1. CYPRUS – LITHUANIA TAX STRUCTURING
Alecos Papalexandrou
Tax Partner
Lithuania, June 2012

2. Holding Company - Inbound Investment
Plan
Establish Cyprus company to hold operating subsidiary in Lithuania for dividend stream income
Benefits
Eliminate withholding tax in Lithuania on dividend payment to Cyprus
Participation exemption on dividend income – No tax in Cyprus
No withholding tax on dividends to parent whether EU or Non-EU
No CFC rules in Cyprus
Parent
Non-EU
Lithuania
Opco
Cyprus
Holdco
0% withholding tax on dividends
EU Parent – Subsidiary Directive
EU \ ЕС 2
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

3. Holding Company - Inbound Investment
Investor from a country with no DTT with Lithuania
Investment through Cyprus
Dividends received by Cyprus holding Co exempt from tax (subject to conditions)
No withholding taxes on payments out of Cyprus
Investor
Non EU
No Treaty
Cyprus Holding Co
Lithuanian Subsidiary 3
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

4. Holding Company - Outbound investment
Lithuanian
Investor Co
Plan
Lithuanian investor establishes Cyprus company to hold various EU and non-EU operating subsidiaries for dividend stream income
Benefits
Access to EU directives and DTTs of Cyprus in relation to holding EU and non-EU subsidiaries – No or low withholding tax on dividend (for example 5% in Russia, 0% in Ukraine)
Full participation exemption on dividend income - No tax in Cyprus
No withholding tax on dividends to Lithuanian parent
No CFC rules in Cyprus
Dividend payment
0% withholding tax
Cyprus
Holdco
Dividend income
0% tax
Dividend payment
0% or low withholding tax
Treaty Subsidiary EU
Subsidiary 4
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

5. Holding Company - Outbound investment
Plan
Lithuanian investor establishes Cyprus company to hold various operating subsidiaries for dividend stream income
Benefits
Access to favorable treaties
No withholding tax on dividend from Ukraine
Withholding Tax in accordance with Treaty
Full participation exemption on dividend income - No tax in Cyprus
No withholding tax on dividends to parent
No CFC rules in Cyprus
Lithuanian
Investor
Cyprus
Holdco
Dividend payment
0% withholding tax
Dividend income
0% tax
Ukrainian
Opco 5
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

6. Holding Company with Foreign PE
In Cyprus :
Profits from PE abroad exempt provided:
Active income>50% or
Tax burden >5%
Losses of PE set off against Cyprus Co’s other income (but recapture rule)
Profits in PE country exempt if they relate to construction and/or assembly activities lasting within the periods specified in the Cyprus DTT Network.
Cyprus Co
Investor
Foreign PE
Example:
Austria
<24 months
Romania
<12 months
Russia
Ukraine
Other Eastern
European Countries 6
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

7. Financing Company - Inbound
Foreign Co / Bank
Cyprus Financing Co
Lithuanian Operating Co
Interest deductible in operating country (Lithuania)
No WHT in Lithuania based on EU Interest & Royalties Directive
Small margin taxable in Cyprus at 10%
No withholding taxes on payments out of Cyprus
Interest Payable
Interest Receivable 7
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

8. Finance Company - Outbound investment
Cyprus
Financing
Company
Lithuanian
Investor
EU / non-EU
Opco
Dividend payment
0% withholding tax
Interest payment
0% or low withholding tax
Profit Margin - 10% tax
Plan
Lithuanian investor establishes Cyprus company to be the group finance company of EU and non – EU operations.
Capitalisation with equity
Benefits
Tax on profit margin 10%
Access to EU interest directive and DTT network of Cyprus
– No or low withholding tax on interest
Interest deductibility in paying company
No WHT on dividends paid from Cyprus 8
Cyprus – Lithuania: Tax restructuring
© 2012 Deloitte Limited

9. Financing Company - Outbound
Profits reduced in operating company
Low or no WHT in operating company based on DTT or EU Directive
Small margin taxable in Cyprus at 10%
No withholding taxes on payments out of Cyprus to Lithuania
Lithuanian Financing Co.
Cyprus Financing Co.
Operating Co Treaty/ EU
Interest Payable
Interest Receivable 9
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

10. Financing Company Margins on Loans – back to back structures
Transfer Pricing Considerations –
Acceptable indicative profit margins where low financing risk retained in Cyprus:
Up to EUR€50m %
From EUR€50m - EUR€200m 0.25%
Above EUR€200m % 10
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

11. Intellectual Property Rights
EU or No DTT Licensor Co
Cyprus Royalty Co.
Lithuanian Operating Co
Royalty Company (Inbound):
Royalty premiums deductible in Lithuania
No WHT in Lithuania based on EU Interest & Royalties Directive (subject to conditions)
Small margin taxed at 10% in Cyprus
No withholding taxes on payments out of Cyprus
As from 1/1/2012:
cost of acquisition of IP can be amortised over 5 years
80% of the profits from royalties, including the profit from disposal of the IP, exempt from 10% corporation tax in Cyprus
Royalty Payable
Royalty Receivable 11
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

12. Royalty company - Outbound investment
Plan
Lithuanian investor establishes Cyprus company to be the owner of intellectual Property Rights. Capitalisation with equity (contribution of the IP)
Benefits
Amortisation of cost of acquisition of IP over 5 years
Tax on 20% of the profits from royalties, including profits from sale of IP, at the rate of 10% (therefore, effective tax rate lower than 2%)
Access to EU interest & royalty directive and DTT network of Cyprus – No or low withholding tax on royalties
Royalty deductibility in paying company
No withholding taxes on dividend payments from Cyprus
Royalty premiums are deductible in operating country
Credit relief in Cyprus for WHT in operating country if any
Lithuanian
Investor Co.
EU or DTT
Opco
Dividend payment
0% withholding tax
Royalty payment
0% or low withholding tax
Profit - less than 2% effective tax
Dividend Payable
Cyprus IP
Co.
Royalty Receivable 12
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

13. Trading in Securities Profit is exempt from tax
Cyprus Trading Co
Buy Securities
Sell Securities
Profit is exempt from tax
Use of Double Tax Treaties
No withholding tax on payments out of Cyprus
Result = 0% tax in Cyprus 13
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

14. Non Resident Trading Company
Managed and controlled outside Cyprus
Exempt from tax in Cyprus
Non resident Cyprus registered company
Use of EU VAT number and reputation
Result = 0% tax in Cyprus
Cyprus Trading Co
Buy Products
Sell Products 14
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

15. Lithuanian Operating Co.
Employment Company
Parent Co
Cyprus Employment Co.
Lithuanian Operating Co.
Cyprus Company employs staff
Charges at cost plus
Profits taxable in Cyprus at 10%
Profits reduced in operating country
Employee costs reduced as employees pay less tax and S.I. Contributions *
Employees exempt from tax in Cyprus
* Depends on nationality of employees and rules of operating country 15
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

16. Cyprus International Trusts
Beneficiary & Settlor Not residents of Cyprus
Trustee At least one Cyprus tax resident
Trust Property
Plan
Set up a trust under the Cyprus International Trusts Law of 2012
Benefits
Exempt from any taxation in Cyprus
Exempt from any Capital Gains and Inheritance Tax
Protection of Property
Confidentiality
Trading activities through the set up of a company owned by the trust 16
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

17. International Collective Investment Schemes
An ICIS can take one of the following legal forms:
Fixed Capital Company;
Variable Capital Company;
Unit Trust Scheme;
Investment Limited Partnership. 17
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

18. An example: Overseas Investments Cyprus HoldCo ICIS Partnership
General Partner
(CyprusCo)
Limited Partners
Lithuanian Parent 18
Cyprus – Lithuania: tax restructuring
© 2012 Deloitte Limited

19. Thank you! For more information you may contact: Alecos Papalexandrou
Tel: 19
© 2012 Deloitte Limited
Cyprus – Lithuania: tax restructuring