The Use Of Cyprus Structures In International Tax Planning:
Together with our worldwide colleagues, CTAC Cyprus office offers Cyprus and international structures to solve your international multi-jurisdictions tax issues with the best fit solutions.
Cyprus’s tax system is specially structured so as to maximise the tax advantage while remaining EU and OECD compliant. It’s consistently voted as one of the most attractive European tax regime by major business organizations and tax professional across Europe.
We settle some structuring ideas as follows:
To use a Cypriot company as a “ Top Holding Company” or “ Intermediate holding company” to invest in treaty or EU subsidiaries (Foreign dividends exempt from tax, no capital gains, no withholding taxes, access to double tax treaties and EU Directives, favourable PE provisions.)
To use a Cypriot Construction company performing construction or related activities in other countires in order to take advantage of the PE article of the treaty between Cyprus and that other countries and which aim to perfom work of a duration less than the cirical period, essentially giving Cyprus the taxing right to that income and no taxing right to the country where the work is performed.
In the case the PE project lasts greater than 3 month the profits are also exempt in Cyprus. In addition, there is no withholding tax on the outgoing dividends, interest or royalties from Cyprus to the ultimate investor.
To use as Cyprus Group Financing Companies – as intermediary financing vehicles to ultimately finance high-tax operating treaty or EU companies. Use of treaty network/EU Directives, Credit relief for interest withholding taxes. In addition, there is no withholding tax on the outgoing dividends, interest or royalties from Cyprus to the ultimate investors-lender as a result of profit/taxs are reduced in the operating countries leaving a reasonable margin to be taxed at 12.5% and result a minimum tax leakages and maximum post-tax return on investment.
To use as Cypriot Company trading in shares and other securities- profit /gain is exempt from tax in Cyprus. Use of treaty network/EU directives for dividend income and capital gains, using the provision of double tax treaty between Cyprus and other countries to exempt from tax the profit on the disposal of shares (essentially giving Cyprus the taxing right to the gains and no taxing right to the countries where the shares are registered-source country) as a result of a minimum tax leakages and maximum post-tax return on investment
To use a Cypriot company owning qualifying intangible assets/Intellectual Property(IP) being able to claim 80% of its net profit from the exploitation of such qualifying IP as tax exempt. Qualifying IP enjoy an annual capital allowance at the rate of 20% and any profit arising from their disposal also benefits from the 80% exemption(subject to nexus fraction calculation)
We Generally Question The Following Areas At Different Stages When We Are Carrying Out Our International Tax Planning Services to Our Clients.
At Planning Stage:
- Substance arrangement, depending on the jurisdiction where a potential challenge is most likely to come from
- Management & Control to establish the Cyprus tax residence and secure the Company’s asset and ensure the smooth of business transitions.
- Business and Economic purpose as a whole.
At Planning Stage:
-Corporate secretarial – proper execution and documentation of all aspects is a must
-Compliance with all relevant Company Law and Social security & other Law
-On time tax payment
-Be reasonable
-Review the structure periodically and implemant any necessary changes necessitated by changes in Laws and treaties, regulations or new developments affecting the company or transactions
In summary, Cyprus is among the lowest –tax EU onshore jurisdictions. The standard corporate tax rate of 12.5% is among the lowest in the European Union and the lowest ‘non-offshore jurisdiction corporate tax rate’ in the world. It does not apply any withholding taxes for payments of dividends and interest by Cyprus tax residents to non-Cyprus tax residents as well as no withholding tax on royalties granted for use outside of Cyprus.
The above is intended to provide a brief guide only. It is essential that appropriate professional advice is obtained. Our company will be glad to assist you in this respect. Please do not hesitate to contact us.