CYPRUS NEWSLETTER October 2016

Transcription

1 CYPRUS NEWSLETTER October 2016 Alter Domus

2 AGENDA NEW TAX LAWS Notional Interest deduction on equity (NID) - Cyprus issues guidance...03 Cyprus citizenship for investors - New criteria...03 Cyprus Fund Services update: Modernising funds legislation in private equity, venture capital and real estate OTHER TAX MATTERS Cyprus - India Tax Treaty revision...05 Cyprus - South Africa amending protocol ratified...05 Cyprus - Latvia Tax Treaty...05 Cyprus - Bahrain Tax Treaty ratified...05 CONTACT Contact Disclaimer: Please note that this Update is not intended as a complete study on all applicable legislation nor has it been written with a view to providing legal advice on any matter. Edited October

3 NEW TAX LAWS 1. Notional Interest deduction on equity (NID) - Cyprus issues guidance On 1 August 2016 the Cyprus Tax Department issued guidance, providing clarifications regarding the application of the NID regime, which was first introduced in The NID provides that Cyprus companies that are financed by their own funds are able to reduce their overall effective tax rate by claiming a deduction of notional expense as a percentage of the equity introduced to the company as from 1 January The new equity can include cash or assets (in kind contribution) and the NID deduction cannot exceed 80% of the taxable profit before NID. The guidance issued analyses what constitutes new equity in more detail. It also provides clarifications to the reference interest rate. In summary, the reference rate is the yield rate of the 10-year government bond of the state in which the equity is used, plus 3% having as a minimum the 10-year government bond rate of the Republic of Cyprus, applicable on 31 December of the previous year for which the NID is claimed, plus the 3%. The 2016 NID interest rate for Cyprus, Czech Republic, Germany, Latvia and Poland is 6.685%. Other countries yields as as included in the announcement include Romania (6.703%), UAE (10,490%), India (10.758%), Russia (12.570%) and Ukraine (12.622%). The guidance further explains the matching principle, under which the new equity should be matched with the income that was generated from the specific assets or investment activity finance through this equity. The NID application is demonstrated with the following structure example: Equity FOREIGN INVESTOR CYPRUS COMPANY Dividend The Cyprus company, provided that its major activity is that of financing, will be taxed on interest income it receives from operating company at 12.5%. With the application of the NID, the interest income can be taxed at 2.5% which is 12.5% less than the 80% given as notional interest. It is worth noting that the dividend payments from Cyprus have no withholding tax while the interest payments have a low or no withholding tax depending on the double tax treaty with the relevant country. 2. Cyprus citizenship for investors- New criteria On 13 September 2016 the Cyprus Council of Ministers has approved the amendments to the scheme for Cyprus citizenship by investment. The main changes include the reduction of the minimum investment amount to 2 million compared to 2.5 million under the previous criteria. Also, the investments must be maintained for at least three years. The investment can include: The purchases or construction of immovable property; The investment in businesses or companies established and operating in the Republic of Cyprus; The investment in Alternative Investment Funds established in Cyprus, licenced and supervised by the Cyprus Securities and Exchange Commission and who exclusively invest in the Republic of Cyprus; Combination of the above, which may also include the purchase of government bonds of the Republic of Cyprus of up to 500,000. The applicant must possess a permanent privatelyowned residence in the Republic of Cyprus with a purchase price of at least 500,000 plus VAT. Debt Interest OPERATING COMPANY CYPRUS NEWSLETTER - October

4 NEW TAX LAWS 3. Cyprus Fund Services update: Modernising funds legislation in private equity, venture capital and real estate In 2015 the Cyprus Investment Funds Association (CIFA) engaged King & Wood Mallesons to perform a thorough investigation into the country s legal and tax framework and advise their opinion on reforms that would help Cyprus to utilise its competitive advantages to attract fund business. Competitive advantages such as the extensive tax treaty network, abundance of professionally qualified personnel, accumulated experience as a services jurisdiction, comparably manageable costs, common law jurisdiction as a member of the Commonwealth, onshore EU member status and its geographic location being in the crossroad of three continents, make Cyprus an attractive location for structuring. The following amendments to the Cyprus legislation are expected to be implemented in 2016, adding further to the already flexible and option rich fund structuring environment: AIFM SUB-THRESHOLD MINI MANAGER The scheme will be applicable to emerging or existing managers with AUMs lower than the AIFMD threshold (thresholds being up to Eur 100 million of AUM including assets acquired through leverage or up to Eur 500 million of AUM when the AIF is unleveraged). The Mini Manager assists in meeting the requirements of AIFMD cost wise which in other cases jeopardise the launch of smaller structures due to high costs. The new regime will be a lighter version of regulation for managers facilitating the launch of such smaller structures as well as their track record efforts. The Mini Manager scheme is expected to be launched shortly after the implementation of the remainder of the changes. Partners to select whether the fund partnership will be set up as a separate legal entity or not, while remaining a tax transparent entity. This will enable Cyprus Limited Liability Partnerships to invest in other Partnerships, accommodating managers setting up fund of funds partnership structures. Furthermore, the Partnership Law will include a safe harbour list setting out the activities that a Limited Partner can undertake without jeopardising their limited liability status. CYPRUS REGISTERED ALTERNATIVE INVESTMENT FUND Cyprus will be introducing its own version of an unregulated but registered alternative investment fund along the same lines as the Luxembourg RAIF. The fund will be required to be managed by an AIFM licensed in Cyprus or another EU country while it could be marketed to professional or wellinformed investors within the EU. FUND ADMINISTRATION REGULATION In an effort to push the industry forward, Cyprus will be regulating fund administration services under the Cyprus Securities and Exchange Commission. The new regulation is expected to require Fund Administration service providers to each have a minimum number of dedicated professionally qualified employees, advanced software solutions both for record keeping as well as disaster recovery, fit and proper attestation of directors and minimum capital requirements, and other such requirements. Further updates will follow once the above initiatives are transposed into law. INTRODUCTION TO LIMITED LIABILITY PARTNERSHIP The Limited Partnership law is being amended to add further to the current Limited Partnership structure, the well-known Limited Liability Partnership, providing an option to General CYPRUS NEWSLETTER - October

5 OTHER TAX MATTERS 1. Cyprus India Tax Treaty - revision On 29 June 2016 the Cyprus Ministry of Finance announced the completion of the negotiations concerning the amendments of the double tax treaty between Cyprus and India. Removal of Cyprus as Notified Jurisdiction Due to the successful completion of the new protocol which replaces the 1994 treaty, the Indian Tax Authorities removed Cyprus from the list of Notified Jurisdictions retrospectively as from 1 November The following withholding tax rates will continue to apply. Dividend payments: Subject to a 15% withholding tax rate in India. The withholding tax is reduced to 10%, if the recipient is a company which holds at least 10% of the share capital of the dividend paying company. Interest payments: Subject to a 10% withholding tax rate in India. Royalty and service fees payments: Subject to a 15% withholding tax rate in India. Payments of a technical, managerial or consulting nature are subject to a 10% withholding tax rate in India. Grandfathering provisions The new protocol includes grandfathering provisions for shares acquired prior to 1 April Cyprus retains the right to tax gains, from disposal of grandfathered shares. In addition, the Amending Protocol updates the Exchange of Information clause. The new double tax treaty will have a retrospective effect from 1 April Cyprus - Latvia Tax Treaty On 24 May 2016 Cyprus and Latvia signed a Tax Treaty. The treaty will come into force after the two countries complete the legal formalities. Details on the treaty provisions are outlined below: Permanent Establishment: A building site or construction or installation project constitutes a permanent establishment only if it lasts more than 9 months. According to the tax treaty, the withholding taxes on dividends, interest and royalties is 0%. 4. Cyprus - Bahrain Tax Treaty ratified The double tax treaty signed between Cyprus and Bahrain and ratified on 28 February 2016 is effective from 1 January In accordance with the treaty, the withholding taxes on dividends, interest and royalties is 0%. 2. Cyprus - South Africa amending protocol ratified The double tax treaty protocol signed between Cyprus and South Africa was ratified on 18 September As per the Amending Protocol, withholding tax on dividend payments is now amended to: 5% if the beneficial owner is a company which holds at least 10% of the capital of the company paying the dividends, Interest and Royalties withholding tax is 0% CYPRUS NEWSLETTER - October

6 CYPRUS GEORGE ROLOGIS Regional Executive Europe & MEA Group Head Corporate Development - Strategy & M&A George.Rologis@alterDomus.com CYPRUS ALKIS KAILOS Director - Chief Operations Officer Cyprus Alkis.Kailos@alterDomus.com CYPRUS EVDOKIA STAVRAKI-STEPHANOU Director Evdokia.Stavraki-Stephanou@alterDomus.com Alter Domus is a leading European provider of Fund and Corporate Services dedicated to international private equity & infrastructure houses, real estate firms, multinationals, private clients and private debt managers. Our vertical integrated approach offers tailor-made administration solutions across the entire value chain of investment structures, from fund level down to local Special Purpose Vehicles. Alter Domus 2016 Founded in Luxembourg in 2003, Alter Domus has continually expanded its global service offer and today counts 31 offices and desks across five continents. This international network enables clients to benefit globally from the expertise of more than 950 experienced professionals active in fund administration, corporate secretarial, accounting, consolidation, tax and legal compliance and debt administration services. We are proud to serve 9 of the 10 largest private equity & infrastructure houses, 7 of the 10 largest real estate firms in the world and 5 of the 10 largest private debt managers in the world. EUROPEAN SPECIALIST ADMINISTRATOR WINNER FUNDS EUROPE AWARDS 2013, 2014 & 2015