Cyprus Tax System

1. Cyprus Tax System Presented by Rutger Kriek

2. 1) Corporate income tax rate

3. 2) The different forms of using a Cyprus company

4. 3) I. The Cyprus holding company

5. 5) The subsidiary must not at the same time; • directly or indirectly engage more than 50% of its activities leading to investment income (the “activities test”), and • be liable to an effective tax burden over its income, which is substantially lower than the Cyprus tax burden (the “tax burden test”).

6. 6) The term “Investment income”; the activities test

7. 7) Tax burden “substantially lower” than the Cyprus tax burden

8. 8) Look through approach is allowed

9. Cyprus Holding Company (CC) Dutch Holding Company (DHC) Trading Company (TC)

10. 10) Gains from the sale of shares; “conditions” for exemption

11. 11) Branch income

12. 12) Dividend withholding tax

13. 13) II) The Cyprus finance company; 10% tax only

14. 14) III) The Cyprus license company; 10% tax only

15. 15) IV) The Cyprus trading company; 10% tax only

16. 16) Incorporation and maintenance

17. TAX SAVING STRUCTURES

18. No withholding tax over outbound dividends CYPRUS COMPANY • Tax exemption for benefits • 0% withholding tax based upon EU-parent subsidiary directive (PSD), also in Italy, where Cyprus is now on the white list. EU- COMPANY • Capital gains tax protection based upon many double tax treaties (DTTs); Cyprus has DTTs with more than 45 countries.

19. No withholding tax over outbound dividends • Tax exemption for benefits CYPRUS COMPANY • 0% withholding tax based upon broad implementation PSD LUXEMBOURG HOLDING COMPANY • Capital gains tax protection based upon • new DTT

20. No withholding tax over outbound dividends CYPRUS COMPANY • 0% withholding tax based upon broad implementation PSD DUTCH HOLDING COMPANY • Capital gains tax maybe an issue due to lack of DTT

21. No WHT over outbound dividends CYPRUS COMPANY • 5% withholding tax only under the mere condition of a USD 100,000 capital investment RUSSIAN COMPANY • Capital gains tax protection including real estate companies

22. No WHT over outbound dividends CYPRUS COMPANY • Licensing and/or financing activities • Profits subject to 10% income tax only • 0% WHT over licence/ interest payments based upon Cyprus- Russia DTT RUSSIAN COMPANY

23. No WHT over outbound dividends • Holding company income generally exempt CYPRUS COMPANY • Other income subject to 10% tax only • 0% WHT over dividend/ interest and licence payments without special conditions to be met, based upon DTT UKRAINE COMPANY • Capital gains tax protection including real estate companies

24. No WHT over outbound dividends • Holding company income generally tax exempt • Other income subject to 10% tax only CYPRUS COMPANY • 0% WTH over dividends, interest & royalties OTHER “EX-USSR” COMPANY • Armenia, Azerbaijan, Kyrgyzstan, Tajikistan, • Turkmenistan, Uzbekistan • Capital gains tax protection, including real estate companies

25. No WHT over outbound dividends CYPRUS COMPANY • Tax exemption for the entire income INDIAN COMPANY • Cyprus-India treaty provides for protection from Indian capital gains tax, including shares in real estate companies

26. No WHT over outbound dividends CYPRUS COMPANY • No additional taxation over interest income LOAN • Reduction of WHT over interest payments to 10% only based upon Cyprus – India DTT INDIAN COMPANY

27. REAL ESTATE INVESTMENTS IN EASTERN EUROPE

28. No WHT over outbound dividends CYPRUS COMPANY • Tax exemption for entire income • No withholding tax over dividends • (based upon PSD) REAL ESTATE COMPANY • Czech Republic/ Hungary/ Poland/ Romania/ Slovak Republic/ Slovenia • Capital gains tax protection based upon • respective DTTs

29. No WHT over outbound dividends CYPRUS COMPANY • Tax exemption for benefits • Bosnia & Herzegovina/ Macedonia/ Serbia/ Montenegro REAL ESTATE COMPANY • Capital gains tax protection based upon DTTs

30. No WHT over outbound dividends CYPRUS COMPANY • Tax exemption for profits in Cyprus • Construction project > 3 months ≤ 12 months in a treaty • country (e.g. Poland, Romania) • No taxation in source country based upon DTT (and/or • domestic legislation)

31. No WHT over outbound dividends CYPRUS COMPANY • Tax exemption for profits in Cyprus • Offshore support services (e.g. in relation to oil exploration / exploitation) outside Cyprus’s territorial waters for more than 3 months.

32. No WHT over outbound dividends CYPRUS COMPANY • Tax exemption for profits in Cyprus • Other kind of services (e.g. IT services) outside Cyprus for more than 3 months

33. No WHT over outbound dividends CYPRUS INVESTMENT FUND • Access to 50 treaties; no special purpose vehicle required. So unlimited access. • Tax exemption for all the profits from the sale of securities (shares, bonds, put options, call options) • No capital tax • No net wealth tax • Effective tax exemption for all dividends from • EU companies • EU passport • Superb Infrastructure • High financial expertise

34. No WHT over outbound dividends • Investments in securities • Tax exemption for profits from the sale of securities • Tax exemption for all the benefits from the SPV as well CYPRUS INVESTMENT FUND • Dividends TAX EXEMPT SPV • Investments in commodities (gold, oil etc…) profits from the sale of which would be subject to 10% tax in Cyprus

35. OFFSHORE COMPANY • No transfer pricing documentation • requirements • No exchange of information risk • No WHT over interest • No thin capitalisation rules • Relatively small spreads acceptable Loan Interest Payment CYPRUS COMPANY Loan Interest Payment • Reduction of/ exemption from WHT based on treaty, or • Exemption from WHT based upon EU Interest and Royalty Directive. TREATY COUNTRY/ EU-COUNTRY BASED AFFILIATED DEBTOR

36. OFFSHORE COMPANY • No transfer pricing documentation • requirements • No exchange of information risk • No WHT over license payment • Relatively small spreads acceptable License License Payment CYPRUS COMPANY Sub- License License Payment • Reduction of/ exemption from WHT based on treaty, or • Exemption from WHT based upon EU Interest and Royalty Directive. • The double tax treaty between Cyprus and Italy provides for withholding tax exemption in Italy. TREATY COUNTRY/ EU-COUNTRY BASED AFFILIATED DEBTOR

37. No WHT over outbound dividends “Soft” Advantages: CYPRUSGROUP TREASURY COMPANY • No traffic problems • Good schools & universities • Fairly priced commercial & private real - estate broadly available • Low population density and clean air • More than 300 days of sunshine per year • Good air connections • Low criminality • Group treasury activities • Profits subject to 10% tax only • Access to good treaty network • Access to EU Interest and Royalty Directive • No withholding tax over interest • Ideal strategic position for companies with • operations in Europe, Russia, CIS, The Middle East and Asia • Low taxation on salaries

38. Entire income exempt from tax provided that: CYPRUS INTERNATIONAL TRUST • The settlor is not a resident of Cyprus • At least one trustee is resident of Cyprus • No beneficiaries are resident of Cyprus and • The trust property does not include Cyprus • immovable property

39. CYPRUS COMPANY • No WHT over outbound dividends • Tax exemption for all the benefits OPERATIONAL DUBAI COMPANY (OR COMPANY BASED IN ANOTHER TAX HAVEN)

40. CYPRUS COMPANY • No WHT over outbound dividends • Tax exemption for all the benefits TAX EXEMPT GROUP FINANCE COMPANY

41. QUESTIONS?