What tax incentives exist in your jurisdiction to encourage fintech investment?
A company establishes tax residency when it is incorporated in Bermuda. However, exempt undertakings (that is, entities that are not local or Bermudian owned) are eligible for the tax exemption certificate. The certificate is an assurance from the Minister of Finance that for the period up to 31 March 2035, an exempted undertaking is not liable to pay certain taxes. These taxes are any taxes:
- Imputed on profits or income.
- Computed on any capital asset, gain or appreciation.
- In the nature of estate duty or inheritance tax.
Any business with employees physically based in Bermuda, whether local or exempted, is subject to Bermuda's consumption tax regime (whether or not they have an exemption certificate) which includes payroll tax.
There is no direct taxation in the Cayman Islands, which has encouraged fintech businesses to move their businesses to the jurisdiction and/or form Cayman Islands entities operating fintech businesses outside of the Caymans Islands. As noted, the SEZ provides a expedited and cost efficient path to establishing a business located in the Cayman Islands.
Despite the commentary above on new tax incentives, the base tax situation in Cyprus is generally very positive for businesses:
- Corporate income tax is set generally at 12.5% on resulting net profits. This tax rate may be further reduced subject to careful tax planning.
- There is no capital gains tax in Cyprus.
No specific tax schemes with the purpose of encouraging fintech invest-ments have been implemented in Denmark.
Finland does not have any tax incentives aimed specifically for fintech investments. The general corporate tax rate is relatively low, currently 20%, which can be considered a general incentive to establish a business in Finland. Further, Finland has a broad tax treaty network. The tax treaties are aimed to eliminate double taxation and to provide reduced withholding rates for qualifying cross-border transactions.
There are no tax incentives (other than tax incentives for start-ups like the "Jeunes Entreprises Innovantes" tax system or the “Research or innovation tax credits” etc.) to encourage Fintech in France to our knowledge.
There are no specified tax incentives for FinTechs.
There is no specific tax incentive. However, businesses are often attracted to Gibraltar’s competitive corporate tax rate which is currently set at 10% of profits “accrued in and derived from Gibraltar” instead of, for example, 19% in the UK. Additionally, Gibraltar does not have capital gains tax, wealth tax, value added tax or inheritance tax. Furthermore, Gibraltar offers HEPSS - a scheme for high executives possessing specialist skills (see question 10 for further details) – and a scheme known as Category 2. The Category 2 tax residency is a special tax regime in Gibraltar whereby individuals who are in possession of a Category 2 certificate issued by the Gibraltar Finance Centre are taxed on the first £80,000 of assessable income, resulting in a maximum tax liability of £27,560 as tax rates presently stand. In order to be obtain this tax residency status an application must be made to the Gibraltar Finance Centre. Approval by the Gibraltar Finance Centre under this tax regime will be subject to a number of conditions being met such as, but not limited to, the individual being of substantial and sound financial standing having a minimum net worth of £2 million and the individual must either own or rent approved residential accommodation in Gibraltar. A Category 2 individual cannot generally engage in a trade, business or employment in Gibraltar, unless agreed in advance with the Finance Centre director.
The Malta Enterprise Act (Chapter 463) (‘MEA’) entails various incentives consisting of tax credits calculated, either: as a percentage of the capital investment, typically utilised by capital intensive enterprises; or by reference to the value of wages covering new jobs created consequent to an investment project. Tax credits are set-off against the income tax due by the enterprise for that year. Eligible undertakings under the Micro Invest Scheme, one of the many tax incentives under MEA, may be granted the possibility to claim a tax credit equivalent to 45 per cent of eligible expenditure and wage costs. Malta also provides for attractive tax residency rules for highly qualified individuals and high-net-worth individuals wherein a 15 per cent flat rate on income tax on particular income streams may apply to such individuals provided that certain requirements are met.
Although there are no specific tax incentives to encourage investment in fintech specifically, Israel does have certain tax incentives to encourage investment by non-residents. These include:
- An exemption from capital gains tax for foreign residents on the sale of securities of an Israeli company, subject to complying with certain pre-requisites (including the company’s assets not being mainly real estate). This exemption will only apply if the non-resident individual or corporation not operate through a permanent establishment in Israel.
- Certain venture capital funds will be exempt from tax on all capital gains and dividends from Israeli domestic corporations, even if they have a permanent establishment in Israel (such as a representative office or a local entity for making the investments). This exemption will only apply if the fund receives a pre-ruling in advance from the Israel Tax Authority and meets certain conditions including having at least ten investors and investing a minimum of USD ten million in Israeli related investments.
- Dividends from Israeli corporations are subject to withholding tax of 25% to a non-resident investor or 20% if the target entity qualifies for certain tax benefits under the Law of Encouragement of Capital Investments, 1959. This rate may be reduced if the beneficial owner of the investment is a resident of a country which has a tax treaty with Israel.
- Interest from loans provided or bonds acquired in Israeli resident companies will be subject generally to a 25% withholding rate. This rate may be reduced if the beneficial owner of the investment is a resident of a country which has a tax treaty with Israel.
Currently no specific tax incentives accelerating fintech investment are granted in Japan. However, an individual angel investor can enjoy special treatment if he/she invests into new shares of a company that exists for less than 3 years and if certain requirements in relation to its size, cash flow deficit and amount of research and development ("R&D") expenses are satisfied. Further, some tax credit is available for R&D expenses, provided the company satisfies certain requirements determined based on its size.
To date the Mexican Congress has not yet approved any type of tax incentive for Fintech companies and no regulation in this regard is expected to be issued in the short term. Some local incentives (which vary from State to State) may be considered to promote the development of Fintech companies in specific geographic regions.
Although there is no specific value added tax (‘VAT’) provisions applicable to cryptocurrencies as of yet, it is expected that these type of virtual assets will receive a similar tax treatment to that applicable to foreign currencies, shares, debt certificates, real estate participation certificates and derivatives (i.e. the application of a 0% VAT rate). Also, the export of certain technological services from Mexico qualifies for the application of a 0% VAT rate, provided that certain conditions are met.
British Virgin Islands
Taxation in the BVI is a relatively straightforward matter and tax incentives are offered to all companies across the board without any type of ring fencing. A BVI company, all dividends, interest, rents, royalties, compensations and other amounts paid by such a company to persons who are not persons resident in the BVI are exempt from all forms of taxation in the BVI. (Including corporation tax, capital gains tax, gift tax, profit tax, inheritance tax, estate duty tax, sales tax or value added tax). Additionally, whilst income tax is still assessed in the BVI for companies and individuals, the rate of taxation is currently set to zero.
Further, the Payroll Taxes Act, 2004 (the Payroll Taxes Act) is in force and will apply to a company that has employees rending services wholly or mainly in the BVI. In such a case, the company will be subject to payroll taxes on remuneration and benefits paid to such persons under the Payroll Taxes Act.
SSEK: No tax incentives exist in Indonesia specifically for fintech investment.
Even though we are not aware of any current tax incentive specifically aimed at encouraging fintech investment, there are tax incentives generally available to start-up investment which may be of importance considering that most of fintech investment is made through start-ups.
As an example, “Programa Semente” establishes that individual taxable persons who make eligible investments up to € 100,000 in start-ups can deduct 25% of the investment made up to a limit of 40% of the IRS collection.
There are no tax incentives specifically aimed at fintech companies. The Research and Experimentation Tax Credit (also called the R&D tax credit) provides a tax credit for certain expenses for wages, supplies, contract research payments and basic research. Under various calculation methods, between 15% to 20% of these expenses can be credited against a company's federal tax liability.
The UAE is generally considered attractive to businesses in terms of taxation. There are no tax incentives specifically directed at the fintech sector, however the UAE is generally a tax-free jurisdiction with no corporate income tax but a value added tax of 5%. This value added tax applies to the provision of financial services where (1) such services are performed in return for an explicit fee, discount, commission, rebate or similar; and (2) the recipient of the services is a consumer residing inside the UAE, including the Financial Free Zones.
There are no special tax benefits for fintech companies in Ukraine. Nevertheless the tax rate for running individual business in this jurisdiction is one the lowest in the world.
In particular, having chosen the simplified tax system and in case of obtainment of the annual revenue that does not exceed UAH 5 mln. (appr. USD 180 K) an individual entrepreneur may run a business with respect to taxation of profit at the rate of 5% (for VAT non-payers).
Many Ukrainian IT-startuppers run their business according to individual entrepreneurial contracts based on the simplified tax system.
There are no tax incentives specially targeted at fintech investment. Switzerland remains overall a favourable business location from a tax perspective, with competition between cantonal tax regimes ensuring that the overall tax rate remains competitive. Token issuances are usually not subject to tax. Start-ups may profit from more lenient taxation in many parts of Switzerland, e.g. by being taxed only on net asset value until representative business results are available.
The Indian government has launched the ‘Start-up India’ initiative under which various incentives (such as a three year income tax holiday) subject to the start-ups meeting certain conditions. Some additional financial incentives are also there for digital payments. While these are not per se tax incentives, they are more geared towards the users of these services as opposed to the providers of such services. Two such notable incentives are the recent subsidization of Merchant Discount Rate (MDR) paid by merchants on debit cards for transactions lesser than INR 2,000 and the subsidy on Goods and Service Tax (GST) to the users of the RuPay card or the BHIM UPI App, which have been developed by the National Payments Corporation of India (NPCI).
Whilst not specific to fintech, there are a number of generous tax incentives in the UK aimed at promoting investment in small companies by “business angels”.
The first is the Seed Enterprise Investment Scheme (SEIS), which was introduced in April 2012 to help small, start-up stage companies, raise funds through individual investors by providing very generous tax relief to investors who take risks on such ventures. If an investor invests up to £100,000 per year in SEIS investments, for a stake in a company of less than 30%, income tax relief of 50% of the amount invested is given with the potential to split the relief between the tax year of the investment and the previous tax year. There is also no capital gains tax on the disposal of shares if the shares were held for at least three years. Loss relief is available; however, the relief is reduced by the income tax relief claimed on the investment.
The second is the Enterprise Investment Scheme (EIS), which was launched in 1994 to encourage individual investments in small unquoted trading companies in the UK. For this to apply, individual investors can invest up to a maximum of £1,000,000 per year, for a stake of less than 30%, and income tax relief of 30% of the amount invested is given. Again, there is no capital gains tax on the disposal of shares if the shares were held for at least three years; loss relief is available, but the relief is reduced by the income tax relief claimed on the investment and can be set against the investor’s capital gains or his income in the year of disposal.
The third is Entrepreneur’s Relief. This applies a 10% rate of capital gains tax to gains accruing on the disposal of ordinary shares in an unlisted trading company held by individuals, that were newly issued to the claimant and acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years starting from 6 April 2016.
One further tax incentive that is likely to be relevant to fintechs is R&D tax relief. This provides enterprises with a significant tax saving in respect of qualifying expenditure incurred by the enterprise on research and development projects which seek to achieve an advance in overall knowledge or capability in a field of science or technology, through the resolution of scientific or technological uncertainty. For a company with fewer than 500 employees that either has an annual turnover up to €100 million or a balance sheet of up to €86 million, the tax relief on allowable R&D costs is 230% - that is, for each £100 of qualifying costs, the company or organisation could have the income on which corporation tax is paid reduced by an additional £130 on top of the £100 spent. A loss-making company of this type could surrender its loss to HM Revenue & Customs for repayment as cash credit: for example, if a loss-making company carries on R&D and incurs a surrenderable loss of £100,000 in an accounting period, it could surrender the loss and receive £14,500 back from HMRC in cash. As such, a fintech that that is carrying out significant amounts of research and development could benefit greatly from this relief.
The Netherlands provides for the so-called “innovation box” regime to incentivize R&D activities. Under the innovation box regime, profits that can be allocated to a particular intangible asset, self-developed in the Netherlands, are subject to corporate income tax at a reduced tax rate of 7%. The percentage of profits that can be allocated to the particular self-developed intangible asset is determined on a case-by-case basis in consultation with the Dutch tax authorities. Upon request of the taxpayer, the percentage of the profits which can be allocated to the “innovation box” may be the subject of a tax ruling.
Another tax related incentive of which fintechs may benefit, is that companies with employees performing certain R&D activities in the Netherlands may apply for an R&D tax credit. Such companies may benefit from a reduction of wage tax and national insurance premiums with respect to salaries paid to its employees performing the relevant R&D activities.
Finally, for highly skilled expat employees moving to the Netherlands, the employer may grant a tax free allowance equivalent to 30% of the gross salary for wage tax purposes (30%-ruling). A highly skilled expat is (in short) defined as an employee that (i) has a gross salary of at least € 37,296 (2018), and (ii) has not lived within 150 km of the Dutch border for more than eight months out of the last 24 months prior to the start of employment in the Netherlands. The maximum duration of the 30%-ruling is eight years. In 2017, the Dutch government announced to reduce the duration to five years. No conditions apply to the nature of the activities performed by the employee.
China has long put in place favourable tax polices toward emerging enterprises in high-and-new technologies, including fintech companies, though no special or targeted tax incentives or treatments are available to fintech companies. For instance, a high-tech enterprise passing the national certification is entitled to a favourable a rate of corporate income tax at 15%, compared to the normal rate of 25%.
In general, companies and limited partnerships in Taiwan making investments may enjoy the general research and development (R&D) tax benefits, including tax credit of certain income tax liability for expenses incurred for R&D, and deduction of certain taxable income against R&D expenses. In order to encourage fintech investment, the FSC also promulgated internal guidelines with regard to the applications by the financial institutions for the aforementioned tax benefits.
There are no tax incentives exist in Malaysia specifically for fintech investment. However, SMEs in Malaysia are given preferential tax rates as well as a wide range of tax incentives for businesses in the manufacturing, services and agriculture sectors. Fiscal incentives are pioneer status, investment tax allowance, reinvestment allowance, accelerated capital allowance and industrial building allowance, for example, pioneer status with income tax exemption of various percentages by the Malaysian Industrial Development Authority (“MIDA”).
Apart from the that, Multimedia Super Corridor (“MSC”) Malaysia status recognition by MDEC for information and communication technology (“ICT”) and ICT-facilitated businesses that meet specified criteria available to local and foreign companies. Specific incentives are granted to MSC Malaysia status entities, including the MSC Malaysia Bill of Guarantees, 100% exemption from taxable statutory income, 100% investment tax allowance, eligibility for research and development grants, and freedom to source capital and borrow funds under specific waivers from the foreign exchange administration requirements of Malaysia.