Cyprus presentation wirc_27112010_final

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Cyprus presentation wirc_27112010_final

  1. 1. Planning Inbound & Outbound Investments through various jurisdictions Presentation on “Cyprus” by: Mr. Paresh P. Shah P.P. Shah & Associates Chartered Accountants Email: paresh@bom3.vsnl.net.in 27 th November 2010 P. P. Shah & Associates WIRC’S Workshop
  2. 2. Overview of Presentation International tax plan/Offshore tax plan Data base of information Designing the Offshore plan Planning strategies for individuals Recent developments 27 th November 2010 P. P. Shah & Associates
  3. 3. Overview of Presentation Tax Treaties and Double taxation Holding Company – A tool for planning Important aspects of Holding Company Jurisdictions Analysis of Cyprus as a Holding Company Jurisdiction Conclusion: A model Holding Company and check list 27 th November 2010 P. P. Shah & Associates
  4. 4. Database of Information Transaction Pattern Situation of client Type of income amenable to offshore tax planning Exploring Offshore tax Planning Survey of International Offshore Financial Centre (IOFC) 27 th November 2010 P. P. Shah & Associates
  5. 5. Designing the Offshore Plan Scope of the Offshore Plan Corporate and Commercial features Tax factors – See case study I to IV Breaking the connecting factors – Case Study V to VI Relationship of tax payer with other persons Anti avoidance Exchange of information 27 th November 2010 P. P. Shah & Associates
  6. 6. Relationship of the Taxpayer with other persons It affects taxable base &/or rate of taxation Controlled Foreign Corporation Parent & Subsidiary Participation of Capital Associated Enterprises – Case Study VIII & IX Group company Individual’s case: Spouse or relatives gift 27 th November 2010 P. P. Shah & Associates
  7. 7. Anti Avoidance General principle Harmful tax competition Limit to tax minimization Loopholes in Anti Avoidance Dividend striping 27 th November 2010 P. P. Shah & Associates
  8. 8. Exchange of Information-Article 26 See Case Study X The information that can be exchanged only to secure correct application of treaty and domestic laws in respect of taxes covered The secrecy of such information Laws relating to secrecy of treaty country supplying such information A step that treaty country must take to comply with its obligation as if taxation of the country supplying the information is concerned Not bound to go beyond its own laws Informal exchange of information on increase and common between specific countries EU Mutual assistance directives 27 th November 2010 P. P. Shah & Associates
  9. 9. Tax Treaties and Double Taxation Double Taxation due to Sources & Resident taxation Connecting factor Economic Double taxation Juridical Double taxation Search for the tax treaty & features of the incentives 27 th November 2010 P. P. Shah & Associates
  10. 10. Tax Treaties and Double Taxation Nature of income & double taxation Business income Tax treaty of third countries No treaty network for home country Treaty shopping 27 th November 2010 P. P. Shah & Associates
  11. 11. Holding Company-A tool for planning Provision of substance Acceptable international practice Normally Anti Avoidance compliant Special treatment to Holding companies under domestic tax law 27 th November 2010 P. P. Shah & Associates
  12. 12. Analysis of Holding Co Jurisdictions Taxation of Inflows and Withholding taxes on Outflows of income Dividend Interest Royalties Capital Gains Tax Credit – A mixer Double Taxation Avoidance Agreements Anti Avoidance Controlled Foreign Corporation Regime Group Taxation 27 th November 2010 P. P. Shah & Associates
  13. 13. Cyprus – Analysis as Holding Company Jurisdiction 27 th November 2010 P. P. Shah & Associates
  14. 14. Major Advantages of Cyprus Member of EU Geographical position Harmonized, tax efficient regime within the EU Favorable tax infrastructure and modernized legal system Stable economy and well established banking sector 27 th November 2010 P. P. Shah & Associates
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  17. 17. Cyprus – Tax advantages 10% corporate income tax on resident holding companies But incoming dividends tax-free Defense tax may be imposed on incoming dividends, but in most cases exemption is available If subsidiary’s activities result in investment / passive income, defense tax may apply 27 th November 2010 P. P. Shah & Associates
  18. 18. Cyprus – Tax advantages Capital Gains tax only if derived from disposal of immovable property situated in Cyprus or if disposal of shares in companies in possession of immovable property in Cyprus No Capital Gains tax if sale of property situated outside Cyprus Capital Gains tax on sale of securities is exempt under Cyprus Tax Laws 27 th November 2010 P. P. Shah & Associates
  19. 19. Dividend Inflow: Exempt if paid out of profits which have suffered tax elsewhere and minimum participation of 1% If subsidiary is EU minimum participation of 25% 15% Defense Tax may be imposed on incoming dividends if foreign headline tax is substantially lower than Cyprus tax AND more than 50% of subsidiary’s activities result in investment / passive income Outflow: No Withholding tax 27 th November 2010 P. P. Shah & Associates
  20. 20. Interest Inflow: Net interest income regarded as income from trading activities if earned or related to ordinary course of business and taxed at Corporate Tax rate (10%). No restriction on interest paid (effectively may be avoided) If interest income is not related to ordinary course of business, it is taxed at 15% as defence contributions Interest from EU countries, received without withholding subject to participation of 25% Outflow: No withholding tax 27 th November 2010 P. P. Shah & Associates
  21. 21. Royalty Inflow: Exempt Outflow: No withholding tax provided intellectual rights are not used in Cyprus 27 th November 2010 P. P. Shah & Associates
  22. 22. Tax Credit Tax credit of Withholding taxes & underlying tax credit Cyprus: Double Taxation Relief for treaty country Unilateral Tax Relief for non treaty country Singapore: Double Taxation Relief for treaty country Unilateral Tax Relief for non treaty country Commonwealth tax Relief for commonwealth countries Mauritius: In case of incentive companies 80% of taxes payable or actual taxes paid whichever is higher 27 th November 2010 P. P. Shah & Associates
  23. 23. Case Study A taxpayer is a multi locational pharmaceutical company having manufacturing operation in India and Finland, having marketing presence in UK, Russia and India, has approached members of today’s workshop to design an international tax plan for its transaction pattern as under A prospective investor to part finance the group’s activity have indicated to have a holding structure for the purpose of financing Group already has a UAE Co holding IPRs for exploitation in Finland and other jurisdictions The Group promoters have social and economic interest both in India and UK including residential houses The international tax plan should accommodate the marketing for CIS and EU countries including procurement of raw materials from China 27 th November 2010 P. P. Shah & Associates
  24. 24. Model Structure 27 th November 2010 P. P. Shah & Associates CYPRUS HOLD CO. UAE INDIA CHINA UKRAINE FINLAND RUSSIA EUROPE1 EUROPE2 EUROPE3
  25. 25. Cyprus Holding Company Analysis Let us now analyze tax implications with respect to each jurisdictions vis-à-vis Cyprus 27 th November 2010 P. P. Shah & Associates
  26. 26. Cyprus-Russia 27 th November 2010 P. P. Shah & Associates Cyprus-Russia: Taxation in Cyprus (Domestic Law) Dividend Exempt Interest 10%* Royalties Exempt Capital Gains Exempt * on net amount (thin spread) Taxation in Russia (Treaty Provisions) Withholding taxes 5% if invt > $100000 10% in other cases Nil Nil Nil CYPRUS RUSSIA Cont’d….
  27. 27. Cyprus-India 27 th November 2010 P. P. Shah & Associates b) Cyprus-India: Taxation in Cyprus (Domestic Law) Dividend Exempt Interest 10%* Royalties Exempt Capital Gains Exempt * on net amount (thin spread) Taxation in India (Treaty Provisions) Withholding taxes 10% 10/Nil if approved 15% Nil CYPRUS INDIA
  28. 28. Cyprus-UK 27 th November 2010 P. P. Shah & Associates Taxation in Cyprus (Domestic Law) Dividend Exempt Interest 10%* Royalties Exempt Capital Gains Exempt * on net amount (thin spread) Taxation in UK (Treaty Provision or EU Directives) Withholding taxes Nil Nil Nil Nil CYPRUS UK c) Cyprus-UK or EU Countries:
  29. 29. Cyprus-Ukraine 27 th November 2010 P. P. Shah & Associates d) Cyprus-Ukraine: Taxation in Cyprus (Domestic Law) Dividend Exempt Interest 10%* Royalties Exempt Capital Gains Exempt * on net amount (thin spread) Taxation in Ukraine (Treaty Provision) Withholding taxes Nil Nil Nil Nil CYPRUS UKRAINE
  30. 30. Cyprus-China 27 th November 2010 P. P. Shah & Associates e) Cyprus-China: Taxation in Cyprus (Domestic Law) Dividend Exempt Interest 10%* Royalties Exempt Capital Gains Exempt * on net amount (thin spread) Taxation in China (Treaty Provision) Withholding taxes 10% 10% 10% Nil CYPRUS CHINA
  31. 31. Cyprus-UAE (No tax treaty) 27 th November 2010 P. P. Shah & Associates f) Cyprus-UAE: Taxation in Cyprus (Domestic Law) Dividend/Defense Tax Exempt* Interest 10%** Royalties Exempt Capital Gains Exempt * Only if <50% of subsidiary’s activities result in investment / passive income ** on net amount (thin spread) Taxation in UAE (Domestic Law) Withholding taxes Nil Nil Nil Nil CYPRUS UAE
  32. 32. UAE-Finland 27 th November 2010 P. P. Shah & Associates g) UAE-Finland: Taxation in UAE (Domestic Law) Dividend Exempt Interest Exempt Royalties Exempt Capital Gains Exempt Taxation in Finland (Treaty Provision) Withholding taxes Nil Nil Nil Nil UAE FINLAND
  33. 33. Mauritius Holding Company Analysis 27 th November 2010 P. P. Shah & Associates
  34. 34. Mauritius-Singapore 27 th November 2010 P. P. Shah & Associates a) Mauritius-Singapore: Taxation in Mauritius (Domestic Law) Effective tax rate Dividend 3% Interest 3% Royalties 3% Capital Gains Exempt Taxation in Singapore (Treaty Provision) Withholding taxes Nil Nil Nil Nil Mauritius Singapore
  35. 35. Mauritius-South Africa 27 th November 2010 P. P. Shah & Associates b) Mauritius-South Africa: Taxation in Mauritius (Domestic Law) Effective tax rate Dividend 3% Interest 3% Royalties 3% Capital Gains Exempt Taxation in South Africa (Treaty Provision) Withholding taxes 5% if min 10% participation 15% in other cases Nil Nil Nil Mauritius South Africa
  36. 36. Mauritius-India 27 th November 2010 P. P. Shah & Associates c) Mauritius-India: Taxation in Mauritius (Domestic Law) Effective tax rate Dividend 3% Interest 3% Royalties 3% Capital Gains Exempt Taxation in India (Treaty Provision) Withholding taxes 5% min 10% participation 15% in other cases Taxable 15% Nil Mauritius India
  37. 37. Singapore Holding Company Analysis 27 th November 2010 P. P. Shah & Associates
  38. 38. Singapore-Austria 27 th November 2010 P. P. Shah & Associates a) Singapore-Austria: Taxation in Singapore (Domestic Law) Dividend Exempt if min 15% headline tax Interest Corporate tax rate Royalties Corporate tax rate Capital Gains Exempt Taxation in Austria (Treaty Provision) Withholding taxes 10% Nil if min participation 10% 5% 5% Nil Singapore Austria
  39. 39. Singapore-China 27 th November 2010 P. P. Shah & Associates b) Singapore-China: Taxation in Singapore (Domestic Law) Dividend Exempt if min 15% headline tax Interest Corporate tax rate Royalties Corporate tax rate Capital Gains Exempt Taxation in China (Treaty Provision) Withholding taxes 12% 7% if min participation 25% 10% 10% Taxable Singapore China
  40. 40. Singapore-India 27 th November 2010 P. P. Shah & Associates c) Singapore-India: Taxation in Singapore (Domestic Law) Dividend Exempt if min 15% headline tax Interest Corporate tax rate Royalties Corporate tax rate Capital Gains Exempt Taxation in India (Treaty Provision) Withholding taxes 15% 10% if min participation 25% 15% 10% equipment leasing 15% in other cases Nil Singapore India
  41. 41. Model Holding Co – Pharma Group Elimination: Mauritius & Singapore tax treaties do not have advantage of EU Directives, resulting into higher overall taxation Singapore has distinct taxation of royalties and interest Treaties of Cyprus are based on resident taxation and EU directives together with the favorable domestic provisions results into optimal tax cost Source taxation in CIS and EU is almost avoided in full by Cyprus tax treaties There is no withholding tax on dividend, interest & royalties under Cyprus domestic tax law Cyprus may be the suitable choice (Participants may discuss) 27 th November 2010 P. P. Shah & Associates
  42. 42. International/Offshore tax plan-Checklist Analysis of the Data Base Selection of the form & the transaction relationship operation Foreign Investment Resident Country Introduction of offshore Movement of profit from offshore Evaluation of plans - its adoption 27 th November 2010 P. P. Shah & Associates
  43. 43. International/Offshore tax plan-Checklist Local Advise Substance vs Form Applicability & tax treaty Risk & Rewards Updating the Plan 27 th November 2010 P. P. Shah & Associates
  44. 44. Thank You 27 th November 2010 P. P. Shah & Associates

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