Cyprus– An International & Professional Centre “Cyprus: The Ideal Holding Company Location Advantages of the Cyprus Tax system” Kikis Treppides Managing Director K. Treppides & Co Ltd Lithuania, June 2012

2 Cyprus – Facts and Figures Member of the European Union since 1 May 2004 Euro Currency was introduced in Cyprus on 1 January 2008

3 Cyprus Tax Reform To conform with European Law and the Acquis Communautaire on Direct and Indirect Taxation To comply with the Code of Conduct on Business Taxation and OECD requirements against harmful tax practices. To simplify, make more transparent and more effective the whole tax system

4 What is the purpose of an international tax structure? MAXIMUM AFTER-TAX RETURN

5 So, what you need is a jurisdiction with … Low tax environment for –International holding companies –International trading operations –Cross-border transactions and distributions Political, legal and tax systems that are –Stable –Reputable –Sophisticated and experienced Supportive Infrastructure –Good communications –Developed business services –Developed professional services

6 Key features of the Cyprus tax system The lowest effective tax rate in the European Union 10% headline corporate tax rate Foreign source income generally tax exempt Profits on transactions in shares tax-exempt Generous tax deductibility rules reduces effective tax rate

7 Key features of the Cyprus tax system No withholding taxes on outbound dividends, interest & royalties, irrespective of the country of destination i.e. Tax free exit EU tax directives apply Parent / Subsidiary Interest & Royalties Re-organisations Unilateral credit relief for foreign taxes

8 Key features of the Cyprus tax system No CFC (Controlled Foreign Corporation) legislation No thin capitalisation rules No detailed transfer pricing rules (arm’s length principle only) No capital gains tax (except on real estate situated in Cyprus) No taxes on entry, reorganizations and exits

9 No wealth taxes and only minimal stamp & local taxes No exchange controls Most international transactions free of VAT Low personal tax regime - Top rate 35% (For foreign staff becoming tax residents of Cyprus as of with income over € maximum tax rate of 17.5%) OECD approved / EU compliant system Key features of the Cyprus tax system

10 A tax administration that wants to help foreign investors Wide network of favorable tax treaties OECD approved / EU compliant system A tax administration that wants to help foreign investors Wide network of favorable tax treaties Key features of the Cyprus tax system

11 Cyprus Tax Philosophy The Cyprus Tax System is based: On the Tax Residency of the Individual and / or Company. The Management and Control of the Company

12 Interpretation and Tax Base “Resident in the Republic” When applied to an individual, means an individual who is present in Cyprus for a period or periods > 183 days in the year of assessment. When applied to a company, means a company whose management and control is exercised in Cyprus.

13 “Management and Control” There is no definition in the Law Management and control in practice is considered to be exercised in: The place where the majority of the Board of Directors reside; The place where the majority of the meetings of the Board take place and significant decisions are taken. Interpretation and Tax Base

14 “Permanent establishment” Means a fixed place of business through which the business of an enterprise is wholly or partly carried on and includes: Place of management; Branch; Office; Factory; Workshop; Mine, oil or gas well, quarry or any other place of extraction of natural resources; Building site or construction or installation project or supervisory activities, provided they last more than three months. Interpretation and Tax Base

15 Imposition of Tax Resident in the Republic Tax is imposed on income derived or arising from sources both within and outside Cyprus. Non-resident in the Republic Tax is imposed only on income derived or arising from sources within Cyprus.

16 Taxation of Individuals The Income tax rates for individuals for 2012 are: Up to € % From € up to € % From € up to € % From € up to € % Above € %

17 Other useful provisions are: Interest income subject to SDC 15% Dividend income subject to SDC 20% for the period from 1 st January 2012 up to 31 st December 2013 (17% thereafter) Pension income from services rendered abroad 5% Remuneration from salaried services to a non-resident employer for an aggregated period of more than 90 days Exempt Taxation of Individuals

18 Taxation of Dividends Dividends are exempt from corporation tax Dividends received by a person (individual or corporate) resident in the Republic are subject to Special Defence Contribution (SDC) at 20% for the period from 1 st January 2012 up to 31 st December 2013 (17% thereafter). However, for companies there are exemptions.

19 Dividends received by a resident company, or a non- resident company which maintains a permanent establishment in the Republic. From an investment held abroad. Are exempt from taxation Taxation of Dividends Exemptions (a)

20 The exemption does not apply if the non-resident company paying the dividend: engages directly or indirectly by more than 50% in activities that lead to investment income the overseas tax burden on its income is significantly lower that the Cyprus tax burden (in practice less than 5%) Taxation of Dividends Exemptions (a)

21 Dividends paid by a resident company to another company, which is also resident in the Republic are exempt from SDC Taxation of Dividends Exemptions (b)

22 Taxation of Interest Interest earned from financing activities is taxed as ordinary business income at a rate of 10% If interest does not qualify as business income, then the gross amount of interest received is subject to SDC at a rate of 15%

23 Cyprus: Leading International Shipping Centre  Ranks 3 rd top maritime nation in EU27  Top 10 World’s largest shipping management and International ship registries  More than 2100 vessels with 43 million gross tonnage  More than 130 ship owning and ship management related companies with offices in Cyprus, conducting international activities  Deep-sea ports with easy access to Suez Canal and other major freight routes  Favorable tax regime for ship owning and ship management

24 Shipping Companies: Full Tax Exemptions No Tax On:  Profits of the ship-owner or charterer of a Cyprus flag vessel  Dividends at all levels  Capital gains on sale or transfer of such vessels or the shares of the ship-owning company  Income on the emoluments of officers or crew on board such vessels  Full Tax exemption on Crewing, technical, commercial or full management of ships carried out from a fully fledged office in Cyprus Tonnage tax is payable instead based on age and tonnage capacity of vessel

25 In Summary Modern tax regime acceptable by EU and OECD Lowest corporate tax rate in Europe Added commercial value and monetary benefits due to ability to register for VAT Tax breaks for expatriates Offers many opportunities for effective tax planning resulting to an increasing number of Cypriot registered companies

26 Cyprus tax treaties Налоговые соглашения Кипра Poland Qatar Romania Russia San Marino Serbia Norway Moldova Montenegro Kyrgyzstan Lebanon Malta Mauritius Kuwait Ireland Italy United Kingdom United States Uzbekistan France Germany Greece Hungary India Ukraine Egypt Tajikistan Thailand Czech Republic Denmark Slovenia South Africa Sweden Syria Belgium Bulgaria Canada China Slovakia Belarus Seychelles Singapore Armenia Austria

Thank you! NICOSIA HEAD OFFICE Treppides Tower, 9 Kafkasou Str., Aglantzia CY-2112, Nicosia, Cyprus P.O. Box 27142, CY-1642, Nicosia, Cyprus Tel.: +357 (22) , Fax: +357 (22) Website: LIMASSOL OFFICE 12 Arch Makarios III Ave., Kristelina Tower, Mesa Geitonia, 4 th floor, Office 401, CY-4000, Limassol, Cyprus Tel.: +357 (25) , Fax: +357 (25) Member of EURA AUDIT INTERNATIONAL