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Effective structures for the Russian market Holding Financing Royalty

Effective structures for the Russian market Holding Financing Royalty . Globalserve Moscow Seminar September 2013 By Phani Schiza Antoniou. HOLDING COMPANY SELECTION CRITERIA . Substance Minimum. Legal Impediments None. Dividends 0% . Holding Company .

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Effective structures for the Russian market Holding Financing Royalty

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  1. Effective structures for the Russian marketHolding Financing Royalty Globalserve Moscow Seminar September 2013 ByPhani Schiza Antoniou

  2. HOLDING COMPANY SELECTION CRITERIA Substance Minimum Legal Impediments None Dividends 0% Holding Company Capital Gains 0% Financial Report IFRS Interest Deductibility Yes Legal/ Political / Economic Stable Thin Cap Rules No Advance Ruling Yes Capital Duty Minimal CFC No Minimum Share Capital Yes Treaty Network -yes Withholding Tax 0%

  3. THE CYPRUS HOLDINGCASE Investor • Dividend participation exemption with no conditions • participation exemption on disposal of shares even in trading and without min holding period • Other income taxed corporate tax rate of 12,5% • Low interest margins of 0,125% - 0,35% • Tax regime fully complaint with the EU Tax Code of Conduct Dividend/interest 0% withholding tax 0% on dividend income 0% on disposal 12.5% on net profit arising from interest received based on narrow interest margin Cyprus Hold Co Dividend/ interest Russian Co 5% on dividends EU Co 0% on dividends Other Treaty Co 0-10 on dividends Russian Co 5% on dividends Heaven Co 0% on dividends

  4. THE MALTA HOLDINGCASE Investor • Dividend participation exemption with conditions • CG tax exempted on disposal of shares if participation exemption applies; for trading in securities 35% tax which may be reduced to effective 5% • Other income taxed corporate tax rate of 35% and effective5% • Tax on interest 10%, • WHT on interest from Russia 5% Dividend/interest 0% withholding tax 0% on dividend income 0% on disposal If participation conditions apply 10% on net profit arising from net interest received Malta Hold Co Dividend/ interest Russian Co 5% on dividends EU Co 0% on dividends EU Co 0% on dividends Russian Co 5% on dividends/interest Heaven Co 10% on dividends

  5. THE DUTCH HOLDINGCASE Investor • Dividend participation exemption with conditions • CG Tax on on disposal of shares if participation exemption applies; for trading in securities 20-25% tax • Other income taxed corporate tax rate of 20-25% • Tax on interest differential 20-25%, • WHT on interest from Russia 0% • WHT on outbound dividend if to non qualified 15% Dividend/interest 15% withholding tax on dividend if non qualified 0% on dividend income 0% on disposal If participation conditions apply 20-25% on net profit arising from net interest received Dutch Hold Co Dividend/ interest Russian Co 5% on dividends EU Co 0% on dividends EU Co 0% on dividends Russian Co 5% on dividends/interest Heaven Co 0% on dividends

  6. THE LUXEMBOURG HOLDINGCASE Investor • Dividend participation exemption with conditions • CG Tax on on disposal of shares if participation exemption applies; for trading in securities 28.8% tax • Other income taxed corporate tax rate of 28.8% • Tax on interest differential 28.8%, • WHT on interest from Russia 0% • WHT on outbound dividend if to non qualified 15% Dividend/interest 15% withholding tax on dividend if non qualified 0% on dividend income 0% on disposal If participation conditions apply 28.8% on net profit arising from net interest received LUX Hold Co Dividend/ interest Russian Co 5% on dividends EU Co 0% on dividends EU Co 0% on dividends Russian Co 5% on dividends/interest Heaven Co 28.8% on dividends

  7. Comparison of IP regimes of Cyprus / Luxembourg and Netherlands

  8. CYPRUS IP COMPANY Parent Co • Achieves offshoring of royalties with no WHT • Uses Cyprus treaty network and EU royalties directive • (12,5%) corporation tax on 20% of profits from IP income – effective tax (2,5%) • No tax in Cyprus on dividend flows • No WHT on dividends from Cyprus Company • If Cyprus Company owns IP outright, amortization available over 5 years Dividends 0% Cy IP Co Royalties (2,5%) EU Op Co 0% WHT Russia 0% WHT

  9. DUTCH/ LUX IP COMPANY Parent Co • Uses treaty network and EU royalties directive to minimise WHT • (28.8%) corporation tax on 20% of profits from IP income – effective tax (5.85%) • For NL 5% • Tax on dividend flows may be zero if participation exemption Dividends NL/LUX IP Co Royalties (5% NL 5.85% LUX) EU Op Co 0%WHT Russia 0% WHT

  10. AS A FINANCE COMPANY for Russia • PROFITS REDUCED IN OPERATING COUNTRY DUE TO THE INTEREST PAID TO FINANCING CY CO • SMALL MARGIN TAXABLE AT 12.5% IN CYPRUS ON NET PROFIT MADE OF SMALL INTEREST DIFFERENTIAL VARYING FROM 0.325%-0.125% • NO WITHHOLDING TAX WHEN INTEREST IS PAID TO OFFSHORE LENDER • THE FINANCING CO SHOULD BE DIFFERENT FROM THE HOLDING CO IN THE RUSSIAN OPERATING CO TO AVOID CFC RULES • THE CY FINANCING CO SHOULD NOT HAVE SUBSTANTIAL INCOME FROM OTHER OPERATIONS TO AVOID DEFENCE TAX TAXATION ON INTEREST AT 30% • IN THE CASE OF LUX AND NL THE TAX ON INTEREST MARGIN IS 28.8%AND 20-25% RESPECTIVELY OFFSHORE COMPANY CYPRUS FINANCING OPERATING CO

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