a gateway to europe, asia, africa and the middle east

A gateway to Europe, Asia, Africa and the Middle East Investor’s Guide

The Cyprus Holding Company

Apserou Shiaka & Co Ltd

2 TheCyprusHoldingCompany-ApserouShiaka&CoLtd

Table of Contents

Foreword 3

MainfeaturesofCyprus 4

TheCyprusHoldingCompany 5

ThelegalframeworkofaCyprusHoldingCompany 7

TheHoldingCompanyLocation 9

TheCyprusTaxSystem 10

Othertaxconsiderations 12

Otherconsiderations 14

SpecialContributionforDefence 16

NotionalInterestDeduction(NID)oncapital 18

EUDirectivesinCyprus 21

Substancerequirements 24

CyprusTaxTreaties 26

Ourservices 34

Ourcontactdetails 35


Cyprus, a long established business centreoffers the ideal location through whichinvestors can channel their investmentsanywhereintheworld.Cyprushasgainedthisenviable position through its uniquegeographical location, its advancedinfrastructure and services,the verycompetitive tax regime, its strong legal andregulatory framework based on UK commonlawandotherstrategicadvantages.

The island’s entry into the EU and the EU-MonetaryUnionhasestablishedCyprusas theidealgatewayfor investmentstoandfromEU.Cyprus legal and Regulatory framework isbasedonEnglishCommonLawprinciples, it isfully compliant with the EU, the FinancialAction Task Force on money laundering(FATF), OECD, FATCA, the Financial StabilityForum laws and regulations and EU AMLdirectives.

Cyprus, offers unique tax opportunities tointernational businesses – low corporate taxrate,anetworkoffavorabledoubletaxtreaties,no withholding tax on dividends and interestpaid, no capital gains on profits from thedisposalofsharesandsecurities,exemptionoftaxes on foreign dividends and interestreceived.ItcomplieswiththeEUdirectivesandthe OECD requirements against harmful taxpractices.

Public/private companies and funds (UCITSand ICIS) registered in Cyprus can be used asefficient investment vehicles. A company orfund registered in Cyprus can conduct publicoffersinotherEUmemberstatesorhavetheirshares admitted on an EU regulated stockexchange. Cyprus holding companies are taxefficient andpopular to invest inEUandnon-EUcountries.

All the above positive arguments, along withthe strong incentives given by the CyprusGovernmentwithregardstoCypruscitizenshipby investment scheme have created excellentopportunities for professionals to establishCyprus as a major financial center within theEuropeanUnion.

At Apserou Shiaka & Co, we can help you todetermine your tax strategy of your businesswhether you are looking to use Cyprus as abase for your international operations or toinvest in Cyprus. We provide professionalservices which include accounting, audit, tax,legalandbusinessadvisory.

Weshallbepleasedtohearfromyou.

MariaShiaka

September2016

Foreword


Cyprus is located in the Eastern Mediterranean at the crossroads of Europe, the Middle East and Africa. Its strategic position plays a key role in trade and international business

An EU member state since May 2004 andmemberofEurozonesince2008

A well advanced infrastructure, educationalinstitutionsandmedicalcenters

The telecommunications infrastructure ofCyprus is well developed and companies areequippedwiththelatesttechnology

A well educated workforce and low costbusinessenvironment

Highqualityoflifeandthecostoflivingislowcompared to other international financialcentres

TheBanking,LegalandAccountingServices inCypruscloselyfollowtheBritishpattern.ManyCypriotBankshavebranchesorrepresentativeofficesthroughouttheworldandInternationalBanksalsohavebranchesontheisland

An investor friendly tax regime with anextensive network of double taxationagreementswitharound60agreementssigned.It is fully compliant with EU, OECD, andinternationallawsandregulations

Thenewguidelines issuedby theCypriotVATauthorities make Cyprus the most attractivejurisdiction for private aircraft and YachtregistrationintheEU

Investmentfundjurisdiction

The discovery of significant Natural Gazreserves within Cyprus’ EEZ brings newopportunities

PlansforaScienceandTechnologyParkareinprogress and are expected to boost businessfocusing on research, technology andinnovation

Government residency and citizenshipSchemes encourages property investments fornon-EUcitizens

Main features of Cyprus


Cyprusasaninternational financialcentreisanidealtaxefficientgatewayfor investments inEUaswell as non EU companies. It iswidely used as an ultimate or intermediary holding company in anumber of structures including the holding of operating, financing, real estate, aswell as shippingcompanies.

KeyfeaturesbeneficialtotheCyprusHoldingcompanies

KEYCRITERIA COMMENT

Incomingdividends Extensivedoubletaxtreaties,unilateralreliefsandEUDirectives

Dividendincome GenerallynontaxableOutgoingdividends Nowithholdingtaxtonon-residentsCapitalGains FulltaxexemptionofgainsForeignPEprofits Exempt

ReorganizationandGroupRelief GroupreliefisallowedandlossessetoffagainstfutureprofitsControlledForeigncompany NoCFClegislationThinCapitalization NoprovisionsfordebttoequityratioTransferpricing NoTPrules.Arm’slengthprincipleapplies

Redomiciliation RedomiciliationispermittedListingininternationalStockExchanges Taxefficientandeasyprocess

Interestincome Interesttaxedonlyat12,50percent

The Cyprus Holding Company


KEYCRITERIA COMMENT

InterestandRoyaltiesWithholding Nowithholdingtaxes,onlyforroyalties(10%)fortheiruseinCyprus

VATRegistration HoldingactivitiesarenotobligedtoregisterLiquidation DistributionofassetswithoutanytaxStampDuty OnlyforassetsexistinginCyprus


RegisteringaLimitedLiabilityCompanyinCyprus

A Cyprus Limited Liability Company may becreated in Cyprus as a legal entity by beingregistered under the provisions of theCompaniesLaw,CAP113.

Limitedliabilitycompanies

TwotypesofCompaniesarerecognizedbytheCompaniesLaw:1.TheCompanywithlimitedliabilitybyshares,whichisthemostpopulartypeusedandwhereitsmembers’liabilityislimitedtothestaketheyholdinthecompany,and2.TheCompanywithlimitedliabilitybyguarantee,withorwithoutshares,whichisusuallyusedwhenthepurposeofthecompanyisnon-profit.Theliabilityofitsmembersislimited,onwindingup,totheextentagreedupon.

PrivateandPubliccompanieslimitedbyshares

The Companies Law of Cyprus provides forprivate and public companies. It is simple toregister and is affected by filling with theRegistrar of Companies the company’s

Memorandum and Articles of Association andotherpertinentinformation.

Aprivate limited liability companywhich is the most popular vehicle for carrying out business in and from Cyprus is one which its articles:

• restrictstherightoftransferofshares,• limitsthenumberofitsmembersto50,and• prohibits any invitation to the public to

subscribe for any shares or debentures oftheCompany

• theword‘Limited’mustbeaddedattheendofthename

More stringent regulations from the Registrarof Companies and more requirements by lawgovernpubliccompanies.

A public company must adhere to thefollowing:

• aminimumof7shareholders• aminimumof2directors• mustmaintain aminimum share capital of

£15.000• may invite the public to subscribe for any

shares/debenturesofthecompany• before issuing shares or debentures to the

public it must issue a prospectus or astatementinlieuofaprospectus

The legal framework of a Cyprus Holding Company


• trading certificate is needed by theRegistrarofCompanies

• The word ‘Limited’ must be added at theendofthename

• hold a statutorymeeting and the directorsmakeastatutoryreporttoitsshareholders

International business entities are as a ruleregistered as private companies because thislegal form enjoys comparatively inexpensiveformation procedures, consensus of a fewshareholders, control over the membershipanduncomplicatedreportingrequirements.

ThemaincharacteristicsoftheCyprusCompany

• Thecompanyhas itsown legalpersonalityand is separate from its members(shareholders), which are only liable totheirshareparticipationinthecompany.

• The number of shareholders can be fromone(1)tofifty(50).

• Theminimumnumbers ofDirectors of thecompany is one (1) and there is nomaximum.

• The company must appoint one (1)Secretary, who may be physical orcorporate,localorforeign.

• Special classes of shares with preferentialrights may be issued but shares to thebearercannot.

• The Company’s share capital may beexpressedinanycurrencyalthoughEurois

thealmostexclusivelyusedcurrency.Thereare no restrictions with regards to thedenomination of the shares but normallytheCapital isdivided intosharesofEuro1each.

• Nomineeshareholdersmaybeappointed.• Thecompanymusthavearegisteredoffice

inCyprus.• The company must have a Memorandum

which defines the company’s objects andpowersandanArticleofAssociationwhichsets out the administrative regulations forrunningthecompany.

• NolicenseisrequiredfortheincorporationofaCyprusCompany

RegistrationofaCyprusLimitedLiabilityCompany

1. ApprovaloftheNameoftheCompany2. Preparation of the Memorandum and

Articles of Association in Greek and/orEnglishlanguage

3. Submission of the company documents tothe Registrar of Companies and receiptcertifiedfullsetofdocuments(CertificateofIncorporation, Memorandum and Articlesof Association, Certificate of Directors &Secretary, Certificate of Shareholders andCertificateofRegisteredOffice)


Multinational companies may decide toestablish a holding company for a number ofreasons.Thesearemainlyto

• holdassetsinothercompaniesor• to participate in other companies and act

asthe ‘ultimateholdingcompany’oractasthe‘intermediaryholdingcompany’.

Theultimateholdingcompany

Itmaybemoreefficient tomanageagroupofsubsidiaries in a particular region bycentralizing financing, licensing ormanagement activities. The ideal location fortheultimateholdingcompanywillbeonewith:

• NoCFCprovisions so the group can investfundsoverseaswithoutanytaxpenalties,

• Nowithholdingtaxesondividendspayabletotheshareholders,

• Agoodtaxtreatynetworkorthecountrytobe anEUmember state so as to reduce oreliminate thewithholding taxondividendsandinterestreceived

• A location with no tax on interest anddividendsreceivedwherebytheyqualifyasexempttaxincome

• Nostampdutyortransfertaxonthesaleofsharesbytheshareholders

• Low corporate tax rate but not critical ifdividendsaretaxexempt

• Low personal income tax rates or veryattractivetaxschemesandprovisions.Thisis really very important for headquarteroperations transferred with a substantialnumberofstaff.

Theintermediateholdingcompany

In this case the holding company is used tocollect dividends and refinance othersubsidiaries owed by the same holdingcompany or make acquisitions without theneedtorepatriatethedividendsdirectlytotheultimatecompany.

Theassetholdingcompany

The holding company can be used to protecttheassetsofthebusinessandreducebusinessrisk.A lot ofmultinational companiesuse thisstructure and have IP holding companieslocated in low tax rate countriesorwitha taxtreatycountry.

Theremaybealotoffactorsinconsideringthelocationoftheholdingcompany.Thesefactorscan have the nature of business, economic,logistical or operational characteristics. Taxconsiderationsisarelevantfactorbutmaynotbe the decisive factor in choosing to set up aholdingcompanyinaparticularlocation.

The Holding Company Location


The major tax considerations that a multinational group should take into account in choosing the suitable place for the holding company should include the dividends tax regime and the tax regime with regards to the capital gain on the disposal of shares in participation holdings.

Dividends tax regime Paymentofdividends

Thereisnowithholdingtaxondividendsinthecase where the recipient is an overseascompany or an individual. Only individualswhohave theirdomicile inCyprusare subjectto Special Defence Contribution of 17% ondividendsreceived.

Paymentofdividendstobothresidentandnon-resident Cyprus companies is exempted fromwithholdingtax.

Dividends declared by a Cyprus tax residentcompany to another Cyprus tax residentcompanyafterthelapseoffouryearsfromtheendoftheyearinwhichtheprofitsgivingriseto the dividend relate, are subject to 17%defencecontribution.

OutwarddividendspaidbytheCyprusholdingcompany to individuals are subject to 17%special defence contribution if they are bothCyprustaxresidentsandCyprusdomiciled.

Dividendsreceived

Dividends received by a Cyprus holdingcompany from Cyprus participation holdingsare tax exempt subject to the followingexemption.

Dividends declared by a Cyprus tax residentcompany to another Cyprus tax residentcompanyafterthelapseoffouryearsfromtheendoftheyearinwhichtheprofitsgivingriseto the dividend relate, are subject to 17%defencecontribution.

As from 1 January 2016, dividends which aretaxdeductible for thepayingcompanyarenotexempt from tax in the hands of the recipient(Anti–hybridrule).

Dividends received from abroad are exemptfrom defence fund contribution if one of thefollowingconditionsissatisfied

(a) Thecompanypayingthedividendmustnot directly or indirectly engage more than50% in activities which lead to investmentincome1and

(b) The foreign tax is not significantlylower than the tax rate burden in Cyprus. Aneffective tax rate of at least 6,25% in thecountry paying the dividend satisfies thecondition. Ifneitherof theaboveconditions issatisfied, thendividendsreceived fromabroad

The Cyprus Tax System


are taxed at the level of the SpecialContributionforDefenceattherateof17%foryears2014onwards.

Dividend income received from abroad isexemptandfromJuly9,2016nondomicilebuttax resident individuals are not liable to theSpecialContributionforDefenceFund(SCDF)

1Investment income is defined by Law as anyincomewhich isnotobtainedorderived fromany business, employment, pensions orannuities which are paid by reason or inconnectionwithapastemployment.Dividendsand interest can be considered as investmentincome.

Disposal of Securities regime Any income arising from the disposal ofsecurities is exempt, irrespective of whetherthegainisconsideredtobeofacapitalnatureorofarevenuenature.Thereisnorequirementfor any minimum holding period, minimuminvestment amount of minimum percentageholding.

The term “Securities” as defined in Law includes shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. A circular has been issued by the Tax Authorities in 2008 further clarifying what is included in the term Securities. According to the circular the term includes, among others, options on Securities, short positions on Securities, futures/forwards on Securities, swaps on Securities, depositary receipts on Securities (ADRs, GDRs), rights of claim on bonds and debentures (rights on interest of these instruments are not included), index participations only if they result on Securities, repurchase agreements or Repos on Securities, units in open-end or close-end collective investment schemes. The circular also clarifies specific types of participation in foreign entities which are considered as Securities. Profits from the sale of shares that relate toimmovable property situated in Cyprus istaxable.Theprofitsarisingfromthedisposalofimmovable property are exempt from CapitalGainsTaxprovidedthepropertywasacquiredfromJuly2015untilDecember31,2016

Capital gains from the sale of immovablepropertysituatedoutsideCyprusistaxexempt.


Company tax residency In accordance with the Cyprus Income TaxLaws, a company should be tax resident inCyprustoenjoytheCyprusTaxBenefitsandtoqualifyfortheDoubleTaxTreatytreatment.

A company is considered as Cyprus Taxresident if the effective management andcontrolisexercisedinCyprus.

Thefollowingfactorsareconsidered:

• The majority of the members of Board ofDirectors are tax residents in Cyprus andexercisetheirofficefromCyprus

• The Board Meetings take place in Cyprusand themajor (and preferably day to day)decisions are properly taken during thesemeetings. During the meetings writtenresolutions, agreements, contracts andother documents which relate to themanagement and administration of thecompanyaresigned.

• Actual administration office where actualmanagement and control of the companywillbeexercised.

• Hard copies of commercial documentationare stored in the office facilities of thecompany

• Accounting records are prepared and keptinCyprus

• Theannualauditedfinancialstatementsareapprovedduringthesemeetings

• The Board of Directors control the bankaccounts even if they are establishedoutsideCyprus

• Theplacewherethesealofthecompanyisauthorizedtobeused

TaxationoftheCyprusTaxresidentcompanies

A companywhich is tax resident in Cyprus istaxedonitsworldwideincome.

Doubletaxtreatyrelief

The credit method is followed for grantingreliefforanyforeigntaxpaidonincomearisingin the foreign country, against the Cyprus taxpayableonthesameincome.Intheabsenceofa Double Tax Agreement (DTA), Cyprusunilaterallyaffordsa credit for the foreign taxpaid up to the amount of tax thatwould havebeen payable in Cyprus on the same income.FordividendsreceivedfromEUMemberStatestheunderlyingtaxcreditisalsoavailable.

ThetaxationoftheCyprusNon-Taxresidentcompanies

Acompanywhichisnon-taxresidentofCyprus,willonlybe taxedon itsprofitsarising froma

Other tax considerations


permanent establishment in Cyprus.Thecompanywillnotbeabletohaveaccesstothebenefitsofthedoubletaxtreatiesandaccesstothe EUDirectives is not required. It is just anEU based / incorporated company forcommercialpurposes.

Incometaxrate

12.5%uniformcorporatetaxontradingprofits.

TheNewequityandnotionalinterestdeductionforCyprusCompanies(NID)

According to the amending law, companiesresidentinCyprusorcompaniesnotresidentinCyprus with a permanent establishment inCypruscanclaimanotional interestdeduction(NID) inrespectofnewequity. It is calculatedby multiplying the new qualifying equityamountbythereferenceinterestratewhichisequal to the yield of the 10-year Governmentbondofthecountryinwhichthenewcapitalisinvested plus 3%. The deductible amountcannot exceed 80% of the taxable profit ascalculatedbeforeallowingforthisdeduction.

InterestIncome

Active interest income (interest incomeeffectivelyconnectedwiththecarryingonofatradeorbusinessofthecompany)issubjecttothe corporate income tax rate of 12.5% asregular trading income after the deduction ofanyrelevantexpenses.

Passiveinterestincome,(incomenotconnectedto a trade or business), is exempt fromcorporateincometaxpurposesbuttaxedatthelevel of the Special Contribution for Defence(SCD)atthirtypercent(30%)onagrossbasis.Individualswhoarenot “domiciled” inCyprusbe exempted from thepayment of the SCDonincome from interest even if they areconsideredastaxresidentsofCyprus

RentalIncome

Rental income from immovable propertylocated in Cyprus and profit from sale ofgoodwill in Cyprus is also taxable irrespective

oftheexistenceofapermanentestablishment.This income is taxable under both income taxlaw and Special Contribution for Defence law.Non domiciled individuals are not liable toSpecialContributionforDefence.

Taxexemptincome

Dividend income received from abroad isexemptandfromJuly9,2016nondomicilebuttax residents are not liable to the SpecialContributionforDefenceFund(SCDF)

Capital gains on sale of Securities are taxexempt.Profits fromthesaleofsharesarenottaxable unless they relate to immovablepropertysituatedinCyprus.Theprofitsarisingfrom the disposal of immovable property areexempt from Capital Gains Tax provided theproperty was acquired from July 2015 untilDecember31,2016

Capital gains from the sale of immovablepropertysituatedoutsideCyprusistaxexempt

Foreign Permanent Establishment profits aretaxexempt(subjecttoconditions)

Rent income from preserved buildings is taxexempt

ForeignPermanentEstablishments(PEs)

Theprofit of a foreignPEof a Cyprusholdingcompany is exempt from corporate tax inCyprus,ifoneofthefollowingtwoconditionsissatisfied:

(1) The PE must not engage more than 50%,directlyorindirectly,inactivitieswhichleadtopassiveincomeor

(2)The foreign taxburden imposedon thePEmust not be substantially lower than that inCyprus.

Reorganizations

The Income Tax Law adopts the relevant EUdirective whereby reorganizations,amalgamations, mergers and acquisitions canbeeffectedwithoutanytaximplications.


DoubleTaxAgreements(DTA)

Cyprus has currently concluded over 60agreements for the avoidance of doubletaxationcoveringthemajorityoftheEuropeanCountries, USA, Canada, China, India, RussiaandtheC.I.Scountries.

EuropeanUnionDirectives

CyprushasadoptedallEUDirectivesinrelationto taxation including the Parents SubsidiaryDirective, the Interest and Royalty Directive,the Tax Savings Directive and the MergersDirective.

The EU Parent Subsidiary Directive exemptsthe withholding tax deduction on dividendsand other profit distributions paid by EUsubsidiary companies to their EU parentcompanies and eliminate double taxation ofdividend income at the level of the parentcompany. Themain criterion that needs to bemetisthattheparentholdsatleast10%ofthesharecapitalofthesubsidiary.

Thincapitalizationrules

There are no thin capitalization rules in theCyprus IncomeTax Law.However, it is statedin law that the interest cost for loansused forthepurchaseofassetsnotusedinthebusinessisnotallowablefortaxpurposes.

Acquisitioncost

Interest expense incurred for the direct orindirect acquisition of 100% of the sharecapitalofasubsidiarycompanywillbetreatedasdeductibleforincometaxpurposesprovidedthat the 100% subsidiary company does notown any assets that are not used in thebusiness. If the subsidiary owns (directly orindirectly)anyassetsnotused in thebusinessthe interest expensededuction is restricted totheamountwhichrelatestoassetsusedinthebusiness. This applies for acquisitions ofsubsidiariesfrom1January2012.

Transferpricing

No formal transfer pricing rules exist in theCyprus IncomeTaxLaw.However, the incometax law is specific that transactions between‘related parties’ to be in accordance with thearm’slengthprinciple.

Taxlosses

Taxable losses incurred during a tax year andwhichcannotbesetoffagainstotherincome,iscarried forward subject to conditions and setoffagainsttheprofitsofthenextfiveyears.

Grouprelief

The current year loss of one company can besetoffagainstthecurrentyearprofitofanother

Other considerations


provided the companies are Cyprus taxresident companies of a group. A companyincorporated by its holding company duringtheyearisconsideredasmemberofthegroupfor the whole year of assessment. Group isdefinedas:

(a) οne company holding at least 75% of thesharesoftheothercompanyor

(b) αt least 75% of the voting shares of thecompaniesareheldbyanothercompany.

Asfrom1January2015interpositionofanon-Cyprus tax resident company(ies) will notaffect the eligibility for group relief as long assuch company(ies) is tax resident of either anEUcountryor inacountrywithwhichCyprushas a double tax treaty or an exchange ofinformation agreement (bilateral ormultilateral).

Losses arising from a PE abroad can be offsetagainsttheprofitsarisinginCyprus.Anyfutureprofits of the foreignPEwill be taxableundertheCyprusIncomeTaxuptotheamountofthelosses already surrendered to the CyprusCompany.

Withholdingtaxes

No withholding tax on outward payments tonon Cyprus tax residents (companies orindividuals) in respect to dividends, interestandroyaltieswhichareusedoutsideCyprus.

Re-DomicilationofCompanies

Taxfreecorporatere-domiciliationpermitted

EstablishmentofSEEuropeanCompany

Possibility for establishing an SE (EuropeanCompany)

Advancetaxrulings

Advancerulingpracticeexists

ControlledForeignCompanies(CFC)Rules

Cyprus does not have in its legislation CFCrules

InheritanceorEstateTaxes

There is no inheritance or estate tax underCypruslegislation

WealthTaxes

Cyprusimposesnotaxonwealth

StampDuty

Stamp duty is concerned with documentswhich deal with property situated in theRepublicofCyprus,aswellasmattersorthingstobeperformedordoneinCyprus,irrespectiveoftheplaceofexecutionofsuchdocuments.

A number of categories of documents areexplicitlyexemptedfromstampduty,includingdocumentsrelatingtothesaleofgoods,hiringofemployees,transferofsecuritiesquotedonarecognizedstockexchangeetc.

The stamp duty payable for the amount inexcessof€5.000is0,15%andover€170.000is0,20%withamaximumdutyof€20.000.Thedutyispayablewithin30daysfromthedayofsigningtheagreement.

Annualcorporatelevy

Everycompanyregistered inCyprus issubjectto annual levy of €350. In case of corporategroups,thetotalpaymentiscappedat€20.000allocatedtoeachCyprusCompany.


Non–domiciledpersonsareexemptfromthepaymentofSpecialContributionforDefence.

Before July 2015 individuals were subject toSpecial Contribution for Defence if they weretaxresidentinCyprus.AsfromJuly16,theLawhasbeenamendedandisasfollows:

Legal entities are subject to SpecialContribution for Defence if they are taxresidentinCyprus.

Individuals are subject toSpecialContributionforDefenceiftheyarebothCyprustaxresidentandCyprusdomiciled.

For the purposes of Special Contribution forDefenceanindividual isdomiciledinCyprusifhe/shehasadomicileoforigininCypruspertheWillsandSuccessionLaworifhe/shehasbeen resident in Cyprus for at least 17 out ofthe 20 tax years immediately prior to the taxyearofassessment.

DeemedDividendDistributionprovisions

If a Cyprus tax resident company does notdistribute seventy per cent (70%) of itsaccounting profits accruing in a financial yearin the form of a dividend to its Cyprus taxresident shareholders (Companies andIndividuals) within two years following theyear to which the profits relate, then 70% of

the company’s accounting profits will bedeemed to have been distributed and SpecialDefenceContribution taxwill be imposed at arate of 17% on the deemed distributionamount.

Theamountofdividendsdeemedtohavebeendistributed is reducedbyanyactualdividendswhich have been distributed during the twoyearperiodstartingfromtheendoftheyearofassessmenttowhichtheprofitsrelate.

If the ultimate shareholders of a Cyprus taxresidentcompanyarenon-domiciledofCyprus,deemed dividend distribution provisions arenotapplied.

Thus, profits arising in a Cyprus company canbeaccumulatedforaslongastheshareholderswish, since the shareholders are not taxresidents of Cyprus, for further financing orreinvestment in the group if so desired,without any obligation to distribute thedividends.

DividendsreceivablebyaCyprusCompany

DividendsreceivablebyaCypruscompanywillbeexemptfromtheSpecialContributionforDefence(SCD)taxifthefollowingconditionsaresatisfied:

The company paying the dividend must notengage more than fifty percent directly or

Special Contribution for Defence


indirectly in activities which lead to passiveincome(non-tradingincome);and

The foreign tax isnotsubstantially lower thanthetaxratepayableinCyprus;

If the above conditions are not satisfied, thendividends will be subject to SpecialContribution forDefence tax (SCD) at the rateof17%.


Companies resident in Cyprus or companiesnot resident in Cyprus with a permanentestablishment in Cyprus can claim a notionalinterest deduction (NID) in respect of newequity. The new equity can be contributed incashorinassetsinkindandisusedtofinancebusinessassets.

NID is calculated by multiplying the "newequity"withthe"referenceinterestrate".

Reference interestRatemeans theyieldrateof the 10 year government bonds of theCountry where the funds are employedincreased by 3 percentage points, with aminimum rate of return the 10 yeargovernment bonds of the Republic, increasedby 3 percentage points as at 31 December oftheyearprecedingthetaxyear.Theminimumapplicable reference interest rate for Cypruscompaniesin2015was8%(5%+3%).

NewEquitymeanstheequitywhichhasbeenintroducedinthecompanyonorafterJanuary1,2015,butwhichdonotincludeamountsthathavebeencapitalizedandarederivedfromtherevaluation of movable or immovablesecurities.

Old equitymeans the equity that existed onDecember31,2014

Equity means the issued share capital andsharepremiumfromtheissueofsharestotheextentthattheyhavebeenpaid.

Capital is not considered as new equity, if thefunds that have been introduced in thecompany on or after January 1, 2015 whichdirectly or indirectly relate to the reservesoutstanding as at December 31, 2014 and arenotrelatedtonewassetsusedinthebusiness.

Anti-abuseprovisions

TheamountofNIDmaynotexceedtherateofeighty percent (80%) of taxable income andcannotbecarriedforwardtofuturetaxyears

TheTaxCommissionermayrestricttheamountofNID ifheconsiders thatarrangementshavebeenput intoplaceaiming tobenefit fromthededuction with no valid economic orcommercialreason.

Notional Interest Deduction (NID) on capital


In July, 2015, the Cypriot House of Representatives voted significant amendments to the Cyprus tax legislation. Most of these amendments aim to the modernization of the Cyprus tax system and improve the competitiveness of Cyprus in attracting foreign investment. All changes made were aligned with global and European Union (EU) developments in the field of corporate taxation.

OneofthemostimportantchangesmadetotheCyprus legislationwas the introduction of thenon-domiciled individual concept. The non-domiciledstatusmightbeaviablesolutionforhigh-earners to optimise their taxes andrelocate to Cyprus and use Cyprus as theirbusiness centres, by transferring the head-quarters of their business and creating realsubstance.

Fortaxpurposes,anindividualisconsideredtobeaCypriottaxresidentifhe/sheisphysicallypresent in Cyprus for a period or periodsexceeding in aggregate 183 days during aparticular calendar year. The Cyprus taxresident individual is then liable to Cyprusincome tax on his/herworldwide income andbefore July, 2015 to Cyprus Defence Tax. TheCypriot tax residentwho is not "domiciled" inCyprus is exempted from the payment of theSpecial Contribution for Defence on thefollowingincomeeveniftheyareconsideredastaxresidentsofCyprus

• dividends• passiveinterestincomeand• rentalincomeFor purposes of the Law, an individual isdomiciled in Cyprus if he has his domicile oforigininCyprusbasedontheprovisionsoftheWillsandSuccessionLawexcluding

4. Anindividualwhohashisdomicileoforiginin Cyprus, has obtained and maintaineddomicileofchoiceoutsideCyprus,basedonthe provisions of theWills and SuccessionLaw,providedthathewasnottaxresidentin Cyprus for any period of at least 20consecutiveyearsbeforethetaxyear,or

5. Anindividualwhowasnotataxresidentinthe Republic for at least 20 consecutiveyears immediately before the entry intoforceoftheLaw.

AnindividualisconsideredtohavehisdomicileinCyprusforthepurposesofthisLawifhewasa tax resident in Cyprus for at least 17 out ofthe last 20 years before the tax year,irrespectiveofwhetherornothashisdomicileoforigininCyprus.

The following points should be taken intoconsideration

• An individual must at all times have onesingle domicile and cannot be without adomicileatanygiventime

Non-domiciled status


• Untilanewdomicileisacquiredtheexistingdomicileisvalid

• The domicile is distinct irrespective of anindividual’s nationality, citizenship andresidencestatus


Cyprus is member of the EU since 2004,enjoyingeversincefullmembershipprivilegesincludingthebenefitsfromtheEUdirectives.

Parent-SubsidiaryDirective

The EU Parent – Subsidiary directive aims toexempt distribution within the EU fromWithholding tax where at least 10% of thecapitalofthepayingcompanyisownedbytheparent company which is based in anothermemberstateandtheholdingperiodlastedforatleast2years.

Cyprus adopted and fully implemented theDirective.Accordingtothenationalprovisions,anexemptiononwithholdingtaxondividendsis granted irrespective of the holding in thesubsidiary shares. Cyprus has not applied theminimum2yearsofholdingperiod.

As from 1 January 2016, dividends which aretaxdeductible for thepayingcompanyarenotexempt from tax in thehandsof the recipient.In this case the income will be taxable asnormalbusinessincomeunderincometaxandnot as dividends under SDC. In addition nounilateral relief will apply in the eventarrangementshavebeenput intoplaceforthemain purpose of obtaining tax advantage.Arrangements will be considered genuine iftherearevalidcommercialreasonsthatreflecttheeconomicreality.

InterestandRoyaltiesDirective

This directive has many similarities to theParent – Subsidiary directive, including theconditions under which it applies. Nowithholding tax applies to the payment ofinterest and royalties between “associated”companies in different member states whereonehastherequisiteownershipoftheotherorboth are commonly owned by a third EUCompany. This test requires direct ownershipof25%ofthecapitalforatleast2years.

Cyprushas incorporatedtheDirectivewithoutimposing any minimum shareholdingrequirement andminimum holding period fortheapplicabilityoftheDirective.

MergersDirective

Themergersdirectiveisapplicabletomergers,divisions and partial divisions, exchange ofsharesandtransferofassetsbetweenmemberstates.

Underthisdirective:

• gains not actually realized are effectivelyrolledoverintothetransfereecompany

• lossesarecarriedoverifthestateinwhichthe transferor company is located permitsunder itsdomestic law for the losses tobecarriedover

EU Directives in Cyprus


• potentialgainstoshareholdersontransfersofinitialsharesheld.

CyprushasfullyincorporatedtheEUDirectiveintoitsnationallaw.

Participation Period Withholdingrate

ParentSubsidiaryDirective

Dividends 10% 2year 0%

InterestandRoyaltyDirective

Interest,Royalty 25% 2years 0%


Company Structures – The Ideal Condition

TheinvestorNOApplicationofCFCRulesParticipationexemption

TheHoldingCompany

DividendincomeexemptGainonthedisposaloftheinvestmentexemptNoWHTondividendstotheinvestorNotaxonthesaleofthesharesintheholdingcompany

InvestmentsNoWHTorreducedtaxonthedividendspaidtotheHoldingCompanyNotaxinthesourcestateongainonsaleoftheinvestment

Investment

Importantfactorstoconsider

• Deferraloftaxationuntilactualdistribution• CFCRules• DoubletaxtreatiesandEUDirectives• Taxresidencyfactors

• Beneficialownership• Actualplaceofthemanagement• Economicsubstance• Officefacilitiesandpersonnel

CyprusHoldingCo

SubsidiarycompanyINVESTMENT

DividendsNoWHT

DividendsNoWHT

% share holding investment

% share holding investment

PrincipalCompany/Beneficialowner

INVESTOR


BaseErosionandProfitShifting

Since the Organisation for Economic Co-operationandDevelopment(OECD)presentedtheir action plan on ‘Base Erosion and ProfitShifting (BEPS) the importance of 'substance'hassignificantlyincreased.

The ultimate goal of the BEPS initiative is toprevent the grantingof the tax treatybenefitsin the case of international corporatestructures which are only set up to enjoy thebeneficial terms of the specific double taxtreaties. In order to achieve this BEPS isaddressingabroadrangeofsubjects,including:

• substance requirements under treaties fortheavoidanceofdoubletaxation,

• anti-abuse provisions in double taxationtreaties,

• anti-abuse measures in home countrylegislation, and Controlled ForeignCompany(CFC)rules.

Otherinclude

• Beneficial ownership provisions and taxresidencyissues

• Exchange of information between taxauthorities

KeyconsiderationsforsettingupaCypruscompany

The decision to set up and use a Cypruscompany must be driven by valid businessreasons.Thepurposeofthecompanyshouldbeto carry out bona fide, genuine businessactivities and tax strategies should be alignedbased on the business management andoperationmodel.

To qualify as a Cyprus Tax Resident, themanagement and the control of a companymust be exercised from Cyprus. This meansthat the company should have a registeredaddressinCyprus,themajorityofitsdirectorsmustbeCyprustaxresidentsandmostoftheirmeetingsshouldtakeplaceinCyprus.

Tax authorities in other jurisdictions will bedifficult to deny treaty benefits to Cyprus TaxResidentsiftheyshowsufficientsubstanceandbusinessrationaleoftheiroperations.

It is therefore important to pay specialattentionwhendesigningandimplementinganinternationaltaxstructureinordertominimizethe risk of a successful challenge over taxresidency.

Substance requirements


Issuesthatneedtobeconsidered:

What are the specific activities of the foreigncorporateentity?

What is the legal framework of the countriesinvolved?

Whatisthelevelofeconomicactivityandwhatis the actual set-up of the foreign corporateentity.

Does the company have its own staff (one ormorepeople)andequipment?

Does it have its own office space and/or arebusinesspremisesavailable?

What is the turnoverandhowmany costs areincurredlocally?

Are there actual activities and functionsestablished locally and which decisions canlocalstafftakeindependently?

ManagementandControlVSEffectiveManagementandControl

Theplaceofeffectivemanagementandcontrolis where key management and commercialdecisions are made. If the board in Cyprusmerelygives formalapproval todecisionsthathavealreadybeenmadeelsewhere,thenitcanbearguedthatthecompanyisnotaCyprusTaxResident or that it has a permanentestablishment abroad. It is, therefore,important that the board consists of qualifiedindividuals that have all relevant informationbefore them in order to make informeddecisionsregardingkeyissues.

OfficeRequirements

Itisstronglyrecommendedthatanactualofficeis maintained in Cyprus where the

management and control, and preferably alsotheday-to-dayadministration,of thecompanyare exercised. Furthermore, the office shouldhaveatelephoneandafaxline.

StaffRequirements

Inordertoenhancetheirsubstance,companiesshould employ an adequate number ofqualified staff to run their business fromCyprus.This,however,dependson the typeofbusiness performed by each individualcompany.

RecordKeepingRequirements

Hardcopiesofallrelevantdocuments,suchascorporate documents, agreements, invoicesandsoon,shouldbekept in theCyprusbasedofficeofthecompany.

AccountingRecords

TheaccountingrecordsofthecompanyshouldbepreparedandkeptinCyprus.

BankAccounts

Thebankaccountsof thecompany, regardlessofwhethertheyarebasedinoroutsideCyprus,should be operated from Cyprus as it can beargued that the effective management andcontrol of the company iswhere its funds aremanagedfrom.

WebPresence

Thecompanyshouldhaveane-mailaddressandawebsite.


The purpose of the double tax treaties is theprotection of income derived in one countryandremittedtoanother, frombeingsubjecttotaxation in both jurisdictions. Treaties usuallyprovide for a tax credit to the recipient of theincome for theamountof tax thathasalreadybeenpaidinthecountrywheretheincomehasoriginated.

In accordance with the Cyprus Income TaxLaws, a company should be tax resident inCyprustoenjoytheCyprusTaxBenefitsandtoqualifyfortheDoubleTaxTreatytreatment.

A company is considered as Cyprus Taxresident if the effective management andcontrol is exercised in Cyprus. The followingfactorsshouldbeconsidered:

• The majority of the members of Board ofDirectors are tax resident in Cyprus andexercisetheirofficefromCyprus

• The Board Meetings take place in Cyprusand themajor (and preferably day to day)decisions are properly taken during thesemeetings. During the meetings writtenresolutions, agreements, contracts andother documents which relates to themanagement and administration of thecompanyaresigned.

• Actual administration office where actualmanagement and control of the companywillbeexercised.

• Hard copies of commercial documentationare stored in the office facilities of thecompany

• Accounting records are prepared and keptinCyprus

• Theannualauditedfinancialstatementsareapprovedduringthesemeetings

• The Board of Directors control the bankaccounts even if they are establishedoutsideCyprus

• Theplacewherethesealofthecompanyisauthorizedtobeused.

WHTonothertypesofincome

Cyprusleviesa10%WHTontechnicalservicesperformed by non-residents in Cyprus.However, no such WHT is levied if suchservices are performed via a permanentestablishmentinCyprusofthenon-residentorif performed between ‘associated’ companiesas these are defined by the EU Interest andRoyaltyDirectiveasenacted in theCyprus taxlegislation.

Cyprus also levies a 10% WHT on the grossincome/ receipts derived by a non- residentindividual from the exercise in Cyprus of anyprofessionorvocationandtheremunerationofnon-resident public entertainers (such astheatrical, musical including football clubs,otherathleticmissionsetc).

Cyprus Tax Treaties

Cyprus Tax Treaties


Further, a 5%WHT is levied on gross incomederived from within Cyprus by non-residentswith no local permanent establishment forproviding ancillary services related toexplorationandexploitationactivities.

The rate of 5%WHT applies in respect of theshowingofcinematographfilmsinCyprus.

PaymentsfromCyprus

Dividends, interest and royalties are notsubject toanywithholdingtaxwhenpaidbyaCypruscompany.

Cyprushasconcludeddoubletaxtreatieswiththefollowingcountries:

ReceivedinCyprus*

Country Dividends(%) Interest(%) Royalties(%)

Armenia 0/5

ifadividendispaidbyacompanyinwhichthebeneficialownerhasinvestedlessthan€150.000

5 5

Austria 10 0 0

Bahrain Takeplacein2017 Takeplacein2017 Takeplacein2017

Belarus (5ifamountinvested>200.000EUROirrespectiveof%ofvotes/10ifatleast25%ofsharecap./otherwise15)

5 5

Belgium 10(15if<25%ofvotes) 10/0ifpaidtopublicbody

0

Bosnia*1 10 10 10

Bulgaria 5/10ifreceivedbyacompanyowning<25%ofsharecap.

7/0ifpaidtoorguaranteedbyapublicbody

10/doesnotapplyif>25%ofcap.ofCypriotresidentowneddirectlyorindirectlybyBulgarianresidentpayingtheroyaltiesandtheCypruscompanyissubjecttoapreferentialtaxrate

Canada 15 15/0ifpaidtotheGovernmentorforexportguarantee

10/0onliterary,dramaticmusicalorartisticworkwiththeexceptionoffilmsusedfortelevisionprograms

China 10 10 10

CIS(Armenia,Kyrgyzstan,Moldova,Tajikistan,

0 0 0



Uzbekistan,andUkraineconsiderthemselvesboundbythetreatysignedwiththeformerUSSR.TheratesshownarethoseofthetreatyCyprus/USSR)

CzechRepublic 0/5

ifreceivedbyacompanyholdingdirectlyatleast10%ofthesharecapitalofthepayingcompanyforanuninterruptedperiodofnolessthanoneyearthen,nilisapplied.

0 0/10forpatent,trademark,designormodel,plan,secretformulaorprocess,computersoftwareorindustrial,commercialorscientificequipment,orforinformationconcerningindustrial,commercialorscientificexperience.

Denmark 0ifpaidtothegovernment/CentralBank/PublicAuthorityoftheotherstate/15ifreceivedbyacompanycontrolling<10%ofthesharecapitalofthepayingcompanyorthedurationofanyholdingis<oneuninterruptedyearorifreceivedbyanindividual

0 0

Egypt 15 15 10

Estonia 0 0 0

Finland

5/15ifreceivedbyacompanycontrollinglessthan10%ofvotesinthepayingcompanyandifreceivedbyanindividual

0 0

France 10/15if<10%ofvotes 10/0ifpaidtoagovernment,bank,orfinancialinstitution

0/5onfilmsincludingfilmsusedfortelevisionprograms

Georgia 0 0 0

Germany 5/15if<10%ofvotesandinallcasesifreceivedbyanindividual

0 0



Greece 25 10 0/5oncinematographicfirmroyalties(otherthanfilmsshownontelevision)

Guernsey 0 0 0

Hungary 5/15if<25%ofvotesandinallcasesifreceivedbyanindividual

10/0ifpaidtothegovernment/Centralbank/PublicAuthorityoftheotherstate

0

Iceland*2 10/5ifreceivedbycompanyholdingdirectlyatleast10%ofvotesofthecompanypayingthedividend.

0 5

India 10/15if<10%ofvotes 10/0ifpaidtopublicbodyorfinancialinstitution

15/10onpaymentoftechnicalfees,managementfeesandconsultancyfees

Iran 5%withholdingtaxonthedividends,ifthebeneficialownerisacompanyholdingatleast25%ofthecapitalofthecompanypayingthedividends/10%withholdingtaxinallothercases

5 6

Ireland 0 0 0/5oncinematographicfirmroyalties(otherthanfilmsshownontelevision)

Italy 15 10 0

Jersey 0 0 0

Kuwait 0 0 5

Latvia 0/ifthisisnotapplicable,andtherecipientcompanyisnotthebeneficialownerthedividendwillbe10

0/ifthisisnotapplicable,andtherecipientcompanyisnotthebeneficialownertheinterestwillbe10%

0/ifthisisnotapplicable,andtherecipientcompanyisnotthebeneficialowner,theroyaltieswillbe5%.

Lebanon 5 5 0



Lithuania*3 0/5ifreceivedbyacompanyholding<10%ofvotespayingthedividendandinallcasesifreceivedbyanindividual

0 5

Malta 0

Thetreatyprovidesthatthetaxongrossdividendsshallnotexceedthatchargeableontheprofitsoutofwhichthedividendispaid

10 10

Mauritius 0 0 0

Moldova 10/5ifreceivedbyacompanyholdinglessthan10%ofvotesandinallcasesifreceivedbyanindividual

5 5

Montenegro 10 10

10

Norway*4 15/0ifthebeneficialownerisacompanyholdingdirectlyatleast10%ofthecapitalofthecompanypayingthedividendsorifthebeneficialownerofthesharesistheGovernmentofCyprusorNorway.

0 0

Poland 5/0ifrecipientcompanyholdsdirectly10%ofthesharecapitalofthepayingcompanyforanuninterruptedperiodofatleast2years.

5/0ifpaidtothegovernment/Centralbank/PublicAuthorityoftheotherstate

5

Portugal 10 10 10

Qatar 0 0 5

Romania 10 10/0ifpaidtopublicbodyorfinancialinstitution

5/0onliterary,artisticorscientificworkincludingfilms

Russia 5/10ifreceivedbyacompanywhichhas

0 0



invested<$100.000

SanMarino 0 0 0

Seychelles 0 0 5

Singapore 0 10/7ifpaidtoaBankorsimilarfinancialinstitution/0iftotheGovernment

10

Slovakia 10 10/0ifpaidtopublicbodyorfinancialinstitution

5/0onliterary,artisticorscientificworkincludingfilms

Slovenia 5 5 5

SouthAfrica 10/Aprotocoltothetreatyenteredintoforceon18September2015but

mayapplyretrospectively.5%ifthebeneficialowneris

acompanywhichholdsatleast10%ofthecapitalofthecompany

payingthedividend

0 0

Spain 0/5ifreceivedbyacompanyholding<10%of

Votesofthepayingcompanyandinallcasesifreceivedbyan

individualoracompanynotlimitedatleastpartlybyshares

0 0

Sweden 5/15if<25%ofvotes 10/0ifpaidtopublicbodyorfinancialinstitution

0

Switzerland 15/0ifthebeneficialownerisacompanyholdingdirectlyatleast10percentofthecapitalofthecompanyispayingthedividendsduringanuninterruptedperiodofat

0 0



leastoneyear(theholdingperiodconditionmaybesatisfiedpostthedateofthedividendpayment)and0ifthe

beneficialownerisapensionfundorothersimilarinstitutionorrelatestotheGovernmentofCyprusorSwitzerland.

Syria 0/15if<25%ofvotes 10/0ifpaidtopublicbodyorfinancialinstitution

15/10onliterary,dramatic,musical,artisticwork,filmsandTV

Thailand 10 15/10oninterestreceivedfromfinancialinstitutions,oninterestpaidinconnectionwithindustrial,commercial,scientificequipmentorthesaleormerchandisebetweentwocompanies

5/10onrighttouseindustrial,commercialorscientificexperience/15onpatents,trademarks,designs,models,plans,secretformulasorprocesses

Ukraine 5/15ifadividendispaidbyacompanyinwhichthebeneficialownerholds<20%ofvotesandthebeneficialownerhasinvested<€100.000

2 10/5%willbeleviedonpaymentofroyaltiesinrespectofanycopyrightofscientificwork,anypatent,trademark,secretformula,processorinformationconcerningindustrial,commercialorscientificexperience

UnitedArabEmirates

0 0 0

UnitedKingdom 15%onindividualshareholdersregardlessoftheir

percentageofshareholdingandonCompaniescontrollinglessthan10%

ofthevotingshares/0if<10%ofvotes

10 0/5onfilmsincludingfilmsusedfortelevisionprograms



UnitedStatesofAmerica

15/5ifmorethan10%ofvotes

10/0ifpaidtotheGovernmentorabankorafin.Inst.Orinrespecttodebtobligationsarisinginconnectionwithsaleofpropertyortheprovisionofservices

0

Yugoslavia

(Serbia-MontenegroandSlovenia)

10 10 10

*1Serbia,MontenegroandBosniaapplytheYugoslavia/Cyprustreaty.

*2ThetreatywithIcelandiseffectivefrom1Jan2015.Thisisthefirstdoubletaxtreatybetweenthetwocountries.

*3 The treaty with Lithuania is effective from 1 January 2015. This is the first double tax treatybetweenthetwocountries.

*4 The treatywithNorway is effective from1 Jan 2015. This replaces the previous treaty effectivebetweenthetwocountries.


AtApserouShiaka&Coweprovideabroadrangeof services that includesAudit,Tax,ConsultingandFinancialAdvisory.

• AuditandAssuranceServices• AccountingandVat• Consultingandbusinessadvisory• Managementservices• Taxconsulting(TaxationandInternationalTaxplanning)• InternationalBusinessCompanyServices• Officefacilities• TrainingandSeminarsDeliveringoutstandingservicetoallcustomerswherevertheyoperateisourtoppriority.

Our services


Our contact details ApserouShiaka&CoLimited

Address22AEvagorasPallikaridesAyiosDometios2369NicosiaCyprus

Websitewww.shiakas.com

CommunicationE:[email protected]:0035722424096F:0035722424097

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