Cyprus Incorporation by vkv75576

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									                  Cyprus:
     Practical application
of the new developments
        and its impact on
           tax structuring


          Moscow, 25th June 2009
New Protocol
 New Protocol to the Double Tax Treaty between
  Cyprus and Russia:
    Initialed on 16th April 2009, in Nicosia, Cyprus;
    Expected to be signed and ratified by the end of the year
     and enter into force by 01/01/2010.

 The Protocol brings significant changes via the
  incorporation of provisions relating to:
    the Limitation of Benefits;
    Exchange of Information; and
    Capital Gains.

 Leads to the effective removal from the Russian
  Blacklist of non-cooperative jurisdictions.
Limitation of Benefits
 Intended to prevent treaty abuse.

 Treaty benefits to be renounced if:
    BOTH authorities conclude that the main purpose of the
     presence of a resident in a contracting state is to take
     advantage of the treaty benefits


 Only applies to companies which are not registered
  either in Russia or in Cyprus. (Treaty text & Official
  interpretation of the Cypriot Ministry of Finance).
    Companies registered in either one of the contracting
     states are excluded from the application of the LoB
     provisions
Exchange of Information
   The Exchange of Information is not merely limited to taxes
    covered by the Double Tax Treaty; it is also extended to
    indirect taxes.

   Banking secrecy is not anymore a valid argument for refusal to
    exchange information.
       Exchange of information between the two contracting states can
        be achieved. The legislation of Cyprus was amended to that
        extent as to enable such information exchange.

   Assistance in the collection of “revenue claims” by both tax
    authorities.
       The fact that the required information is not necessary or
        valuable for the purposes of collecting taxes for a competent
        authority (e.g. due to tax exemption to corresponding income in
        the given country) can not serve as grounds for refusal to
        exchange the information with a competent authority of the other
        state.
Capital Gains
 Alienation of shares deriving more than 50% of their
  value from property situated in a contracting state
  may be taxed by the state where the immovable
  property is situated;

 Exclusion from Capital Gains provisions:
    Alienation of shares listed in a recognised stock
     exchange; or
    Alienation of shares in the context of a reorganisation.


 Grace period of 4 years following the entry into
  force of the Protocol
Effect of the New Protocol

 Removal of Cyprus from the Russian
  blacklist upon its entry into force, thus:
   Eligibility to qualify for the dividend
     participation exemption in case of
     distribution of dividends by Cypriot
     subsidiaries to Russian parents.
    Structure 1
   Double layer of Cypriot
    companies.                         Fig. 1 Cyprus Holding Co
     Application of the favorable
       domestic legislation of
                                        Capital gains                  Dividends
       Cyprus as opposed to the
       provisions of the double tax
       treaty between Russia and                Cyprus Subsidiary Co
       Cyprus.
                                                                       Dividends
   Cyprus Law
     Capital gains are tax exempt
                                                        Russian Co
        provided that they relate to
        immovable property located
        outside Cyprus;
     Gains on the sale of
        securities are exempt from
        Corporate Income Tax.
Analysis of Structure 1
                                        Cyp Subsidiary Company:
   Cyp Holding Company:
                                            Dividends received from Ru
                                             Subsidiary Co:
       Dividends received from
                                              Exemption from CIT;
        Cyp Subsidiary Co:
                                              Exemption from Defence
           Exemption from CIT;                   Tax.
           Exemption from Defence
            Tax.
                                            Dividends paid to
                                             CypHoldCo:
       Gains on the sale of                  No WHT (defence tax)
        shares of the Cyp
        Subsidiary Co:                  Ru Subsidiary Company:
           No Capital Gains Tax;
           No Corporate Income
                                            Dividends paid to the Cyp
            Tax.
                                             Subsidiary Co:
                                              5% WHT at source
                                                  (DTT)
Cyprus International Trust

 Often used in international tax structures as
  a wealth management tool;

 Advantages of CITs:
   All income derived would be tax exempt in
    Cyprus given that trust property is located
    outside Cyprus;

   The advantageous provisions under the
    extensive network of double tax treaties may
    have application in certain cases.
The use of a CIT
   From a Russian perspective:
     No inheritance tax or gift tax      Fig. 1         Trust
        on the transfer of the property
        of the settlor to the trust;
     No income tax or capital
        gains tax on a deemed                       Cyprus Holding Co
        disposal basis at the level of
        the settlor;
     No VAT on the transfer of the
        assets by the settlor (private
        individual & not a VAT payer);             Cyprus Subsidiary Co
     Tax imposed at the level of
        the beneficiaries on a
        remittance basis (depending
        on the type of income).
                                                       Russian Co
   Alternative trust jurisdictions to
    Cyprus may be used
Structure 2
 Cyprus Royalties
  Company                      Fig. 1
                                        Non-resident UBO
   Ownership of royalties
    and licensing rights for                                 Royalties
    intellectual property
                                    Cyprus Royalty Company
 Cyprus Law
   Net royalty profits are                                  Royalties
    subject to 10% CIT;
   Gains on the sale of                Licensee Company
    intellectual property
    may be exempt from
    CIT;
   Royalty payments are
    exempt from WHTs
    (rights must be
    exercised outside
    Cyprus)
Structure 3
   Cyprus Financing Company              Fig. 1
       Financing of group                          Non-resident UBO
        companies by way of debt or
        working capital;
                                                                         Interest
       Efficient accumulation of
        interest income.
                                                   Cyprus Financing Co
   Cyprus Law
       Interest income received from                                    Interest
        intra-group lending 10% CIT;
       No thin cap rules / no debt-to-
        equity restrictions;                           Russian Co
       No specific TP legislation, the
        arm’s length principle applies;
       Interest paid to creditors is
        not subject to WHTs.

   Minimum interest margin /
    spread of 0.125 – 0.35%
    accepted.
Int’l Org. black + grey lists
Cyprus:
NOT in any BLACK lists
NOT in any GREY lists

Organisation   white list   grey list black
  list
   G20              √
   OECD             √
   FATF             √
Old/New Cyprus Regime
BEFORE                     AFTER
No Exchange of Info        Increased
   transparency

In black/grey lists        Only in white lists

No substance needed        Substance important

LOW cost to operate        Still LOW

HIGH Quality of services   Still HIGH

Friendly to Russians       Even friendlier !!
Q&A
Thank you!




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