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Leading Tax Advice in Cyprus... and across the World

Leading Tax Advice in Cyprus... and across the World. Investments in and out of the Czech Republic Avoidance of double taxation. Prague, 17 th June 2010. Cross border transactions & Double Taxation Cyprus and the favourable DTT concluded with the Czech Republic

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Leading Tax Advice in Cyprus... and across the World

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  1. Leading Tax Advice in Cyprus... and across the World Investments in and out of the Czech Republic Avoidance of double taxation Prague, 17th June 2010

  2. Cross border transactions & Double Taxation Cyprus and the favourable DTT concluded with the Czech Republic Investing in & out of the Czech Republic via Cyprus www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Agenda

  3. Cross border transactions International cross border transactions may result in double taxation where a tax treaty is not in place How? Different domestic tax provisions governing the tax basis Source of income versus residence Residence versus residence www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  4. Double Taxation Cross border transactions – cross border trouble? www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Country A resident Income from business deriving from Country B Country A Country B Tax claims on Residency Tax claims on Source of Income

  5. Double Tax Treaties Prevention of double taxation More favourable tax provisions; withholding taxes are in most cases reduced and/or eliminated Enable the free flow of investments Provide for the principles in sharing tax revenue between the countries involved www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  6. Why Cyprus? Favorable Tax Regime Extensive network of Double Tax Treaties concluded Treaties with key-destinations including the Czech Republic Offers tremendous possibilities for tax planning www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  7. New Double Tax Treaty:Czech Republic - Cyprus Signed on 28 April 2009; Replaces the existing treaty between Cyprus and theformer Czechoslovakia effective since 1980; In force since 1 January 2010 www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  8. Withholding taxes: dividends, interest, royalties Maximum withholding tax rates under the new Protocol are: 0-5% on dividends; eliminated where a direct holdingof at least 10% in the capital of the subsidiary for an uninterrupted period of 1 year can be established No withholding tax at source on interest; taxable only at the level of the recipient; 10% on royalties. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  9. Capital Gains on Investments in Real Estate Companies Capital gains: Gains from the sale ofshares or other rights and interests in a company, a partnership or a trust deriving more than 50% of their value from immovable property situated in the other contracting state may betaxed where the immovable property is situated; Income from immovable property Taxed in the country the immovable property is situated in www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  10. Foreign Investments in the Czech Republic via Cyprus Investing in the Czech Republic via Cyprus: Withholding taxes capped under the Tax treaty as follows: 0 – 5% WHT at source on dividends; No WHT at source; 10% WHT at source on royalties Capital Gains Generally taxed at the level of the alienator Express limitations apply affecting real estate companies Double layer of Cyprus Companies may be suggested Application of the favorable domestic legislation of Cyprus as opposed to the provisions of the double tax treaty between Czech Republic and Cyprus on capital gains. Fig. 1 www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Cyprus Holding Co Dividends/ Interest/ Royalties Cyprus Subsidiary Co Dividends/ Interest/ Royalties Czech Co

  11. Overview of Cypriot Tax Implications Cyprus Companies Corporate Income Tax 10% Gains from the sale of securities – exempt Incoming dividends – exempt Interest not in the ordinary course of business – exempt Capital Gains Tax 20% Only triggered by the direct or indirect sale of immovable property situated in Cyprus www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  12. Analysis of Investment Cyp Holding Company: Dividends received from Cyp Subsidiary Co: Exemption from CIT; Exemption from Defence Tax. Gains on the sale of shares of the Cyp Subsidiary Co: No Capital Gains Tax; No Corporate Income Tax. Cyp Subsidiary Company: Dividends received from Czech Subsidiary Co: Exemption from CIT; Exemption from Defence Tax. Dividends paid to CypHoldCo: No WHT (defence tax) www.eurofast.eu Leading Tax Advice in Cyprus... and across the World • Czech Subsidiary Company: • Dividends paid to the Cyp Subsidiary Co: • 0% WHT at source (DTT) provided that: a. 10% participation • b. 1 year holding • 5% WHT at source if above is not met

  13. Exit structure: benefits of using Cyprus Direct disposal of CZ Co would trigger a tax obligation in the Czech Republic Capital gains tax provision under the treaty Double layer of Cyp Companies Cyprus HoldCo disposes its participation in the Cyprus SubsCo Cyprus will have sole right to tax gains deriving therefrom No tax in Cyprus No Capital gains payable on gains from disposal of any property located outside Cyprus; Gains on the sale of securities are exempt from Corporate Income Tax. Fig. 2 www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Cyprus Holding Co Capital gains Dividends Cyprus Subsidiary Co Dividends Czech Co

  14. Investing out of the Czech Republic: in real estate Fig. 3 www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Czech Co / individual No WHT on Dividends/interest/ Royalties (rights exercised outside Cyprus) • Cyprus: • 10% CIT • Dividends: • No CIT • Generally exempt from SCDF • No participation requirements • No holding requirements • Extensive tax treaty network • No tax on sale of securities 100% Cyprus Holding Co No/low WHT on Dividends/interest/ royalties Russia Ukraine Balkans Latin America Central Eastern Europe China India

  15. Analysis of Investment Cyprus is an EU Member State hence eligible to qualify for the tax exemption on incoming dividends Favourable regime for structuring investments Used as a holding company for investments in RE Companies Dividends received from RE Cos Low/no WHT at source Generally no tax in Cyprus Capital gains from the disposal of participation in RE Cos No tax in Cyprus (Assumption: no Cypriot RE) Favourable tax treaty provisions generally eliminate any right to tax at the source state Dividend payments to CZ Co No WHT in Cyprus as per the domestic law provisions (irrespective of treaty provisions) www.eurofast.eu Leading Tax Advice in Cyprus... and across the World

  16. Leading Tax Advice in Cyprus... and across the World Thank you!

  17. Leading Tax Advice in Cyprus... and across the World www.eurofast.eu info@eurofast.eu

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