Cyprus Tax Efficient Investment Vehicles by gnl24647

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									      Cyprus
Tax Efficient Vehicles for
European Investments         1
                  Introduction

In 2003 the Cyprus tax law was changed to:
 Harmonise the tax laws with EU directives and Code of
 Conduct of business;
 Simplify and modernise the taxation system; and
 Maintain and improve the competitive advantage of
 Cyprus in the field of international taxation.



                                                     2
                Introduction


Significant Changes:
 Taxation based on residency status;
 Unified Tax System
 Common corporate tax rate of 10% as from 2003.




                                                  3
                    Main definitions
Residence for Cyprus tax purposes
Companies:
Management and control is exercised in Cyprus
Note: No definition was given in the Law for “management and control”.




Criteria for consideration:
- The structure of the Board of directors
- Place of the Board meetings

Note: Place of business not relevant for determining residence.


                                                                         4
              Main definitions (cont.)
“Permanent Establishment”      A Fixed Place Of Business

     Includes:
       A place of management
       A branch
       An office
       A factory
       A workshop


                                                           5
          Main definitions (cont.)
“Permanent Establishment”
Includes also:
  A building site or construction or installation project or
supervisory activities over 3 months
But some double tax treaties have a longer period:
        Country                      Months
       Austria                         24
       Bulgaria                        6
       Eastern European          mainly 12
         countries
                                                               6
     Income Charged To Tax
Resident persons
 Income accrued or arising from sources both within and
outside Cyprus.




Note.: “Person” includes individuals and companies.
                                                      7
Income Charged To Tax (cont.)
Non - resident
 Income accrued or arising from sources in Cyprus only in
 respect of:
    Income attributable to a permanent establishment (P.E).

    The P.E. can choose to be taxed as a resident person

    Profits or other benefits from any office or employment

    Pensions

    Property Income


  Note.: “Person” includes individuals and companies.         8
Income exempt from Cyprus corporate tax

 For companies and individuals
 Profits from activities of a permanent establishment situated
 outside Cyprus provided:
  i. Passive income less than 50% or
  ii. the foreign tax burden is not substantially lower than that in
 Cyprus .




                                                                       9
Income exempt from Cyprus corporate tax (cont.)
       For companies and individuals



   Dividends
   Gains from trading in stocks and shares
   Gains from disposal of immovable property situated outside
  Cyprus.




                                                                10
                 Anti avoidance

No thin capitalization provisions (no stamp duty on share
premium)
No CFC rules
Cyprus applies principles of OECD transfer pricing guidelines, even
though not an OECD member.




                                                                 11
  Reorganization of companies
 Merger

 Division

 Transfer of assets

 Exchange of shares
Note: Stamp duties / tax losses



                                  12
              Withholding tax
No Cyprus withholding tax on


 Dividends

 Interest

 Royalties used outside Cyprus




                                 13
                Special Rates of Taxation
  - Income from ship management                                                    4,25%


 - Gross income from film rentals earned by a non residents                        5%


 - Gross income derived by a non resident from professional
   Services and gross income of public entertainers and athletes                   10%


- Intellectual property rights earned by a non resident                            10%

Note: but in case the right is granted for use outside Cyprus such income will not be liable
 to withholding tax.
                                                                                           14
              Rates
Income                Rates


Dividends             15% or 0%
Interest              10% or 3%
Rents (75%)           3%


                                  15
                                    Dividends
         GENERAL PROVISION
                                                                          Tax rate


Cypriot tax residents (physical person) receiving dividends                    15%


Note: Non Residents are exempt from Defense Contribution on dividend income.




                                                                                     16
                        Dividends
Exemptions:


1. Dividends paid from one Cyprus resident company to
   another.
2. Dividends received from an overseas company where:
   i.   participation over 1% and
   ii. passive income of the overseas company less than 50% or
        the foreign tax burden is not substantially lower than that
        in Cyprus.


                                                                  17
              Holding Companies
                       Foreign
                        Foreign
                     Shareholders
                     Shareholders


                  Cyprus Company
                  Cyprus Company



                     Long-Term
                      Overseas
                     Investments
Notes:
1. No dividend tax      3.   No Defence Tax (restrictions)
2. No capital gains tax 4.   No Cyprus withholding taxes     18
                     Trading Company


                          Foreign
                           Foreign
                        Shareholders
                        Shareholders
      Dividends
                                           Use Cyprus for
Taxed at 10%           Cyprus Company      Tax Deferral
No withholding tax     Cyprus Company



                          Non-Cyprus
                       Trade or Business

                                                            19
Investment in Real Estate Holding Company


                        Cyprus company



                       Foreign Company




 Notes:
 1. Reduced or no withholding taxes
 2. Gains from the sale of shares in the foreign company are taxable only
    in Cyprus
 3. Dividends exempt in Cyprus                                              20
 4. No Cyprus withholding taxes
           Intangible Holding Company
                                 Company in low
                                 Company in low
Royalties                         tax jurisdiction
                                   tax jurisdiction                  Transfer of IP
(No withholding tax)                                                 at arms-length
Mark-up left to be              Cyprus Intangible
                                Cyprus Intangible
taxed at 10%                    Holding Company
                                 Holding Company
                                                                     Transfer of IP
       Sub-Royalties                                                 at arms-length
                                                                     plus mark-up
                                   Overseas Co.
                                   Overseas Co.
                                     Licensee
                                      Licensee
Notes:
1. Reduced withholding taxes based on Double Tax Treaty provisions
2. 10% tax on mark-up less foreign taxes paid
3. No withholding tax on Royalties paid out from Cyprus
                                                                                      21
                  Financing Company
                                Shareholders
                                Shareholders

Dividends / Interest
 Mark-up left to be                                             Loan from Bank
 taxed at 10%                 Cyprus Company
                              Cyprus Company                    Interest to Bank

  Interest                                                   Loan
  plus mark-up
                               Foreign Borrower
                                Foreign Borrower

                  Notes:
                  1. Cyprus Tax only on mark up
                  2. No Cyprus withholding tax on interest
                  3. No Defence Tax                                           22
Cyprus Branch of Foreign Company
                        Low tax jurisdiction Co
                         Low tax jurisdiction Co
                                                                  Holding
“Management                                                       of shares
and Control”
in Cyprus
                          Cyprus Branch                     Foreign
                                                             Foreign
                                                            Company
                                                            Company


 Notes:
 1. Take advantage of extensive Cyprus Double Tax Treaty network
 2. Reduced dividend withholding; capital gains are exempt from Cyprus
    tax
                                                                              23
Holding Company with Foreign PE
                         Shareholders
                         Shareholders



                      Cyprus Company
                      Cyprus Company



                         Foreign P.E.
  Notes:
  1. Profits from P.E. exempt provided:
                - passive income < 50%, or
                - tax burden adequate
  2. Losses of P.E. may be set off against other income in Cyprus company
                                                                            24

								
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