Seychelles: territoriality, IBCs after the reforms and economic substance

Seychelles has historically applied a territorial regime: only Seychelles-source income is taxable there. This principle remains for individuals and for most businesses, but under pressure from international standards it has been framed by a series of reforms that have profoundly changed the position of international business companies (IBCs).

Three common beliefs are now wrong: an IBC is no longer exempt as a matter of principle; its foreign passive income may be deemed Seychelles-source if the company has no substance in Seychelles; and it must keep its accounts in the archipelago. For an individual, taxation rests on a tax on remuneration withheld at source and a business tax on profits from an activity.

Salaries: tax on remuneration

Seychelles income tax is a tax on the remuneration of employed persons, withheld and paid over each month by the employer. The monthly scale, in force since 1 June 2018, is progressive and reaches 30%¹ above more than 83,333² of monthly remuneration.

It distinguishes between citizens and non-citizens: the first bracket, up to up to 8,555.5³ per month, is exempt for citizens but taxed at 15%⁴ for non-citizens. A non-citizen may benefit from the citizens' scale if their country has concluded a tax treaty with Seychelles and they meet the residence test: a physical presence of at least from 183 days⁵ over a rolling annual period beginning or ending in the tax year.

Self-employment and business income

The profit of a sole trader or partner falls under business tax. Since 1 January 2022, the first bracket, up to up to 102,666⁶ of annual profit, is not taxed; the next bracket up to up to 1,000,000⁷ is taxed at an intermediate rate, and the excess at 25%⁸.

Foreign income and investment income

Under the territorial principle, only Seychelles-source income is taxable. For a person other than a company, income is Seychelles-source where it arises from activities, property or rights located in Seychelles. Seychelles-source dividends, interest and royalties paid to a non-resident are subject to a final withholding tax of 15%⁹.

The precise position of an individual resident receiving foreign-source pensions, dividends, interest or capital gains is not set out in detail on the SRC pages consulted. The territorial principle suggests there is no taxation in Seychelles, but this point has not been confirmed by any text read.

Capital gains, inheritance duties and property tax: not verified as at the date of consultation. The SRC mentions a tax on real estate (Immovable Property Tax) whose base and rates have not been re-read.

The standard business tax regime

Entities are taxed at 15%¹⁰ on the first bracket of up to 1,000,000⁷ of taxable profit and at 25%⁸ above that. Telecommunications, banks, insurers and alcohol and tobacco manufacturers bear a heavier scale, up to 33%¹¹.

Every new business must register with the Seychelles Revenue Commission within up to 14 days¹² of the start of its activity, and file a business tax return by 31 March of the following year at the latest, whether it is profitable or loss-making. VAT applies at the standard rate of 15%¹³ for businesses subject to it.

Source of profits and covered companies

According to the SRC, the territorial regime led to treating profits from activities carried on outside Seychelles, for example through a branch, as foreign-source and therefore not taxable. The rules applied since 16 September 2021 adopt a revised approach for companies covered by the Eleventh Schedule to the Business Tax Act:

• activities carried on outside Seychelles are deemed Seychelles-source, unless they are attributable to a permanent establishment located abroad;
• passive income — any income not arising from the company's own activity — generated outside Seychelles is deemed Seychelles-source, unless the company is a qualifying company;
• a qualifying company must have met its reporting obligations, have adequate human resources and premises in Seychelles to hold and manage its assets, take its strategic decisions there, manage and bear the principal risks there and incur adequate expenditure there; the requirements are reduced for pure holding companies for shareholdings or real estate, and outsourcing is permitted under effective supervision.

The exemption of foreign passive income is therefore not automatic: it depends on real substance. A company with no employees or premises in Seychelles that receives foreign dividends or interest should expect them to be taxed as Seychelles income.

The exact list of companies covered by the Eleventh Schedule has not been re-read; the text of the 2021 amendment act that was read defers its entry into force to a ministerial notice, the date of 16 September 2021 coming from the SRC.

IBCs after the reforms

The Financial Services Authority (FSA) announced as early as 2018 the removal of the tax exemption clause for IBCs, as part of the move to a territorial system, with a transitional regime that ended on 30 June 2021. IBCs may now carry on business in Seychelles; those that derive taxable income from it must file returns and audited accounts.

Act No. 32 of 2021 on IBCs further requires accounting records to be kept at the registered office in Seychelles (in practice with the registered agent) and an annual financial summary to be prepared within up to 6 months¹⁴ of the year-end. The registered agent keeps the documents for at least from 7 years¹⁵. Breaches expose the company, its directors and the agent to penalties of up to up to $10,000¹⁶. Act No. 63 of 2021 required existing IBCs that kept their accounts outside Seychelles to bring them back to the registered office.

The taxation of distributions by a Seychelles company to a resident shareholder, CFC rules and the minimum tax on large groups have not been verified.

Seychelles taxation is independent of the residence permit: incorporating an IBC confers no right of residence, and residence requires a permit issued by the immigration authorities (work or residence permit).

The conditions, durations and fees of residence and work permits (Gainful Occupation Permit, residence permit) could not be verified from an official source as at the date of consultation.

The territorial regime reduces the importance of tax residence for an individual's foreign income, but it does not settle the question of the country of departure: that country will apply its own criteria. The SRC presence test serves mainly to apply the citizens' scale to a non-citizen employee.

• For a company, the issue is substance: effective management, strategic decisions and risk management must genuinely take place in Seychelles for foreign passive income to escape taxation.
• An IBC that is in fact managed from another country may be considered resident there, or be treated as having a permanent establishment there, regardless of its Seychelles treatment.
• IBCs incorporated before the reforms no longer benefit from any transitional regime.

We do not publish living budgets or property prices: no documented source has been reviewed. The acquisition of real estate by foreigners is subject to an authorisation regime whose conditions have not been verified.

1. Check whether the company falls within the companies covered by the Eleventh Schedule and, where applicable, document the substance (staff, premises, decisions, expenses);
2. keep the accounting records at the registered office and prepare the annual financial summary within the statutory deadline;
3. register with the SRC as soon as an activity begins in Seychelles and file the business tax return each year;
4. check how the company is classified in the country of residence of its partners and directors.

• "IBC = automatic exemption" is an outdated description.
• Substance is assessed on the actual resources in Seychelles, not on the presence of a registered agent alone.
• Accounting penalties apply even where no tax is due.
• Seychelles exchanges tax information in line with international standards; the confidentiality of a structure should not be presumed.

Is a Seychelles IBC always exempt?

No. The exemption clause has been repealed; the IBC is taxable on its Seychelles-source income, and its foreign passive income may be deemed Seychelles-source if it does not meet the substance test.

Is the foreign income of a Seychelles company taxed?

Profits from an activity genuinely carried on abroad through a permanent establishment remain, in principle, foreign-source. For the passive income of the companies concerned, the exemption presupposes economic substance in Seychelles.

Does a foreign employee pay more tax than a citizen?

On the first bracket, yes: it is taxed at 15%⁴ for a non-citizen, unless the person meets the residence test and comes from a country with a tax treaty.