special taxation treatment. For example, a MIT is able to elect to treat all of its gains and losses on capital account whilst the members of a MIT which is also an AMIT are taxed on an attribution basis.
- Offshore banking units (OBUs) – The OBU provisions were introduced to encourage offshore banking activity in Australia. Broadly, income derived by an offshore banking unit from its offshore banking activities may be eligible to be taxed at an effective rate of 10%.
- Investment manager regime (IMR) – The IMR provides a number of concessions to widely held foreign funds which invest into, or through, Australia. The regime is intended to attract foreign investment into Australia and promote the use of Australian fund managers. Very broadly, under the IMR, eligible returns or gains attributable to certain financial arrangements may be exempt from income tax.
- Venture capital limited partnerships and Early stage venture capital limited partnerships – these measures are intended to encourage venture capital investment in Australia by providing a variety of tax concessions for eligible local and foreign investors. For example, the tax concessions can include flow through tax treatment and the exemption from income tax of certain income and gains on eligible venture capital investments.
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 millions and 5% over this threshold.
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).
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.
No. Bulgaria does not any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres. Financial services are exempt from VAT.
There are no special federal tax zones in the United States. The United States does recognize special rules for certain entities, such as Regulated Investment Companies (RICs), Real Estate Investment Trusts (REITs), Domestic International Sales Corporations (DISCs), Real Estate Mortgage Investment Conduits (REMICs) and S Corporations.
In Ukraine, companies and individual entrepreneurs, which meet requirements established by the Tax Code of Ukraine, may choose a simplified taxation regime, which means they don’t pay profit taxes but instead must pay a single tax at max rate of 5 %.
The Tax Code of Ukraine establishes three groups of taxpayers of the single tax. The affiliation of companies and individual entrepreneurs to the respective group, depends on the type of business activity, the number of employees, and the amount of income within calendar year.
Therewith, the Tax Code of Ukraine establishes a special fourth group for the simplified taxation regime for agricultural commodity producers. For payers of the single tax of the fourth group, the size of the single tax rates depends on area, appraisal, and location of agricultural lands.
In addition there are some other tax incentives in a wide range of prioritized sectors of the economy (agriculture, information technology, aircraft, etc.).
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.
Our legislation contemplates the creation of Special Economic Development Zones (ZEDE) to carry out activities involving the transfer and disaggregation of technology and innovation, or carrying out industrial diversification operations or developing logistics services. Depending on the activity, the regime may qualify to income tax incentives such as tax holidays of 5 to 10 years. Import and export duties may be deferred or exempted depending on the case.
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.
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.
Currently, Swiss tax law provides for several different special taxation regimes, described below. However, Switzerland has formally made a commitment towards the European Union to abolish those regimes currently in place. Their elimination, along with a series of replacement measures, was part of the proposed Corporate Tax Reform Act III. However, the Reform project was dismissed by Swiss voters on February 12, 2017. A replacement project, called ‘Projet fiscal 17’, is currently under development. In the meantime, we expect that the tax regimes described below will stay in force until 2020 at least.
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 must be participations or two thirds of its investments’ revenues must stem from participations. Holding companies are exempt from cantonal income tax and only pay federal income tax at an effective rate of 7.8%.
- Domicile company: If a company merely has its statutory place of domicile in Switzerland (without having offices and employees of its own), it may qualify as a domicile company. Similarly as with 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 thus any business activity in Switzerland itself 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. The profit of a principal company is partially allocated abroad (depending on the nature of its activity), hence only including a portion of the overall profits in its tax base for income tax purposes.
- 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 for up to ten years from cantonal and communal income tax for newly established businesses creating a certain amount of work places.
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.
Kenya has special taxation regimes which include Special Economic Zones (SEZs) and Export Processing Zones (EPZs). The SEZs are a designated geographical area where business enabling policies are being implemented and sector-appropriate on-site and off-site infrastructure and utilities will be provided for by the Kenyan Government.
EPZs have been in existence in Kenya since 1990 and are governed by the Export Processing Zones Act, 1990. SEZs were recently introduced under the Special Economic Zones Act, 2015 which came into force on 15 December 2015.
One of the most significant tax incentives available to SEZs is the reduced corporate tax rate of 10% for the first 10 years of operation and thereafter 15% for another 10 years. The standard corporate tax rate in Kenya is 30%.
An investment deduction allowance is granted on the construction of a building and on the purchase and installation therein of new machinery, and the owner of that machinery, being also the owner or lessee of that building, uses that machinery in that building for the purposes of manufacture. The investment deduction allowance is claimed in the year of income in which the building and equipment were first used at the rate 100%. Where an investment in excess of KES 200 million (USD 2 million) is made outside the Municipalities of Mombasa, Kisumu or the City of Nairobi, the applicable rate would be 150%.
There are several Special Economic Zones (SEZ) established in Poland which are administratively separate parts of Poland, allocated for business activities. Income derived from business activity conducted in an SEZ is generally exempt from taxation (upon certain conditions, and up to specific limits, specifically depending on the investment costs). Income unrelated to the activity covered by the respective permission granted by the authorities is, however, taxed. In addition, business activity exempt from taxation within an SEZ is taxed if performed outside the SEZ.
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, as 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 taxpayers can enjoy tax credit of 10% of the increased amount of the total deductible salary payments to their employees as compared to past (applicable for fiscal years beginning by the end of March 2018). These measures reflect the economic policy referred to as “Abenomics” of the incumbent Prime Minister and his ruling party.
Up until the tax reform that came into force as of January 1, 2014, Mexican border regions could benefit from a reduced value added tax rate of 11 per cent. Nonetheless, said benefit was repealed.
Notwithstanding the foregoing, Mexican tax laws do provide a favourable tax regime relating 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.
Norway has a special tonnage tax regime for shipping. The objective is to ensure the competitiveness of the Norwegian shipping industry.
Pursuant to the tax scheme, shipping companies are exempt from taxation of profits derived from eligible shipping activities. Instead, ship owners are obliged to pay an annual tonnage tax. The tonnage tax rates vary with the net tonnage of the vessel.
The Petroleum Taxation Act contains provisions regarding liability for tax on income earned from exploration for, or extraction of petroleum deposits and pertaining activity in Norwegian waters and on the Norwegian Continental Shelf. Income from all petroleum related activities carried out on the Norwegian Continental Shelf may be taxed in Norway.
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.