A guide to business relocation in Europe 2012/13

2012/2013

A guide to business
relocation in Europe

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 76

About Grant Thornton
Grant Thornton is one of the world's leading organisations of independent assurance, tax and advisory firms. These firms help
dynamic 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 for
privately owned, publicly listed and public sector clients and help them to find solutions. Over 31,000 Grant Thornton people, across
100 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work.

A guide to business relocation in Europe

Introduction

Many companies from large multinationals to Grant Thornton member firms around the Our guide outlines what type of activity is
entrepreneurial businesses are choosing to world have significant experience in advising commonly relocated and the benefits of doing so
relocate part or all of their operations to new clients on how their businesses can benefit from and it profiles key locations within Europe which
territories. 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 and
relocating part of their operations, but it is office and holding company structure summarise key commercial and tax factors to be
also 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

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 2

2 A guide to business relocation in Europe

5 Luxembourg – pre-eminent within the finance sector, it is a 8 Spain – not widely recognised as a holding company location but its
common holding company location and is often used as a strong treaty network with Latin America means that it is a very good
treasury/financing location. Advance agreements with the tax authorities holding company location to access these markets. Its attractive R&D
are 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 widely
6 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, with
structured 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 holding
an excellent treaty network and a flexible tax system, it still remains company structure – this is driven by commercial factors, particularly
popular 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.


These 10 key European jurisdictions are widely used for holding companies and IP holding companies. The choice of location is very much driven by
the commercial requirements of the business. Whilst it can be possible to relocate without a strong commercial driver, the best results are typically where
commercial 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 UK
EU member yes yes yes yes yes yes yes yes no yes
Tax rates
Headline corporation 33.99% 10% 10-19% 12.5% 28.8% 35% 20-25% 30% 12-25% 24%
tax rate
Income 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 regime
Dividend 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 yes
Other 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 yes
Capital/stamp duty on no yes – only on no – unless yes – only on no – however yes – only on no no yes – on initial yes – only
shares 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+
treaties

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 tax
2. Withholding tax rates may be reduced when payments made within the EU or under relevant treaties CFC = controlled foreign company
3. Further details are included in the relevant key country profiles from page 20 ETVE = Spanish holding company


Relocation options

Full migration Use of IP holding companies and regional
What 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 holding
Whilst most people instantly think of full
relocation of headquarters or holding company regimes by many international groups. Such
corporate migrations for business relocations,
or both. A migration of the holding company companies are responsible for the ongoing
there are a number of much simpler options
typically involves an inversion, whereby a new development, protection and exploitation of IP
which 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 are
for a business requires assessing numerous
management and control of a holding company considering the best place to locate these assets
competing 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.


Offshoring Changing the risk model
There can be significant cost savings through Where it is not appropriate to physically
offshoring. In its simplest form offshoring could relocate certain functions, then an alternative
be 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 an
value-add functions including research and arrangement, the risks borne by the local
development (R&D) centres and treasury distribution or manufacturing entity may be
companies. For the former, such centres may be substantially reduced. This in turn can limit the
located where there is a wealth of technical staff profits attributable to these entities, with
and favourable R&D tax regimes. increased profits being generated by the
entrepreneur company. This involves limited
physical disruption to the business.


• economic downturn: pressure on businesses • competitive advantage: as more corporate
How 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 to
There are significant potential benefits to
can be significant operational, administrative remain ahead of the game in terms of
relocating abroad – access to markets, simplified
and tax savings arising from centralising maximising value by reducing costs, thereby
compliance and tax savings are cited as key
functions and relocating them offshore to an keeping a competitive advantage
reasons. The popularity of business relocations
appropriate location • tax incentivisation: tax is increasingly used
is driven by a series of global economic factors,
• increased compliance burdens: other as a lever by various governments to attract
creating ‘a perfect storm’ in business
regimes, particularly in the G20 economies, inward investment, resulting in low tax rates
restructuring:
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
opportunities


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


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-adding
services is common and is often relatively facilities for the group to maximise the return on functions is driven by commercial factors such
straightforward. Typically the moves are driven surplus cash and minimise the expense on as the location of suppliers, customers and a
by operational savings with and low costs. An overall group debt. Careful consideration skilled workforce. However there may still be
example of this is Malta, a popular offshoring should be given to the preferred location which opportunities to centralise these in a regional
location. 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.


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 to
fully-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 a
stock obsolescence risks, bad debts and foreign and tax incentives available in different
contract R&D company to qualify for R&D
exchange) to another company. Alternatively, it jurisdictions. It is important to ensure these
tax credits in one country, and the IP owner
could operate as a sales commission agent, not incentives are taken into consideration when
to benefit from a favourable tax rate on the
actually entering into sales contracts, rather undertaking cost-benefit analysis on the choice
income generated from the IP in a second
receiving a commission for soliciting sales on of location.
jurisdiction.
behalf of the principal.
This can be an effective way of transferring
Low effective
profit-generation from the sales or IP holding tax on IP income
manufacturing entity to the principal with company and gains eg
minimal physical disruption to the business as Belgium or
few staff need to relocate. Hungary
Recharge
for services

Enhanced R&D
R&D expenditure
company and/or credits
eg Ireland or UK


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 either
By locating the IP and the associated active company above the existing group holding relocating offshore or regularly travelling to the
management 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 some
activity will be either royalties, or if the IP company may migrate, including: jurisdictions have high WHT rates on payment
holding company is included in the supply • commercial opportunities to re-focus the of dividends to non-resident shareholders. If
chain, through the mark-up on the pricing of business on a new territory or region, more treaty protection is not available, complex
goods 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 the
significant, 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 at
deduction for amortisation of IP transferred existing country of residence, and adopt a board level and a good commercial reason for
from group companies, based on the market more straightforward regime in a territory restructures of this nature and an awareness of
value (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.


An inversion
The 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


Where is the optimal
2 Holding 3 Technology 4 Shared 5
location? company centre Services Commissionaire
Processing
Services
There is no right answer as to Management R&D Services Administration
Services Services
where a group should locate its
Marketing
different functions. It depends on a Services
myriad of business factors but the
classic supply chain model
highlights 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 Centre


1 The central entrepreneur is the hub of the structure and therefore 4 Shared services are often relocated to overseas jurisdictions. Call
its location will be key. As it will often also hold the group’s intangibles, centres for example are usually located in low cost environments with
identifying 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 – for
benefit from excellent commercial regimes, access to a sophisticated
example sales and distribution, which are driven by customer location, can
labour 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 a
shareholder considerations as well as company law. Popular locations
low cost base – East European states and increasingly North Africa are
are Luxembourg, Switzerland, Belgium, Ireland and increasingly Hungary.
widely used.

3 A technology centre will be responsible for R&D, and therefore its
location will be influenced by a generous R&D tax regime in the form of
enhanced tax relief and repayments as well as access to appropriate
staff. France has an excellent R&D regime, as does the UK.


What is the impact of relocation? Operational issues substance in them with appropriate levels of
Customers, suppliers and markets local management with the relevant expertise
It is important to understand the potential Depending on the type of business, the to manage the assets. Failure to introduce
impact any relocation has on the operational, location of suppliers and/or customers will be sufficient substance is likely to give rise to tax
legal 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 factor
necessary to ensure groups are aware of all the in driving relocations. People
costs 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.


Reputation Legal Issues Contract renegotiation
Some businesses are sensitive to market Employment law When moving business operations overseas, it
perception. Any restructuring which could It is important to recognise when moving staff may be necessary to renegotiate contracts with
result in headline news in the media of a move to an overseas location, or indeed hiring new current suppliers and customers. The
to a new jurisdiction could detrimentally staff, that the employment laws in different appropriate law governing these contracts will
impact 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 with
when 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. In
corporate affairs need to understand the addition, works councils in certain member Company law
implications of a move and need to be clear of states can be powerful bodies influencing Company law factors must be taken into
their 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.


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.


Grant Thornton contacts

Austria Finland Italy Poland Turkey
Werner Leiter Tanya Lappalainen Alessandro Dragonetti Dariusz Bednarski Beşir Acar
T +43 126 262 414 T +358 9 5123 3333 T +39 02 7600 8751 T +48 61 62 51 314 T +90 312 219 1650
E 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.com
Belgium France Latvia Portugal United Kingdom
Georges Keymeulen Jérôme Bogaert Kristīne Vanaga-Mihailova Joaquim Mendes Nick Farr
T +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 2691
E 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.com
Cyprus Germany Lithuania Russia
George Karavis Paul Forst Arūnas Šidlauskas Alexander Sidorenko
T +357 22600000 T +49 211 95 24 121 T +370 5 212 7856 T +7 495 258 99 90
E george.karavis@cy.gt.com E paul.forst@wkgt.com E arunas.sidlauskas@rimess.lt E alexander.sidorenko@ru.gt.com
Czech Republic Greece Luxembourg Spain
Gabriela Magsumová Sotiris Gioussios Jean-Michel Hamelle Albert Giralt
T +42 0296 15 2255 T +30 2 10 72 80 501 T +352 24 69 94 T +34 93 206 39 00
E gabriela.magsumova@cz.gt.com E sotiris.gioussios@gr.gt.com E jeanmichel.hamelle@lu.gt.com E albert.giralt@es.gt.com
Denmark Hungary Malta Sweden
Jorgen Nielsen Ilona Szarka Austin Demajo Monica Söderlund
T +45 33 454 212 T +36 1455 2000 T +356 21 320 134 T +46 8 563 070 74
E Jorgen.nielsen@dk.gt.com E i.szarka@ib-gtbudapest.co.hu E austin.demajo@mt.gt.com E monica.soderlund@se.gt.com
Estonia Ireland The Netherlands Switzerland
Kristjan Järve Frank Walsh Jacob Mook Reto Wittwer
T +372 626 4500 T +353 (0)1 6805 607 T +31 (0)182 53 19 22 T +41 43 960 71 04
E kristjan.jarve@ee.gt.com E frank.walsh@ie.gt.com E jacob.mook@gt.nl E reto.wittwer@ch.gt.com


Key country profiles

This section provides an overview of
the commercial and legal benefits of
the jurisdiction, the holding
company and IP holding regimes, as
well as expatriate costs and planning
opportunities for the 10 key holding
company locations.


Belgium

Belgium key facts Belgium is recognised as a holding company Belgium is regarded as having a high
Investment 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.


Holding company Anti avoidance legislation
Corporate taxation Belgium has transfer pricing rules (based on
The effective headline rate of corporate tax in OECD principles) which require related party Belgium’s location and
Belgium 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)pharmaceutical
companies 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) and
equity; 3.5% for smaller entities). It is therefore on intra-group loans to the extent that the total
possible to benefit from significantly reduced amount of these intra-group loans exceeds
corporate 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, Godiva
Stamp 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’ jurisdiction
applicable in Belgium. (as detailed above).
It is possible for companies to obtain
Exemption from Belgian corporate tax advanced rulings from the tax authorities on
A 95% dividend exemption is generally available the treatment of complex tax matters. These
on dividends from shareholdings of at least 10% are not compulsory.
(or €2.5 million) where they have been held (or
are intended to be held) for at least one year.
Capital gains on the disposal of shares are
exempt (if shares were held for an uninterrupted
period of one year) provided that the investee
company is not resident in a country with a
considerably more favourable tax regime than
Belgium (in practise this is taken as an effective
tax rate of less than 15%).


Withholding taxes (WHT) VAT IP rules
The domestic rate of WHT applied on The standard rate of VAT is 21%. A reduced The IP regime includes patents that are owned
dividends is 21% (as of 1 January 2012) when rate of 12% applies for medicines, margarine, and that have been fully or partly developed by
certain 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 patent
countries 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 useful
rates 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 an
interest 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 regime
of EU countries (where holding requirements Foreign shareholders (including acquired patents and knowhow and
are met) and reduced rates of WHT apply on There is no Belgian tax payable by foreign brands) are subject to tax at the normal headline
interest 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 rules
with dividends and interest, an exemption is IP regime Tax incentives are available for R&D related
available for payments to EU countries (where Legal activity in the form of either an enhanced
holding requirements are met) and reduced rates Belgium offers a high level of legal protection investment deduction of 15.5% (for tax year
of WHT apply on royalties to most treaty and recognition, broadly following EU law, for 2013) on environmental investments for
countries. 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.


Expatriate issues Corporate set up
Income tax Cost
Individuals 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 company
in Belgium, on a progressive scale of income tax
can significantly reduce the group’s effective
between 25% and 50% depending on level of Corporate entity tax rate, as interest costs and also a notional
income. 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 entities
Tax credits are also available for pension are currently €61,500 (NV/SA) and €18,600
contributions and life insurance premiums. (BVBA/SPRL).
For an NV/SA there is a requirement
Social security contributions for at least two shareholders and at least
Employee social security contributions are three directors although there are no
payable at 13.07%. These are deductible for specific residence requirements (the director
income tax purposes. requirement is reduced to two if there are
only two shareholders).
Expatriate rules
Expatriates are subject to Belgian tax on the
portion of income attributable to working in
Belgium. In addition, they can receive tax free
payments to cover expenses such as housing,
cost of living, relocation expenses, settling
expenses, tax equalisation and a schooling
allowance.


Cyprus

Cyprus key facts Cyprus’ location lends itself well to international The quality of life in Cyprus is very good
Investment 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 of
Quality 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.


Holding company Exemption from Cypriot corporation tax
Corporate taxation A full dividend exemption is available provided
The standard rate of corporation tax in Cyprus that the company paying the dividend does not
is 10%, although certain passive income (ie derive more than 50% of its income from Cyprus is widely used for investment
interest) 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 less
costs of financing subsidiaries unless the than 5%). If the exemption does not apply, the
company is treated as a finance vehicle within dividends are subject to the special defence
the 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 of
Capital duty of €103 plus 0.6% on the nominal shares are only taxable if the company holds
amount of the authorised share capital exists. immovable property that is situated in Cyprus
Subsequent increases of the authorised share (at a rate of 20%).
capital are subject to a capital duty of 0.6%


Anti avoidance legislation Withholding taxes (WHT) IP regime
Cyprus does not have detailed transfer pricing Cyprus does not impose WHT on interest or Legal
rules, 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 film
of the dividend exemption may be restricted if royalties on which a 5% WHT applies). An IP rules
the 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 the
paying 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 agreements
authorities on the treatment of complex tax Cyprus has more than 46 agreements in effect, R&D rules
issues. These can usually be obtained in less although it does provide a credit system for Although there is no specific R&D tax regime a
than 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 be
VAT amortised over six years.
The standard rate of VAT in Cyprus is 17%. Foreign shareholders
A reduced rate of 8% is applied to transport, There is no Cypriot tax for foreign shareholders
accommodation 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 to
cultural events.


Income tax Cost
Individuals 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 tax
in Cyprus, on a progressive scale from 0% to regime is relatively simple. There are new IP
35%. 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 a
deduction for tax purposes including life private limited liability company, for which
insurance premiums, social insurance there is no minimum share capital requirements.
contributions, approved provident fund A Cypriot company can be established with
contributions, approved medical scheme only one shareholder and one director but a
contributions, professional subscriptions and company secretary, who is not a sole director,
approved charitable donations. must also be appointed.

Social security contributions
Employee social security contributions are
payable at 6.8%.

Expatriate rules
Expatriates are entitled to an income tax
exemption for the lower of 20% of emoluments
and €8,550 per annum for the first three years
of employment in Cyprus. Expatriates earning
over €100,000 per annum are entitled to a 50%
exemption for a period of up to five years
(applicable from 2012.)


Hungary

Hungary key facts Hungary is recognised as a holding company The private sector accounts for more than
Investment 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.


Corporate taxation Hungary has transfer pricing rules which
The effective headline rate of corporate tax in require related party transactions to be
Hungary is 19% where taxable profits exceed conducted at arm’s length. All related party Hungary’s low corporate tax rate and
HUF 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 are
Stamp taxes and other capital duties available.
There is no capital duty or stamp duty In addition, there are thin capitalisation
applicable on the transfer of shares in Hungary rules and where the debt:equity ratio exceeds
unless the shares being sold hold Hungarian 1:3 the interest exceeding this ratio will be
real estate. disallowed.
Hungary has CFC legislation, and a foreign
Exemption from Hungarian corporation tax company is considered to be a CFC if there is a VAT
A full dividend exemption is available on Hungarian individual holding shares for the The standard rate of VAT is 27%. A reduced
dividends received by a Hungarian company majority of the days in a tax year or the majority rate of 5% applies to medicine, aides for blind
unless 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 of
exempt (if at least 30% of shares are held for Foreign companies incorporated in the EU or in heating services. A reduced rate of 18% applies
an uninterrupted period of one year and the an OECD or treaty country are not considered to some basic foods, accomodation and outdoor
acquisition 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 obtain
CFC (see below). advanced rulings from the tax authorities on the
treatment of complex tax matters. These are not
compulsory but are binding.


Withholding taxes (WHT) Double tax agreements IP rules
There 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 royalty
where paid to individuals resident in countries There is no Hungarian tax payable by foreign income relating to qualifying IP assets is
that 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 than
corporates, 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% of
WHT apply on interest paid to individual in a non-treaty country or the treaty gives the accounting profit. In addition, amortisation
residents 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 from
individuals 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 one
individual 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.


Income tax Cost
Individuals 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 in
at a rate of 16%. For income exceeding HUF respect of IP of 5%/9.5% means that it is
2.4 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 a
20.32%. Kft, a limited liability company but other
alternatives are a Zrt, private company limited
Social security contributions by shares, and a Nyrt, a public company limited
Employers’ social security contributions are by shares.
payable at 27%. Employees pay 8.5% health The minimum share capital for a Kft is
and 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 rules
Expatriates are subject to Hungarian tax on the
portion of income attributable to working in
Hungary.


Ireland

Ireland key facts As a member of the EU, with a young and highly One of the key draws as an IP holding
Investment 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 offers
Quality 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.


Corporate taxation Ireland has recently introduced limited transfer
The standard rate of corporation tax in Ireland pricing rules which require related party trading Ireland is an attractive
is 12.5% for trading activities, including transactions to be conducted on an arm’s length holding company jurisdiction. Tax on
dividends 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 groups
income 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 obtain
There is no stamp duty on the issuance of shares. advance opinions from the Irish tax authorities Ireland is favoured
by high tech, pharmaceutical and
However, there is stamp duty of 1% on the on the treatment of certain tax matters. They are manufacturing companies. Examples
transfer 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 tax
Whilst there is no dividend exemption, the VAT
credit system operating in Ireland means that The standard rate of VAT is 23%. A reduced
dividends received from a jurisdiction with a rate of 13.5% applies to fuel for power and
higher rate of corporate tax than is applied in heating, electricity and gas and a 9% rate applies
Ireland are effectively exempt. Any unrelieved to hotel accomodation, hotel and restaurant
foreign tax credits can be used to credit other meals, newspapers, admissions to cinemas and
foreign dividends received. certain live theatrical and musical performances.
Capital gains arising on the disposal of
shares in EU or relevant treaty country
companies are exempt where those shares
represent at least 5% of the shares in a trading
company and have been held for a period of
12 months out of the previous two years.


Withholding taxes (WHT) IP regime Income arising from qualifying IP can
The domestic rate of WHT applied on Legal be offset by the amortisation or the elected
dividends is 20%, although there is no WHT Ireland has a robust legal framework, based allowance (as above) and also finance costs of
applied 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% of
interest payable is 20%. An exemption is computer software and industrial designs and the trading income derived from that IP. This
generally 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 IP
being 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 qualify
generally available on patent royalties payable these assets must be used in active trade. R&D rules
to EU or treaty countries subject to certain Under the regime, IP amortisation is tax A 25% tax credit is available on qualifying
conditions being met. Patent royalty payments deductible in line with the accounting treatment. R&D expenditure (both capital and revenue) in
to 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 payroll
Double tax agreements the market value of the asset, even when it is taxes paid in the year or corporation tax paid in
Ireland has more than 65 agreements in effect. acquired from a connected party. the last 10 years.

Foreign shareholders
There is no Irish tax payable for foreign
shareholders on the disposal of shares in an Irish
company unless the shares derive their value
from specified assets such as Irish land and
minerals.


Income tax Cost
Individuals 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 company
in Ireland, on a two tier system of income tax
the allowances on the IP in Ireland are
rates starting at 20% up to €32,800 and 41% on Corporate entity calculated on the market value at the time
income 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 a
payable up to 4%. A universal social charge is minimum of one shareholder, although at least
also payable on gross income from all sources. two directors (one being EEA resident) and a
The rates are 2% on the first €10,036, 4% on company secretary are required.
the next €5,980 and 7% thereafter. A rate of
10% applies to individuals who have income
from self employment income that exceeds
€100,000 a year.

Expatriate rules
Tax free subsistence payments are possible for
secondments in certain circumstances and there
are incentives for high paid expatriates.


Luxembourg

Luxembourg key facts Luxembourg has long since been a favoured Companies based in Luxembourg also have
Investment 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 regime
Quality 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 2012/13

A guide to business relocation in Europe 2012/13

Recommended

Recommended

More Related Content

Similar to A guide to business relocation in Europe 2012/13

Similar to A guide to business relocation in Europe 2012/13 (20)

More from Grant Thornton

More from Grant Thornton (20)

Recently uploaded

Recently uploaded (20)

A guide to business relocation in Europe 2012/13