: Gateway to Europe and the World “The continuing efficient use of Cyprus in international structuring”

Sissy Zhang, BSc, MSc, ACCA General Manager Totalserve Management (Beijing) Ltd [email protected]

TTN Hong Kong - 18 November 2013 1 Group Structure

P.G.Economides & Co Limited Totalserve Management Ltd Chartered Certified Accountants Tax & Corporate Services Totalserve Management (Beijing) Ltd

E. Economides & Partners LLC

Advocates & Legal Consultants Totalserve Trustees Ltd Professional Trustees 2 Totalserve Group

Offices Worldwide

Cyprus - HQ

London Luxembourg Warsaw Moscow

Athens Thessaloniki Tortola (BVI) Johannesburg

Cape Town Bucharest Sofia Beijing

3 Beijing Office

Beijing

Totalserve (Beijing) Management Ltd

Zheng Sissy Zhang, BSc, MSc, ACCA Totalserve (Beijing) Management Ltd Beijing Office General Manager Room 2411-12 China World Office 1 Mob.: + 86 136 936 66483 [email protected] No. 1 Jianguomenwai Ave Beijing 100004, China

Tel.: + 8610 65054811 Yue Chao "Mathew" Fang Fax: + 8610 65054977 Beijing Office Marketing Manager [email protected] www.totalserve.eu Mob.: + 86 133 112 22495 [email protected] 4 Recent Developments

The Cyprus Banking Sector Crisis

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

5 Recent Developments

New Dynamics for Cyprus Economy

» 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 6 Recent Developments

RECENT Cyprus DEVELOPMENTSimmigration and relocation schemes for non-Europeans

Temporary Work and Residence permit

» Issued for 1-5 years if employed by a Cyprus company. Renewable if needed.

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

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

7 Recent Developments

Main recent tax changes affecting international investors

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)

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

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%

8 » 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

9 CYPRUS: Gateway to Europe

Increased demand by non-European individuals and companies to have access to Europe …

Egypt

10 CYPRUS: Gateway to certain non-EU countries

Russia

Ukraine

South Africa

India

11 Cyprus Tax System

General Overview

Cyprus Tax System: Unique, Attractive, Competitive, Simple, Investor friendly

» 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

12 Cyprus Tax System

Main Favorable Tax Provisions

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

13 Cyprus Tax System

Other main features

» 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

14 Cyprus Tax System

Cyprus: Double Tax Treaty Network

Armenia Ireland Serbia * * Austria Seychelles Belarus Kuwait Singapore Kyrgyzstan * Lebanon * CIS Countries applying the Cyprus/USSR DTT Malta Canada South Africa ** Countries applying the Cyprus/Yugoslavia DTT Mauritius China (as from 2014) Moldova Montenegro * * Tajikistan * Egypt Thailand (as from 2014) Ukraine (as from 2014) (as from 2014) United Kingdom Qatar USA Romania Germany All DTTs based on OECD model San Marino

15 Cyprus Tax System

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, / Belgium, France, Greece, , , Libya, Malaysia, India, Norway, San Marino

16 Cyprus Tax System

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

» Parent / Subsidiary Directive

- on dividends * Like having a DTT » Interest and Royalty Directive with all EU Member States with zero WHT rates - on interest and royalty *

* Certain conditions may apply depending on how implemented on each Member State

17 Cyprus Tax System

Use of the Cyprus Company

Tax efficient location for:

» Holding company

» Financing company

» Royalty company

» Trading company

» Shipping company

» Employment company

» Trust company

18 Use of Cyprus company

Cyprus Holding Company

EU / Non-EU company

Non-Cyprus resident Dividend: Zero Cyprus WHT

Sale or transfer of Cyprus shares not subject to Cyprus tax

Potential zero Cyprus taxes as dividend and capital gains are tax exempt

Dividend: Foreign WHT zero Dividend: through access Foreign WHT zero to P/S EU Directive or reduced through access to DTT Non-EU Company

19 Use of Cyprus company

Use of Cyprus towards certain non-EU countries

Cyprus has excellent Double Tax Treaties with certain non-EU countries …

Russia Ukraine South Africa India

20 Use of Cyprus company

Cyprus Holding Company for certain non-EU countries

EU / Non-EU investor

Russia Ukraine South Africa India Other CIS *

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 include: Armenia, Belarus, Kyrgyzstan, Moldova, Tajikistan 21 Use of Cyprus company

Russia – Cyprus Relations

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

22 Use of Cyprus company

Comparison of Russian DTTs

Cyprus Luxembourg* Switzerland Malta** Netherlands

5% 5% 5% 5% 5% if 20%holding If 25% holding If 25% holding Dividend WHT If €100,000 if 10% holding AND AND AND investment AND €80,000 CHF 200,000 €100,000 €75,000 investment investment investment investment

Interest WHT 0% 0% 0% 5% 0%

Royalty WHT 0% 0% 0% 5% 0%

Capital Gain Taxed in Russia Taxed in Russia Taxed in Russia Taxed in Russia Taxed ONLY by (in Russian property BUT as from with immediate with immediate with immediate seller / alienator rich company) January 2017 effect effect effect

ONLY Applicable in Limitation of for companies not Applicable in Applicable in ALL cases None as per Benefits incorporated in ALL cases ALL cases except substantive existing DTT (treaty abuse) Cyprus or Russia operations

*The New Luxembourg-Russia Protocol enters into force as from 1 January 2014

**New Malta-Russia Protocol not yet in force 23 Use of Cyprus company

Cyprus Trading Company

EU/ Non-EU Investor Dividend: 0% Cyprus WHT

Profit from trading or Profit from trading in provision of services shares and other titles @12,5% TAX EXEMPT

» EU VAT number » Trade in EU / Non-EU

24 Use of Cyprus company

Cyprus Dealing / ‘Portfolio Management’ Company

Foreign banks, institutions or investors set up Foreign Cyprus SPVs for their Dealing and Portfolio Institution or Management (i.e. trading in shares) activities Investor Dividend: 0% Cyprus WHT Cyprus company is often a registered Fund (Collective Investment Scheme) OR an SPV of a foreign Fund

Cyprus is a popular HQ base for FOREX Dividend is companies. There are around 25 licensed FX firms TAX EXEMPT in Cyprus (e.g. Alpari, IronFX, FX Pro)

Profit from sale Forex profit Foreign of shares and taxed at 12,5% Forex other titles is Subsidiaries TAX EXEMPT

25 Use of Cyprus company

Cyprus Financing Company

Shareholder (Including offshore) Dividend: » Flat 12,5% tax on financing profit 0% WHT » 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

Provision of loans » Thin Spreads allowed for back-to-back loans to related parties (e.g. 0,35% spread)

26 Use of Cyprus company

Cyprus IP / Royalties Company

Cyprus company as IP owner » 80% tax exemption on IP related profit » Effective income tax of less than 2.5%

Cyprus company in a back-to-back IP / licensing arrangement » Thin spreads possible » Profit subject to 12.5% income tax

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

27 Use of Cyprus company

Cyprus Real Estate Company

EU / Non-EU Resident

Sale of Cyprus shares » NO Cyprus taxes

Cyprus Company

Sale of property OR of company holding the property » NO Cyprus taxes

Property outside Cyprus Cyprus company owns foreign property (directly or via local company) Note: Local tax issues where the property is situated need to be considered separately 28 Confidentiality

Confidentiality through the use of a Nominee Shareholder

Nominee / Trustee shareholders permissible (anonymity and confidentiality for beneficial shareholder)

Beneficial shareholder

Nominee shareholder (Corporate or Physical) Private Appears as registered shareholder Trust Deed

29 Recent Developments

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

» 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

30 Trusts

Cyprus International Trust (CIT) with underlying Cyprus Company

Beneficiaries » Can subsequently become Cyprus residents

Trustee(s) (Minimum One Cyprus Resident)

Settlor » Can subsequently become CIT Cyprus resident

Protector (Optional) Underlying Company/ies (e.g. Cyprus)

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

31 Trusts & Confidentiality

CIT - Highest Level of Confidentiality

EU / Non-EU • Non-Cyprus resident Settlor company Non-Cyprus resident

Cyprus • Dividend income: Exempt International Trust (CIT) Dividend: 0% WHT 100% *BVI • No taxes Company Dividend: 0% WHT * 100% Cyprus Company Nominee Shareholder * possible Underlying Property (e.g. Subsidiaries, Real Estate)

32 Use of Cyprus by foreign investors (companies and individuals)

Redomiciliations Companies for Trusts Partnerships Funds various uses (Companies + Trusts)

Increased demand for:

Forex and Listing to Permanent Residence Citizenship Real Estate Dealings ECM/CSE Permits (‘PRP’) Investments companies

33 Final Remarks

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)

34 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 [email protected] www.totalserve.eu

Totalserve Management Ltd P.G.Economides & Co Limited E. Economides & Partners LLC Tax & Corporate Services Chartered Certified Accountants Advocates & Legal Consultants 35