If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?
Tax (4th edition)
Angola has approved a significant number of changes to the tax law within the most recent years, and has just signed two Double Taxation Treaties with Portugal and the UAE. The country has a lot of opportunities within the oil and gas industry, construction, financial services, health and education.
If, on the one hand, Brazil has very challenging, complex and bureaucratic tax regulations, on the other hand, this vastness allows companies with efficient and broader analytic capabilities to count with much more efficient structures than in most parts of the world. Throughout these years in tax practice we have seen a great number of companies that know how to explore the tiny details, gaps, special regimes and benefits of tax legislation, choosing Brazil as a regional revenue peer and/or having a notorious tax advantage due to competitive final tax burden achieved. Therefore, if a company is able to explore all the possibilities offered by local legislation (with responsibility and being compliant with domestic guidelines, of course) combined with a holistic analysis of other fields such as finance, logistics, business goals, intangible assets, antitrust, etc. it can have a pleasant surprise with the results.
The UK and the EU are just about to face the consequences of Brexit. Financial services firms globally need to ensure that they understand the impact of Brexit on their business so they can manage the challenges and pursue the opportunities. This is just a beginning and it is very difficult to predict with certainty the global long-term effects of Brexit.
Having said that, Canada is a long-standing business partner of the UK. It shares, by and large, substantially similar business and banking practices. Accordingly, Canada has publicly indicated its willingness to enter into a comprehensive trade agreement with the UK should it step out of the EU. In my view, Canada will become a jurisdiction of choice in these times of trouble.
Besides the privileged location of Colombia for import/export purposes, these are some of several tax advantages of performing business activities in Colombia:
- Gradual reduction of the corporate Income Tax from 33% in FY 2019 to 30% as from FY 2022.
- Income Tax credit of the VAT paid in the acquisition of productive fixed assets.
- Double taxation treaties with more than
- Income Tax exemptions for several activities, including the orange economy, agricultural and livestock projects, alternative power generation, forestry, priority housing construction, and hotel developments.
- The Colombian Holding Company regime, that provides certain Income Tax exemptions on dividends paid by foreign entities.
- Investments greater than USD $ 342,000,000 in enterprises that generate at least 250 direct jobs trigger a 27% corporate Income Tax rate and a dividend tax exemption.
Cyprus provides an ideal base for businesses from all over the world wishing to establish a base in the EU. It is strategically located at the crossroads of three continents, it has a well developed business infrastructure and a business-friendly, low-tax regime with a wide network of double taxation agreements. It also offers a high quality of life, low operating costs and substantial tax exemptions (including a 50 per cent income tax exemption for the first 10 years of residence for individuals earning above EUR 100,000 per year).
A new law on Alternative Investment Funds introduced in July 2018, namely the Alternative Investment Funds Law of 2018 L.124(I) of 2018 (the “AIFL”) provides incentives for funds to relocate to Cyprus, including a highly beneficial flat tax regime for carried interest. The AIFL regulates the establishment and operation of AIFs in the Republic, including AIFPNPs and RAIFs, and, to the extent relevant, of persons engaged in AIF activity and of EU or third country AIFs marketing their units in the Republic.
According to section 143(1) of the AIFL, an AIF that is governed by the provisions of Part II, an AIFLNP established and operating in accordance with this AIFL and the persons that acquire units of the above mentioned AIF are subject to the provisions of the Income Tax Law and the Special Contribution for the Defence of the Republic Law.
The establishment of the AIFs referred to in section (1),the subscription, redemption or repurchase or the transfer of its units are exempted from the stamp duty provided for in the Stamp Duty Law.
The provisions of sections (1) and (2) shall also apply to RAIFs when they are subject to the taxation provisions∙ the unitholders of the RAIF are not subject to taxation for their profits or benefits from their participation in the RAIF, which have already been subject to taxation in accordance with these provisions.
There are further advantages for businesses relocating from the UK - because Cyprus used to be a British colony, the whole legal, financial and administrative infrastructure is very similar to that in the UK, and English is very widely spoken and used in business.
German law in general as well as German tax law are applied strictly following the rule of law. In addition, Germany has a profound infrastructure, a highly qualified multilingual workforce and is the geographical center of Europe, so a good place for relocating for logistical reasons. Frankfurt is deemed to be the financial hub of continental Europe, is the residence of important financial regulatory authorities, like the ECB, and therefore a place offering direct access to key regulators and market participants. Finally, Germany is financially and economically robust.
Regardless of whether Gibraltar forms part of the EU by virtue of following the UK regarding Brexit, it is likely that it will continue to adhere to the same standards which will be reflected in local legislation.
As a UK overseas territory, it is proposed that Gibraltar would continue to have access to the UK markets for financial services post Brexit, and therefore anyone looking to re-locate from the UK to Gibraltar would continue to experience a number of benefits.
Located in the Mediterranean and in the geographic confines of continental Europe yet endowed with a familiar, reliable and predictable common-law system, Gibraltar is an attractive place for individuals wishing to relocate and/or do business.
As a member of the EU but also of the OECD, Greece offers a predictable legal environment in the field of taxation whereas it is also party to a wide network of double taxation treaties. The applicable corporate income tax rate is currently set to go down to 25% as of the fiscal year 2022 whereas the newly elected government has announced a greater reduction. In Greece there is an EU-compliant institutional frame¬work for the establishment of private investment aid schemes aiming at the country’s regional and economic development to which businesses can have access to as well as a number of tax incentives such as for the production of audiovisual content and software and the creation of new jobs. The Greek cost plus regime for shared services centers offers tax predictability for companies wishing to establish their coordination centers in Greece whereas grants for developing new activities in Greece and creating new jobs are also available to companies licensed under such regime. Greece offers a pleasant living environment and access to a workforce which is to a large degree university trained. As a holding jurisdiction, Greece still does not have a full participation regime given that capital gains from the disposal of participations in other companies are taxable. Frequent changes in tax legislation and delays in justice are presented as disadvantages. However, in recent years progress is being made in the tax field with implementation of steps such as the electronic filing of tax returns, the administrative appeal process to decongest courts, the publicity of the tax authorities’ guidelines and the shortening of the periods in respect of which businesses can be audited.
- Lower tax rate of 25% on business profits for companies
- Wide network of tax treaties providing flexibility
- New direct tax code under consideration for simplification of tax structure
- Single tax for goods and services
- Credit available for taxes paid in countries outside India
- Digitization of tax proceedings
- AAR mechanism to obtain certainty on tax treatment in India
- APA mechanism to determine ALP for intra-group transactions for Transfer Pricing rules compliance
- Pro revenue approach of the tax authorities
- Tax Dispute Resolution at times takes longer time
- Number of compliances
- High tax rates for individuals
- Varied interpretation of tax provisions resulting in tax dispute
The key advantages Ireland offers from a tax perspective are a low, but internationally acceptable, headline corporate tax rate of 12.5% with the opportunity to significantly reduce the effective rate through amortization of intangibles acquired. The taxable profits and effective tax rate in Ireland are not reliant on any rulings or deemed deductions but rather are determined based on accounting profits and OECD transfer pricing principles. Ireland has a wide network of more than 70 double tax treaties reducing or eliminating withholding taxes. Furthermore there are broad domestic exemptions for withholding taxes on payments out of Ireland.
Ireland has long since been a key location for foreign direct investment from all over the world. It is not just about the tax regime. Some other non-tax relevant factors for a UK international group facing the prospect of life outside the EU would be Ireland’s continued commitment to the EU and the Euro providing a single point of access to the entire EU market. For financial services groups this may also offer the possibility of regulatory access to the EU. Ireland is culturally and physically close to the UK allowing for the possibility of co-location rather than re-location of activities post Brexit. This is facilitated by shared language and shared common law legal system. Continued access to the large EU labour market will also continue to be a key advantage.
The primary disadvantage with the Irish tax regime is the fact that there is no participation exemption for dividends. Although the credit system typically ensures there is no incremental tax on dividends in Ireland there can be an administrative burden associated with managing dividend flows and the credit calculations. It is expected that a participation exemption on dividends will be introduced in the near future.
Otherwise the primary disadvantage of Ireland is for international groups that rely on physical transportation of certain products by road or rail and need to be close to large customer markets. Clearly for certain industries or products this is not an issue but it may be an issue for some.
Israel is a member of the OECD and generally follows OECD principles with respect to taxation. Israel is also a party to over 50 double tax treaties which facilitate cross-border transactions and provide protection against double taxation.
In recent years, Israel has witnessed significant progress in its economy and capital markets as well as its high-tech industry and has attracted multinational corporations, investment funds and internet companies seeking to invest in, and access, its local market. In addition, Israel generally encourages, through incentive legislation and other programs, inbound investment and outbound exports aimed at strengthening its economy, including enacting and continuously simplifying laws that provide various tax benefits, reduced corporate tax and dividend withholding rates, such as the new IP Regime.
In addition to the patent box regime already mentioned, Italy grants and R&D tax credit that may be up to 50% of certain qualifying R&D expenses provided that certain requirements are met.
A reduction of the applicable income tax rate to 15% (in lieu of 24%) is provided in relation to the part of the taxable income of companies for an amount equal to, in general terms, the net profits of the previous financial year that have been accumulated and used in order to invest in new company assets or to hire new personnel.
A super-deduction and an iper-deduction regimes are available in respect of certain assets purchased by 30 June 2020. Under the super-deduction regime companies can determine the amount of tax deductible depreciations on the basis of 130% of the acquisition cost of the assets. Such percentage is increased up to 270% for assets qualifying for the iper-deduction regime (typically, high tech assets).
Finally, it is worth mentioning that individuals carrying out an employment, a self-employed activity or a business in Italy may beneﬁt from a 70% exemption on their qualifying income provided that:
- They have been non-resident of Italy for at least the two tax years prior to the first year of Italian tax residence;
- They become tax resident of Italy and they carry out their activity mainly in Italy.
The exemption increases to 90% if the individual moves to certain regions of Southern Italy and applies from the ﬁrst period of Italian tax residence and the following 4. It may be further extended for other 5 years if the individual has at least one minor child his dependent or if the individual becomes the owner of a residential property in Italy. In case of extension, the exemption is reduced to 50%.
An advantage in relocating business activities to Austria may lie in the modern group taxation regime, the extensive double tax treaty network with in total more than 80 countries. Also, Austria has a competitive R&D tax incentive regime. Further, Austrian has a participation exemption for dividends and qualified shareholdings in foreign corporations. Important factors are the generally strong political stability and the geographically location of Austria in the centre of Europe. The agenda of the most recent government foresaw a reduction in corporate tax rate for retained profits. Furthermore there is no inheritance or gift tax in Austria.
In the past, a decrease in corporate tax rate and a reduced rate applicable for retained earnings has been discussed. Austria heads for an early general election in September 2019. It needs to be seen what goals a new government will pursue.
We believe that such an international group will usually consider re-locating activities from the UK to a country in Europe.
It should be noted that Luxembourg is an important European financial centre – the second largest investment fund centre after the United States – having close ties with the UK, and more especially with London. It is anticipated that the Brexit will thus affect Luxembourg adversely.
On the other hand, Luxembourg is a stable political country with a strong and growing economy. With its AAA ranking, it is a reputable jurisdiction to implement and relocate financial and investment activities.
For foreign investors, Luxembourg offers many advantages through low tax rates, a simple and transparent tax system, a great treaty network, an accessible tax administration, a flexible corporate law and corporate governance rules and a leading position for alternative investment funds structuring.
23. Malaysia is one of the UK’s largest trading partners in the region and the Malaysian government has consistently introduced and maintained a large gamut of attractive tax incentives to encourage new investments in various sectors, especially in respect of research and development, high technology and green technology.
Malaysia also has in place multiple special economic regions offering different tax incentives and the Labuan taxation regime to boost and attract investment.
As an Associate Member of the BEPS Package, and in light of the recent introduction and enaction of various legislations in line with the BEPS Action Plans, Malaysia is expected to continue to improve on transparency and accountability to bolster the economic and financial infrastructure that is in place.
The following advantages would be relevant for international groups wishing to relocate their activities from the UK to the Netherlands in anticipation of Brexit:
- Advance Pricing Agreements and/or Advance Tax Rulings can be obtained from the Dutch tax authorities if the international group performs operational activities in the Netherlands;
- The Netherlands has a large tax treaty network with favorable allocation of taxing rights on capital gains and reduced withholding tax rates;
- Possibility to form a fiscal unity (see question 19), leading to administrative savings;
- The 30%-facility, allowing for tax-free reimbursement of 30% of an employee's salary if the employee was recruited from abroad and has specific expertise (assessed on the basis of the salary the employee earns);
- Participation exemption on dividends and capital gains (see question 22);
- Gateway to Europe (Schiphol Airport, harbor of Rotterdam);
The following disadvantages would be relevant:
- Labor law is less flexible than e.g. Ireland;
- Current political climate and the introduction of reactionary anti-abuse rules.
Compared to other countries of Latin America, Peru is a market economy with rules promoting foreign investments, no foreign exchange control and the right of free remittance of funds abroad. Those rules have been in force for almost thirty years now. It is also an advantage for our country the fact of being located at the very center of South America, which converts it in a transportation hub within the different countries of the region. However, Peru does not have a broad network of tax treaties, its tax law is not promotive of outbound investments and labor laws are quite protective of employees, which make difficult termination unless there is cause for that.
The Philippines is one of the most vibrant economies in South East Asia and its strategic location is an advantage for businesses that require distribution in major Asian markets. Availability of skilled workforce is not a problem and there is no language barrier to contend with for the Philippines is an English speaking country.
Tax incentives and special regimes are available for certain activities that are not reserved for Filipino citizens. Businesses engaged in encouraged and identified activities can register with the Board of Investments to avail of incentives. Other incentives can also be secured if the business activity is qualified for registration with the Philippine Economic Zone Authority and is located in any of its accredited economic zone areas. The incentives include, among others, income tax holiday, tax and duty free importation, and a special 5 percent tax regime based on gross income. Freeport and other special economic zones are also available to foreign investors.
The current administration is also focused on improving the country’s infrastructure to address the transportation, communication and power supply issues encountered by foreign investors.
The main advantages for re-locating a company to Poland can be summarized as follows:
- Poland has dynamically developing market with highly-skilled human resources and with much lower employee costs than most EU countries.
- Poland has an extensive double tax treaty network with in total more than 80 countries reducing or eliminating withholding taxes.
- Poland has participation exemption for dividends and qualified shareholdings in foreign corporations.
- There is no wealth tax in Poland.
- Poland has relatively low tax rates (9% CIT - for the smallest taxpayers and for others 19% CIT and 18% or 32% PIT).
- Poland provides for the IP-box and R&D tax credits.
- As indicated above, Poland creates new Special Economic Zones which means that the foreign capital does not have to be located in specific economic zones.
A disadvantage of relocating to Poland is that there is a certain degree of bureaucracy and lack of transparency in Polish tax administration linked to an aggressive approach of the Polish tax authorities in case of tax audits and tax proceedings. A second huge disadvantage is the extensive anti-avoidance doctrine (substance over form) applicable by the Polish tax authorities to control tax-planning by the entrepreneurs.
First of all, it should be noted that Portugal remains in a period of economic recovery, capturing initiatives and business opportunities of great importance in the European and International context.
A particular example occurs in the fields of entrepreneurship and information and communication technologies. As an example, the Web Summit opened its first office in Lisbon and will be hosted in Lisbon for the next 10 years.
On the other hand, the existence of regimes such as the Non-Habitual Residents and Golden Visa continue to bring to Portugal investors of a very considerable size and with a recent projection in the real estate sector, where major operations are projected over the next few years.
Indeed, the real estate market remains quite active and continues to offer very interest opportunities to private and corporate investors.
Once again, we also note that, in Portugal it does not exist neither wealth tax nor inheritance tax. Further to that, donations between parents/sons/spouses are exempt from Stamp Duty.
Likewise, it should be noted the strategic location of Portugal – it stands as a strategic location between three continents: Europe, America, on the other side of the Ocean, and Africa.
At the tax level, the main advantages are, respectively:
(i) A modern tax system, endowed with the latest instruments of tax optimization, such as the participation exemption regime or the patent box;
(ii) Legal and political stability;
(iii) Advantageous tax regime for real estate investment funds, real estate investment companies and real estate investment and asset management companies;
(iv) A broad set of incentives and tax benefits to productive investment.
(v) The existence of an extensive network of Double Taxation Conventions – currently there are 79 Conventions, 74 of which are already in force (including a DTC with Angola, to be in force soon).
The main disadvantages are related with:
(i) The high progressive income tax rates applicable to resident individuals;
(ii) Lengthy tax litigation proceedings on regular courts despite the possibility of appeal to arbitration courts, which is being increasingly used.
There are many advantages for re-locating a company or group of companies to Spain, some of them tax-wise but also other such as cultural and environmental advantages. With no exception Spain is a country where directors and teams are more easily adapted and reallocated.
From a tax view point with more than 90 Double Taxation Agreements and one of the best Tax regimes for holdings companies in the world, Spain has evolved from a purely an inward investment country to a tax attractive platform jurisdiction.
Indeed, the Holding regime together with the extensive participation exemption m, make Spain the best gateway for two main regions: (i) Latin America, since due to its cultural links Spain is surely the best platform for investing in that region and many multinational groups are using Spain so, and (ii) Europe, since given the favourable tax regime for Holding companies, many groups could get access to European single market without almost tax burden.
Spain is a business-friendly jurisdiction with highly skilled and sophisticated Tax Authorities that are in favour of giving certainty by mean of advance tax rulings and pricing agreements.
Aligned with Base Erosion and Profit Shifting (hereinafter, BEPS) OECD and EU principles, Spain is involved, and leading some, of the international initiatives aimed to promote transparency and implementation of anti-avoidance provisions such as those provided by the Anti-Tax Avoidance Directive, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.
Advantages to re-locating activities in Switzerland include overall business-friendly and modern regulations, strong political and financial stability, efficient and accessible authorities (including tax authorities, with the possibility to request a tax ruling to clarify the tax consequences of a planned structure or transaction), multiple favourable tax regimes (see 17 above) and quality infrastructure.
Some disadvantages include the high cost of doing business in Switzerland, as well as strict regulations in some areas of law such as immigration law, particularly regarding work permits for non-EU nationals.
Following the passage of the Tax Cuts and Jobs Act in December 2017, the US tax system has become more competitive, especially for US corporations that provide services or sell goods abroad. For example, as noted above, corporations are subject to a 21 percent flat tax rate and, although the US statutory corporate tax rate is still not as low as the UK (19 percent for 2018), certain income derived from sales of good and services outside of the US is effectively taxed at 13.125 percent.
While US corporations now enjoy significantly reduced income tax rates on their worldwide income (including subpart F income and GILTI), large US corporations may now be subject to a base erosion minimum tax (“BEAT”) that is payable in addition to any other tax liability. As noted, the base erosion minimum tax amount is generally the excess, if any, of 10 percent (five percent in the case of taxable years beginning in calendar year 2018) of its modified taxable income over an amount equal to its regular tax liability reduced by certain tax credits.
Finally, under the TCJA, US shareholders of CFCs are now subject to tax on their pro rata share of GILTI, without regard to whether the income is distributed to the shareholders. For these purposes, GILTI generally includes all business income of a CFC other than subpart F income or income effectively connected with a US trade or business. And, while the new GILTI regime reflects an expansion of the US tax base to tax active business of a US shareholder’s CFC, US corporate shareholders are generally allowed a 50 percent deduction on their share of GILTI. A foreign tax credit generally is available to offset, in whole or in part (only 80 percent, in the case of GILTI), the US tax owed on non-US source income.
Much would probably depend on the nature and scope of the group’s activities. Notwithstanding uncertainty caused by Brexit many advantages of the UK jurisdiction will remain. The UK will continue to possess a well-developed, sophisticated financial infrastructure. Its high level of connectivity with the rest of the world will not change. Whatever the eventual political settlement over Brexit, the UK Government has indicated that it intends to maintain existing trade etc standards and regulation. Consequently, but subject to the Brexit settlement, activities in the UK should continue to be compatible with similar activities within the EU. The UK courts are experienced at dealing with international disputes and are often flexible in procedure and cost-effective. They are likely to remain a forum of choice for the resolution of international disputes. The tax authority always scores well in comparison exercises with other national fiscal organisations and is recognised as honest and sophisticated. Whilst the UK will not become a low rate tax haven, it is the policy of the UK Government to reduce corporate tax rates. The UK has a track record of using the tax system to encourage and incentivise business. Self-evidently the language of business in the UK is English.
Disadvantages attributable to Brexit will depend on the eventual political settlement but will most likely include the loss of membership to the single market and customs union, potential consequent loss of passporting rights, and inability to rely on the EU Arbitration Convention, which established a procedure to resolve disputes where double taxation occurs between companies of different Member States. Without an agreement with the remaining EU Member States, for example, directives, such as the Parent-Subsidiary Directive and Interest and Royalties Directive, will no longer have direct application to UK companies. Consequently, UK companies receiving dividends, interest and royalties from EU companies will have to rely on double tax treaties to eliminate (if possible) withholding taxes on such distributions. Depending on the terms of the tax treaty, companies might incur additional costs when distributing profits from certain EU Member States and might have to consider restructuring to distribute dividends more efficiently.
Belgium is known for its highly-skilled and multilingual workforce and its comparatively cheap office and housing market. The country has a central location in Europe is therefore easy to reach. Many relevant political institutions have their headquarters in Belgium, such as NATO, the main EU institutions and SHAPE.
Disadvantages can be found in the fact that Belgium has a complex political structure and that employment taxation is rather on the high end.
Tax advantage in Panama are related with the territorial system. Therefore only income that is generate locally is subject to tax, any profits obtain from abroad are not subject to taxation under Panama Tax Regulations.
In addition to the above there are several tax regimes that provide tax benefits in addition to the provision of labor and custom duties incentives, such as the SEM regime that allow the Multinational Group to have a back office center within Panama exempt of taxes in addition that provide the benefits of having foreign individuals working for this special entity without the implications of labor limitations, meaning that the company is able to have more than 10% of foreign employees. In addition there are savings related to social security contributions do the exemption that is granted for foreign individuals working for the SEM Company.
Panama is also known as the HUB of the Americas providing the facilities for connections, communications in order to establish the LATAM center of business in our country.
Finally Panama is taking all the necessary steps to be a cooperative country as recommended and require by the OECD, GAFI among other international organizations.