Leading Tax Advice in Cyprus...
and across the World
Cross Border transactions
via Cyprus
Case analysis
Prague, 17th June 2010
Leading Tax Advice in Cyprus... and across the World
Agenda
• Tax planning and the use of Cyprus in cross
border transactions
• Practical examples
– Cyprus Trading Companies
– International Collective Investment Schemes
– Cyprus Holding/ Real Estate Companies
– Cyprus Financing Companies
– Cyprus International Trusts
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Tax planning and the use of Cyprus in cross
border transactions
• The beneficial tax & legal regime of Cyprus supports the
use of Cyprus companies in international structures
• Cyprus companies may be utilised for any purpose in the
course of business
• Most commonly Cyprus Companies are used as:
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–
–
–
–
–
Cyprus Holding Companies
Cyprus Trading Companies
Cyprus Financing Companies
Cyprus Royalty Companies
Special Purpose Vehicles
Investment Vehicles
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Cyprus Trading Company
Fig: 1
Cyprus Company
Purchase of goods
and/or services
Sale of goods
and/or services
Czech Republic
EU/Non EU
Cyprus
•Realized business profits taxable with 10%
•Profits accumulated can be distributed to the holding company and non-resident
shareholders by way of dividends with no WHT
•Companies with trading activities require VAT registration
• No transfer pricing regulations; arm’s length principle applies
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International Collective Investment Schemes
• Purpose:
The collective investment of funds of the unit holders
• Who can benefit from the use of ICIS?
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–
–
–
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Investment firms
Fund managers
High net worth individuals
Financial services companies
Investment firms
• Why?
– Accumulate funds for RE investments (Central & S.E. Europe, Russia,
Ukraine, India, etc.)
– Accumulate funds for investments in securities
– Etc.
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Investments via Cypriot International Collective
Investment Schemes
Investors
Funds
•Int’l Unit Trusts
•fixed capital co.
•variable capital co.
•limited partnership
Accounting and
assets
calculations in
Cyprus
Cy Resident
Russia
Ukraine
Manager
(Cy
resident)
Cyprus
ICIS
independent
Professional
Trustee
Cy Resident
Investments in RE Cos,
Securities, bonds, shares, debentures,
other investments
China
India
Balkans
Latin
America
Central
Eastern
Europe
Middle
East
No WHT on
distributions of
dividends, interest,
royalties (rights
outside Cyprus)
Cyprus:
- Generally
no tax on
dividends
- Tax treaty
network
Dividends
interest
royalties
No/low WHT
International Financial Services
and Collective Investment Funds
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Definition of ‘securities’
• Cyprus: profits deriving from the disposal of securities are exempt from taxation.
• The term ‘securities’ has been extended to include:
Ordinary shares,
Founder’s Shares,
Preference Shares,
Option on titles,
Debentures ,
Bonds,
Short positions on titles,
Futures and forward titles,
Swap on titles,
Depositary receipts on titles – ADR +
GDR,
Rights of claim on bonds and
debentures,
Repurchase agreements or Repos on
titles,
 Participation / shares in companies like
Russian OOO, OAO and ZAO, the
American LLC provided (taxed on their
profits), the Romanian SE and SRL
and the Bulgarian AD and OOD,
 Units in both, open and closed end
collective investment schemes
founded, registered and are operating
according to the provision of the
specific and relevant legislation of the
country in which they have been
founded and Index participations only
if they (result on) represent titles
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Investing in Real Estate
Fig: 3
Direct investments in and exit
from the Czech Market
BVI
•
CypCo invests in CZ Real Estate via a CZ real estate company
•
EXIT ROUTE
– direct sale of CZ property by a CZ Co
• Gains taxed in accordance with the CZ legislation
(generally subject to 19% CIT)
Cyprus Company
–
CZ Co profits distributed as a dividend to the CypHoldCo
• CZ tax treatment:
– Dividend distribution:
» 0% WHT assuming 100% holding
• Cyprus tax treatment:
– Incoming Dividends:
» Exempt from CIT
» Exempt from SDCF (assumption: CZ Co
is taxed at 19% CIT)
–
CypCo profits distributed as a dividend to the BVI Company
• Cyprus tax treatment
– Outgoing Dividends:
» No WHT
Czech Republic
Capital Gains
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Investing in Real Estate
Disposal of Shares of Czech Co
Fig: 4
BVI
•
Direct disposal of immovable property
implies a substantial tax leakage
•
ALTERNATIVE EXIT ROUTE
–
Cyprus Company
Indirect sale of immovable property –
disposal of Czech Co shares
•
DTT provisions apply:
–
–
Czech Republic
Capital Gains
–
Gains arising in Cyprus from the disposal of CZ
real estate Co shares may be taxed in CZ
» 19% CIT in CZ
Distribution of dividends
» 0% WHT in CZ assuming a 100%
participation by the CypCo
Cyprus tax treatment:
•
Capital Gains
–
•
Incoming Dividends:
–
–
•
Exempt from tax in Cyprus
Exempt from CIT
Exempt from SDCF (assumption: CZ Co is
taxed at 19% CIT)
CypCo profits distributed as a dividend to
the BVI Company
–
Outgoing Dividends:
» No WHT
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Investing in Real Estate
Fig: 5
Indirect Acquisition in and Exit
from the Czech Market
B.O
Cypriot Holding Company
Capital Gains
Sale of Cyprus Subsidiary Co
•
Transaction taking place only at the
level of Cyprus
– Only subject to tax in Cyprus
•
Gains on the disposal of shares of
the CypSubCo:
– No capital gains
– No corporate income tax
•
Outbound Dividends:
– No WHT (defence tax) assuming
payment to non-resident UBO or
resident/non-resident company
Cypriot Subsidiary Company
Czech Republic Company
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Back-to-back financing structures
Fig: 6
Fig. 1
•
– Financing of group companies by
way of debt or working capital;
– Efficient accumulation of interest
income.
Cyprus Holding Company
Loan
Interest
Taxable interest
income
•
Cyprus Law
– Interest income received from
intra-group lending - 10% CIT;
– No thin cap rules / no debt-toequity restrictions;
– No specific TP legislation, the
arm’s length principle applies;
– Interest paid to non-resident
creditors is not subject to WHTs.
Cyprus Financing Co
Loan
Interest
Cyprus Financing Company
Czech Republic Company
•
Back-to-back financing
– Minimum interest margin / spread
of 0.125 – 0.35% accepted.
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Cyprus International Trust
• 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.
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The use of a CIT
Fig. 1
Trust
• Using a Cyprus International
Trust:
Cyprus Holding Co
Cyprus Subsidiary Co
Czech Co
 No inheritance tax or gift tax on
the transfer of the property of the
settlor to the trust;
 No income tax or capital gains
tax on a deemed 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);
 Tax imposed at the level of the
beneficiaries on a remittance
basis (depending on the type of
income).
• Alternative trust jurisdictions
to Cyprus may be used
Leading Tax Advice in Cyprus...
and across the World
Thank you!
Leading Tax Advice in Cyprus...
and across the World
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