100,000 + Haitians are awaiting rescue in the wake of the devastating earthquake.  Up to 50,000 people may be dead.  1,000’s more have been injured and there are unknown numbers of people still trapped under piles of rubble. (Source: BBC)

Due to these terrible events we are making the following offer:  For each ‘Gold Package’ or similar made before the end of January, we will donate €100 to emergency relief

Donations will be made to appropriate agencies working to provide relief in Haiti via the Rotary Club to Shelterbox

More and more Polish entrepreneurs and businesspeople are setting up business structures involving Cyprus companies.

As a full member of the EU, Cyprus tax and legal systems offer many advantages and solutions when compared to other offshore juristdictions either in side or outside of the EU.  Cyprus offers great opportunities for both individual and company investors who can either benefit from its enormously efficient tax system or hide behind trust agreements in Cyprus and the British Virgin Islands (BVI).

Professional planning and advice can help ensure taxes and expenses are kept to a minimum whilst minimising risks.

Corporate Tax
At 10 %, the corporate tax on trading profits of Cyprus resident companies are among the lowest in the EU.

Accounting is on an accrual basis (which means that you can deduct them even if they have not been paid for) and Cyprus tax authorities have a flexible approach to the treatment of tax deductible expenses thus ensuring the tax base is efficiently managed.

A major advantage of the Cyprus tax system is the exemption of dividends received from subsidiaries. One could claim that the same benefits arise from the Parent-Subsidiary Directive, but tax exemption in Cyprus is wider and does not provide for any time limitations with respect to the holding of shares. Moreover, to apply this exemption the Cypriot company only needs a minimum 1 percent stake in the share capital of the subsidiary.

On top of that there are no thin capitalization rules or withholding taxes on payments to non-resident persons (individuals or companies) in respect of dividends and interest. And there are preferential rules regarding the carrying forward of losses and the unilateral tax credit given in Cyprus for taxes withheld or paid in other countries where there is no Double Tax Treaty in force.

Capital Gains Tax
Capital gains tax exemption is commonly held to be the biggest advantage of the Cypriot tax system. In short, any profit generated on the disposal of shares in subsidiaries is not subject to taxation in Cyprus. Moreover, in contrast to Dutch tax law for instance, there are no special conditions to fulfill to be able to benefit from the exemption.

No tax holding structures through Cyprus
In some countries the tax system allows for the sheltering or deferring of certain types of income by establishing companies in no-tax jurisdictions, for example the British Virgin Islands, the Cayman Islands and the Bahamas. The most common reason for setting up a no-tax company is that this company can act as an intermediary between a Cypriot company and a contractor, reducing income taxes in one-time transactions or in regular holding structures. The profit generated by such an intermediary can subsequently be transferred tax free to a Cypriot company in the form of a dividend.

Trust structures
Trust or foundation structures are commonly used for the top entity in a private or corporate investment holding structure. Shareholders in major companies worldwide, including in Poland, are hidden behind nominee shareholders. Beneficiaries run the company business, acting through their trusted legal advisors providing instructions to local lawyers and executives in Cypriot companies.

What is in it for Polish entrepreneurs?
The Cypriot tax system and the wording of the Double Tax Treaty between Poland and Cyprus allow for significant optimization of the tax burden resulting from operations. Based upon my experience, Polish investors are lured to business structures involving Cyprus by the following: (i) capital tax exemption for share purchase transactions, (ii) tax sparing on dividends, and (iii) preferential tax treatment of directors’ fees.

On the other hand, year on year there are increasing numbers of both corporate and individual investors who would like to remain unrevealed and who decide to conduct their operations through new business entities for transparency and tax optimization purposes. In light of the flexibility of the common law system in Cyprus, one can easily enter into transactions with only low-level local requirements as to form or content. No wonder doing business in Poland through Cyprus is becoming popular and creating new opportunities for trustworthy and business-oriented lawyers 

The tradition has carried on through the ages including the use by Kings and governments and merchants.  In modern times the use has continued by companies, for example concluding contracts and agreements.

English Company Law has historically referred to a common seal, capable of making an engraving.  The manner in which a seal and stamp should be used by companies is often a grey area.  The move away from hot wax and metal seals and made rubber “print” stamps more popular, although company law often does not stipulate whether this is actually acceptable.

Recent changes in Cyprus Company Law, makes it clear that a rubber stamp is acceptable, but also that seal and stamps are for the most part no longer required!

From July 2009 a Cyprus registered Company no longer requires a corporate seal, kept at the company’s registered office under the custody of the company secretary as directed by the board of directors. Section 35 of the Companies Law was amended and now states that any document signed on behalf of a Cyprus registered company, by any person acting under the company’s authority shall have the same effect as if it were executed under the company’s seal.

A company may select to use its seal, in which case it should be used in accordance with the articles of association; which usually means it should be countersigned by at least two directors or; a director and the company secretary.

The motive foe the amendment is clearly aimed at making sure Cyprus registered companies remain attractive to international businesses that often require documents to be signed by Directors and or duly authorized represantives away from the registered office and out of the reach of the company seal.

UK companies are looking for legitimate solutions that enable them to remain profitable by reducing their costs and increasing profitability.  Reviewing the way a business is structured can deliver big benefits.  Even businesses with moderate taxable profits can reap rewards.

The outcome of such a review may demonstrate that a business can legitimately and significantly reduce its tax burden by re-organising its structure.  A corporate re-structure may include the addition of offshore or international business companies, that take advantage of the UK’s Double Taxation Treaties and low rates of tax in treaty partner countries.

In the following case study a UK company (‘UK Co’) that buys goods from China (‘China Co’) and sells to consumers in the UK.

• China Co sends goods worth £100 per unit, with invoice directly to UK Co.
• At the end of the financial year, UK Co makes a taxable profit of £1,500,000.  The corporation tax at 28% = £420,000 so the profit after tax was £1,080,000.

Upon review the owners of UK Co decide to make changes to their corporate structure.  They transfer their shares in UK Co and form two new companies:

• Belize company (’Belize Co’) with a Swiss bank account
• Cyprus company (‘Cyprus Co’) with a Cyprus bank account
• The shares in UK Co are transferred to Cyprus Co.  Cyprus Co is owned 100% by Belize Co.  Belize Co is owned 100% by the owners.

The new corporate structure took only a few days to establish and was ready for operations by the beginning of the next financial year.  The business now operated like this:

• China Co sends the invoice for £100 each unit to Cyprus Co but the goods are sent directly to UK Co.
• Cyprus Co issues an invoice to UK Co for each unit at £150.
• UK Co continues to sell the goods at the same retail price as before.

Therefore at the end of the first financial year using the new corporate structure, UK Co made a smaller taxable profit but this was offset by increased profits of Cyprus Co. The detail looked like this:

• UK Co had made a smaller taxable profit of £750,000.  The reduced UK Co profits qualify for tax relief reducing the tax payable to £196,875.  Therefore UK Co makes an after tax profit of £553,125
• UK Co pays the £553,125 to Cyprus Co as a dividend. Because of the double taxation treaty between UK and Cyprus the dividend payment to Cyprus Co incurred no tax.
• Cyprus Co made £750,000 profit from the ‘sales’ it made to UK Co and received £553,125 dividends from UK Co.
  • £750,000 was subject to Cyprus corporation tax at 10% (£75,000), therefore Cyprus Co profits after tax were £1,228,125.
• Cyprus Co paid the £1,228,125. to Belize Co as a dividend into the Swiss bank account.  Under Cyprus tax rules the dividend is tax free.
• By making changes to their corporate structure, in the first year after the changes the owners reduced their corporate tax burden by from £420,000 to £271,875 – a saving of £148,125.

The above example structure cost £2,000 to set up, and £2,500 annually for government fees, accounting/audit and corporate services. YourBooks Ltd in Cyprus offers a wide range of bespoke solutions and special ‘packages’ at cost-effective rates.

Choice of countries and cost of services vary widely and advice from a competent service provider should be sought.  In addition to costs there are other important considerations to take into account when planning a new corporate structure.

• Country/Jurisdiction:  the choice of which country or jurisdiction to choose when forming a company or choosing a bank account may be influenced by such factors as; tax regime; confidentiality rules; reputation and stability; an extensive network of double taxation treaties; high standard of professional service providers.
• Owner’s vision: Whether an exit plan, divestment plan; or public listing; a corporate structure should support and promote the vision and goals of the owners.
• Flexibility: Things happen; businesses grow, tax regimes shift, an owner’s vision changes; so a corporate structure should be able to be adapted to accordingly.
• Cost-effectiveness.  The cost of setting up and administering new companies and banking arrangements.

The world car hire market is worth about £40 billion annually.  And about 805 of booking are handled vie the internet. That explains why it’s one of the most competitive sectors on the web.  This article explains why this year has been one of the most lucrative years.

In the middle of last year when the world seemed condemned to an economic ‘nuclear’ winter, businesses across all sectors in all countries searched for way in which they might haul up the draw bridge; save some costs and lighten the load.  The car rental business was no difference.  From the back end of 2008 inventories were reduced and stock sold off; all in the name of, cost cutting ahead of what everybody thought would be a terrible year for travel; and hence the car hire industry. However, the market was wrong…

Reason 1: The world’s holiday-makers had either already booked their holidays, or were going to take advantage of low (some might say desperate) prices being offered by travel companies

Reason 2:  By the beginning of 2009, car hire and lease companies  had reduced their available stock to a point where they would struggle to provide adequate supply.

By springtime it become clear that deminad was outstripping supply.  Event he majors couldn’t keep up and thus would be holiday hire drivers were forced to search for supply from smaller independent car rental websites.  Spring turned into summer and grins turned into smiles!

Now internet car rental businesses have are moving offshore to save tax.  For a few hundred pounds, e-commerce car rental businesses can move their business from a high tax country, to a low or even nil tax country. Depending on the specifics of the directors and the business, a new structure can be as simple as an offshore company and bank account, all completed in less than 24 hours.

Costs vary depending on country of choice and complexity of the plan.  Businesses thinking of moving offshore should get guidance from a reliable corporate services provider that can deliver a cost effective solution.

The rate of corporation tax is 10%.  Companies pay corporation tax. Sole traders and partnerships do not pay corporation tax.  All companies that are tax-resident in Cyprus are taxed on income whether it comes from Cyprus or anywhere else in the World.  Companies which are not tax‑resident in Cyprus, but have a permanent establishment (office) in Cyprus are taxed on income from business activity conducted in Cyprus.

Some exemptions from corporation tax are:

• Profits from an office (permanent establishment) in another country
• Dividends (Company profits paid to shareholders)
• Profits from the sale of shares and other securities

Expenses incurred by the company solely for business purposes can be deducted from corporation and include:

• Employer’s contributions to social insurance and approved funds on employees’ salaries
• Entertainment expenses for business purposes (with limitations)
• Donations to charities
• Building maintenance for buildings subject to a  Preservation Order (with limitations)

The following types of expenses are not allowed:

• Expenses related to acquiring or maintaining of a private (saloon) car
• Interest applicable to acquiring any asset (including a private car) not used in the business

Tax Losses

If a company makes a tax loss which cannot be set off against other income then it is carried forward so it can be set off against future profits.  There is no time restriction for this.

The losses of one company can be set off against the profit of another provided the companies are members of a group and both Cyprus tax resident.  Group is defined as; one company holding 75% or more of the shares of the other company.

Losses from an overseas office (permanent establishment) can be set off with profits of the company in Cyprus.

Annual wear and tear

If a company owns items of value (fixed assets) like; property; tools; vehicles etc then allowances are made for their depreciation (wear and tear).  Depreciation is calculated as a percentage of the cost of acquiring the asset.  The annual allowance is deducted from chargeable income.  The annual percentage by which the value of an asset is depreciated (rate of depreciation), depends on the type of asset.

Here are some examples:

• Plant and machinery 10%
• Tools in general 33.3%
• Furniture and fittings 10%
• Commercial motor vehicles 20%
• Commercial buildings 3%
• Motor boats 12.5%

For more information visit the YourBooks website: http://yourbooks.com.cy/

At first glance the protocol is a simple case of updating the long-standing treaty and bringing certain definitions into line with the latest OECD double taxation treaty model.  On the other hand it may be regarded as an attempt by Moscow to close what has hitherto been one on the most lucrative loopholes for Russian 9and other0 property speculators for many years.

Advantage:  The new protocol includes the provision for the removal of Cyprus from the Russian blacklist.  This means that dividends received by Russian companies from Cyprus subsidiaries will finally be able to qualify for the Russian dividend participation exemption. Subject to ratification, the protocol is expected to come into effect on 01/01/2010.

Changes:

• Withholding tax remains at 0% on interest and royalties.
• The maximum withholding tax rate of 10% is reduced to 5% (if the beneficial owner has directly invested the capital of the company paying dividends a minimum investment equivalent to €100,000 (from $100,000 USD).

Capital gains on immovable property

• Companies which hold more than 50% of their assets in Russian immovable property will be taxed in the country where the property is situated.
• However this does not include gains from the alienation of shares listed on an approved stock exchange or from a corporate reorganisation and further does not include gains derived from a pension fund, provident fund or from the governments of either the Russian Federation or Cyprus.
• This provision will not come into effect until 2014 thus allowing time to prepare mitigating the tax implications of this change subject to requests from clients.

Redefinition:

• ‘Dividends’ have been given a broader definition to include payments on shares of mutual investment funds or other similar collective investment vehicles and depository receipts for shares.

• ‘Interest’ now includes debt claims of any type (penalty charges for late payments or interest are classified as dividends).

Clarity:

• Where the ‘effective management’ of a person (other than an individual) cannot be determined: The competent authorities of the two countries will agree to reach a mutual decision on the matter at hand.
• The definition of ‘Permanent Establishment’ has been expanded to include the taxation of profits from services performed in one country by an entity of another country through an individual(s) present in the other country exceeding in aggregate 183 days in any 12 month period.

• Distributions from mutual investment funds are to be treated as dividends.  This is a welcome change as dividends are subject to a maximum withholding tax of 10% whereas under current Russian law, distributions from mutual funds are subject to a 20% withholding tax.

Conclusion: The effects of the only major amendment being the capital gains tax amendment to be introduced in 2014 can be limited by seeking timely tax advice.

The treaty remains the most favourable double taxation treaty concluded with the Russian Federation and retains the attractive 5% withholding tax on dividends for investments equivalent to €100.000.

If you thought being a consultant or a provider of professional services was tough before, then the last year has proved you right!
Today professionals are working for tighter margins, chasing smaller markets, and in a more tightly regulated market. However there are ways in which a professional can help him or herself; professionals who work internationally can benefit from forming an offshore company.

Such a company, actually more accurately described as an International Business Company (IBC), can be used to great effect as a tax planning tool by Accountants, lawyers, financial advisors and consultants etc, who conduct their business internationally either in or outside the European Union.  The Cyprus IBC may be used thus:
The professional closes a deal with a client.  The Client does not sign a contract directly with the Professional. Instead the contract is between the Client; and the Cyprus IBC.

The Client pays the Cyprus IBC.  Therefore profits will accrue in Cyprus which has one of the lowest rates of corporate tax in the World.  The Professional then might send an invoice to the Cyprus IBC for services rendered
The Cyprus IBC pays the invoice to the Professional wherever he chooses or resides, thereby the balance of profits sits in Cyprus and not in a higher taxed country
Costs:
• The cost of a Cyprus IBC starts from €700
• Nominee fees (optional) are 160 per year
What makes Cyprus so attractive is the fact it has concluded so many double taxation treaties.  The Russia-Cyprus treaty for example, is one of the most favourable for non-Russia resident that Russia has signed with any other country.
The advantages of a Cyprus IBC offering consultancy services are the following:
• Consultancy income:  The income from consultancy services will be subject to corporation tax at the rate of 10% after deducting all allowable expenses such as salaries and consultancy fees.
• Salaries:  The salaries paid by a Cyprus IBC to employees who are not resident in Cyprus are not subject to any taxation or social insurance contributions in Cyprus.
• Consultancy fees:  The fees paid by a Cyprus IBC to consultants who are not resident in Cyprus are not subject to any taxation in Cyprus
• Dividends distributed:  No withholding tax on dividends distributed to non resident shareholders of Cyprus Companies.
The above is an indicative guide about to approach the issue for more information visit http://yourbooks.com.cy/

Key changes:

1. Place of supply of services.  The rules for determining VAT on international services will change.

   1. The range of Services not to be subject to local VAT when supplied internationally will increase

   2. The principle of taxation at the point of delivery/consumption will be adapted.

2. The Scheme for services supplied electronically as applicable to non-EU businesses will include services such as telecommunication and broadcasting

3. Reporting obligations:

   1. Even more additional filing requirements will be introduced for businesses making intra-EU supplies of services!

   2. Failure to comply may result in severe penalties.

4. The reclaiming of VAT by non-resident EU companies will be reformed to include; electronic filing; structured timetable for processing refund applications and; the right to interest on overdue refunds.

Depending on the specifics of the directors and the business, a new structure can be as simple as an offshore company and bank account, all completed in less than 24 hours.

Costs vary depending on country of choice and complexity of the plan.  Businesses thinking of moving offshore should get guidance from a reliable corporate services provider that can deliver a cost effective solution.

Contact us now and start saving tax.