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Foreign Holding Structures for
Indian Outbound Investments
Brussels, 2 September 2008
Indian Group with Foreign Subs
Indian Parent Company
Europe
Asia
North America
Foreign Holding Company
Objectives are:
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Tax efficient repatriation of profits
Obtaining treaty benefits (e.g. royalties)
Indian deferral planning
Tax efficient financing of foreign operations
Protection under Bilateral Investment Treaties
Organizational and business reasons
Regulatory reasons
Foreign Holding Company Example #1
Indian Parent Company
Singapore Holding Company
Dutch Holding Company
NL Group
Companies
EU Group
Companies
US Group
Companies
Foreign Holding Company Example #2
Indian Parent Company
Mauritius Holding Company
Singapore Holding Company
Luxembourg Holding Company
EU Group
Companies
Asian Group
Companies
Ideal Holding Regime (1)
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No taxes on dividend income and capital gains
Losses on participations deductible
Financing expenses deductible
No thin capitalization rules
No withholding tax on dividends paid to holding
company
• No withholding tax on repatriation of profits
• No capital tax/stamp duties
Ideal Holding Regime (2)
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No CFC rules
No subject-to-tax requirements
No holding period
No non-resident taxation exposure
Politically stable, no exchange controls or foreign
ownership restrictions, good infrastructure
• Excellent international reputation
The preferred system is simple, predictable,
reliable and has a long lifetime expectancy
No Tax on Dividends
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DWHT in the source state
Non-resident taxation in the source state
Taxation in the jurisdiction of the holding company
DWHT on distributions by the holding company
No Tax on Capital Gains
Sale of shares in a subsidiary:
• Separate capital gains tax in sources state
• Non-resident taxation in the source state
• Taxation in the jurisdiction of the holding company
Sale of shares in the holding company:
• Non-resident taxation in the source state
• Taxation in the jurisdiction of the shareholder
Financing Expenses Deductible
• Thin Capitalisation or Earning Stripping Rules
• Other Limitations
No CFC Rules
• CFC Rules
• (Anti) Passive Investment Rules
Ruling System
• Which jurisdictions offer protection to (potential)
investors through the issuance of advance
clearance?
No WHT on Interest and Royalties
• Under domestic law
• Reduced by Tax Treaties
• Through European Directives
Opportunities for group financing activities
and group licensing activities
Comparison Holding Regimes
NL
SIN
MAU
CYP
UK
LUX
BEL
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No taxes on dividends / capital gains
No subject to tax requirement
No exclusion of passive income
Losses on participations deductible
Financing expenses deductible
No holding period
No WHT on dividends paid
No capital tax/stamp duties
No CFC rules
Ruling system
No WHT on interest and royalties
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No non-resident taxation rules
Possible Dutch Legal Entities
• Public Limited Company (naamloze vennootschap)
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Bearer shares or registered shares
Minimum capital EUR 45,000
No mandatory transfer restrictions
Mainly used for listed companies or regulated companies
• Private Limited Company (besloten vennootschap)
– Only registered shares
– Minimum capital EUR 18,000
– Mandatory transfer restrictions
• Cooperation (coöperatie)
– Special form of an association
– No share capital, but membership rights
– At least two members
Some Legal Considerations
• Incorporation by notarial
deed
• Necessity statement of no
objection (timing!)
• Necessity information on
ultimate beneficial owners
• Contribution in kind to be
evidenced by confirmation
accountant
• Contribution in cash to be
confirmed by bank statement
• Pre incorporation liabilities
• Appointment
of/representation by
management board
• Timely disclosure of annual
accounts
• (Interim) dividend
distributions
• No foreign exchange
controls
• No securities and credit
supervisions for non listed
companies
Dutch Flex BV: Towards a More
Competitive Legal Form
• Expected implementation: 2009
• Main Objectives:
– Decrease of mandatory law elements
– Increase flexibility
– Abolish or replace ineffective rules
– Reduce legal uncertainties
– Facilitate needs of national and international legal community
Dutch Flex BV: Towards a More
Competitive Legal Form
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INTRODUCED
minimum capital € 0,01
no bank statement or
accountant statement
required at incorporation or
for contributions
reduction convocation time
GMS
electronic convocation GMS
non-voting shares
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ABOLISHED:
mandatory share transfer
restrictions
freely distributable reserve
test
financial assistance
prohibition
number of votes linked to
nominal value
shareholder resolutions
outside meeting to require
unanimity