bahamas-vat-return-guidance

Cyprus – Interesting tax changes on the horizon

Yesterday the Cyprus government announced a major tax reform aimed at significantly modernising and strengthening our domestic tax system.

Cyprus President, Nicos Anastasiades, confirmed this week at the 54th Annual General Assembly of the Institute of Certified Public Accountants of Cyprus (ICPAC) that a series of new tax measures were ratified by the Council of Ministers that will make the island’s tax system more fair, simple and competitive.

We consider these measures to be of particular importance given that they will significantly modernise and strengthen the competitiveness of the Cyprus domestic tax system. We are awaiting for the release of the relevant draft legislation before we are able to offer further details, and we will, as always, keep you informed of all updates purporting to this matter.

The measures announced are:

(1) A deemed tax deduction will be provided on new capital introduced in Cyprus. This will take the form of deemed interest deduction. This provides the incentive to introduce equity in businesses whilst at the same time receiving a tax deduction as if the capital were a loan;

(2) A new term, that of domicility, will be introduced in the Cyprus legislation. A person who qualifies as a Cyprus tax resident (based on the number of days spent in Cyprus) and at the same time will qualify as a non-domiciled person (we are awaiting for the draft legislation for the definition) will not be subject to Special Defence Contribution (SDC). SDC is the only tax that a Cyprus tax-resident physical person pays on dividends received. The current rate is a flat 17%.

This will give an advantage principally to physical persons moving to Cyprus and becoming tax residents, who are also the registered shareholders of companies that are themselves tax resident in Cyprus. These companies will be subject to the corporation tax of 12,5% on their taxable profits, which are calculated following the generous exemptions and deductions already offered in the legislation.

Any dividends from these companies to their resident non-domiciled shareholder will not be subject to any further taxes, rendering the effective tax rate at a maximum of 12,5%. This is perhaps the single most important amendment to the Cyprus tax legislation ever since the overhaul of the Cyprus tax system in 2003;

(3) Accelerated capital allowances will continue to be provided on the purchase of equipment, fixtures, fittings and buildings, up until the end of 2016;

(4) The existing tax incentive, being the tax exemption on part of the income of a person who starts employment in Cyprus, and who was a non-Cyprus tax resident before commencing such employment, will be strengthened by increasing the period over which the exemption will apply;

(5) Land transfer fees on all immovable properties purchased will be reduced by 50% until 31 December 2016;

(6) Any properties purchased after the new legislation is put in force, and before 31 December 2016, will be exempt from any future capital gains tax;

(7) The municipal and community taxes imposed by local authorities on owners of any immovable property, will be abolished;

(8)  The way immovable property tax is calculated will be overhauled. A single tax rate of 1/1.000 will apply, instead of the current progressive tax rates, on the most recent valuation of the properties carried out by the Land Registry Office. There will be a 10% reduction of the tax for early payment and an exemption on all taxes that do not exceed €25 per owner.

insolvency-framework

Cyprus: Insolvency Framework

The six pieces of legislation forming the Insolvency Framework came into force on May 7, 2015, day of its publication in the Official Gazette [five laws and a regulatory administrative acts (regulations)]. Those provisions have been passed by the House of Representatives on April 18 2015. The following came into force:

  • The Insolvency Individuals (Personal Plans Repayment and Debt Waiver Order) Law, 2015
  • The Bankruptcy (Amendment) Law of 2015
  • The Companies (Amendment) (No. 3) Act of 2015, regarding the liquidation
  • The Companies (Amendment) (No. 2) Law of 2015, concerning the mechanism for corporate debt restructuring (Examinership)
  • The Council on Insolvency Law of 2015
  • The Council on Insolvency Regulations 2015

The first two laws concerning the procedures relating to natural persons, while the third and fourth law concerning procedures for companies.

The fifth Act and Regulations relate to the regulation of the profession of Insolvency Consultants, who have an important role to fulfill in implementing the Framework.

All six pieces of legislation came into force from the date of publication in the Official Gazette, except for the portion of the first law on the Decree Debt Waiver. This part will enter into force three months after its publication in the Official Gazette.

Purpose – objectives of the Framework Insolvency

The main objectives of the Framework for Insolvency Reform are:

  • creating appropriate incentives for debt repayment, thus contributing to the reduction of non-performing loans
  • opportunity to protect the primary residence, where possible based upon strict eligibility criteria
  • second chance for reactivation bankrupt individuals in the economy
  • introduction of a new mechanism that would provide full and rapid relief to a debtor with no income and no assets, with very low overall debt
  • incentives for the preservation and restoration companies through restructuring of companies and debt and so they have the opportunity to viable companies to reduce their debts and keep jobs, while maximizing the value of the company as it is (“as going concern “)
  • modernization of the laws concerning the liquidation and bankruptcy of natural persons, so the liquidation and bankruptcy proceedings take place in a short time and efficiently.

Application Framework for Insolvency – Inform public

Information regarding the Insolvency Framework can be found in the Department at the Registrar of Companies and Official Receiver site of the Ministry of Energy, Trade, Industry and Tourism (www.mcit.gov.cy/drcor).

Responsible for the implementation of the Framework Insolvency is undertaken by the Insolvency Service. The Office is part of the Department of Registrar of Companies and Official Receiver of the Ministry of Energy, Trade, Industry and Tourism. Branch Bankruptcy and liquidation has taken over the responsibilities of the Insolvency Service.

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tax-avoidance-eu

Tax Avoidance Strategies in the European Union

While the formation of the EU brought unity to its member nations in a number of ways, there still remains a substantial difference between the laws of those member nations which include tax avoidance strategies in the EU making them vary by country.

It is a well-known fact that some offshore tax haven countries have streamlined taxation laws that are fair to large investors, while others, such as Switzerland, have recently caved to foreign pressure and made their tax policies more stringent. Let’s take a look at some of the most popular nations among tax-savvy investors.

Cyprus: After Cyprus’ accession in the EU in 2004, it has managed to rapidly develop into one of the most prominent financial centres in Europe. It is a known fact that Cyprus has one of the lowest corporate tax rates in the EU at 12.5%, with a close to perfect tax exemption system for holding company income and double tax treaties in place with around 45 countries in total. Cyprus does not levy any withholding tax over outbound dividends or interest. There is normally no withholding tax over royalties either.

Latvia joined the EU in January 2014; this coincided with the enactment of new tax laws that promised to draw the interest of large investors to this small nation. Any profits earned by foreign investors from dividends and stock sales are tax-free, and there is no tax on transferring them out of the country. As far as corporate investors are concerned, Latvia also aims to please by offering a corporate tax rate of 15%.

Following on, Luxembourg is another small nation that continues to provide vast opportunities to foreign investors. It should be noted that British investors, however, will want to be wary of relying on this nation’s tax laws. This is because Luxembourg recently agreed to provide British authorities with information about the holdings of British investors. Yet, within its own border, this European nation continues to refuse to tax bank interest, investment dividends or capital gains, earned by its foreign investors.

Even though Austria has seen similar pressure to release foreign investors’ tax information, this country has made a point in stressing that it will continue to respect the privacy of these investors. Austrian bank accounts continue to be a secure, anonymous choice for tax-efficient investment. Nevertheless, as pressure on Austria’s privacy policies increases, investing in Austrian bank accounts may become increasingly tricky territory that must be navigated with the help of a professional advisor.

Both political and economic developments continue to change the way investors look at tax optimization strategies. Although some nations have changed the laws that once made them famous for offering a number of innovative tax avoidance strategies, other nations are stepping up to take their place as a favourite spot for investors to protect their assets.

Navigating foreign taxation laws can be complicated and difficult. Parparinos Milonas Corporate and Legal Consultants can simplify the process of choosing the best offshore investment jurisdiction for your individual needs whilst offering you the best legal and corporate advice.

tax-evasion-tax-avoidance

Tax Avoidance Vs. Tax Evasion

Take the Legal Route to Reduce Taxes

When owning your own business, you most definitely have the right to organise it in such a way, ensuring you do not have to pay any more taxes than necessary. This strategic plan, known as tax avoidance, involves using legal means to reduce taxes and is the practice of setting up your business in such a way that it will undoubtedly be taxed fairly by the government of your country.
In contrast, tax evasion, is the practice of violating your country’s laws and paying less than the minimum amount of taxes.

Should the case be that your offshore business is set up as a controlled foreign corporation, then it is possible that you may be paying more than you need to in taxes. A CFC – Controlled Foreign Corporation, is a taxable business structure which is recognized by many countries.
Characteristically, your offshore business will be considered a CFC unless a couple of conditions are met:

  • A majority of your shareholders may not be citizens of your country, and
  • No more than a certain percentage of your company’s voting stock may be held by one shareholder.

The above as well as exact conditions may vary by country. For example, US taxpayers, in particular, must be wary of the distinction between non-taxable income from foreign businesses and taxable income made from passive investments.

While CFC definitions differ between countries, a number of taxpayers across North America, Australasia, and other nations have found that structuring offshore assets around a Panama Private Interest Foundation, known as a PPIF, is a sound strategy for tax optimisation.

The Panama Private Interest Foundation (PPIF) was developed as a way to make Panama a centre of offshore investment following suit from the Stiftung model, a family foundation formed under the laws of Liechtenstein.
Under the laws of Panama, the PPIF is an entity completely separate from the business owner and so can offer owners of offshore assets the opportunity to structure those assets so that they will not be defined as a CFC.

Additionally, when the majority of a corporation’s shares are subscribed to the PPIF, it no longer meets many nations’ criteria for being considered a CFC.
While U.S. residents must contend with additional hurdles posed by IRS regulations, a Panama Foundation is normally an excellent choice when it comes to making sure you pay a fair tax rate on your foreign assets.

If the asset is classified as a CFC, then owning a foreign asset can result in a significant tax burden. The good news is that by subscribing some of the shares of a foreign asset to a Panama Foundation, can prevent it from being considered a CFC in many countries. The definition of a CFC again varies from nation to nation, and the regulations involved can be complex.

The professional team at Parparinos Milonas Corporate and Legal Consultants is able to guide asset owners through the process of structuring their assets so that they will be taxed fairly. Feel free to contact us with questions about taxes on your foreign assets or to set up a tax-optimized structure to meet your needs.

Photo Credits: olddogthoughts.com

cyprus-lagarde-list

Cyprus has still no sign of the ‘Lagarde list’

France has repeatedly been asked by the Cypriot Government to hand over a list of suspected Cyprus-based tax evaders. The requests to date have still not been met with success as told by the Cyprus Finance Minister.

The Finance Minister Harris Georgiades told MPs that since March 2013, Nicosia on several occasions has asked Paris to furnish the so-called ‘Largarde list’, with Nicosia invoking the double taxation avoidance treaty between the two countries. When pressed on the subject, the minister said a fresh attempt would be made at obtaining the list. But he added however, that he was not optimistic.

Harris Georgiades at the time was attending a session of the House watchdog committee, whose official order of business was reviewing the Auditor-general’s findings on the finance ministry for the year 2013. It was clear that the Minister’s responses did not satisfy MPs.

AKEL’s representative Irini Charalambidou said Cyprus is the only country that has not got the ‘Lagarde list’, whereas other countries which have obtained it have since moved in on big tax evaders. “It seems some people here do not want the list,” she added in a loaded comment.

According to the findings of an investigation of over 100,000 HSBC clients from 203 countries by the Washington-based International Consortium of Investigative Journalists (ICIJ), over 300 Cyprus-affiliated individuals or companies have money sitting in Swiss bank accounts.

There was more rancour when Georgiades, asked who drafted the legislation on the bail-in commonly known as the ‘haircut’ of depositors, and replied that the previous government did.

In late 2012, during the administration of Demetris Christofias, the finance ministry and the Central Bank of Cyprus jointly drafted The Resolution of Credit and Other Institutions Law.

According to Georgiades, on January 11, 2013 then-finance minister Vasos Shiarly addressed a letter to the European Central Bank, in which he forwarded the law and asked for the ECB’s expert feedback.

The ECB’s position at the time was that insured deposits (below €100,000) should not be exempt from a haircut, he added.

This provoked outrage from AKEL MPs, who accused Georgiades of twisting the facts and the government camp of cowardice.

AKEL representative, Pambos Papageorgiou burst out by addressing the President and saying “You did the haircut, you should stick by it, instead of blaming others for it.”

Photo Credits: www.dailymail.co.uk