Holding Regimes 2019 Comparison of Selected Countries - Loyens & Loeff
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2019
Holding Regimes
2019
Comparison of Selected Countries© Loyens & Loeff N.V. 2019 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or in an automated database or disclosed in any form or by any means (electronic, mechanical, photocopy, recording or otherwise) without the prior written permission of Loyens & Loeff N.V. Insofar as it is permitted, pursuant to Section 16b of the Dutch Copyright Act 1912 (Auteurswet 1912) in conjunction with the Decree of June 20, 1974, Dutch Bulletin of Acts and Decrees 351, as most recently amended by the Decree of December 22, 1997, Dutch Bulletin of Acts and Decrees 764 and Section 17 of the Dutch Copyright Act 1912, to make copies of parts of this publication, the compensation stipulated by law must be remitted to Stichting Reprorecht (the Dutch Reprographic Reproduction Rights Foundation, PO Box 3060, 2130 KB Hoofddorp, the Netherlands). For reproductions of one or more parts of this publication in anthologies, readers or other compilations (Section 16 of the Dutch Copyright Act 1912), please contact the publisher. This publication does not constitute tax or legal advice and the contents thereof may not be relied upon. Each person should seek advice based on his or her particular circumstances. Although this publication was composed with the greatest possible diligence, Loyens & Loeff N.V., the contributing firms and any individuals involved cannot accept liability or responsibility for the results of any actions taken on the basis of this publication without their cooperation, including any errors or omissions. The contributions to this book contain personal views of the authors and therefore do not reflect the opinion of Loyens & Loeff N.V.
Introduction
We are pleased to present the 14th edition of our Holding Regimes publication. Malta Francis J. Vassallo & Associates www.fjvassallo.com
Ireland Matheson www.matheson.com
This publication provides a practical tool to compare the main features of the holding Cyprus Elias Neocleous & Co www.neo.law
company regimes in the covered jurisdictions. Initially developed as an internal tool for our Mauritius BLC Robert & Associates www.blc.mu
tax practitioners, the popularity of such tool led to the decision to share its usefulness on a Spain Cuatrecasas www.cuatrecasas.com
wider basis with our friends and clients. We hope that you will find this annual update of the
publication useful and that it will find a permanent place on your desk. It will not have escaped anybody’s attention that international taxation is developing at an
unprecedented pace. The OECD/G20 Base Erosion and Profit Shifting (’BEPS’) project
The jurisdictions included in this publication were selected based on a number of factors. presented by the G20 in 2015 has led to various developments, including amendments to the
The inclusion (or non-inclusion) of a particular jurisdiction does not entail judgment by OECD Model Tax Convention, the introduction of Country-by-Country Reporting and Local
Loyens & Loeff on such jurisdiction. The selected countries are included in alphabetical order. File/Master File obligations for multinational enterprises and the Multilateral Convention to
Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘MLI’) that
This publication is intended as a tool for an initial comparison of the most relevant tax aspects will amend tax treaties of participating jurisdictions. As of 1 February 2019, 87 countries have
of the selected holding company regimes and should not be used as a substitute for obtaining signed the MLI. The MLI – and in particular the principal purposes test it contains – is expected
local tax advice. The information contained in this publication reflects laws that are in effect as to further accelerate the alignment of legal structures and business functions. Most recently (as
per 1 January 2019, unless otherwise mentioned. of the finalisation date of this publication), the OECD outlined three policy options addressing
tax challenges posed by the increasing digitalisation of the economy.
With respect to the selected jurisdictions in which Loyens & Loeff has offices with a domestic
tax practice (Belgium, Luxembourg, the Netherlands and Switzerland), such offices have Also within the EU, BEPS-related developments are occurring rapidly. The Anti-Tax Avoidance
provided the information contained herein. With respect to the selected jurisdictions in which Directive (‘ATAD’) was adopted by the European Council on 12 July 2016 and a supplement
Loyens & Loeff has offices but no domestic practice (Hong Kong, Singapore and the United to ATAD (‘ATAD 2’), was adopted on 29 May 2017. Many of the ATAD measures have become
Kingdom), the information was gathered from publicly available sources and reviewed by local effective within the EU as from 1 January 2019. The anti-hybrid-mismatch rules of ATAD 2
tax experts. With respect to the other selected jurisdictions, we obtained the information from will generally become effective in EU Member States on 1 January 2020 (except for certain
the firms listed below. We gratefully acknowledge the contributions of the aforementioned local rules which may, under circumstances, become effective on 1 January 2022). Furthermore,
tax experts and the below-listed firms. Additional information regarding the holding company discussions on, for example, a Common (Consolidated) Corporate Tax Base within the EU
regime in the selected jurisdictions may be obtained by contacting one of the Loyens & Loeff remain ongoing.
offices at the addresses shown on page 81 or one of the contributing firms via their website
shown below or the contact person listed on page 79.
Loyens & Loeff New York
Mick Knops, editorTable of contents Part I - Belgium, Cyprus, Hong Kong, Ireland, Part II - Mauritius, the Netherlands, Singapore, Spain, Luxembourg and Malta Switzerland and the United Kingdom 1. Tax on capital contributions 6 1. Tax on capital contributions 41 2. Corporate income tax 7 2. Corporate income tax 42 2.1 Corporate income tax (‘CIT’) rate 7 2.1 Corporate income tax (‘CIT’) rate 42 2.2 Dividend regime (participation exemption) 10 2.2 Dividend regime (participation exemption) 44 2.3 Gains on shares (participation exemption) 15 2.3 Gains on shares (participation exemption) 50 2.4 Losses on shares 17 2.4 Losses on shares 54 2.5 Costs relating to the participation 18 2.5 Costs relating to the participation 56 2.6 Tax rulings 21 2.6 Tax rulings 59 3. Withholding taxes payable by the holding company 23 3. Withholding taxes payable by the holding company 61 3.1 Withholding tax on dividends paid by the holding company 23 3.1 Withholding tax on dividends paid by the holding company 61 3.2 Withholding tax on interest paid by the holding company 26 3.2 Withholding tax on interest paid by the holding company 64 3.3 Withholding tax on royalties paid by the holding company 28 3.3 Withholding tax on royalties paid by the holding company 66 4. Non-resident capital gains taxation 29 4. Non-resident capital gains taxation 67 5. Anti-abuse provisions / CFC rules / BEPS measures 30 5. Anti-abuse provisions / CFC rules / BEPS measures 69 6. Income tax treaties / MLI 35 6. Income tax treaties / MLI 72 6.1 Signatory to the MLI / ratification 35 6.1 Signatory to the MLI / ratification 72 6.2 Income tax treaties and effect of the MLI 37 6.2 Income tax treaties and effect of the MLI 73
Part I Belgium, Cyprus, Hong Kong, Ireland, Luxembourg and Malta
Holding Regimes 6
1. Tax on capital contributions
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
There is a flat fee of EUR 50. There is a flat fee of EUR 105 Hong Kong does not levy There is no capital contribution There is no tax on capital There is no capital contribution
for registration and an annual capital duty. tax in Ireland. contributions in Luxembourg. tax in Malta.
company maintenance fee of
EUR 350. A business registration fee There is, however, a company
is payable on an application registration fee of EUR 245
Notional interest deduction for the incorporation of a – 2,250, depending on the
A notional interest deduction company and the registration amount of the authorised share
(‘NID’) is available on new of a business. As of 1 April capital.
equity capital introduced into 2017, business registration
companies and permanent fees are HKD 2,000 (for a
establishments of foreign one-year certificate) and
companies. The NID is limited HKD 5,200 (for a three-
to 80% of the taxable profit year certificate). In addition,
before deducting the NID, and companies are required to
no NID will be allowed in the pay a levy for the Protection
event of losses. Unutilised NID of Wages on Insolvency Fund
cannot be carried forward to on their business registration
be offset against future years’ certificates. As of 1 April
profits. 2017, the amount of the
levy is reduced to HKD 250
per annum (for a one- year
certificate) and HKD 750 (for
a three-year certificate).
A sale and purchase of shares
in a Hong Kong company is
subject to a stamp duty of
HKD 5 plus 0.2% on the
greater of the consideration
and the market value. The
stamp duty is levied on the
buyer and the seller (each
0.1%).Holding Regimes 7
2. Corporate income tax
2.1 Corporate income tax (‘CIT’) rate
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
29.58% (29% increased by a The general corporate income A two-tiered profits tax rates The rate is 12.5% on trading The effective combined 35%
crisis surcharge of 2%). The tax (‘CIT’) rate is 12.5%. regime applies if the following income and 25% on passive maximum CIT rate is 26.01%,
CIT rate will further decrease cumulative conditions are met: income. However, certain consisting of national CIT, The combined overall effective
to 25% as from 2020. Under Special defence (i) the person carries on trading dividends from foreign municipal business tax rate may be reduced to between
certain conditions, SMEs can contribution tax a trade, profession or subsidiaries located in an EU (Luxembourg City rate) 0% and 10% by application of
benefit from a reduced rate of Interest received other than business in Hong Kong; member state or in a country and contribution to the Malta’s full imputation system
20.4% on the first tranche of in, or closely related to, the (ii) that trade, profession or with which Ireland has a double unemployment fund. and refund mechanism.
EUR 100,000 taxable income. ordinary course of business business generates profits; tax treaty or in a country which
is subject to a 30% special and has ratified the Convention Net wealth tax Malta operates a full imputation
Minimum taxable base defence contribution tax (‘SDC (iii) the profits arise in or are on Mutual Assistance in Tax Annual net wealth tax is levied system such that dividends
30% of the taxable income tax’) on the amount received, derived from Hong Kong. Matters or whose principal on the net assets of a company distributed carry a credit in
exceeding a first tranche of without any deduction for class of shares (or the shares as per January 1 of each year. favor of a recipient shareholder
EUR 1 million will qualify as costs of earning the interest. The profits tax rate for the first of a 75% parent company) is The first EUR 500 million of (resident or non-resident)
a minimum effective taxable The SDC tax is withheld at HKD 2 million of corporate traded on a recognised stock taxable net wealth is taxed at equivalent to the amount of
basis. source if it concerns interest profits is 8.25%, while the exchange are taxed at 12.5%. a rate of 0.5% and a reduced underlying CIT paid by the
income received from Cyprus, standard profits tax rate of rate of 0.05% applies to any distributing company on the
The minimum taxable basis will otherwise by assessment on 16.5% remains for profits excess. profits out of which the dividend
be determined as follows: the basis of a tax return. exceeding HKD 2 million. was distributed.
1. The taxable basis is Participations that qualify for
determined and the Interest received in, or closely A ‘person’ is defined as a the participation exemption Additionally, part of that
following tax deductions are related to, the ordinary course corporation, partnership, on dividends are exempt from underlying CIT paid may be
made (in this order): exempt of business is not subject to trustee and body of persons. net wealth tax. See 2.2 below refunded to the recipient
dividends, patent income SDC tax but is subject to CIT for the applicable conditions, shareholder (resident or non-
deduction, innovation at the rate of 12.5% mentioned Hong Kong operates a except for the 12 month resident), depending on the
deduction and investment above. territorial system of profits holding period requirement nature and source of the profits
deduction. tax, whereby profits are only which is not applicable for the out of which the dividend was
2. If after those deductions, taxable if the profits arise in or exemption from net wealth tax. distributed.
the remaining taxable basis are derived from Hong Kong.
exceeds EUR 1 million, the Therefore, any offshore profits Minimum net wealth tax Foreign tax credit
following deductions can arising in or derived elsewhere Companies having their Foreign tax actually paid or
only be applied to 70% of and remitted to Hong Kong are statutory seat or place of deemed to have been paid can
the taxable basis exceeding not chargeable to Hong Kong effective management in be credited against Malta tax
EUR 1 million, in the profits tax. Luxembourg (i) whose assets due on the foreign income. The
following order: the current at the end of the preceding tax credit cannot be higher than
year notional interest fiscal year consist for more than the Malta tax on that income.Holding Regimes 8
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
deduction, the carry- The determination of the source 90% of financial fixed assets, The claim of relief for foreign
forward dividends received of profits can be complicated transferable securities and cash tax paid/deemed to be paid,
deduction, the carry-forward and can involve uncertainty. items and (ii) whose balance affects the level of refund
innovation deduction, the Taxpayers may conclude sheet total at the end of the that may be claimed by the
carry-forward losses, and advance tax rulings with the preceding fiscal year exceeds shareholder upon a distribution
finally, the carry-forward Inland Revenue Department in EUR 350,000 are subject to an of profits.
notional interest deduction. order to obtain certainty. annual minimum net wealth tax
of EUR 4,815.
The excess deductions are
carried forward to the following In case the two above
years. An exception to the mentioned thresholds are not
minimal taxable basis exists met, the amount of minimum
for carry-forward tax losses net wealth tax due depends
incurred by start-up companies on the balance sheet total of
during the first four taxable the taxpayer at the end of the
periods. preceding fiscal year, with a
minimum of EUR 535 and a
Notional interest deduction maximum of EUR 32,100.
The notional interest deduction
allows Belgian companies
to deduct a notional amount
from their taxable income. The
notional amount is calculated
on the incremental risk capital
which equals 1/5 of the positive
difference between the net
equity at the end of the year
concerned and the net equity
at the end of the fifth preceding
year. Specific conditions apply.
Minimum Remuneration
Each company that does
not pay a minimum annual
remuneration of the lower ofHolding Regimes 9 Belgium Cyprus Hong Kong Ireland Luxembourg Malta EUR 45,000 or the taxable basis to one of its individual managers will have to pay a separate tax equal to 5% on the deficit. This separate tax does not apply to small companies during their first four tax periods and is tax deductible. For affiliated companies of which at least half of the directors are the same people, the total amount of the minimum director fee has to amount to EUR 75,000 and the separate tax would be due by the company with the highest taxable basis.
Holding Regimes 10
2.2 Dividend regime (participation exemption)
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
Dividends received are In principle all dividends derived Dividends received from a Ireland operates a ‘credit’ Dividends (including liquidation Generally, dividends received
fully exempt from CIT if from a foreign participation are company subject to Hong system as opposed to a distributions) derived from a by a Malta company are
the participation meets the fully exempt from tax, unless Kong profits tax are not participation exemption. participation are fully exempt subject to 35% tax.
following cumulative conditions: the dividend anti-tax avoidance included in the assessable from CIT if the following
(i) minimum participation of at rules apply. No minimum profits of any other Hong Kong The law provides for a system cumulative conditions are met: However, in case of a company
least 10% or with acquisition participation or minimum taxpayer. of onshore pooling of tax (i) a minimum participation receiving dividends from a
value of EUR 2.5 million; holding period requirement credits to deal with the situation of at least 10% or with an ‘participating holding’ (provided
(ii) held (or commitment to applies. In practice, dividends received where foreign tax on dividends acquisition price of at least certain anti-abuse provisions
hold) in full property for at by a Hong Kong company exceeds the Irish tax payable EUR 1.2 million is held; are also satisfied, see below),
least 12 months; The dividend anti-tax avoidance from a foreign company are (being either at the 12.5% or (ii) the participation is held in there are two options:
(iii) subject-to-tax requirement: rules apply if more than 50% of treated as offshore profits and 25% rate). Foreign tax includes (i) a capital company that is (i) benefiting from the
dividends will not be exempt the paying company’s activities hence are not subject to profits any withholding tax imposed fully subject to Luxembourg participation exemption, in
if distributed by: result directly or indirectly from tax regardless of substance, by the source jurisdiction on CIT or a comparable foreign which case no tax is paid on
a) a company that is not investment income and the foreign taxes paid, minimum the dividend itself as well as an tax (i.e. a tax rate of at such dividends; or
subject to Belgian CIT or foreign tax is significantly lower holding period and percentage amount of underlying foreign least 9% and a comparable (ii) paying tax at the rate of
to a similar foreign CIT than the tax rate payable in of ownership. tax. The onshore pooling tax base; a ‘Comparable 35%, in which case, upon
or that is established Cyprus. Both conditions must system enables companies to Tax’) or (ii) an EU entity that a distribution of dividends
in a country the normal be met for the rules to be mix the credits for foreign tax qualifies for the benefits of by the Malta company from
tax regime of which triggered. If they do apply, the on different dividend streams the EU Parent-Subsidiary dividends derived from a
is substantially more dividend will be subject to 17% for the purpose of calculating Directive; and ‘participating holding’, the
advantageous than SDC tax. the overall credit. Dividends (iii) on the distribution date, shareholder can claim a
the normal Belgian tax that are taxed at 12.5% are the holding company must 100% refund of the tax paid
regime; The 50% test requires a pooled separately to dividends have held a qualifying by the company on such
b) a finance company, a quantitative assessment of the that are taxed at 25%. Thus, participation continuously dividends.
treasury company or an foreign subsidiary’s activities, any excess ‘credit’ on one for at least 12 months (or
investment company including income from any dividend may be credited must commit itself to hold Therefore, Malta tax on
subject to a tax regime subsidiaries it may have. against the tax payable on such participation for at dividends received from a
that deviates from the Where no tax is payable by the another dividend received in least 12 months). ‘participating holding’ is, in
normal tax regime; foreign subsidiary because of the accounting period within both scenarios, effectively zero.
c) a regulated real estate a local tax exemption, the tax each pool. See, however, under 5
company or a non- burden of the foreign subsidiary below regarding the potential A company has a ‘participating
resident company (i) the for the purposes of the tax Foreign underlying tax includes application of the anti- abuse holding’ if any one of the
main purpose of which burden aspect of the dividend corporation tax levied at rule and the anti-hybrid rule to following six conditions is
is to acquire or construct anti-tax avoidance test is zero. state and municipal level and income derived from EU entities satisfied:
real estate property and withholding tax. In this respect, that fall within the scope of theHolding Regimes 11
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
make it available on SDC tax is payable on the full it is possible to look through EU Parent-Subsidiary Directive. (i) the company directly
the market, or to hold dividend if the dividend anti-tax any number of tiers of holds at least 10% of the
participations in entities avoidance rules are triggered. subsidiaries. Certain tax treaties concluded equity shares or capital of
purpose, (ii) that is by Luxembourg grant a a company conferring an
required to distribute Cyprus has incorporated the An additional credit is available participation exemption for entitlement to at least 10%
part of its income to its anti-avoidance provisions of the where the credit calculated dividends under conditions of any two of:
shareholders, and (iii) that current EU Parent- Subsidiary under Ireland’s existing rules is different than those listed above. - the right to vote;
benefits from a regime Directive in its legislation. less than the amount of credit - profits available for
which deviates from the Dividends received by Cyprus that would be computed by Once the minimum threshold distribution; and
normal tax regime in its resident companies from reference to the nominal rate and holding period are met, - assets available for
country of residence; abroad will not be exempt of tax in the EEA country from newly acquired shares of a distribution on a winding
d) a company receiving from CIT if the payment of the which the dividend is paid. qualifying participation will up;
foreign non-dividend dividend is a tax-deductible This additional national credit immediately qualify for the (ii) the company is an equity
income that is subject expense for the company is capped at the lower of the participation exemption. shareholder holding an
to a separate tax regime paying the dividend under the nominal rate of foreign CIT or Dividends (excluding liquidation investment representing
deviating from the laws of the country in which it the Irish rate of corporate tax distributions) derived from a the company is an equity
normal tax regime in the is resident. In addition, there on the foreign dividend (i.e. participation which meets the shareholder holding an
company’s country of is no exemption from CIT for 12.5% or 25%). subject-to- tax requirement, investment representing a
residence; dividends received under an but not (all of) the remaining total value of at least EUR
e) a company realizing arrangement that has been put Where the relevant rate of conditions, are exempt for 50%. 1,164,000 which is held for
profits through one or in place with the main purpose taxation on dividends received Such partial exemption only an uninterrupted period of at
more foreign branches of obtaining a tax advantage in Ireland is 12.5% or 25%, applies if the participation is held least 183 days;
subject in global to a and that is not based on valid as the case may be, to the in a company that is resident in (iii) the company is an equity
tax assessment regime commercial reasons reflecting extent that credits received for a treaty country or is a qualifying shareholder in a company
that is substantially more the underlying economic reality. foreign tax equal or exceed the entity under the EU Parent- and is entitled at its option
advantageous than the applicable Irish rate of 12.5% Subsidiary Directive. to call for and acquire the
Belgian regime; Finance subsidiaries or 25%, then there will be no entire balance of the equity
f) an intermediary company Financing activities that fulfill the tax payable in Ireland. shares in the company;
(re)distributing dividend conditions set out in paragraph (iv) the company is an equity
income of which 10% or 2.1 above for interest to Unused credits can be carried shareholder in a company
more is ‘contaminated’ be treated as arising in the forward indefinitely and and is entitled to sit on the
pursuant to the above ordinary course of business offset similarly in subsequent board of directors of that
rules; are considered to be trading accounting periods. The credit company, or to appoint a
g) a company, to the extent activities and the resultant system applies where the Irish person as director of that
it has deducted or can income is not considered to be holding company holds a 5% company;Holding Regimes 12
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
deduct such income passive income. Consequently, shareholding in the relevant (v) a company is an equity
from its profits; or dividends derived from a group subsidiary. These provisions shareholder in a company
h) a company, that financing company which fulfils apply to dividends received and has acquired such
distributes income that such conditions are exempt from all countries. equity shareholding for
is related to a legal from SDC tax. the furtherance of its own
act or a series of legal Apart from the above- business and does not (i)
acts, of which the tax discussed credit system, hold it as trading stock;
administration has dividends received by a (vi) the company is an equity
demonstrated, taking portfolio investor which form shareholder in a company
into account all relevant part of such investor’s trading and is entitled to a right of
facts and circumstances income are exempt from Irish first refusal exercisable in the
and except proof to the corporation tax. Portfolio event of a proposed disposal,
contrary, that the legal investors are companies which redemption or cancellation
act or series of legal acts hold not more than 5% of the of all of the equity shares or
are not genuine (i.e., that share capital (either directly capital of the company.
are not put into place for or together with a connected
valid commercial reasons person) and not more than In all above cases, an ‘equity
which reflect economic 5% of the voting rights of the shareholding’ is a participation
reality) and have been dividend paying company. in the share capital of a
put in place with the company (which is not a
main goal or one of the property company as defined)
main goals to obtain the which entitles the holder to at
deduction or one of the least two of:
benefits of the Parent- - the right to vote;
Subsidiary Directive in - the right to profits available for
another member state of distribution; and
the European Union. - the right to assets available for
distribution on a winding up.
The Belgian tax authorities have
published a list of countries of The participation exemption and
which the standard tax regime the full refund with respect to a
is deemed to be substantially ‘participating holding’ only apply
more advantageous than the if certain anti-abuse provisions
Belgian regime. Generally, this are satisfied. For that purpose,
will be the case if the standard the company in which theHolding Regimes 13
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
nominal tax rate or the effective participation is held must satisfy
tax rate is lower than 15%. one of the following conditions:
However, the tax regimes of (i) the company is resident or
EU countries are deemed not incorporated in a country or
to be more advantageous, territory that forms part of the
irrespective of the applicable EU;
rates. (ii) the company is subject to
tax at a rate of at least 15%;
Note that exceptions to one or the company does not
or some of the subject- to-tax derive more than 50% of its
requirements are available income from passive interest
for e.g. EU-based finance or royalties.
companies and investment
companies that redistribute at Alternatively, if none of the
least 90% of their net income. above three conditions are met,
the anti-abuse requirements
Also for certain intermediary will be met if the following two
companies, exceptions to the conditions are satisfied:
exclusion from the participation (i) the company or its passive
exemption may apply. The interest or royalties have
same is true for companies been subject to foreign tax at
with low taxed foreign a rate of at least 5%; and
branches. (ii) the Malta company’s equity
investment in the company is
not a portfolio investment.
If the above anti-abuse
provisions are not met, the
dividends are subject to 35%
tax and upon the distribution
of a dividend by the Malta
company, the shareholder may
claim a refund of 5/7 or 2/3
of the Malta tax paid on such
dividend.Holding Regimes 14
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
An additional anti-abuse
provision applies as from
1 January 2016. Pursuant
thereto, the participation
exemption does not apply with
respect to a profit distribution
received from a participating
holding resident in the EU by a
Malta resident parent company
or by the Malta permanent
establishment of an EU resident
parent company, in case (i)
such distribution is exempt
from withholding tax pursuant
to the EU Parent-Subsidiary
Directive and (ii) such distribution
is deductible by the EU
participating holding company in
that other EU member state.
Finally, dividends received from
a company that does not qualify
as a participating holding are
not eligible for the participation
exemption. Such dividends
are taxed at 35% and, upon
distribution of a dividend by the
Malta company, the shareholder
may claim a 6/7 or 2/3 refund
of the Malta tax paid on such
dividend.Holding Regimes 15
2.3 Gains on shares (participation exemption)
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
Gains realised by the holding In principle any profits from the Profits arising from the sale The disposal of shares in a Gains (including currency The same rules apply to capital
company on the alienation of disposal of securities (shares, of capital assets are exempt subsidiary company (referred exchange gains) realised on gains as to dividends, except
shares are fully exempt from bonds, debentures, founder’s from profits tax. Capital gains to in the law as the ‘investee’) the alienation of a participation that the anti-abuse provisions
CIT to the extent that potential shares and other company derived from a sale of shares by an Irish holding company are exempt from CIT under the referred to under 2.2 above
income derived from those securities) are exempt from are exempt provided that the (referred to in law as the following conditions: do not apply in the context of
shares would be exempt under taxation. Gains from the gain is regarded as ‘capital’ ‘investor’) is exempt from Irish (i) a minimum participation of capital gains.
the dividend participation disposal of shares of unlisted rather than ‘revenue’ in nature capital gains tax in certain 10% or with an acquisition
exemption (see 2.2 above) and companies directly or indirectly or the gain is non- Hong Kong circumstances. An equivalent price of at least EUR 6 million
provided that the shares have owning immovable property in sourced. exemption applies to the is held;
been held in full property for at Cyprus are subject to capital disposal of assets related to (ii) the participation is held in
least 12 months. gains tax at 20% to the extent shares, which include options (i) a capital company that is
that the gains are derived from and securities convertible into fully subject to Luxembourg
Only the net gain realised such property. shares. CIT or a comparable foreign
will be exempt, i.e. after the tax (i.e. a tax rate of at least
deduction of the alienation The exemption is subject to the 9% and a comparable tax
costs (e.g. notary fees, bank following conditions: base) or (ii) an EU entity
fees, commissions, publicity (i) the investor must directly or qualifying under the EU
costs, consultancy costs etc.). indirectly hold at least 5% Parent- Subsidiary Directive;
A specific anti-abuse provision of the investee’s ordinary and
applies to capital gains on share capital, be beneficially (iii) on the date on which the
shares following a temporarily entitled to not less than capital gain is realised, the
tax-exempt exchange of shares 5% of the profits available holding company has held
at the occasion of which the for distribution to equity a qualifying participation
subject-to-tax requirement was holders of the investee continuously for at least
not fulfilled. company and be beneficially 12 months (or must
entitled to not less than commit itself to hold such
The minimum participation 5% of the assets of the participation for at least
requirement does not apply investee company available 12 months).
to insurance and reinsurance for distribution to equity
companies that hold holders. Shareholdings held Once the minimum threshold
participations to hedge their by other companies which and holding period are met,
liabilities. are in a 51% group with the newly acquired shares of a
investor company may be qualifying participation will
Any holding company that taken into account; immediately qualify for the
meets the minimum participation exemption.Holding Regimes 16
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
participation and subject-to-tax (ii) the shareholding must be The capital gains exemption
requirements but that does not held for a continuous period described in this paragraph
meet the requirement to hold of at least twelve months does not apply to the extent of
the shares in full property for in the 2 years prior to the previously deducted expenses,
at least one year, is subject to disposal; write-offs and capital losses
tax at a rate of 25.5% (25% (iii) the business of the investee relating to the respective
as from 2020) or 20.4% (if must consist wholly or participation (recapture). Such
applicable) on gains realised on mainly of the carrying on a recapture can in principle
the alienation of those shares. of a trade or trades or be offset against any carry
alternatively, the test may forward losses available for tax
Unrealised gains be satisfied on a group purposes (i.e., losses incurred
Unrealised gains are exempt basis where the business during the years 1991 – 2016:
from CIT (i) to the extent of the investor company, indefinite loss carry forward and
that they are booked in an its 5% subsidiaries and losses incurred as from 2017:
unavailable reserve account the investee (i.e. the Irish 17 year loss carry forward),
and (ii) to the extent that - holding company and its resulting from previously
should the gains not be booked subsidiaries) when taken deducted expenses, write-offs
- they do not correspond to together consist wholly or and capital losses.
previously deducted losses. mainly of the carrying on of
a trade or trades; and The anti-hybrid rule and the
If shares are later disposed of, (iv) the investee company must anti-abuse rule referred to in
the reserve account can be be a qualifying company. section 5 below do not apply
released without triggering any A qualifying company is one to the capital gains exemption
CIT, provided the gain relates that: described above.
to a participation that meets (a) does not derive the
the participation exemption greater part of its value
requirements described above. from Irish land/ buildings,
minerals, mining and
exploration rights; and
(b) (ii) is resident in the EU
(including Ireland) or in
a double taxation treaty
partner jurisdiction.Holding Regimes 17
2.4 Losses on shares
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
Losses incurred on a Losses incurred on the disposal Capital losses are non- Depreciation on the value of the Write-offs and capital losses Deductible capital losses may
participation, both realised of shares are not tax deductible deductible for profits tax underlying subsidiary shares is on a participation (including only be offset against taxable
and unrealised, cannot be unless the shares are in an purposes, provided that the not tax deductible. currency exchange losses) capital gains realised in the
deducted, except for (realised) unlisted company directly or loss is regarded as ‘capital’ are deductible, except if it current and following years.
losses incurred upon liquidation indirectly holding real estate in rather than ‘revenue’ in nature In certain circumstances concerns a write-off in relation
of the subsidiary up to the Cyprus. A loss on the shares of and/or the loss is non-Hong where the value of the shares to a pre-acquisition dividend. Capital losses incurred by a
amount of the paid-up share such a company is deductible Kong sourced. is completely dissipated, the company may not be used to
capital of that subsidiary. from current year capital gains taxpayer may make a claim Note that the deducted write- offset capital losses incurred
deriving from the disposal of (i) to the Inspector of Taxes offs and capital losses may by another company that
Cyprus real estate (ii) or shares responsible for that taxpayer be recaptured in a future year belongs to the same group of
of an unlisted company which and when the Inspector is if a capital gain is realised on companies.
directly or indirectly holds satisfied that the value of the the alienation of the respective
Cyprus real estate. Unused asset has become negligible, participation (see under 2.3
losses may be carried forward the Inspector may allow a above).
for up to 5 years for offset claim whereby the taxpayer
against future taxable capital is deemed to have sold and
gains. immediately reacquired the
asset for consideration of an
amount equal to the value of
the shares thus crystallizing a
capital loss. This capital loss is
only deductible against capital
gains. However, where the
disposal would have qualified
for relief from capital gains
taxation under the exemption
referred to under 2.3 above a
claim for loss of value cannot
be made.
Capital losses incurred on
the transfer of shares are only
deductible against capital
gains.Holding Regimes 18
2.5 Costs relating to the participation
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
Costs relating to the acquisition The general position is that The general rule is that in Certain expenses related to Costs relating to a qualifying There are no thin capitalisation
and/or the management of the all expenses wholly and ascertaining a taxpayer’s managing investment activities participation are generally rules in Malta.
participation are deductible exclusively incurred by a taxable profits, a deduction of ‘investment companies’ are deductible (subject to the
under the normal conditions. company in the production is allowed for all (outgoings allowed against the company’s below-discussed interest The general rule is that an
of its taxable income and and) expenses incurred by total profits. An investment deduction limitation rules). expense is deductible if it is
Such costs generally include evidenced by adequate the taxpayer in the production company is defined as any However, the deduction of wholly and exclusively incurred
interest expenses related to supporting documentation of profits chargeable to company whose business such costs is permitted only in the production of the
acquisition debt. However, will be allowed as deductible. profits tax. Costs, including consists wholly or mainly in the to the extent they exceed the company’s income and it is not
in recent case law the tax There are no thin capitalisation interest expenses, incurred in making of investments, and exempt dividend and capital specifically disallowed.
deductibility of interest rules in Cyprus. connection with a participation the principal part of whose gains income derived from the
expenses in the context of are generally non-deductible income is derived from those respective participation in that Interest expenses are generally
a debt push down has been Even though the law does as dividends and capital gains investments. This can include year. deductible if the Revenue
successfully challenged by not contain any specific derived from a participation are holding companies whose Authorities are satisfied that
the tax authorities. Further to limitation with respect to exempt from profits tax. investment in this case is the As from 1 January 2019, the the interest was paid on debt
the new interest deduction the deduction of expenses subsidiaries. deductibility of ‘exceeding employed to generate taxable
limitation rule (see under related to the acquisition of There are no thin capitalisation borrowing costs’ (generally, the income. If, in any year, the
5 below) and the debt-to- a participation by a holding rules. Other strict rules may Interest payments relating to excess of interest expenses interest expense exceeds
equity ratio of 5:1 should be company, the tax authorities restrict the deductibility of the financing of the acquisition over interest income) is limited the income derived from the
observed. Certain exceptions normally successfully argue interest, in particular on of the subsidiaries may be to the higher of (i) 30% of the employment of such debt,
exist. that such expenses are not borrowings from non-Hong deductible. However, as an Luxembourg taxpayer’s EBITDA the excess interest expense
tax deductible, since dividends Kong residents. anti-abuse measure, interest (which does not include exempt may not be carried forward
derived from the participation relief is generally not available income) for the financial year to subsequent years to
are exempt from tax. However, when the interest is paid on a and (ii) EUR 3 million. offset income generated in
interest incurred in acquiring loan obtained from a related subsequent years.
a 100% (direct or indirect) party, where the loan is used to Note that the deducted
subsidiary is deductible acquire ordinary share capital costs may be recaptured in a
provided that all the assets of of a company that is related to future year if a capital gain is
the subsidiary are used in its the investing company, or to realised on the alienation of the
business. on-lend to another company respective participation (see
which uses the funds directly or under 2.3 above).
indirectly to acquire capital of a
company that is related to the Currency exchange gains and
investing company. losses on loans to finance the
acquisition of the participation
are taxable/deductible.Holding Regimes 19
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
Thin capitalisation
If securities are issued by
the Irish holding company to
certain non-resident group
companies, any ‘interest’ paid
in relation to the securities can
be re-classified as a distribution
and therefore will not be
deductible. The rules relating
to dividend withholding tax will
then apply.
This rule does not apply to
interest paid to a company
resident in an EU jurisdiction
(other than Ireland) or a country
with which Ireland has signed
a double tax treaty if the treaty
contains a non-discrimination
provision.
The taxpayer company may
elect that this rule does not
apply in a situation where
interest is paid by that
company in the ordinary course
of a trade carried on by that
company.
Interest limitation rules
The ATAD requires EU Member
States to implement an interest
limitation rule by 1 January
2019. In general terms, under
the interest limitation rule aHolding Regimes 20
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
company’s ability to deduct
interest will be capped at 30%
of EBITDA. However, Member
States that have rules that are
equally effective to the interest
limitation rule included in ATAD
can avail of a derogation and
opt not to implement the rule
until as late as 2024. At the
time ATAD was adopted, the
Irish Department of Finance
issued a statement noting
Ireland’s intention of availing of
the derogation until 2024.
It now appears that Ireland
and the European Commission
have been in discussions about
the availability of the derogation
and it may be the case that
the Irish implementation
date is accelerated to before
2024. In this respect it is
worth noting that Ireland
completed a consultation
on the implementation of
an Irish interest limitation
rule in January 2019. If the
interest limitation rule is to be
implemented in Ireland from
2020, we would expect a
clear policy indication from the
Department of Finance in the
first half of 2019.Holding Regimes 21
2.6 Tax rulings
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
The application of the The tax authorities will, on Taxpayers may seek advance The application of the holding Luxembourg law provides It is possible to seek an
participation exemption regime application by or on behalf confirmation with respect company regime does not for the possibility to request advance revenue ruling from
does not require obtaining a of a taxpayer, issue advance to the application of a require an advance ruling. confirmation from the tax the Revenue Authorities on,
ruling, although in principle this tax rulings regarding actual particular provision by means However, if there is doubt as to authorities in relation to the inter alia, the following issues:
would be possible. transactions (for brevity of concluding an advance the application of the regime, for application of Luxembourg (i) confirmation that the
this should be understood tax ruling with the Inland example, whether the group can tax law to an anticipated domestic general anti-
Belgium automatically as including a series of Revenue Department. In be regarded as a trading group transaction. Such request may avoidance provisions
exchanges information on transactions) relating to tax general, advance tax rulings for the purpose of a capital relate to, among others, the contained in article 51 of
advance cross-border tax years for which the due cover the source of profits as gains tax relief, the opinion of application of the participation the Malta Income Tax Act
rulings and advance pricing date for filing a tax return either onshore or offshore, the Revenue may be sought. exemption (e.g. the comparable do not apply to a given
agreements (APAs) in conformity has not yet passed, and the qualification as a service This opinion is not binding and tax test), transfer pricing matters transaction;
with EU law. The categories of transactions proposed to be company, stock borrowing ultimately the status of the and any other tax matters that (ii) confirmation that an equity
tax rulings on which information undertaken by existing or new and lending, royalty payments, company will be decided by the may be relevant for a holding shareholding qualifies as a
has to be exchanged are entities. Requests must be collective investment schemes, individual Inspector of Taxes company (e.g. financing). participating holding on the
identified in the OECD BEPS in writing and must include the general anti-avoidance responsible for that company. basis that it is or will be held
Action 5 Final Report. comprehensive information rules, the sale of loss However, where full facts are A request for confirmation is for the furtherance of the
regarding the entities involved companies and exemption disclosed to the Revenue it subject to payment of a fee to Malta company’s business;
and the transaction. of interest income. would be unlikely that the the authorities ranging from (iii) the tax treatment of a
individual Inspector would come EUR 3,000 to EUR 10,000 transaction concerning
Rulings will be binding with to a different view. (depending on the complexity a particular financial
regard to the taxpayers of the matter). Any confirmation instrument or other security;
specifically mentioned in the As from 1 January 2017, obtained is binding on the tax (iv) the tax treatment of any
ruling request, and to the Ireland (and all other EU authorities and is valid for a transaction which involves
extent that the facts and Member States) is required to period of maximum 5 fiscal international business.
circumstances presented in the automatically exchange certain years (subject to accuracy of
ruling request continue to be information on cross-border tax the facts presented, subsequent These rulings guarantee the
applicable and provided that rulings and advanced pricing changes to the facts and tax position for a period of five
there is no subsequent change agreements (APAs) issued on changes in national, EU or years and may be renewed for
in the tax law which renders the or after 1 January 2017. In international law). a further five- year period. They
ruling inapplicable. addition, certain tax rulings will also survive any changes of
and APAs issued, amended or In respect of debt-funded legislation for a period of two
From 2017 onwards, Cyprus renewed on or after 1 January intragroup finance activities, years after the entry into force
(like all other EU Member 2012 that were still valid on or certain conditions must be of a new law.
States) has been required to after 1 January 2014 are also met in order to obtain advance
automatically exchange subject to exchange. confirmation.Holding Regimes 22
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
information on cross-border tax Ireland has also implemented As from 1 January 2017, Additionally, an informal ruling
rulings and advanced pricing the OECD framework regarding Luxembourg (and all other EU procedure has been developed
agreements (APAs) issued on the compulsory exchange Member States) are required to in practice whereby a taxpayer
or after 1 January 2017. In of information on tax rulings automatically exchange certain may obtain written guidance
addition, certain tax rulings issued on or after 1 April 2016. information on cross-border tax from the local tax authorities
and APAs issued, amended or Tax rulings issued on or after rulings and advanced pricing in respect of one or more
renewed after 1 January 2012 1 January 2010 that were still agreements (APAs) that are specific transactions. Any such
that were still valid on or after valid on or after 1 January 2014 issued on or after 1 January guidance obtained would, in
1 January 2014 are subject to had to be exchanged before 2017. Furthermore, certain practice, be considered binding
exchange. 2017. The categories of tax tax rulings and APAs issued, by the local tax authorities, but
rulings on which information amended or renewed after would not survive a change of
Cyprus has also committed has to be exchanged are 1 January 2012 are also law.
itself to the OECD framework identified in the OECD BEPS subject to exchange.
regarding the compulsory Action 5 Final Report. As from 1 January 2017,
exchange of information on tax In addition, Luxembourg Malta (and all other EU
rulings issued on or after has committed itself to the Member States) is required
1 April 2016. The categories of OECD framework regarding to automatically exchange
tax rulings on which information the compulsory exchange certain information on tax
has to be exchanged are of information on tax rulings rulings and advanced pricing
identified in the OECD BEPS issued on or after 1 April 2016. agreements (APAs) issued after
Action 5 Final Report. Tax rulings issued on or after 31 December 2016.
1 January 2010 that were still
valid on or after 1 January 2014
had to be exchanged before
2017. The categories of tax
rulings on which information
has to be exchanged are
identified in the OECD BEPS
Action 5 Final Report.Holding Regimes 23
3. Withholding taxes payable by the holding company
3.1 Withholding tax on dividends paid by the holding company
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
The domestic withholding No dividend withholding tax is Hong Kong does not levy 20%, which may be reduced The domestic dividend No withholding tax is levied in
tax rate on dividends and levied in Cyprus on distributions withholding tax on dividend by virtue of tax treaties or under withholding tax rate is generally Malta on dividend distributions
liquidation distributions is to non-residents. distributions paid to either domestic law to 0% - 15%. 15%, which may be reduced to a non-resident shareholder,
generally 30%, which may be residents or non-residents. by virtue of tax treaties to, provided that such shareholder
reduced by virtue of tax treaties. Exemptions generally, 5%. is not directly or indirectly
Pursuant to the implementation owned and controlled by, and
Exemptions of the EU Parent-Subsidiary Exemptions does not act on behalf of, an
An exemption from withholding Directive, dividend withholding A domestic exemption applies individual who is ordinarily
tax applies to (liquidation) tax is not due on dividends paid if: resident and domiciled in Malta.
dividend distributions made to a by Irish resident companies to (i) the dividend distribution is
parent company that: companies resident in other made to (i) a fully taxable
(i) holds (or commits to hold) a EU jurisdictions who hold at Luxembourg resident
participation of at least 10% least 5% of the ordinary share company, (ii) an EU entity
of the share capital of the capital, provided the anti-abuse qualifying under the EU
distributing company for a provision mentioned under 5 Parent- Subsidiary Directive,
period of at least one year; below is met. (iii) a Luxembourg branch
(ii) is tax resident in an EU or EU branch of such EU
country or a tax treaty In addition, domestic entity or a Luxembourg
country under that country’s exemptions apply if: branch of a company
domestic tax law and under (i) the individual shareholder is that is resident of a treaty
the tax treaties concluded resident in an EU member country, (iv) a Swiss resident
by that country with third state (other than Ireland) or company subject to Swiss
countries; a treaty partner jurisdiction; CIT without being exempt,
(iii) is incorporated in a legal (ii) the parent company is or (v) a company which is
form listed in the annex to resident in an EU member resident in an EEA country
the EU Parent-Subsidiary state (other than Ireland) or or a country with which
Directive or a similar legal a treaty partner jurisdiction Luxembourg has concluded
form (for a tax treaty and is not ultimately a tax treaty and which is
country); and controlled by Irish residents; subject to a tax comparable
(iv) is, in its country of tax (iii) the parent company is not to the Luxembourg
residence, subject to CIT resident in Ireland and is corporate tax (i.e. a tax rate
or a similar tax without ultimately controlled by of 9% and a comparable tax
benefiting from a regime that residents of an EU member base); and
deviates from the normal tax state (other than Ireland) or a
regime. treaty partner jurisdiction; orHolding Regimes 24
Belgium Cyprus Hong Kong Ireland Luxembourg Malta
Dividends will not be exempt (iv) a non-resident company (ii) the recipient of the dividend
from withholding tax if the can also qualify for the has held or commits itself
dividends are related to a legal exemption if the principal to continue to hold a
act or a series of legal acts, class of shares in the direct participation in the
which are not genuine (i.e., that company or its 75% Luxembourg company
are not put into place for valid parent are substantially of at least 10% or with
commercial reasons which and regularly traded on a an acquisition price of at
reflect economic reality) and recognised stock exchange least EUR 1.2 million for an
have been put in place with the in the EU (including Ireland) uninterrupted period of at
main goal or one of the main or in a treaty partner least 12 months.
goals to obtain the exemption jurisdiction
or one of the benefits of the See under 5 below regarding
Parent-Subsidiary Directive in Remark the potential application of
another member state of the In relation to the domestic the Lux GAAR to dividend
European Union. exemptions above, the Irish distributions to EU corporate
company may pay a dividend shareholders.
A separate exemption from free from withholding taxes
withholding tax applies to as long as the recipient The liquidation of a
dividends distributed by a company or individual makes a Luxembourg company is
resident company to resident declaration in the specified form treated as a capital gain
and non-resident companies in relation to its entitlement to transaction and distributions of
located in the EEA or a tax the domestic exemption. There advance liquidation proceeds
treaty country providing for is no minimum shareholding are, therefore, not subject to
exchange of information that requirement. dividend withholding tax.
hold a participation in the
distributing company’s capital Liquidation proceeds A repurchase and cancellation
of less than 10% and with an Liquidation distributions are not by a Luxembourg company
acquisition value of at least EUR subject to dividend withholding of part of its own shares
2.5 million for an uninterrupted tax. See however, under 4 is not subject to dividend
period of at least 12 months below regarding capital gains withholding tax if it qualifies
(or commitment to hold), to tax upon liquidation. as a ‘partial liquidation’. The
the extent that the receiving repurchase and cancellation
entity cannot credit Belgian of all shares held by one of
withholding tax and that it meets the shareholders, who thereby
subject-to-tax requirements. ceases to be a shareholderYou can also read
