cyprus: gateway to europe and the world “the continuing ... · » tax credit on foreign tax...
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1 1 TTN Hong Kong - 18 November 2013
Sissy Zhang, BSc, MSc, ACCA
General Manager Totalserve Management (Beijing) Ltd
CYPRUS: Gateway to Europe and the World
“The continuing efficient use of Cyprus in international structuring”
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Group Structure
P.G.Economides & Co Limited
Chartered Certified Accountants
Totalserve Trustees Ltd
Professional Trustees
E. Economides & Partners LLC
Advocates & Legal Consultants
Totalserve Management Ltd
Tax & Corporate Services
Totalserve Management
(Beijing) Ltd
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Offices Worldwide
Totalserve Group
London
Thessaloniki
Warsaw
Bucharest
Athens Tortola (BVI) Johannesburg
Cape Town
Luxembourg
Cyprus - HQ
Sofia Beijing
Moscow
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Beijing Office
Zheng Sissy Zhang, BSc, MSc, ACCA
Beijing Office General Manager
Mob.: + 86 136 936 66483
Yue Chao "Mathew" Fang
Beijing Office Marketing Manager
Mob.: + 86 133 112 22495
Totalserve (Beijing) Management Ltd
Totalserve (Beijing) Management Ltd
Room 2411-12 China World Office 1
No. 1 Jianguomenwai Ave
Beijing 100004, China
Tel.: + 8610 65054811
Fax: + 8610 65054977
www.totalserve.eu
Beijing
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Banking Sector crisis
» Due to heavy exposure in Greek debt, bad management, bad investments
» Government unable to support
» External support needed » Troika (EU, ECB, IMF)
Eurogroup decisions March 2013
Financial assistance achieved through Troika, but …
» Restructuring of the banking sector
» Austerity and other fiscal measures
The Cyprus Banking Sector Crisis
Recent Developments
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» Gas exploration process speed up
The 2nd drilling by Noble in plot 12 has began
and production sharing agreements signed
with Total, ENI, Kogas, Delek and Avner
» Liquefied Natural Gas (LNG) Terminal - MoU signed with US-Israeli partnership (28 June 2013)
- Largest-ever investment in Cyprus
» Development of new sectors
(e.g. promoting research, casinos, medical tourism, gas/oil related services)
» New revamped legislation on Trusts and Fiduciaries
» Relaxation of conditions for Naturalization and Residency permits
» Increased incentives for investments through / in Cyprus
» Banking sector, which is undergoing restructuring and tighter regulation,
shall come out healthier and better controlled
New Dynamics for Cyprus Economy
Recent Developments
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Temporary Work and Residence permit
» Issued for 1-5 years if employed by a Cyprus company. Renewable if needed.
Certificate of Naturalization / Citizenship = Cyprus (EU) Passport
Eligibility criteria have been relaxed , made more flexible + fast track process
» Main requirements include acquiring a property in Cyprus over €500,000 AND
effecting a number of set investments or deposits (or combinations of these) of €5m
RECENT DEVELOPMENTS
Permanent Residence Permit (“PRP”)
New accelerated procedure (granted within two months)
» Main requirements include acquiring a property in Cyprus of at least €300,000 and have
secured annual income of €30,000 from activities outside of Cyprus
Cyprus immigration and relocation schemes for non-Europeans
Recent Developments
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Corporate income tax rate up from 10% to 12.5% (as from 1 January 2013)
» Applies only on revenue profit and is still one of the most competitive within the EU
» Certain incomes continue to be tax exempt as before (e.g. dividends and capital gains)
Main recent tax changes affecting international investors
Defence tax on passive interest up from 15% to 30% (as from 29 April 2013)
» Applies only to Cyprus tax residents
» Mostly applies on bank deposit interest
» Interest from financing /loans is active interest => taxed under income tax
» Tax credit on foreign tax suffered on same income
Recent Developments
New IP tax regime: 80% tax exemption (as from 1 January 2012)
» IP related profit (e.g. royalty income or gain from disposal of IP) gets an
80% tax exemption (in the form of a notional deduction) effective tax rate < 2.5%
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» Established International Business Centre
» Strategic Geographic Location
» Modern Banking System
» Advanced Telecommunications and Infrastructure
» High Level of Professional Services
» Developed Legal system based on Common Law
and Principles of Equity (easily understood and preferred)
+ Attractive Tax System
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CYPRUS: Gateway to Europe
Increased demand by non-European
individuals and companies to have
access to Europe …
Egypt
11 11
CYPRUS: Gateway to certain non-EU countries
Russia
Ukraine
South Africa
India
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General Overview
Cyprus Tax System
» EU & OECD approved and compliant
» Cyprus on White List of OECD
» Stable & Tested
» Full adoption of all relevant EU directives
» Good double tax treaty network
» Basis of taxation: ‘Management and Control’
» 12.5% uniform corporate tax rate (one of the lowest in Europe)
» Effective tax lower because of favourable tax provisions
Cyprus Tax System: Unique, Attractive, Competitive, Simple, Investor friendly
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TAX EXEMPT INCOMES
» Profit from sale of shares (and other qualifying titles)
» Dividend income subject to very easy to meet conditions
» 80% of IP related profit
» Profits of a trading foreign PE
» Capital Gains from the disposal of non-Cyprus Real Estate
Cyprus Tax System
Main Favorable Tax Provisions
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» No withholding tax (WHT) on any outbound payments
» Liberal expense deductibility
» Group Relief provisions
» Unilateral Double Tax Relief (DTR)
» No CFC / No Thin Capitalization rules
» No exit costs
» Tax exempt Company Reorganizations
» Redomiciliation of companies in/out of Cyprus
» No Inheritance Tax
» Tax Residency Certificates
» Advance Tax rulings
» Favourable Shipping tax regime
Cyprus Tax System
Other main features
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Cyprus: Double Tax Treaty Network
Ireland
Italy
Kuwait
Kyrgyzstan *
Lebanon
Malta
Mauritius
Moldova
Montenegro * *
Norway
Poland
Portugal (as from 2014)
Qatar
Romania
Russia
San Marino
Armenia
Austria
Belarus
Belgium
Bulgaria
Canada
China
Czech Republic
Denmark
Egypt
Estonia (as from 2014)
Finland (as from 2014)
France
Germany
Greece
Hungary
India
All DTTs based on OECD model
Serbia * *
Seychelles
Singapore
Slovakia
Slovenia
South Africa
Spain (as from 2014)
Sweden
Syria
Tajikistan *
Thailand
Ukraine
United Kingdom
USA
* CIS Countries applying the Cyprus/USSR DTT
** Countries applying the Cyprus/Yugoslavia DTT
Cyprus Tax System
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Cyprus continues to expand DTT network
New or revised DTT’s ratified and enter into force:
» 2012: Germany, Denmark, Slovenia, Armenia
» 2013: Poland, Russian Protocols
» 2014: Spain, Portugal, Austria (Protocol), Finland, Ukraine, Estonia
Awaiting ratification
» Kuwait, UAE
Pending signing
» Luxembourg, Bahrain, Georgia, Monaco, Latvia, Lithuania, South Africa
Currently under negotiations for new or revised DTT
» Netherlands, Serbia, Switzerland / Belgium, France, Greece, Indonesia, Israel, Libya, Malaysia, India,
Norway, San Marino
Cyprus Tax System
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Access to EU Directives
Access to EU Directives for elimination of foreign WHT on
dividends, interest and royalties received by a Cyprus resident
company from another EU Member State company
* Certain conditions may apply depending on how implemented on each Member State
» Parent / Subsidiary Directive
- on dividends *
» Interest and Royalty Directive
- on interest and royalty *
Like having a DTT
with all EU Member States
with zero WHT rates
Cyprus Tax System
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Use of the Cyprus Company
Tax efficient location for:
» Holding company
» Financing company
» Royalty company
» Trading company
» Shipping company
» Employment company
» Trust company
Cyprus Tax System
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Cyprus Holding Company
Non-EU
Company
Dividend:
Zero Cyprus WHT
Dividend:
Foreign WHT zero
or reduced through
access to DTT
Potential zero Cyprus taxes as
dividend and capital gains are tax exempt
EU / Non-EU
company
Non-Cyprus resident
Sale or transfer of Cyprus shares not
subject to Cyprus tax
Dividend:
Foreign WHT zero
through access
to P/S EU Directive
Use of Cyprus company
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Use of Cyprus towards certain non-EU countries
Use of Cyprus company
Russia Ukraine South Africa India
Cyprus has excellent Double Tax Treaties
with certain non-EU countries …
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Cyprus Holding Company for certain non-EU countries
EU / Non-EU investor
Russia Ukraine South Africa India
Reduction of foreign withholding tax by access to Cyprus DTT
Dividend 15% » 5% 15% » 5% 15% » 0% 0% (local) 0% / 5%
Interest 20% » 0% 15% » 2% 15% » 0% 20% » 10% 0% / 5%
Royalties 20% » 0% 15% » 5% 15% » 0% 10% 0% / 5%
Capital Gain Yes (until 2017) Yes Yes Yes Yes for some
Other CIS *
* Other CIS include: Armenia, Belarus, Kyrgyzstan, Moldova, Tajikistan
Use of Cyprus company
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Cyprus has long been the prime springboard for inward and outward
investments in Russia (and other CIS Countries)
» Strong cultural, religious, business, economic and political ties
» Geographical proximity and quality of life + professional services
» Gateway to/from Europe and other parts of the world
» Very good Double Tax Treaty
» Cyprus attractive tax system
Russia – Cyprus Relations
Use of Cyprus company
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Cyprus Luxembourg* Switzerland Malta** Netherlands
Dividend WHT
5%
If €100,000
investment
5%
if 10% holding
AND
€80,000
investment
5%
if 20%holding
AND
CHF 200,000
investment
5%
If 25% holding
AND
€100,000
investment
5%
If 25% holding
AND
€75,000
investment
Interest WHT 0% 0% 0% 5% 0%
Royalty WHT 0% 0% 0% 5% 0%
Capital Gain
(in Russian property
rich company)
Taxed in Russia
BUT as from
January 2017
Taxed in Russia
with immediate
effect
Taxed in Russia
with immediate
effect
Taxed in Russia
with immediate
effect
Taxed ONLY by
seller / alienator
Limitation of
Benefits
(treaty abuse)
ONLY
for companies not
incorporated in
Cyprus or Russia
Applicable in
ALL cases
Applicable in
ALL cases
Applicable in
ALL cases
except substantive
operations
None as per
existing DTT
*The New Luxembourg-Russia Protocol enters into force as from 1 January 2014
**New Malta-Russia Protocol not yet in force
Comparison of Russian DTTs
Use of Cyprus company
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Dividend:
0% Cyprus WHT
EU/ Non-EU Investor
Profit from trading in
shares and other titles
TAX EXEMPT
Use of Cyprus company
Cyprus Trading Company
Profit from trading or
provision of services
@12,5%
» EU VAT number
» Trade in EU / Non-EU
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Foreign banks, institutions or investors set up
Cyprus SPVs for their Dealing and Portfolio
Management (i.e. trading in shares) activities
Dividend:
0% Cyprus WHT
Forex profit
taxed at 12,5%
Foreign
Institution or
Investor
Profit from sale
of shares and
other titles is
TAX EXEMPT
Cyprus is a popular HQ base for FOREX
companies. There are around 25 licensed FX firms
in Cyprus (e.g. Alpari, IronFX, FX Pro)
Use of Cyprus company
Cyprus company is often a registered Fund
(Collective Investment Scheme) OR an SPV of a
foreign Fund
Cyprus Dealing / ‘Portfolio Management’ Company
Foreign
Forex
Subsidiaries
Dividend is
TAX EXEMPT
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Cyprus Financing Company
» Flat 12,5% tax on financing profit
» Reduced foreign WHT on interest income
by access to DTT or EU Directives
» Tax relief on foreign WHT suffered
» 0% Cyprus WHT on interest payments
» Thin Spreads allowed for back-to-back loans
(e.g. 0,35% spread)
Dividend:
0% WHT
Provision of loans
to related parties
Shareholder (Including offshore)
Use of Cyprus company
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Cyprus IP / Royalties Company
Use of Cyprus company
» 80% tax exemption on IP related profit
» Effective income tax of less than 2.5%
» Thin spreads possible
» Profit subject to 12.5% income tax
Cyprus company as IP owner
Cyprus company in a back-to-back
IP / licensing arrangement
Plus:
» Reduction / elimination of foreign WHT via access to DTT / EU I&R directive
» Foreign Tax Credit in case of foreign WHT
» No Cyprus WHT on outbound dividend and royalty payments
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Cyprus Company
Property outside Cyprus
EU / Non-EU
Resident
Sale of property OR of company
holding the property
» NO Cyprus taxes
Note: Local tax issues where
the property is situated need
to be considered separately
Cyprus Real Estate Company
Sale of Cyprus shares
» NO Cyprus taxes
Cyprus company owns
foreign property
(directly or via local company)
Use of Cyprus company
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Confidentiality through the use of a Nominee Shareholder
Nominee / Trustee shareholders permissible
(anonymity and confidentiality for beneficial shareholder)
Private
Trust Deed
Nominee shareholder
(Corporate or Physical)
Appears as registered shareholder
Beneficial shareholder
Confidentiality
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» Increased demand for Cyprus International Trusts over the last few years
(new trusts and redomiciliation of existing foreign trusts to Cyprus)
» CIT completely tax exempt in Cyprus if beneficiaries are non-Cyprus tax residents
» Various uses: Asset Protection, Estate Planning, Inheritance, Confidentiality, Tax Planning
The Cyprus International Trust
Cyprus International Trust (CIT):
Governed by the International Trusts Law of 1992 and 2012
» CIT law amended in 2012, in effect modernising and enhancing it
» Regulated by competent authority / bodies
Recent Developments
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Cyprus International Trust (CIT) with underlying Cyprus Company
CIT
Trustee(s)
(Minimum One Cyprus Resident)
Beneficiaries
Protector (Optional)
Settlor
Underlying
Company/ies
(e.g. Cyprus)
» Can subsequently become Cyprus residents
» Can subsequently become
Cyprus resident
Trusts
No Cyprus tax at the level of the CIT as long as the Beneficiaries are non-Cyprus tax
residents and no Cyprus source income (e.g. rent) at the level of the CIT
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BVI
Company
100%
Cyprus Company
Cyprus
International
Trust (CIT)
100%
Dividend: 0% WHT
• Dividend income: Exempt
• No taxes
Dividend: 0% WHT
EU / Non-EU
company
Non-Cyprus resident
*
*
CIT - Highest Level of Confidentiality
Underlying Property
(e.g. Subsidiaries, Real Estate)
Nominee Shareholder
possible *
• Non-Cyprus resident Settlor
Trusts & Confidentiality
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Use of Cyprus by foreign investors (companies and individuals)
Companies for
various uses Trusts Funds Partnerships
Forex and
Dealings
companies
Increased demand for:
Listing to
ECM/CSE
Redomiciliations
(Companies + Trusts)
Permanent Residence
Permits (‘PRP’)
Citizenship Real Estate
Investments
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Cyprus still stands strong!
Main elements constituting Cyprus as a prime jurisdiction for international structuring are unchanged
(Cyprus companies can operate with bank accounts outside Cyprus and in any currency)
» Legal system based on Common Law (easily understood and preferred)
» Tax system simple and attractive with a good Double Tax Treaty network and access to EU Directives
» Cyprus companies are easy, practical and cost efficient to set up and maintain
» Attractive immigration and relocation programs for non-Europeans
» High level of professional services, developed infrastructure and Real Estate of highest quality
» Efficient gateway to Europe and to certain non-EU countries
(e.g. Russia, Ukraine, South Africa and India)
Final Remarks
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Totalserve Management Ltd
Tax & Corporate Services
E. Economides & Partners LLC
Advocates & Legal Consultants
P.G.Economides & Co Limited
Chartered Certified Accountants
Thank You! Totalserve Management (Beijing) Ltd
Room 2411-12 China World Office 1
No. 1 Jianguomenwai Ave
Beijing 100004, China
Tel.: + 8610 65054811
Fax: + 8610 65054977
www.totalserve.eu