CYPRUS: 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 Italy Seychelles Belarus Kuwait Singapore Belgium Kyrgyzstan * Slovakia Bulgaria Lebanon Slovenia * CIS Countries applying the Cyprus/USSR DTT Malta Canada South Africa ** Countries applying the Cyprus/Yugoslavia DTT Mauritius China Spain (as from 2014) Moldova Sweden Czech Republic Montenegro * * Syria Denmark Norway Tajikistan * Egypt Poland Thailand Estonia (as from 2014) Ukraine Portugal (as from 2014) Finland (as from 2014) United Kingdom Qatar France USA Romania Germany Russia All DTTs based on OECD model Greece San Marino Hungary India
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, Switzerland / Belgium, France, Greece, Indonesia, Israel, 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