By
Marshall J. Langer, London, UK
Although
many offshore financial centres (OFCs) have no tax treaties, a few of
them have recently begun to actively seek tax treaties with as many countries
as possible. In this column we will look at developments during the past
five years in countries and territories that are perceived by some to
be OFCs. Bahrain signed tax treaties with both Pakistan and Turkey in
2005 and a treaty with Sudan in 2006, none of which is yet in force.
Bahrain already has tax treaties in force with China, Egypt, France, Jordan, Lebanon,
Malaysia, Morocco, Singapore, Syria and Thailand. Barbados, initially
listed by the OECD as a tax haven and subsequently removed from that list,
signed a tax treaty with Botswana in 2005 that entered into force in 2006.
It also signed a tax treaty with Austria in 2006 that is not yet in force.
Barbados already had a very active tax treaty programme and has tax treaties in
force with Canada, China, Cuba, Finland, Malta, Mauritius, Norway, Sweden,
the UK, the US and Venezuela. It is also a party to the Caricom tax treaty
which is in force with many of its Caribbean neighbours. A Barbados-Netherlands
income tax treaty was signed in November 2006 but is not yet in force.
Barbados is also believed to be negotiating proposed tax treaties with
Brazil, Chile, Ghana, India, Ireland, Luxembourg, Malaysia, Mexico, Russia
and South Africa.
Belize has only one recent tax treaty, the one with Austria that was signed in
2002 and took effect in 2004. That treaty was discussed in my February
2006 column. Botswana does not appear on most lists of OFCs, but it is
taking active steps to become a financial centre and it already has several
tax treaties in addition to the one with Barbados mentioned above.
Botswana signed a tax treaty with South Africa in 2003 that took effect in
2005. It signed two tax treaties in 2004, one with Namibia that is not
yet in effect and the other with the Seychelles that took effect in 2006.
Botswana signed a tax treaty with the UK in 2005 that takes effect in
April 2007. It signed a tax treaty with India in 2006 that is not yet
in force. Botswana also has tax treaties in force with France, Mauritius
and Sweden.
The
Cayman Islands has no tax treaties yet in force but it is understood
to be negotiating a tax treaty with the UK.
Costa Rica has no tax treaties in force, but it signed a tax treaty with
Spain in 2004 that is awaiting ratification. It also has older tax treaties
still pending with Germany and Romania.
Cyprus has a large network of tax treaties in force, but only two of them were
signed during the past five years. Its treaty with Lebanon was signed
in 2003 and took effect in 2006. Cyprus and the Seychelles signed a tax
treaty in 2006 that is not yet in force.
Hong
Kong signed a tax treaty with Belgium in 2003 that took effect in
2004. It signed a treaty with Thailand in 2005 that became effective in
2006. Finally, Hong Kong signed a 2006 tax arrangement with China that
replaced an earlier 1998 arrangement when it took effect in January 2007.
Iceland does not appear on many lists of OFCs, but it has a relatively low (18%)
corporate income tax rate and a low rate of tax on interest and dividends
(10%). Iceland signed tax treaties with Slovakia, Spain and Vietnam in
2002, a tax treaty with Ireland in 2003 and a tax treaty with Malta in
2004, all of which have entered into force. Iceland's tax treaties with
Hungary and Malta took effect in January 2007. Recent treaties signed
by Iceland with Greenland and Italy are not yet in effect. Iceland has
a significant number of other tax treaties in force, including the Nordic
Convention with Nordic countries and territories. Its treaty with the
US is currently being renegotiated.
Ireland signed tax treaties with Croatia and Slovenia in 2002 and treaties with
Canada, Greece and Iceland in 2003, all of which are in force. Ireland
also signed a tax treaty with Chile in 2005 that is not yet in force.
Ireland has a large network of other tax treaties in force. Reports indicate
that Ireland is negotiating (or renegotiating) tax treaties with Argentina,
Cyprus, Egypt, France, Italy, Korea, Kuwait, Malta, Morocco, Portugal,
Singapore, Tunisia, Turkey, Ukraine and Vietnam.
Luxembourg signed a tax treaty with Malaysia in 2002 that took effect in 2005.
The treaty does not apply to either Labuan offshore business activities
or certain Luxembourg holding companies1. A 2003 Luxembourg tax treaty with Turkey took effect in 2006. A Luxembourg
tax treaty signed in 2004 with Israel took effect that year. Luxembourg
tax treaties signed with Latvia and Lithuania in 2004 took effect in January
2007. Tax treaties signed by Luxembourg with Estonia, San Marino and the
United Arab Emirates in 2006 are not yet in force. Luxembourg also signed
a protocol to its current tax treaty with France in 2006 that is pending
ratification. Luxembourg has about 50 tax treaties in force. It has pending
negotiations with Georgia, India, Lebanon, Montenegro and Serbia.
Macau signed a 2003 tax arrangement with China that took effect in 2004. It
also signed a treaty with Belgium in 2006 that is not yet in force. An
earlier treaty between Macau and Portugal remains in effect.
Malaysia has signed eleven new tax treaties during the past five years. Treaties
signed in 2002 and 2003 with Croatia, Lebanon, Luxembourg and Sweden are
all in force. Treaties signed in 2004 and 2005 with Singapore and South
Africa both took effect in January 2007. Other recently signed Malaysian
tax treaties with Chile, Kuwait, Saudi Arabia, Seychelles and Spain are
not yet in force. A quick perusal of the treaties indicates that those
with Chile, Luxembourg, the Seychelles, South Africa and Spain contain
clauses that would deny treaty benefits to persons carrying on offshore
business activities under the Labuan Offshore Business Activity Tax Act.
The
Maldives, initially listed by the OECD as a tax haven and subsequently
removed from that list, has joined six other South Asian countries in
signing the 2005 SAARC limited multilateral double taxation and mutual
administrative assistance in tax matters treaty. The treaty and a short
protocol were also signed by Bangladesh, Bhutan, India, Nepal, Pakistan
and Sri Lanka, the other members of the SAARC (South Asia Association
for Regional Cooperation). The treaty entered into force in December 2006
and takes effect on various dates in 2007 and 2008.
Malta signed tax treaties with Kuwait and Slovenia in 2002, both of which
are now in force. Treaties signed in 2004 and 2005 with Iceland and Spain
took effect in January 2007. Malta' s tax treaties with Greece, San Marino,
Singapore and the United Arab Emirates signed in 2006, are not yet in
force. Malta now has over 40 tax treaties in force.
Mauritius signed four tax treaties between 2002 and 2005 that have entered into
force; these treaties are with Barbados, Croatia, Seychelles and Uganda.
A treaty with Senegal signed in 2002 is not yet in force. Mauritius and
India are understood to be discussing a possible protocol to their existing
tax treaty to prevent Indian traders from using (or abusing) the treaty
to obtain tax-free short-term stock market gains, a practice commonly
known as "round-tripping". Mauritius and China signed a similar
protocol in 2006 which is believed to have taken effect in January 2007.
Monaco's tax treaty with France has been in force since 1963. It was recently amended
by a protocol and exchange of notes signed in 2003 that took effect in
2005 effective retroactively as of January 2002. The protocol affects
French nationals living in Monaco since 1989 and subjects them to French
wealth tax on their worldwide assets, including their real estate in Monaco.
The
Netherlands has continued to expand and update its very large network
of tax treaties. During the years 2002 to 2004, it signed tax treaties
with Albania, Georgia, Indonesia, Mongolia, Poland, Slovenia and Uganda,
all of which have entered into force. During 2005 and 2006, the Netherlands
signed tax treaties with Jordan and South Africa, neither of which is
yet in force. A Barbados-Netherlands income tax treaty was signed in November
2006 but is not yet in force.
The
Netherlands Antilles has not signed any recent tax treaties other
than a 2002 protocol to the 1964 Kingdom Act (effectively a tax treaty)
with the Netherlands and Aruba. Recent reports have indicated that the
Netherlands Antilles is seeking to sign tax treaties with several Caribbean
countries, including Barbados and Jamaica.
Panama signed the 2004 Andean Community income and capital tax treaty along with
the other members of the Andean Community, Bolivia, Colombia, Ecuador,
Peru and Venezuela. The multilateral treaty took effect in 2005, but Venezuela
apparently withdrew from the Andean Community in 2006. Panama has only
one bilateral tax treaty, a very limited treaty with France.
San
Marino has signed several tax treaties since 2002. Its treaties with
Austria and Croatia are in effect. San Marino's treaties with Belgium,
Italy and Luxembourg are not yet in force.
The
Seychelles signed tax treaties with Botswana, Mauritius and Oman between
2003 and 2005, all of which have entered into force. Other tax treaties
signed by the Seychelles during the past five years, with Belgium, Malaysia,
the United Arab Emirates, Vietnam and Zimbabwe, are not yet in force.
A 2001 tax treaty between Seychelles and Thailand took effect in January
2007. The Seychelles and Cyprus signed a tax treaty in 2006 that is not
yet in force.
Singapore has signed 19 tax treaties during the years 2002 to 2006. Of these, 13
have already entered into force, six of them effective from January 2007.
The recent Singapore treaties that have entered into force are with Bahrain,
Brunei, Fiji, Finland, Germany, Israel, Kuwait, Lithuania, Malaysia, Mongolia,
Oman, Romania and Slovakia. Those not yet in force are with Belgium, Estonia,
Kazakhstan, Malta, Qatar and Russia. A 2005 protocol to Singapore's tax
treaty with New Zealand took effect in 2006. Singapore and Morocco signed
a tax treaty in January 2007 that is not yet in force. Singapore now has
over 50 tax treaties in force. Singapore and China are negotiating a proposed
new tax treaty.
Switzerland has signed several tax treaties during the past five years. Treaties
signed with Estonia, Iran, Israel, Latvia, Lithuania and Uzbekistan in
2002 and 2003 have all entered into force. A 2005 treaty was signed by
Switzerland with Serbia and Montenegro which was then a single country;
they became separate countries during 2006. The treaty entered into force
as to Serbia in January 2007; Montenegro has stated that it will honour
all Serbia and Montenegro treaties but we have not seen confirmation that
Switzerland will also apply this treaty to Montenegro. Treaties signed
by Switzerland with Armenia, Azerbaijan and Pakistan in 2005 and 2006
have not yet entered into force.
The
United Arab Emirates has signed a number of tax treaties during the
years 2002 to 2006. Treaties signed with Armenia, Austria, Canada, Korea,
New Zealand and Ukraine have entered into force. Treaties signed with
Jordan, Luxembourg, Malta, Mauritius, Seychelles and Spain are not yet
in force.
ENDNOTE
1. See Article 31 of the 2002 Luxembourg-Malaysia tax treaty and the accompanying
exchange of notes.
Please
send your comments to
mjlanger@offshoretreaties.com
with a copy to editorial@offshoreinvestment.com.
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