The Seychelles-Thailand tax treaty – illustration of signature, ratification and application phases

Posted in Double Taxation Agreements at 7:47 am by Robert Klien

The Seychelles-Thailand tax treaty was signed on April 26, 2001 (signature), brought into force on March 13, 2006 (ratification) and will be applied from January 1, 2007 (application).

In accordance with the treaty, dividends, interest and royalties paid by a company residing in one country to a company residing in another country may be taxed in either country. However, if the beneficial owner of the company is a resident of another state, the tax charged may not exceed 10% of the gross amount in the case of dividends, 15% in the case of interest or royalties (exception – interest received by a financial institution is taxed at 10%). The Seychelles-Thailand tax treaty has provisions for mutual agreement procedures, non-discrimination and exchange of tax information.

This example also illustrates how long it can take between signing the treaty and ratification. Almost 5 years were spent to get the treaty ratified and during all this period the treaty had no real effect notwithstanding many web sites informed us that the Seychelles had signed double tax treaty with Thailand. And only from January 1 next year it will be possible to benefit from this treaty.


Tax treaty negotiated, signed, ratified or applied?

Posted in Double Taxation Agreements at 2:20 pm by Robert Klien

It is a usual question on double taxation treaties and most other treaties and international agreements as well. It is really important to understand whether a double taxation treaty is still negotiated or it has been signed or ratified or it has already been applied.

A double taxation treaty usually is a bilateral treaty, and it means that it is negotiated between a limited number of states, as a rule, just two, and it establishes legal rights and obligations between just those two states.

A treaty usually consists of these phases:

1) Consideration. Before starting negotiations an authoritative representative of each country informs each other on the intention to start negotiations. It usually happens when the first representatives of one country meet each other or ambassador of another country.

2) Negotiation. It is a formal process by which the terms of a treaty are agreed between countries and which should result in the signing of a treaty. Negotiators should be authorized and have a mandate of the party they represent. It could take up to several years to reach the consent.

3) Signature. It is the act by which a state expresses its consent to the text of the treaty, however, not its consent to be bound by it, unless the treaty states that it comes into force on signature. A country which has signed a treaty which is a subject to ratification is not obliged to ratify, therefore signed treaty does not mean that it will actually enter into force. Each country should obtain a parliamentary approval for ratification and sometimes it could be a never-ending process.

4) Ratification. Each country should ratify a treaty before it enters into force. Usually, before the ratification, each country also should check whether some changes in legislation should be made to avoid any obstacles in fulfilling the ratified treaty.

5) Application. Usually there is some date other than the date of ratification when the treaty is applied. The provisions of the treaty usually determine the date when the treaty comes into force.

6) Withdrawal. If some events that change a country’s interest in a treaty occur, the country can remove its consent to be bound by the treaty. The treaty usually specifies the terms of withdrawal and typically a party to a treaty remains bound by the treaty for an indicated period of time following notification of intention to withdraw before the withdrawal happens.

General guidelines on international treaty principles can be obtained at http://untreaty.un.org/English/guide.asp

In the next blog, we will look at double taxation treaty lifecycle on the examples of Seychelles double tax treaties.


Seychelles International Trade Zone (SITZ)

Posted in Seychelles offshore jurisdiction at 2:06 pm by Robert Klien

Seychelles International Trade Zone (SITZ) is a very essential part of the Seychelles economy that is becoming even more and more essential for the Seychelles. SITZ was set in 1995 by the International Trade Zone Act 1995 and the International Trade Zone Regulations 1995 that provide for the establishment of free trade zones.

Activities inside this zone are governed by the Seychelles International Business Authority (SIBA), which deals with issuing licenses to incoming companies. Licenses are issued for assembling, processing, redistribution, service, telecommunications, manufacturing and other technology-oriented businesses, whereas retailing is not normally permitted in the zone, however, SIBA has authority to give consent for it. It also can request information from a license applicant.

Seychelles International Trade Zone offers modern facilities with attractive tax and other incentives for companies. License holders in SITZ have the following concessions and privileges:

  • exemption from social security contributions,
  • exemption from fees on work permits,
  • employing 100% foreign labor,
  • exemption from customs duties on capital equipment used in the zone,
  • permission to acquire interests in real estate or a company for the purpose of carrying on activities in SITZ.

The physical security of SITZ is controlled by the authorities – officials of SIBA, officials of SITZ or police officers do their best checking vehicles and shipments moving in and out of the zone and seizing suspicious goods.


Agreements on Exchange of Information

Posted in Seychelles offshore jurisdiction at 6:26 pm by Robert Klien

The Seychelles has no international agreements on exchange of information, but its upcoming double tax treaties are going to include some regulations on this matter that will be based on the model worked out by the Organisation for Economic Co-operation and Development (OECD).

Also, the Seychelles has a number of domestic legislation documents that include

  • the Mutual Assistance in Criminal Matters Act 1995,
  • the Anti-Money Laundering Act 1996,
  • and some offshore Acts.

These acts mention the necessity to provide information internationally in suspicious and possibly criminal cases. As to the topicality of combating terrorism, the following conventions are in force in the Seychelles:

  • Convention for the Suppression of the Financing of Terrorism,
  • Convention for the Suppression of Terrorist Bombings,
  • Convention Against Trans-National Organized Crime,
  • Convention Against the Taking of Hostages,
  • Convention for the Suppression of the Financing of Terrorism,
  • Convention on the Physical Protection of Nuclear Material,
  • Statute Establishing the International Criminal Court,
  • and the Convention on the Marking of Plastic Explosives for the Purposes of Detection.


Seychelles Double Taxation Agreement with Qatar

Posted in Double Taxation Agreements at 3:55 pm by Robert Klien

Qatar became the latest country that signed a Double Taxation Avoidance Agreement (DTAA) with the Seychelles. The DTAA was signed by the Seychelles Minister for Employment and Economic Planning and the Qatar Minister for Finance on July 8, 2006.

The DTAA allows investments made in one country from the other to qualify for tax breaks on royalty payments and dividends. Dividends paid on Qatari investments in the Seychelles are now qualified as tax credits, and they reduce the investing company’s tax burden in Qatar. The same measures work also in the opposite direction and this is expected to attract foreign companies ready to invest in Qatar to set up in the offshore world of the Seychelles.

At present, the only Qatari company trading in the Seychelles Qatar Airways, a national airline.


Seychelles Double Taxation Agreement with Indonesia

Posted in Double Taxation Agreements at 3:23 pm by Robert Klien

In March, 2006, Indonesia threatened to abrogate its Double Tax Avoidance Agreement (DTAA) with the Seychelles because of round-tripping * Indonesian companies do. In response, the Seychelles Association of Offshore Practitioners and Registered Agents (SAOPRA) claimed Indonesia had no legal grounds to act in such a way at least until 2010 as far as Article 29 of the Indonesia/ Seychelles DTA is legally valid and cannot be ended until at least 2010. Accordingly, DTA is still in force.

If persons using Seychelles tax resident companies hold shares in Indonesian companies , conduct no activities in Indonesia and have a permanent establishment in Seychelles, these Seychelles companies can lawfully access and rely on the DTA benefits.

* round-tripping – a phenomenon of moving funds to & from – funds are brought out of the country and then brought back from offshore in the form of FDI.