A reliable choice for international business planning

Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]

Let’s consider the following hypothetical scenarios.

A major real estate development group with non-EU origins engaged in significant projects in various European countries through different companies and joint ventures. It needs to repatriate profits from these operations in the form of dividends, bearing the minimum possible withholding tax throughout the structure.

A Chinese manufacturing company planning to sell its products to distributors and retailers in the EU. Its objective is to enter the EU from a single point, which will provide it with an attractive Corporation Tax rate, well-developed facilities for transit trade, low costs and skilled labour for setting up and operating a fully fledged office.

An experienced trader who would like to set up an investment fund to collectively invest funds which the contacts he has made through all the years he has been in business will entrust him with. He would like to have a private vehicle since he is not intending to go out to the market at large to collect funds, which will be flexible from an investment targets’ perspective, allowing also investment in real estate, and which will have the minimum possible regulatory burdens.

A group offering market research services in many places around the world, through branches and subsidiaries, which would like to relocate part of its activities to a place in which its profits will suffer the lowest possible tax, while at the same time capable of offering high quality facilities for provision of centralized (head office) services, such as collective negotiation of finance, reparation of group management accounts, internal audit, etc. charged to the group entities on an arm’s length basis.

A global player in the investment services field planning to set up an investment firm to offer asset management, investment advice, FX trading and other related investment services. The aim is to set up in a jurisdiction with an efficient tax system, where set up and running costs are low compared to traditional destinations for this kind of vehicles, in a strategic geographical position and convenient time zone.

A wealthy individual who would like to pass his fortune to his heirs in a confidential and controlled manner in order to ensure that it is not misused by immature actions of his children, while at the same time protecting it from any obligations he will commit to in the future either as part of his business or personal life.

Now, let’s consider a jurisdiction, which can offer the following benefits to international investors:

Tax Benefits

Other Benefits

So, let’s become more specific about this jurisdiction, starting with the name…This is nowhere else than Cyprus.

Looking at some of the above facts in some more detail, as part of its accession to the EU, Cyprus has endeavored to transform itself from an off-shore tax heaven featuring a 4.25% corporate tax rate for ring-fenced businesses to an EU preferential jurisdiction with a uniform tax rate of 10% being still the lowest tax rate in the European Community.

Furthermore, Cyprus has not only fully adopted all EU Directives; it has even gone beyond that by not imposing minimum holding period, percentage holding and any other restrictions used by most Member States.

The absence of withholding tax to payments out of Cyprus applies to any place in the world, even for offshore jurisdictions. Therefore, Cyprus can be used as a point from where these kinds of income can exit EU.

The double tax treaties Cyprus has signed have very beneficial provisions, which in combination with the tax credit offered in Cyprus on withholding tax suffered in the country of origin, can result to a more beneficial overall after-tax result than by using zero tax jurisdictions or tax exempt vehicles.

Cyprus Law is a mixture of legislative statutes and case law. Its structure is largely based on English Law and English case law is closely followed. Apart from changes related to EU harmonization, in general there is stability in the Law with no frequent radical changes and hence with minimum uncertainty. Despite that, where deficiencies are detected or modernization is required in the Law, the necessary amendments are implemented speedily and effectively.

An ideal location as it seems for the above and much more scenarios, Cyprus does not come without its shortfalls. But we believe that on a scale of pros and cons, the benefits it has to offer clearly outweigh the disadvantages. And most importantly, most of these shortfalls can be well managed by making the proper planning when setting up a structure and by seeking professional advice and assistance. Some examples of areas on which particular attention should be paid are the ability to keep Capital Duty to the minimum on share capital increases, the way to structure debt financing to ensure that, whenever possible, only a margin is left in Cyprus to be taxed, the remote possibility of any dividend received from abroad not being exempt from Special Contribution for Defense and the tax consequences of debit balances with shareholders.

Even where there are no clear-cut solutions at first instance, the possibility to apply for an advanced opinion (tax ruling) to the Cyprus Tax Authorities, provides great certainty in the whole operation.

So can Cyprus form a reliable choice to the hypothetical investors presented above? We believe it can and we are glad that this belief is supported by facts, as the international business sector in Cyprus has been growing impressively during the last eight years and it has remain pretty immune to the worldwide financial crisis. Most importantly, the perception of offshore tax heaven is blanking out and it replaced by a reputation of tax-efficient jurisdiction offering quality services and a plethora of other benefits besides tax optimization.

We would be glad to discuss further the reasons but most importantly the means and the detailed way in which, by including Cyprus in their international business planning, international investors can achieve and indeed surpass in most of the cases, their objectives.

George Savvides
Partner
Fiducenter (Cyprus) Ltd
george.savvides@fiducenter.com.cy
www.fiducenter.com.cy
Phone: + 357 25 50 40 00 Fax: + 357 25 50 41 00

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