Transcript Slide 1

Effective structures for the Russian market
Holding
Financing
Royalty
Globalserve Moscow Seminar
September 2013
By Phani Schiza Antoniou
FACTS
CYPRUS
MALTA
NETHERLANDS
LUXEMBOURG
LOCATION
EU
√
√
√
√
LEGAL SYSTEM
Common Law
√
√
√
√
Civil Law
Corporate issues of
companies
Most frequently used
forms of companies
Ltd
Ltd
BV or NAV
Stichting or
foundation
CAPITAL
Min capital
€1
€1165
€1
Deposited in advance
NO
20% in advance
NO
Soparfi in the legal
form of
SA and SARL
Depends on the form
If SA € 31000 but
25% prepaid
If SARL € 12500 all is
prepaid
FACTS
DIRECTORS
Minimum
Legal Entities
Secretary
CYPRUS
MALTA
NETHERLANDS
LUXEMBOURG
1
YES
Compulsory
Legal/ physical
1
YES
Compulsory
physical only
1
YES
NO
1 for SARL
1or3 for SA
YES
NO
Shareholders
1 single member
co allowed
2 but also single
member co
allowed but
restricted to one
activity
1
1
incorporation
2-4 days
2-4 days
4 days
7 days
Shelf
companies
YES
Not usually but we
have
NO
NO
TAX REGIME
Corporate tax
Effective tax
rate lower
28.8%
12,5%
35%
YES
5%-10%
If shareholders are
foreigners through
refund system
20% to € 200000
25%over€200000
FACTS
CYPRUS
MALTA
NETHERLANDS
LUXEMBOURG
TAX ON DIVIDEND
0 without
condition
0 if participation
exception
0 if participation
exception
0 if participation
exception
•10% min shareholding
or if less min equity
€1,164,000 for min 1
year
•EU co or if non EU with
min tax 15% or if not
then passive income to
be less than 50%
•5% minimum
shareholding in the
subsidiary
•held as participation
not as an investment
•10% minimum
shareholding or a
minimum of € 1.2 m
investment
•For at least 12
months
•EU co or if non EU to
be taxed at tax rate at
least equal to 10.5%
•5% minimum
shareholding in the
subsidiary
•held as participation
not as an investment
•10% minimum
shareholding or a
minimum of 6 m
investment
•For at least 12
months
•EU co or if non EU to
be taxed at tax rate at
least equal to 10.5%
Participation
Exception on
dividends
nil
Capital Gains from
sale of securities
0 without
conditions
10% min shareholding
or if less min equity
€1,164,000 for min 1
year
Trading in
secutiries
0%
35% and under the 20-25%
tax refund system
5%
28.8%
FACTS
CYPRUS
MALTA
NETHERLANDS
LUXEMBOURG
TAX ON
INTEREST
30% or
12,5% on
net profit if
financing co
35% but can
fall to 10% as
5/7 is
refunded
20-25%
28.8%
10%
5% (35%-6/7
refund)
5%
5.85%
0%
0%
0%
15%
0%
0%
15%
0%
0%
TAX ON ROYALTY 2,5%
INCOME
2,5%
PASSIVE
ACTIVE
Withholding
taxes if non EU
or qualified on
outbound
dividend
Interest
Royalty
0%
0%
0%
FACTS
CYPRUS
MALTA
NETHERLANDS
LUXEMBOURG
Losses carried
forward
5 years
5
9 years
indefinite
CFC
NO
NO
15:85
equity/debt
THIN
CAPITALISATION
RULES
NO
NO
1:3
equity /debt
Transfer pricing
NO
NO
YES
YES
DTT with Russia
5*-10%
*€100,000
investments
5*/10%
*min investm.
€100,000+25%
Interest
Royalty
0
0
5%
5%
5%*/15%
*10%
participation
And € 80000
investment
0%
0%
5%*/15%
*25%
participation
And € 75000
investment
0%
0%
FACTS
CYPRUS
MALTA
NETHERLANDS
LUXEMBOURG
Exchange of
information
YES
YES
YES
YES
Capital Gains tax YES as from
in Russia if
2017
subsidiary sold
has more than
50% in property
in Russia
YES
YES
YES
Limitation of
benefits
provision
Will not apply
provided
substansive
business in one
of the states
Will not apply
provided
substansive
business in
one of the
states
Will not apply
provided
substansive
business in
one of the
states
Will not
apply
provided
company
not
registered in
one of the
states
HOLDING COMPANY SELECTION
CRITERIA
Substance
Minimum
Legal Impediments
None
Holding
Company
Legal/ Political /
Economic
Stable
0%
Interest Deductibility
Yes
Thin Cap Rules
No
Yes
Capital Duty
Minimal
Withholding Tax
0%
Capital Gains
Financial Report
IFRS
Advance Ruling
Dividends
CFC
0%
Minimum Share
Capital
Yes
No
Treaty Network
-yes
THE CYPRUS HOLDING CASE
Investor
Dividend/interest
Cyprus Hold
Co
Dividend/ interest
Russian Co
EU Co
5% on
dividends
0% on
dividends
0% withholding tax
0% on dividend
income
0% on disposal
12.5% on net profit
arising from interest
received based on
narrow interest
margin
Other
Treaty Co
0-10 on
dividends
Russian Co
Heaven Co
5% on
dividends
0% on
dividends
• Dividend participation
exemption with no conditions
• participation exemption on
disposal of shares even in
trading and without min
holding period
• Other income taxed corporate
tax rate of 12,5%
• Low interest margins of
0,125% - 0,35%
• Tax regime fully complaint
with the EU Tax Code of
Conduct
THE MALTA HOLDING CASE
• Dividend participation
exemption with conditions
0% withholding tax
Dividend/interest
0% on dividend income
• CG tax exempted on disposal
0% on disposal
Malta Hold
of shares if participation
If participation
Co
conditions apply
exemption applies; for trading
10% on net profit
Dividend/ interest
in securities 35% tax which
arising from net
may be reduced to effective
interest received
5%
Russian Co
EU Co
EU Co
• Other income taxed corporate
5% on
0% on
0% on
tax rate of 35% and
dividends
dividends
dividends
effective5%
• Tax on interest 10%,
Russian Co
Heaven Co
5% on
10% on
• WHT on interest from Russia
dividends/interest
dividends
5%
Investor
THE DUTCH
HOLDING CASE
Investor
Dividend/interest
Dutch Hold
Co
Dividend/ interest
• Dividend participation
exemption with conditions
CG Tax on on disposal of shares
if participation exemption
applies; for trading in securities
20-25% tax
Other income taxed corporate
tax rate of 20-25%
• Tax on interest differential 2025%,
• WHT on interest from Russia
0%
• WHT on outbound dividend if
to non qualified 15%
15% withholding tax on
dividend if non
qualified
•
0% on dividend income
0% on disposal
If participation
conditions apply
20-25% on net profit
arising from net
•
interest received
Russian Co
EU Co
EU Co
5% on
dividends
0% on
dividends
0% on
dividends
Russian Co
Heaven Co
5% on
dividends/interest
0% on
dividends
THE LUXEMBOURG
HOLDING CASE
Investor
• Dividend participation
exemption with conditions
CG Tax on on disposal of shares
if participation exemption
applies; for trading in securities
28.8% tax
Other income taxed corporate
tax rate of 28.8%
• Tax on interest differential
28.8%,
• WHT on interest from Russia
0%
• WHT on outbound dividend if
to non qualified 15%
15% withholding tax on
dividend if non
Dividend/interest
qualified
•
0% on dividend income
LUX Hold Co 0% on disposal
If participation
conditions apply
Dividend/ interest
28.8% on net profit
arising from net
•
interest received
Russian Co
EU Co
EU Co
5% on
dividends
0% on
dividends
0% on
dividends
Russian Co
Heaven Co
5% on
dividends/interest
28.8% on
dividends
Comparison of IP regimes of Cyprus /
Luxembourg and Netherlands
CYPRUS
NETHERLANDS
Effective tax rate
Deduction rate
2.5%
80%
5%
No reduced tax
rate
5.8%
80%
Qualifying IP assets
All IP assets,
including
patents,
trademarks,
copyrights,
know how,
formulas ,
designs ,
processes
Self developed
IP relating to
patents or
approved R&D
Patents,
trademarks,
designs ,
domains, models
and software
copyrights
None
Trademarks and
brands
K now how,
formulas,
copyrights except
software
Ineligible IP Assets
LUXEMBOURG
CYPRUS IP COMPANY
• Achieves offshoring of royalties
Parent Co
with no WHT
• Uses Cyprus treaty network and
EU royalties directive
• (12,5%) corporation tax on 20%
Dividends
0%
of profits from IP income –
effective tax (2,5%)
Cy IP Co
• No tax in Cyprus on dividend
flows
Royalties
(2,5%)
• No WHT on dividends from
Cyprus Company
EU Op Co
Russia
• If Cyprus Company owns IP
0% WHT
0% WHT
outright, amortization available
over 5 years
DUTCH/ LUX IP COMPANY
Parent Co
NL/LUX IP
Co
Royalties
EU Op Co
0%WHT
• Uses treaty network and EU
royalties directive to minimise
WHT
• (28.8%) corporation tax on 20%
of profits from IP income –
Dividends
effective tax (5.85%)
• For NL 5%
• Tax on dividend flows may be
(5% NL 5.85% LUX) zero if participation exemption
Russia
0% WHT
AS A FINANCE COMPANY for Russia
OFFSHORE COMPANY
•PROFITS REDUCED IN OPERATING COUNTRY DUE TO THE INTEREST PAID
TO FINANCING CY CO
•SMALL MARGIN TAXABLE AT 12.5% IN CYPRUS ON NET PROFIT MADE OF
SMALL INTEREST DIFFERENTIAL VARYING FROM 0.325%-0.125%
•NO WITHHOLDING TAX WHEN INTEREST IS PAID TO OFFSHORE LENDER
•THE FINANCING CO SHOULD BE DIFFERENT FROM THE HOLDING CO IN
THE RUSSIAN OPERATING CO TO AVOID CFC RULES
•THE CY FINANCING CO SHOULD NOT HAVE SUBSTANTIAL INCOME FROM
OTHER OPERATIONS TO AVOID DEFENCE TAX TAXATION ON INTEREST AT
30%
IN THE CASE OF LUX AND NL THE TAX ON INTEREST MARGIN IS
28.8%AND 20-25% RESPECTIVELY
CYPRUS FINANCING
OPERATING CO