Corporate Tax 2013

The International Comparative Legal Guide to: Corporate Tax 2013

9th Edition

A practical cross-border insight into corporate tax work

Published by Global Legal Group with contributions from:

Advokatfirmaet Thommessen AS Juridicon Law Firm Advokaturbüro Dr Dr Batliner & Dr Gasser KGDI Law Firm Aivar Pilv Law Office Kilpatrick Townsend & Stockton Advokat KB Arqués Ribert Junyer Advocats Law firm Blaž Pate Ltd. Avanzia Taxand Limited Legance Studio Legale Associato B.C. Toms & Co Lenz & Staehelin Bentsi-Enchill, Letsa & Ankomah LOGOS legal service Boga & Associates Machado Meyer Sendacz e Opice Advogados Bredin Prat Mason Hayes & Curran Calderón, González y Carvajal, S.C. Nagashima Ohno & Tsunematsu Debarliev, Dameski and Kelesoska Nithya Partners Dorda Brugger Jordis P+P Pöllath + Partners Dr. K. Chrysostomides & Co LLC Pachiu & Associates Elvinger, Hoss & Prussen Pekin & Pekin Georgiev, Todorov & Co. Proskauer Rose LLP Gide Loyrette Nouel Shenhav & Co., Advocates and Notary Glyn Marais Incorporated Slaughter and May Gorrissen Federspiel Teijeiro & Ballone Abogados Greenwoods & Freehills Thorsteinssons LLP Hendersen Taxand Vanhaute Attorneys Ikeyi & Arifayan The International Comparative Legal Guide to: Corporate Tax 2013

General Chapters: 1 A GAAR is born - William Watson, Slaughter and May 1 2 Tax Planning in Light of Impending Corporate Tax Reform - Stuart L. Rosow & Amanda H. Nussbaum, Proskauer Rose LLP 7 Contributing Editor William Watson, Slaughter and May Country Question and Answer Chapters: Account Managers 3 Albania Boga & Associates: Alketa Uruçi & Andi Pacani 11 Brigitte Descacq, Joe Houguez-Simmons, Dror 4 Andorra Arqués Ribert Junyer Advocats: Daniel Arqués i Tomàs & Levy, Maria Lopez, Florjan Mireia Ribó i Bregolat 15 Osmani, Samuel Romp, Oliver Smith, 5 Argentina Teijeiro & Ballone Abogados: Guillermo O. Teijeiro & Rory Smith, Toni Wyatt Ana Lucía Ferreyra 21

Sub Editors 6 Australia Greenwoods & Freehills: Adrian O’Shannessy & Andrew Mills 29 Beatriz Arroyo 7 Austria Dorda Brugger Jordis: Paul Doralt & Martina Znidaric 35 Fiona Canning 8 Belgium Vanhaute Attorneys: Patrick Vanhaute 41 Editor Suzie Kidd 9 Brazil Machado Meyer Sendacz e Opice Advogados: Daniella Zagari &

Senior Editor Marco Antônio Behrndt 49 Penny Smale 10 Bulgaria Georgiev, Todorov & Co.: Georgi Kostolov 55 Group Consulting Editor 11 Canada Thorsteinssons LLP: Michael Colborne & Michael McLaren 60 Alan Falach 12 China Hendersen Taxand: Dennis Xu & Eddie Wang 65 Group Publisher Richard Firth 13 Cyprus Dr. K. Chrysostomides & Co LLC: Dr. Kypros Chrysostomides &

Published by George Ioannou 71 Global Legal Group Ltd. 14 Denmark Gorrissen Federspiel: Jakob Skaadstrup Andersen & Lars Fogh 75 59 Tanner Street London SE1 3PL, UK 15 Estonia Aivar Pilv Law Office: Jaak Siim & Ilmar-Erik Aavakivi 82 Tel: +44 20 7367 0720 16 France Bredin Prat: Yves Rutschmann & Marion Meresse 91 Fax: +44 20 7407 5255 Email: [email protected] 17 Germany P+P Pöllath + Partners: Richard Engl & Gerhard Specker 98 URL: www.glgroup.co.uk 18 Ghana Bentsi-Enchill, Letsa & Ankomah: Seth Asante & GLG Cover Design Frank Nimako Akowuah 104 F&F Studio Design 19 Greece KGDI Law Firm: Elisabeth Eleftheriades & Panagiotis Pothos 109 GLG Cover Image Source iStockphoto 20 Iceland LOGOS legal service: Bjarnfredur Olafsson 117

Printed by 21 Ireland Mason Hayes & Curran: John Gulliver & Robert Henson 121 Information Press Ltd 22 Israel Shenhav & Co., Advocates and Notary: Ayal Shenhav & Oren Biran 127 November 2012 23 Italy Legance Studio Legale Associato: Marco Graziani & Claudia Gregori 132 Copyright © 2012 Global Legal Group Ltd. 24 Japan Nagashima Ohno & Tsunematsu: Yuko Miyazaki 140 All rights reserved 25 Kosovo Boga & Associates: Alketa Uruçi & Andi Pacani 148 No photocopying 26 Liechtenstein Advokaturbüro Dr Dr Batliner & Dr Gasser: Christian Presoly & ISBN 978-1-908070-40-1 ISSN 1743-3371 Benedikt Koenig 152

Stategic Partners 27 Lithuania Juridicon Law Firm: Laimonas Marcinkevičius & Ingrida Steponavičienė 158 28 Luxembourg Elvinger, Hoss & Prussen: Jean-Luc Fisch & Dirk Richter 166 29 Macedonia Debarliev, Dameski and Kelesoska: Dragan Dameski & Elena Nikodinovska 173 30 Malta Avanzia Taxand Limited: Walter Cutajar & Mary Anne Inguanez 178 31 Mexico Calderón, González y Carvajal, S.C.: Alejandro Calderón Aguilera & Arturo Carvajal Trillo 185

Continued Overleaf

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Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. www.ICLG.co.uk The International Comparative Legal Guide to: Corporate Tax 2013

32 Nigeria Ikeyi & Arifayan: Nduka Ikeyi & Jude Odinkonigbo 191 33 Norway Advokatfirmaet Thommessen AS: Ståle R. Kristiansen & Finn Backer-Grøndahl 197 34 Poland Gide Loyrette Nouel Warsaw Office: Ewa Opalińska & Maciej Grela 203 35 Romania Pachiu & Associates: Vlad Radoi & Laurentiu Pachiu 209 36 Slovenia Law firm Blaž Pate Ltd.: Blaž Pate & Jure Mercina 216 37 South Africa Glyn Marais Incorporated: Richard Glyn & Pride Jani 221 38 Sri Lanka Nithya Partners : Naomal Goonewardena & Sheranka Madanayake 227 39 Sweden Kilpatrick Townsend & Stockton Advokat KB: David Björne 233 40 Switzerland Lenz & Staehelin: Heini Rüdisühli & Jean-Blaise Eckert 240 41 Turkey Pekin & Pekin: Fırat Yalçın & Sinan Abra 248 42 Ukraine B.C. Toms & Co: Bate C. Toms & Mykhailo Razuvaiev 256 43 United Kingdom Slaughter and May: William Watson & Zoe Andrews 264 44 USA Proskauer Rose LLP: Stuart L. Rosow & Amanda H. Nussbaum 271 45 Vietnam Gide Loyrette Nouel A.A.R.P.I.: Samantha Campbell & Nguyen Thi Tinh Tam 279 Chapter 13 Cyprus Dr. Kypros Chrysostomides

Dr. K. Chrysostomides & Co LLC George Ioannou

1 Tax Treaties and Residence 2 Transaction Taxes

1.1 How many income tax treaties are currently in force in 2.1 Are there any documentary taxes in Cyprus? Cyprus? Stamp duty is imposed on any document which concerns any Cyprus has 47 bilateral treaties in force. property situated in the Republic of Cyprus or matters or things to be executed or done in the Republic of Cyprus, irrespective of the 1.2 Do they generally follow the OECD or another model? place of execution of the document, at the following rates: (a) 1.5% for any amounts up to EUR 170,860.14; and The treaties generally follow the OECD model. (b) EUR 256.29 plus 2% for any amounts over EUR 170,860.14, with a maximum stamp duty of EUR 17,086.01.

1.3 Do treaties have to be incorporated into domestic law before they take effect? 2.2 Do you have Value Added Tax (or a similar tax)? If so, at what rate or rates? The treaty is signed by a representative of the Cyprus government (usually the Minister of Finance), it is approved by the council of Cyprus has VAT tax which is 17% (standard rate), or a reduced rate Ministers and it is published in the Government Newspaper before of 8%, 5% or 0% for certain items. it takes effect. 2.3 Is VAT (or any similar tax) charged on all transactions or 1.4 Do they generally incorporate anti-treaty shopping rules are there any relevant exclusions? (or “limitation on benefits” articles)? VAT is charged only for the provision of goods and services. Treaties follow the OECD model. There are no specific provisions for “limitation of benefits”. 2.4 Is it always fully recoverable by all businesses? If not, what are the relevant restrictions? 1.5 Are treaties overridden by any rules of domestic law (whether existing when the treaty takes effect or VAT is recoverable by those businesses which are registered with introduced subsequently)? the Cyprus VAT authority.

Treaties are not overridden by domestic law, but in some cases 2.5 Are there any other transaction taxes? domestic law provides greater relief and benefits to Cyprus tax residents. For example, domestic legislation provides for credit in Other than stamp duty, there are no other transaction taxes. relation to the payment of taxes abroad and not withholding tax on payments from Cyprus to a third country regardless of the text of a treaty. 2.6 Are there any other indirect taxes of which we should be aware?

1.6 What is the test in domestic law for determining corporate Other than VAT, there are no other indirect taxes. residence?

A company is a tax resident in Cyprus if the effective management and control of the company takes place in Cyprus. In practice, a company is a Cyprus tax resident provided that the majority of the directors are tax residents in Cyprus and all the important decisions are adopted in Cyprus.

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3 Cross-border Payments 4.3 Is the tax base accounting profit subject to adjustments, or something else?

3.1 Is any withholding tax imposed on dividends paid by a The tax base is the accounting profit (prepared under IFRS) subject locally resident company to a non-resident? to tax adjustments.

No withholding tax is imposed on dividends paid by a local resident company to a non-resident. 4.4 If the tax base is accounting profit subject to adjustments, what are the main adjustments?

Cyprus 3.2 Would there be any withholding tax on royalties paid by a The main adjustments relate to: local company to a non-resident? (a) Non taxable profits, e.g. proceeds from the sale of titles, interest income. No withholding tax is imposed on royalties paid by a local resident company to a non-resident, provided that the intellectual property (b) Non allowable expenses, e.g. expenses which do not relate to the production of taxable income, entertainment expenses on which the royalties are paid is used outside Cyprus. which exceed the allowable limit.

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 relief local company to a non-resident? 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 3.4 Would relief for interest so paid be restricted by reference in the group. 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? 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?

3.6 Would any such rules extend to debt advanced by a third Cyprus tax resident companies are subject to special defence party but guaranteed by a parent company? contribution tax on: (a) rents (3%); This is not applicable in Cyprus. There are no such rules in Cyprus. (b) interest income (15%); and (c) dividends (20%), if the subsidiary paying the dividend is 3.7 Are there any other restrictions on tax relief for interest established in a jurisdiction which has less than 5% corporate payments by a local company to a non-resident? tax, and more than 50% of the subsidiary’s income results from investment activities. This is not applicable for Cyprus as there are no restrictions. 4.8 Are there any local taxes not dealt with in answers to 3.8 Does Cyprus have transfer pricing rules? other questions?

Cyprus does not have transfer pricing rules. There are no other local taxes.

4 Tax on Business Operations: General 5 Capital Gains

4.1 What is the headline rate of tax on corporate profits? 5.1 Is there a special set of rules for taxing capital gains and losses? Cyprus has a flat rate of 10% tax on corporate profits. The capital gains tax of 20% is imposed on profits from the sale of immovable property situated in Cyprus. Proceeds from the sale of 4.2 When is that tax generally payable? shares are exempt from capital gains tax.

Tax is payable in three instalments according to the year of assessment (1st August, 30th September, and 31st December). Any 5.2 If so, is the rate of tax imposed upon capital gains different from the rate imposed upon business profits? balance not paid within the year is paid when the tax return is filed.

The rate imposed on capital gains is 20%, while the rate imposed on business profits is 10%.

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5.3 Is there a participation exemption for capital gains? 6.5 Would a branch benefit from double tax relief in its jurisdiction? There is no such exemption in Cyprus. A branch, which is a permanent establishment in Cyprus, would benefit from the Cyprus tax treaty network. 5.4 Is there any special relief for reinvestment?

There is no relief for reinvestment in Cyprus. 6.6 Would any withholding tax or other similar tax be imposed as the result of a remittance of profits by the branch?

5.5 Does Cyprus impose withholding tax on the proceeds of

No withholding tax will be imposed. Cyprus selling a direct or indirect interest in local assets/shares?

There is no withholding tax on the proceeds of selling a direct or 7 Overseas Profits indirect interest in local assets/shares.

7.1 Does Cyprus tax profits earned in overseas branches? 6 Local Branch or Subsidiary? This will depend on the wording of the double tax treaty between Cyprus and the other country. 6.1 What taxes (e.g. capital duty) would be imposed upon the formation of a subsidiary? 7.2 Is tax imposed on the receipt of dividends by a local There is no tax for the formation of a subsidiary in Cyprus or company from a non-resident company? abroad. There is capital duty of 0.6% on the value of share capital issued, Dividends received from a non-resident subsidiary will be exempt but not on the value of the share premium. from corporation tax, but might be subject to a special defence contribution tax (please see question 4.7 above).

6.2 Are there any other significant taxes or fees that would be incurred by a locally formed subsidiary but not by a 7.3 Does Cyprus have “controlled foreign company” rules branch of a non-resident company? and, if so, when do these apply?

The tax treatment between a Cypriot company and a branch of a No CFC rules are in place in Cyprus. non-resident company is the same. 8 Anti-avoidance 6.3 How would the taxable profits of a local branch be determined in its jurisdiction? 8.1 Does Cyprus have a general anti-avoidance or anti-abuse rule? The branch, being a permanent establishment in Cyprus, should pay taxes on the profits from income generated in Cyprus. The branch No anti-avoidance or anti-abuse rules are in place. should prepare audited financial statements under IFRS.

8.2 Is there a requirement to make special disclosure of 6.4 Would such a branch be subject to a branch profits tax (or avoidance schemes? other tax limited to branches of non-resident companies)? No such requirement is in place. Please refer to question 6.3 above.

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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, is the managing partner of Dr. K. George Ioannou joined the Corporate & Commercial department Chrysostomides & Co LLC, and one of Cyprus’ leading corporate at Dr. K. Chrysostomides & Co LLC as a Senior Associate, in and tax lawyers. He specialises in business law, human rights August 2008. He has significant experience in transaction law, international and constitutional law, and has published support and is highly specialised in the provision of tax advice extensively on all these subjects. and international tax planning and application of provisions of During the early years of his career, Kypros was appointed a double tax treaties, cross border mergers, mergers of Cyprus research fellow in Private International Law at the University of companies in the pharmaceutical and automobile industries, Bonn and later also worked at the European Commission of transfers of corporate seat of holding companies, preparation of Human Rights in Strasbourg. Today, he leads a number of the legal capacity opinions and due diligence reports for holding firm’s departments and is particularly known for his corporate law companies. skills, and his substantial experience and expertise in Prior to joining the firm, George held the position of Assistant international and tax law. He is regularly listed among Cyprus’ Manager at PricewaterhouseCoopers in Cyprus, where he also leaders in these areas. qualified as a Chartered Accountant. He spent time in the He has been appointed as a member of the ICC International Advisory and Tax Departments of that firm, dealing with tax Court of Arbitration from July 2012 until June 2015. planning and tax compliance, provision of internal audit services, He is also a member of the Cyprus Bar Association, the Greek feasibility studies and due diligence assignments in a number of Institute of International Law, the International Law Association, areas, including retail, manufacturing, trading and service the International Bar Association and the International Fiscal industries. Association.

Since its establishment in 1981, Dr. K. Chrysostomides & Co LLC counts over 30 years’ experience and commitment to client service and is one of Cyprus’ leading and largest law firms. Our team of lawyers, all of whom are specialists in their own individual fields of practice, provides quality legal solutions of the highest standard. Combining an extensive knowledge of the Cyprus legal system with an in-depth understanding of international and EU law, our lawyers are dedicated to assisting clients with their business and legal needs. Through our long-standing interaction with both international and Cyprus-based clients, we have evolved over the years, to cater for the growing and ever-developing business needs of each and every one of our clients. We pride ourselves in our ability to provide individualised and expert legal advice, to an array of multinational corporations, private companies and individuals. By understanding our clients’ business and requirements, and the environment in which they operate, we match our people and their skills, to ensure our clients receive solid advice and the best service possible. Our firm’s exclusive Cyprus membership to Lex Mundi, the world’s leading association of independent law firms, and WSG (World Services Group), offers our clients seamless cross-border solutions across a challenging global landscape, and provide our firm with worldwide coverage and the ability to deliver streamlined and cost-effective multi-jurisdictional solutions.

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