Transcript Slide 1

GLOBALSERVE: Who we are
GLOBALSERVE are International tax advisors and fiduciary company, which
provides full range of services inhouse through our Experience team of
accountants, tax consultants, lawyers and corporate officers:
 Tax & Financial consultancy
 Formation of international business companies (IBCS) from 25 jurisdictionsShelf companies available
 Management of IBCS
 Opening and operation of bank accounts in internationally
 Legal & corporate services, including Due Diligence, M&A, redomiciliations,
winding up and escrow services
 Accounting & vat services
 Fiduciary/nominee services from different jurisdictions and a wide range of
options
 Trusts & trustees services
 Serviced offices for rent through GLOBALSERVE business centre
 Funds and financial services companies
PROGRAM
The day after the Cyprus banking crisis. Is Cyprus still an option for the
Russians?
 Malta, Competing Cyprus. A comparison of Malta and Cyprus
The Netherlands and Luxembourg: The high profile players in the
Russian market and comparison with Cyprus/ Malta
 Efficient structures: Holding, Financing and Royalty
COFFEE BREAK
Family office in Luxembourg: New Regulations in 2013
Hong Kong –Singapore and their territorial tax system; How are they
used in the Russian market. Comparison with the above group
UAE, a different concept of international jurisdiction
 Transparency and confidentiality. Banks and compliance procedures
Banking options for account opening
The day after the Cyprus
banking crisis
Is Cyprus still an option for the
Russians??
Globalserve Moscow Seminar
September 2013
By Phani Schiza Antoniou
CYPRUS, offshore financial centre
for Russia
“Cyprus is effectively the offshore financial services centre for
Russia”. To this end, 2011 foreign direct investments in the Russian
economy reached $48.5 billion. During his visit in the end of 2010,
the Russian president had described Cyprus as the most important
channel for attracting foreign investment to his country. ““
BOOM!!!! 16TH March 2013
EUROGROUP DRIVEN BAILE IN ON THE TWO MAJOR
BANKS
DEPOSIT HAIRCUT
HIGH LOSSES FOR RUSSIAN DEPOSITORS/ INVESTORS
DEPOSITS CONVERTED INTO EQUITY
Cyprus Banking Crisis
Following the decision on Cyprus of the Eurogroup meeting held on
25 March 2013, the two major banks of the island Bank of Cyprus
and Laiki Bank have been affected and their depositors were forced
to contribute to the banks’ recapitalization through deposit haircut
for deposits above the minimum guaranteed amount o € 100000 per
depositor. More specifically the following actions were taken:
1. Laiki Bank was placed under resolution as per the Resolution of
Credit and other Institutions Law of 2013 of the Republic of Cyprus
(the “Resolution Law”). Under the resolution Laiki Bank was
separated into a “good” and a “bad” bank, with full protection of
insured depositors (up to €100.000 per depositor). The unsecured
deposits over € 100000 remained with the ‘bad’ Laiki
Cyprus Banking Crisis
2. The “good” Laiki Bank was absorbed by the Bank of Cyprus, in the
framework of the resolution and restructuring of the two banks
together with most of the bank’s assets and loans, including the
transfer of the amount of the Emergency Liquidity Assistance (ELA) of
Laiki Bank.
3. The Bank of Cyprus was capitalized through a bail-in of depositors
under which 47.5% of the unsecured deposits over € 100000 has
been converted into equity; account holders with deposits up to
€100.000 were fully protected, in line with the relevant EU legislation
Cyprus Banking Crisis
4. The existing shareholders’ equity was diluted to below 1% of the bank’s
share capital while 18% of the bank’s equity was issued to Laiki Bank to
compensate for the acquisition of certain assets and liabilities including
the insured deposits. At the moment these shares are held by the Laiki
Bank Administrator
5. Following the completion of the recapitalization of Bank of Cyprus, the
bank ceased to be under resolution and a new Board of Directors has
been elected with 6 Russians out of total 16 members, consisting from
depositors who are now the shareholders of the bank as a consequence
of the Baile in
6. The resolution process applied only to the two banks. The rest of the
Cypriot banking system was not affected by the resolution process nor
by the decisions of the Eurogroup.
Temporary Restrictive measures
• The haircut sapped trust in Cypriot banks, prompting authorities to
impose restrictions on money transfers and withdrawals to prevent a
run. Many restrictions have since been relaxed, but officials say it may
take many months before they're fully lifted.
• BUT the restrictions apply to money that was deposited till 15th of
March 2013. New money is not subject to the restrictive measures.
Also even old money can be transferred out if it is deposited in the
current account and is to be used for commercial purposes, supported
by relevant contract or invoice, without the need for approval upto € 0.5
million per day
• For funds in fixed deposits, these are released at the rate of 20% upon
maturity and transferred in the current account to be used as above
The Day After……
 Are the Investors into Russia moving out of Cyprus to other
jurisdictions and banking systems?
 What has changed with respect to the tax and other advantages of
Cyprus?
 What are the options?
Why was Cyprus attractive to
investors into Russia??
Cyprus was used as an ideal vehicle mainly due to its:
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Tax advantages
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The excellent double tax treaty with Russia
 5% withholding tax on dividend if investment over € 100000
 0% withholding tax on interest and royalty income
 Cyprus on the Russia white list
Other advantages as below
-
Member of the European union applying the European directives
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The existence of an extensive network of DTT with 46 countries
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Strategic location
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High standard of business environment & legal system
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Efficient and experienced banks specialised in commercial banking
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Tax system in full conformity to European law & oecd directives against harmful tax
practices- white list jurisdiction
-
Transactions with offshore companies are accepted
-
Reasonable pricing
Are the Cyprus advantages still
there?
• The major tax advantages of the Cyprus tax regime remain unchanged as
we discuss in the following slide. The tax changes introduced as a result of
the crisis are mostly affecting the locals with the exemption of the
following changes.
• The corporate tax rate has increased from 10% to 12.5% on the net profit
• Defense tax on interest income has increased to 30% but through the use
of correct tax planning by using financing company for the financing
operations, this tax is avoided and interest income is taxed at the
corporate tax rate
• The Double Tax Treaty with Russia remains unchanged
Summary of Cyprus Tax Rates
Main rate
Cyprus Tax resident Co’s
12.5%
Main rate
Non - Cyprus Tax resident Co’s
0%
Dividends received
Royalty income
0%
2.5%
Profit from the sale of securities
0%
Ship owning – Cyprus flag
0%
Ship owning (foreign flag ships), ship management & ship
Tonnage tax
Trusts
0%
Profit from permanent establishment abroad
0%
Withholding taxes on dividends, interest, royalties paid to non
Cyprus tax residents
0%
Summary of other Cyprus Issues
Losses are carried forward upto 5
years
No inheritance tax
No wealth tax
No thin capitalisation rules
No CFC rules
No transfer pricing rules
Generous tax deductibility rules
Offshore invoices are accepted
Permanent establishment profits are
tax exempt
CORPORATE TAX RATE
12.5%
A low corporate tax rate is ideal for:
• International Trading, Service and Management Companies
•Financing Companies
•Intellectual Property Companies
DIVIDEND INCOME
Exempt
Dividend income is exempt from tax:
• no minimum holding period
• no minimum participation
• minimum conditions for exemption to apply
Dividends received by a Cyprus company from a company abroad are only taxed if both
of the below conditions are met (which is very rare):
The company paying the dividends or the original company from which the
income was generated engages more than 50% in activities that lead to investment
income
And
The foreign tax burden on the income of the company paying the dividends is
substantially lower than the tax burden of the company in Cyprus
• No cfc rules (from the Cyprus side)
EXEMPTION OF OVERSEAS BRANCH PROFITS
Overseas profits are exempt from tax:
• profit of a permanent establishment
•Minimum conditions for exemption to apply
•No strict transfer pricing rules
PROFIT FROM DISPOSAL OF
SECURITIES
Exempt
•Wide definition to cover all types of investment instruments
•No minimum holding periods or shareholdings
•Trading in securities is exempt too, not just participations , like in most of the
competitive jurisdictions
•Rulings if not specifically provided for
•No strict transfer pricing rules
EXEMPTION OF IP INCOME
80% Exempt
An 80% exemption of profit from the exploitation of Intellectual Property applies to:
•Net profits after deduction of all direct expenses and depreciation
•Depreciation over 5 years
•Maximum effective tax rate 2.5%
WITHHOLDING TAXES ON
DIVIDENDS
• No withholding tax on dividends received from a European subsidiary
company ( parent subsidiary directive)
• Lower withholding tax on incoming dividends paid by a non European
company with which Cyprus has a double tax treaty e.g with Ukraine it is 5%
• No withholding taxes on dividends paid out to non Cyprus tax residents
INTEREST RECEIVED
•
Trading interest is taxed at 12.5% income tax after deducting interest expense and all
other company expenses
•
Non trading interest is exempted from income tax but it is taxed at defence tax on the
gross amount at the rate of 30% for Cyprus tax resident companies). However with a
good tax planning this case is avoided and above applies
Losses
•
•
•
Losses carried forward can be set off against future profits for a period of 5 years as
per the last tax amendments
Losses incurred abroad can be set off against the company’s profits
Losses of one co in the group can be set off against profits of another co
What about banking for the
Cyprus companies?
• In view of the Cyprus banking crisis, Russians may have lost trust in the Cyprus
Banking Sector and are hesitant in maintaining their deposits in Cyprus
• Still however there are options:
– they can use the Cyprus banking system for their commercial transactions
as in this line of business the Cyprus banks are flexible and experience
understanding the Russians’ needs as opposed to the European banks
– Also the crisis has affected the two major banks which were heavily
exposed to the Greek bonds and the Greek banking sector. There are
other banks locals and foreign which are fully capitalised and can meet
the clients’ needs
– But also the Cyprus company may maintain bank account abroad and
Globalserve can help you in this
Conclusion
The Cyprus Banking crisis and the Russian deposits lost had a negative impact on Cyprus
as an International Business Centre and has lost an important advantage that it had,
being the efficient banking system
BUT Russians have not moved out of Cyprus as a result of the
following competitive advantages
• The advantageous tax regime remains unchagned
• The Cyprus tax system is very simple and straightforward compared to other
competitive jurisdictions
• The DTT with Russia is valid
• The costs of Cyprus companies are highly competitive
• Russians are welcome to Cyprus and generally there is a positive attitude from
both sides
• Still other banking institutions in Cyprus or abroad can support the commercial
banking needs of the Russians, although in Europe there are a lot of restrictions as
the recent experience of many Russians evidences