Corporate Tax 2012

The International Comparative Legal Guide to: Corporate Tax 2012 A practical cross-border Published by Global Legal Group with insight to corporate tax work contributions from: Aivar Pilv Law Office ALMT Legal Arqués Ribert Junyer Advocats Avanzia Taxand Limited Bugge, Arentz-Hansen & Rasmussen (BA-HR) Banwo & Ighodalo B.C. Toms & Co. Boga & Associates Bredin Prat CBA Studio Legale e Tributario Clifford Chance LLP Cuatrecasas, Gonçalves Pereira Debarliev, Dameski & Kelesoska Attorneys at Law Dorda Brugger Jordis Dr. K. Chrysostomides & Co LLC Elvinger, Hoss & Prussen Georgiev, Todorov & Co. Gide Loyrette Nouel Warsaw Office Gorrissen Federspiel Greenwoods & Freehills Hannes Snellman Attorneys Ltd Hendersen Taxand Herzog Fox & Neeman Juridicon Law Firm KALO & ASSOCIATES KGDI Law Firm Leitner + Leitner, d.o.o. Lenz & Staehlin LOGOS legal services McCann FitzGerald Nagashima Ohno & Tsunematsu Negri & Teijeiro Abogados Nithya Partners Pachiu & Associates P+P Pöllath + Partners Proskauer Rose LLP Salans Schulte Roth & Zabel LLP Slaughter and May Thorsteinssons LLP White & Case LLP Yoon & Yang LLC The International Comparative Legal Guide to: Corporate Tax 2012 General Chapters: 1 UK Holding Companies and CFC Reform - William Watson, Slaughter and May 1 2 Gazing in the Crystal Ball: The State of Corporate Tax Reform in the United States - Dan A. Kusnetz, Schulte Roth & Zabel LLP 5

Contributing Editor William Watson, Country Question and Answer Chapters: Slaughter and May 3 Albania KALO & ASSOCIATES: Aigest Milo & Ardjana Shehi 15 Account Managers 4 Andorra Arqués Ribert Junyer Advocats: Daniel Arqués i Tomàs & Mireia Ribó i Bregolat 19 Monica Fuertes, Dror 5 Argentina Negri & Teijeiro Abogados: Guillermo O. Teijeiro & Ana Lucía Ferreyra 25 Levy, Florjan Osmani, Oliver Smith, Rory Smith, 6 Australia Greenwoods & Freehills: Adrian O’Shannessy & Andrew Mills 33 Toni Wyatt 7 Austria Dorda Brugger Jordis: Paul Doralt & Martina Znidaric 39 Sub Editors 8 Belgium Clifford Chance LLP: Thierry Blockerye & Pierre-Olivier van Caubergh 45 Suzie Kidd 9 Bulgaria Georgiev, Todorov & Co.: Georgi Kostolov 53 Jodie Mablin 10 Canada Thorsteinssons LLP: Michael Colborne & Michael McLaren 58 Senior Editor 11 China Hendersen Taxand: Dennis Xu & Eddie Wang 63 Penny Smale 12 Cyprus Dr. K. Chrysostomides & Co LLC: Dr. Kypros Chrysostomides & George Ioannou 68 Managing Editor 13 Czech Republic Salans: Petr Kotáb 72 Alan Falach 14 Denmark Gorrissen Federspiel: Lars Fogh & Jakob Skaadstrup Andersen 78 Group Publisher 15 Estonia Aivar Pilv Law Office: Jaak Siim & Ilmar-Erik Aavakivi 84 Richard Firth 16 Finland Hannes Snellman Attorneys Ltd: Ossi Haapaniemi & Outi Raitasuo 92 Published by 17 France Bredin Prat: Yves Rutschmann & Marion Méresse 97 Global Legal Group Ltd. 59 Tanner Street 18 Germany P+P Pöllath + Partners: Richard Engl & Gerhard Specker 103 London SE1 3PL, UK 19 Greece KGDI Law Firm: Elisabeth Eleftheriades & Panagiotis Pothos 109 Tel: +44 20 7367 0720 20 Iceland LOGOS legal services: Bjarnfredur Olafsson 116 Fax: +44 20 7407 5255 21 India ALMT Legal: Aliff Fazelbhoy & Astha Chandra 120 Email: [email protected] URL: www.glgroup.co.uk 22 Ireland McCann FitzGerald: Michael Ryan & Eleanor MacDonagh 126 23 Israel Herzog Fox & Neeman: Meir Linzen & Eldar Ben-Ruby 132 Cover Design F&F Studio Design 24 Italy CBA Studio Legale e Tributario: Paolo Omodeo Salè & Nicoletta Mazzitelli 138 GLG Cover Image Source 25 Japan Nagashima Ohno & Tsunematsu: Yuko Miyazaki 145 Stock.XCHNG 26 Korea Yoon & Yang LLC: Seung-Soon Lim & Tae-Hwan Oh 152 Printed by 27 Kosovo Boga & Associates: Alketa Uruçi & Andi Pacani 158 Information Press Ltd 28 Lithuania Juridicon Law Firm: Laimonas Marcinkevičius & Ingrida Steponavičienė 162 October 2011 29 Luxembourg Elvinger, Hoss & Prussen: Pierre Elvinger & Dirk Richter 170 Copyright © 2011 30 Macedonia Debarliev, Dameski & Kelesoska Attorneys at Law: Dragan Dameski 177 Global Legal Group Ltd. 31 Malta Avanzia Taxand Limited: Walter Cutajar & Mary Anne Inguanez 181 All rights reserved No photocopying 32 Nigeria Banwo & Ighodalo: Abimbola Akeredolu & Dipo Okuribido 188 33 Norway Bugge, Arentz-Hansen & Rasmussen (BA-HR): Frode Talmo & Joachim M Bjerke 192 ISBN 978-1-908070-11-1 ISSN 1743-3371 34 Poland Gide Loyrette Nouel Warsaw Office: Ewa Opalińska & Maciej Grela 198 35 Romania Pachiu & Associates: Andrei Dumitrache & Vlad Rădoi 203 36 Slovakia White & Case LLP: Matej Firický & Tomáš Cibuľa 210 37 Slovenia Leitner + Leitner, d.o.o.: Blaž Pate 215 38 Spain Cuatrecasas, Gonçalves Pereira: Alejandro Escoda & Andreas Trost 220 39 Sri Lanka Nithya Partners: Naomal Goonewardena & Sheranka Madanayake 227 40 Switzerland Lenz & Staehlin: Heini Rüdisühli & Jean-Blaise Eckert 232 41 Ukraine B.C. Toms & Co: Bate C. Toms & Mykhailo Razuvaiev 240 42 United Kingdom Slaughter and May: William Watson & Zoe Andrews 247 43 USA Proskauer Rose LLP: Stuart L. Rosow & Amanda H. Nussbaum 253 44 Vietnam Gide Loyrette Nouel A.A.R.P.I.: Samantha Campbell & Phan Thi Lieu 261

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www.ICLG.co.uk Chapter 12 Cyprus Dr. Kypros Chrysostomides

Dr. K. Chrysostomides & Co LLC George Ioannou

1 General: Treaties EURO 256.29 plus 2% for any amounts over EURO 170,860.14, with a maximum stamp duty of EURO 17,086.01. 1.1 How many income tax treaties are currently in force in Cyprus? 2.2 Do you have Value Added Tax (or a similar tax)? If so, at Cyprus has 47 bilateral treaties in force. what rate or rates?

Cyprus has VAT tax which is 15% (standard rate), or a reduced rate 1.2 Do they generally follow the OECD or another model? of 8%, 5% or 0% for certain items.

The treaties generally follow the OECD model. 2.3 Is VAT (or any similar tax) charged on all transactions or are there any relevant exclusions? 1.3 Do treaties have to be incorporated into domestic law before they take effect? VAT is charged only for the provision of goods and services.

The treaty is signed by a representative of the Cyprus government (usually the Minister of Finance), it is approved by the council of 2.4 Is it always fully recoverable by all businesses? If not, what are the relevant restrictions? Ministers and it is published in the Government Newspaper before its takes effect. VAT is recoverable by those businesses which are registered with the Cyprus VAT authority. 1.4 Do they generally incorporate anti-treaty shopping rules (or “limitation of benefits” articles)? 2.5 Are there any other transaction taxes? Treaties follow the OECD model. There are no specific provisions for “limitation of benefits”. None, other than stamp duty.

1.5 Are treaties overridden by any rules of domestic law 2.6 Are there any other indirect taxes of which we should be (whether existing when the treaty takes effect or aware? introduced subsequently)? Other than VAT, there are no other indirect taxes. Treaties are not overridden by domestic law, but in some cases domestic law provides greater relief and benefits to Cyprus tax 3 Cross-border Payments residents. For example, domestic legislation provides for credit in relation to payment of taxes abroad and no withholding tax on payments from Cyprus to a third country regardless of the text of a 3.1 Is any withholding tax imposed on dividends paid by a treaty. locally resident company to a non-resident?

No withholding tax is imposed on dividends paid by a local resident 2 Transaction Taxes company to a non-resident.

2.1 Are there any documentary taxes in Cyprus? 3.2 Would there be any withholding tax on royalties paid by a local company to a non-resident? Stamp duty is imposed on any document which concerns any property situated in the Republic of Cyprus or matters or things to No withholding tax is imposed on royalties paid by a local resident be executed or done in the Republic of Cyprus, irrespective of the company to a non-resident. place of execution of the document, at the following rates: 1.5% for any amounts up to EURO 170,860.14; and

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3.3 Would there be any withholding tax on interest paid by a 4.5 Are there any tax grouping rules? Do these allow for local company to a non-resident? relief in Cyprus for losses of overseas subsidiaries?

No withholding tax is imposed on interest paid by a local resident There is group tax relief in Cyprus between companies where one company to a non-resident. is a shareholder of the other by 75%, or both are 75% subsidiaries of a third company. Losses from overseas subsidiaries are included in the group. 3.4 Would relief for interest so paid be restricted by reference to “thin capitalisation” rules? 4.6 Is tax imposed at a different rate upon distributed, as

This is not applicable in Cyprus. There are no “thin capitalisation opposed to retained, profits? Cyprus rules” in Cyprus. There is no difference in these rates in Cyprus. 3.5 If so, is there a “safe harbour” by reference to which tax relief is assured? 4.7 Are companies subject to any other national taxes (excluding those dealt with in “Transaction Taxes”) - e.g. This is not applicable in Cyprus. tax on the occupation of property?

Cyprus tax resident companies are subject to special defence 3.6 Would any such “thin capitalisation” rules extend to debt contribution tax on rents (3%), interest income (10%) and dividends advanced by a third party but guaranteed by a parent company? (15%), if the subsidiary payment of the dividend is established in a jurisdiction which has less than 5% corporate tax, and more than 50% of the subsidiary’s income results from investment activities. This is not applicable in Cyprus. There are no “thin capitalisation rules” in Cyprus. 4.8 Are there any local taxes not dealt with in answers to other questions? 3.7 Are there any other restrictions on tax relief for interest payments by a local company to a non-resident? No other local taxes. This is not applicable for Cyprus as there are no restrictions. 5 Capital Gains 3.8 Does Cyprus have transfer pricing rules? 5.1 Is there a special set of rules for taxing capital gains and Cyprus does not have transfer pricing rules. losses?

4 Tax on Business Operations: General Capital gains tax of 20% is imposed on profit from the sale of immovable property situated in Cyprus. Proceeds from the sale of shares are exempt from capital gains tax. 4.1 What is the headline rate of tax on corporate profits?

5.2 If so, is the rate of tax imposed upon capital gains Cyprus has a flat rate of 10% tax on corporate profits. different from the rate imposed upon business profits?

4.2 When is that tax generally payable? The rate is 20% on the profit.

Tax is payable in three instalments according to the year of 5.3 Is there a participation exemption? assessment (1st August, 30th September, 31st December). Any balance not paid within the year is paid when the tax return is filed. There is no such exemption in Cyprus.

4.3 What is the tax base for that tax (profits pursuant to 5.4 Is there any special relief for reinvestment? commercial accounts subject to adjustments; other tax base)? There is no relief for reinvestment in Cyprus. Financial statements prepared under IFRS are subject to tax adjustments. 6 Local Branch or Subsidiary?

4.4 If it otherwise differs from the profit shown in commercial 6.1 What taxes (e.g. capital duty) would be imposed upon the accounts, what are the main other differences? formation of a subsidiary?

This is not applicable in Cyprus. There is no tax for the formation of a subsidiary in Cyprus or abroad. There is capital duty of 0.6% on the value of share capital issued, but not on the value of the share premium.

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6.2 Are there any other significant taxes or fees that would be 7 Overseas Profits incurred by a locally formed subsidiary but not by a branch of a non-resident company? 7.1 Does Cyprus tax profits earned in overseas branches? The tax treatment between a Cypriot company and a branch of a non-resident company is the same. This will depend on the wording of the double tax treaty between Cyprus and the other country.

6.3 How would the taxable profits of a local branch be determined? 7.2 Is tax imposed on the receipt of dividends by a local

Cyprus company from a non-resident company? The branch, being a permanent establishment in Cyprus, should account for its taxable profits in Cyprus. The branch should prepare Dividends received from a non-resident subsidiary will be exempt audited financial statements under IFRS. from corporation tax, but might be subject to a special defence contribution tax (please see question 4.7 above).

6.4 Would such a branch be subject to a branch profits tax (or other tax limited to branches of non-resident companies)? 7.3 Does Cyprus have “controlled foreign company” rules and if so when do these apply? Please see above. No CFC rules are in place in Cyprus.

6.5 Would a branch benefit from tax treaty provisions, or some of them? 8 Anti-avoidance

A branch which is a permanent establishment in Cyprus would 8.1 Does Cyprus have a general anti-avoidance rule? benefit from the tax treaty network. No anti-avoidance rules are in place. 6.6 Would any withholding tax or other tax be imposed as the result of a remittance of profits by the branch? 8.2 Is there a requirement to make special disclosure of avoidance schemes? No withholding tax will be imposed. No such requirement is in place.

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Dr. Kypros Chrysostomides George Ioannou

Dr. K. Chrysostomides & Co LLC Dr. K. Chrysostomides & Co LLC 1 Lampousas Street 1 Lampousas Street 1095 Nicosia 1095 Nicosia Cyprus Cyprus

Tel: +357 2277 7000 Tel: +357 2277 7000 Fax: +357 2277 9939 Fax: +357 2277 9939 Email: [email protected] Email: [email protected] URL: www.chrysostomides.com URL: www.chrysostomides.com Cyprus Dr. Kypros Chrysostomides, founder and managing partner of Dr. Senior associate George Ioannou joined the Corporate & K. Chrysostomides & Co LLC, is one of Cyprus’ leading corporate Commercial department at Dr. K. Chrysostomides & Co LLC in and tax lawyers. He specialises in business law, human rights 2008. He has significant experience in transactions support, and law, international and constitutional law, and has published is highly specialised in the provision of tax advice and extensively on all these subjects. Dr. Chrysostomides studied international tax planning, cross border mergers, transfers of Law at Athens University and Comparative Law at the Luxemburg corporate seat, preparation of legal capacity opinions and due Law School, followed by postgraduate studies at the University of diligence reports. Prior to joining the firm, Mr. Ioannou held the Bonn, where he gained his Ph.D., specialising in Company Law. position of Assistant Manager at PricewaterhouseCoopers Dr. Chrysostomides is a member of the Cyprus Bar Association, Cyprus, where he also qualified as a Chartered Accountant. He the Greek Institute of International Law, the ILA, the IBA, the IFA advised on tax planning and tax compliance, and was involved and the ITPA. He served as a Government Spokesman (Minister with the provision of internal audit services, feasibility studies and for Press & Information) of the Republic of Cyprus between 2003- due diligence assignments in a number of areas, including retail, 2006, and in May 2006 he was elected a member of the House of manufacturing, trading and service industries. Representatives. He was appointed Minister of Justice and Public Order in February 2008.

Dr. K. Chrysostomides & Co LLC is one of the largest law firms in Cyprus. Established in 1981, it is recognised as one of the country’s leading firms by the major international legal directories. The strength of the firm’s legal practice lies in the capabilities and diversified qualities of more than 55 legal and paralegal professionals, covering a wide range of legal and related services. The firm operates via its head office in Cyprus’ capital city Nicosia, along with branches in Larnaca and Limassol (Cyprus), and its Brussels office, providing legal services to a worldwide clientele, comprising of both multinational and private clients. Through the firm’s long interaction with international clients, its participation in international professional bodies, and its servicing of the Cyprus- based client network, Dr. K. Chrysostomides & Co LLC has built a highly regarded practice which combines a detailed, multi- faceted knowledge of the domestic legal system with an international orientation. Main practice areas include (in alphabetical order): Acquisitions & Restructures Arbitration, General Practice, Banking & Secured Financing, Competition Law, Corporate & Commercial Law, Cross-border Transactions & Structures, Employment & Migration Law, Family Law, Human Rights Law, Intellectual Property Law (trade marks, patents, designs, copyright and other related rights), Litigation, Mergers, Public & Private International Law, Real Estate Law, Securities, Taxation Law, Trusts, and Wills & Succession. Dr. K. Chrysostomides & Co LLC is the exclusive Cyprus member to Lex Mundi, the world’s leading association of independent law firms. Τhe firm is, in fact, one of the founding members of Lex Mundi. It is also the exclusive Cyprus legal firm to WSG (World Services Group) and TELFA (Trans European Law Firms Alliance). The firm’s partners are active members of professional legal organisations, such as the International Bar Association, the International Law Association, the International Association of Young Lawyers and the International Trademark Association. In February 2011, Dr. K. Chrysostomides & Co LLC received the “Cyprus Export Award for Services 2009” from the Cyprus Ministry of Commerce, Industry and Tourism, as well as the Cyprus Chamber of Commerce and Industry, in recognition of exceptional legal services.

ICLG TO: CORPORATE TAX 2012 WWW.ICLG.CO.UK 71 © Published and reproduced with kind permission by Global Legal Group Ltd, London The International Comparative Legal Guide to: Corporate Tax 2012 Other titles in the ICLG series include: Business Crime Litigation & Dispute Resolution Cartels & Leniency Merger Control Class & Group Actions Mergers & Acquisitions Commodities and Trade Law Patents Competition Litigation PFI / PPP Projects Corporate Governance Pharmaceutical Advertising Corporate Recovery & Insolvency Private Client Law Dominance Product Liability Employment & Labour Law Project Finance Enforcement of Competition Law Public Procurement Environment & Climate Change Law Real Estate Gas Regulation Securitisation Insurance & Reinsurance Telecommunication Laws and Regulations International Arbitration Trademarks

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