On 11 September 2024, the Cabinet of Ministers of Seychelles approved signing the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI). This decision aligns Seychelles with the OECD/G20 Inclusive Framework’s efforts to implement the global minimum tax rule to protect developing countries’ tax bases from base erosion and profit shifting. The STTR MLI allows jurisdictions to impose additional taxes on cross-border payments subject to low or no taxation in the recipient’s jurisdiction, ensuring a minimum level of taxation.
Following this approval, Seychelles participated in the signing ceremony held on 19 September 2024 in Paris, where it and other jurisdictions expressed their intent to sign the STTR MLI once internal processes are completed. The STTR MLI is designed to be implemented swiftly in existing bilateral tax treaties without the need for bilateral negotiations, thereby facilitating the adoption of the Subject to Tax Rule.
As of now, Seychelles has not yet deposited its instrument of ratification with the OECD. The STTR MLI will enter into force on the first day of the month following the expiration of three months after depositing the second instrument of ratification, acceptance, or approval. Once in force, the STTR provisions will apply to taxes imposed by a party on or after the first day of a fiscal year that begins at least six calendar months from the latest of the dates on which the STTR MLI enters into force for the parties to the Covered Tax Agreement.
What Is the STTR MLI?
The STTR is a multilateral instrument of the OECD/G20 Inclusive Framework’s Two-Pillar Solution, which aims to address the tax challenges arising from the digitalization of the economy. Specifically, the STTR targets intra-group payments such as interest, royalties, and service fees subject to a nominal corporate income tax rate below 9% in the recipient’s jurisdiction. It allows the source jurisdiction (where the income arises) to impose additional tax to ensure a minimum level of taxation on these payments.
Implications for Businesses in Seychelles
Once Seychelles formally adopts the STTR MLI and it enters into force, the following implications may arise for businesses operating in Seychelles:
• Increased Withholding Tax on Certain Payments: Source jurisdictions may impose additional withholding taxes on payments made to Seychelles entities if the recipient’s jurisdiction applies a nominal tax rate below 9%.
• Impact on Cross-Border Transactions: Multinational enterprises (MNEs) may need to reassess their intra-group payment structures to account for potential additional taxes imposed under the STTR.
• Compliance and Reporting Requirements: Businesses may face increased compliance obligations, including documenting and reporting the tax treatment of cross-border payments to ensure they are not subject to additional taxation under the STTR.
Conclusion
The adoption of the STTR MLI marks a significant step in Seychelles’ commitment to aligning with evolving international tax standards. By supporting the OECD/G20 Inclusive Framework’s efforts, Seychelles reinforces its role in promoting tax transparency and fairness, while protecting its own tax base from erosion.
As the STTR MLI moves toward ratification and eventual enforcement, businesses operating in or with Seychelles must stay proactive. Understanding the implications of the new rules, reassessing existing cross-border structures, and preparing for enhanced compliance requirements will be essential to navigating this new tax environment effectively.
Early engagement with tax advisors and policymakers will be key to managing potential risks and seizing opportunities within this shifting global framework.
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