Netherlands-and-Luxembourg. - Globalserve Consultants Ltd

Report
The Netherlands and
Luxembourg:
The high profile players in
the Russian market
Globalserve Moscow Seminar
September 2013
By Phani Schiza Antoniou
Netherlands, the country
 EU member
 Highly strategic commercial location that makes it
the “Gateway to Europe”
 Natural hub for logistics and headquarter
functions
 High educated, multi cultural and multi-lingual
workforce
 High level of infrastructure
 Good economic and financial climate
Netherlands, the country
One of the major and reputable international
Business centers
Extensive Network of double Tax Treaties; 90!!
Good Banking system
Tax Rulings possible
Question
The Netherlands is the X largest investor in
Russia
50th?
17th?
2nd?
Question
The Netherlands is the X largest investor in
Russia
2nd
The Netherlands is the second largest foreign
investor in Russia
A Dutch B.V
 BV=Private company with limited liability
 Set up by a notary (make up of their articles)
 Official Permission of Minister of Justice
 Minimum share capital is €1
 Registered in the Chamber of Commerce
 Director can be also legal entity
 Min director/ shareholder 1
 Director can be non Dutch resident but for
management and control purposes Dutch director is
advisable
Summary of Dutch Tax Rates
Corporate Income Tax upto € 200000
Corporate Income T above € 200000
20%
25%
Tax on Dividends received
0% if participation exemption applies i.e
5% minimum shareholding in the
subsidiary held as participation not as an
investment
Royalty income
5%
Capital gains tax in the case of disposal of 0% if participation exemption applies i.e
participation
5% minimum shareholding in the
subsidiary, held as participation not as
investment
Profit from the trading in securities
20-25%
Withholding tax on dividends other than
EU or Treaty countries
15%
Withholding taxes on interest, royalties
0%
Summary of the Dutch tax system
GENERAL
Corporate Income Tax rate=25%
Taxable income ≦EUR 200,000=20%
Innovation box income taxed at 5%
Average ETR of Dutch multinational: Between
8% and 20%
Summary of the Dutch tax system
No withholding tax on interest and royalty
payments
Dividend withholding tax =maximum 15%
Qualifying dividends to EU or 0% treaty
country=0%
No capital taxes
Summary of the Dutch tax system
CORPORATE INCOME TAX SPECIFICS
Tax loss carry forward: 9 years
Tax loss carry back:1
Thin cap: 3 to 1 or the group’s debt-toequity ratio
Interest deduction limitations when eroding
the Dutch taxable basis of operating
subsidiaries
These rules do not affect international
structuring
Summary of the Dutch tax system
INNOVATION BOX
 Offers attractive opportunities to lower the ETR for income
allocable to intangible assets to 5% if:
 The intangible assets are self developed, which includes contract
research for the risk and benefit of the tax payer and participation in
R&D activities by means of cost-contribution arrangements (but
excludes marketing intangibles created by the tax payer, such as brand
names, logos and assets alike)
 The intangible assets are purchased, provided the purchased
intangible asset loses its independence and is merged into a new self
developed intangible asset.
 At least 30% of expected income can be attribute to
patents/registrations obtained for the intangible asset
Summary of the Dutch tax system
Test per intangible asset, to be met at the end
of the first year of applying for the Innovation
Box for an intangible asset
No upfront approval of Dutch tax authorities is
required, so Innovation Box can be applied for
by ticking a box in the Dutch corporate Income
tax return. However, in order to determine
income to be allocated to Innovation Box,
consultation with Dutch tax authorities
upfront is highly recommended.
Summary of the Dutch tax system
PARTICIPATION EXEMPTION
100% income (dividend income and capital
gains)exempt from Dutch corporate income
tax if it concerns an investment in shares of
at least 5% of the nominal paid-in capital,
unless it concerns a portfolio investment
company(no minimum holding period)
Summary of the Dutch tax system
SUBSTANCE REQUIREMENTS
Focus should be on substance requirements set by the jurisdiction that pays to a Dutch
holding company;
Presence of local operations
Key executives 'agenda for travel to the holding company jurisdiction
The Dutch tax authorities published the following list with minimum substance
requirements that should be met by so-called financing flow-through ruling companies:
At least 50% of the Board of Directors(BOD) MEMEBRS SHOULD BE Dutch
residents(live and work there)and of a certain professional level and the company
has adequate staff (itself or from 3rd parties)for performing the functions
All key strategic/material decisions of the BOD should be taken in the
Netherlands, such as the entering into contracts and signing of documents
The main bank account should be held in the Netherlands
The bookkeeping is maintained in the Netherlands
The address of the company should be in the Netherlands and the company is not
considered a resident in another state on the basis of a tax treaty
The company has sufficient equity considering its activities and the risks to be
absorbed by the company.
DOUBLE TAX TREATY WITH RUSSIA
DIVIDEND
•If 25% ownership in the
subsidiary Russian company
and minimum investment of
•€ 75000
5*%/15%
INTEREST
0%
ROYALTIES
0%
Why Luxembourg?
• Providing a platform to the EU: a founding member of the EU
with many EU institutions located on is land
• Population & Workforce: Multicultural and multilingual
population becoming the source of highly trained working
force
• High standards of living and safety
• Business friendly tax framework (large number of double tax
treaties (64), the lowest VAT in Europe etc.)
• Enable flexibility and transparency in doing business
• Solid legal and regulatory framework
• Internationally established financial and investment fund
centre: with more than USD 2.5 trillion in assets (2nd as an
investment fund centre in the world and 1st in Europe)
Why Luxembourg?
•Politically and socially stable
•Established in the fund management market: Easy access to fund management
groups and decision makers with long-standing experience in attracting
international companies; USD 300 billion assets under management; A market
leader in product innovation for UCIT and non-UCIT funds
•Outstandingly developed banking system:
•Strategic location in Europe
•Transport: Highly efficient infrastructure and logistical network (e.g. airport,
railway);
•Known for pro-business legislation and administration with government
encouraging business
•Sound macroeconomic fundamentals. It is the richest country in Europe and
second richest in the world as per per capita income, one of the 11 AAA rated
countries
•The international market in a single place: access to a market of over 100 million
consumers within a 250 km radius
•A base for Islamic products
•Wide range of double tax treaties 64!
Types of Luxembourgish vehicles
Regulated by CSSF (Commission de Surveillance du
Secteur Financier) vehicles:
SIF (Specialised Investment Fund)
SICAR (Risk Capital Investment Company)
Unregulated by CSSF vehicles:
SOPARFI (Société de Participation Financière)
SPF (Private Wealth Management Company)
SPV (Securitisation Vehicle)
Types of legal forms of investment
vehicles
Public Limited Liability Company- (S.A)
Private Limited Liability Company- (SARL)
Partnerships-(S.N.C.)
Limited partnerships- (S.C.S.)
Partnerships Limited by Shares or Cooperative
companies- (S.C.A.)
Cooperative Company Organised as a public Limited (COOPSA)
European Company (SE)
SOPARFI
Société de Participations Financières
a normal and fully taxable commercial company
primary activity is being a holding company and financing
activity
it benefits from “participation exemption/affiliation
privilege” in respect of some or all of its investments
It can also perform commercial, industrial and financial
activities which are subject to VAT
Can be incorporated as SA public limited co or as SARL the
limited liability company or as limited partnership by shares
SCA
Characteristics of SOPARFI
Registered office or central administration in Luxembourg
Registered and bearer shares of various classes
Minimum Share Capital (in any currrency): depends on the form of the business
(S.A./S.C.A. vs S.à R.L)
Directors: minimum of 1 for SARL; a minimum of 1 for SA but only if the
shreholder is also 1, otherwise 3 directors are needed; they an be natural persons
or corporate bodies; of any nationality
BUT even if they do not have to be residents of Luxembourg the majority is
recommended to be so in order to comply with the rules of “permanent
establishment”
No need of a company secretary
Shareholders minimum of 1
Reporting: Annual audit is compulsory and the abbreviated accounts are filed
and accessible to he general public
Thin capitalisation rules
Flexible thin capitalisation rules: compliance with a debt/equity
ratio of 15 percent equity / 85 percent debt, or alternatively 1
percent equity/14 percent interest-free loan/85 percent
interest-bearing loan, is required when financing participations.
If a higher ratio is maintained, then it may be considered as non
tax deductible and would potentially be subject to Luxembourg
15 percent dividend withholding tax. No thin capitalisation
rules need to be respected for intra-group financing
Main tax benefits from using Lux cos
Dividend received, liquidation receipts and capital gains tax
realised by a Luxembourg company are fully exempt from
income tax subject to the participation conditions below:
The subsidiaries are fully taxable EU cos applying EU
parent subsidiary directive
Or if non EU cos, they are taxed at income tax rate at least
10.5% and for which the foreign tax base is similar to
Luxembourg
It has at least 10% shareholding in the capital of the
subsidiary or at least investment of €1.2 million is made
for exception from dividends. For exemption from capital
gains tax a minimum investment of € 6 m is required
Minimum holding period 12 months
New Double Tax Treaty between Luxembourg and
Russia in effect as from 2014
DIVIDEND
•If 10% ownership in the
subsidiary Russian
company and minimum
investment of
•€ 80.000
5*%/15%
The new treaty which is to
be put in effect as from 2014
has reduced the WHT on
dividend from 10% to 5%
under conditions like Cyprus
and Nertherlands
INTEREST
0%
ROYALTIES
0%
Main tax benefits from using Lux cos
 No withholding tax on interest payments
 Benefit from EU interest, royalty and dividend Directive
 Withholding tax of 15% for dividend paid to non EU cos and non
Treaty cos which do not meet the participation exemption
criteria
 Favourable IP regime for royalties at the effective tax rate of
5.85% through 80% income exception from tax arising either
from royalty income or capital gains from the sale of Intellectual
property rights, copyrights patents
 Flexible thin capitalisation rules #
 Corporate tax rate at 28.8% consisting of 20 % or 21% corporate
tax if above € 15000 net profit plus surcharge to the
employment fund plus municipal tax . Minimum flat tax € 3210
 Net wealth tax 0.5%on worldwide net assets but there are
exemptions
 Losses are carried forward indefinitely
Comparison of Luxembourg and Dutch Tax Rates
Luxembourg company
Dutch company
Capital
It has minimum amount and has to
be paid in advance according to the
type of company
No minimum
Corporate tax
28.8%
20 % upto € 200000
25% above € 200000
Tax on Dividends received
O% if participation exemption
applies i.e
•10% minimum shareholding or a
minimum of € 1.2 m investment
•For at least 12 months
•EU co or if non EU to be taxed at tax
rate at least equal to 10.5%
0% if participation
exemption applies i.e
•5% minimum shareholding
in the subsidiary
•held as participation not as
an investment
Royalty income
5.85%
5%
Comparison of Luxembourg and Dutch Tax Rates
Luxembourg company
Dutch company
Capital gains tax in the case of O% if participation exemption
disposal of participation
applies i.e
•10% minimum shareholding
or a minimum of € 6 m
investment
•For at least 12 months
•EU co or if non EU to be
taxed at tax rate at least equal
to 10.5%
0% if participation exemption
applies i.e
•5% minimum shareholding in
the subsidiary,
• held as participation not as an
investment
Profit from the trading in
securities
28.8%
20-25%
Thin capitalisation rules
15:85 equity /debt
1:3 equity /debt
Withholding tax on dividends
other than EU or Treaty
countries
15%
15%
Comparison of Luxembourg and Dutch Tax Rates
Luxembourg company
Dutch company
Tax loss carried forward
indefinite
9 years
EU dividend , interest and
royalty directives
Yes
Yes
Extensive network of DTT
64
90
DTT with Russia :
WHT on dividend
5%*/15%
*10% participation
And € 80000 investment
5%*/15%
*25% participation
And € 75000 investment
WHT on royalty and interest 0%
0%
Exchange of information
Yes
Yes
Limitation of treaty benefits
Will not apply provided
substansive business in one
of the states
Will not apply provided
substansive business in one of
the states
Who is going to be the winner in the race
for the Russian market???
Are Cyprus and Netherlands going to maintain
their positions as 1st and 2nd investor in Russia
or is Malta and Luxembourg equipped with
the new DTTs going to successfully compete
and overcome them
???????
Time will show but.........
Who is going to be the winner in the race
for the Russian market???
Cyprus , Malta, Netherlands or
Luxembourg ??
 However Malta ‘s DTT with the 5% withholding tax on interest
and royalties as against the 0% WHT of Netherlands, Cyprus
and Luxembourg put her in a disadvantageous position in this
race.
 The inexperience of the maltese banks in international
transactions and slowness / ineffectiveness as well as their
unwillingness to expand banking among the Russians puts
Malta in a less advantageous position as against Cyprus.
 Of course the new DTT in combination with the special
regimes that it already has with respect to gaming, yachting ,
shipping and aviation will assist it in increasing its share in the
Russian market, although not considerably
Who is going to be the winner in the race
for the Russian market???
Cyprus, Malta,Netherlands or Luxembourg ?
 With respect to Cyprus, the banking crisis has shattered the
Russian confidence since a lot of Russian deposits were lost
 But despite the crisis which has tested the stability of the tax
regime, the favourable tax system has remained unchanged with
respect to the international business companies with the
blessings of the Europeans
 After the first shock, the demand for the Cyprus companies is
picking up recognising the advantages of the island, not found in
the competitive jurisdictions :
Who is going to be the winner in the race
for the Russian market???
Cyprus, Malta, Netherlands, Luxembourg ??
 Reasonable costs combined with high value of services
 Experienced with positive attitude in commercial banking
 Simple, uncomplicated system without conditions for the
participation exemption for dividends received and capital
gains from the sale of securities
 Trading in securities is tax exempt which cannot be found in
any other jurisdiction
 No withholding tax on dividends if paid to non residents even
if they are offshore companies, unlike all the other
competitive jurisdictions with DTT with 5% withholding tax on
dividends
 And perhaps the biggest advantage of the Cyprus treaty is that
the limitation of the treaty benefits is only in case it is not
registered in Cyprus while with all the other treaties benefits
may be limited if there is no substance
Who is going to be the winner in the race
for the Russian market???
Cyprus, Malta, Netherlands, Luxembourg ??
 Luxembourg has definitely a big advantage over the other competing
jurisdictions with respect to the sophisticated and complete legislation,
 its outstanding developed banking system
 its leading position in fund management industry But
 it is very expensive and has high income tax rate at 28.8% for financing
operations
 Tax exemption of capital gains from the sale of the shares has conditions which
are not easily met
 The banks are mainly private banks and cannot cater for the clients’ commercial
needs
 Applies withholding tax on dividend to non EU with low tax rates such as the
classical offshore. For this reason both the Luxembourg cos and the Dutch have
to be combined with low cost EU companies which do not apply WHT like
Cyprus
Who is going to be the winner in the race
for the Russian market???
Cyprus, Malta, Netherlands, Luxembourg ??
 With respect to Netherlands, it will have to compete with
Luxembourg’s fund management and banking industry to attract
the big Russian groups
 Still its tax regime is more flexible and its participation
conditions easily achievable
 Its main defect the withholding tax on dividends to non EU and
non Treaty companies which is overcome using a Cyprus/ Irish
company to exit

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