Onshore

DENMARK

Denmark has high rates of corporate and personal income tax and has never been considered a financial centre. However changes to its holding company law in 1999 provided outstanding opportunities for the international investor, and subsequent adjustments to the law have if anything increased its attractiveness.

Historically, 9 onshore European countries (Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Spain, Switzerland & the United Kingdom) have competed and continue to change their fiscal laws in order to make their jurisdiction the most attractive one in which to locate a holding company.

Nonetheless changes to the laws on Danish holding companies which were introduced in 1998-9 have revolutionized the market and have made Denmark far and above the most attractive location in which to site a holding company, with the twin consequences that the Netherlands' historic dominance of the onshore holding company market is now seriously threatened and other holding company jurisdictions are beginning to look singularly unattractive.

In Denmark there are also some time-limited tax-saving opportunities for expatriate managers and skilled workers.

Learn more in our full Denmark Knowledgebase.

AUSTRIA

The Austrian government's decision to reduce the corporate tax rate from 34% to 25% from 2005 led to a 30% increase in successfully concluded investment projects.

In addition to the corporate tax cut to one of the lowest levels in the EU, the reforms also contained a number of measures designed to reduce the tax burden on multinational firms using Austria as a base for regional headquarters.

Austria offers significant fiscal concessions to corporates through holding companies, foundations and some tax-privileged investment incentives.

Learn more in our full Austria Knowledgebase.

NETHERLANDS

Although the Netherlands has a sophisticated tax system with high tax rates some aspects of its fiscal system are extremely attractive and make it the ideal location in which to base international trading operations. Attractive fiscal incentives are further enhanced by a complex network of double taxation treaties (few of which contain any anti avoidance provisions) and by the existence of a procedure of advance tax rulings whereby the tax authorities who are autonomous and approachable can at short notice specify the fiscal consequences of certain business structures provided that material financial interests are involved and the propositions are reasonable.

The Dutch government announced in 2004 that it would cut the country's corporate tax rate to 31.5% in 2006 from 34.5%.

Presenting the last budget prior to the election on November 22, 2006, Holland's long-serving Finance Minister Gerrit Zalm stated that the government would continue to cut the rate of corporate income tax, which fell to 25.5% in 2007 from 29.1%, putting it below the European Union average. This represents a 5% cut in corporate tax since 2005.

In anticipation of confirmation of the Marks & Spencer ruling on cross-border loss relief by the European Court of Justice, the government proposed to allow relief for losses incurred in other EU Member States. In addition, participation rules would be relaxed by eliminating the nonportfolio and "subject to tax" requirements. For "passive" participations, a "sufficient" tax rate test (possibly 10%) would be introduced.

Ruling in December 2005, the ECJ stated that companies could offset losses incurred by foreign subsidiaries as long as there was no "real possibility" that these could be absorbed at the local level at the time the claim was made.

According to the ruling, M&S could therefore claim tax relief for losses outside its home market, with the proviso that loss-making subsidiaries were unable to claim tax relief in their country of establishment.

Learn more in our full Netherlands Knowledgebase.

FRANCE

Generally speaking, France is not an attractive location for individuals or companies seeking to limit taxation. There are however some particular features of the French tax system which are attractive for certain individuals or companies in certain situations.

Learn more in our full France Knowledgebase.

GERMANY

Germany has high corporate income tax rates and has never been considered a tax-efficient financial center. Nonetheless it offers significant fiscal concessions to corporates through co-ordination centres, holding companies and a number of special corporate income tax regimes.

In November 2006, Germany's coalition government arrived at an agreement over key company tax reforms which will reduce the overall corporate tax burden, currently one of the highest in the world.

Finance Minister Peer Steinbrueck told reporters after a working group meeting that the reforms will cut the overall corporate tax burden to a little under 30% from the current level of almost 40%.

This will be brought about largely by a cut in the 25% headline corporate tax rate, paid by large companies, to 15% in 2008. Companies will continue to pay corporate tax at the local level at an average of about 13%.

The reforms are expected to cost EUR5 billion (US$6.4 billion) in the first year and EUR30 billion overall, but EUR25 billion of this will be clawed back through efforts to widen the tax base.

One offsetting measure is the controversial decision to restrict the amount of interest that German companies can deduct from loans received from overseas units. Many business leaders worry that this measure will restrict companies' ability to invest.

The ruling coalition parties also agreed to introduce a 25% capital gains tax from January 1, 2009. This will replace the current system, whereby capital gains are subject to personal income tax, which can be as high as 42%. This will apply to income from earned interest and dividends, and private investors' share sales.

Small companies, which are also taxed under the personal income tax system, will receive preferential treatment on retained profits.

However, in March 2007, it emerged that the German government may not be able to deliver the promised programme of company tax reforms agreed by the coalition cabinet, as members of the Social Democratic Party (SPD) grow increasingly uneasy over the cost of the tax cuts.

According to reports, regional members of the left-leaning SPD - a key partner in Chancellor Angela Merkel's 'Grand Coalition' - were unhappy that the Finance Ministry had revised up estimated company tax relief during the first years of the new tax regime.

It was also said that some SPD politicians had met with increasing opposition from their constituents to the plans to slash taxes for companies while individual tax breaks and subsidies are disappearing to help the government balance its books.

Learn more in our full Germany Knowledgebase.

MALAYSIA

Malaysia is a reasonably tax friendly jurisdiction. There are no annual wealth taxes, no estate duties, no gift taxes, no accumulated earnings tax, no federal (as opposed to national) income tax, no controlled foreign company legislation, no thin capitalization rules and no transfer pricing rules (although the tax authorities will apply normal transfer pricing principles to related party transactions). Moreover capital gains tax when levied is only levied in very limited circumstances. The regular rate of corporate income tax was 28% but has recently been cut- see below. In addition, Malaysia offers a number of attractive incentives and special regimes, linked from below.

Although the October, 2005, Malaysian government budget stopped short of cutting rates of corporate tax, the Prime Minister and Minister of Finance, Datuk Seri Abdullah Ahmad Badawi, detailed a number of tax-related measures designed to boost economic activity.

One of the more significant proposals outlined by the Prime Minister was the introduction of group relief for losses, a measure which is likely to be welcomed by the business community. This will allow firms within a group with a minimum of 70% ownership between them to offset the current year losses of a company against the profits of another. By doing so, it is hoped that more companies will be encouraged to take part in high-risk projects requiring a large initial capital outlay.

The Prime Minister also proposed to tempt more technology firms to establish in Malaysia through a widening of the Multimedia Super Corridor Incentives (MSC), which extended the Investment Tax Allowance Incentive to qualifying firms currently operating outside of the MSC.

Small-and medium-sized firms were also slated to receive a tax break in the form of 50% stamp duty remission on instruments for loans not exceeding RM1million (US$265,250).

In September, 2006, Prime Minister Abdullah Ahmad Badawi announced a package of tax cuts, including a 2% corporate tax cut and tax breaks for businesses across a number of economic sectors, as the government attempts to boost the nation's competitiveness.

Tabling his third budget as Prime Minister and Minister of Finance, Abdullah announced that the corporate tax rate will be cut to 27% in 2007, followed by an additional one-percentage-point cut in 2008.

"Although this measure will result in a significant reduction in revenue, the government is confident that it will have a positive overall effect on the economy," he stated. Although it is Asia's third largest economy, Malaysia's corporate tax rate compares unfavourably to other economic powers in the region, particularly Singapore and Hong Kong.

Learn more in our full Malaysia Knowledgebase.

GREECE

Generally speaking, Greece is not an attractive location for individuals or companies seeking to limit taxation; the mainstream corporate income tax rate used to be 35%, although it was reduced in stages to 32% in 2005, 29% in 2006 and 25% in 2007. There are however some particular features of the Greek tax system which are attractive for certain individuals or companies in certain situations.

A new, general-purpose development incentive law was promoted by the government in 2005 and was received very warmly by the business community. In the first ten months of its implementation (end of March 2005 till the end of January 2006) 1,234 applications were submitted accounting for €2.47bn.

The law offers a combination of incentives and corporate tax breaks and is aimed at sectors of the economy that are open to international competition, such as tourism, information technology, financial services, and quality agricultural exports.

Learn more in our full Greece Knowledgebase.

PORTUGAL

Portugal has a corporate income tax rate of 25% (plus a local 2.5% tax) and is not generally considered to have an attractive fiscal environment. However, it can offer the Madeira Free Trade Zone, and a number of other tax breaks which are useful to certain types of company.

Learn more in our full Portugal Knowledgebase.