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Asset management through Cyprus – Advantages from the new DTT and the road ahead November 2012 - Poznan.

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Presentation on theme: "Asset management through Cyprus – Advantages from the new DTT and the road ahead November 2012 - Poznan."— Presentation transcript:

1 Asset management through Cyprus – Advantages from the new DTT and the road ahead November 2012 - Poznan

2 Cyprus: Country overview

3 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 Cyprus – the jewel of the Mediterranean Strategic geographic location; middle of three continents namely Asia, Europe and Africa, and a gateway to the Middle East; EU / Eurozone Member State; currently holding the EU Presidency in 2012; Lowest corporate tax rate in EU / Eurozone at 10%; Legal system modelled to that of English Law; Financial reporting system based on IFRS; More than 30 years experience as an International Business Centre; International Banking Units and multinational companies have been operating from Cyprus for years; Low set-up costs; Highly skilled, educated and multilingual workforce at highly competitive fees; TROIKA measures not to affect tax environment for international investors. Ideal location for:  Investment Funds  Holding companies  Finance companies  IP holding companies  Regional headquarters  Shipping companies  Family Office Trust arrangements

4 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Management and control Residency for Cyprus tax purposes Companies:  Management and control is exercised in Cyprus. Note: No definition was given in the Law for Management and Control. Criteria for consideration:  The structure of the Board of directors;  Place of the Board meetings / important decisions. Note: Place of Business not relevant for determining residence. 3

5 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Summary of tax benefits  Low CIT rate;  Applicability of all EU directives;  Advance ruling practice exists;  Capital duty on issue of share capital 0,6% (no capital duty on share premium);  Extensive Double Tax Treaty network;  Exemption from tax on incoming dividends;  Tax free re-organisations. 4 Summary of Tax Benefits

6 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Summary of tax benefits (Cont’d)  Full exemption from tax on profits from the sale of securities (including shares/units);  No withholding tax on outward payments (Dividends-Interest-Royalties);  Zero tax if management and control is outside Cyprus;  Foreign PE profits exempt;  Tax losses carried forward indefinitely;  New IP tax regime. Summary of Tax Benefits (Cont’d) 5

7 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Cyprus Double Tax Treaty Network Armenia Azerbaijan Austria Belarus Belgium Bosnia and Herzegovina Bulgaria Canada Croatia China Czech Republic Denmark Egypt FYROM France Germany Greece Hungary India Ireland Italy Kyrgyzstan Kuwait Lebanon Malta Mauritius Moldova Montenegro Norway Poland Qatar Romania Russian Federation San Marino Singapore Serbia Seychelles Slovak Republic Slovenia South Africa Sweden Syria Tajikistan Thailand Turkmenistan Uzbekistan Ukraine United Kingdom United States 6 ©2011 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Cyprus. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Cyprus Double Tax Treaty Network

8 New Protocol to the Cyprus- Poland DTT

9 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Protocol to the Cyprus Poland DTT Cyprus – Poland Double Tax Treaty Overview 8 Cyprus-Poland1992 Treaty2012 Protocol WHT on Dividends10%0% / 5% WHT on Interest10%5% WHT on Royalties5% Capital GainsNo "real estate clause" Director’s fees paid to a Polish tax resident May be taxed in Cyprus or Poland Taxed in Poland Method of ReliefTax sparing clauseNo Tax sparing Limitation of BenefitsNo

10 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Protocols signed by Cyprus, Luxembourg and Malta with Poland Comparison table CyprusLuxembourgMalta WHT on Dividends 0%/ 5%0% / 15%0% / 10% WHT on Interest 5% WHT on Royalties 5% Capital Gains No "real estate clause" "real estate clause" Director’s fees paid to a Polish tax resident Taxed in PolandTaxed in Luxembourg (LoB) Taxed in Malta(official rulings confirm taxation) Limitation of BenefitsNoYes (Art. 29)No Tax sparing clause for dividends No 9

11 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Protocol to the Cyprus Poland DTT Tax benefits from the use of EU Tax Directives ParticipationPeriodWithholding rate Parent Subsidiary Directive Dividends10%2 years0% Interest and Royalty Directive Interest, Royalty25%2 years5%* 10 Will be reduced to 0% as of June 30 th, 2013. **Domestic rates for withholding tax in Poland are the following: Dividends – 19%; Interest – 20%; Royalty – 20%.

12 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Protocol to the Cyprus Poland DTT Cyprus – Poland Double Tax Treaty Overview  Capital Gains: The sale of shares in a Polish Company by a Cyprus tax resident shareholder is taxed only in Cyprus, even for ‘’property rich’’ companies (Article 13 of DTT);  Capital gains on sale of securities: 100% exemption. 11

13 Opportunities for outbound investments

14 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Opportunities for outbound investments: Russia Payments from CyprusPayments from Russia Dividends0%*5/10%** Interest0%*0%** Royalty0%*0%** 13 *Under local Cyprus Tax Laws, no withholding tax in imposed on outgoing payments. **Rates provided under DTT between Russia and Cyprus. Domestic rates for withholding tax in Russia are the following: Dividends – 15%; Interest – 20%; Royalty – 20%.

15 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Opportunities for outbound investments: Ukraine Payments from Cyprus*Payments from Ukraine* Dividends0% Interest0% Royalty0% 14 *Rates provided under DTT between Cyprus and Soviet Union which is applicable. Domestic rates for withholding tax in Ukraine are the following: Dividends – 15%; Interest – 15%; Royalty – 15%.

16 Corporate Structures through Cyprus

17 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Cyprus HoldCo Note: 1.Reduced or Nil withholding taxes based on DTT or EU Directives; 2.Dividends in and out of Cyprus with no taxation in Cyprus (exemption conditions to be met); 3.No Cyprus tax on the sale of shares. Treaty Co Ukraine Co Russian Co Dividend Poland Investor Poland Co EU Co 0% Corporate Structures Overview – Holding Company 16

18 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Structuring ideas – International Trading 17 Buy Goods & Services Sell Goods & Services Dividends exempt* No WHT on repatriation Profit taxed at 10% instead of 19% which is applicable if trading made by a Polish company International trading Poland Co Cyprus Co *Provided the following conditions are met: Poland co holds at least 10% of Cyprus Co; Holding period is at least 2 years.

19 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Structuring ideas – Trading in “Securities” 18  Use of Cyprus eliminates taxation;  Turn taxable profits (income from financial activities) into tax free dividends in Poland*. *Provided certain conditions are met. Poland Co Trading Profits - Taxed at 19% Poland Co Cyprus Co Dividend in Poland: Zero tax* Dividend from Cyprus: Zero WHT Income in Cyprus Dividend: 0% Interest: 10% Gains: 0% Trading (buying and selling) in shares, options, private bonds and similar titles Trading in shares, options, bonds and similar titles

20 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Circular 2008/13 Interpreting the definition of securities Ordinary Shares, Founder's Shares, Preference Shares Options on titles Debentures, Bonds (and rights thereon) Short positions on titles Futures/ forwards on titles Swaps on titles Depositary receipts on titles such as ADRs and GDRs Index participations only if they represent titles Repurchase agreements or Repos on titles Participations in companies (Russian OOO and ZAO, USA LLC (provided that they are not transparent for taxation purposes), Romanian SA and SRL and Bulgarian AD and OOD among others) Units in Investment and Mutual Funds (Investment Trusts, Investment Funds, Mutual Funds, International Collective Investment Schemes (ICIS), Undertakings for Collective Investments in Transferable Securities or UCITS and other similar investment vehicles 19

21 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Structuring ideas – Provision of loans/financing Structure  Poland Co establishes Cyprus company to act as finance company of the group;  Capitalisation with equity. Benefits  Conversion of interest income (taxable at 19% in Poland) to exempt dividend;  Tax relief/deduction in operating company at applicable tax rate;  CY tax on interest = 10%;  No WHT on dividends paid by Cyprus Company;  Profits can be reinvested at Cyprus level;  Capital reduction or liquidation of Cyprus Co exempt;  Opportunity - use of a BVI company to provide funds as a loan to Cyprus – classification as a ‘back to back’ loan (see margins next slide). 20 Dividends – No WHT Interest - 10% Zero or reduced WHT from EU or treaty-country loan equity Poland Co Cyprus Co Polish company Polish company Treaty company Treaty company

22 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Corporate Structures Accepted Margins on Loans Indicative Profit margins 21 Up to EUR€50m0.35% Between EUR€50m- EUR€200m0.25% Above EUR€200m0.125%

23 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Licence Agreement Notes: 1. New Cyprus IP Tax Regime – 80% tax exemption on annual IP income and IP disposal gains (Copyrights, Patents, Trademarks); 2. Expenses incurred for the production of royalty income tax allowable in Cyprus and may be allowable in Poland Co; 3. Amortization expense spread over current and following four years; 4. Effective Tax Rate in Cyprus of 2% or less! 22 Poland CoCyprus IP Co Overseas Parent Royalty Payment Popular tax structures with Poland New Cyprus IP regime

24 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. New IP regime: Sample Calculation IP regime: Example CypCo Tax Computation Income from IP licenced to PolCo100.000 Less: Direct expenses (ie consultancy, advisory etc)(30.000) Less: Amortisation of IP (100.000/5)(20.000) Profit from IP operations50.000 Deemed deduction @ 80%(40.000) Taxable Profit10.000 Corporation tax @ 10% (effective tax just 1%)1.000

25 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Closed structures – use of Offshore Co and a Cyprus International Trust Cyprus Holding Company Offshore Co (BVI ) Overseas Investment Cyprus International Trust International Trust Offshore set up

26 ©2012 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Closed structures – Use of Offshore Co and Cyprus International Trust No tax at the level of the Offshore Co No tax at the level of the International Trust Beneficiaries of trust taxed in their country of residence only upon receipt of a distribution from the Trust – Tax deferral No filing requirements for the Trust in Cyprus or the Offshore Co No tax upon selling the shares of Cyprus company No inheritance or wealth taxes in Cyprus Confidentiality and protection preserved for the beneficiaries of the Trust Advantages of a Trust arrangement

27 Thank You! Vasilis Koufaris Principal KPMG Cyprus


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