A guide to business relocation in Europe 2012/13

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Due to popular demand 'A guide to business relocation in Europe' has been updated and is now available as a key reference guide for companies looking to move all or some of their operations overseas …

Due to popular demand 'A guide to business relocation in Europe' has been updated and is now available as a key reference guide for companies looking to move all or some of their operations overseas for commercial reasons. Many companies from large multinationals to entrepreneurial businesses are choosing to relocate part or all of their operations to new territories. There are a number of reasons why commercially a group may consider relocating part of their operations, but it is also important to understand the tax consequences at the outset.

This guide outlines what type of activity is commonly relocated and the benefits of doing so and it profiles key locations within Europe which are popular destinations for business relocation. The reasons why some destinations are popular are explained and the key commercial and tax factors to be taken into account when deciding to relocate. This is a must read guide for those looking for an overseas move and those that are already operating abroad.

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  • 1. 2012/2013A guide to businessrelocation in Europe
  • 2. Contents Introduction 01 Other territory profiles 60 Key country summary 02 – Austria 61 Relocation options 06 – Czech Republic 62 Grant Thornton contacts 19 – Denmark 63 Key country profiles 20 – Estonia 64 – Belgium 21 – Finland 65 – Cyprus 25 – France 66 – Hungary 29 – Germany 67 – Ireland 33 – Greece 68 – Luxembourg 37 – Italy 69 – Malta 41 – Latvia 70 – The Netherlands 45 – Lithuania 71 – Spain 49 – Poland 72 – Switzerland 52 – Portugal 73 – United Kingdom 56 – Russia 74 – Sweden 75 – Turkey 76About Grant ThorntonGrant Thornton is one of the worlds leading organisations of independent assurance, tax and advisory firms. These firms helpdynamic organisations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services.Proactive teams, led by approachable partners in these firms, use insights, experience and instinct to understand complex issues forprivately owned, publicly listed and public sector clients and help them to find solutions. Over 31,000 Grant Thornton people, across100 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work.
  • 3. A guide to business relocation in EuropeIntroductionMany companies from large multinationals to Grant Thornton member firms around the Our guide outlines what type of activity isentrepreneurial businesses are choosing to world have significant experience in advising commonly relocated and the benefits of doing sorelocate part or all of their operations to new clients on how their businesses can benefit from and it profiles key locations within Europe whichterritories. There are a number of reasons relocation. The highest profile cases involve full are popular destinations for business relocation.why commercially a group may consider corporate migrations or inversions – the head We explain the reasons for their popularity andrelocating part of their operations, but it is office and holding company structure summarise key commercial and tax factors to bealso important to understand the tax transferring to a new jurisdiction. However the taken into account when relocating.consequences. options are numerous and the right answer may The key to successful business relocation is be much more simple, from setting up a regional early planning, working to achieve commercial hub to offshoring support services, or setting up objectives and careful execution. an offshore intellectual property (IP) We hope you will find this guide useful in management vehicle. assessing whether business relocation is right for As governments seek to attract successful, you. If you would like to discuss the next steps entrepreneurial businesses through the please contact your own Grant Thornton introduction of favourable tax and legal regimes adviser or one of the Grant Thornton contacts the level of business relocations is likely to listed on page 19. intensify in coming years. Nick Farr Jenny Batchelor International tax partner Tax director T +44 (0)20 7728 2691 T +44 (0)20 7728 2754 E nick.farr@uk.gt.com E jenny.batchelor@uk.gt.com A guide to business relocation in Europe 1
  • 4. Key country summary 10 key European jurisdictions 1 Belgium – the commercial benefits of being located at the heart of Europe, a good IP regime for patents and a very attractive financing system (with notional interest deductions) means it is often used, particularly as an IP holding company location. 2 Cyprus – widely used for investment into Russia and Central Europe owing to a strong treaty network, it is increasingly used for service 4 companies, including the financial services sector, attracted by a 10% 7 10 corporate tax rate, simple regime, and relatively low cost. 1 3 Hungary – a relatively new holding company location destination, its 5 location is ideal for accessing other Eastern European countries. It also 3 has a straight forward tax system, a low overall tax rate and a good IP 9 regime which can result in such income being taxed at 5%. 4 Ireland – Ireland is a popular location for holding and IP holding 8 companies, particularly with a wealth of skilled workers in the technology and pharmaceutical sectors. It also has a flexible tax system, low corporate tax rates of 12.5% for active trades, and a good IP regime. 6 22 A guide to business relocation in Europe
  • 5. 5 Luxembourg – pre-eminent within the finance sector, it is a 8 Spain – not widely recognised as a holding company location but itscommon holding company location and is often used as a strong treaty network with Latin America means that it is a very goodtreasury/financing location. Advance agreements with the tax authorities holding company location to access these markets. Its attractive R&Dare possible whereby Luxembourg only taxes a small spread on credits and IP regime can also result in a low effective tax rate.financing flows. 9 Switzerland – with access to a sophisticated workforce, it is widely6 Malta – a relatively low cost of living combined with a good quality used as an entrepreneurial hub, especially in the food and drink,workforce make this a popular jurisdiction for service companies. If pharmaceutical and financial services sectors. Although expensive, withstructured correctly, corporate tax rates of less than 5% are achievable. a complex tax regime, overall corporate taxes can be low.7 The Netherlands – once widely regarded as the holding location of 10 UK – whilst the complexity of the tax regime is a deterrent for many,choice, its regime is perhaps not as competitive as a decade ago. With US multinationals in particular continue to use the UK as a holdingan excellent treaty network and a flexible tax system, it still remains company structure – this is driven by commercial factors, particularlypopular as a holding company location, and is widely used by service, relative ease of set-up, language factors and communication links.trading and logistics groups. A guide to business relocation in Europe 3
  • 6. These 10 key European jurisdictions are widely used for holding companies and IP holding companies. The choice of location is very much driven bythe commercial requirements of the business. Whilst it can be possible to relocate without a strong commercial driver, the best results are typically wherecommercial needs, tax and legal benefits go hand in hand. The table below summarises principal tax factors for the 10 key European jurisdictions. Belgium Cyprus Hungary Ireland Luxembourg Malta Netherlands Spain Switzerland UKEU member yes yes yes yes yes yes yes yes no yesTax ratesHeadline corporation 33.99% 10% 10-19% 12.5% 28.8% 35% 20-25% 30% 12-25% 24%tax rateIncome taxes up to 50% up to 35% up to 27% up to 41% 40.56% up to 35% up to 52% up to 56% up to 42% up to 50%Standard VAT rate 21% 17% 27% 23% 15% 18% 21% 21% 8% 20%Holding company regimeDividend exemption yes yes yes no – but credit yes yes yes yes yes yes(subject to conditions)Capital gain exemption yes yes yes yes yes yes yes yes yes yes(subject to conditions)CFC rules no no yes no no no no yes no yesOther incentives notional interest profit from – – tax rulings can effective tax rate – no debt:equity effective tax – deduction trading in be negotiated of 0-10% can be restrictions as rate of 7-12% ‘titles’ is to optimise obtained (subject from March 2012 for holding exempt effective tax to exemptions) (but limitation companies rate on interest deduction)Transfer pricing rules yes yes yes limited limited no yes yes yes yesCapital/stamp duty on no yes – only on no – unless yes – only on no – however yes – only on no no yes – on initial yes – onlyshares initial they are transfer of 0.5% annual transfer of shares share issuance on transfer issuance of shares in shares (1%) net wealth tax (2%) unless > (1%) and an of shares shares (0.6%) companies on non- 90% of business annual capital (0.5%) holding qualifying is derived from tax on equity Hungarian assets outside Malta value (0.001%- real estate 0.01%)Number of double tax 90+ 46+ 65+ 65+ 60+ 55+ 110+ 80+ 100+ 120+treaties4 A guide to business relocation in Europe
  • 7. Belgium Cyprus Hungary Ireland Luxembourg Malta Netherlands Spain Switzerland UK IP regime IP tax rate 6.8% 10% 5-9% 12.5% (2.5% 5.76% 0-10% 5% / 25% 15-30% 9-11% 24% (effective) (2% effective) (5% effective) effective) (effective) (effective) IP regime yes – applies yes – applies yes – applies yes – applies yes – applies yes – applies yes – applies to yes – applies yes – applies yes – applies to patents to most to patents, to most to most to registered IP of a technical to registered to all to all post owned and intangibles patent rights, intangibles registered patents (0%), nature (5%) and intangibles intangibles 2002 developed trademarks intangibles active IP (5%), to goodwill and intangibles by company and copyright passive IP trademarks income (10%) (25%) Capital gains on IP qualifying 80% exemption on capital gain 80% exemption capital gain on capital gain capital gain capital gain capital gain on gains exemption registered IP on disposal on capital gain disposal taxed on disposal of on IP disposal on IP disposal disposal taxed taxed at IP on capital gain held for at taxed at 30% on disposal at 5% qualifying assets at a rate of taxed at at 24% but can rate on disposal least a year but can be effectively 15%-30% 9-25% be deferred of 6.8% deferred taxed at 5% IP amortisation yes yes yes yes yes yes yes yes yes yes deduction Domestic witholding tax (WHT) rates WHT on dividends 25/21% 0% 0/16% 0/ 20% 15% 0% 15% 0% (for 35% 0% 0% for ETVEs) cooperatives WHT on interest 21% 0% 0% 0/20% 0% 0% 0% 21% 0% 20% WHT on royalties 15% 5-10% 0% 0/20% 0% 0% 0% 24.75% 0% 20%General notes: Key:1. Information used in this table was collated in July 2012 WHT = withholding tax2. Withholding tax rates may be reduced when payments made within the EU or under relevant treaties CFC = controlled foreign company3. Further details are included in the relevant key country profiles from page 20 ETVE = Spanish holding company A guide to business relocation in Europe 5
  • 8. Relocation options Full migration Use of IP holding companies and regionalWhat is business relocation? This type of relocation has been highlighted by hubs some high profile migrations and can be either a Increasing use is being made of IP holdingWhilst most people instantly think of full relocation of headquarters or holding company regimes by many international groups. Suchcorporate migrations for business relocations, or both. A migration of the holding company companies are responsible for the ongoingthere are a number of much simpler options typically involves an inversion, whereby a new development, protection and exploitation of IPwhich can also achieve excellent efficiencies holding company is set up above the existing or development of regional business.and cost savings. group holding structure. However, it can Given the need for IP protection and the Determining the right structure and location sometimes be achieved by migrating the significant income it can generate, groups arefor a business requires assessing numerous management and control of a holding company considering the best place to locate these assetscompeting factors and will be individual to to a different jurisdiction. to maximise protection and minimise taxes.each group, but some common examples are: Whilst the benefits can be significant, for Whilst such assets are physically easy to example, achieving a reduction in the overall relocate, this type of restructuring often has a effective tax rate or moving to a country with a high cost of relocation. simpler tax and legal framework, there can be issues in terms of exit costs and there needs to be a strong appetite for change to make this relocation work.6 A guide to business relocation in Europe
  • 9. Offshoring Changing the risk modelThere can be significant cost savings through Where it is not appropriate to physicallyoffshoring. In its simplest form offshoring could relocate certain functions, then an alternativebe the relocation of a support function overseas. may be to operate through a commissionaire,Increasingly, this has been extended to more franchising or licence model. Under such anvalue-add functions including research and arrangement, the risks borne by the localdevelopment (R&D) centres and treasury distribution or manufacturing entity may becompanies. For the former, such centres may be substantially reduced. This in turn can limit thelocated where there is a wealth of technical staff profits attributable to these entities, withand favourable R&D tax regimes. increased profits being generated by the entrepreneur company. This involves limited physical disruption to the business. A guide to business relocation in Europe 7
  • 10. • economic downturn: pressure on businesses • competitive advantage: as more corporateHow can relocation add value? to reduce costs is immense as they continue groups take advantage of the opportunities to respond to the global recession. There arising from relocation, it is important toThere are significant potential benefits to can be significant operational, administrative remain ahead of the game in terms ofrelocating abroad – access to markets, simplified and tax savings arising from centralising maximising value by reducing costs, therebycompliance and tax savings are cited as key functions and relocating them offshore to an keeping a competitive advantagereasons. The popularity of business relocations appropriate location • tax incentivisation: tax is increasingly usedis driven by a series of global economic factors, • increased compliance burdens: other as a lever by various governments to attractcreating ‘a perfect storm’ in business regimes, particularly in the G20 economies, inward investment, resulting in low tax ratesrestructuring: are introducing complex compliance and some very generous tax incentives,• globalisation: the disparity in growth rates systems to control behaviour and particularly around IP management and between emerging markets and mature discourage loss of tax revenue offshore. This other high-value functions. Significant tax economies is accelerating the pace of is creating a huge compliance burden for savings can be obtained by relocating globalisation, as companies seek to access groups and arguably is accelerating the activity and assets into these jurisdictions. capital, goods or markets in different migration of businesses away from those regions of the world. There is also a jurisdictions growing pool of internationally mobile employees willing to relocate for these opportunities8 A guide to business relocation in Europe
  • 11. What activities can be relocated?A group’s typical supply chain has three key aspects and examples of functions and ways to relocate these are set out below: Functions Examples Ways to relocate Back office • Offshoring Support Customer support support • Treasury companies • Centralisation Research & Manufacturing Business • Changes to risk model development & sales • Research centres of excellence Executive • IP holding companies Value-add IP management decision making • Migration of holding company A guide to business relocation in Europe 9
  • 12. Support functions Treasury companies: Business functions Offshoring: Treasury companies have widely been used in Centralisation:Relocation of routine functions such as support group structures to manage and pool the cash Typically the location of volume-addingservices is common and is often relatively facilities for the group to maximise the return on functions is driven by commercial factors suchstraightforward. Typically the moves are driven surplus cash and minimise the expense on as the location of suppliers, customers and aby operational savings with and low costs. An overall group debt. Careful consideration skilled workforce. However there may still beexample of this is Malta, a popular offshoring should be given to the preferred location which opportunities to centralise these in a regionallocation. will be driven by commercial factors, but also hub and while such structures will be by the favourable tax treatment on the interest. commercially driven, tax savings can be WHT costs should be understood when significant. choosing a location as these can give rise to significant tax leakage on interest flows if not Change to the risk model: managed properly. Where it is not commercially viable to relocate volume-adding functions, these can be restructured using a different model such as franchising and licencing.10 A guide to business relocation in Europe
  • 13. When considering the best structure for an R&D centre of excellence, it is important to understand whether the centre will undertake research on its own behalf, effectively owning the associated IP, or whether it will perform contract R&D Such a group restructure could involve a Research centres of excellence: on behalf of the IP owner. This is key tofully-fledged sales company becoming a limited The tax benefits of establishing a global R&D deciding where the IP should be located.risk distributor, transferring key risks (such as centre can be extensive given the various grants With planning, it may be possible for astock obsolescence risks, bad debts and foreign and tax incentives available in different contract R&D company to qualify for R&Dexchange) to another company. Alternatively, it jurisdictions. It is important to ensure these tax credits in one country, and the IP ownercould operate as a sales commission agent, not incentives are taken into consideration when to benefit from a favourable tax rate on theactually entering into sales contracts, rather undertaking cost-benefit analysis on the choice income generated from the IP in a secondreceiving a commission for soliciting sales on of location. jurisdiction.behalf of the principal. This can be an effective way of transferring Low effectiveprofit-generation from the sales or IP holding tax on IP incomemanufacturing entity to the principal with company and gains egminimal physical disruption to the business as Belgium orfew staff need to relocate. Hungary Recharge for services Enhanced R&D R&D expenditure company and/or credits eg Ireland or UK A guide to business relocation in Europe 11
  • 14. Value-add functions Migration of holding company: Migration has a very significant impact on the IP holding companies: This typically entails setting up a new holding business, with the key decision-makers eitherBy locating the IP and the associated active company above the existing group holding relocating offshore or regularly travelling to themanagement in one company, its value may be company and is known as an inversion. overseas location.maximised. The income generated from such There are a number of reasons why a It can also impact the shareholders as someactivity will be either royalties, or if the IP company may migrate, including: jurisdictions have high WHT rates on paymentholding company is included in the supply • commercial opportunities to re-focus the of dividends to non-resident shareholders. Ifchain, through the mark-up on the pricing of business on a new territory or region, more treaty protection is not available, complexgoods or services. closely aligned with customers, suppliers structures such as dividend access schemes, may The profits attributed to IP can be very and/or workforce be required to manage WHT costs to thesignificant, and there are some very favourable • opportunities to exit from a complex legal/ ultimate shareholders.regimes – for example Ireland allows a tax compliance and reporting regime of the There needs to be an appetite for change atdeduction for amortisation of IP transferred existing country of residence, and adopt a board level and a good commercial reason forfrom group companies, based on the market more straightforward regime in a territory restructures of this nature and an awareness ofvalue (rather than book value). such as Hungary or Malta the potential negative media exposure. • potential to side-step tax anti-avoidance provisions in the previous parent jurisdiction, which can limit flexibility • ability to generate profits in the medium- term in a favourable location.12 A guide to business relocation in Europe
  • 15. An inversionThe key steps to an inversion are as follows:Existing structure Set up a new overall holding company in a Transfer subsidiary companies under the new favourable jurisdiction by way of share for share holding company exchange by the existing shareholders Holding New holding New holding company company company Overseas Overseas Holding Holding Overseas Overseas company 1 company 2 company company company 1 company 2 Overseas Overseas company 1 company 2 A guide to business relocation in Europe 13
  • 16. Where is the optimal 2 Holding 3 Technology 4 Shared 5location? company centre Services Commissionaire Processing ServicesThere is no right answer as to Management R&D Services Administration Services Serviceswhere a group should locate its Marketingdifferent functions. It depends on a Servicesmyriad of business factors but theclassic supply chain modelhighlights the options available. Purchases materials Sells goods 1 Central SUPPLIERS CUSTOMERS entrepreneur Processing Distribution & Services Logistics Services Deliver Delivers Legal title materials goods Physical flow 6 Toll 5 Distribution Services Manufacturer Centre14 A guide to business relocation in Europe
  • 17. 1 The central entrepreneur is the hub of the structure and therefore 4 Shared services are often relocated to overseas jurisdictions. Callits location will be key. As it will often also hold the group’s intangibles, centres for example are usually located in low cost environments withidentifying a good IP tax regime can significantly improve the group’s popular locations in Europe including Malta and Cyprus.effective tax rate. Popular jurisdictions include Ireland and Switzerland – the group can 5 Operations in high tax jurisdictions which cannot be moved – forbenefit from excellent commercial regimes, access to a sophisticated example sales and distribution, which are driven by customer location, canlabour force and with careful structuring, effective tax rates of 12.5% be structured as a commissionaire or a limited risk distributor. This will(Ireland) and 9-11% (Switzerland). limit the risk and therefore the level of profits associated with the function.2 The choice of holding company location is determined by 6 Toll or contract manufacturing is ideally located where there is ashareholder considerations as well as company law. Popular locations low cost base – East European states and increasingly North Africa areare Luxembourg, Switzerland, Belgium, Ireland and increasingly Hungary. widely used.3 A technology centre will be responsible for R&D, and therefore itslocation will be influenced by a generous R&D tax regime in the form ofenhanced tax relief and repayments as well as access to appropriatestaff. France has an excellent R&D regime, as does the UK. A guide to business relocation in Europe 15
  • 18. What is the impact of relocation? Operational issues substance in them with appropriate levels of Customers, suppliers and markets local management with the relevant expertiseIt is important to understand the potential Depending on the type of business, the to manage the assets. Failure to introduceimpact any relocation has on the operational, location of suppliers and/or customers will be sufficient substance is likely to give rise to taxlegal and tax affairs of the business. These are key to the decision on location. Proximity to concerns as set out further below.generally manageable but careful planning is these key stakeholders is often a critical factornecessary to ensure groups are aware of all the in driving relocations. Peoplecosts of the relocation. Groups must consider how any relocated Substance function will be staffed. This may involve Whenever activity is being relocated, there will relocating staff or recruiting locally. For need to be real ‘substance’ in the chosen existing staff, account must be taken of their location. The exact level of substance depends desire to move, in addition to their ability to on the functions undertaken and the assets and move in terms of work permits (where such the jurisdiction they are to be relocated to. locations are outside of the EU). If existing While this may be obvious for volume-adding staff do not want to move, there will need to be functions such as manufacturing, holding and a suitable workforce available locally. Both IP holding companies will need to have real options will have associated costs.16 A guide to business relocation in Europe
  • 19. Reputation Legal Issues Contract renegotiationSome businesses are sensitive to market Employment law When moving business operations overseas, itperception. Any restructuring which could It is important to recognise when moving staff may be necessary to renegotiate contracts withresult in headline news in the media of a move to an overseas location, or indeed hiring new current suppliers and customers. Theto a new jurisdiction could detrimentally staff, that the employment laws in different appropriate law governing these contracts willimpact the profitability of those businesses. jurisdictions are unlikely to be the same. Even need to be considered and, where different,While high profile movers have paved the way, within the EU, there can be working hour existing contracts will need to be agreed withwhen reviewing the strategy of the business all restrictions, and employees may have more customers and suppliers.key players in the business, from CEO to rights in one country compared to another. Incorporate affairs need to understand the addition, works councils in certain member Company lawimplications of a move and need to be clear of states can be powerful bodies influencing Company law factors must be taken intotheir stance. business decisions. consideration when setting up a new entity including the different reporting requirements. The full migration of listed entities will give rise to numerous legal and listing requirements. A guide to business relocation in Europe 17
  • 20. Tax issues As a result, the level of profits which can be If moving within the EU there is also the Residency and CFC rules generated in a territory is typically driven by argument that such charges are discriminatory Many tax authorities levy tax not just on the level of substance in that territory – both in and contrary to EU law and in particular the companies incorporated in the territory in terms of assets held, functions performed, and Freedom of Establishment and Free Movement question, but also where companies are risks borne. Careful supply chain planning is of Capital. managed there. It is therefore important that therefore essential to maximise the benefit companies have an appropriate level of from the chosen structure. Indirect taxes substance and management locally, otherwise Thought needs to be given where any additional tax costs could arise under the tax Exit charges restructuring alters the flow of goods, services residence and CFC rules. As part of any restructuring, the exit charges in or other payments. For example royalty, moving a function or asset out of a jurisdiction interest and dividend flows need to be Transfer pricing need to be included in relocation costs. For modelled to ensure that the resultant structure Increasing numbers of jurisdictions have most countries, there will, prima facie, be a tax is not tax inefficient by virtue of non- introduced transfer pricing rules to ensure that charge on exit. However, with planning it is recoverable WHT. Where there is a physical intra-group pricing (of goods, services, interest often possible to minimise the charge arising movement of goods or services, indirect tax and royalties) is deemed to take place at arm’s on exit or defer such charge. cost leakage (particularly sales taxes and duties) length. The aim is to ensure that profits are not will need to be built into the cost of the artificially diverted to another territory restructuring. through manipulation of prices.18 A guide to business relocation in Europe
  • 21. Grant Thornton contactsAustria Finland Italy Poland TurkeyWerner Leiter Tanya Lappalainen Alessandro Dragonetti Dariusz Bednarski Beşir AcarT +43 126 262 414 T +358 9 5123 3333 T +39 02 7600 8751 T +48 61 62 51 314 T +90 312 219 1650E werner.leiter@at.gt.com E tanja.lappalainen@fi.gt.com E alessandro.dragonetti@gtbernoni.it E dariusz.bednarski@pl.gt.com E besir.acar@gtturkey.comBelgium France Latvia Portugal United KingdomGeorges Keymeulen Jérôme Bogaert Kristīne Vanaga-Mihailova Joaquim Mendes Nick FarrT +32 02 469 01 00 T +33 (0)1 56 21 03 03 T +371 6721 7569 T +351 21 413 46 30 T +44 (0)20 7728 2691E georges.keymeulen@be.gt.com E jbogaert@avocats-gt.com E kristine.vanaga-mihailova@rimess.lv E joaquim.mendes@grantthornton.pt E nick.farr@uk.gt.comCyprus Germany Lithuania RussiaGeorge Karavis Paul Forst Arūnas Šidlauskas Alexander SidorenkoT +357 22600000 T +49 211 95 24 121 T +370 5 212 7856 T +7 495 258 99 90E george.karavis@cy.gt.com E paul.forst@wkgt.com E arunas.sidlauskas@rimess.lt E alexander.sidorenko@ru.gt.comCzech Republic Greece Luxembourg SpainGabriela Magsumová Sotiris Gioussios Jean-Michel Hamelle Albert GiraltT +42 0296 15 2255 T +30 2 10 72 80 501 T +352 24 69 94 T +34 93 206 39 00E gabriela.magsumova@cz.gt.com E sotiris.gioussios@gr.gt.com E jeanmichel.hamelle@lu.gt.com E albert.giralt@es.gt.comDenmark Hungary Malta SwedenJorgen Nielsen Ilona Szarka Austin Demajo Monica SöderlundT +45 33 454 212 T +36 1455 2000 T +356 21 320 134 T +46 8 563 070 74E Jorgen.nielsen@dk.gt.com E i.szarka@ib-gtbudapest.co.hu E austin.demajo@mt.gt.com E monica.soderlund@se.gt.comEstonia Ireland The Netherlands SwitzerlandKristjan Järve Frank Walsh Jacob Mook Reto WittwerT +372 626 4500 T +353 (0)1 6805 607 T +31 (0)182 53 19 22 T +41 43 960 71 04E kristjan.jarve@ee.gt.com E frank.walsh@ie.gt.com E jacob.mook@gt.nl E reto.wittwer@ch.gt.com A guide to business relocation in Europe 19
  • 22. Key country profilesThis section provides an overview ofthe commercial and legal benefits ofthe jurisdiction, the holdingcompany and IP holding regimes, aswell as expatriate costs and planningopportunities for the 10 key holdingcompany locations.20 A guide to business relocation in Europe
  • 23. BelgiumBelgium key facts Belgium is recognised as a holding company Belgium is regarded as having a highInvestment climate location primarily due to commercial reasons. Its standard of living and, while it is expensive, it is• local currency Euro (€) high headline corporate tax rate does not lend not as expensive as some of its EU neighbours• stable economic and political environment itself easily to a favourable holding company relative to the standard of living.• skilled and semi skilled workforce, including location, although a participation exemption in Belgium does have a very favourable IP technical and professional personnel terms of dividends and capital gains and the regime, especially for patent income which is• rather strict labour laws. absence of any CFC rules offers enough tax taxed at a rate of 6.8% and can often be lower incentives for groups to headquarter here. depending on the level of deductions available.Quality of living It is one of the best locations for industry• good infrastructure especially transport and logistics as a prominent gateway to the• high standard of education including European market. A large part of Belgium’s international schooling available for expatriate success in international trade is due to its families excellent infrastructure which allows it to• excellent healthcare. leverage off its strategic location. Trade in intermediate goods, destined for final production in other countries, accounts for nearly 45% of gross domestic product. Belgium’s main industries include food, automotive, pharmaceuticals and logistics. A guide to business relocation in Europe 21
  • 24. Holding company Anti avoidance legislationCorporate taxation Belgium has transfer pricing rules (based onThe effective headline rate of corporate tax in OECD principles) which require related party Belgium’s location andBelgium is 33.99%, one of the highest in the EU. transactions to be conducted at arm’s length. excellent IP regime result in it being an Notional interest deduction rules give In addition, there are interest deductibility attractive location for holding companies, including (bio)pharmaceuticalcompanies a deduction against profits for the restrictions on interest payable to ‘low tax’ and high tech groups.cost of equity (for tax year 2013 this is 3% of jurisdictions (ie <15% effective tax rate) andequity; 3.5% for smaller entities). It is therefore on intra-group loans to the extent that the totalpossible to benefit from significantly reduced amount of these intra-group loans exceedscorporate tax rates, with some relatively simple five times the net equity of the company.structuring. Belgium does not have any CFC (or equivalent) Examples include GlaxoSmithKline Biologicals, legislation. However, the availability of the ThromboGenics, UCB, GodivaStamp taxes and other capital duties capital gain exemption may be restricted if the Chocolatier and Anheuser-Busch InBev (Becks and Stella).There is no capital duty or stamp duty investee company is in a ‘low tax’ jurisdictionapplicable in Belgium. (as detailed above). It is possible for companies to obtainExemption from Belgian corporate tax advanced rulings from the tax authorities onA 95% dividend exemption is generally available the treatment of complex tax matters. Theseon dividends from shareholdings of at least 10% are not compulsory.(or €2.5 million) where they have been held (orare intended to be held) for at least one year. Capital gains on the disposal of shares areexempt (if shares were held for an uninterruptedperiod of one year) provided that the investeecompany is not resident in a country with aconsiderably more favourable tax regime thanBelgium (in practise this is taken as an effectivetax rate of less than 15%).22 A guide to business relocation in Europe
  • 25. Withholding taxes (WHT) VAT IP rulesThe domestic rate of WHT applied on The standard rate of VAT is 21%. A reduced The IP regime includes patents that are owneddividends is 21% (as of 1 January 2012) when rate of 12% applies for medicines, margarine, and that have been fully or partly developed bycertain conditions are met. There is no WHT on tubes, TV cable or social housing, whilst a the company.dividends paid to residents of EU countries reduced rate of 6% is available for all types of Under the regime, there is an 80% patent(where holding requirements are met) or renovation work as well as basic necessities such income deduction on qualifying gross patentcountries with which Belgium has a double tax as food, non-alcoholic beverages, transport and income resulting in an effective tax rate of 6.8%agreement (for shareholdings of at least 10% or pharmaceuticals. Some goods are exempt from before other deductions. In addition,€2.5 million) and there are significantly reduced VAT including newspapers and magazines. amortisation is deductible over the usefulrates in many of the double tax agreements. economic life and this deduction, coupled with The domestic rate of WHT applied on Double tax agreements the notional interest deduction, can result in aninterest to non residents is 21%. An exemption Belgium has more than 90 agreements in effect. effective tax rate of zero.is available for interest payable to beneficiaries Income and gains on IP outside the regimeof EU countries (where holding requirements Foreign shareholders (including acquired patents and knowhow andare met) and reduced rates of WHT apply on There is no Belgian tax payable by foreign brands) are subject to tax at the normal headlineinterest to beneficiaries of most treaty countries. shareholders on the disposal of shares in a rate of tax of 33.99%. The domestic rate of WHT applied on Belgian company.royalty payments to non residents is 15%. As R&D ruleswith dividends and interest, an exemption is IP regime Tax incentives are available for R&D relatedavailable for payments to EU countries (where Legal activity in the form of either an enhancedholding requirements are met) and reduced rates Belgium offers a high level of legal protection investment deduction of 15.5% (for tax yearof WHT apply on royalties to most treaty and recognition, broadly following EU law, for 2013) on environmental investments forcountries. patents, trademarks, copyrights and industrial research and development, or a tax credit of design and models. 15.5% of the value of qualifying expenditure (for tax year 2013). It is also possible for companies to retain 75% of researchers payroll tax in respect of qualifying activities. A guide to business relocation in Europe 23
  • 26. Expatriate issues Corporate set upIncome tax CostIndividuals are taxed on all remuneration Company set up costs start at around €3,000 Locating some operational(including benefits in kind) for duties performed and take around one month. activity in a Belgium holding companyin Belgium, on a progressive scale of income tax can significantly reduce the group’s effectivebetween 25% and 50% depending on level of Corporate entity tax rate, as interest costs and also a notionalincome. Local taxes are also payable. The most common type of corporate entity is interest deduction is available and dividends There are relatively generous deductions an NV/SA but an often used alternative is the received are 95% exempt.available including child care, mortgage less formal BVBA/SPRL.payments and related insurance premiums. The minimum share capital for these entitiesTax credits are also available for pension are currently €61,500 (NV/SA) and €18,600contributions and life insurance premiums. (BVBA/SPRL). For an NV/SA there is a requirementSocial security contributions for at least two shareholders and at leastEmployee social security contributions are three directors although there are nopayable at 13.07%. These are deductible for specific residence requirements (the directorincome tax purposes. requirement is reduced to two if there are only two shareholders).Expatriate rulesExpatriates are subject to Belgian tax on theportion of income attributable to working inBelgium. In addition, they can receive tax freepayments to cover expenses such as housing,cost of living, relocation expenses, settlingexpenses, tax equalisation and a schoolingallowance.24 A guide to business relocation in Europe
  • 27. CyprusCyprus key facts Cyprus’ location lends itself well to international The quality of life in Cyprus is very goodInvestment climate trade, as it is central to three different continents and the cost of living is low compared with• local currency Euro (€) and close to trade routes between Europe and many Western European countries.• robust legal system with strong English Law Asia. Good transport links (sea and air) and an Cyprus has new legislation which provides influence excellent telecommunications system further certain tax incentives with regards to IP.• highly qualified and multilingual labour force. compliments the potential for international trade. It also has the lowest headline rate ofQuality of living corporation tax in the EU at 10%. Its generous• relaxed pace of life exemptions can sometimes result in a nil effective• great weather tax rate making it a very attractive jurisdiction• good telecommunications infrastructure for holding companies from a tax perspective.• high standard of education Cyprus is very widely used for investment• low crime, unemployment and homelessness. into Russia and Eastern Europe due to the favourable treaty provisions. The services sector accounts for three quarters of the country’s GDP with the main sectors being tourism, transport and communications, real estate and banking. A guide to business relocation in Europe 25
  • 28. Holding company Exemption from Cypriot corporation taxCorporate taxation A full dividend exemption is available providedThe standard rate of corporation tax in Cyprus that the company paying the dividend does notis 10%, although certain passive income (ie derive more than 50% of its income from Cyprus is widely used for investmentinterest) is subject to the special defence investment activities or it is not subject to tax at into Russia and Eastern Europe owing to very favourable treaty provisions.contribution at a rate of 15%. a significantly lower rate than in Cyprus (in No tax deduction is available on the interest practice this is interpreted as a tax rate of lesscosts of financing subsidiaries unless the than 5%). If the exemption does not apply, thecompany is treated as a finance vehicle within dividends are subject to the special defencethe group. contribution, at a rate of 20% (from 1 January 2012 for two years).Stamp taxes and other capital duties Capital gains arising on the disposal ofCapital duty of €103 plus 0.6% on the nominal shares are only taxable if the company holdsamount of the authorised share capital exists. immovable property that is situated in CyprusSubsequent increases of the authorised share (at a rate of 20%).capital are subject to a capital duty of 0.6%26 A guide to business relocation in Europe
  • 29. Anti avoidance legislation Withholding taxes (WHT) IP regimeCyprus does not have detailed transfer pricing Cyprus does not impose WHT on interest or Legalrules, although transactions between connected dividends payable to non residents. Cyprus offers legal protection and recognition,parties should be on an arm’s length basis. The domestic rate of WHT on royalty broadly based on EU law, for patents, Cyprus does not have any CFC (or payments to non residents for the use of intellectual property and trademarks.equivalent) legislation. However, the availability royalties in Cyprus is 10% (other than filmof the dividend exemption may be restricted if royalties on which a 5% WHT applies). An IP rulesthe paying company is in a lower tax regime (ie exemption is available for royalties payable to IP amortisation is tax deductible over five years.less than 5% tax rate) or if the foreign company EU countries (where certain requirements are 80% of any income generated from thepaying the dividend relates to more than 50% to met) and reduced rates of WHT apply on exploitation of the IP is exempt from taxation.investing activities. royalties to certain treaty countries. 80% of any profit generated from the disposal It is possible for companies to obtain of IP is exempt from taxation.advanced rulings from the Cypriot tax Double tax agreementsauthorities on the treatment of complex tax Cyprus has more than 46 agreements in effect, R&D rulesissues. These can usually be obtained in less although it does provide a credit system for Although there is no specific R&D tax regime athan three weeks, but are not compulsory. foreign tax suffered even where no treaty is in tax deduction is available for revenue scientific place. expenditure and capital expenditure may beVAT amortised over six years.The standard rate of VAT in Cyprus is 17%. Foreign shareholdersA reduced rate of 8% is applied to transport, There is no Cypriot tax for foreign shareholdersaccommodation and restaurants, while a 5% on the disposal of shares in a Cypriot company.rate applies to pharmaceuticals, bottled non-alcoholic drinks, sweets and entry fees tocultural events. A guide to business relocation in Europe 27
  • 30. Expatriate issues Corporate set upIncome tax CostIndividuals are taxed on all remuneration Company set up costs start at around €2,500 Cyprus has one of the lowest(including benefits in kind) for duties performed and can take up to two weeks. corporate tax rate in the EU and its taxin Cyprus, on a progressive scale from 0% to regime is relatively simple. There are new IP35%. Corporate entity rules that make it attractive for both holding and IP holding companies. Various personal expenses are allowed as a The most common type of corporate entity is adeduction for tax purposes including life private limited liability company, for whichinsurance premiums, social insurance there is no minimum share capital requirements.contributions, approved provident fund A Cypriot company can be established withcontributions, approved medical scheme only one shareholder and one director but acontributions, professional subscriptions and company secretary, who is not a sole director,approved charitable donations. must also be appointed.Social security contributionsEmployee social security contributions arepayable at 6.8%.Expatriate rulesExpatriates are entitled to an income taxexemption for the lower of 20% of emolumentsand €8,550 per annum for the first three yearsof employment in Cyprus. Expatriates earningover €100,000 per annum are entitled to a 50%exemption for a period of up to five years(applicable from 2012.)28 A guide to business relocation in Europe
  • 31. HungaryHungary key facts Hungary is recognised as a holding company The private sector accounts for more thanInvestment climate location primarily due to its relatively low wage 80% of Hungary’s GDP and foreign ownership• local currency HUF (Hungarian Forint) cost and attractive tax regime. Its low headline in Hungarian films is widespread.• EU member corporate tax rate of 10/19% lends itself easily Hungary has a relatively low cost of living• high percentage of skilled/semi-skilled labour, to a favourable holding company location, as and one of the biggest constraints in growth is including technical personnel. does a low income tax rate, a participation its economic climate, having turned to the EU exemption in terms of dividends, and an for support loans on a number of occasions,Quality of living attractive IP regime, where capital gains on IP although this has significantly improved over• excellent civil liberties are exempt and income taxed at 5%/9.5%. the last few years.• very clean living As a land-locked state bordering a number• relatively low cost of living. of Eastern European countries, including Romania, Ukraine, Slovakia, Croatia and Serbia it is well located to access these countries. Hungary has some natural resources and the arable land is widely used for viticulture, producing wine that is enjoyed globally. It is also a significant exporter, with its main manufactured exports including electric and electronic equipment, foodstuffs and chemicals. A guide to business relocation in Europe 29
  • 32. Holding company Anti avoidance legislationCorporate taxation Hungary has transfer pricing rules whichThe effective headline rate of corporate tax in require related party transactions to beHungary is 19% where taxable profits exceed conducted at arm’s length. All related party Hungary’s low corporate tax rate andHUF 500 million (€1.7million), otherwise taxed transactions over HUF 50 million (€170,000) favourable IP regime makes it an attractive location for holding companies.at 10%. must be documented for transfer pricing purposes and advance pricing agreements areStamp taxes and other capital duties available.There is no capital duty or stamp duty In addition, there are thin capitalisationapplicable on the transfer of shares in Hungary rules and where the debt:equity ratio exceedsunless the shares being sold hold Hungarian 1:3 the interest exceeding this ratio will bereal estate. disallowed. Hungary has CFC legislation, and a foreignExemption from Hungarian corporation tax company is considered to be a CFC if there is a VATA full dividend exemption is available on Hungarian individual holding shares for the The standard rate of VAT is 27%. A reduceddividends received by a Hungarian company majority of the days in a tax year or the majority rate of 5% applies to medicine, aides for blindunless received from a CFC. of the foreign company’s income derives from people and books, newspapers and music scores, Capital gains on the disposal of shares are Hungary and it is taxed at a rate less than 10%. supply of live music in restaurants and supply ofexempt (if at least 30% of shares are held for Foreign companies incorporated in the EU or in heating services. A reduced rate of 18% appliesan uninterrupted period of one year and the an OECD or treaty country are not considered to some basic foods, accomodation and outdooracquisition of shares is notified to the to be a CFC if they have real economic presence concerts.Hungarian tax authorities) provided that the in that country.investee company is not considered to be a It is possible for companies to obtainCFC (see below). advanced rulings from the tax authorities on the treatment of complex tax matters. These are not compulsory but are binding.30 A guide to business relocation in Europe
  • 33. Withholding taxes (WHT) Double tax agreements IP rulesThere is no WHT on dividends paid to Hungary has more than 65 agreements in effect. The IP regime includes patents, patent rights,corporates, although dividends to individuals trade marks and copyrights.are subject to 16% WHT. This may be reduced Foreign shareholders Under the regime, 50% of the royaltywhere paid to individuals resident in countries There is no Hungarian tax payable by foreign income relating to qualifying IP assets isthat have a double tax agreement with Hungary. shareholders on the disposal of shares in a deductible from the tax base resulting in an There is no WHT on interest paid to Hungarian company. There is a 19% capital gain effective tax rate of 5% for profits less thancorporates, although interest paid to individuals tax on the sale of shares in Hungarian real estate HUF 500 million (€1.7million) and 9.5%are subject to WHT at 16%. Reduced rates of companies if the foreign shareholder is resident thereafter. The deduction cannot exceed 50% ofWHT apply on interest paid to individual in a non-treaty country or the treaty gives the accounting profit. In addition, amortisationresidents of most treaty countries. taxing rights to Hungary. is deductible over the useful economic life, There is no WHT applied on royalty resulting in a low effective tax rate.payments to corporates, although royalties to IP regime From 2012, there is an exemption fromindividuals are subject to WHT at a rate of 16%. Legal capital gains on the disposal, on notified IP.Reduced rates of WHT apply on royalties to Hungary offers a good level of legal protection This is where IP has been held for at least oneindividual residents of most treaty countries. and recognition, broadly following EU law, for year and the tax authorities were notified of the patents, trademarks, copyrights and industrial acquisition within 60 days of obtaining the IP. design and models. R&D rules There are no specific R&D tax incentives. A guide to business relocation in Europe 31
  • 34. Expatriate issues Corporate set upIncome tax CostIndividuals are taxed on all remuneration Company set up costs start at around HUF Whilst Hungary does not have a specific(including benefits in kind) for duties performed 500,000 (€1,730) and take around one month. R&D tax regime, its low effective rate inat a rate of 16%. For income exceeding HUF respect of IP of 5%/9.5% means that it is2.4 million (€8,000) there is a tax base Corporate entity often considered for a group IP company.supplement which results in an effective rate of The most common type of corporate entity is a20.32%. Kft, a limited liability company but other alternatives are a Zrt, private company limitedSocial security contributions by shares, and a Nyrt, a public company limitedEmployers’ social security contributions are by shares.payable at 27%. Employees pay 8.5% health The minimum share capital for a Kft isand unemployment contribution and 10% currently HUF 500,000 (€1,730).pension contribution capped at c. €27,500 There are no requirements or limits on the(HUF 7.9 million). number of shareholders or local management.Expatriate rulesExpatriates are subject to Hungarian tax on theportion of income attributable to working inHungary.32 A guide to business relocation in Europe
  • 35. IrelandIreland key facts As a member of the EU, with a young and highly One of the key draws as an IP holdingInvestment climate educated workforce, Ireland has a wider draw as a company location is the potential effective rate of• local currency Euro (€) holding company location than just its tax regime. tax on IP related income of 2.5% (after deduction• relatively stable political environment Ireland’s low tax rate, dividend exemption, of tax depreciation) – which is one of the lowest• respected regulatory regime. limited transfer pricing and lack of CFC rules in Europe. Ireland’s R&D tax regime works well means that it is an attractive holding company for groups moving to Ireland and also offersQuality of living location. In addition, there have been a number advantages for groups already located in Ireland.• advanced IT and telecommunications of high profile companies relocate their infrastructure headquarters to Ireland in the past few years.• improvements being made to transport Key sectors in which Ireland has built up a infrastructure concentration of expertise are manufacturing,• high standard of education pharmaceuticals, medical devices, technology,• english speaking with access to multilingual software and financial services. skills Ireland is very attractive for groups looking• large population of foreign nationals. for tax efficient financing structures, such as interest free loans via intermediary locations including Luxembourg or the Netherlands. The cost of living in Ireland was relatively high in the past but has reduced over the last few years with recent incentives for foreign executives. A guide to business relocation in Europe 33
  • 36. Holding company Anti avoidance legislationCorporate taxation Ireland has recently introduced limited transferThe standard rate of corporation tax in Ireland pricing rules which require related party trading Ireland is an attractiveis 12.5% for trading activities, including transactions to be conducted on an arm’s length holding company jurisdiction. Tax ondividends from trading companies. Passive basis. Interest on connected party loans is IP related income can be as low as 2.5%, and its R&D tax regime works well for groupsincome such as interest, rents and royalty outside these rules. There is also an exemption moving to Ireland.income (where it is not regarded as being for small and medium sized enterprises.trading income) is taxable at 25%. Ireland does not have any CFC (or equivalent) legislation.Stamp taxes and other capital duties It is possible for companies to obtainThere is no stamp duty on the issuance of shares. advance opinions from the Irish tax authorities Ireland is favoured by high tech, pharmaceutical andHowever, there is stamp duty of 1% on the on the treatment of certain tax matters. They are manufacturing companies. Examplestransfer of shares but group relief is available. not compulsory and can be relatively cheap to include Apple, Oral B, Dell, Microsoft and Hewlett Packard. obtain.Exemptions from Irish corporate taxWhilst there is no dividend exemption, the VATcredit system operating in Ireland means that The standard rate of VAT is 23%. A reduceddividends received from a jurisdiction with a rate of 13.5% applies to fuel for power andhigher rate of corporate tax than is applied in heating, electricity and gas and a 9% rate appliesIreland are effectively exempt. Any unrelieved to hotel accomodation, hotel and restaurantforeign tax credits can be used to credit other meals, newspapers, admissions to cinemas andforeign dividends received. certain live theatrical and musical performances. Capital gains arising on the disposal ofshares in EU or relevant treaty countrycompanies are exempt where those sharesrepresent at least 5% of the shares in a tradingcompany and have been held for a period of12 months out of the previous two years.34 A guide to business relocation in Europe
  • 37. Withholding taxes (WHT) IP regime Income arising from qualifying IP canThe domestic rate of WHT applied on Legal be offset by the amortisation or the electeddividends is 20%, although there is no WHT Ireland has a robust legal framework, based allowance (as above) and also finance costs ofapplied on dividends to EU or treaty countries. on EU legislation, for the protection of IP acquiring that IP. The deduction for interest and The domestic rate of WHT on annual including patents, copyrights, trademarks, amortisation is capped at a maximum of 80% ofinterest payable is 20%. An exemption is computer software and industrial designs and the trading income derived from that IP. Thisgenerally available on interest payable to EU models. can result in an effective tax rate of 2.5%.or treaty countries subject to certain conditions Capital gains arising on the disposal of IPbeing met. IP rules are subject to tax at the standard rate of 30% The domestic rate of WHT on patent The IP regime includes most intangible assets but deferral options may be available.royalty payments is 20%. An exemption is (including software and goodwill). To qualifygenerally available on patent royalties payable these assets must be used in active trade. R&D rulesto EU or treaty countries subject to certain Under the regime, IP amortisation is tax A 25% tax credit is available on qualifyingconditions being met. Patent royalty payments deductible in line with the accounting treatment. R&D expenditure (both capital and revenue) into non treaty countries can also be made free of Alternatively, an election can be made to spread addition to a deduction for the revenue expense.WHT, subject to certain conditions being met. the expenditure over a 15 year period in the The credit can be reclaimed as a cash refund, form of an allowance. Amortisation is based on although this is capped at the higher of payrollDouble tax agreements the market value of the asset, even when it is taxes paid in the year or corporation tax paid inIreland has more than 65 agreements in effect. acquired from a connected party. the last 10 years.Foreign shareholdersThere is no Irish tax payable for foreignshareholders on the disposal of shares in an Irishcompany unless the shares derive their valuefrom specified assets such as Irish land andminerals. A guide to business relocation in Europe 35
  • 38. Expatriate issues Corporate set upIncome tax CostIndividuals are taxed on all remuneration Company set up costs start at circa €800 and Top planning tip: By transfering(including benefits in kind) for duties performed can take up to 10 days. existing group IP to an Irish companyin Ireland, on a two tier system of income tax the allowances on the IP in Ireland arerates starting at 20% up to €32,800 and 41% on Corporate entity calculated on the market value at the timeincome exceeding €32,800. The most common type of company is a limited of acquisition (even if transferred company, for which there are no minimum from a connected party).Social security contributions share capital requirements.Employee social security contributions are An Irish limited company can have apayable up to 4%. A universal social charge is minimum of one shareholder, although at leastalso payable on gross income from all sources. two directors (one being EEA resident) and aThe rates are 2% on the first €10,036, 4% on company secretary are required.the next €5,980 and 7% thereafter. A rate of10% applies to individuals who have incomefrom self employment income that exceeds€100,000 a year.Expatriate rulesTax free subsistence payments are possible forsecondments in certain circumstances and thereare incentives for high paid expatriates.36 A guide to business relocation in Europe
  • 39. LuxembourgLuxembourg key facts Luxembourg has long since been a favoured Companies based in Luxembourg also haveInvestment climate holding company location. A member of the access to a highly qualified workforce, not just• local currency Euro (€) EU, it is a neutral country, which is very stable Luxembourgers, but those from France, Germany• stable economy politically and with a very high quality of living for and Belgium, as commuting is widespread.• very stable political environment with a pro- a reasonable cost. Luxembourg is renowned as a Luxembourg is known for financial and business government safe country, encouraging high calibre expatriates. logistics/transport companies, although more• access to a pool of highly skilled, Luxembourg’s government understands the recently it has attracted a number of high hardworking, multilingual employees. need for a close working relationship with technology companies. businesses and the resilient stable tax regimeQuality of living offers groups certainty about the tax system.• neutral country considered one of the safest Despite its high headline tax rate (ie 28.8% in Europe for businesses established in Luxembourg City• low crime in 2012), there are a number of deductions• very good infrastructure which can significantly reduce the effective tax• high standard of education. rate. In addition, its dividend exemption, exemption for capital gains and nil WHT on interest and royalties, together with its flexible company law which allows partial liquidations, mean that there are tax benefits of locating here. A guide to business relocation in Europe 37
  • 40. Holding company Exemptions from Luxembourg corporate taxCorporate taxation A full dividend exemption is generally available The IP regime offers a lowTax is levied at both the statutory level and the on dividends received from qualifying effective tax rate on income and gains,municipal level. For a company based in shareholdings. The conditions to qualify are with low VAT rates (15%). R&D investmentLuxembourg City, the total effective tax rate shareholdings of at least 10% of the share capital on acquired IP and self developed patents andwould be 28.8%. (or an acquisition price of at least €1.2 million) trademarks is encouraged by the availability and shareholdings which have been held for at of an 80% notional deduction.Stamp taxes and other capital duties least 12 months.There are no stamp taxes applied on the issuance Capital gains arising on the disposal ofor transfer of shares. shares are exempt where those shares represent There is an annual net wealth tax of 0.5% at least 10% of the share capital or if the The favourable IP rules have encouraged high tech companieson all non-qualifying assets, such as cash or acquisition price is at least €6 million and the to hold and develop IP here. Examplesreceivables as at 1 January of any given year. shares have been held for at least 12 months. include CVC Capital Partners, Skype and eBay.However, qualifying participations (as set outbelow) and IP held by a Luxembourg holding Anti avoidance legislationcompany are not included in the calculation of Luxembourg has introduced transfer pricingnet wealth tax. rules limited to financing activities within intra group companies. Domestic related party transactions fall outside these rules. VAT It is possible for companies to obtain an The standard rate of VAT is 15%. A reduced advanced tax agreement from the Luxembourg rate of 12% applies to management services, tax authorities on the treatment of certain 6% to gas and electricity and 3% for food, complex tax matters. These are not compulsory medical treatment and books and newspapers. and can be costly. Advanced tax agreements are commonly obtained for financing or IP structures.38 A guide to business relocation in Europe
  • 41. Withholding taxes (WHT) IP regime R&D rulesDividends paid from Luxembourg are subject Legal There is a deemed deduction in relation to selfto WHT at 15%, reduced to nil for payments Luxembourg offers good legal protection and developed patents, trademarks or copyrights onmade to a company resident in the EU or in the recognition for patents, trademarks, copyrights software used in the company. This notionalvast majority of countries with which it has a and industrial designs and models. deduction is calculated as 80% of the net incomedouble tax agreement. that would have been received if the patent, There is no WHT on interest or royalty IP rules trademark or copyright had been licensed to apayments. The IP regime applies to many registered third party. intangible assets (including patents andDouble tax agreements trademarks) acquired or developed after Expatriate issuesLuxembourg has more than 60 agreements 31 December 2007. Income taxcurrently in effect. 100% amortisation is available on the Individuals are taxed on all remuneration market value of IP, even when transferred (including benefits in kind) for duties performedForeign shareholders intra group. in Luxembourg, on a progressive scale from 0%There is generally no Luxembourg tax payable Under this regime, there is an 80% to 39%. In addition, a solidarity tax is payable atby foreign shareholders on the disposal of exemption on the net royalty income arising 4% of the calculated income tax due.shares in a Luxembourg company. from qualifying IP. In calculating the net There are general deductions allowable in royalty, a deduction is available for amortisation determining an individual’s taxable income for and other directly related costs. This results in a both business and private purposes such as life maximum effective tax rate of 5.76%. assurance and health insurance premiums, On disposal of the qualifying IP, 80% of the childcare costs, loan interest and personal capital gains realised are exempt from tax. pension contributions. A guide to business relocation in Europe 39
  • 42. Social security contributions Corporate set up Other companies used are SAs (publicEmployee social security contributions are Cost limited companies) and SCAs (equivalent ofpayable at 12.45%. Company set up costs start at around €6,500 a partnership limited by shares). including notary fees, and the process can take SAs can be set up with a minimum ofExpatriate rules less than a week. one shareholder but require a minimum ofFrom 1 January 2011 there is a special tax three directors with no residence or nationalityregime for expatriates. The regime only applies Corporate entity requirements. The minimum share capitalto highly skilled expatriates and provides for tax The most frequently used company form is a requirement is €31,000.relief in respect of certain relocation expenses SARL, which has a minimum share capitalincurred. A written application must be requirement of €12,500. This can be set upsubmitted to the Luxembourg tax authorities with only one shareholder and requires theand if the relevant conditions are met the appointment of one manager (with no residentLuxembourg tax authorities will confirm that or nationality requirements).the regime applies.40 A guide to business relocation in Europe
  • 43. MaltaMalta key facts generally be eligible for relief against the Malta Malta has one of the lowest taxation regimesInvestment climate tax liability arising on the corresponding source for IP, with a 0% rate for patent royalty income• local currency Euro (€) of income. In addition, the absence of transfer from inventions and copyright-protected books,• politically and economically stable pricing and CFC rules attract groups to locate film scripts, music and art, and 5% for other• access to a productive workforce. their holding companies in Malta. royalty income actively used in the trade. Located in the Mediterranean, midwayQuality of living between Europe and Africa, its local currency is• very low crime the Euro. The Maltese workforce are educated• good weather and very hard working.• reasonably priced international schools Malta relies on foreign trade and given its• relaxed pace of life. location this is mainly with the EU, Asia and the US. Its economy is dominated by tourism,Malta has a high headline tax rate but the tax manufacturing, technology and finance.refund system and some relatively simple For expatriates, the living costs in Malta areplanning can significantly reduce the effective one of the lowest in Europe, and therate. Malta has a participation exemption in international schools reflect this low cost ofrespect of dividend income and capital gains living. In addition, the good climate and relaxedfrom a qualifying subsidiary and any overseas pace of life make it an attractive place fortax suffered by a Maltese company would expatriates and their families. A guide to business relocation in Europe 41
  • 44. Holding company Exemptions from Maltese corporate taxCorporate taxation A full dividend exemption is generally availableThe standard rate of tax in Malta is 35%. A on receipt of dividends where the holding is at The widely applicablerefundable tax credit is available as follows: least 10%. Broadly, for the exemption to apply, domestic and international participation• full refund for dividends from participating the paying company must either be EU tax exemption and the very favourable IP regime make Malta attractive as a location for holding holdings resident, or have at least 50% of its income from company or IP holding companies.• 6/7ths for income and dividends from active trading activities, or be subject to a tax rate of at companies least 15% (5% in the case of passive interest and• 5/7ths for dividends from passive income or royalties), in its own jurisdiction. royalty income Capital gains arising on the disposal of• 2/3rds where Double Tax Relief is claimed. participating holdings in both foreign and local Malta is particularly good for gaming and technology companies are exempt. companies. Examples includeInterest expenses related to the financing for the Malta has recently introduced a full tax Betsson, Unibet and GFI Software.acquisition of participations can be offset against sparing regime. Under that regime if an overseasdividend income and capital gains derived from subsidiary benefits from tax holidays in thethe particular participation being financed. country in which it is resident, any dividends distributed by this company to its MalteseIndirect taxation parent are exempt from any taxation in Malta,There is a 2% duty on the transfer of shares. An as the participation exemption will apply.exemption is available if 90% of the company’s Furthermore, it is also possible to structure thebusiness activities are overseas. receipt of tax-free dividends from subsidiaries established in tax havens.42 A guide to business relocation in Europe
  • 45. Anti avoidance legislation IP regime The tax treatment of IP amortisationMalta does not have any transfer pricing rules or Legal depends on whether it is capital or revenue. IfCFC (or equivalent) legislation. Malta offers a high level of legal protection, in revenue (ie it is recurring), it is tax deductible in It is possible for companies to obtain an line with international protocols, for patents, line with the accounts. If capital, this isadvance ruling from the Maltese tax authorities copyrights and trademarks. deductible straight line over three years for IPon the treatment of specific tax matters. In rights, six years for scientific research and overlimited circumstances these are compulsory. IP rules the useful economic life for patents. The IP regime applies to registered IP including Capital gains in respect of IP are taxed at anVAT patents, copyrights, trademarks and written effective rate of 5%.The standard rate of VAT is 18%. A reduced know how.rate of 7% applies to accommodation and a rate Under the regime, royalties and similar R&D rulesof 5% to electricity, sweets, medical accessories, income derived from registered patented The R&D regime provides for tax relief ofbooks and newspapers and art. Zero-rated inventions are exempt from tax. 150% of qualifying R&D expenditure if thegoods include gold, food and pharmaceuticals. The rate of tax for other royalties depends activity is undertaken by the company. on whether they are actively used in the trade orWithholding taxes (WHT) passively held. Income from ‘trading’ IP isThere is no WHT payable on dividends, interest effectively taxed at 5%, whilst that fromor royalty payments to non residents. ‘passive’ IP is taxed at 10%.Double tax agreementsMalta has 55 agreements currently in effect anda further 8 are awaiting ratification.Foreign shareholdersThere is no Maltese tax payable for foreignshareholders on the disposal of shares in aMaltese company. A guide to business relocation in Europe 43
  • 46. Expatriate issues Social security contributionsIncome tax An amount equivalent to 10% of the weekly Top planning tip: By using aIndividuals are taxed on all remuneration wage (up to a maximum of €1,840 per annum non-domiciled tax resident Maltese(including benefits in kind) for duties performed for 2011) is deducted from the employee’s salary company, income is only taxed on ain Malta, on a progressive scale from 15% to and an equivalent amount is payable by the remittance basis. Use of an offshore bank35%. employer. EU citizens may be exempt from the account can therefore result in a very Highly qualified non-Malta domiciled payment of social security contributions if they low effective tax rate.individuals employed in an eligible office within are in Malta on a temporary basis and paya Malta Financial Services Authority or statutory contributions in their home country.Lotteries and Gaming Authority licensedcompany, having an annual income in excess of Expatriate rules€75,000, may benefit from a flat personal tax Expatriates are only taxed in Malta on theirrate of 15%. Maltese sourced and remitted income. Furthermore, this 15% flat personal taxstatus is also available for high net worth Corporate set upindividuals (subject to certain conditions being Costsatisfied) applicable on foreign income remitted Company set up costs start at around €2,000to Malta subject to a minimum annual amount (including share registration fees) and can beof €20,000 (and €2,500 for every dependant) completed in less than a week.for EU, EEA and Swiss nationals and €25,000(and €5,000 for every dependant) for non- Corporate entitiesEU/EEA/Swiss nationals, after double taxation The most frequently used company form is therelief. Private Limited Liability company which has a minimum share capital requirement of €1,165. This company must be owned by a minimum of two shareholders but only requires one director and a company secretary. It is also possible to have a private exempt single member company.44 A guide to business relocation in Europe
  • 47. The NetherlandsThe Netherlands key facts The Netherlands is a popular holding company and food. It also has a sophisticated and growingInvestment climate location mainly driven by commercial reasons as financial services sector.• local currency Euro (€) the country is central to, and has good connections There is a large pool of highly skilled,• stable economy with, Europe (and the rest of the world). The hardworking, multilingual employees and• politically stable with a pro-business government high headline tax rate is balanced by the dividend foreign businesses find it easy to integrate due• access to a pool of highly skilled, exemption, the capital gains tax exemption on to the very open culture. hardworking, multilingual employees disposal of shares and the absence of For expatriates, the Netherlands offers a• robust labour laws can become onerous for comprehensive CFC rules. high quality of living at a reasonable cost and a companies employing 50 or more employees. Further, the Netherlands is often used as a favourable expatriate tax regime is available. location to set-up license and finance companiesQuality of living due to the absence of WHT on interest and• consistently outranks many of its EU counterparts royalty payments and the extensive tax treaty for quality of living and attracting talented network. Due to the scarcity of natural foreigners and developing highly qualified staff resources and raw materials and the small size of• low crime the domestic market, the Netherlands is seen• excellent infrastructure especially transport somewhat as a ‘processing economy’ with the• high standard of education. manufacturing sector being dependent on imported materials. Major export industries include oil and gas, chemicals, electronics, office equipment, telecommunications, pharmaceuticals A guide to business relocation in Europe 45
  • 48. Holding company Stamp taxes and other capital dutiesCorporate taxation There is no capital duty or stamp dutyThe standard rate of corporation tax in the applicable in the Netherlands. Top planning tip: Use aNetherlands is 25% (with a 20% rate applying Cooperative (‘COOP’) entity as ato profits up to €200,000). In principle, a tax Exemption from Dutch corporate tax holding company, where shareholdersdeduction is available for interest on loans to A full dividend exemption is available on are resident outside the EU. In certain circumstances, distributions can then beacquire subsidiaries although certain interest dividends from shareholdings of at least 5% made to shareholders without thededuction limitations might be applicable. with no holding period requirement. deduction of any WHT. Due to the absence of Dutch WHT on Capital gains arising on the disposal ofinterest and royalty payments, the Netherlands shares are exempt where those shares were partis often used for routing international debt of a holding of at least 5% of the company withfinancing and licensing activities. The Dutch no holding period requirement.finance/license company will only be subject to The above exemptions generally apply toa small level of taxation on the spread which can the disposal of shares in active companies andbe agreed upfront with the Dutch tax in certain circumstances, passive investmentauthorities. companies if they are subject to a rate of 10% taxation. Real estate companies are always considered to be active companies subject to the Dutch participation exemption even if they are located in low tax countries. Anti avoidance legislation The Netherlands has transfer pricing rules, which require all related party transactions to be conducted on an arm’s length basis. There is some legislation regarding tax havens, but there is no comprehensive CFC (or equivalent) legislation.46 A guide to business relocation in Europe
  • 49. It is possible for companies to obtain Withholding taxes (WHT) IP and R&D rulesadvanced rulings from the Dutch tax authorities The domestic rate of WHT applied on The ‘innovation box’ regime offers generouson the treatment of complex tax matters. They dividends is 15%. An exemption is available on IP and R&D tax relief for intangible assets ofare not compulsory and are generally dividends paid to companies in EU countries a technical nature (this includes IP, R&D andmoderately priced. subject to certain conditions being met and knowhow but excludes goodwill and A company can obtain an advance tax ruling reduced rates of WHT apply on dividends to trademarks).(ATR) or an advance pricing agreement (APA), certain treaty countries. On an international The innovation box regime is optional andthe aim being to attract international investors level, the WHT can be reduced to zero by a group may elect for assets to be included,to the Netherlands by providing them with making use of a coop entity. although once elected, the asset must stay incertainty about their future tax position. There is no WHT on interest and royalties the regime until sold. An APA provides certainty in advance of payable to non residents. Under the regime, income and gains of thethe fiscal acceptability of the price (transfer qualifying assets are effectively taxed at 5%.pricing) that the Dutch group company pays to Double tax agreements IP amortisation is tax deductible.or receives from a foreign group company for The Netherlands has more than 110 agreements Income and capital gains in relation to IPreceiving or delivering services or goods. in effect. outside the regime will be taxed at the headlineWhereas an ATR is an agreement on the tax rate of 25%.characterisation of international corporate Foreign shareholders In addition to the innovation box, a companystructures, such as certainty in advance on the If certain specific conditions are fulfilled, there is can obtain a substantial reduction in the level ofapplication of the participation exemption. no Dutch tax payable for foreign shareholders payroll tax and social security contributions in on the disposal of shares in a Dutch company. respect of technical employees, subject to certainVAT criteria being met.The standard rate of VAT is 21% (from IP regime In the 2012 tax reform, a new tax incentive1 October 2012). A reduced rate of 6% applies Legal was introduced, the research & developmentto food, books, medicines, magazines, transport The Netherlands offers good legal protection deduction (RDA). The RDA applies to costsand accommodation. Some services such as and recognition for patents, trademarks, incurred for, and investments made in, R&Dfinancial and medical are exempt from VAT. copyrights and industrial designs and models. incurred after 31 December 2011. A guide to business relocation in Europe 47
  • 50. Expatriate issues Corporate set upIncome tax CostIndividuals are taxed on all remuneration Company set up costs start at €3,500 and can For IP, the newly extended innovation box regime, offers groups a(including benefits in kind) for duties performed take up to two weeks. very competitive tax regime for technical IP.in the Netherlands, on a progressive scale up to By electing into the regime, income and gains52%, inclusive of social security contributions. Corporate entity from qualifying assets are effectively The most common type of company in the taxed at 5%.Benefits in kind Netherlands is a BV. However, COOPs areGenerally certain benefits can be provided on a often used for international tax structuring fortax efficient basis including child care those wishing to distribute profits outside thearrangements, company car, cost of living EU without WHT (if certain conditions are Examples of companiesallowance, schooling, housing, medical fulfilled). headquartered in the Netherlands are BHP Billiton, Nike,expenses, relocation expenses and pension For a BV, the minimum share capital Ikea and Coca Cola.arrangements. requirement is €18,000, it is permitted to have only one shareholder and there are no directorExpatriate rules requirements.If all relevant conditions are met, 30% of grossincome may be paid out without being subjectto income tax. This results in an effective rate ofincome tax (and social security contributions)for expatriates of 36.4%. Expatriates may also be entitled to specialdeductions for relocation related expenses.48 A guide to business relocation in Europe
  • 51. SpainSpain key facts Culturally and linguistically, Spain is considered In terms of IP, Spain has a favourable R&DInvestment climate a strategic location for accessing Latin America, tax regime which offers generous tax credits• local currency Euro (€) and its favourable treaty network with these and, together with the IP exemption regime, a• respected regulatory regime countries further its attraction for investing in company may be able to obtain a low effective• skilled and semi skilled labour, including Latin America. tax rate on its IP income. technical and professional personnel, widely Although Spain has a relatively high available. corporation tax rate, it has a good holding company regime which offers a participationQuality of living exemption for dividends and capital gains and• good weather a good treaty network.• relaxed pace of life. Spain’s economy is largely service orientated, with services accounting for more than 66% of its GDP. It has a modern countrywide infrastructure in terms of transport and also wireless technology. Spain’s main industries are tourism, manufacturing, construction and real estate. The quality of life in Spain is very good and the cost of living is low compared with many other European countries and therefore it can be a desirable location for expatriates. A guide to business relocation in Europe 49
  • 52. Holding company Anti avoidance legislation Withholding taxes (WHT)Corporate taxation Spain has CFC legislation that applies where An ETVE can distribute to its non SpanishThe standard rate of corporation tax in Spain is there is a 50% shareholding and the effective tax resident shareholders (without a permanent30% for trading activities, although a tax credit rate of the non-resident is less than 75% of the establishment in Spain), the profits that resultof 12% is available if proceeds from the disposal Spanish tax rate. from receipt of foreign exempt income, asof assets are reinvested in qualifying assets. There are also anti avoidance rules regarding described above, free of any Spanish WHT. dividends and capital gains from subsidiaries The domestic rate of WHT on annualStamp taxes and other capital duties resident in tax havens. interest payable is 21%. This rate may beThere is no capital duty or stamp duty As from March 2012, thin capitalisation rules reduced to 0% under the EU parent subsidiaryapplicable in Spain from 1 January 2011. in Spain have been replaced by a general directive and this rate can also be reduced under limitation on the deductibility of gross financial treaties.Exemptions from Spanish tax expenses. The new rules allow a deduction up to The domestic rate of WHT on royaltyIf a company qualifies as a Spanish holding 30% of the operating profit of the fiscal year payments is 24.75%. This rate may be reducedcompany, an ‘ETVE’, it is exempt from Spanish (earning-stripping rule), although financial to 0% under the EU parent subsidiary directive.corporate tax on foreign-source income, expenses will be 100% deductible up to This rate can also be reduced with certain treatyincluding dividends, that it receives and the €1 million. This limitation will apply for the countries.capital gains it realises on the sale of foreign indebtedness from non EU companies, EUparticipations if certain conditions are met. companies and Spanish companies, regardless Double tax agreements The conditions include a shareholding of at of whether the companies are related entities Spain has more than 80 agreements in effect.least 5% of shares (or a participation acquisition (although there are a number of exceptions tovalue over €6 million) is held for the previous the application of the rule). Foreign shareholders12 month period. A capital gain realised on the liquidation of an For an entity to qualify as an ETVE, it must VAT ETVE or on the sale (fully or partly) of thehold shares in overseas subsidiaries and notify The standard rate of VAT is 21%. A reduced rate company will be tax exempt. Any part of thethe Spanish Tax Authorities. of 10% applies to newly built properties, hotels, consideration which relates to Spanish restaurants and entertainment and a 4% rate subsidiaries would not be exempt. applies to food, newspapers and books. Financial, insurance and medical services are exempt from VAT.50 A guide to business relocation in Europe
  • 53. IP regime previous two years, the 25% rate applies to theLegal average rate and the 42% rate applies to theSpain offers a high level of legal protection and excess. Due to its holding company regimerecognition for patents, trademarks, knowhow, An additional credit of 17% of the costs and a strong treaty network Spain isgoodwill, copyrights and industrial design and relating to payroll of the staff exclusively commonly used as a location for investmentsmodels. assigned to R&D activities is available, as well into South America. as a deduction of 8% for tangible assets usedIP rules exclusively within the R&D activity.The IP regime applies to many registeredintangible assets. Companies can benefit from Expatriate issuesan IP tax exemption of 50% of the revenues Income taxarising from the right to use certain qualifying Individuals are taxed on all earned income andIP rights. Such qualifying IP includes patents or passive income and rates are progressive frominformation concerning industrial, commercial 24% to 56%. Savings income is taxed at 21%,or scientific experience. Royalties from any 25% and 27%.other source are excluded from this incentive.In addition there is a 100% deduction of the Social security contributions Corporate set updevelopment costs of any IP. Employees pay social security at 6.35%. Cost This incentive is compatible with the R&D Company set up costs start at circa €1,000 andtax credit, so that in many situations both Expatriate rules can take up to two weeks.incentives can apply at the same time. Spain has a special regime for expatriates assigned to Spain as a consequence of an employment Corporate entityR&D rules contract. The most common entity in Spain is an SLSpain has an R&D regime under which Expatriates eligible for this regime are only (limited liability company). For a SL thecompanies can obtain a deduction of between taxed on income obtained in Spain, and this is minimum share capital requirement is €3,000.25% and 42% of the R&D expenditure in a tax taxed at a 24% flat rate.year. If the R&D expenses incurred in a yearexceed the average amount of expenses in the A guide to business relocation in Europe 51
  • 54. Switzerland Switzerland key facts Switzerland is a highly recognised European It is located at the centre of Europe and has Investment climate commercial holding company location given its forged close ties with the EU despite not being a • local currency – Swiss Franc (CHF) stable currency and political conditions. member itself. It has agreements on the free • economic and political stability Although Switzerland has a complex tax system, movement of persons with the EU countries, • free movement of persons agreement in place its low corporate and personal tax rates, although work permits are still required. In with a number of EU countries allowing those excellent treaty network and sophisticated work addition, the Switzerland-EU savings directive workers to have the same rights as a Swiss Citizen force mean it is popular as a holding company provides Switzerland with access to benefits to live and work. location. similar to those in the EU parent subsidiary Historically, Switzerland is renowned as a directive. Quality of living financial services hub, although other key • low crime sectors include manufacturing, pharmaceutical • good infrastructure in terms of roads, airports and consumer business as well as food. and energy Switzerland is one of the wealthiest • numerous languages spoken countries in the world and has a very high cost • high standard of public education, with very of living such that expatriates demand the best good schools available for expatriate families remuneration packages. • picturesque.52 A guide to business relocation in Europe
  • 55. Holding company Stamp taxes and other capital dutiesCorporate taxation There is an annual capital tax on the value ofCorporate tax is levied at the federal and equity of the Swiss company, the rate of which Although Switzerland has a complex tax system, its potentiallycantonal level. The effective federal tax rate is depends on the canton and ranges from low corporate and personal tax rates and7.8% (after deducting income tax in arriving at approximately 0.001% to 0.01%. excellent treaty network means it is athe taxable income). The cantonal tax rate varies Stamp duty at 1% is payable on the initial very popular European holdingsignificantly and can bring the effective rate of issuance of shares exceeding the amount of company location.tax between 12.5% and 25% depending where c.€830,000 (CHF 1 million). Exemptions arethe company is located in Switzerland. granted for some group reorganisations. For those companies granted holdingcompany privilege, they are exempt from Exemption from Swiss corporate tax Switzerland is good for financial services, food andcantonal taxes and therefore only federal tax is A full dividend exemption is generally available high-end consumer companies.payable at the effective rate of 7.8%. Holding from shareholdings of at least 10% with no Examples include Swiss Re, Nestle, Novartis and Rolex.company privilege only applies for companies holding period requirement.whose primary activity is the holding of Capital gains arising on the disposal ofqualifying investments and who have no active shares are exempt where those shares representtrade or business in Switzerland and two thirds at least 10% of the share capital and are held forof their total assets/income are in the form of at least one year.subsidiary investment/dividends. If a company is granted a mixed companystatus it reduces cantonal tax. Cantonal tax isonly payable on 10-25% of foreign sourceincome such that the total effective tax rate istypically 9-11%. The mixed company status isgranted to companies with predominantlyforeign business activities where at least 80%of revenue and expenses are foreign source. A guide to business relocation in Europe 53
  • 56. Corporate information Withholding taxes (WHT) .Anti avoidance legislation The domestic rate of WHT applied to dividendsSwitzerland has transfer pricing rules, which is 35%, although there are significantly reduced Top planning tip: WHTrequire all related party transactions to be rates with treaty countries. In addition, under on dividends may be a real barrier to locating in Switzerland. This can be mitigated withconducted on an arm’s length basis. the Switzerland-EU savings directive WHT is some relatively simple planning, for example Switzerland does not have any CFC reduced to 0% on cross border dividend by making payments to shareholders out(or equivalent) legislation. payments between related EU companies of a share premium account. It is possible for companies to obtain private provided certain conditions are met.rulings from the Swiss Tax Administration on Under domestic law there is no WHT onthe treatment of certain tax matters, but they are interest payable. However a 35% WHT isnot necessarily required. applied to interest derived from deposits with Swiss banks and bonds. This rate can beVAT significantly reduced under treaties.The standard rate of VAT is 8% (until 2018). A There is no WHT payable on royalties.reduced rate of 3.8% applies to accommodationand 2.5% for food, water, medical products, Double tax agreementsnewspapers, books and magazines. Public Switzerland has more than 100 agreementshealth, education and social services are exempt in place.from VAT. Foreign shareholders There is no Swiss tax payable for foreign shareholders on the disposal of shares54 A guide to business relocation in Europe
  • 57. IP regime R&D rules Expatriate rulesLegal Companies can claim an allowance in respect of There are special deductions against taxableSwitzerland offers a high level of legal qualifying R&D expenditure to third parties, income for expenses such as housing, relocationprotection for all forms of IP including patents, capped at a maximum amount of 10% of current and schooling costs unless reimbursed by theindustrial design and models, trademarks and taxable profit and up to a maximum of employer.copyrights. CHF 1 million (€830,000). If expatriates are affiliated to their own social security system, they are exempted fromIP rules Expatriate issues paying Swiss social security taxes.The IP regime in Switzerland applies broadly to Income taxall types of intangible assets, including goodwill Individuals are taxed on all remuneration Corporate set upand knowhow. for duties performed in Switzerland, on a Cost Income arising from this IP is taxed at an progressive scale between 22% and 42% Company set up costs start at CHF 5,000effective rate of 9%-11% (depending on the (depending on the canton). The cantons of (c.€3,800), and can take up to four weeks.canton and subject to agreement with the tax Schwyz and Zug are widely considered to haveauthorities) providing at least 80% of total the lowest effective rates for personal tax. Corporate entitiesincome and expenses are foreign source income. The most frequently used entity is the IP amortisation is tax deductible, either on a Social security taxes corporation, AG. However, the Swiss limitedstraight line basis (20% of the value each year) The total social security contribution is 10.3% liability company, the GmbH, has less formalor on a reducing basis (40% declining balance). of remuneration. Half of this is paid by the requirements than an AG entity and its use is Capital gains arising on the disposal of IP employer and the other half by the employee. increasing in popularity.are taxed at between 9%-25% (depending on Additional compulsory pension plan For both legal forms, there are minimumthe canton and subject to agreement with the contributions by the employee start at 10% and share capital requirements, and the entity musttax authorities). are dependent on age and the scheme chosen. have at least one shareholder and at least one Individuals are also required to contribute to Swiss resident board member or director. unemployment insurance, with the employee broadly contributing half of the 2.2% contribution. A guide to business relocation in Europe 55
  • 58. United Kingdom United Kingdom key facts The UK has historically been a popular holding In terms of IP, the UK has a favourable, Investment climate company location as a commercial gateway to although complex, R&D tax regime which • local currency GBP (£) Europe. From a tax perspective, there is a strong offers generous tax deductions and credits, the • stable political environment and respected treaty network, a dividend exemption, an exemption magnitude of which depends on the size of the regulatory regime from capital gains on disposal of shares, and no group. This is currently under review and it is • large local pool of skilled labour WHT on dividends, although the previously expected that the regime will be changed with • labour laws are less stringent than EU labour high headline rates and complex legislation has effect from April 2013 to be more favourable for laws detered some groups. larger groups. Commercially, the UK offers stability, both Quality of living politically and economically, and has extensive • high quality infrastructure links with the rest of Europe. • high standard of education Whilst the UK work force is well educated, the • high crime in some areas level of linguistic skills is often limited to English. • an increasingly more multicultural society. The key sectors for the UK include construction and property, financial services and media and entertainment. With a free health service and good schools it can attract high-calibre expatriates. As the cost of living in the South is high, expatriates will expect high remuneration packages.56 A guide to business relocation in Europe
  • 59. Holding company Corporate information VATCorporate taxation Anti avoidance legislation The standard rate of VAT is 20%. A reducedThe headline rate of corporation tax is 24% The UK has transfer pricing rules, that require rate of 5% applies to domestic fuel and power,from 1 April 2012 (26% prior to this date). The all related party transactions to be reflected at energy saving products and certain residentialGovernment has announced its intention to arm’s length for tax purposes. In addition, the alterations. In addition, books, newspapers,reduce this by 1% each year for the next two UK has the worldwide debt cap legislation that food, residential new builds and transport areyears bringing this down to 22% by 1 April seeks to restrict interest deductibility where the subject to a zero-rate.2014. level of debt in the UK entity is deemed to be excessive compared to the level of worldwide Withholding taxes (WHT)Stamp taxes and other capital duties debt. The UK does not impose WHT on dividendsStamp duty of 0.5% applies to the transfer (but The UK has complex CFC legislation, paid by a UK company.not issue) of shares. which is in need of modernisation. A new CFC The domestic rate of WHT on interest regime will come into effect from 1 January payable to non residents is 20%. There is noExemptions from UK corporate tax 2013. This is expected to make the UK more WHT on interest payable to companies in EUThe UK has a dividend exemption (effective attractive for international trade as it is more countries where either the payer or payee holdsfrom 1 July 2009), with the majority of modern although it is not necessarily any more directly or indirectly at least 25% of the sharedividends being exempt from UK tax. straightforward. capital in the other. In addition, there are Capital gains arising on the disposal of It is possible for companies to obtain reduced WHT rates with treaty countries.shares in a trading company where the UK advanced rulings from the UK tax authorities on The domestic rate of WHT on royaltycompany has owned at least 10% of the share the tax treatment of certain matters. These are payments to non residents is 20%.There is nocapital for 12 months out of the last 24 months not compulsory and can be costly. WHT on royalty payments to companies in EUare exempt. countries where either the payer or payee holds directly or indirectly at least 25% of the share capital in the other. In addition, there are reduced WHT rates with treaty countries. A guide to business relocation in Europe 57
  • 60. Double tax agreements benefit applying in 2013 and the full benefit The UK has more than 120 agreements applying from 2017 onwards. Qualifying The complexity of the currently in effect. patents under the regime are existing and new UK tax regime remains a deterrent patents granted by the UK and European patent to many groups although the commercial IP regime office. The patent box is not restricted to owners benefits of locating in the UK are still significant, especially for Legal of patents but also those who hold the exclusive US multinationals. The UK has a robust legal framework for the licence over patented technologies. Qualifying protection of IP including patents, copyrights, income includes income from the sale of a trademarks, service marks and industrial designs patented product or a product containing a and models. patented item, royalties and licence fees from The UK is good for rights granted over patented technology, income financial services and construction. IP rules from the realisation of a patent and income from Examples include Barclays and Bovis. The UK IP regime applies to broadly all a patent infringement. intangible assets (including goodwill) whether acquired or internally generated post March R&D rules 2002. Under the regime, amortisation is The UK R&D rules offer enhanced deductions deductible in line with the accounts or the and credits for qualifying expenditure, taxpayer can elect for relief at 4% per annum. depending on the size of the group. Gains on the disposal of IP assets are taxed For small and medium enterprises (SME), a at the headline tax rate and such gains may be 200% deduction is available for qualifying R&D deferred, where the proceeds from sale are expenditure. Other companies benefit from an re-invested in qualifying assets. enhanced deduction of 130% deduction on A new patent box regime is to be expenditure. introduced with effect from 1 April 2013. Under In addition, loss making SMEs incurring the new regime, qualifying patent income will qualifying R&D expenditure can claim a tax be subject to a rate of 10%, although it will be repayment by surrendering tax credits. phased in over five years, with 60% of the58 A guide to business relocation in Europe
  • 61. Qualifying capital R&D expenditure is Social security contributionswholly allowable as a tax deduction by way of a Employee social security contributions are100% capital allowance in the year it is incurred. payable at 12%, with employers required to pay The UK tax authorities have From 1 April 2013, it is anticipated that an additional 13.8% employer contributions on committed to simplifying the R&Dlarge enterprises will benefit from an above the salaries. regime and introducing a patent box regime.line credit rather than an enhanced deduction to Both these measures will increase theencourage investment in R&D activities in the Expatriate rules UK’s draw as an IP holdingUK although this is still under consultation with Assuming there is no intention to stay in the company location.the UK tax authorities. UK, expatriates will only be taxable on their UK earnings together with any investmentExpatriate issues income or gains arising in or remitted to the UKIncome tax (subject to the payment of £30,000/£50,000Individuals are taxed on all remuneration (c.€37,000/c.€62,000) depending on how long(including benefits in kind) for duties performed the expatriate has been resident in the UK).in the UK, on a three tier scale 20%, 40% and For short term employment there are50%, although the 50% rate only applies to generous deductions for personal expenses fortaxable income in excess of £150,000 individuals on short term secondments (for up(c.€175,000). From April 2013 the higher rate to two tax years).band is to be reduced to 45%. There are numerous deductions and Corporate set up Corporate entitiesexemptions, in particular, taxable income is Cost The most frequently used entity is the limiteddetermined after deducting a personal tax free Company set up costs start at €500 and can be company, which has no minimum share capitalallowance of £8,105 (c.€10,100) and qualifying completed in a week. and only requires one shareholder and onepension contributions. Most benefits in kind are director. The LLP, a limited liability partnershiptaxable. is becoming increasingly more widely used. A guide to business relocation in Europe 59
  • 62. Other territory profilesThe 10 key holding companylocations are not exclusive and thissection summarises the key issuesto consider in various otherEuropean territories.60 A guide to business relocation in Europe
  • 63. AustriaHolding company • Withholding tax on dividends? Other comments• Corporation tax rate Yes, 25% but reduced to 0% under EU parent • Local currency 25%. subsidiary directive and also may be reduced Euro.• Participation exemption on dividends? under treaties. • Income tax rate Yes. • Withholding tax on interest? Progressive, up to 50% (in addition to high• Participation exemption on capital gains? No, unless interest paid on debt secured on social security costs although these are capped Yes, gains are exempt if the subsidiary is not Austrian property. at earnings of €59,220 per annum). Austrian (conditions are 10% holding for more • Number of double taxation agreements • Expatriate regime than 12 months). 80+. An Austrian tax charge arises on employment• Interest deductibility? • Standard VAT rate income derived from duties performed in Yes, subject to transfer pricing rules. 20%. Austria. There are specific expenses deductible• Transfer pricing regime? from this income to the extent that the Yes, transactions between related parties must IP holding company individual is employed in Austria for less than be on an arm’s length basis. • IP regime? five years and has not been resident in Austria• Controlled foreign company regime? No. in the last 10 years. No. • Tax rate on IP income• Local tax on disposal of shares by foreign No special regime. Taxed at usual corporate tax shareholder? rate of 25%. Yes, 25% if the shareholder has held at least 1% of the total share capital in the last five years, although double taxation agreements do not usually grant Austria with any taxing rights. A guide to business relocation in Europe 61
  • 64. Czech RepublicHolding company • Withholding tax on dividends? Other comments• Corporation tax rate Yes, 15% but reduced to 0% under EU parent • Local currency 19%. subsidiary directive and also may be reduced Czech Crown.• Participation exemption on dividends? under treaties. • Income tax rate Yes. • Withholding tax on interest? Flat rate of 15%.• Participation exemption on capital gains? Yes, 15% but reduced to 0% under EU • Expatriate regime Yes. interest and royalties directive and also may be A Czech tax charge arises on employment• Interest deductibility? reduced under treaties. income derived from duties performed in the Yes, subject to thin capitalisation rules. • Number of double taxation agreements Czech Republic based on the gross salary plus• Transfer pricing regime? 80+. social and health insurance paid by the Yes, transactions between related parties must • Standard VAT rate employer. Assessable employment income be on an arm’s length basis. 20%. includes all wages, salaries, overtime pay,• Controlled foreign company regime? bonuses, gratuities, perquisites, benefits etc No. IP holding company including the reimbursement of travel expenses• Local tax on disposal of shares by foreign • IP regime? over a certain level. There are no specific shareholder? No. concessions for expatriates. Yes, 19% on capital gains realised unless • Tax rate on IP income reduced under the relevant treaties. No special regime. Taxed at usual corporate tax rate of 19%.62 A guide to business relocation in Europe
  • 65. DenmarkHolding company • Withholding tax on dividends? • Tax rate on IP income• Corporation tax rate Yes, 27% but reduced to 15% if certain criteria No special regime. Taxed at usual corporate tax 25%. are met, 0% under the EU parent subsidiary rate of 25%.• Participation exemption on dividends? directive and also may be reduced under treaties. Yes, providing there is a minimum 10% • Withholding tax on interest? Other comments shareholding or it is received from another Yes, 25% but reduced under EU interest and • Local currency group company. royalties directive and also may be reduced Danish Kroner.• Participation exemption on capital gains? under treaties. • Income tax rate Yes, providing there is a minimum 10% • Number of double taxation agreements Progressive up to 51.5%. shareholding or it is received from another 75+. • Expatriate regime group company. • Standard VAT rate Foreign key employees working temporarily• Interest deductibility? 25%. in Denmark, who have not been subject to Yes, subject to thin capitalisation and anti- Danish taxation (on certain income) in the abuse rules. IP holding company previous 10 years, may choose to be taxed at a• Transfer pricing regime? • IP regime? flat rate of 26% of their gross salary plus a Yes, transactions between related parties must IP amortisation is tax deductible. Generally labour market contribution of 8%, resulting in be on an arm’s length basis. intangible assets are amortised over seven years a total tax of approximately 32% of their gross• Controlled foreign company regime? (straight-line basis and determined on a cash salary (for up to 60 months). Certain Yes, for controlled subsidiaries. basis). Specific rules apply if the protection time requirements must be met in order to qualify• Local tax on disposal of shares by foreign of knowhow, patents and copyrights is shorter for the expat regime. shareholder? than seven years. Alternatively, knowhow and No, generally not. patents are fully tax-deductible in the year of acquisition according to the owner’s choice. A guide to business relocation in Europe 63
  • 66. EstoniaHolding company • Controlled foreign company regime? IP holding company• Corporation tax rate No, however anti-tax haven rules apply for • IP regime? 21% (to be reduced to 20% from 1 January certain transactions, treating these as deemed There are no special incentives for IP. 2015). Companies do not pay any taxes on profit distributions. • Tax rate on IP income earned profits until these are distributed as • Local tax on disposal of shares by foreign No special regime. Taxed at usual corporate tax dividends or other forms of profit shareholder? rate of 21%. distributions, allowing companies established No, unless Estonian company is deemed to be in Estonia to reinvest their profits in other a real estate company. Other comments entities without being subject to tax in Estonia. • Withholding tax on dividends? • Local currency• Participation exemption on dividends? No. Euro. Yes. • Withholding tax on interest? • Income tax rate• Participation exemption on capital gains? No, unless the interest paid significantly Flat rate of 21% (20% from January 2015). No. exceeds an arm’s length rate, and then • Expatriate regime• Interest deductibility? withholding tax at a rate of 21% applies to the No special favourable tax regime for expatriates. Yes, there are no thin capitalisation rules. part of the interest exceeding arm’s length.• Transfer pricing regime? • Number of double taxation agreements Yes, transactions between related parties must 40+. be on an arm’s length basis. • Standard VAT rate 20%.64 A guide to business relocation in Europe
  • 67. FinlandHolding company • Local tax on disposal of shares by foreign Other comments• Corporation tax rate shareholder? • Local currency 24.5%. No, unless the shares being sold are that of a Euro.• Participation exemption on dividends? company carrying on real estate activities. • Income tax rate Yes. • Withholding tax on dividends? Progressive up to 50%.• Participation exemption on capital gains? Yes, 24.5% although this rate may be reduced • Expatriate regime Yes, providing there has been a holding period to 0% under EU parent subsidiary directive A Finnish tax charge arises on employment of at least one year. and also may be reduced under treaties. income derived from duties performed in• Interest deductibility? • Withholding tax on interest? Finland. Assessable employment income Yes, although it is currently anticipated that No. includes all wages, salaries, overtime pay, thin capitalisation rules are to be introduced in • Number of double taxation agreements bonuses, gratuities, perquisites, benefits etc. 2012. 60+. There are no specific expatriate concessions in• Transfer pricing regime? • Standard VAT rate Finland. Yes, transactions between related parties must 23% (24% from January 2013). be on an arm’s length basis (although there are no documentation requirement for domestic IP holding company transactions). • IP regime?• Controlled foreign company regime? No special regime. Amortisation is tax Yes, however in general not applicable to EU deductible for a maximum of 10 years based resident companies. on economic lifetime of the item. • Tax rate on IP income Taxed at usual corporate tax rate of 24.5%. A guide to business relocation in Europe 65
  • 68. FranceHolding company Safe harbour clauses exist for both EU Yes, a tax deduction is available on cost or• Corporation tax rate and non-EU countries. purchase price. Rates range from 100% in the 33.33% (plus social surcharge of 3.3% on the • Local tax on disposal of shares by foreign year of acquisition (for R&D costs) to 20% corporate tax exceeding €763,000 in a year shareholder? over five years (for most patents). Trademarks and an additional temporary surcharge of 5% Yes, 19% capital gains realised on a substantial are not amortised in most cases. where turnover exceeds €250 million until participation (25%), unless reduced under the • Tax rate on IP income 30 December 2013). relevant treaties. Raised to 50% when realised 15% on royalties from patents, deemed• Participation exemption on dividends? by residents of non-cooperative states, patent licensing and sales of such patents, Yes, dividends received are 95% exempt (conditions regardless of participation level. although anti-abuse rules can apply between are a minimum 5% holding for more than 24 • Withholding tax on dividends? related companies. months). Yes, 30% but reduced to 0% under EU• Participation exemption on capital gains? interest and royalties directive and also may Other comments Yes, gains are 90% exempt (conditions are a be reduced under treaties. • Local currency minimum 5% holding for more than 24 months). • Withholding tax on interest? Euro.• Interest deductibility? No, unless interest paid on some specific debt • Income tax rate Yes, subject to thin capitalisation instruments issued prior to 31 March 2010. Progressive, up to 41%. substance/control test and anti-abuse rules. • Number of double taxation agreements • Expatriate regime• Transfer pricing regime? 120+. A French tax charge arises on income derived Yes, transactions between related parties • Standard VAT rate from duties performed in France. A tax must be on an arm’s length basis. 19.6%. exemption on the allowances paid to• Controlled foreign company regime? employees seconded to France can be Yes, 50% shareholding for subsidiaries. IP holding company implemented if certain criteria are met. • IP regime?66 A guide to business relocation in Europe
  • 69. GermanyHolding company • Local tax on disposal of shares by foreign • Tax rate on IP income• Corporation tax rate shareholder? No special regime. Taxed at usual corporate tax 28-33% (this includes corporate and trade tax, No, provided there is a treaty. rate 30%. which depends on the municipality). • Withholding tax on dividends?• Participation exemption on dividends? Yes, 26.375% but this is reduced to 15.825% if Other comments Yes, dividends received are 95% exempt the shareholder is a corporation. The rate may • Local currency (currently no shareholding conditions to be be reduced to 0% under EU parent subsidiary Euro. met although this is intended to be amended to directive and may also be reduced under • Income tax rate a 10% minimum shareholding). treaties. Progressive, up to 45%.• Participation exemption on capital gains? • Withholding tax on interest? • Expatriate regime Yes, gains are 95% exempt (currently no No (except on interest from German Individual taxpayers are allowed to claim all shareholding conditions to be met although banks/financial institutions). expenses directly incurred with their incomes this is intended to be amended to a 10% • Number of double taxation agreements from employment. There is a tax free lump minimum shareholding). 100+. sum for employees at an amount of €1,000.• Interest deductibility? • Standard VAT rate Thereafter, various other deductions and Yes, subject to interest ceiling rules. 19%. allowances apply on taxable income from• Transfer pricing regime? employment. The German income tax law Yes, transactions between related parties must IP holding company does not provide for special deductions or tax be on an arm’s length basis. • IP regime? free expatriate premiums.• Controlled foreign company regime? Yes, applies to a variety of IP, with tax Yes, passive foreign income is taxed if that deductible amortisation based on the purchase income was subject to tax at an effective rate of price of the IP. The rate depends on the type of less than 25%. Exemptions apply for EU based IP, but is broadly available over 15 years. A guide to business relocation in Europe 67 subsidiaries.
  • 70. Greece Holding company • Local tax on disposal of shares by foreign deduction either in the year of acquisition or • Corporation tax rate shareholder? spread over five years. 20%. No, provided there is a treaty. • Tax rate on IP income • Participation exemption on dividends? • Withholding tax on dividends? No special regime. Taxed at usual corporate tax Yes, if paid from an EU company and there is a Yes, 25% but this may be reduced to 0% under rate of 20%. minimum shareholding of 10% for at least two EU parent subsidiary directive and also may be years and a tax free reserve is formed with the reduced under treaties. Other comments untaxed dividend income. • Withholding tax on interest? • Local currency • Participation exemption on capital gains? Yes, 40% but reduced to 5% under EU Euro. No. interest and royalties directive (until 30 June • Income tax rate • Interest deductibility? 2013 and then 0% thereafter) and also may be Progressive up to 45%. Yes, subject to transfer pricing and thin reduced under treaties. • Expatriate regime capitalisation rules. • Number of double taxation agreements A Greek tax charge arises on employment • Transfer pricing regime? 50+. income derived from duties performed in Yes, transactions between related parties must • Standard VAT rate Greece. Assessable employment income be on an arm’s length basis. 23%. includes all wages, salaries, overtime pay, • Controlled foreign company regime? bonuses, gratuities, perquisites, benefits etc. Yes, quasi rules may apply for EU transparent IP holding company There is also a requirement on the expatriate’s entities. In addition transactions with ‘black • IP regime? employer to deduct Greek payroll withholding listed’ countries may not be deductible. Yes, applies to a variety of IP including patents, tax from the assessable employment income. trademarks and designs. A tax deduction for There are no specific expatriate concessions amortisation is available on the historic cost in Greece. basis and a company can choose to take a68 A guide to business relocation in Europe
  • 71. ItalyHolding company • Controlled foreign company regime? IP holding company• Corporation tax rate Yes, on a country basis (tax havens and • IP regime? 27.5% (plus regional tax, 3.9%-4.82%). preferential tax regime) and transaction basis Yes, trademarks and goodwill may be• Participation exemption on dividends? (other countries with reference to passive depreciated up to one eighteenth each tax year. Yes, dividends received are 95% exempt (no income and lower effective tax rate). Patents and other IP may be depreciated by 50%. shareholding conditions to be met) unless • Local tax on disposal of shares by foreign • Tax rate on IP income received from ‘black list’ countries (broadly tax shareholder? No specific regime. Taxed at the usual havens). Yes, 20% capital gain tax in case of non-qualified corporation tax rate of 27.5%. Full taxation in the case of shares ‘held for participations although exemption generally trading’ by IFRS/IAS adopters. applies under tax treaties. Other comments• Participation exemption on capital gains? • Withholding tax on dividends? • Local currency Yes, gains are 95% exempt. Conditions include Yes, 20% but reduced to 1.375% if paid to Euro. the shares being held for more than 12 months companies resident in the European Economic • Income tax rate (for individuals) and the company invested in has an operating Area, or to 0% under the EU parent subsidiary Progressive, up to 43% plus local surcharges. An business activity and was resident in a ‘white directive. additional surcharge of 3% applies to the income list’ country for the last three tax years. • Withholding tax on interest? in excess of €300,000.• Interest deductibility? Yes, 20% but the rate may be reduced to 0% • Expatriate regime Yes, subject to certain limitations. under the EU interest and royalties directive. No specific concessions for expatriates. Income• Transfer pricing regime? • Number of double taxation agreements includes all amounts paid or accrued in a calendar Yes, transactions between Italian entities and 85+. year and paid by 12 January of the following related non-resident parties must be on an • Standard VAT rate calendar year as salary, wages, commissions, arm’s length basis. 21%. director’s fees, bonuses and taxable benefits. A guide to business relocation in Europe 69
  • 72. LatviaHolding company • Local tax on disposal of shares by foreign IP holding company• Corporation tax rate shareholder? • IP regime? 15%. No, unless real estate comprises of more than Yes, applies to a variety of IP including• Participation exemption on dividends? 50% of a company’s total assets during the trademarks, design rights and copyright. No. year of disposal or in previous year, then a 2% • Tax rate on IP income• Participation exemption on capital gains? withholding tax applies. Payments for copyrights, neighbouring rights No. • Withholding tax on dividends? and royalties are taxed at the normal corporate• Interest deductibility? Yes, 10% but may be reduced to 0% under EU tax rate of 15%, with other IP types taxed at a Yes, subject to thin capitalisation rules. parent subsidiary directive and also may be rate of 5%.• Transfer pricing regime? reduced under relevant treaties. No formal transfer pricing documentation • Withholding tax on interest? Other comments requirements, but an arm’s length principle is Yes, 10% but may be reduced under the • Local currency provided for. Transfer pricing regulations relevant treaties. Latvian lat. requiring specific documentation are to come • Number of double taxation agreements • Income tax rate into force in 2013. 50+. Flat rate of 25%.• Controlled foreign company regime? • Standard VAT rate • Expatriate regime No. 21%. There is no special expatriate tax regime and for tax purposes they are treated as residents.70 A guide to business relocation in Europe
  • 73. LithuaniaHolding company • Controlled foreign company regime? • Tax rate on IP income• Corporation tax rate Yes. Taxed at the usual corporate tax rate of 15%. 15%. • Local tax on disposal of shares by foreign 300% of qualifying R&D costs are deductible• Participation exemption on dividends? shareholder? in the year they were incurred. Yes, providing dividends are received from EEA No. entities or entities established in a country which • Withholding tax on dividends? Other comments Lithuania has a double taxation agreement in No, provided the recipient has held not less • Local currency place and providing there is a minimum 10% than 10% of voting shares for a continuous Litas. shareholding for at least 12 successive months. period of at least 12 successive months with the • Income tax rate• Participation exemption on capital gains? exception of black listed companies. Flat rate of 15% (20% on distributed profits). Yes, providing the shares of the company being • Withholding tax on interest? • Expatriate regime disposed of is resident in the EEA or in Yes, 10% but reduced to 0% when paid to an Resident individuals are taxed on their another country which Lithuania has a relevant EEA registered entity or reduced in the worldwide income. Non-residents are subject double taxation agreement with and at least relevant treaties. to Lithuanian tax on income originating in 25% of the shares are held for not less than • Number of double taxation agreements Lithuania. Generally, income or two years. 40+. compensations received by an expatriate for• Interest deductibility? • Standard VAT rate both business and private purposes such as cost Yes, subject to thin capitalisation rules. The 21%. of living, relocation expenses, settling expenses, maximum permissible related-party schooling allowance are added to the income debt:equity ratio is 4:1. IP holding company and taxed accordingly.• Transfer pricing regime? • IP regime? Yes, transactions between related parties must No special IP tax regime. be on an arm’s length basis. A guide to business relocation in Europe 71
  • 74. PolandHolding company • Local tax on disposal of shares by foreign IP holding company• Corporation tax rate shareholder? • IP regime? 19%. Generally no. Under some double tax Yes, applies to most IP excluding knowhow• Participation exemption on dividends? agreements there is an applicable ‘real estate acquired as an in-kind contribution. A tax Yes, provided there has been a minimum 10% clause’. deduction for amortisation is available on the holding for more than 24 months. • Withholding tax on dividends? purchase price of the IP and the minimum• Participation exemption on capital gains? Yes, 19% but may be reduced to 0% under EU period of amortisation is 60 months. No. parent subsidiary directive or to a rate • Tax rate on IP income• Interest deductibility? provided by the relevant double tax agreement. No special rate. Taxed at usual corporate tax Yes, subject to transfer pricing and thin • Withholding tax on interest? rate 19%. capitalisation rules. Yes, 20% but may be reduced to 5% under• Transfer pricing regime? the EU interest and royalties directive (until Other comments Yes, transactions must be on an arm’s length 30 June 2013, 0% thereafter) or to rate • Local currency basis. provided by relevant double tax agreement. Polish Zloty.• Controlled foreign company regime? • Number of double taxation agreements • Income tax rate No. 80+. Progressive – up to 32%. • Standard VAT rate • Expatriate regime 23%. A Polish tax charge arises on employment income derived from duties performed in Poland. Assessable employment income includes all wages, salaries, overtime pay, bonuses, gratuities, benefits in kind etc. There is no specific tax exemption for expatriates.72 A guide to business relocation in Europe
  • 75. PortugalHolding company • Withholding tax on dividends? • Tax rate on IP income• Corporation tax rate Yes, 25% but may be reduced to 0% under EU No special rate. Taxed at usual corporate tax 25% plus local tax (up to 1.5%) and a parent subsidiary directive or to rate provided rate of 31.5%. surcharge for profits in excess of €1.5 million by relevant double tax agreement. (maximum total tax is 31.5%) • Withholding tax on interest? Other comments• Participation exemption on dividends? Yes, 25% but may be reduced to 5% under EU • Local currency Yes, provided there has been a minimum 10% interest and royalties directive (until 30 June Euro. holding for at least one year. 2013, 0% thereafter) or to rate provided by • Income tax rate• Participation exemption on capital gains? relevant double tax agreement. Progressive up to 46.5%. Yes. • VAT rate • Expatriate regime• Interest deductibility? 23%. As of 2011, there is a beneficial expat regime Yes, subject to transfer pricing and thin • Number of double taxation agreements for individuals that have not been resident in capitalisation rules. 65+. Portugal the past five years. Under this regime,• Transfer pricing regime? • Standard VAT rate employment and self-employment income will Yes, where transactions are not on an arm’s 23%. be taxed at the flat rate of 20%, withheld at length basis then the tax authority may require source. In addition, expats will not be subject adjustments. IP holding company to tax on overseas income, providing that• Controlled foreign company regime? • IP regime? income is subject to tax (even if effectively Yes in respect of subsidiaries resident in black Yes, applies to most IP excluding knowhow taxed at 0%) and the income was not earned listed territories. acquired as in-kind contribution. A tax in a black listed country.• Local tax on disposal of shares by foreign deduction for amortisation is available on the shareholder? purchase price of the IP over its useful life. No. A guide to business relocation in Europe 73
  • 76. RussiaHolding company • Controlled foreign company regime? • Tax rate on IP income• Corporation tax rate No. No special rate. Taxed at the usual corporation 20%. • Local tax on disposal of shares by foreign tax rate of 20%.• Participation exemption on dividends? shareholder? Yes, provided that there is a minimum 50% Yes, 20%, where more than half the assets of Other comments holding for at least one year and the entity is the Russian company consist of real estate • Local currency not resident in a tax haven. situated in Russia. Russian Rouble.• Participation exemption on capital gains? • Withholding tax on dividends? • Income tax rate Yes, provided that the shares were purchased 15%, may be reduced under treaties. Flat rate of 13% for Russian residents, 30% for after 1 January 2011 and are held for more than • Withholding tax on interest? non-residents on Russian source income. Foreign five years. 20%, may be reduced under treaties. highly qualified specialists (annual salary of more• Interest deductibility? • Number of double taxation agreements than RUR 2 mllion) are subject to 13% rate. Yes, subject to transfer pricing and thin 75+. • Expatriate regime capitalisation rules. • Standard VAT rate All forms of remuneration received in respect of• Transfer pricing regime? 18%. the performance of employment duties are Yes. Controlled transactions exceeding certain treated as employment income. Where income thresholds should be declared. Documentation IP holding company has been subject to tax in Russia and also a justifying prices applied should be available • IP regime? foreign jurisdiction, relief can be granted by the upon request of tax authorities. If prices are Yes, applies to various types of IP (excludes Russian tax authorities where provided for in the proved not to be at arm-length as a result of a goodwill and customer relationships held for relevant double taxation agreement. tax audit, assessment can be made and fines can over 12 months). Amortisation is available on be charged. the actual cost of the IP, and is amortised over the useful life of the IP.74 A guide to business relocation in Europe
  • 77. SwedenHolding company • Withholding tax on dividends? Other comments• Corporation tax rate 30%, may be reduced to 0% under EU parent • Local currency 26.3%. subsidiary directive and also under treaties. Swedish Krona.• Participation exemption on dividends? • Withholding tax on interest? • Income tax rate Yes, provided that there is a minimum 10% No. Progressive, up to 57%. holding for at least 12 months. • Number of double taxation agreements • Expatriate regime• Participation exemption on capital gains? 80+. Generally all earnings are taxed as income from Yes, provided that there is a minimum of 10% • Standard VAT rate employment provided the income is not holding for at least 12 months. 25%. considered business income or income from• Interest deductibility? capital. All earnings from an employer to an Yes, subject to transfer pricing regime. Certain IP holding company employee are taxable as income from limitations may apply. • IP regime? employment, ie wages, fees, sickness allowances,• Transfer pricing regime? Yes, applies to all IP. A tax deduction for severance pay as well as benefits in kind. Under Yes, transactions must be on an arm’s length amortisation is available on the historic certain conditions, foreign employees working in basis. (acquisition) value of the IP, and the maximum Sweden for limited periods may qualify for a• Controlled foreign company regime? rate of deduction is 30%. reduction of the income tax liability on their Yes, rules apply where the foreign entity is • Tax rate on IP income earnings. The reduction amounts to 25% and is deemed to be subject to an effective tax rate of No special rate of tax. Taxed at the usual applicable for only the first three years as long less than 14.5%. corporation tax rate of 26.3%. as the employer/employee applies for a ruling• Local tax on disposal of shares by foreign within three months after the work started in shareholder? Sweden. No. A guide to business relocation in Europe 75
  • 78. TurkeyHolding company • Local tax on disposal of shares by foreign • Tax rate on IP income• Corporation tax rate shareholder? 0% if the IP regime applies as set out above, 20%. No, unless the shares are sold for more than otherwise the normal rate of corporation tax• Participation exemption on dividends? market value. If the shares have not been held which is 20%. Yes, dividends received are 100% exempt and for at least two years, the sale is also subject to • Standard VAT rate there is no minimum participation or holding VAT. 18%. period. Dividends paid by resident investment • Withholding tax on dividends? partnerships and investment funds are not 15%, may be reduced under relevant treaties. Other comments subject to the exemption and are taxed at 15%. • Withholding tax on interest? • Local currency• Participation exemption on capital gains? Yes, 15% may be reduced under relevant Turkish Lira. Yes, gains are 75% exempt providing that the treaties. • Income tax rate shares have been held for at least two years. • Number of double taxation agreements Progressive up to 35%• Interest deductibility? 75+. • Expatriate regime Yes, subject to transfer pricing regime. Interest No special expat regime. paid on equity capital or hidden equity capital IP holding company is non-deductible. • IP regime?• Transfer pricing regime? Yes, applies to all IP. Where the IP owner is a Yes, transactions must be on an arm’s length natural person, the owner is not subject to basis. income tax on the IP income, although 17%• Controlled foreign company regime? tax needs to be withheld from the payment No. from the corporate using the natural person’s IP.76 A guide to business relocation in Europe
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