Presentation & Comparison of jurisdictions for the Russian Market:

Malta-Netherlands-Luxembourg- Hong Kong, Singapore , UAE

Globalserve Moscow Seminar September 2013By Phani Schiza

MALTA, Competing Cyprus

MALTA, THE ISLAND

• Mediterranean island country• Member of EU since 2004 – use of EU directives • Member of the Eurozone• Common law system• English widely spoken and written• Reputable international business centre on the white list• High professional standards

MALTESE COMPANY• Limited liability company • Companies are registered with MFSA (Malta Financial Services Authority)• Minimum shareholders’ 2 but private limited companies may be

incorporated as a single member company with physical persons and one main activity

• Minimum 1 Director, physical person or legal entity• Secretary (compulsory) – physical person• Minimum Capital:

– private companies €1,165 with at least 20% paid i.e. in practice we incorporate companies with capital of €1200 out of which €240 is paid

– Public companies €46,590 with at least 25% paid • Registered office in Malta • Duration of registration – 1 day + 1 day for issue of certificates

MALTESE COMPANYTax Issues

• Companies and individuals are subject to income tax at the flat rate of 35% on net profit derived from trading, premiums, interest, royalties, rent, capital gains

• Effective tax rate is reduced substantially either by virtue of refundable tax credit or by application of the participation exemption

MALTESE COMPANYParticipation Exemption

• Dividend received by a Maltese company or capital gains derived from the disposal of shares is tax exempt in the following circumstances

• If it holds more than 10% of equity or• if participation is less than 10% but it has minimum equity

investment of €1.164.000 for an uninterrupted period of 183 days

Additional conditions apply to the above for dividend income to be tax exempt:

Maltese resident or EU country or

MALTESE COMPANYParticipation Exemption

If not EU then the foreign tax rate to be at least 15% or

If less than 50% arises from passive income or royalties e.g even if dividend is received from BVI company,

participation exemption applies if it is a trading/consultancy company and less than 50% of income arises from passive income.

• Capital gains tax exemption does not apply in case of trading in securities and it is taxed as trading income

MALTESE COMPANYTax Refunds

• A non resident shareholder can claim a refund of part or all of the tax suffered by the company on said profits

• 6/7 refund: • it’s available on profits; generally trading income which does not

constitute “passive interest or royalties” or upon which the company has not claimed double taxation relief

• After refund effective tax rate is 5% i.e 6/7 of 35% = 30 % refunded • 5/7 refund: this refund applies to dividends distributed out of profits

which constitute “passive interest or royalties” and on which company has not claimed double taxation relief. Effective tax rate is 10% i.e. 5/7 of 35% = 25% refunded

MALTESE COMPANYTax Refunds

• 2/3 refund on Maltese tax paid on dividend received on which Maltese companies claim double taxation relief – Rarely used if WHT on dividend is high and cannot claim participation exemption or in case of financing companyEffective tax rate =6.25%If no double taxation treaty exists then if a commonwealth country can

claim commonwealth relief; otherwise Unilateral relief is available at flat rate foreign tax credit of 25% is available on companies.

• 100% refund : such refund would be available upon receipt of a dividend paid by the Maltese company out of the profits (dividend income or gains) derived from a participating holding (as an alternative to the participation exemption)

MALTESE COMPANYOther Tax Issues

• No CFC legislation• No thin capitalization rules• No transfer pricing• No transfer taxes• No Capital duty• No withholding tax on outbound interest or royalties from Malta• No WHT on dividends in Malta• No taxation on dividends received at the level of shareholders• Losses carried forward indefinitely

MALTESE COMPANYTax Refunds

Tax Refund Effective Tax

A. Income tax rate on individuals & companies 35% 35%

If shareholders are non Maltese

a. For dividend arising from trading income 35% 6/7 @35% 5%

b. For dividend arising from passive income (passive royalties & interest)

35% 5/7 @35% 10%

c. For active royalties i.e. if royalty is managed 35% 6/7@35% 5%

MALTESE COMPANYTax RefundsTax Refund Effective

Tax

B. DIVIDEND INCOME(if conditions for participation exemption apply)

0% Conditions apply for exemptions (slide 5 &6)

0

Dividends received claiming double tax treaty relief(if conditions for participation exemption do not apply)

35% a. Credit issued for tax paid in other countryb. Refund: (35%-tax credit) @2/3

(35%-tax credit) /3

Dividend IncomeAvailable on dividend paid by Maltese company out of profits derived from participating holding, instead of claiming participation exception. In this way you can get tax credit for taxes paid at 35%

35% 100% refund 0

C. No withholding tax on outbound interest or royalties or dividends

0 0

MALTESE COMPANYIncome from Royalties

• Royalties and similar income derived from qualifying patents in respect of inventions, whether in the course of a trade, business, profession or vocation or otherwise, subject to the satisfaction of certain terms and conditions, as well as any dividends distributed out of profits derived from such royalty income may likewise fall to be exempt

• Income from non-qualifying patents may be charged to tax and subject to the 5/7 refund

MALTESE COMPANYIncome from aviation

• Income derived from the ownership, or the leasing or operation of aircraft or of engines shall, be deemed to arise outside Malta for Malta tax purposes. This deeming provision shall also apply when the aircraft and/or aircraft engine is registered in Malta; and/ or has called at, or Is operated from, any airport in Malta. This entails that payments made to non-Maltese resident owners, lessors or operators such aircraft or aircraft engines should not be subject to tax in Malta allowing for some interesting tax planning opportunities.

MALTA GAIMING TAXES

Gaming Taxes in Malta depends on the gaming license class and type of games offered:

Casino-type games: €4,600 per month during the first six months after issue of the full license and subsequently €6,900 per month for the entire duration of the license period. However, if a casino operator (under Class 1 license) operates from the host platform (under class 4 license) the following taxation apply:

Gaming tax payable by the casino operator is €1,150 per month;Gaming tax payable by the host platform is as follows:

No gaming tax for the first six months of operation;€2,300 per month for the subsequent six months; andSubsequently, €4,600 monthly for the entire duration of the license.

MALTA GAIMING TAXES

 

Class 1 Class 2 Class 3 Class 4

License Fee €6, 900 per year €6, 900 per year €6, 900 per year €6, 900 per year

Gaming Tax A. Under Class 4 sublicense:€1, 150 per month

B. Standalone: 1st six months at€4, 600 per month€6, 900 per month for the entire duration of the license

0.5% On gross amount of stakes accepted

5% on net income

No Gaming Tax (Inherits tax of its sublicenses)

Tax Capping: Maximum gaming tax payable in respect of any License class is €466,000

Double Tax Treaty between Malta and Russia in effect as from 2014

DIVIDEND

•If 25% ownership in the subsidiary Russian company and minimum investment of •€ 100.000

5*%/10%

INTEREST 5%

ROYALTIES 5%

DOUBLE TAX TREATY WITH RUSSIA

• Russia and Malta signed a Double Tax Treaty on 24 April 2013 which will come into effect in 2014

• Withholding tax rates will be: for dividends – 5 % if the beneficial owner is a company which holds directly at least 25 % of the capital of the company paying the dividends and this holding amounts to at least 100,000 Euro; 10% in all other cases;for interest and royalties – 5% as long as they are at the market level.

• Gains derived by a resident of a Contracting State from the alienation of shares or other rights deriving more than 50 % of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State. This rule is standard for new agreements and protocols, including those that Russia has recently signed, i.e. with Cyprus and Luxembourg.

DOUBLE TAX TREATY WITH RUSSIA• The treaty contains a standard Exchange of Information provision, which is

practically identical to the one recently introduced in the Russia-Cyprus DTT.

• The treaty also contains Limitation of Benefits provision. It stipulates that restrictions should not apply as long as a company is engaged in substantive business operations in one of the Contracting States. It’s worth noting that the equivalent provision in the Russia-Cyprus DTT does not stipulate such a requirement, stating that a company merely needs to be registered in one of the Contracting States.

• If the treaty comes into force in 2014, Malta could be seen as a replacement for Cyprus as a venue for creating holding companies.? But since the treaty establishes withholding tax rates for interest and royalties, it is unlikely that Malta could carve out a niche as a financial or licensing centre for Russian corporate groups. Another reason is that their banks are very conservative and refuse to accommodate the banking needs of Russian clients

COMPARISON

CYPRUS MALTA

International Business Center, small island country in Europe

√ √

Common Law System (both ex English colonies)

√ √

Languages English widely spoken More multilingual

Limited liability companies √ √

Minimum shareholders 1 2

Minimum directors 1 1

Secretaries Physical or legal entity Physical only

Minimum capital €1 €1 165 and at least 20% prepaid

Registered office Cyprus Malta

COMPARISON MALTA / CYPRUS

CYPRUS MALTA

Taxes are paid on worldwide income

Management and control in Cyprus

Ordinarily resident domiciled in Malta for tax purposes

VAT 18% 18%

Tax rate for companies 12,5 % corporate tax 35% income tax but tax refunds

Capital Gains Tax from sale of shares

Nil without conditions Participation exemption is granted if: 1. Participation more than 10% shareholding orIf less than 10% with minimum equity €1.164.000 for 1 year minimum2. European company or if not European company to have tax rate at least 15% or if not less than 50% to arise from passive income. Above must apply for dividend to be exempted but it does not have to apply for exemption of capital Gains.

COMPARISON MALTA / CYPRUS

CYPRUS MALTA

Trading in securities tax NIL 35% which upon distribution of dividend to non residents

falls to 5% *

Tax on dividend Nil Nil under conditions

Tax on *But this creates the need for two level company and increases the coststrading income

12,5 % 6/7 refund on 35% if shareholders are foreign:

effective rate 5%*

Tax on passive income - passive royalties - interest

2,5%12,5%

10%10%

Active royalties 2,5% 5,%

WHT on outbound interest royalties / dividend

0% 0%

COMPARISON MALTA / CYPRUS

DTT WITH RUSSIA CYPRUS MALTAWithholding on Dividend 5*/10%

* If more than €100.000 investments

5*/10% * If more than €100.000

investments and over 25% shareholding

Withholding on interest 0% 5%Withholding on royalties 0% 5%

Exchange of information provision

Yes Yes

Limitation of benefits provision

Will not apply if merely company is registered in one

of the States

Will not apply provided substansive business in one

of the states In force Yes Expected in 2014

COMPARISON MALTA / CYPRUS