INTERNATIONAL TAX PLANNING THROUGH CYPRUS HLB AFXENTIOU LTD A member firm of HLB International

1. INTERNATIONAL TAX PLANNING THROUGH CYPRUS HLB AFXENTIOU LTDA member firm of HLB International

2. Lowest standard tax rate in the EU – 10% (applicable to all companies) Tax exemption on dividend received Tax exemption on sale of shares and other titles Group relief for losses Unlimited loss carry forward No withholding taxes on dividend, interest and royalty (in most cases) irrespective of the existence of a double tax treaty or the country of residence of the recipient. 1. Cyprus tax systems at a glance

3. EU Directives apply from 1 May 2004 no withholding tax on dividend, royalty and interest payments from EU countries No Control Foreign Company (CFC) rules in Cyprus Simple and tax efficient exit strategies available Attractive Double Tax Treaty network Non-Cyprus tax resident companies are only taxed on Cyprus source income. 1. Cyprus tax systems at a glance(Cont.)

4. Foreign dividend income is exempt. Exemption not available if paying company is directly or indirectly engaged more than 50% in activities which result in investment income and The paying company is subject to tax at a rate of tax substantially lower than the Cyprus rate Cyprus Tax SystemDividend exemption in detail

5. Profit arising from transactions in titles is tax exempt “Titles” are defined as Shares Bonds Debentures Founder and other titles of companies or legal persons and rights thereon Other financial instruments such as swaps, forwadr contracts, GDRs etc. 3. Cyprus Tax System

6. Cyprus Tax SystemWithholding taxes For payments made to non residents Dividend - No tax Interest - No tax Royalty No tax When intangible used out of Cyprus 10% (subject to treaty)When intangible used in Cyprus

7. Trading company structure Plan A Corporate tax rate of 10% is applied to all companies. This is the lowest corporate tax rate in Europe and gives tremendous advantages to trading companies carrying out their trading activities via Cyprus.

8. 5. Trading company structure Benefits 10% tax on the profit margin after deducting all expenses incurred wholly and exclusively for the production of income. No withholding tax on the distribution of profits irrespective of the country of residence of the recipient or the existence of a double tax treaty. Profits may be re-invested by the Cyprus company.

9. 6. Holding company structure • Plan • Cyprus has emerged into one of the most successful holding company jurisdictions in the world. There are major tax advantages which enable the use of a Cyprus company for investing into companies within the European Union (EU) as well as DTT and non-DTT jurisdictions.

10. 6. Holding company structure(Cont.) • Benefits • Eligibility to an exemption from tax on dividend income received from subsidiary companies (subject to easy-to-meet conditions). • No withholding tax on the distribution of profits irrespective of the country of residence of the recipient or the existence of a double tax treaty. • Full exemption from capital gains tax and income tax on the disposal of the shares in the subsidiary.

11. 6. Holding company structure(Cont.) • Benefits • No capital gains tax or income tax on the disposal of the shares (or liquidation) of the Cyprus Holding company. • No net worth taxes during the life of the Cyprus company. • Access to EC Directives including the Parent /Subsidiary Directive, which provides for tax exempt receipts (and distributions) of dividends between EU countries. • No substance requirements, no minimum holding period and no CFC rules.

12. 7. Financing company structure • Plan • Cyprus companies can be used very efficiently for group financing purposes. A Cyprus company can act as an intermediary between a holding and an operating company resulting in zero/minimum withholding taxes, creating tax deductible expenses in high tax jurisdictions (operating companies) and low taxability on the interest margin at the Cyprus company level. The Cyprus tax legislation does not include any thin capitalization rules or a minimum debt/equity ratio.

13. 7. Financing Company Structure(Cont.) • Benefits • Profits reduced in the operating country. • Use of Double Tax Treaty network/EC Directive. • Small margin taxable in Cyprus at 10% (no tax in Cyprus in the case of loans granted by the Cyprus company’s offshore branch).

14. 7. Financing Company Structure(Cont.) • Benefits • An indication (non-binding) of acceptable margins on back-to-back loans: • Loans<€ 50m – 0,35% • Loans € 50m – 200m – 0,25% • Loans< € 200m – 0,125% • Credit relief for withholding taxes suffered. • No withholding taxes on dividend/interest payments out of Cyprus.

15. 8. Royalty company structures • Plan • A Cyprus company acting as an intermediary between a foreign licensor and an operating foreign company in a treaty location can reduce the taxable profits in the operating location and achieve a double dip effect i.e. the royalties would be tax deductible in the operating location and would be tax free in the ultimate licensor’s jurisdiction (provided the latter is located in a tax efficient jurisdiction). Any margin remaining in the Cyprus company will be subject to income tax at the rate of 10%.

16. 8. Royalty company structures(Cont.) • Benefits • Profits reduced in the operating country. • Use of treaty network/EC Directives. • Small margin taxable in Cyprus at 10%. • Credit relief for withholding taxes. • No withholding taxes on dividend/royalty payments out of Cyprus.

17. 9. Real estate company structures Plan Cyprus companies can be used to hold real estate either directly or indirectly (where local legislation requires local entities to be the holding vehicles) either to effect a future disposal following a capital appreciation or to receive rental income.

18. 9. Real estate company structures(Cont.) • Benefits • No tax on dividend income received in Cyprus. • No tax on disposing the shares in the local real estate holding company. • No capital gains on disposing the property directly. • No tax on rental income in Cyprus where a local real estate company holds the property. • Zero/reduced withholding tax on dividend payments from the real estate company to Cyprus. • No withholding taxes on other payment out of Cyprus. • Use of treaty network/EC Directives.

19. 10. Employment company structures • Plan • A Cyprus company can be used tax efficiently as an employment company. It can employ staff on overseas assignments and charge operating companies at cost plus. Tax and social security costs are minimal compared to other EU jurisdictions.

20. 10. Employment company structures (Cont.) • Benefits • Cyprus company employs staff. • Charges other group companies at cost plus. • Profits taxable in Cyprus at 10%. • Profits reduced in operating country. • Employee costs reduced as employers pay less tax and social security contributions. • Employees are exempt from tax in Cyprus.

21. 11. Trading in securities structure • Plan • Any profit from the disposal of securities is tax-exempt in Cyprus. ‘Securities’ include a large variety of financial instruments amongst which shares, debentures, government bonds, founders’ shares or other shares of companies or other legal entities which have been incorporated in Cyprus or abroad.

22. 11. Trading in securities structure (Cont.) • Benefits • Profit is exempt from tax. • Use of double tax treaties. • No withholding tax on payment out of Cyprus. • Overall 0% tax in Cyprus.

23. 12. Permanent establishment in Double Tax Treaty countries • Plan • A Cyprus company may establish a permanent establishment (e.g. a branch) abroad and take advantage of the non-taxability on profits from foreign permanent establishments in Cyprus as well as the potential of realizing profits which would escape taxation in both jurisdictions.

24. 12. Permanent establishment in Double tax Treaty countries (Cont.) • Benefits • The profits are tax exempt in the hands of the Cyprus company. • Tax may be eliminated in both jurisdictions by applying a favourable provision in the course of a Double Taxation Treaty i.e. where the taxing rights for the permanent establishment are attributed to Cyprus which exempts its profits unconditionally.

25. 13. You can do all of these … and more

26. 14. HLB AFXENTIOU LTD-OUR IDENTITY • Established in 1997 • Ranked among the largest accounting and financial consulting organizations in Cyprus • Member of HLB International • A dynamic team of multi-disciplined professionals with considerable expertise • Rendering services to a wide portfolio of clients engaged in diverse operations, both locally and internationally • Affiliated entities offer professional services, including corporate, trust and management services • Offices in Nicosia, Limassol and Larnaca in Cyprus

27. 15. OUR STRENGTHS • Good knowledge of client’s business • Excellent contacts • Wide and in-depth experience • Full discretion, confidentiality and integrity • Very broad range of services rendered at competitive fees • International affiliations and business contacts • Extensive knowledge and application of international tax and offshore matters • Multilingual staff fluent in Greek, English, Russian, Ukrainian, Bulgarian.

28. 16. SERVICES AVAILABLE • Audit • Accounting • Tax planning and compliance • Corporate and trust services • Trust administration • Management consulting: • business advisory, strategic planning, MIS • Corporate finance: • business valuations, mergers and acquisitions • flotation & IPO services, fund raising, due diligence • Insolvency and recovery

29. 17. Contact Details • Nicosia headquarters Contacts: Costas Afxentiou, Chief Executive Officer/Managing Partner Vassos Theophylactou, Member of the Board/Partner Polyvios Polyviou, Member of the Board/Partner Stelios Prodromitis, Member of the Board/Partner Marios Hadjihannas, Member of the Board/Partner Palaceview House , Corner of Prodromos Str. & Zinonos Kitieos, CY-2064 Nicosia Tel. +357 22002700 Fax. +357 22002800 website: www.hlb.com.cy

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