On the 14th to the 20th of April 2019, the Head of the Aliant Cyprus Practice, Mr. Socrates Parparinos, was in Beijing, China for a series of business meetings. Mr. Parparinos was with some of our clients and representatives of government and semi-government institutions such as the China Federation of Logistics & Purchasing of the China Society of Logistics, the China Food Safety and Information Traceability Association, the Association for Promotion of West China Research and Development, the China International Exchange Centre of Traditional Chinese Medicine, the Shanxi Cross-Border E-Commerce Association, as well as big corporations such as the Poly Solar Technologies and Sinotrans & CSC. The meetings were a great success and we look forward to supporting our clients in any way we can in a joint effort to build stronger ties in the Chinese market.
Advantages of a Cyprus Company include:
- The main reason why Cyprus has become a great attraction as a business location is the business-friendly tax system that offers many advantages to companies that are based in the country. The key benefit of a resident corporation is the uniform 12.5% corporate tax rate which is one of lowest in Europe.
- The procedure for registering a company in Cyprus is simple, straightforward and fast and this is an extra advantage of Cyprus compared to other countries. Cyprus company can be incorporated with only one Director and Shareholder in addition and there are no restrictions on foreigners acting as Director or Shareholder.
- Dividends paid to a Cyprus resident company are exempt from corporation tax, whether they are received from a foreign company (subject to certain conditions) or another Cyprus resident company (with certain conditions applying). There is also no withholding tax on dividends that are repatriated to a non-resident shareholder individual or company.
- A Cyprus company can benefit from a network of double taxation treaties with more than 60 countries, including; Canada, Russia, Poland, China, France, India, Ireland, Singapore, South Africa, the UK and the US, further adding to the potential benefits of a Cyprus company formation.
- The Common Law basis of the legal system constitutes a Cyprus company an ideal vehicle for holding and investment purposes.
- Another advantage of registering a company in Cyprus is that the Cypriot law allows investors to retain their anonymity and hold their property under an international trust.
- There is absolute freedom of movement of foreign currency which allows the maintenance of a bank account in foreign currency anywhere in the world.
Cyprus IP Regime is one of the most appealing Tax Regimes offered to Cyprus Companies, due to the benefit to pay Income Tax on IP Royalties income with an effective tax rate of 2.5% instead of 12.5%
Since January 2016 there were some changes on the old IP regime, not on the effective tax rate but on becoming more specific on which IP assets are to be qualified with the IP Tax Regime. The old IP regime was valid for the existing IP assets acquired before 2nd January and for any IP Assets acquired from 2nd January until 30th June 2016, from related parties. The old IP regime applies up and until the 30th June 2021.
Old Regime – Qualified IP assets:
- Copyrights on the following: literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programmes
- Patented inventions
- Trademarks (and service marks), designs and models that are used or applied on products
- Registrable IPs need not be registered in Cyprus to benefit from IP regime.
- Anything that could be justified as intellectual property, but an asset that had value and substance to be licensed
New Regime – Qualifying IP assets
- computer software
- IP assets which are non-obvious, useful novel and from which the income of a taxpayer does not exceed, in a 5 year period, €7.500.000 per annum (€50.000.000 for taxpayers forming part of a Group).
Do not cover
- image rights and
- other intellectual property rights used for the marketing of products or services
Modified nexus approach
An IP Asset should have a sufficient substance and should be a strong connection between the expenses and the IP asset income. IP asset income should be back up by the expenses paid by the Company for Research and Development of the IP asset, which adds value and the substance to the asset.
The following formula has been introduced to determine the qualifying profits that can benefit from an IP regime under BEPS:
[(Qualifying expenditure + Up-lift expenditure)/Total expenditure] x Overall IP Income
* Qualifying expenditure, excludes the R&D costs of outsourcing to related parties
Tax benefits of Cypriot IP companies
The new provisions provide exemptions from tax of income related to IP. More specifically:
- 80% of worldwide royalty income generated from IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
- 80% of profit generated from the disposal of IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
- any expenditure of a capital nature for the acquisition or development of IP is claimed as a tax deduction in the year in which it was incurred and the immediate four following years on a straight-line
- All the above exemptions are also available for IPs acquired or developed before January 2012
Assume that a Cyprus IP company licenses its IP to its operating foreign Companies and in return it receives royalty income of €100.000 per year.
The expected annual tax for the Cyprus IP Company will be as follows
|Annual royalty income||100.000|
|Direct expenses (say)||(20.000)|
|80% deemed deduction||(64.000)|
|@12.5% Income tax||2.000|
|Effective tax rate||2.5%|
Companies are required to maintain records, with the income and related expenses related to the IP Asset, so that will be able to justify the amount of IP income compare to the cost to maintain the IP Asset.
Cyprus is signatory to the following international conventions relevant to IP
- European Community Trademarks
- Convention Establishing the World Intellectual Property Organisation (WIPO)
- The Madrid Agreement Concerning the International Registration of Marks (the Madrid
Agreement) and Protocol to the Madrid Agreement
- The Patent Cooperation Treaty
- Berne Convention for the Protection of Literary and Artistic Works
- Paris Convention for the Protection of Industrial Property
- Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms
- WIPO Performance and Phonograms Treaty
- Rome Convention for the Protection of Performers, Producers of Phonograms and
- Trademark Law Treaty
- WIPO Beijing Treaty on Audiovisual Performances
I am fairly certain that by now, most of you have at least heard of something called the EU General Data Protection Regulation (GDPR). If not, you may be in for a big surprise. Reactions to the GDPR have gone through a few phases in the last few years, from “That is just another regulation that does not affect us,” to “We will wait until we have to comply,” to “That really might apply to us,” to “Uh-oh, we should probably do something about this. Is it too late?” If any one of these sounds like something you have heard in your own organization, you had better get moving, because GDPR is already here.
Let’s look at the basics. The General Data Protection Regulation (GDPR) 2016/679 is a regulation in EU law on data protection and privacy for all individuals within the European Union. The GDPR aims primarily to give control to citizens and residents over their personal data and to simplify the regulatory environment for their business. It was adopted on 14 April 2016 and after a two-year transition period, having come into force on 25 May 2018.
GDPR replaces the 1995 Data Protection Directive (DPD). The main difference between GDPR and DPD in definition is the following:
‘’any freely given specific and informed indication of his wishes by which the data subject signifies his agreement to personal data relating to him being processed’’
‘’any freely given, specific, informed and unambiguous indication of the data subject’s wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her’’
Because GDPR is a regulation, not a directive, it does not require national governments to pass any enabling legislation and is directly binding and applicable.
The impact of the regulation will be broad, as it applies to any company that holds or processes personal data of individuals residing within the European Union. This is irrespective of whether the company is based in the EU or not. The penalty for GDPR non-compliance is up to €20M or 4% of annual global turnover. The cost of ignoring GDPR is too high, forcing corporations to reconsider the way they handle consumer data, and to install new processes and technologies empowering the consumers right to “own” their data.
Head of Legal & Litigation
In accordance with the Cyprus income tax legislation, a company is considered to be tax resident in Cyprus if it is managed and controlled in Cyprus. Even though most European Union Members base the tax residency of a company on their place of registration, Cyprus follows the ‘management and control’ test which focuses on the actual place of management and decision-making of the companies.
Although there are no clear guidelines in the income tax law or in any other Cyprus law as to what constitutes ‘management and control’, it is understood that ‘management and control’ is considered to be exercised where the Board of directors meet and take decisions. In order to facilitate this, it is suggested that all directors (or at least the majority) are Cyprus residents. In relation to the issuance of Cyprus tax residency certificates, the current practice of the Cyprus tax authorities is to issue such residency certificates provided the directors of the company sign and submit a declaration confirming that the company is managed and controlled from Cyprus.
The Cyprus tax residency of a company claiming to be tax resident in Cyprus is not expected to be challenged by the Cyprus tax authorities on their own initiative. It could, however, be the case that a foreign tax jurisdiction challenges the tax residency of a Cyprus company. In such a case the Cyprus company would need to demonstrate to such foreign jurisdiction that the company is indeed tax resident in Cyprus. Thus, the issue of what the foreign tax jurisdiction would require, would need to be addressed from the perspective of the relevant country that may be challenging for residence (always in conjunction with the relevant provisions of the applicable double tax agreement between the two countries).
With regards to the issuance of General Power of Attorney, due to changes in the laws requiring the Compliance Officer and the Director to know the business structure of the company by monitoring the transactions of the company, Cyprus companies are not recommended (however, not prohibited) to issue general powers of attorney, as the company may be not recognized as Cyprus tax resident and may consequently be unable to obtain a tax residency certificate.
As a result of the above and as a matter of policy, our firm no longer issues such General Powers of Attorney. What we require is a special power of attorney for each separate transaction (e.g. one only for bank accounts, one only for signing of specific agreements etc.). The reason for this is for the Company not to jeopardize its Cyprus tax residency since the very test for a Cyprus tax residency is for the management and control of the company to take place in Cyprus. If the holders of the Powers of Attorney transact the general business of the company (i.e. to conclude any agreement etc), there is a risk that the company will not be treated as Cyprus Tax Resident (tax residency will be the place of residence of the beneficiary/holder of the PoA).
The problem with General Powers of Attorney is that they empower the attorney with the maximum number of powers, including negotiations, conclusion and signing of contracts and other documents, opening and operating corporate bank accounts etc. Such Powers of Attorney actually allow managing the company’s affairs abroad.
However, if a client insists to be provided with a General Powers of Attorney, certain limitations shall apply: (a) the duration should be limited to 6 months, (b) the respective Board Resolution must be drafted and approved prior to execution, and also (c) the POA must be drafted in such a way so as to leave discretion to the Board of Directors of deciding on their own and (d) the attorney providing the board with copies of all agreements and documents signed under the POA.