Seychelles CSLs - The Investment Solution

Seychelles, situated in the Indian Ocean, is an independent country which gained independence from the UK in 1976. Over the last ten years or so, the Seychelles offshore financial services industry has experienced a significant increase in business depth, volumes and international profile.

A central factor in Seychelles' rise as an international financial centre has been its strategy of striking an effective balance between sound regulatory practice and pleasing the market-place.

The tax exempt Seychelles International Business Company (IBC) has enjoyed substantial success, as evidenced by surging registrations over the last five years (for example, 7097 new incorporations in 2005 and 8,238 new incorporations in 2006, making it now one of the most popular IBC entities worldwide).

Seychelles IBCs are exempt from Seychelles taxation on their income and also exempt from Seychelles stamp duty and withholding tax. Value for money has been an important reason in the success of the Seychelles IBC. Another factor which has impressed the market is the very fast speed of incorporations and name approvals. Seychelles IBCs also offer ease of administration, including no requirement to prepare or file audited accounts and no requirement to file an annual company return.

Another Seychelles IBC benefit is enhanced privacy, including no requirement to file details of the directors, shareholders or beneficial owners with any Seychelles Government Registry or other department. Such information is required to be held by or accessible to the Company's licensed Registered Agent.

The popularity of the Seychelles IBC and increased global profile of Seychelles as a serious offshore financial centre has paved the way for development into more value-added areas, including Trusts, Limited Partnerships, Mutual Funds and the "CSL" (Company Special Licence).

In this article I examine the CSL, which is increasingly being used, in conjunction with the Seychelles / China Double Taxation Avoidance Agreement, to provide a tax-efficient solution for medium to large investments into China.

Seychelles CSL

The CSL (Company Special Licence) is a Seychelles domestic company (incorporated under the Companies Act 1972), which is granted a special licence under the Companies (Special Licence) Act 2003. Unlike the IBC (which is a tax exempt entity and a non-resident for Seychelles tax purposes), the CSL is tax resident in the Seychelles and may carry on "permitted" business inside as well as outside of Seychelles (although, the permitted business requirements are such that CSL status is only granted where the Company is to hold investments, or provide services to clients, outside of Seychelles).

The CSL has substantial appeal (particularly to international groups), as a tax-efficient vehicle for permitted uses including, in particular, use as an international holding company, to hold and license out intellectual property or as a services company (eg. management, consultancy, etc).

A CSL is liable to Seychelles business tax at the rate of 1.5% on its world-wide taxable income (which may be avoided in cases where the Company is accessing a Seychelles Double Taxation Avoidance Agreement - see below). Taxable income means assessable (gross) income less allowable deductions. A CSL is also exempt from Seychelles withholding taxes on dividends, interest and royalties and from stamp duty on property transfers, share transfers and other business transactions.

A CSL is required to have a minimum of 2 directors, which must be natural persons. There is no mandatory resident director requirement, though this is required for Seychelles Double Taxation Avoidance Agreement access purposes where it is necessary to demonstrate effective management in Seychelles. A CSL is required to have a resident Company Secretary.

Presently, the law requires a CSL to have a minimum of 2 shareholders, which may be corporate entities. By virtue of a pending legislative amendment, it is anticipated that the minimum shareholder requirement will be reduced to 1 later this year. When setting up a CSL, regard must be had to the requirement that at least 10% of a CSL's authorised share capital must be issued and paid up.

A CSL is subject to higher "transparency" requirements than an IBC. A CSL is required to prepare and file annual audited accounts (but these are not publicly accessible), and it must hold an AGM and file an annual company return. Use of nominee shareholders is permitted. While shareholder and beneficial ownership details are required to be disclosed to the Seychelles Government Registry, such information is subject to strict confidentiality obligations on the Registrar and is not accessible by public search.

The "tax resident" CSL (unlike the tax exempt IBC) may access Seychelles' steadily expanding network of Double Taxation Avoidance Agreements, including with Indonesia, China, Malaysia, Thailand, Mauritius, Vietnam, Oman, South Africa, Cyprus, etc. In this article I concentrate on the Seychelles / China Double Taxation Avoidance Agreement ("Seychelles / China DTA").

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