Cyprus Private Yacht Regime (CPYR) Benefits from joining the Regime 11 June 2015

©2015 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. 1 Agenda  Overview of the Cyprus economy  Overview of the Regime  General Guidelines  Use of the yacht within EU territorial waters  Specific conditions for the Regime to operate  Other Taxes  Example  Tax effective rates at a glance  How can you apply for the regime?  How can KPMG assist you?  What Questions Do You Have?

©2015 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 Overview of the Cyprus economy Resilient economy and good long-term prospects ■The economic adjustment program remains on track, with progress made in all key objectives set out by the country’s international lenders. ■After a three-year exclusion, the country returned to international markets sooner than expected. ■The recession moderated in 2014, with real GDP down by - 2,4%, which is significantly less than the -5,4% contraction in ■The growth momentum will gradually pick up in 2016 (late 2015). *Source: European Commission

©2015 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. 3 Overview of the Regime Historical overview ■The Private Yacht Leasing Regime was initially introduced in March ■Since the introduction of the regime the expected profit margin was reduced from 10% down to 5% ■In April 2015 the Cyprus Tax Authorities issued new guidelines, amending the originally introduced Regime making it even more attractive for vessels exceeding 45m. Current Regime ■Currently, Cyprus is one of the most attractive jurisdictions for yacht registration in the EU. Why? The effective Tax rate is reduced to as low as 3,05%. Jan 2014JunJulAugSepOct From 10% to 8% 30 January 2014 From 8% to 5% 11 September 2014

©2015 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. 4 General Guidelines Key element of the regime: Yacht leasing agreement ■An agreement whereby the lessor (the owner of the Yacht) enters into a contract with the lessee (the person who leases the Yacht) for using the Yacht for a consideration. ■VAT liability is calculated on predetermined % based on type and length of the vessel relying on use and enjoyment provisions of the VAT Act. ■It may grant the option to the lessee to purchase the Yacht. ■There is no obligation to register the yacht under Cyprus flag. VAT Treatment Outside the regimeWithin the regime ■Supply of leasing services ■Constitutes a taxable transaction subject to the standard VAT rate of 19% ■If B2C transaction: Place of supply, excluding short term leasing, is the country the vessel is actually put at the disposal of the lessee, when the lessor actually supplies the services from his business or fixed establishment located in that country ■Right of input VAT deduction by the lessor ■No VAT on acquisition by the lessor if registered under the regime ■VAT rates a % of the standard rate ■No input VAT can be claimed by the lessor on maintenance and running costs

©2015 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. 5 Use of the yacht within EU territorial waters How is the use of the yacht within EU territorial waters calculated? ■There are practical difficulties in recording the exact movement of a pleasure yacht. ■Therefore, the percentage of the time spend within EU territorial waters has been predetermined. ■The percentages have been determined according to the type (motorboat or sailing boat) and length of the yacht. ■There is no requirement to maintain any documentary evidence including the yacht’s log books.

©2015 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. 6 Use of the yacht within EU territorial waters Predetermined percentages of use within EU waters Table A: Motor boats Boat lengthPercentage of use within EU waters Greater than 65 meters Between 45,01 and 65 meters Between 24,01 and 45 meters Between 14,01 and 24 meters Between 8,01 and 14 meters Up to 8 meters 10% 15% 20% 30% 50% 60% Table B: Sailing boats Boat lengthPercentage of use within EU waters Greater than 65 meters Between 45,01 and 65 meters Between 24,01 and 45 meters Between 20,01 and 24 meters Between 10,01 and 20 meters Up to 10 meters 10% 15% 20% 30% 50% 60%

©2015 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. 7 Specific conditions for the Regime to operate The following conditions must be satisfied: ■The Yacht leasing agreement must be between a Cyprus established company and any physical or legal person irrespective of origin. ■The Yacht must sail to the Republic within one month from the date of signing of the lease agreement. –Any time extension with regards to the one month period may be given only by the VAT Commissioner. –It is understood that the extension under no circumstances can exceed the time at which the right of purchase of the Yacht by the lessee is exercised. ■An initial lump sum payment of at least 40% of the Yacht’s value and corresponding VAT amount must be paid by the lessee to the lessor. ■The lease payments must be payable on a monthly basis and the term of the lease agreement cannot exceed the period of 48 months. ■The lessor is expected to attain a profit margin from the lease agreement of no less than 5% of the total value of the Yacht.

©2015 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. 8 Specific conditions for the Regime to operate The following conditions must be satisfied (cont.): ■The final payment at the end of the finance leasing term, the result of which the legal ownership essentially is transferred to the lessee, cannot be less than 2,5% of the value of the yacht which represents part of the agreement’s total profit. ■The agreed residual price is subject to the prevailing standard rate of VAT (19%). ■The advanced written approval of the Commissioner is required for approving the value of the yacht and the applicable amounts on which VAT will be levied according to the extent of its use within EU waters. The application must be accompanied with a certificate certifying the value of the yacht as well as the leasing agreement which is entered into between the parties. T2L Certificate ■ As soon as the balloon payment is made a T2L certificate is issued. VAT Certificate ■If the lessee elects to buy the vessel at the end of the term of the finance lease, a certificate certifying the payment of VAT will be issued to the lessee provided that all payable VAT has been settled.

©2015 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. 9 Other Taxes Income tax implication ■The lessor company is subject to 12.5% Corporation tax on 5% of the value of the vessel (section 33 of Income tax Act), provided that the shareholders of the company are not Cyprus tax residents. ■No capital allowance is allowed to the lessor. Stamp duty implications ■Cyprus stamp duty is levied on ‘documents’ (i.e. written agreements/contracts) relating to assets located in Cyprus and/or matters or things taking place in Cyprus. Stamp duty is calculated on the value of the agreement at 0.15% for the first € and at 0.2% thereafter. ■Stamp duty due on agreements effected is capped to a maximum of € per stampable agreement. The person legally liable to pay such stamp duty (unless otherwise stated on the agreement) is the purchaser. The due date for such stamp duty payment is within 30 days from the day of the ‘signing’ of a document which is considered to be subject to stamp duty. ■Stamp duty is only payable if the lease agreement is signed and executed in Cyprus.

©2015 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. 10 Example Facts ■An individual (EU or non EU resident) contemplates purchasing two yachts and would like to be informed whether there are any Tax and VAT advantages from using the Cyprus Private Yacht Leasing Regime. ■The following information is made available in order to calculate the expected benefits from registering the following two new yachts in Cyprus: ■What is the effective VAT and Tax saving within the Regime?

©2015 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. 11 Example (cont.)

©2015 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. 12 Tax effective rates at a glance Table A: Motor boats Boat lengthEffective Tax rate Greater than 65 meters Between 45,01 and 65 meters Between 24,01 and 45 meters Between 14,01 and 24 meters Between 8,01 and 14 meters Up to 8 meters 3,05% 4,02% 5,00% 6,94% 10,84% 12,79% Table B: Sailing boats Boat lengthEffective Tax rate Greater than 65 meters Between 45,01 and 65 meters Between 24,01 and 45 meters Between 20,01 and 24 meters Between 10,01 and 20 meters Up to 10 meters 3,05% 4,02% 5,00% 6,94% 10,84% 12,79%

©2015 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. 13 How can you apply for the regime? Procedure to be followed: ■Set up a Cyprus Company to acquire the yacht. ■Conclude a lease agreement with the party who will be using the yacht for private purposes. ■If the yacht is a new one, the agreement with the manufacturer or invoice will suffice to establish the value. ■If the yacht is a second hand, a valuation from a registered valuer, either established in Cyprus or elsewhere must be produced. ■The term of lease agreement must not be less than three months and no greater than 48 months. ■Once the three months have elapsed the, total VAT on the remaining lease payments can be made together with the residual value so that the VAT certificate can be issued.

©2015 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. 14 How can KPMG assist you? KPMG can assist on the following: Indicative Fees (€)One-off Recurring /annual Registration procedure Registering the company (lessor) Provide nominee director(s), secretary registered office (per service) Drafting of lease agreement* Review lease agreement Ongoing administration / compliance fee (submission of 12 VAT returns) Accounting and audit Annual levy payable to register of Companies *If required * √√√√√√√√ √√√√√√√√

©2015 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. 15 What Questions Do You Have?

Thank you Presentation by Harry Charalambous

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