International Tax Planning

The basis for tax planning on an international level is the existing differences in the tax systems of several countries and the interaction between the various tax systems. Especially in the case of companies operating in more than one jurisdiction the chances of having double taxation increases, creating limitations as to the cross-border investments and trading. The choice of the right jurisdictions to operate, either onshore or offshore, is essential for the effectiveness of managing the various costs relating to the effective tax paid.

Cyprus has a Double Taxation Treaty network with over 44 countries, some of which contain provisions that state the terms of the treaty they have with Cyprus are unsurpassed by treaties with any other country. The Double Tax Treaty Network of Cyprus and specifically the double tax treaties with Russia, Ukraine, the former CIS countries, India and South Africa have put Cyprus on the “International Business Centre map”. Cyprus is ranked amongst the top 5 foreign investor list in several countries. Cyprus has signed other favourable and important treaties with the United Kingdom, Italy, Bulgaria, Poland, Romania, Germany, Serbia and Montenegro.

Moreover, since Cyprus was admitted to the European Union in 2004, and joined the Eurozone in 2008, the country has benefitted from access to European Directives that help to eliminate foreign withholding taxes on certain payments from other EU countries (i.e. Dividends, Interest and Royalties paid to Cyprus Resident Company) irrespective of whether a DTT exists. Basically the usefulness of EU Directives of 1) Parent / Subsidiary Directive on Dividends and 2) Interest and Royalties Directive, guarantees that no With Holding Tax will be paid among EU member states.

We, at Exertus, evaluate each operation separately, checking the specific issues arising due to the interaction of multiple tax systems. Issues such as transfer pricing, percentage of holding, source of income, and country specific laws and regulations are closely reviewed. Our goal is for our clients to take advantage of benefits arising from operating in different countries either though trading or on an investment basis.

Important Cyprus legislation and tax facts

A uniform 10% corporate tax rate, applicable to worldwide income, is now levied on all resident companies from the 1st of January 2003. This is the lowest corporate tax rate in the European Union and thus the most advantageous standard rate of corporation tax for Cyprus.

The Holding International Business Companies operating from Cyprus are now in a much more beneficial position because they can enjoy the benefits that derive from the tax exceptions as well as the corporate tax.

The taxation status on Company is residence-based. A company is only 'resident in the Republic' if its business is centrally managed and controlled in Cyprus. A resident corporation's worldwide income accrued or arising from sources both within and outside Cyprus is therefore taxable, if it is managed and controlled from Cyprus.

In order for a company to benefit from the provisions of the DTT the company must be a Cyprus tax resident. Cypriot residency for tax purposes, particularly for corporate taxpayers, is determined on the basis of place of management and control.

In practice it is taken to mean, in simple terms, that management and control is where the majority of the directors reside, where corporate board meetings are held and where the general policy of the company is formulated.

The co-existence of all three criteria is essential. It is therefore necessary to ensure that a company satisfies the residence test to be able to be taxed under Republic of Cyprus tax laws, and at the same time enjoy the benefits. If a company does not satisfy the management and control test, there is no residence, therefore no taxation of a company can be imposed under local law.

 

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