A guide to business relocation in Europe 2012/13

2012/2013

A guide to business relocation in Europe

Contents

Introduction 01

Key country summary 02

Relocation options 06

Grant Thornton contacts 19

Key country profiles 20

– Belgium 21

– Cyprus 25

– Hungary 29

– Ireland 33

– Luxembourg 37

– Malta 41

– The Netherlands 45

– Spain 49

– Switzerland 52

– United Kingdom 56

Other territory profiles 60

– Austria 61

– Czech Republic 62

– Denmark 63

– Estonia 64

– Finland 65

– France 66

– Germany 67

– Greece 68

– Italy 69

– Latvia 70

– Lithuania 71

– Poland 72

– Portugal 73

– Russia 74

– Sweden 75

– Turkey 76

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Many companies from large multinationals toentrepreneurial businesses are choosing torelocate part or all of their operations to newterritories. There are a number of reasonswhy commercially a group may considerrelocating part of their operations, but it isalso important to understand the taxconsequences.

Grant Thornton member firms around theworld have significant experience in advisingclients on how their businesses can benefit fromrelocation. The highest profile cases involve fullcorporate migrations or inversions – the headoffice and holding company structuretransferring to a new jurisdiction. However theoptions are numerous and the right answer maybe much more simple, from setting up a regionalhub to offshoring support services, or setting upan offshore intellectual property (IP)management vehicle.

As governments seek to attract successful,entrepreneurial businesses through theintroduction of favourable tax and legal regimesthe level of business relocations is likely tointensify in coming years.

Our guide outlines what type of activity iscommonly relocated and the benefits of doing soand it profiles key locations within Europe whichare popular destinations for business relocation.We explain the reasons for their popularity andsummarise key commercial and tax factors to betaken into account when relocating.

The key to successful business relocation isearly planning, working to achieve commercialobjectives and careful execution.

We hope you will find this guide useful inassessing whether business relocation is right foryou. If you would like to discuss the next stepsplease contact your own Grant Thorntonadviser or one of the Grant Thornton contactslisted on page 19.

Nick Farr Jenny BatchelorInternational tax partner Tax directorT +44 (0)20 7728 2691 T +44 (0)20 7728 2754E [email protected] E [email protected]

A guide to business relocation in Europe 1

A guide to business relocation in Europe

Introduction

Key country summary

2 A guide to business relocation in Europe

4

Belgium – the commercial benefits of being located at the heart ofEurope, a good IP regime for patents and a very attractive financingsystem (with notional interest deductions) means it is often used,particularly as an IP holding company location.

Cyprus – widely used for investment into Russia and Central Europeowing to a strong treaty network, it is increasingly used for servicecompanies, including the financial services sector, attracted by a 10%corporate tax rate, simple regime, and relatively low cost.

Ireland – Ireland is a popular location for holding and IP holdingcompanies, particularly with a wealth of skilled workers in the technologyand pharmaceutical sectors. It also has a flexible tax system, lowcorporate tax rates of 12.5% for active trades, and a good IP regime.

10 key European jurisdictions

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2

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1

5

8

9

6 2

Hungary – a relatively new holding company location destination, itslocation is ideal for accessing other Eastern European countries. It alsohas a straight forward tax system, a low overall tax rate and a good IPregime which can result in such income being taxed at 5%.

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3


Malta – a relatively low cost of living combined with a good qualityworkforce make this a popular jurisdiction for service companies. Ifstructured correctly, corporate tax rates of less than 5% are achievable.

The Netherlands – once widely regarded as the holding location ofchoice, its regime is perhaps not as competitive as a decade ago. Withan excellent treaty network and a flexible tax system, it still remainspopular as a holding company location, and is widely used by service,trading and logistics groups.

Spain – not widely recognised as a holding company location but itsstrong treaty network with Latin America means that it is a very goodholding company location to access these markets. Its attractive R&Dcredits and IP regime can also result in a low effective tax rate.

Luxembourg – pre-eminent within the finance sector, it is acommon holding company location and is often used as atreasury/financing location. Advance agreements with the tax authoritiesare possible whereby Luxembourg only taxes a small spread onfinancing flows.

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8

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Switzerland – with access to a sophisticated workforce, it is widelyused as an entrepreneurial hub, especially in the food and drink,pharmaceutical and financial services sectors. Although expensive, witha complex tax regime, overall corporate taxes can be low.

UK – whilst the complexity of the tax regime is a deterrent for many,US multinationals in particular continue to use the UK as a holdingcompany structure – this is driven by commercial factors, particularlyrelative ease of set-up, language factors and communication links.

10

9

Hungary

yes


Belgium Cyprus Ireland Luxembourg Malta Netherlands Spain Switzerland UK

EU member yes yes yes yes yes yes yes no yes

Tax rates

These 10 key European jurisdictions are widely used for holding companies and IP holding companies. The choice of location is very much driven bythe commercial requirements of the business. Whilst it can be possible to relocate without a strong commercial driver, the best results are typically wherecommercial needs, tax and legal benefits go hand in hand. The table below summarises principal tax factors for the 10 key European jurisdictions.

10-19%

Income taxes up to 27%

Headline corporationtax rate

33.99% 10% 12.5% 28.8% 35% 20-25% 30% 12-25% 24%

up to 50% up to 35% up to 41% 40.56% up to 35% up to 52% up to 56% up to 42% up to 50%

Holding company regime

Standard VAT rate 27%21% 17% 23% 15% 18% 21% 21% 8% 20%

65+

no – unlessthey areshares incompaniesholdingHungarianreal estate

yes

–

yes

yes

yes

Dividend exemption(subject to conditions)

yes yes no – but credit yes yes yes yes yes yes

Capital gain exemption(subject to conditions)

yes yes yes yes yes yes yes yes yes

CFC rules no no no no no no yes no yes

Transfer pricing rules yes yes limited limited no yes yes yes yes

Capital/stamp duty onshares

no yes – only oninitialissuance ofshares (0.6%)

yes – only ontransfer ofshares (1%)

no – however0.5% annualnet wealth taxon non-qualifyingassets

yes – only on transfer of shares(2%) unless >90% of businessis derived fromoutside Malta

no no yes – on initialshare issuance(1%) and anannual capitaltax on equityvalue (0.001%-0.01%)

yes – onlyon transferof shares(0.5%)

Number of double taxtreaties

90+ 46+ 65+ 60+ 55+ 110+ 80+ 100+ 120+

Other incentives notional interestdeduction

profit fromtrading in‘titles’ isexempt

– tax rulings canbe negotiatedto optimiseeffective taxrate

effective tax rateof 0-10% can beobtained (subjectto exemptions)

– no debt:equityrestrictions asfrom March 2012(but limitationon interestdeduction)

effective taxrate of 7-12%for holdingcompanies

–

Hungary


Belgium Cyprus Ireland Luxembourg Malta Netherlands Spain Switzerland UK

General notes: Key:1. Information used in this table was collated in July 2012 WHT = withholding tax2. Withholding tax rates may be reduced when payments made within the EU or under relevant treaties CFC = controlled foreign company3. Further details are included in the relevant key country profiles from page 20 ETVE = Spanish holding company

IP regime

yes

5-9% (5% effective)

yes – appliesto patents,patent rights,trademarksand copyright

exemption onregistered IPheld for atleast a year

9-11%(effective)

yes – appliesto allintangibles

capital gain on IP disposaltaxed at 9-25%

IP tax rate 6.8%(effective)

10%(2% effective)

12.5% (2.5%effective)

5.76%(effective)

0-10% 5% / 25% 15-30% 24%

IP regime yes – appliesto patentsowned anddevelopedby company

yes – appliesto mostintangibles

yes – appliesto mostintangibles

yes – appliesto mostregisteredintangibles

yes – appliesto registeredpatents (0%),active IP (5%),passive IPincome (10%)

yes – applies toIP of a technicalnature (5%) andto goodwill andtrademarks(25%)

yes – appliesto registeredintangibles

yes – appliesto all post2002intangibles

Capital gains on IP qualifyinggains taxed at IPrate of 6.8%

80%exemption on capital gainon disposal

capital gain on disposaltaxed at 30%but can bedeferred

80% exemptionon capital gainon disposal

capital gain ondisposal taxed at 5%

capital gain on disposal ofqualifying assetseffectively taxed at 5%

capital gainon IP disposalat a rate of15%-30%

capital gain ondisposal taxedat 24% but canbe deferred

IP amortisationdeduction

yes yes yes yes yes yes yes yes yes

Domestic witholding tax (WHT) ratesWHT on dividends 25/21% 0% 0/ 20% 15% 0% 15%

0% forcooperatives

0% (forETVEs)

35% 0%

WHT on interest 21% 0% 0/20% 0% 0% 0% 21% 0% 20%

WHT on royalties 15% 5-10%

0/16%

0%

0% 0/20% 0% 0% 0% 24.75% 0% 20%

What is business relocation?

Whilst most people instantly think of fullcorporate migrations for business relocations,there are a number of much simpler optionswhich can also achieve excellent efficiencies and cost savings.

Determining the right structure and locationfor a business requires assessing numerouscompeting factors and will be individual to each group, but some common examples are:

Relocation options

Full migrationThis type of relocation has been highlighted bysome high profile migrations and can be either arelocation of headquarters or holding companyor both. A migration of the holding companytypically involves an inversion, whereby a newholding company is set up above the existinggroup holding structure. However, it cansometimes be achieved by migrating themanagement and control of a holding companyto a different jurisdiction.

Whilst the benefits can be significant, forexample, achieving a reduction in the overalleffective tax rate or moving to a country with asimpler tax and legal framework, there can beissues in terms of exit costs and there needs to be a strong appetite for change to make thisrelocation work.

Use of IP holding companies and regionalhubsIncreasing use is being made of IP holdingregimes by many international groups. Suchcompanies are responsible for the ongoingdevelopment, protection and exploitation of IPor development of regional business.

Given the need for IP protection and thesignificant income it can generate, groups areconsidering the best place to locate these assetsto maximise protection and minimise taxes.

Whilst such assets are physically easy torelocate, this type of restructuring often has ahigh cost of relocation.


OffshoringThere can be significant cost savings throughoffshoring. In its simplest form offshoring couldbe the relocation of a support function overseas.Increasingly, this has been extended to morevalue-add functions including research anddevelopment (R&D) centres and treasurycompanies. For the former, such centres may belocated where there is a wealth of technical staffand favourable R&D tax regimes.

Changing the risk modelWhere it is not appropriate to physicallyrelocate certain functions, then an alternativemay be to operate through a commissionaire,franchising or licence model. Under such anarrangement, the risks borne by the localdistribution or manufacturing entity may besubstantially reduced. This in turn can limit theprofits attributable to these entities, withincreased profits being generated by theentrepreneur company. This involves limitedphysical disruption to the business.


How can relocation add value?

There are significant potential benefits torelocating abroad – access to markets, simplifiedcompliance and tax savings are cited as keyreasons. The popularity of business relocationsis driven by a series of global economic factors,creating ‘a perfect storm’ in businessrestructuring:• globalisation: the disparity in growth rates

between emerging markets and matureeconomies is accelerating the pace ofglobalisation, as companies seek to accesscapital, goods or markets in differentregions of the world. There is also agrowing pool of internationally mobileemployees willing to relocate for theseopportunities

• economic downturn: pressure on businessesto reduce costs is immense as they continueto respond to the global recession. Therecan be significant operational, administrativeand tax savings arising from centralisingfunctions and relocating them offshore to anappropriate location

• increased compliance burdens: otherregimes, particularly in the G20 economies,are introducing complex compliancesystems to control behaviour anddiscourage loss of tax revenue offshore. Thisis creating a huge compliance burden forgroups and arguably is accelerating themigration of businesses away from thosejurisdictions

• competitive advantage: as more corporategroups take advantage of the opportunitiesarising from relocation, it is important toremain ahead of the game in terms ofmaximising value by reducing costs, therebykeeping a competitive advantage

• tax incentivisation: tax is increasingly usedas a lever by various governments to attractinward investment, resulting in low tax ratesand some very generous tax incentives,particularly around IP management andother high-value functions. Significant taxsavings can be obtained by relocatingactivity and assets into these jurisdictions.


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

Support Customer support Back officesupport

Business Research & development

Manufacturing & sales

Value-add IP management Executive decision making

• Offshoring• Treasury companies

• Centralisation• Changes to risk model• Research centres of excellence

• IP holding companies• Migration of holding company

Support functionsOffshoring:

Relocation of routine functions such as supportservices is common and is often relativelystraightforward. Typically the moves are drivenby operational savings with and low costs. Anexample of this is Malta, a popular offshoringlocation.

Treasury companies:Treasury companies have widely been used ingroup structures to manage and pool the cashfacilities for the group to maximise the return onsurplus cash and minimise the expense onoverall group debt. Careful considerationshould be given to the preferred location whichwill be driven by commercial factors, but alsoby the favourable tax treatment on the interest.WHT costs should be understood whenchoosing a location as these can give rise tosignificant tax leakage on interest flows if notmanaged properly.

Business functionsCentralisation:

Typically the location of volume-addingfunctions is driven by commercial factors suchas the location of suppliers, customers and askilled workforce. However there may still beopportunities to centralise these in a regionalhub and while such structures will becommercially driven, tax savings can besignificant.

Change to the risk model:Where it is not commercially viable to relocatevolume-adding functions, these can berestructured using a different model such asfranchising and licencing.


Such a group restructure could involve afully-fledged sales company becoming a limitedrisk distributor, transferring key risks (such asstock obsolescence risks, bad debts and foreignexchange) to another company. Alternatively, itcould operate as a sales commission agent, notactually entering into sales contracts, ratherreceiving a commission for soliciting sales onbehalf of the principal.

This can be an effective way of transferringprofit-generation from the sales ormanufacturing entity to the principal withminimal physical disruption to the business asfew staff need to relocate.

Research centres of excellence: The tax benefits of establishing a global R&Dcentre can be extensive given the various grantsand tax incentives available in differentjurisdictions. It is important to ensure theseincentives are taken into consideration whenundertaking cost-benefit analysis on the choiceof location.

When considering the best structurefor an R&D centre of excellence, it isimportant to understand whether thecentre will undertake research on its ownbehalf, effectively owning the associatedIP, or whether it will perform contract R&Don behalf of the IP owner. This is key todeciding where the IP should be located.

With planning, it may be possible for acontract R&D company to qualify for R&Dtax credits in one country, and the IP ownerto benefit from a favourable tax rate on theincome generated from the IP in a secondjurisdiction.


IP holdingcompany

R&Dcompany

Recharge for services

Low effectivetax on IP incomeand gains egBelgium orHungary

Enhanced R&Dexpenditureand/or creditseg Ireland or UK

Value-add functionsIP holding companies:

By locating the IP and the associated activemanagement in one company, its value may bemaximised. The income generated from suchactivity will be either royalties, or if the IPholding company is included in the supplychain, through the mark-up on the pricing ofgoods or services.

The profits attributed to IP can be verysignificant, and there are some very favourableregimes – for example Ireland allows adeduction for amortisation of IP transferredfrom group companies, based on the marketvalue (rather than book value).

Migration of holding company: This typically entails setting up a new holdingcompany above the existing group holdingcompany and is known as an inversion.

There are a number of reasons why acompany may migrate, including:• commercial opportunities to re-focus the

business on a new territory or region, moreclosely aligned with customers, suppliersand/or workforce

• opportunities to exit from a complex legal/tax compliance and reporting regime of theexisting country of residence, and adopt amore straightforward regime in a territorysuch as Hungary or Malta

• potential to side-step tax anti-avoidanceprovisions in the previous parentjurisdiction, which can limit flexibility

• ability to generate profits in the medium-term in a favourable location.

Migration has a very significant impact on thebusiness, with the key decision-makers eitherrelocating offshore or regularly travelling to theoverseas location.

It can also impact the shareholders as somejurisdictions have high WHT rates on paymentof dividends to non-resident shareholders. Iftreaty protection is not available, complexstructures such as dividend access schemes, maybe required to manage WHT costs to theultimate shareholders.

There needs to be an appetite for change atboard level and a good commercial reason forrestructures of this nature and an awareness ofthe potential negative media exposure.



An inversionThe key steps to an inversion are as follows:

Existing structure Set up a new overall holding company in afavourable jurisdiction by way of share for shareexchange by the existing shareholders

Transfer subsidiary companies under the newholding company

Overseascompany 1

Overseascompany 2

New holdingcompany

Holdingcompany

Holdingcompany

Overseascompany 1

Overseascompany 2

New holdingcompany

Overseascompany 1

Holdingcompany

Overseascompany 2

Where is the optimallocation?

There is no right answer as towhere a group should locate itsdifferent functions. It depends on amyriad of business factors but theclassic supply chain modelhighlights the options available.


CUSTOMERS

Holdingcompany

Shared Services

Technologycentre Commissionaire

MarketingServices

Centralentrepreneur

ProcessingServices

Distribution &Logistics Services

TollManufacturer

SUPPLIERS

DistributionCentre

ManagementServices

R&D Services AdministrationServices

ProcessingServices

Purchases materials Sells goods

Delivermaterials

Delivers goods

1

42 3 5

56

Legal title

Physical flow

Services


The central entrepreneur is the hub of the structure and thereforeits location will be key. As it will often also hold the group’s intangibles,identifying a good IP tax regime can significantly improve the group’s effective tax rate. Popular jurisdictions include Ireland and Switzerland – the group canbenefit from excellent commercial regimes, access to a sophisticatedlabour force and with careful structuring, effective tax rates of 12.5%(Ireland) and 9-11% (Switzerland).

A technology centre will be responsible for R&D, and therefore itslocation will be influenced by a generous R&D tax regime in the form ofenhanced tax relief and repayments as well as access to appropriatestaff. France has an excellent R&D regime, as does the UK.

Shared services are often relocated to overseas jurisdictions. Callcentres for example are usually located in low cost environments withpopular locations in Europe including Malta and Cyprus.

Toll or contract manufacturing is ideally located where there is alow cost base – East European states and increasingly North Africa arewidely used.

Operations in high tax jurisdictions which cannot be moved – forexample sales and distribution, which are driven by customer location, canbe structured as a commissionaire or a limited risk distributor. This willlimit the risk and therefore the level of profits associated with the function.

The choice of holding company location is determined byshareholder considerations as well as company law. Popular locationsare Luxembourg, Switzerland, Belgium, Ireland and increasingly Hungary.

1

2

3

4

5

6

What is the impact of relocation?

It is important to understand the potentialimpact any relocation has on the operational,legal and tax affairs of the business. These aregenerally manageable but careful planning isnecessary to ensure groups are aware of all thecosts of the relocation.

Operational issuesCustomers, suppliers and marketsDepending on the type of business, thelocation of suppliers and/or customers will bekey to the decision on location. Proximity tothese key stakeholders is often a critical factor in driving relocations.

SubstanceWhenever activity is being relocated, there willneed to be real ‘substance’ in the chosenlocation. The exact level of substance dependson the functions undertaken and the assets andthe jurisdiction they are to be relocated to. While this may be obvious for volume-addingfunctions such as manufacturing, holding andIP holding companies will need to have real

substance in them with appropriate levels oflocal management with the relevant expertiseto manage the assets. Failure to introducesufficient substance is likely to give rise to taxconcerns as set out further below.

People Groups must consider how any relocatedfunction will be staffed. This may involverelocating staff or recruiting locally. Forexisting staff, account must be taken of theirdesire to move, in addition to their ability tomove in terms of work permits (where suchlocations are outside of the EU). If existingstaff do not want to move, there will need to bea suitable workforce available locally. Bothoptions will have associated costs.


ReputationSome businesses are sensitive to marketperception. Any restructuring which couldresult in headline news in the media of a moveto a new jurisdiction could detrimentallyimpact the profitability of those businesses.While high profile movers have paved the way,when reviewing the strategy of the business allkey players in the business, from CEO tocorporate affairs need to understand theimplications of a move and need to be clear oftheir stance.

Legal IssuesEmployment lawIt is important to recognise when moving staffto an overseas location, or indeed hiring newstaff, that the employment laws in differentjurisdictions are unlikely to be the same. Evenwithin the EU, there can be working hourrestrictions, and employees may have morerights in one country compared to another. Inaddition, works councils in certain memberstates can be powerful bodies influencingbusiness decisions.

Contract renegotiationWhen moving business operations overseas, itmay be necessary to renegotiate contracts withcurrent suppliers and customers. Theappropriate law governing these contracts willneed to be considered and, where different,existing contracts will need to be agreed withcustomers and suppliers.

Company lawCompany law factors must be taken intoconsideration when setting up a new entityincluding the different reporting requirements.The full migration of listed entities will giverise to numerous legal and listing requirements.


Tax issuesResidency and CFC rulesMany tax authorities levy tax not just oncompanies incorporated in the territory inquestion, but also where companies aremanaged there. It is therefore important thatcompanies have an appropriate level ofsubstance and management locally, otherwiseadditional tax costs could arise under the taxresidence and CFC rules.

Transfer pricingIncreasing numbers of jurisdictions haveintroduced transfer pricing rules to ensure thatintra-group pricing (of goods, services, interestand royalties) is deemed to take place at arm’slength. The aim is to ensure that profits are notartificially diverted to another territorythrough manipulation of prices.

As a result, the level of profits which can begenerated in a territory is typically driven bythe level of substance in that territory – both interms of assets held, functions performed, andrisks borne. Careful supply chain planning istherefore essential to maximise the benefitfrom the chosen structure.

Exit chargesAs part of any restructuring, the exit charges inmoving a function or asset out of a jurisdictionneed to be included in relocation costs. Formost countries, there will, prima facie, be a taxcharge on exit. However, with planning it isoften possible to minimise the charge arisingon exit or defer such charge.

If moving within the EU there is also theargument that such charges are discriminatoryand contrary to EU law and in particular theFreedom of Establishment and Free Movementof Capital.

Indirect taxesThought needs to be given where anyrestructuring alters the flow of goods, servicesor other payments. For example royalty,interest and dividend flows need to bemodelled to ensure that the resultant structureis not tax inefficient by virtue of non-recoverable WHT. Where there is a physicalmovement of goods or services, indirect taxcost leakage (particularly sales taxes and duties)will need to be built into the cost of therestructuring.


Grant Thornton contacts


AustriaWerner LeiterT +43 126 262 414E [email protected]

BelgiumGeorges KeymeulenT +32 02 469 01 00E [email protected]

CyprusGeorge KaravisT +357 22600000E [email protected]

Czech RepublicGabriela MagsumováT +42 0296 15 2255E [email protected]

DenmarkJorgen NielsenT +45 33 454 212E [email protected]

EstoniaKristjan JärveT +372 626 4500E [email protected]

Finland Tanya LappalainenT +358 9 5123 3333E [email protected]

FranceJérôme BogaertT +33 (0)1 56 21 03 03E [email protected]

GermanyPaul ForstT +49 211 95 24 121E [email protected]

GreeceSotiris GioussiosT +30 2 10 72 80 501E [email protected]

HungaryIlona SzarkaT +36 1455 2000E [email protected]

IrelandFrank WalshT +353 (0)1 6805 607E [email protected]

ItalyAlessandro DragonettiT +39 02 7600 8751E [email protected]

LatviaKristīne Vanaga-MihailovaT +371 6721 7569E [email protected]

LithuaniaArūnas ŠidlauskasT +370 5 212 7856E [email protected]

LuxembourgJean-Michel HamelleT +352 24 69 94E [email protected]

MaltaAustin DemajoT +356 21 320 134E [email protected]

The NetherlandsJacob MookT +31 (0)182 53 19 22E [email protected]

PolandDariusz BednarskiT +48 61 62 51 314E [email protected]

PortugalJoaquim MendesT +351 21 413 46 30E [email protected]

RussiaAlexander SidorenkoT +7 495 258 99 90E [email protected]

SpainAlbert GiraltT +34 93 206 39 00E [email protected]

SwedenMonica SöderlundT +46 8 563 070 74E [email protected]

SwitzerlandReto WittwerT +41 43 960 71 04E [email protected]

TurkeyBeşir AcarT +90 312 219 1650E [email protected]

United KingdomNick FarrT +44 (0)20 7728 2691E [email protected]

This section provides an overview ofthe commercial and legal benefits ofthe jurisdiction, the holdingcompany and IP holding regimes, aswell as expatriate costs and planningopportunities for the 10 key holdingcompany locations.

Key country profiles


Belgium key factsInvestment climate• local currency Euro (€)• stable economic and political environment• skilled and semi skilled workforce, includingtechnical and professional personnel

• rather strict labour laws.

Quality of living• good infrastructure especially transport• high standard of education includinginternational schooling available for expatriatefamilies

• excellent healthcare.

Belgium

Belgium is recognised as a holding companylocation primarily due to commercial reasons. Itshigh headline corporate tax rate does not lenditself easily to a favourable holding companylocation, although a participation exemption interms of dividends and capital gains and theabsence of any CFC rules offers enough taxincentives for groups to headquarter here.

It is one of the best locations for industryand logistics as a prominent gateway to theEuropean market. A large part of Belgium’ssuccess in international trade is due to itsexcellent infrastructure which allows it toleverage off its strategic location.

Trade in intermediate goods, destined forfinal production in other countries, accounts for nearly 45% of gross domestic product.Belgium’s main industries include food,automotive, pharmaceuticals and logistics.

Belgium is regarded as having a highstandard of living and, while it is expensive, it isnot as expensive as some of its EU neighboursrelative to the standard of living.

Belgium does have a very favourable IPregime, especially for patent income which istaxed at a rate of 6.8% and can often be lowerdepending on the level of deductions available.


Holding companyCorporate taxationThe effective headline rate of corporate tax inBelgium is 33.99%, one of the highest in the EU.

Notional interest deduction rules givecompanies a deduction against profits for thecost of equity (for tax year 2013 this is 3% ofequity; 3.5% for smaller entities). It is thereforepossible to benefit from significantly reducedcorporate tax rates, with some relatively simplestructuring.

Stamp taxes and other capital dutiesThere is no capital duty or stamp dutyapplicable in Belgium.

Exemption from Belgian corporate taxA 95% dividend exemption is generally availableon dividends from shareholdings of at least 10%(or €2.5 million) where they have been held (orare intended to be held) for at least one year.

Capital gains on the disposal of shares areexempt (if shares were held for an uninterruptedperiod of one year) provided that the investeecompany is not resident in a country with aconsiderably more favourable tax regime thanBelgium (in practise this is taken as an effectivetax rate of less than 15%).

Anti avoidance legislationBelgium has transfer pricing rules (based onOECD principles) which require related partytransactions to be conducted at arm’s length. In addition, there are interest deductibilityrestrictions on interest payable to ‘low tax’jurisdictions (ie <15% effective tax rate) and on intra-group loans to the extent that the totalamount of these intra-group loans exceeds five times the net equity of the company.Belgium does not have any CFC (or equivalent)legislation. However, the availability of thecapital gain exemption may be restricted if theinvestee company is in a ‘low tax’ jurisdiction(as detailed above).

It is possible for companies to obtainadvanced rulings from the tax authorities on the treatment of complex tax matters. These are not compulsory.


Belgium’s location and excellent IP regime result in it being an

attractive location for holding companies, including (bio)pharmaceutical

and high tech groups.

Examples include GlaxoSmithKline Biologicals,

ThromboGenics, UCB, Godiva Chocolatier and Anheuser-Busch

InBev (Becks and Stella).

Withholding taxes (WHT)The domestic rate of WHT applied ondividends is 21% (as of 1 January 2012) whencertain conditions are met. There is no WHT ondividends paid to residents of EU countries(where holding requirements are met) orcountries with which Belgium has a double taxagreement (for shareholdings of at least 10% or€2.5 million) and there are significantly reducedrates in many of the double tax agreements.

The domestic rate of WHT applied oninterest to non residents is 21%. An exemptionis available for interest payable to beneficiariesof EU countries (where holding requirementsare met) and reduced rates of WHT apply oninterest to beneficiaries of most treaty countries.

The domestic rate of WHT applied onroyalty payments to non residents is 15%. Aswith dividends and interest, an exemption isavailable for payments to EU countries (whereholding requirements are met) and reduced ratesof WHT apply on royalties to most treatycountries.

VATThe standard rate of VAT is 21%. A reducedrate of 12% applies for medicines, margarine,tubes, TV cable or social housing, whilst areduced rate of 6% is available for all types ofrenovation work as well as basic necessities suchas food, non-alcoholic beverages, transport andpharmaceuticals. Some goods are exempt fromVAT including newspapers and magazines.

Double tax agreementsBelgium has more than 90 agreements in effect.

Foreign shareholdersThere is no Belgian tax payable by foreignshareholders on the disposal of shares in aBelgian company.

IP regimeLegalBelgium offers a high level of legal protectionand recognition, broadly following EU law, forpatents, trademarks, copyrights and industrialdesign and models.

IP rulesThe IP regime includes patents that are ownedand that have been fully or partly developed bythe company.

Under the regime, there is an 80% patentincome deduction on qualifying gross patentincome resulting in an effective tax rate of 6.8%before other deductions. In addition,amortisation is deductible over the usefuleconomic life and this deduction, coupled withthe notional interest deduction, can result in aneffective tax rate of zero.

Income and gains on IP outside the regime(including acquired patents and knowhow andbrands) are subject to tax at the normal headlinerate of tax of 33.99%.

R&D rulesTax incentives are available for R&D relatedactivity in the form of either an enhancedinvestment deduction of 15.5% (for tax year2013) on environmental investments forresearch and development, or a tax credit of15.5% of the value of qualifying expenditure(for tax year 2013). It is also possible forcompanies to retain 75% of researchers payrolltax in respect of qualifying activities.


Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedin Belgium, on a progressive scale of income taxbetween 25% and 50% depending on level ofincome. Local taxes are also payable.

There are relatively generous deductionsavailable including child care, mortgagepayments and related insurance premiums. Tax credits are also available for pensioncontributions and life insurance premiums.

Social security contributionsEmployee social security contributions arepayable at 13.07%. These are deductible forincome tax purposes.

Expatriate rulesExpatriates are subject to Belgian tax on theportion of income attributable to working inBelgium. In addition, they can receive tax freepayments to cover expenses such as housing,cost of living, relocation expenses, settlingexpenses, tax equalisation and a schoolingallowance.

Corporate set upCostCompany set up costs start at around €3,000and take around one month.

Corporate entityThe most common type of corporate entity is an NV/SA but an often used alternative is theless formal BVBA/SPRL.

The minimum share capital for these entitiesare currently €61,500 (NV/SA) and €18,600(BVBA/SPRL).

For an NV/SA there is a requirement for at least two shareholders and at least three directors although there are no specific residence requirements (the directorrequirement is reduced to two if there are only two shareholders).


Locating some operational activity in a Belgium holding company

can significantly reduce the group’s effectivetax rate, as interest costs and also a notional interest deduction is available and dividends

received are 95% exempt.


Cyprus key factsInvestment climate• local currency Euro (€)• robust legal system with strong English Lawinfluence

• highly qualified and multilingual labour force.

Quality of living• relaxed pace of life • great weather• good telecommunications infrastructure• high standard of education• low crime, unemployment and homelessness.

Cyprus

Cyprus’ location lends itself well to internationaltrade, as it is central to three different continentsand close to trade routes between Europe andAsia. Good transport links (sea and air) and anexcellent telecommunications system furthercompliments the potential for international trade.

It also has the lowest headline rate ofcorporation tax in the EU at 10%. Its generousexemptions can sometimes result in a nil effectivetax rate making it a very attractive jurisdictionfor holding companies from a tax perspective.

Cyprus is very widely used for investmentinto Russia and Eastern Europe due to thefavourable treaty provisions.

The services sector accounts for threequarters of the country’s GDP with the mainsectors being tourism, transport andcommunications, real estate and banking.

The quality of life in Cyprus is very goodand the cost of living is low compared withmany Western European countries.

Cyprus has new legislation which providescertain tax incentives with regards to IP.

Holding companyCorporate taxationThe standard rate of corporation tax in Cyprusis 10%, although certain passive income (ieinterest) is subject to the special defencecontribution at a rate of 15%.

No tax deduction is available on the interestcosts of financing subsidiaries unless thecompany is treated as a finance vehicle withinthe group.

Stamp taxes and other capital dutiesCapital duty of €103 plus 0.6% on the nominalamount of the authorised share capital exists.Subsequent increases of the authorised sharecapital are subject to a capital duty of 0.6%

Exemption from Cypriot corporation taxA full dividend exemption is available providedthat the company paying the dividend does notderive more than 50% of its income frominvestment activities or it is not subject to tax ata significantly lower rate than in Cyprus (inpractice this is interpreted as a tax rate of lessthan 5%). If the exemption does not apply, thedividends are subject to the special defencecontribution, at a rate of 20% (from 1 January2012 for two years).

Capital gains arising on the disposal ofshares are only taxable if the company holdsimmovable property that is situated in Cyprus(at a rate of 20%).


Cyprus is widely used for investment into Russia and Eastern Europe owing to very favourable treaty provisions.

Anti avoidance legislationCyprus does not have detailed transfer pricingrules, although transactions between connectedparties should be on an arm’s length basis.

Cyprus does not have any CFC (orequivalent) legislation. However, the availabilityof the dividend exemption may be restricted ifthe paying company is in a lower tax regime (ieless than 5% tax rate) or if the foreign companypaying the dividend relates to more than 50% toinvesting activities.

It is possible for companies to obtainadvanced rulings from the Cypriot taxauthorities on the treatment of complex taxissues. These can usually be obtained in less than three weeks, but are not compulsory.

VATThe standard rate of VAT in Cyprus is 17%. A reduced rate of 8% is applied to transport,accommodation and restaurants, while a 5%rate applies to pharmaceuticals, bottled non-alcoholic drinks, sweets and entry fees tocultural events.

Withholding taxes (WHT)Cyprus does not impose WHT on interest ordividends payable to non residents.

The domestic rate of WHT on royaltypayments to non residents for the use ofroyalties in Cyprus is 10% (other than filmroyalties on which a 5% WHT applies). Anexemption is available for royalties payable toEU countries (where certain requirements aremet) and reduced rates of WHT apply onroyalties to certain treaty countries.

Double tax agreementsCyprus has more than 46 agreements in effect,although it does provide a credit system forforeign tax suffered even where no treaty is inplace.

Foreign shareholdersThere is no Cypriot tax for foreign shareholderson the disposal of shares in a Cypriot company.

IP regimeLegalCyprus offers legal protection and recognition,broadly based on EU law, for patents,intellectual property and trademarks.

IP rulesIP amortisation is tax deductible over five years.80% of any income generated from theexploitation of the IP is exempt from taxation. 80% of any profit generated from the disposalof IP is exempt from taxation.

R&D rulesAlthough there is no specific R&D tax regime atax deduction is available for revenue scientificexpenditure and capital expenditure may beamortised over six years.


Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedin Cyprus, on a progressive scale from 0% to35%.

Various personal expenses are allowed as adeduction for tax purposes including lifeinsurance premiums, social insurancecontributions, approved provident fundcontributions, approved medical schemecontributions, professional subscriptions andapproved charitable donations.

Social security contributionsEmployee social security contributions arepayable at 6.8%.

Expatriate rulesExpatriates are entitled to an income taxexemption for the lower of 20% of emolumentsand €8,550 per annum for the first three yearsof employment in Cyprus. Expatriates earningover €100,000 per annum are entitled to a 50%exemption for a period of up to five years(applicable from 2012.)

Corporate set upCostCompany set up costs start at around €2,500and can take up to two weeks.

Corporate entityThe most common type of corporate entity is aprivate limited liability company, for whichthere is no minimum share capital requirements.

A Cypriot company can be established withonly one shareholder and one director but acompany secretary, who is not a sole director,must also be appointed.


Cyprus has one of the lowest corporate tax rate in the EU and its tax

regime is relatively simple. There are new IPrules that make it attractive for both holding

and IP holding companies.


Hungary key factsInvestment climate• local currency HUF (Hungarian Forint)• EU member• high percentage of skilled/semi-skilled labour,including technical personnel.

Quality of living• excellent civil liberties• very clean living• relatively low cost of living.

Hungary

Hungary is recognised as a holding companylocation primarily due to its relatively low wagecost and attractive tax regime. Its low headlinecorporate tax rate of 10/19% lends itself easilyto a favourable holding company location, asdoes a low income tax rate, a participationexemption in terms of dividends, and anattractive IP regime, where capital gains on IPare exempt and income taxed at 5%/9.5%.

As a land-locked state bordering a numberof Eastern European countries, includingRomania, Ukraine, Slovakia, Croatia and Serbiait is well located to access these countries.Hungary has some natural resources and thearable land is widely used for viticulture,producing wine that is enjoyed globally. It is also a significant exporter, with its mainmanufactured exports including electric andelectronic equipment, foodstuffs and chemicals.

The private sector accounts for more than80% of Hungary’s GDP and foreign ownershipin Hungarian films is widespread.

Hungary has a relatively low cost of livingand one of the biggest constraints in growth isits economic climate, having turned to the EUfor support loans on a number of occasions,although this has significantly improved overthe last few years.

Hungary’s low corporate tax rate andfavourable IP regime makes it an attractive

location for holding companies.

Holding companyCorporate taxationThe effective headline rate of corporate tax inHungary is 19% where taxable profits exceedHUF 500 million (€1.7million), otherwise taxedat 10%.

Stamp taxes and other capital dutiesThere is no capital duty or stamp dutyapplicable on the transfer of shares in Hungaryunless the shares being sold hold Hungarian real estate.

Exemption from Hungarian corporation taxA full dividend exemption is available ondividends received by a Hungarian companyunless received from a CFC.

Capital gains on the disposal of shares areexempt (if at least 30% of shares are held for an uninterrupted period of one year and theacquisition of shares is notified to theHungarian tax authorities) provided that theinvestee company is not considered to be a CFC (see below).

Anti avoidance legislationHungary has transfer pricing rules whichrequire related party transactions to beconducted at arm’s length. All related partytransactions over HUF 50 million (€170,000)must be documented for transfer pricingpurposes and advance pricing agreements areavailable.

In addition, there are thin capitalisationrules and where the debt:equity ratio exceeds 1:3 the interest exceeding this ratio will bedisallowed.

Hungary has CFC legislation, and a foreigncompany is considered to be a CFC if there is aHungarian individual holding shares for themajority of the days in a tax year or the majorityof the foreign company’s income derives fromHungary and it is taxed at a rate less than 10%.Foreign companies incorporated in the EU or inan OECD or treaty country are not consideredto be a CFC if they have real economic presencein that country.

It is possible for companies to obtainadvanced rulings from the tax authorities on thetreatment of complex tax matters. These are notcompulsory but are binding.

VATThe standard rate of VAT is 27%. A reducedrate of 5% applies to medicine, aides for blindpeople and books, newspapers and music scores,supply of live music in restaurants and supply ofheating services. A reduced rate of 18% appliesto some basic foods, accomodation and outdoorconcerts.


Withholding taxes (WHT)There is no WHT on dividends paid tocorporates, although dividends to individualsare subject to 16% WHT. This may be reducedwhere paid to individuals resident in countriesthat have a double tax agreement with Hungary.

There is no WHT on interest paid tocorporates, although interest paid to individualsare subject to WHT at 16%. Reduced rates ofWHT apply on interest paid to individualresidents of most treaty countries.

There is no WHT applied on royaltypayments to corporates, although royalties toindividuals are subject to WHT at a rate of 16%.Reduced rates of WHT apply on royalties toindividual residents of most treaty countries.

Double tax agreementsHungary has more than 65 agreements in effect.

Foreign shareholdersThere is no Hungarian tax payable by foreignshareholders on the disposal of shares in aHungarian company. There is a 19% capital gaintax on the sale of shares in Hungarian real estatecompanies if the foreign shareholder is residentin a non-treaty country or the treaty givestaxing rights to Hungary.

IP regimeLegalHungary offers a good level of legal protectionand recognition, broadly following EU law, forpatents, trademarks, copyrights and industrialdesign and models.

IP rulesThe IP regime includes patents, patent rights,trade marks and copyrights.

Under the regime, 50% of the royaltyincome relating to qualifying IP assets isdeductible from the tax base resulting in aneffective tax rate of 5% for profits less thanHUF 500 million (€1.7million) and 9.5%thereafter. The deduction cannot exceed 50% ofthe accounting profit. In addition, amortisationis deductible over the useful economic life,resulting in a low effective tax rate.

From 2012, there is an exemption fromcapital gains on the disposal, on notified IP. This is where IP has been held for at least oneyear and the tax authorities were notified of theacquisition within 60 days of obtaining the IP.

R&D rulesThere are no specific R&D tax incentives.


Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedat a rate of 16%. For income exceeding HUF 2.4 million (€8,000) there is a tax basesupplement which results in an effective rate of20.32%.

Social security contributionsEmployers’ social security contributions arepayable at 27%. Employees pay 8.5% healthand unemployment contribution and 10%pension contribution capped at c. €27,500(HUF 7.9 million).

Expatriate rulesExpatriates are subject to Hungarian tax on theportion of income attributable to working inHungary.

Corporate set upCostCompany set up costs start at around HUF500,000 (€1,730) and take around one month.

Corporate entityThe most common type of corporate entity is aKft, a limited liability company but otheralternatives are a Zrt, private company limitedby shares, and a Nyrt, a public company limitedby shares.

The minimum share capital for a Kft iscurrently HUF 500,000 (€1,730).

There are no requirements or limits on thenumber of shareholders or local management.


Whilst Hungary does not have a specific R&D tax regime, its low effective rate in respect of IP of 5%/9.5% means that it is often considered for a group IP company.


Ireland key factsInvestment climate• local currency Euro (€)• relatively stable political environment• respected regulatory regime.

Quality of living• advanced IT and telecommunications

infrastructure• improvements being made to transport

infrastructure• high standard of education• english speaking with access to multilingual

skills• large population of foreign nationals.

Ireland

As a member of the EU, with a young and highlyeducated workforce, Ireland has a wider draw as aholding company location than just its tax regime.

Ireland’s low tax rate, dividend exemption,limited transfer pricing and lack of CFC rulesmeans that it is an attractive holding companylocation. In addition, there have been a numberof high profile companies relocate theirheadquarters to Ireland in the past few years.

Key sectors in which Ireland has built up aconcentration of expertise are manufacturing,pharmaceuticals, medical devices, technology,software and financial services.

Ireland is very attractive for groups lookingfor tax efficient financing structures, such asinterest free loans via intermediary locationsincluding Luxembourg or the Netherlands.

The cost of living in Ireland was relativelyhigh in the past but has reduced over the last fewyears with recent incentives for foreign executives.

One of the key draws as an IP holdingcompany location is the potential effective rate oftax on IP related income of 2.5% (after deductionof tax depreciation) – which is one of the lowestin Europe. Ireland’s R&D tax regime works wellfor groups moving to Ireland and also offersadvantages for groups already located in Ireland.

Holding companyCorporate taxationThe standard rate of corporation tax in Irelandis 12.5% for trading activities, includingdividends from trading companies. Passiveincome such as interest, rents and royaltyincome (where it is not regarded as beingtrading income) is taxable at 25%.

Stamp taxes and other capital dutiesThere is no stamp duty on the issuance of shares.However, there is stamp duty of 1% on thetransfer of shares but group relief is available.

Exemptions from Irish corporate taxWhilst there is no dividend exemption, thecredit system operating in Ireland means thatdividends received from a jurisdiction with ahigher rate of corporate tax than is applied inIreland are effectively exempt. Any unrelievedforeign tax credits can be used to credit otherforeign dividends received.

Capital gains arising on the disposal ofshares in EU or relevant treaty countrycompanies are exempt where those sharesrepresent at least 5% of the shares in a tradingcompany and have been held for a period of 12 months out of the previous two years.

Anti avoidance legislationIreland has recently introduced limited transferpricing rules which require related party tradingtransactions to be conducted on an arm’s lengthbasis. Interest on connected party loans isoutside these rules. There is also an exemptionfor small and medium sized enterprises.

Ireland does not have any CFC (orequivalent) legislation.

It is possible for companies to obtainadvance opinions from the Irish tax authoritieson the treatment of certain tax matters. They arenot compulsory and can be relatively cheap toobtain.

VATThe standard rate of VAT is 23%. A reducedrate of 13.5% applies to fuel for power andheating, electricity and gas and a 9% rate appliesto hotel accomodation, hotel and restaurantmeals, newspapers, admissions to cinemas andcertain live theatrical and musical performances.


Ireland is an attractive holding company jurisdiction. Tax on

IP related income can be as low as 2.5%, andits R&D tax regime works well for groups

moving to Ireland.

Ireland is favoured by high tech, pharmaceutical and

manufacturing companies. Examplesinclude Apple, Oral B, Dell, Microsoft

and Hewlett Packard.

Withholding taxes (WHT)The domestic rate of WHT applied ondividends is 20%, although there is no WHTapplied on dividends to EU or treaty countries.

The domestic rate of WHT on annualinterest payable is 20%. An exemption isgenerally available on interest payable to EU or treaty countries subject to certain conditionsbeing met.

The domestic rate of WHT on patentroyalty payments is 20%. An exemption isgenerally available on patent royalties payable to EU or treaty countries subject to certainconditions being met. Patent royalty paymentsto non treaty countries can also be made free ofWHT, subject to certain conditions being met.

Double tax agreementsIreland has more than 65 agreements in effect.

Foreign shareholdersThere is no Irish tax payable for foreignshareholders on the disposal of shares in an Irishcompany unless the shares derive their valuefrom specified assets such as Irish land andminerals.

IP regimeLegalIreland has a robust legal framework, based on EU legislation, for the protection of IPincluding patents, copyrights, trademarks,computer software and industrial designs andmodels.

IP rulesThe IP regime includes most intangible assets(including software and goodwill). To qualifythese assets must be used in active trade.

Under the regime, IP amortisation is taxdeductible in line with the accounting treatment.Alternatively, an election can be made to spreadthe expenditure over a 15 year period in theform of an allowance. Amortisation is based onthe market value of the asset, even when it isacquired from a connected party.

Income arising from qualifying IP can be offset by the amortisation or the electedallowance (as above) and also finance costs ofacquiring that IP. The deduction for interest andamortisation is capped at a maximum of 80% ofthe trading income derived from that IP. Thiscan result in an effective tax rate of 2.5%.

Capital gains arising on the disposal of IPare subject to tax at the standard rate of 30% but deferral options may be available.

R&D rulesA 25% tax credit is available on qualifyingR&D expenditure (both capital and revenue) inaddition to a deduction for the revenue expense.The credit can be reclaimed as a cash refund,although this is capped at the higher of payrolltaxes paid in the year or corporation tax paid inthe last 10 years.


Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedin Ireland, on a two tier system of income taxrates starting at 20% up to €32,800 and 41% onincome exceeding €32,800.

Social security contributionsEmployee social security contributions arepayable up to 4%. A universal social charge isalso payable on gross income from all sources.The rates are 2% on the first €10,036, 4% onthe next €5,980 and 7% thereafter. A rate of10% applies to individuals who have incomefrom self employment income that exceeds€100,000 a year.

Expatriate rulesTax free subsistence payments are possible forsecondments in certain circumstances and thereare incentives for high paid expatriates.

Corporate set upCostCompany set up costs start at circa €800 andcan take up to 10 days.

Corporate entityThe most common type of company is a limitedcompany, for which there are no minimumshare capital requirements.

An Irish limited company can have aminimum of one shareholder, although at least two directors (one being EEA resident) and acompany secretary are required.


Top planning tip: By transfering existing group IP to an Irish company the allowances on the IP in Ireland are

calculated on the market value at the time of acquisition (even if transferred

from a connected party).


Luxembourg key factsInvestment climate• local currency Euro (€)• stable economy• very stable political environment with a pro-

business government• access to a pool of highly skilled,

hardworking, multilingual employees.

Quality of living• neutral country considered one of the safest

in Europe• low crime• very good infrastructure• high standard of education.

Luxembourg

Luxembourg has long since been a favouredholding company location. A member of theEU, it is a neutral country, which is very stablepolitically and with a very high quality of living fora reasonable cost. Luxembourg is renowned as asafe country, encouraging high calibre expatriates.

Luxembourg’s government understands theneed for a close working relationship withbusinesses and the resilient stable tax regimeoffers groups certainty about the tax system.

Despite its high headline tax rate (ie 28.8%for businesses established in Luxembourg Cityin 2012), there are a number of deductionswhich can significantly reduce the effective taxrate. In addition, its dividend exemption,exemption for capital gains and nil WHT oninterest and royalties, together with its flexiblecompany law which allows partial liquidations,mean that there are tax benefits of locating here.

Companies based in Luxembourg also haveaccess to a highly qualified workforce, not justLuxembourgers, but those from France, Germanyand Belgium, as commuting is widespread.

Luxembourg is known for financial andlogistics/transport companies, although morerecently it has attracted a number of hightechnology companies.

Holding companyCorporate taxationTax is levied at both the statutory level and themunicipal level. For a company based inLuxembourg City, the total effective tax ratewould be 28.8%.

Stamp taxes and other capital dutiesThere are no stamp taxes applied on the issuanceor transfer of shares.

There is an annual net wealth tax of 0.5% on all non-qualifying assets, such as cash orreceivables as at 1 January of any given year.However, qualifying participations (as set outbelow) and IP held by a Luxembourg holdingcompany are not included in the calculation ofnet wealth tax.

Exemptions from Luxembourg corporate taxA full dividend exemption is generally availableon dividends received from qualifyingshareholdings. The conditions to qualify areshareholdings of at least 10% of the share capital(or an acquisition price of at least €1.2 million)and shareholdings which have been held for atleast 12 months.

Capital gains arising on the disposal ofshares are exempt where those shares representat least 10% of the share capital or if theacquisition price is at least €6 million and theshares have been held for at least 12 months.

Anti avoidance legislationLuxembourg has introduced transfer pricingrules limited to financing activities within intra group companies. Domestic related partytransactions fall outside these rules.

It is possible for companies to obtain anadvanced tax agreement from the Luxembourgtax authorities on the treatment of certaincomplex tax matters. These are not compulsoryand can be costly. Advanced tax agreements arecommonly obtained for financing or IPstructures.

VATThe standard rate of VAT is 15%. A reducedrate of 12% applies to management services, 6% to gas and electricity and 3% for food,medical treatment and books and newspapers.


The IP regime offers a low effective tax rate on income and gains,

with low VAT rates (15%). R&D investmenton acquired IP and self developed patents andtrademarks is encouraged by the availability

of an 80% notional deduction.

The favourable IP rules have encouraged high tech companies

to hold and develop IP here. Examplesinclude CVC Capital Partners,

Skype and eBay.

Withholding taxes (WHT)Dividends paid from Luxembourg are subject to WHT at 15%, reduced to nil for paymentsmade to a company resident in the EU or in thevast majority of countries with which it has adouble tax agreement.

There is no WHT on interest or royaltypayments.

Double tax agreementsLuxembourg has more than 60 agreementscurrently in effect.

Foreign shareholdersThere is generally no Luxembourg tax payableby foreign shareholders on the disposal ofshares in a Luxembourg company.

IP regimeLegalLuxembourg offers good legal protection andrecognition for patents, trademarks, copyrightsand industrial designs and models.

IP rulesThe IP regime applies to many registeredintangible assets (including patents andtrademarks) acquired or developed after 31 December 2007.

100% amortisation is available on themarket value of IP, even when transferred intra group.

Under this regime, there is an 80%exemption on the net royalty income arisingfrom qualifying IP. In calculating the netroyalty, a deduction is available for amortisationand other directly related costs. This results in amaximum effective tax rate of 5.76%.

On disposal of the qualifying IP, 80% of thecapital gains realised are exempt from tax.

R&D rulesThere is a deemed deduction in relation to selfdeveloped patents, trademarks or copyrights onsoftware used in the company. This notionaldeduction is calculated as 80% of the net incomethat would have been received if the patent,trademark or copyright had been licensed to athird party.

Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedin Luxembourg, on a progressive scale from 0%to 39%. In addition, a solidarity tax is payable at4% of the calculated income tax due.

There are general deductions allowable indetermining an individual’s taxable income forboth business and private purposes such as lifeassurance and health insurance premiums,childcare costs, loan interest and personalpension contributions.


Social security contributionsEmployee social security contributions arepayable at 12.45%.

Expatriate rulesFrom 1 January 2011 there is a special taxregime for expatriates. The regime only appliesto highly skilled expatriates and provides for taxrelief in respect of certain relocation expensesincurred. A written application must besubmitted to the Luxembourg tax authoritiesand if the relevant conditions are met theLuxembourg tax authorities will confirm thatthe regime applies.

Corporate set upCostCompany set up costs start at around €6,500including notary fees, and the process can takeless than a week.

Corporate entityThe most frequently used company form is aSARL, which has a minimum share capitalrequirement of €12,500. This can be set up with only one shareholder and requires theappointment of one manager (with no resident or nationality requirements).

Other companies used are SAs (publiclimited companies) and SCAs (equivalent of a partnership limited by shares).

SAs can be set up with a minimum of one shareholder but require a minimum of three directors with no residence or nationalityrequirements. The minimum share capitalrequirement is €31,000.



Malta key factsInvestment climate• local currency Euro (€)• politically and economically stable• access to a productive workforce.

Quality of living• very low crime• good weather• reasonably priced international schools• relaxed pace of life.

Malta has a high headline tax rate but the taxrefund system and some relatively simpleplanning can significantly reduce the effectiverate. Malta has a participation exemption inrespect of dividend income and capital gainsfrom a qualifying subsidiary and any overseastax suffered by a Maltese company would

Malta

generally be eligible for relief against the Maltatax liability arising on the corresponding sourceof income. In addition, the absence of transferpricing and CFC rules attract groups to locatetheir holding companies in Malta.

Located in the Mediterranean, midwaybetween Europe and Africa, its local currency isthe Euro. The Maltese workforce are educatedand very hard working.

Malta relies on foreign trade and given itslocation this is mainly with the EU, Asia and theUS. Its economy is dominated by tourism,manufacturing, technology and finance.

For expatriates, the living costs in Malta areone of the lowest in Europe, and theinternational schools reflect this low cost ofliving. In addition, the good climate and relaxedpace of life make it an attractive place forexpatriates and their families.

Malta has one of the lowest taxation regimesfor IP, with a 0% rate for patent royalty incomefrom inventions and copyright-protected books,film scripts, music and art, and 5% for otherroyalty income actively used in the trade.

Holding companyCorporate taxationThe standard rate of tax in Malta is 35%. Arefundable tax credit is available as follows:• full refund for dividends from participating

holdings• 6/7ths for income and dividends from active

companies• 5/7ths for dividends from passive income or

royalty income• 2/3rds where Double Tax Relief is claimed.

Interest expenses related to the financing for theacquisition of participations can be offset againstdividend income and capital gains derived fromthe particular participation being financed.

Indirect taxationThere is a 2% duty on the transfer of shares. Anexemption is available if 90% of the company’sbusiness activities are overseas.

Exemptions from Maltese corporate taxA full dividend exemption is generally availableon receipt of dividends where the holding is atleast 10%. Broadly, for the exemption to apply,the paying company must either be EU taxresident, or have at least 50% of its income fromtrading activities, or be subject to a tax rate of atleast 15% (5% in the case of passive interest androyalties), in its own jurisdiction.

Capital gains arising on the disposal ofparticipating holdings in both foreign and localcompanies are exempt.

Malta has recently introduced a full taxsparing regime. Under that regime if an overseassubsidiary benefits from tax holidays in thecountry in which it is resident, any dividendsdistributed by this company to its Malteseparent are exempt from any taxation in Malta, as the participation exemption will apply.Furthermore, it is also possible to structure thereceipt of tax-free dividends from subsidiariesestablished in tax havens.


The widely applicable domestic and international participation

exemption and the very favourable IP regimemake Malta attractive as a location for holding

company or IP holding companies.

Malta is particularly good for gaming and technology

companies. Examples include Betsson, Unibet and GFI

Software.

Anti avoidance legislationMalta does not have any transfer pricing rules orCFC (or equivalent) legislation.

It is possible for companies to obtain anadvance ruling from the Maltese tax authoritieson the treatment of specific tax matters. Inlimited circumstances these are compulsory.

VATThe standard rate of VAT is 18%. A reducedrate of 7% applies to accommodation and a rateof 5% to electricity, sweets, medical accessories,books and newspapers and art. Zero-ratedgoods include gold, food and pharmaceuticals.

Withholding taxes (WHT)There is no WHT payable on dividends, interestor royalty payments to non residents.

Double tax agreementsMalta has 55 agreements currently in effect anda further 8 are awaiting ratification.

Foreign shareholdersThere is no Maltese tax payable for foreignshareholders on the disposal of shares in aMaltese company.

IP regimeLegalMalta offers a high level of legal protection, inline with international protocols, for patents,copyrights and trademarks.

IP rulesThe IP regime applies to registered IP includingpatents, copyrights, trademarks and writtenknow how.

Under the regime, royalties and similarincome derived from registered patentedinventions are exempt from tax.

The rate of tax for other royalties dependson whether they are actively used in the trade orpassively held. Income from ‘trading’ IP iseffectively taxed at 5%, whilst that from‘passive’ IP is taxed at 10%.

The tax treatment of IP amortisationdepends on whether it is capital or revenue. Ifrevenue (ie it is recurring), it is tax deductible inline with the accounts. If capital, this isdeductible straight line over three years for IPrights, six years for scientific research and overthe useful economic life for patents.

Capital gains in respect of IP are taxed at aneffective rate of 5%.

R&D rules The R&D regime provides for tax relief of150% of qualifying R&D expenditure if theactivity is undertaken by the company.


Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedin Malta, on a progressive scale from 15% to35%.

Highly qualified non-Malta domiciledindividuals employed in an eligible office withina Malta Financial Services Authority orLotteries and Gaming Authority licensedcompany, having an annual income in excess of€75,000, may benefit from a flat personal taxrate of 15%.

Furthermore, this 15% flat personal taxstatus is also available for high net worthindividuals (subject to certain conditions beingsatisfied) applicable on foreign income remittedto Malta subject to a minimum annual amountof €20,000 (and €2,500 for every dependant)for EU, EEA and Swiss nationals and €25,000(and €5,000 for every dependant) for non-EU/EEA/Swiss nationals, after double taxationrelief.

Social security contributionsAn amount equivalent to 10% of the weeklywage (up to a maximum of €1,840 per annumfor 2011) is deducted from the employee’s salaryand an equivalent amount is payable by theemployer. EU citizens may be exempt from thepayment of social security contributions if theyare in Malta on a temporary basis and paystatutory contributions in their home country.

Expatriate rulesExpatriates are only taxed in Malta on theirMaltese sourced and remitted income.

Corporate set upCostCompany set up costs start at around €2,000(including share registration fees) and can becompleted in less than a week.

Corporate entitiesThe most frequently used company form is thePrivate Limited Liability company which has aminimum share capital requirement of €1,165.This company must be owned by a minimum oftwo shareholders but only requires one directorand a company secretary. It is also possible tohave a private exempt single member company.


Top planning tip: By using a non-domiciled tax resident Maltese company, income is only taxed on a

remittance basis. Use of an offshore bankaccount can therefore result in a very

low effective tax rate.


The Netherlands key factsInvestment climate• local currency Euro (€)• stable economy• politically stable with a pro-business government• access to a pool of highly skilled,

hardworking, multilingual employees• robust labour laws can become onerous for

companies employing 50 or more employees.

Quality of living• consistently outranks many of its EU counterparts

for quality of living and attracting talentedforeigners and developing highly qualified staff

• low crime• excellent infrastructure especially transport• high standard of education.

The Netherlands

The Netherlands is a popular holding companylocation mainly driven by commercial reasons asthe country is central to, and has good connectionswith, Europe (and the rest of the world). Thehigh headline tax rate is balanced by the dividendexemption, the capital gains tax exemption ondisposal of shares and the absence ofcomprehensive CFC rules.

Further, the Netherlands is often used as alocation to set-up license and finance companiesdue to the absence of WHT on interest androyalty payments and the extensive tax treatynetwork. Due to the scarcity of naturalresources and raw materials and the small size ofthe domestic market, the Netherlands is seensomewhat as a ‘processing economy’ with themanufacturing sector being dependent onimported materials. Major export industriesinclude oil and gas, chemicals, electronics, officeequipment, telecommunications, pharmaceuticals

and food. It also has a sophisticated and growingfinancial services sector.

There is a large pool of highly skilled,hardworking, multilingual employees andforeign businesses find it easy to integrate due to the very open culture.

For expatriates, the Netherlands offers ahigh quality of living at a reasonable cost and afavourable expatriate tax regime is available.

Holding companyCorporate taxationThe standard rate of corporation tax in theNetherlands is 25% (with a 20% rate applyingto profits up to €200,000). In principle, a taxdeduction is available for interest on loans toacquire subsidiaries although certain interestdeduction limitations might be applicable.

Due to the absence of Dutch WHT oninterest and royalty payments, the Netherlandsis often used for routing international debtfinancing and licensing activities. The Dutchfinance/license company will only be subject toa small level of taxation on the spread which canbe agreed upfront with the Dutch taxauthorities.

Stamp taxes and other capital dutiesThere is no capital duty or stamp dutyapplicable in the Netherlands.

Exemption from Dutch corporate taxA full dividend exemption is available ondividends from shareholdings of at least 5%with no holding period requirement.

Capital gains arising on the disposal ofshares are exempt where those shares were partof a holding of at least 5% of the company withno holding period requirement.

The above exemptions generally apply tothe disposal of shares in active companies and in certain circumstances, passive investmentcompanies if they are subject to a rate of 10%taxation. Real estate companies are alwaysconsidered to be active companies subject to theDutch participation exemption even if they arelocated in low tax countries.

Anti avoidance legislationThe Netherlands has transfer pricing rules,which require all related party transactions to be conducted on an arm’s length basis.

There is some legislation regarding taxhavens, but there is no comprehensive CFC (or equivalent) legislation.


Top planning tip: Use a Cooperative (‘COOP’) entity as a

holding company, where shareholders are resident outside the EU. In certain

circumstances, distributions can then bemade to shareholders without the

deduction of any WHT.

It is possible for companies to obtainadvanced rulings from the Dutch tax authoritieson the treatment of complex tax matters. Theyare not compulsory and are generallymoderately priced.

A company can obtain an advance tax ruling(ATR) or an advance pricing agreement (APA),the aim being to attract international investorsto the Netherlands by providing them withcertainty about their future tax position.

An APA provides certainty in advance ofthe fiscal acceptability of the price (transferpricing) that the Dutch group company pays toor receives from a foreign group company forreceiving or delivering services or goods.Whereas an ATR is an agreement on the taxcharacterisation of international corporatestructures, such as certainty in advance on theapplication of the participation exemption.

VATThe standard rate of VAT is 21% (from 1 October 2012). A reduced rate of 6% appliesto food, books, medicines, magazines, transportand accommodation. Some services such asfinancial and medical are exempt from VAT.

Withholding taxes (WHT)The domestic rate of WHT applied ondividends is 15%. An exemption is available ondividends paid to companies in EU countriessubject to certain conditions being met andreduced rates of WHT apply on dividends tocertain treaty countries. On an internationallevel, the WHT can be reduced to zero bymaking use of a coop entity.

There is no WHT on interest and royaltiespayable to non residents.

Double tax agreementsThe Netherlands has more than 110 agreementsin effect.

Foreign shareholdersIf certain specific conditions are fulfilled, there isno Dutch tax payable for foreign shareholderson the disposal of shares in a Dutch company.

IP regimeLegalThe Netherlands offers good legal protectionand recognition for patents, trademarks,copyrights and industrial designs and models.

IP and R&D rulesThe ‘innovation box’ regime offers generous IP and R&D tax relief for intangible assets of a technical nature (this includes IP, R&D andknowhow but excludes goodwill andtrademarks).

The innovation box regime is optional and a group may elect for assets to be included,although once elected, the asset must stay in the regime until sold.

Under the regime, income and gains of thequalifying assets are effectively taxed at 5%.

IP amortisation is tax deductible.Income and capital gains in relation to IP

outside the regime will be taxed at the headlinerate of 25%.

In addition to the innovation box, a companycan obtain a substantial reduction in the level ofpayroll tax and social security contributions inrespect of technical employees, subject to certaincriteria being met.

In the 2012 tax reform, a new tax incentivewas introduced, the research & developmentdeduction ( RDA). The RDA applies to costsincurred for, and investments made in, R&Dincurred after 31 December 2011.


Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedin the Netherlands, on a progressive scale up to52%, inclusive of social security contributions.

Benefits in kindGenerally certain benefits can be provided on atax efficient basis including child carearrangements, company car, cost of livingallowance, schooling, housing, medicalexpenses, relocation expenses and pensionarrangements.

Expatriate rulesIf all relevant conditions are met, 30% of grossincome may be paid out without being subjectto income tax. This results in an effective rate ofincome tax (and social security contributions)for expatriates of 36.4%.

Expatriates may also be entitled to specialdeductions for relocation related expenses.

Corporate set upCostCompany set up costs start at €3,500 and cantake up to two weeks.

Corporate entityThe most common type of company in theNetherlands is a BV. However, COOPs areoften used for international tax structuring forthose wishing to distribute profits outside theEU without WHT (if certain conditions arefulfilled).

For a BV, the minimum share capitalrequirement is €18,000, it is permitted to haveonly one shareholder and there are no directorrequirements.


For IP, the newly extended innovation box regime, offers groups a

very competitive tax regime for technical IP. By electing into the regime, income and gains

from qualifying assets are effectively taxed at 5%.

Examples of companies headquartered in the Netherlands

are BHP Billiton, Nike, Ikea and Coca Cola.


Spain key factsInvestment climate• local currency Euro (€)• respected regulatory regime• skilled and semi skilled labour, including

technical and professional personnel, widelyavailable.

Quality of living• good weather• relaxed pace of life.

Spain

Culturally and linguistically, Spain is considereda strategic location for accessing Latin America,and its favourable treaty network with thesecountries further its attraction for investing inLatin America.

Although Spain has a relatively highcorporation tax rate, it has a good holdingcompany regime which offers a participationexemption for dividends and capital gains and a good treaty network.

Spain’s economy is largely serviceorientated, with services accounting for morethan 66% of its GDP. It has a moderncountrywide infrastructure in terms of transportand also wireless technology. Spain’s mainindustries are tourism, manufacturing,construction and real estate.

The quality of life in Spain is very good andthe cost of living is low compared with manyother European countries and therefore it can be a desirable location for expatriates.

In terms of IP, Spain has a favourable R&Dtax regime which offers generous tax creditsand, together with the IP exemption regime, acompany may be able to obtain a low effectivetax rate on its IP income.

Holding companyCorporate taxationThe standard rate of corporation tax in Spain is30% for trading activities, although a tax creditof 12% is available if proceeds from the disposalof assets are reinvested in qualifying assets.

Stamp taxes and other capital dutiesThere is no capital duty or stamp dutyapplicable in Spain from 1 January 2011.

Exemptions from Spanish taxIf a company qualifies as a Spanish holdingcompany, an ‘ETVE’, it is exempt from Spanishcorporate tax on foreign-source income,including dividends, that it receives and thecapital gains it realises on the sale of foreignparticipations if certain conditions are met.

The conditions include a shareholding of atleast 5% of shares (or a participation acquisitionvalue over €6 million) is held for the previous12 month period.

For an entity to qualify as an ETVE, it musthold shares in overseas subsidiaries and notifythe Spanish Tax Authorities.

Anti avoidance legislationSpain has CFC legislation that applies wherethere is a 50% shareholding and the effective taxrate of the non-resident is less than 75% of theSpanish tax rate.

There are also anti avoidance rules regardingdividends and capital gains from subsidiariesresident in tax havens.

As from March 2012, thin capitalisation rulesin Spain have been replaced by a generallimitation on the deductibility of gross financialexpenses. The new rules allow a deduction up to30% of the operating profit of the fiscal year(earning-stripping rule), although financialexpenses will be 100% deductible up to €1 million. This limitation will apply for theindebtedness from non EU companies, EUcompanies and Spanish companies, regardless of whether the companies are related entities(although there are a number of exceptions to the application of the rule).

VATThe standard rate of VAT is 21%. A reduced rateof 10% applies to newly built properties, hotels,restaurants and entertainment and a 4% rateapplies to food, newspapers and books. Financial,insurance and medical services are exempt fromVAT.

Withholding taxes (WHT)An ETVE can distribute to its non Spanishresident shareholders (without a permanentestablishment in Spain), the profits that resultfrom receipt of foreign exempt income, asdescribed above, free of any Spanish WHT.

The domestic rate of WHT on annualinterest payable is 21%. This rate may bereduced to 0% under the EU parent subsidiarydirective and this rate can also be reduced undertreaties.

The domestic rate of WHT on royaltypayments is 24.75%. This rate may be reducedto 0% under the EU parent subsidiary directive.This rate can also be reduced with certain treatycountries.

Double tax agreementsSpain has more than 80 agreements in effect.

Foreign shareholdersA capital gain realised on the liquidation of anETVE or on the sale (fully or partly) of thecompany will be tax exempt. Any part of theconsideration which relates to Spanishsubsidiaries would not be exempt.


IP regimeLegalSpain offers a high level of legal protection andrecognition for patents, trademarks, knowhow,goodwill, copyrights and industrial design andmodels.

IP rulesThe IP regime applies to many registeredintangible assets. Companies can benefit froman IP tax exemption of 50% of the revenuesarising from the right to use certain qualifyingIP rights. Such qualifying IP includes patents orinformation concerning industrial, commercialor scientific experience. Royalties from anyother source are excluded from this incentive. In addition there is a 100% deduction of thedevelopment costs of any IP.

This incentive is compatible with the R&Dtax credit, so that in many situations bothincentives can apply at the same time.

R&D rulesSpain has an R&D regime under whichcompanies can obtain a deduction of between25% and 42% of the R&D expenditure in a taxyear. If the R&D expenses incurred in a yearexceed the average amount of expenses in the

previous two years, the 25% rate applies to theaverage rate and the 42% rate applies to theexcess.

An additional credit of 17% of the costsrelating to payroll of the staff exclusivelyassigned to R&D activities is available, as well as a deduction of 8% for tangible assets usedexclusively within the R&D activity.

Expatriate issuesIncome taxIndividuals are taxed on all earned income andpassive income and rates are progressive from24% to 56%. Savings income is taxed at 21%,25% and 27%.

Social security contributionsEmployees pay social security at 6.35%.

Expatriate rulesSpain has a special regime for expatriates assignedto Spain as a consequence of an employmentcontract.

Expatriates eligible for this regime are onlytaxed on income obtained in Spain, and this istaxed at a 24% flat rate.


Due to its holding company regime and a strong treaty network Spain is

commonly used as a location for investmentsinto South America.

Corporate set upCostCompany set up costs start at circa €1,000 andcan take up to two weeks.

Corporate entityThe most common entity in Spain is an SL(limited liability company). For a SL theminimum share capital requirement is €3,000.


Switzerland key factsInvestment climate• local currency – Swiss Franc (CHF)• economic and political stability• free movement of persons agreement in place

with a number of EU countries allowing thoseworkers to have the same rights as a Swiss Citizento live and work.

Quality of living• low crime• good infrastructure in terms of roads, airports

and energy • numerous languages spoken• high standard of public education, with very

good schools available for expatriate families • picturesque.

Switzerland

Switzerland is a highly recognised Europeancommercial holding company location given itsstable currency and political conditions.Although Switzerland has a complex tax system,its low corporate and personal tax rates,excellent treaty network and sophisticated workforce mean it is popular as a holding companylocation.

Historically, Switzerland is renowned as afinancial services hub, although other keysectors include manufacturing, pharmaceuticaland consumer business as well as food.

Switzerland is one of the wealthiestcountries in the world and has a very high costof living such that expatriates demand the bestremuneration packages.

It is located at the centre of Europe and hasforged close ties with the EU despite not being amember itself. It has agreements on the freemovement of persons with the EU countries,although work permits are still required. Inaddition, the Switzerland-EU savings directiveprovides Switzerland with access to benefitssimilar to those in the EU parent subsidiarydirective.

Holding companyCorporate taxationCorporate tax is levied at the federal andcantonal level. The effective federal tax rate is7.8% (after deducting income tax in arriving atthe taxable income). The cantonal tax rate variessignificantly and can bring the effective rate oftax between 12.5% and 25% depending wherethe company is located in Switzerland.

For those companies granted holdingcompany privilege, they are exempt fromcantonal taxes and therefore only federal tax ispayable at the effective rate of 7.8%. Holdingcompany privilege only applies for companieswhose primary activity is the holding ofqualifying investments and who have no activetrade or business in Switzerland and two thirdsof their total assets/income are in the form ofsubsidiary investment/dividends.

If a company is granted a mixed companystatus it reduces cantonal tax. Cantonal tax isonly payable on 10-25% of foreign sourceincome such that the total effective tax rate istypically 9-11%. The mixed company status isgranted to companies with predominantlyforeign business activities where at least 80% of revenue and expenses are foreign source.

Stamp taxes and other capital dutiesThere is an annual capital tax on the value ofequity of the Swiss company, the rate of whichdepends on the canton and ranges fromapproximately 0.001% to 0.01%.

Stamp duty at 1% is payable on the initialissuance of shares exceeding the amount ofc.€830,000 (CHF 1 million). Exemptions aregranted for some group reorganisations.

Exemption from Swiss corporate taxA full dividend exemption is generally availablefrom shareholdings of at least 10% with noholding period requirement.

Capital gains arising on the disposal ofshares are exempt where those shares representat least 10% of the share capital and are held forat least one year.


Although Switzerland has a complex tax system, its potentially

low corporate and personal tax rates andexcellent treaty network means it is a

very popular European holding company location.

Switzerland is good for financial services, food and high-end consumer companies.

Examples include Swiss Re, Nestle,Novartis and Rolex.

Corporate informationAnti avoidance legislation Switzerland has transfer pricing rules, whichrequire all related party transactions to beconducted on an arm’s length basis.

Switzerland does not have any CFC (or equivalent) legislation.

It is possible for companies to obtain privaterulings from the Swiss Tax Administration onthe treatment of certain tax matters, but they arenot necessarily required.

VATThe standard rate of VAT is 8% (until 2018). Areduced rate of 3.8% applies to accommodationand 2.5% for food, water, medical products,newspapers, books and magazines. Publichealth, education and social services are exemptfrom VAT.

Withholding taxes (WHT)The domestic rate of WHT applied to dividendsis 35%, although there are significantly reducedrates with treaty countries. In addition, underthe Switzerland-EU savings directive WHT isreduced to 0% on cross border dividendpayments between related EU companiesprovided certain conditions are met.

Under domestic law there is no WHT oninterest payable. However a 35% WHT isapplied to interest derived from deposits withSwiss banks and bonds. This rate can besignificantly reduced under treaties.

There is no WHT payable on royalties.

Double tax agreementsSwitzerland has more than 100 agreements in place.

Foreign shareholdersThere is no Swiss tax payable for foreignshareholders on the disposal of shares

.


Top planning tip: WHT on dividends may be a real barrier to locating

in Switzerland. This can be mitigated with some relatively simple planning, for example

by making payments to shareholders out of a share premium account.

IP regimeLegalSwitzerland offers a high level of legalprotection for all forms of IP including patents,industrial design and models, trademarks andcopyrights.

IP rulesThe IP regime in Switzerland applies broadly toall types of intangible assets, including goodwilland knowhow.

Income arising from this IP is taxed at aneffective rate of 9%-11% (depending on thecanton and subject to agreement with the taxauthorities) providing at least 80% of totalincome and expenses are foreign source income.

IP amortisation is tax deductible, either on astraight line basis (20% of the value each year)or on a reducing basis (40% declining balance).

Capital gains arising on the disposal of IPare taxed at between 9%-25% (depending onthe canton and subject to agreement with the tax authorities).

R&D rulesCompanies can claim an allowance in respect ofqualifying R&D expenditure to third parties,capped at a maximum amount of 10% of currenttaxable profit and up to a maximum of CHF 1 million (€830,000).

Expatriate issuesIncome taxIndividuals are taxed on all remuneration for duties performed in Switzerland, on aprogressive scale between 22% and 42%(depending on the canton). The cantons ofSchwyz and Zug are widely considered to havethe lowest effective rates for personal tax.

Social security taxesThe total social security contribution is 10.3% of remuneration. Half of this is paid by theemployer and the other half by the employee.Additional compulsory pension plancontributions by the employee start at 10% andare dependent on age and the scheme chosen.Individuals are also required to contribute tounemployment insurance, with the employeebroadly contributing half of the 2.2%contribution.

Expatriate rulesThere are special deductions against taxableincome for expenses such as housing, relocationand schooling costs unless reimbursed by theemployer.

If expatriates are affiliated to their ownsocial security system, they are exempted frompaying Swiss social security taxes.

Corporate set upCostCompany set up costs start at CHF 5,000(c.€3,800), and can take up to four weeks.

Corporate entitiesThe most frequently used entity is thecorporation, AG. However, the Swiss limitedliability company, the GmbH, has less formalrequirements than an AG entity and its use isincreasing in popularity.

For both legal forms, there are minimumshare capital requirements, and the entity musthave at least one shareholder and at least oneSwiss resident board member or director.



United Kingdom key factsInvestment climate• local currency GBP (£)• stable political environment and respected

regulatory regime• large local pool of skilled labour• labour laws are less stringent than EU labour

laws

Quality of living• high quality infrastructure• high standard of education• high crime in some areas• an increasingly more multicultural society.

United Kingdom

The UK has historically been a popular holdingcompany location as a commercial gateway toEurope. From a tax perspective, there is a strongtreaty network, a dividend exemption, an exemptionfrom capital gains on disposal of shares, and noWHT on dividends, although the previouslyhigh headline rates and complex legislation hasdetered some groups.

Commercially, the UK offers stability, bothpolitically and economically, and has extensivelinks with the rest of Europe.

Whilst the UK work force is well educated, thelevel of linguistic skills is often limited to English.

The key sectors for the UK includeconstruction and property, financial services andmedia and entertainment.

With a free health service and good schoolsit can attract high-calibre expatriates. As the costof living in the South is high, expatriates willexpect high remuneration packages.

In terms of IP, the UK has a favourable,although complex, R&D tax regime whichoffers generous tax deductions and credits, themagnitude of which depends on the size of thegroup. This is currently under review and it isexpected that the regime will be changed witheffect from April 2013 to be more favourable forlarger groups.

Holding companyCorporate taxationThe headline rate of corporation tax is 24%from 1 April 2012 (26% prior to this date). TheGovernment has announced its intention toreduce this by 1% each year for the next twoyears bringing this down to 22% by 1 April2014.

Stamp taxes and other capital dutiesStamp duty of 0.5% applies to the transfer (butnot issue) of shares.

Exemptions from UK corporate taxThe UK has a dividend exemption (effectivefrom 1 July 2009), with the majority ofdividends being exempt from UK tax.

Capital gains arising on the disposal ofshares in a trading company where the UKcompany has owned at least 10% of the sharecapital for 12 months out of the last 24 monthsare exempt.

Corporate informationAnti avoidance legislation The UK has transfer pricing rules, that requireall related party transactions to be reflected atarm’s length for tax purposes. In addition, theUK has the worldwide debt cap legislation thatseeks to restrict interest deductibility where thelevel of debt in the UK entity is deemed to beexcessive compared to the level of worldwidedebt.

The UK has complex CFC legislation,which is in need of modernisation. A new CFCregime will come into effect from 1 January2013. This is expected to make the UK moreattractive for international trade as it is moremodern although it is not necessarily any morestraightforward.

It is possible for companies to obtainadvanced rulings from the UK tax authorities onthe tax treatment of certain matters. These arenot compulsory and can be costly.

VATThe standard rate of VAT is 20%. A reducedrate of 5% applies to domestic fuel and power,energy saving products and certain residentialalterations. In addition, books, newspapers,food, residential new builds and transport aresubject to a zero-rate.

Withholding taxes (WHT)The UK does not impose WHT on dividendspaid by a UK company.

The domestic rate of WHT on interestpayable to non residents is 20%. There is noWHT on interest payable to companies in EUcountries where either the payer or payee holdsdirectly or indirectly at least 25% of the sharecapital in the other. In addition, there arereduced WHT rates with treaty countries.

The domestic rate of WHT on royaltypayments to non residents is 20%.There is noWHT on royalty payments to companies in EUcountries where either the payer or payee holdsdirectly or indirectly at least 25% of the sharecapital in the other. In addition, there arereduced WHT rates with treaty countries.


Double tax agreementsThe UK has more than 120 agreementscurrently in effect.

IP regimeLegalThe UK has a robust legal framework for theprotection of IP including patents, copyrights,trademarks, service marks and industrial designsand models.

IP rulesThe UK IP regime applies to broadly allintangible assets (including goodwill) whetheracquired or internally generated post March2002. Under the regime, amortisation isdeductible in line with the accounts or thetaxpayer can elect for relief at 4% per annum.

Gains on the disposal of IP assets are taxedat the headline tax rate and such gains may bedeferred, where the proceeds from sale are re-invested in qualifying assets.

A new patent box regime is to beintroduced with effect from 1 April 2013. Underthe new regime, qualifying patent income willbe subject to a rate of 10%, although it will bephased in over five years, with 60% of the

benefit applying in 2013 and the full benefitapplying from 2017 onwards. Qualifyingpatents under the regime are existing and newpatents granted by the UK and European patentoffice. The patent box is not restricted to ownersof patents but also those who hold the exclusivelicence over patented technologies. Qualifyingincome includes income from the sale of apatented product or a product containing apatented item, royalties and licence fees fromrights granted over patented technology, incomefrom the realisation of a patent and income froma patent infringement.

R&D rulesThe UK R&D rules offer enhanced deductionsand credits for qualifying expenditure,depending on the size of the group.

For small and medium enterprises (SME), a200% deduction is available for qualifying R&Dexpenditure. Other companies benefit from anenhanced deduction of 130% deduction onexpenditure.

In addition, loss making SMEs incurringqualifying R&D expenditure can claim a taxrepayment by surrendering tax credits.


The complexity of the UK tax regime remains a deterrent

to many groups although the commercialbenefits of locating in the UK are still

significant, especially for US multinationals.

The UK is good for financial services and construction.

Examples include Barclays and Bovis.

Qualifying capital R&D expenditure iswholly allowable as a tax deduction by way of a100% capital allowance in the year it is incurred.

From 1 April 2013, it is anticipated thatlarge enterprises will benefit from an above theline credit rather than an enhanced deduction toencourage investment in R&D activities in theUK although this is still under consultation withthe UK tax authorities.

Expatriate issuesIncome taxIndividuals are taxed on all remuneration(including benefits in kind) for duties performedin the UK, on a three tier scale 20%, 40% and50%, although the 50% rate only applies totaxable income in excess of £150,000(c.€175,000). From April 2013 the higher rateband is to be reduced to 45%.

There are numerous deductions andexemptions, in particular, taxable income isdetermined after deducting a personal tax freeallowance of £8,105 (c.€10,100) and qualifyingpension contributions. Most benefits in kind aretaxable.

Social security contributionsEmployee social security contributions arepayable at 12%, with employers required to payan additional 13.8% employer contributions onsalaries.

Expatriate rulesAssuming there is no intention to stay in theUK, expatriates will only be taxable on theirUK earnings together with any investmentincome or gains arising in or remitted to the UK(subject to the payment of £30,000/£50,000(c.€37,000/c.€62,000) depending on how longthe expatriate has been resident in the UK).

For short term employment there aregenerous deductions for personal expenses forindividuals on short term secondments (for upto two tax years).

Corporate set upCostCompany set up costs start at €500 and can becompleted in a week.

Corporate entitiesThe most frequently used entity is the limitedcompany, which has no minimum share capitaland only requires one shareholder and onedirector. The LLP, a limited liability partnershipis becoming increasingly more widely used.


The UK tax authorities have committed to simplifying the R&D

regime and introducing a patent box regime. Both these measures will increase the

UK’s draw as an IP holding company location.


The 10 key holding companylocations are not exclusive and thissection summarises the key issuesto consider in various otherEuropean territories.

Other territory profiles

Holding company• Corporation tax rate 25%.• Participation exemption on dividends? Yes.• Participation exemption on capital gains? Yes, gains are exempt if the subsidiary is not

Austrian (conditions are 10% holding for morethan 12 months).

• Interest deductibility? Yes, subject to transfer pricing rules.• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis.• Controlled foreign company regime? No.• Local tax on disposal of shares by foreign

shareholder? Yes, 25% if the shareholder has held at least

1% of the total share capital in the last fiveyears, although double taxation agreements donot usually grant Austria with any taxing rights.

Austria

• Withholding tax on dividends? Yes, 25% but reduced to 0% under EU parent

subsidiary directive and also may be reducedunder treaties.

• Withholding tax on interest? No, unless interest paid on debt secured on

Austrian property.• Number of double taxation agreements 80+.• Standard VAT rate 20%.

IP holding company• IP regime?

No.• Tax rate on IP income No special regime. Taxed at usual corporate tax

rate of 25%.

Other comments• Local currency Euro.• Income tax rate Progressive, up to 50% (in addition to high

social security costs although these are cappedat earnings of €59,220 per annum).

• Expatriate regime An Austrian tax charge arises on employment

income derived from duties performed inAustria. There are specific expenses deductiblefrom this income to the extent that theindividual is employed in Austria for less thanfive years and has not been resident in Austriain the last 10 years.



Holding company• Corporation tax rate 19%.• Participation exemption on dividends? Yes.• Participation exemption on capital gains? Yes.• Interest deductibility? Yes, subject to thin capitalisation rules.• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis.• Controlled foreign company regime? No.• Local tax on disposal of shares by foreign

shareholder? Yes, 19% on capital gains realised unless

reduced under the relevant treaties.

Czech Republic

• Withholding tax on dividends? Yes, 15% but reduced to 0% under EU parent

subsidiary directive and also may be reducedunder treaties.

• Withholding tax on interest? Yes, 15% but reduced to 0% under EU

interest and royalties directive and also may bereduced under treaties.

• Number of double taxation agreements 80+.• Standard VAT rate 20%.

IP holding company• IP regime? No.• Tax rate on IP income No special regime. Taxed at usual corporate tax

rate of 19%.

Other comments • Local currency Czech Crown.• Income tax rate Flat rate of 15%.• Expatriate regime A Czech tax charge arises on employment

income derived from duties performed in theCzech Republic based on the gross salary plussocial and health insurance paid by theemployer. Assessable employment incomeincludes all wages, salaries, overtime pay,bonuses, gratuities, perquisites, benefits etcincluding the reimbursement of travel expensesover a certain level. There are no specificconcessions for expatriates.


Holding company• Corporation tax rate 25%.• Participation exemption on dividends? Yes, providing there is a minimum 10%

shareholding or it is received from anothergroup company.

• Participation exemption on capital gains? Yes, providing there is a minimum 10%

shareholding or it is received from anothergroup company.

• Interest deductibility? Yes, subject to thin capitalisation and anti-

abuse rules.• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis.• Controlled foreign company regime? Yes, for controlled subsidiaries.• Local tax on disposal of shares by foreign

shareholder? No, generally not.

Denmark

• Withholding tax on dividends? Yes, 27% but reduced to 15% if certain criteria

are met, 0% under the EU parent subsidiarydirective and also may be reduced under treaties.

• Withholding tax on interest? Yes, 25% but reduced under EU interest and

royalties directive and also may be reducedunder treaties.


IP holding company• IP regime? IP amortisation is tax deductible. Generally

intangible assets are amortised over seven years(straight-line basis and determined on a cashbasis). Specific rules apply if the protection timeof knowhow, patents and copyrights is shorterthan seven years. Alternatively, knowhow andpatents are fully tax-deductible in the year ofacquisition according to the owner’s choice.

• Tax rate on IP income No special regime. Taxed at usual corporate tax

rate of 25%.

Other comments • Local currency Danish Kroner.• Income tax rate Progressive up to 51.5%.• Expatriate regime Foreign key employees working temporarily

in Denmark, who have not been subject toDanish taxation (on certain income) in theprevious 10 years, may choose to be taxed at aflat rate of 26% of their gross salary plus alabour market contribution of 8%, resulting ina total tax of approximately 32% of their grosssalary (for up to 60 months). Certainrequirements must be met in order to qualifyfor the expat regime.


Holding company• Corporation tax rate 21% (to be reduced to 20% from 1 January

2015). Companies do not pay any taxes onearned profits until these are distributed asdividends or other forms of profitdistributions, allowing companies establishedin Estonia to reinvest their profits in otherentities without being subject to tax in Estonia.

• Participation exemption on dividends? Yes.• Participation exemption on capital gains? No.• Interest deductibility? Yes, there are no thin capitalisation rules.• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis.

Estonia

• Controlled foreign company regime? No, however anti-tax haven rules apply for

certain transactions, treating these as deemedprofit distributions.

• Local tax on disposal of shares by foreignshareholder?

No, unless Estonian company is deemed to bea real estate company.

• Withholding tax on dividends? No.• Withholding tax on interest? No, unless the interest paid significantly

exceeds an arm’s length rate, and thenwithholding tax at a rate of 21% applies to thepart of the interest exceeding arm’s length.


IP holding company• IP regime? There are no special incentives for IP.• Tax rate on IP income No special regime. Taxed at usual corporate tax

rate of 21%.

Other comments • Local currency Euro.• Income tax rate Flat rate of 21% (20% from January 2015).• Expatriate regime No special favourable tax regime for expatriates.


Holding company• Corporation tax rate 24.5%.• Participation exemption on dividends? Yes.• Participation exemption on capital gains? Yes, providing there has been a holding period

of at least one year.• Interest deductibility? Yes, although it is currently anticipated that

thin capitalisation rules are to be introduced in2012.

• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis (although there areno documentation requirement for domestictransactions).

• Controlled foreign company regime? Yes, however in general not applicable to EU

resident companies.

Finland


No, unless the shares being sold are that of acompany carrying on real estate activities.

• Withholding tax on dividends? Yes, 24.5% although this rate may be reduced

to 0% under EU parent subsidiary directiveand also may be reduced under treaties.

• Withholding tax on interest? No.• Number of double taxation agreements 60+.• Standard VAT rate 23% (24% from January 2013).

IP holding company• IP regime? No special regime. Amortisation is tax

deductible for a maximum of 10 years based on economic lifetime of the item.

• Tax rate on IP income Taxed at usual corporate tax rate of 24.5%.

Other comments • Local currency Euro.• Income tax rate Progressive up to 50%.• Expatriate regime A Finnish tax charge arises on employment

income derived from duties performed inFinland. Assessable employment incomeincludes all wages, salaries, overtime pay,bonuses, gratuities, perquisites, benefits etc.There are no specific expatriate concessions inFinland.


Holding company• Corporation tax rate 33.33% (plus social surcharge of 3.3% on the

corporate tax exceeding €763,000 in a year and an additional temporary surcharge of 5%where turnover exceeds €250 million until 30 December 2013).

• Participation exemption on dividends? Yes, dividends received are 95% exempt (conditions

are a minimum 5% holding for more than 24months).

• Participation exemption on capital gains? Yes, gains are 90% exempt (conditions are a

minimum 5% holding for more than 24 months).• Interest deductibility? Yes, subject to thin capitalisation

substance/control test and anti-abuse rules.• Transfer pricing regime? Yes, transactions between related parties

must be on an arm’s length basis.• Controlled foreign co mpany regime? Yes, 50% shareholding for subsidiaries.

France

Safe harbour clauses exist for both EU and non-EU countries.


Yes, 19% capital gains realised on a substantialparticipation (25%), unless reduced under therelevant treaties. Raised to 50% when realisedby residents of non-cooperative states,regardless of participation level.

• Withholding tax on dividends? Yes, 30% but reduced to 0% under EU

interest and royalties directive and also maybe reduced under treaties.

• Withholding tax on interest? No, unless interest paid on some specific debt

instruments issued prior to 31 March 2010.• Number of double taxation agreements 120+.• Standard VAT rate 19.6%.

IP holding company• IP regime?

Yes, a tax deduction is available on cost orpurchase price. Rates range from 100% in theyear of acquisition (for R&D costs) to 20%over five years (for most patents). Trademarksare not amortised in most cases.

• Tax rate on IP income 15% on royalties from patents, deemed

patent licensing and sales of such patents,although anti-abuse rules can apply betweenrelated companies.

Other comments• Local currency Euro.• Income tax rate Progressive, up to 41%.• Expatriate regime A French tax charge arises on income derived

from duties performed in France. A taxexemption on the allowances paid toemployees seconded to France can beimplemented if certain criteria are met.


Holding company• Corporation tax rate 28-33% (this includes corporate and trade tax,

which depends on the municipality).• Participation exemption on dividends? Yes, dividends received are 95% exempt

(currently no shareholding conditions to bemet although this is intended to be amended toa 10% minimum shareholding).

• Participation exemption on capital gains? Yes, gains are 95% exempt (currently no

shareholding conditions to be met althoughthis is intended to be amended to a 10%minimum shareholding).

• Interest deductibility? Yes, subject to interest ceiling rules.• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis.• Controlled foreign company regime? Yes, passive foreign income is taxed if that

income was subject to tax at an effective rate ofless than 25%. Exemptions apply for EU basedsubsidiaries.

Germany


No, provided there is a treaty.• Withholding tax on dividends? Yes, 26.375% but this is reduced to 15.825% if

the shareholder is a corporation. The rate maybe reduced to 0% under EU parent subsidiarydirective and may also be reduced undertreaties.

• Withholding tax on interest? No (except on interest from German

banks/financial institutions).• Number of double taxation agreements 100+.• Standard VAT rate 19%.

IP holding company• IP regime? Yes, applies to a variety of IP, with tax

deductible amortisation based on the purchaseprice of the IP. The rate depends on the type ofIP, but is broadly available over 15 years.


rate 30%.

Other comments • Local currency Euro.• Income tax rate Progressive, up to 45%.• Expatriate regime Individual taxpayers are allowed to claim all

expenses directly incurred with their incomesfrom employment. There is a tax free lumpsum for employees at an amount of €1,000.Thereafter, various other deductions andallowances apply on taxable income fromemployment. The German income tax lawdoes not provide for special deductions or taxfree expatriate premiums.


Holding company• Corporation tax rate 20%.• Participation exemption on dividends? Yes, if paid from an EU company and there is a

minimum shareholding of 10% for at least twoyears and a tax free reserve is formed with theuntaxed dividend income.

• Participation exemption on capital gains? No.• Interest deductibility? Yes, subject to transfer pricing and thin

capitalisation rules.• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis.• Controlled foreign company regime? Yes, quasi rules may apply for EU transparent

entities. In addition transactions with ‘blacklisted’ countries may not be deductible.

Greece


No, provided there is a treaty.• Withholding tax on dividends? Yes, 25% but this may be reduced to 0% under

EU parent subsidiary directive and also may bereduced under treaties.

• Withholding tax on interest? Yes, 40% but reduced to 5% under EU

interest and royalties directive (until 30 June2013 and then 0% thereafter) and also may bereduced under treaties.


IP holding company• IP regime? Yes, applies to a variety of IP including patents,

trademarks and designs. A tax deduction foramortisation is available on the historic costbasis and a company can choose to take a

deduction either in the year of acquisition orspread over five years.


rate of 20%.

Other comments • Local currency Euro.• Income tax rate Progressive up to 45%.• Expatriate regime A Greek tax charge arises on employment

income derived from duties performed inGreece. Assessable employment incomeincludes all wages, salaries, overtime pay,bonuses, gratuities, perquisites, benefits etc.There is also a requirement on the expatriate’semployer to deduct Greek payroll withholdingtax from the assessable employment income.There are no specific expatriate concessions in Greece.


Holding company• Corporation tax rate 27.5% (plus regional tax, 3.9%-4.82%).• Participation exemption on dividends? Yes, dividends received are 95% exempt (no

shareholding conditions to be met) unlessreceived from ‘black list’ countries (broadly taxhavens).

Full taxation in the case of shares ‘held fortrading’ by IFRS/IAS adopters.

• Participation exemption on capital gains? Yes, gains are 95% exempt. Conditions include

the shares being held for more than 12 monthsand the company invested in has an operatingbusiness activity and was resident in a ‘whitelist’ country for the last three tax years.

• Interest deductibility? Yes, subject to certain limitations. • Transfer pricing regime? Yes, transactions between Italian entities and

related non-resident parties must be on anarm’s length basis.

Italy

• Controlled foreign company regime? Yes, on a country basis (tax havens and

preferential tax regime) and transaction basis(other countries with reference to passiveincome and lower effective tax rate).


Yes, 20% capital gain tax in case of non-qualifiedparticipations although exemption generallyapplies under tax treaties.

• Withholding tax on dividends? Yes, 20% but reduced to 1.375% if paid to

companies resident in the European EconomicArea, or to 0% under the EU parent subsidiarydirective.

• Withholding tax on interest? Yes, 20% but the rate may be reduced to 0%

under the EU interest and royalties directive.• Number of double taxation agreements 85+.• Standard VAT rate 21%.

IP holding company• IP regime? Yes, trademarks and goodwill may be

depreciated up to one eighteenth each tax year.Patents and other IP may be depreciated by 50%.

• Tax rate on IP income No specific regime. Taxed at the usual

corporation tax rate of 27.5%.

Other comments• Local currency Euro.• Income tax rate (for individuals) Progressive, up to 43% plus local surcharges. An

additional surcharge of 3% applies to the incomein excess of €300,000.

• Expatriate regime No specific concessions for expatriates. Income

includes all amounts paid or accrued in a calendaryear and paid by 12 January of the followingcalendar year as salary, wages, commissions,director’s fees, bonuses and taxable benefits.


Holding company• Corporation tax rate 15%.• Participation exemption on dividends? No.• Participation exemption on capital gains? No.• Interest deductibility? Yes, subject to thin capitalisation rules.• Transfer pricing regime? No formal transfer pricing documentation

requirements, but an arm’s length principle isprovided for. Transfer pricing regulationsrequiring specific documentation are to comeinto force in 2013.

• Controlled foreign company regime? No.

Latvia


No, unless real estate comprises of more than50% of a company’s total assets during theyear of disposal or in previous year, then a 2%withholding tax applies.

• Withholding tax on dividends? Yes, 10% but may be reduced to 0% under EU

parent subsidiary directive and also may bereduced under relevant treaties.

• Withholding tax on interest? Yes, 10% but may be reduced under the

relevant treaties.• Number of double taxation agreements 50+.• Standard VAT rate 21%.

IP holding company• IP regime? Yes, applies to a variety of IP including

trademarks, design rights and copyright. • Tax rate on IP income Payments for copyrights, neighbouring rights

and royalties are taxed at the normal corporatetax rate of 15%, with other IP types taxed at arate of 5%.

Other comments • Local currency Latvian lat.• Income tax rate Flat rate of 25%.• Expatriate regime There is no special expatriate tax regime and

for tax purposes they are treated as residents.


Holding company• Corporation tax rate 15%. • Participation exemption on dividends? Yes, providing dividends are received from EEA

entities or entities established in a country whichLithuania has a double taxation agreement inplace and providing there is a minimum 10%shareholding for at least 12 successive months.

• Participation exemption on capital gains? Yes, providing the shares of the company being

disposed of is resident in the EEA or inanother country which Lithuania has a relevantdouble taxation agreement with and at least25% of the shares are held for not less thantwo years.

• Interest deductibility? Yes, subject to thin capitalisation rules. The

maximum permissible related-partydebt:equity ratio is 4:1.

• Transfer pricing regime? Yes, transactions between related parties must

be on an arm’s length basis.

Lithuania

• Controlled foreign company regime? Yes.• Local tax on disposal of shares by foreign

shareholder? No.• Withholding tax on dividends? No, provided the recipient has held not less

than 10% of voting shares for a continuousperiod of at least 12 successive months with theexception of black listed companies.

• Withholding tax on interest? Yes, 10% but reduced to 0% when paid to an

EEA registered entity or reduced in therelevant treaties.


IP holding company• IP regime? No special IP tax regime.

• Tax rate on IP income Taxed at the usual corporate tax rate of 15%. 300% of qualifying R&D costs are deductible

in the year they were incurred.

Other comments• Local currency Litas.• Income tax rate Flat rate of 15% (20% on distributed profits).• Expatriate regime Resident individuals are taxed on their

worldwide income. Non-residents are subjectto Lithuanian tax on income originating inLithuania. Generally, income orcompensations received by an expatriate forboth business and private purposes such as costof living, relocation expenses, settling expenses,schooling allowance are added to the incomeand taxed accordingly.


Holding company• Corporation tax rate 19%.• Participation exemption on dividends? Yes, provided there has been a minimum 10%

holding for more than 24 months.• Participation exemption on capital gains? No.• Interest deductibility? Yes, subject to transfer pricing and thin

capitalisation rules.• Transfer pricing regime? Yes, transactions must be on an arm’s length

basis.• Controlled foreign company regime? No.

Poland


Generally no. Under some double taxagreements there is an applicable ‘real estateclause’.


parent subsidiary directive or to a rateprovided by the relevant double tax agreement.

• Withholding tax on interest? Yes, 20% but may be reduced to 5% under

the EU interest and royalties directive (until 30 June 2013, 0% thereafter) or to rateprovided by relevant double tax agreement.


IP holding company• IP regime? Yes, applies to most IP excluding knowhow

acquired as an in-kind contribution. A taxdeduction for amortisation is available on thepurchase price of the IP and the minimumperiod of amortisation is 60 months.

• Tax rate on IP income No special rate. Taxed at usual corporate tax

rate 19%.

Other comments• Local currency Polish Zloty.• Income tax rate Progressive – up to 32%.• Expatriate regime A Polish tax charge arises on employment

income derived from duties performed inPoland. Assessable employment incomeincludes all wages, salaries, overtime pay,bonuses, gratuities, benefits in kind etc. Thereis no specific tax exemption for expatriates.


Holding company• Corporation tax rate 25% plus local tax (up to 1.5%) and a

surcharge for profits in excess of €1.5 million(maximum total tax is 31.5%)

• Participation exemption on dividends? Yes, provided there has been a minimum 10%

holding for at least one year.• Participation exemption on capital gains? Yes.• Interest deductibility? Yes, subject to transfer pricing and thin

capitalisation rules.• Transfer pricing regime? Yes, where transactions are not on an arm’s

length basis then the tax authority may requireadjustments.

• Controlled foreign company regime? Yes in respect of subsidiaries resident in black

listed territories.• Local tax on disposal of shares by foreign

shareholder? No.

Portugal


parent subsidiary directive or to rate providedby relevant double tax agreement.

• Withholding tax on interest? Yes, 25% but may be reduced to 5% under EU

interest and royalties directive (until 30 June2013, 0% thereafter) or to rate provided byrelevant double tax agreement.

• VAT rate 23%.• Number of double taxation agreements 65+.• Standard VAT rate 23%.

IP holding company• IP regime? Yes, applies to most IP excluding knowhow

acquired as in-kind contribution. A taxdeduction for amortisation is available on thepurchase price of the IP over its useful life.

• Tax rate on IP income No special rate. Taxed at usual corporate tax

rate of 31.5%.

Other comments• Local currency Euro.• Income tax rate Progressive up to 46.5%.• Expatriate regime As of 2011, there is a beneficial expat regime

for individuals that have not been resident inPortugal the past five years. Under this regime,employment and self-employment income willbe taxed at the flat rate of 20%, withheld atsource. In addition, expats will not be subjectto tax on overseas income, providing thatincome is subject to tax (even if effectivelytaxed at 0%) and the income was not earned in a black listed country.


Holding company• Corporation tax rate 20%.• Participation exemption on dividends? Yes, provided that there is a minimum 50%

holding for at least one year and the entity isnot resident in a tax haven.

• Participation exemption on capital gains? Yes, provided that the shares were purchased

after 1 January 2011 and are held for more thanfive years.

• Interest deductibility? Yes, subject to transfer pricing and thin

capitalisation rules.• Transfer pricing regime? Yes. Controlled transactions exceeding certain

thresholds should be declared. Documentationjustifying prices applied should be availableupon request of tax authorities. If prices areproved not to be at arm-length as a result of atax audit, assessment can be made and fines canbe charged.

Russia

• Controlled foreign company regime? No.• Local tax on disposal of shares by foreign

shareholder? Yes, 20%, where more than half the assets of

the Russian company consist of real estatesituated in Russia.

• Withholding tax on dividends? 15%, may be reduced under treaties.• Withholding tax on interest? 20%, may be reduced under treaties.• Number of double taxation agreements 75+.• Standard VAT rate 18%.

IP holding company• IP regime? Yes, applies to various types of IP (excludes

goodwill and customer relationships held forover 12 months). Amortisation is available onthe actual cost of the IP, and is amortised overthe useful life of the IP.

• Tax rate on IP income No special rate. Taxed at the usual corporation

tax rate of 20%.

Other comments• Local currency Russian Rouble.• Income tax rate Flat rate of 13% for Russian residents, 30% for

non-residents on Russian source income. Foreignhighly qualified specialists (annual salary of morethan RUR 2 mllion) are subject to 13% rate.

• Expatriate regime All forms of remuneration received in respect of

the performance of employment duties aretreated as employment income. Where incomehas been subject to tax in Russia and also aforeign jurisdiction, relief can be granted by theRussian tax authorities where provided for in therelevant double taxation agreement.


Holding company• Corporation tax rate 26.3%.• Participation exemption on dividends? Yes, provided that there is a minimum 10%

holding for at least 12 months.• Participation exemption on capital gains? Yes, provided that there is a minimum of 10%

holding for at least 12 months.• Interest deductibility? Yes, subject to transfer pricing regime. Certain

limitations may apply.• Transfer pricing regime? Yes, transactions must be on an arm’s length

basis.• Controlled foreign company regime? Yes, rules apply where the foreign entity is

deemed to be subject to an effective tax rate ofless than 14.5%.


No.

Sweden

• Withholding tax on dividends? 30%, may be reduced to 0% under EU parent

subsidiary directive and also under treaties.• Withholding tax on interest? No.• Number of double taxation agreements 80+.• Standard VAT rate 25%.

IP holding company• IP regime? Yes, applies to all IP. A tax deduction for

amortisation is available on the historic(acquisition) value of the IP, and the maximumrate of deduction is 30%.

• Tax rate on IP income No special rate of tax. Taxed at the usual

corporation tax rate of 26.3%.

Other comments• Local currency Swedish Krona.• Income tax rate Progressive, up to 57%.• Expatriate regime Generally all earnings are taxed as income from

employment provided the income is notconsidered business income or income fromcapital. All earnings from an employer to anemployee are taxable as income fromemployment, ie wages, fees, sickness allowances,severance pay as well as benefits in kind. Undercertain conditions, foreign employees working inSweden for limited periods may qualify for areduction of the income tax liability on theirearnings. The reduction amounts to 25% and isapplicable for only the first three years as longas the employer/employee applies for a rulingwithin three months after the work started inSweden.


Holding company• Corporation tax rate 20%.• Participation exemption on dividends? Yes, dividends received are 100% exempt and

there is no minimum participation or holdingperiod. Dividends paid by resident investmentpartnerships and investment funds are notsubject to the exemption and are taxed at 15%.

• Participation exemption on capital gains? Yes, gains are 75% exempt providing that the

shares have been held for at least two years.• Interest deductibility? Yes, subject to transfer pricing regime. Interest

paid on equity capital or hidden equity capitalis non-deductible.

• Transfer pricing regime? Yes, transactions must be on an arm’s length

basis.• Controlled foreign company regime? No.

Turkey


No, unless the shares are sold for more thanmarket value. If the shares have not been heldfor at least two years, the sale is also subject toVAT.

• Withholding tax on dividends? 15%, may be reduced under relevant treaties.• Withholding tax on interest? Yes, 15% may be reduced under relevant

treaties.• Number of double taxation agreements 75+.

IP holding company• IP regime? Yes, applies to all IP. Where the IP owner is a

natural person, the owner is not subject toincome tax on the IP income, although 17%tax needs to be withheld from the paymentfrom the corporate using the natural person’sIP.

• Tax rate on IP income 0% if the IP regime applies as set out above,

otherwise the normal rate of corporation taxwhich is 20%.

• Standard VAT rate 18%.

Other comments• Local currency Turkish Lira.• Income tax rate Progressive up to 35% • Expatriate regime No special expat regime.


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