Attractive European Union Jurisdictions for setting up a holding structure - the case of Cyprus. Melina Karaolia

Transcription

1 Attractive European Union Jurisdictions for setting up a holding structure - the case of Cyprus Melina Karaolia

2 Cyprus: Europe most promising business location Part I: Cyprus as an international business center Part II: The tax regime Part III: Structuring ideas using Cyprus

3 Cyprus: Europe most promising business location Part I: Cyprus as an international business center Part II: The tax regime Part III: Structuring ideas using Cyprus

4 Cyprus - Basic Features Independent Sovereign Republic since 1960 Member of EU since 2004 Member of the British Commonwealth since 1960 Well developed international business sector Excellent Telecommunication Infrastructure Advanced Banking System

5 Cyprus as an International Business Center One of the most successful and mature business centers in the European Union All-round development Combination of factors: Economic stability Infrastructure Service providers Banking

6 Cyprus as an International Business Center Inherent Features Geographical Location Time Zone Beautiful nature surroundings Mild weather year round All-round Developments Economic Stability & Prospect (High rating by international rating agencies. 2008: Aa 3 - Moody s Fitch s AA - ) Comprehensive Technical Infrastructure Coherent Legal & Administrative System High Ethical & Professional standards of its people educated, qualified and multilingual workforce (30.5% of population in the age bracket have tertiary education compared to EU25: 23.4% )

7 Cyprus: Europe most promising business location Part I: Cyprus as an international business center Part II: The tax regime Part III: Structuring ideas using Cyprus

8 The Tax Regime Main Features of the Cyprus tax system Uniform tax rate - No discrimination between local and overseas companies No exchange controls Complete and unrestricted freedom for all EU enterprises to do business in Cyprus

9 The Tax Benefits - Incentives Full Adherence to EU8 OECD Legislation and Requirements Most Competitive Corporate Tax Rate - 10% Consistency in interpretation of tax legislation Stable Tax Regime - No frequent changes to tax law Full participation exemption including capital gains Non-Residents not liable to any withholding tax Tax basis: Residence principle

10 Business Profits Cyprus companies liable to a flat 10% corporate tax on profits Profits of foreign PE s are exempt from tax in Cyprus (subject to minor conditions)

11 Foreign Dividends Foreign dividends exempt from taxation in Cyprus when company owns more than 1% of the paying company Exemption not available if: paying company is directly or indirectly engaged more than 50% in activities which result in investment income AND the paying company is subject to tax at a rate of tax in other jurisdiction that is substantially lower than the Cyprus rate (i.e lower than 5%) No corporation Tax on dividends received

12 Summary of taxation of main sources of income receivable by corporations Corporation Tax (10%) Profits of companies or PE s in Cyprus PE abroad Dividends - Domestic - Foreign Interest - Active - Passive Titles (e.g. shares) Gains on immovable property outside Cyprus Yes Exempt under conditions Exempt Exempt 10% 50% taxed at 10% Exempt Exempt (also from CGT)

13 Withholding taxes For payments made to non residents: Dividend Interest Royalty No tax No tax No tax - when intangible used out of Cyprus 10% - when intangible used in Cyprus

14 Additional Significant Features No CFC rules No thin capitalization rules Arms length principle No stamp duty on contracts relating to matters outside Cyprus (capped to ) Capital duty on share issue applicable. Same can be minimized substantially by issuing shares at a premium Full applicability of EU directives Losses carried forward with no restriction Group relief - 75% direct or indirect holding Fast tax rulings and residence certificates Attractive DTT network, reducing WHT on dividend income

15 Tax Treaty Network Austria Hungary San Marino Belarus India Seychelles Belgium Ireland Singapore Bulgaria Italy Slovakia Canada Kywait South Africa China Lebanon Sweden Czech Republic Malta Syria Denmark Mauritius Thailand Egypt Norway United Kingdom France Poland United States Germany Romania Former Yugoslavian Republic Greece Russia

16 Cyprus: Europe most promising business location Part I: Cyprus as an international business center Part II: The tax regime Part III: Structuring ideas using Cyprus

17 Structuring using Cyprus The basic idea Equity Debt Investor Country Dividends interest Holding Trading & Dealing structures Cyprus Collective Investment Schemes Equity Debt Dividends interest Trusts Austria

18 Inbound Investments into Eastern European Countries: Austria Austria Co Eastern European Country Dividend exempt under conditions < 10% Dividend 15% WHT Austria Co Cyprus Co Eastern European Country No Tax Dividend 0% WHT No Tax in Cyprus Dividend 5% WHT Cyprus reduces WHT from 15% to 5% No taxation on dividends received in Cyprus and Austria

19 Finance Structure Investor equity Cyprus Co No WHT Interest 10% Plan: Investor establishes Cyprus company to act as finance company of the group. Capitalization with equity. Benefits: Conversion of taxable interest to possibly exempt dividend EU Co loan Russia 0% WHT on interest (Non EU: Treaty EU: Directive) Tax relief in operating company at applicable tax rate CY tax on interest = 10% Tax relief at applicable rate No WHT on dividends paid by Cyprus Company Profits can be reinvested at Cyprus Level Capital reduction or liquidation of Cyprus Co exempt

20 Royalty Structure - Basic Structure Investor Dividends 0% WHT BVI company IP Cyprus Co Small margin taxed in Cyprus at 10% IP EU & non-eu operating company Royalties 0% or reduced WHT (Directive/Treaty)

21 Thank you for your attention