Tax changes in Nevis do not affect the taxation of companies that exclusively carry out economic activity outside the jurisdiction
To comply with the fiscal pressures imposed by international organizations, mainly by the OECD, which try to ensure compliance with the principles of good international tax governance, it is that on December 28, 2018, San Christobal y Nevis (hereinafter “Nevis”) promulgated the Nevis Business Corporation Ordinance, 2018 and the Nevis Limited Liability Company Ordinance 2018, which became effective on January 1, 2019 (the “Amendments”). These amendments eliminated the tax exemption provisions for Business Corporations (BC’s) and limited liability companies (LLC’s) (the “Entities”). However, and finally, the Amendments did not affect fiscally those Entities established in said jurisdiction that carry out their activity outside of Nevis.
Doing a little history
Reviewing the history behind these Amendments, we can say that they ordered in the first instance, that all Entities, incorporated until December 31, 2018, would be exempt from any corporate tax, income tax, withholding of taxes, stamp duty, asset tax, exchange controls or other fees or levies based on assets or income originating outside of Nevis or in connection with other activities outside of Nevis, until June 30, 2021. Thus establishing, a period of protection for existing Entities regarding the change in taxation that would fall on them. Likewise, these Amendments also established that there would be no tax exemptions for Entities constituted as of January 1, 2019.
It is then, as of the emergence of said Amendments that in March 2020, all service providers located in said jurisdiction received an official announcement from the Ministry of Finance indicating that the Federal Government had committed to amend the Tax Law on the Rent, Cap. 20.22 for the third quarter of 2020 in order to address the tax provisions imposed on Entities and provide a clear definition of tax residence, based on “central management and control” and “permanent establishment”.
What is the current situation?
In connection with these facts, we can differentiate three possible scenarios with respect to the Entities incorporated in Nevis:
- Entities with central administration and control and with a permanent establishment within Nevis, would be taxed in that jurisdiction for their income earned throughout the world.
- Entities without central administration and control, but with a permanent establishment within Nevis, would be taxed on income generated in the jurisdiction or income remitted to Nevis.
- Entities without central administration and control or with a permanent establishment within Nevis, which will not be liable to pay taxes in Nevis.
A brief clarification, it will not be understood that the administration and control of an Entity is carried out in Nevis for the simple fact that it has its registered agent there.
However, regardless of the tax status in Nevis, all Entities must file a Simplified Tax Return with the Nevis Tax Authority. The established date is the year 2020, for those active companies registered as of December 31, 2019, and then before April 15 of each year starting in 2021 for all companies including those incorporated in 2020. This tax return will be made at zero in the cases that the Entities do not have tax obligations in the jurisdiction or are engaged in intellectual property businesses (most cases).
In conclusion, although the Amendments made in 2018 established that Nevis Entities had to pay taxes on the income obtained both within and outside the jurisdiction (world income), based on the reform of the Income Tax Law promoted in 2020 that establishes a change in the concept of tax residence of the Entities, based on the central management and control, as well as the concept of permanent establishment, we can affirm that all the Entities that do not carry out their administration and / or control headquartered in Nevis or possessing a permanent establishment in that jurisdiction will not be taxed there.
This last situation is what we find in most of the Entities incorporated in Nevis for foreigners, therefore, by not carrying out substantial activities in the jurisdiction, they will not be subject to taxes in it, their tax situation remaining unchanged.