Life after Cyprus

Life after Cyprusby Chris Damianou

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[email protected] www.eurofast.eu

mailto:[email protected]

http://www.eurofast.eu/

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ORGANISATION PROFILE

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What we are good at…Eurofast Taxand• International Tax Tax efficient real estate structures including

investment funds Tax advice surrounding transactions,

disposals and spin offs Designing acquisition and holding structures Minimizing tax obstacles in real estate

transactions Transfer Pricing VAT planning & compliance Tax controversy and litigation Tax Litigation Real Estate

Eurofast Global

Accounting & PayrollMergers & AcquisitionsCross border transactionsTransaction advisoryIntellectual propertyCompliance reportingCross border structuring Shipping

Bringing value to clients with our service

What we are good at…

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Single point of Contact, Many Points of View

Where can you find us

Lefkosia Athens Thessaloniki Sofia Bucharest Belgrade Tirana Skopje

Pristina Banja Luka/ Sarajevo Zagreb Cairo/ Alexandria Podgorica Kiev Moscow Tbilisi

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Life after Cyprus = ?

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Cyprus Bailout Overview

Bank of Cyprus and Laiki Bank - Losses of more than €4 billion due to their high exposure to Greek government bonds.

Bailout deal with the Eurogroup for €10 billion on 25 March 2013.

• Laiki- Separated into a good bank and a bad bank.• A good bank to be merged with Bank of Cyrus (BoC).• Laiki - Transfer of all good loans, insured deposits, deposits of up to €100,000. to BoC.• Over €100,000. uninsured deposits or balances to take part in recapitalisation. • BoC haircut on deposits 37.5% and additional 22.5% frozen for the next few months incase of future recapitalisation needed. (All insured deposits of €100,000 or less not affected).

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Cyprus Bailout Overview

• Savers affected are to be compensated with the Class A shares of the bank.• BoC to take over the Emergency Liquidity Assistance balance already provided to Laiki by the European Central Bank estimated at € 9.4 billion.

Deposits in other financial institutions will remain unaffected.

Temporary capital movement restrictions put in force by the Central Bank of Cyprus and are updated on a regular basis to control a possible capital outflow. The measures include:

•Transfer of deposits/funds to accounts held in other credit institutions is limited.

•Limit on the amount of cash withdrawals and when travelling outside CY per natural person/per day/per account.

•Strict controls on the termination of fixed deposits prior to their maturity.

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Severe impact on Cyprus banking.

Laiki Bank mostly affected (known long ago!).

Other banks not so much.

Continue to be “transaction” banks.

Very good liquidity in other banks.

Principle behind decision may affect other jurisdictions too.

Cyprus Bailout - Impact

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Statement of “Jeroen Dijsselbloem” that it may be treated as a “model” for other countries in the Eurozone.

The decisions of the Eurogroup have shaken the confidence of the investors worldwide in the banking system - lifetime savings are not necessarily safe in European banks and clients moving funds to Singapore etc....

Especially countries where their banking sector exceeds their real GDP at least 4 times under scrutiny. Model must change!

Cyprus Bailout - Impact

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Corporate structuring not affected.

No actual link with banking.

Concern is more psychological than actual.

No change in main principal behind Cyprus’s attractiveness.

Minor changes being made to the tax and legal regime.

Cyprus Bailout – Impact on Corporate Structuring

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BVI/Belize Co

Rus Co

Cyp CoRoyalties

Royalties

Royalties

Practical examples on structures to do - not to do

IP rights on Cyprus Company

shares

Rus Co

Cyp Co

NO YES

Profits distributed in the form of Dividends

CIT: Corporate income tax

WHT: Withholding tax

Zero WHT

2,5% CIT

Non-resident UBONon-resident UBO

Cyprus Financing Company


Russian CompanyRussian Company

Interest 0%

Interest 0%

Cy

RUS

Loan

Loan

Practical examples on structures to do - not to do

Group Financing Structure

NO YES

Commercial BankCommercial Bank

Russian CompanyRussian Company

Interest 0%

Interest 0%

Cy

RUS

Loan

Loan



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Forex/Binary companies in Cyprus

Simplicity on the regulatory framework – In compliance with EU directions

Cyprus license as a passport to other EU jurisdictions

Low operational costs

Tax treatment similar to Cyprus Companies

YES

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VAT As of 14th January 2013, the standard VAT rate was increased from 17% to 18%.

From 13th January 2014 to 19%.

The reduced VAT rate shall be increased from 8% to 9% from 13th January 2014.

Carrying Forward of Tax Losses

Limited to five (5) years.

Recent Changes in the Tax Laws

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Annual Levy of 350 Euros

New amendment to Companies Law Cap 113.As of 2013, it is compulsory for all companies registered with the Company Registrar to pay the annual fee of €350.

Dormant companies included.

Corporate Tax Increase

CIT increased from 10% to 12.5%

Recent Changes in the Tax Laws

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Current and Future Overview

Domestic ProvisionsInternational

Regulations – The FutureThe Russian Connection

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Current and Future Overview

Domestic Tax Provisions of Cyprus compared to: Luxembourg Malta Ireland Switzerland

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Domestic Tax Provisions Compared

Cyprus / Luxembourg

Cyprus Luxembourg

Corporate Tax 12.5% 28.8%

Dividends 0%15%0% for qualifying Eu/Swiss Companies and Countries with which Luxembourg has a Tax treaty

Interest 0% 0%15% for profit-sharing bonds

Royalties 5% (film royalties) 10% (other royalties)0% (use of rights outside Cyprus)

0%

Capital Gains Generally not taxable.20% on the disposal of immovable property located in Cyprus and on shares in Companies which own immovable property located in Cy

Part of Business IncomeCapital gains from disposal of shares may be exempted, if certain conditions are met.

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Cyprus / Malta

Cyprus Malta

Corporate Tax Rate 12.5% 35% (reduced significantly following refunds)15% final tax available for certain defined categories of "investment income"

Dividends 0% 0%

Interest 0% 0% if the interest paid is not effectively connected with a permanent establishment of the non-resident in Malta

Royalties 5% (film royalties)10% (other royalties)0% (use of rights outside Cyprus)

No if royalties not effectively connected with a permanent establishment of the non-resident in Malta


12%exemptions are available, e.g. on participating holding, listed securities other than units, intra group transfers, and certain transfers on mergers & divisions

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Cyprus / Ireland

Cyprus Ireland

Corporate Tax Rate 12.5%12.5% for trading income25% for non-trading incomeVarious other rates apply for specific activities/industries

Dividends 0% 20% (some exemptions apply)

Interest 0% 20% (several exemptions, e.g. Eurobonds)


20% (on patents only)


30% participation exemption available

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Cyprus / Switzerland

Cyprus Switzerland

Corporate Tax Rate 12.5% 8,5%

Dividends 0% 35%

Interest 0% 35% on bonds issued by Swiss debtors and on bank deposits; 3% on loans secured by immovable property 0% for qualifying interest under Savings Agreement


0%

Capital Gains Generally not taxable.20% on the disposal of immovable property located in Cyprus and on shares in Companies which own immovable property located in Cyprus

Yes, part of Business incomepart of business income; participation relief if minimum 10% capital holding

Cyprus Luxembourg Malta Ireland Swiss

CIT 12.5% 28.80%35%

exempt. may apply 12,5% 8,5%

Divid 0%15%, exempt. may

apply 0%

20%exempt. may

apply 35%

Inter 0% 0%

0% Subject to conditions.

20% exempt. may

apply35% on bonds3% on loans

Royal

0%If exercised out

of CY 0%

0%Subject to conditions. 0% 0%

CGT0%

Subject to cond.Part of Business

Income 12%

exempt. may apply30% exempt. may

apply Part of Business Income

Domestic Tax Provisions Compared: All

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International Regulation Trends & Future

Trends • Increased scrutiny by tax authorities/courts • Transfer Pricing• Substance• Genuine economic/strategic/financing reasons• Documentary support – crucial importance • Concept of “beneficial ownership”• Introduction of detailed LoBs provisions• Exchange of InformationLeading to more…• TRANSPARENCY + ARM’S LENGTH

• SOPHISTICATION IN TAX PLANNING

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Attention on Luxembourg by OECD, EU and Other jurisdictions on EoI: As a result, Lux. will apply FATCA agreement- automatic EoI with USA and also with effect from 1 January 2015 under the Savings Directive (2003/48), Lux. agreed to automatically exchange information.

Attention on Switzerland: Various court cases against Swiss banks and individuals conspiring to hide offshore accounts. Also FATCA agreement signed with USA for automatic EoI.

UK Chancellor of the Exchequer requested European finance ministers to agree to automatic exchange of tax information between countries.

US, Australia, and UK announce plan to share data to combat offshore tax evasion.

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EU Commission to negotiate amendments to EU agreements with Switzerland, Liechtenstein, Monaco, Andorra and San Marino to amend the Savings Directive (2003/48): To be adopted by the end of 2013 to include all types of savings income and provide a look-through approach for the identification of beneficial owners.

On 29 May 2013, 9 countries (including Austria, Luxembourg, Singapore) signed the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters to end tax secrecy. Malta and The Netherlands including its Caribbean islands ratified it. In the past 2 years more than 60 countries have signed the Convention.

International Consortium of Investigative Journalist (ICIJ) report.

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Level of compliance for AML Purposes

Country Complete Compliance Compliance to a Great extent

Partial Compliance No Compliance

Austria 6 19 24 0

Belgium 21 20 6 1

Cyprus 12 28 9 0

Estonia 8 27 12 1

Finland 7 13 23 5

France 9 29 10 1

Germany 5 24 15 5

Greece 2 10 23 13

Ireland 16 12 16 5

Italy 18 13 12 6

Luxemburg 1 9 30 9

Malta 25 15 9 0

Netherlands 6 22 20 1

Portugal 13 23 10 2

Slovakia 5 18 23 2

Slovenia 14 24 10 0

Spain 10 22 12 3

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The Russian Connection

Protocol to the DTT is in force since Jan 2013.

Cyprus has been removed from the Russian Blacklist.

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The Russian ConnectionProtocols of Russia

Cyprus Luxembourg Switzerland

Dividend WHT 5% If direct investment of EUR 100.000

5% if 10% holding requirement AND direct investment of EUR 80.000

5% if 20% holding requirement AND direct investment of CHF 200.000

Interest 0% 0% 0%

Royalty 0% 0% 0%

Capital Gains Sale of shares “Property-rich” companies taxed in both States BUT 4 year period exemption

Sale of shares “Property-rich” companies taxed in both States BUT with immediate effect

Sale of shares “Property-rich” companies taxed in both States with immediate effect (excludes business assets)

Limitation of benefits

Applicable ONLY in cases where companies are not incorporated in Cyprus

Applicable in ALL cases Applicable in ALL cases

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The Russian ConnectionRussian Community in Cyprus

Transparent Legal System Excellent communications World class professional services Member of the European Union (EU) Tax system fully compliant with EU and OECD requirements Low corporate tax Not in any black/grey lists – only

white lists 300 days sunshine.

WHY CYPRUS?

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The Russian ConnectionRussian Community in Cyprus

According to the 2011 census 10,520 Russian citizens live in Cyprus (according to the press reports the number is 100,000.). 50% of the Russian population live in Limassol. Russian schools and Orthodox Churches have been built. Russian-language television and radio service has been set up.There is a Russian Center for Science and Culture in Nicosia. The Limassol Municipality organizes the Cyprus – Russian Festival since 2005 where every year more than 15,000 people gather to celebrate. Most businesses have Russian speaking personal working for them.

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Statements from internationals currently in

Cyprus

Recent statements from CEO’s of international companies who are based in Cyprus:

Kardex Systems Ltd - Switzerland

NCR Middle East/Africa Region - USA

Uniteam Marine Limited - Germany

VTTI B.V. VTT Vasiliko Ltd - Netherlands

Alpari Forex - Russia

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Cyprus

Kardex Systems Ltd - Country of Origin: Switzerland/Demetris Kouloundis - Sales Director MEA

“After over 30 years in Cyprus, we will definitely stay on the island as time has proved that we made the right decision to have Cyprus as our base. We still maintain the same advantages of operating in an efficient business environment with experienced professionals, an attractive tax framework and overseas market proximity to Africa, Europe and Asia.”

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Cyprus

NCR Middle East/Africa Region - Country of Origin: United States/George Flouros-Vice President, NCR Middle East/Africa Region

“The favourable business climate, the excellent telecommunications infrastructure, the well-educated and skilled human resources, favourable tax rates and the island’s proximity to the Middle East and Africa markets were among the key factors that motivated NCR Corporation to establish its regional offices in Cyprus. Cyprus provides us with the ideal base to achieve our goals.”

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Cyprus

Uniteam Marine Limited - Country of Origin: Germany / Gerhard Ruether, Chairman

“Having the right team at the right location is a prerequisite to the successful pursuit of my vision and ideas. The combination of advantages sustains our success and has kept us in Cyprus since 1978 – and continues to help us further pursue the growth of our organisation.”

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Cyprus

VTTI B.V. VTT Vasiliko Ltd - Country of Origin: The Netherlands / Rob Nijst, CEO

“Our commitment and confidence in Cyprus remains as strong as ever. We expect to invest around €300 million and our oil storage terminal project is proceeding according to plan. We see Cyprus as a future energy hub of the Eastern Mediterranean, and an attractive place in which to invest. Cyprus continues to be a solid business centre for its favourable geographical location, EU membership and the high quality of human capital, services and infrastructure”.

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Cyprus

Alpari Forex- Country of Origin: Russia/Andrey Dashin, Chairman

“Russians are much more accustomed to such circumstances, we've had so many crisis in Russia...I don't have the feeling that (Russians) are ready to pull out their business or money out of their country.”

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Cyprus

Slava Mishin, 42, financial services employee lives in Limassol – Country of Origin: Russia

“We are here because of the climate, because of the same religion, the language, we can use English, because we are not far from home, and we want our kids to grow up in a safe environment and have a European education.”

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Life after Cyprus = Cyprus

Thank you!Questions/ Answers

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Life after Cyprus