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

1. Leading Tax Advice in Cyprus... and across the World Cross Border transactions via Cyprus Case analysis Prague, 17thJune 2010

2. www.eurofast.eu 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

3. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World 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: • Cyprus Holding Companies • Cyprus Trading Companies • Cyprus Financing Companies • Cyprus Royalty Companies • Special Purpose Vehicles • Investment Vehicles

4. Cyprus Trading Company www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Fig: 1 Cyprus Company Czech Republic EU/Non EU Purchase of goods and/or services Sale of goods and/or services • 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

5. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World International Collective Investment Schemes • Purpose: • The collective investment of funds of the unit holders • Who can benefit from the use of ICIS? • 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.

6. Investments via Cypriot International Collective Investment Schemes Manager (Cy resident) No WHT on distributions of dividends, interest, royalties (rights outside Cyprus) Funds Cyprus ICIS • Int’l Unit Trusts • fixed capital co. • variable capital co. • limited partnership independent Professional Trustee Cy Resident Cyprus: - Generally no tax on dividends - Tax treaty network Accounting and assets calculations in Cyprus Cy Resident Investments in RE Cos, Securities, bonds, shares, debentures, other investments Dividends interest royalties No/low WHT Russia Ukraine China India Balkans Latin America Central Eastern Europe Middle East www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Investors International Financial Services and Collective Investment Funds

7. 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 Cyprus: profits deriving from the disposal of securities are exempt from taxation. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Definition of ‘securities’ • The term ‘securities’ has been extended to include:

8. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World 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) • 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 Cyprus Company Czech Republic Capital Gains

9. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Investing in Real Estate Disposal of Shares of Czech Co Fig: 4 • Direct disposal of immovable property implies a substantial tax leakage • ALTERNATIVE EXIT ROUTE • Indirect sale of immovable property – disposal of Czech Co shares • DTT provisions apply: • 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 • Exempt from tax in Cyprus • 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 • Outgoing Dividends: • No WHT BVI Cyprus Company Czech Republic Capital Gains

10. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Investing in Real Estate Fig: 5 Indirect Acquisition in and Exit from the Czech Market B.O • 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 Holding Company Capital Gains Cypriot Subsidiary Company Czech Republic Company

11. Cyprus Financing Company Financing of group companies by way of debt or working capital; Efficient accumulation of interest income. Cyprus Law Interest income received from intra-group lending - 10% CIT; No thin cap rules / no debt-to-equity restrictions; No specific TP legislation, the arm’s length principle applies; Interest paid to non-resident creditors is not subject to WHTs. Back-to-back financing Minimum interest margin / spread of 0.125 – 0.35% accepted. Fig. 1 Back-to-back financing structures www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Fig: 6 Cyprus Holding Company Loan Interest Taxable interest income Cyprus Financing Co Loan Interest Czech Republic Company

12. 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. www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Cyprus International Trust

13. Using a Cyprus International Trust: 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 Fig. 1 The use of a CIT www.eurofast.eu Leading Tax Advice in Cyprus... and across the World Trust Cyprus Holding Co Cyprus Subsidiary Co Czech Co

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