KINANIS LLC > Nicosia, Cyprus > Firm Profile
KINANIS LLC Offices
12 EGYPT STREET
1097 NICOSIA
Cyprus
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KINANIS LLC > The Legal 500 Rankings
Cyprus > Tax Tier 1
The ‘exceptionally responsive’ team at KINANIS LLC garners praise for its ‘profound expertise’ in tax law. The group’s expertise spans transfer pricing, VAT, international tax planning, personal taxation matters and corporate tax, with noted strength in advising on the IP Box Regime. Under the leadership of Charalambos Meivatzis, Marios Palesis and Demetra Constantinou, the department is able to act for prominent international law firms, large accounting entities and other consulting firms. The group is also frequently engaged by clients in the technology, IP, real estate and financial services sectors. Yiota Michael is a name to note.Practice head(s):
Charalambos Meivatzis; Marios Palesis; Demetra Constantinou
Other key lawyers:
Testimonials
‘Key strengths include deep knowledge of local and international tax laws. Most importantly top quality services are offered in a professional manner in all cases, and you get a sense of a great team spirit. Stand out individuals are Charalambos Meivatzis, Marios Palesis and Yiota Michael.’
‘Marios Palesis stands out prominently. His extensive knowledge in the transfer pricing field is truly impressive, and his readiness to assist and answer any questions raised by clients is unmatched.’
‘Marios Palesis, Demetra Constantinou and Charalambos Meivatzis are reachable and willing to help.’
‘Charalambos Meivatzis, Marios Palesis, and Demetra Constantinou have a strong understanding of tax laws, regulations, and codes. They stay updated on changes in tax laws and are knowledgeable about various tax strategies. They always provide honest and ethical guidance.’
‘Yiota Michael is always there for us to answer even the most complex queries, and gives comprehensive advice for the benefit of our business. Her level of expertise and knowledge is and always has been of great value to us.’
‘Demetra Constantinou builds excellent relationships, and is always ready to find solutions. Responsive, welcoming, and efficient.’
‘Kinanis’ tax team has always been insightful and practical. I appreciate their efficiency and pragmatic approach. Charalambos Meivatzis and Marios Palesis always bring value to meetings and provide helpful recommendations.’
‘Great group of professionals: deep knowledge, responsive and friendly.’
Key clients
Xomonel Enterprises Ltd
Farsonex Investments Ltd
Megatren Investments Ltd
Halman Consultants (Overseas Ltd)
Audax Consulting
Chenor AG
Torwell Holdings
Lenhill
Elsavco Audit Tax Ltd
Istos Global Ltd
VATastic AG
Twiti Investments Ltd
Strikos Group
Tenet Group
Solicia Enterprises Ltd
CEA audit Ltd
Cobalt legal
Estron Corporation Limited
Cyprana Limited
Stalworth Pro Limited
N. Voskarides Audit Limited
Sephora (Cyprus) Ltd
Rubylight Ltd
Cyprus > Commercial, corporate and M&A Tier 3
The ‘experienced’ and ‘very responsive’ team at KINANIS LLC is led by Andrea Ioakim. The practice's expertise includes advising on the establishment of a company, day-to-day corporate management and governance, local and cross-border mergers, restructurings, liquidations and re-organisations. The department is also developing considerable strength in emerging areas such as nanotechnology. The client base includes entities from the real estate and aviation sectors.Practice head(s):
Andrea Ioakim
Other key lawyers:
Maria Pavlou; Valando Kavazi; Yiolanda Rotsides
Testimonials
‘Kinanis LLC is a solid practice that one can rely on. They deliver timely, good quality results that are tailored to the needs of the companies of our group. Friendliness, knowledge, experience and personalised approach.’
‘Their key capabilities are many, including quick turn-around, round-the-clock availability and compared to other law firms we work with, their advice is delivered in a thorough and clear manner. The team’s structure ensures the commercial advice provided is more rounded.’
‘Prompt in delivering legal advice, and highlighting potential risks. Andrea Ioakim in particular has excellent client management skills.’
‘It is great working with Andrea Ioakim. She is always available for us, and constantly up-to-date with all aspects of the work henceforth delivering thorough legal advice.’
‘We have worked predominantly with Maria Pavlou. She is well organised, diligent and ready to adjust to the client’s needs which is very much appreciated.’
‘Everyone at Kinanis LLC is professional, knowledgeable and kind. They take a pragmatic approach.’
‘Valando Kavazi and Yiolanda Rotsides are our principal contacts and we are happy to work with them.’
‘Andrea Ioakim is very experienced in the field of Cyprus corporate law. She is definitely a competent lawyer who can formulate a legal issue, assess risks and offer effective solutions in complex situations. Her legal opinions are always accurate, complete and require no further clarification.’
Key clients
VONPENDE HOLDINGS P.L.C.
TWITI INVESTMENTS LIMITED
Cyprus > Banking and finance Tier 4
The ‘accessible and practical’ team at KINANIS LLC is co-led by Christos Kinanis and Andri Michael. The practice is sought after by alternative investment funds, and is also instructed by international lenders, credit institutions, borrowers and shareholders in banking and finance matters. The group also garners praise for its experience in blockchain technology, and is adept at advising on the payment services regulatory framework in Cyprus.
Practice head(s):
Christos Kinanis; Andri Michael
Other key lawyers:
Savvina Miltiadou
Testimonials
‘First and foremost the team consists of very professional individuals. Over the years the team has built a strong network with numerous financial institutions and they provide prompt and accurate banking solutions as well as mediation services.’
‘Kinanis LLC’s Banking team is outstanding. Their dedication and skill in dealing with banking institutions results in swift and problem free banking operations for our group. Always proactive and solution orientated.’
‘The banking department of KLLC is outstanding, mostly due to the very capable people who are always very eager to assist us, as their knowledge and expertise in the banking sector is exceptional’.
‘Their detail-oriented approach is proof of their professionalism and excellence, always delivering in a timely manner.’
‘The Kinanis LLC team is assiduous, innovative and forward-looking. We are very pleased with our ongoing collaboration. The team’s keen interest and knowledge on emergent tech in general and blockchain technologies in particular, constitutes a competitive advantage over other law firms in Cyprus.’
‘Our overall experience with the team has been stellar. Their expert opinion is succinct and underpinned by extensive legal knowledge.’
‘Their accommodating and proactive approach makes one feel comfortable to engage them on matters related to regulatory compliance of financial services.’
‘Personal and direct access to partners and junior lawyers and other team members, straightforward advice and quick implementation.’
Key clients
EOS Multi-Strategy Fund AIFLNP V.C.I.C. Ltd
EpendiCY RAIF V.C.I.C. PLC
Vonpende Holdings PLC
Athena Capital Partners
Chenor AG
Aude FM Limited
ZoidPay (ZCN ZOID LTD)
Energy Transition Tech Fund RAIF V.C.I.C. Ltd
FinHub Cyprus
Cyprus > Dispute resolution Tier 5
Christos Kinanis and Costas Apokides jointly head up the practice at KINANIS LLC. The group’s core strength lies in advising on disputes concerning shareholder rights and corporate governance issues, and is also noted for handling contentious matters concerning administrative and competition law issues. The client base includes banks and investment funds, as well as healthcare, real estate and technology consulting companies.
Practice head(s):
Christos Kinanis; Costas Apokides
Testimonials
‘Very happy with the team, their experience and approach; very professional, whilst at the same time retaining some personal touch.’
‘Very happy with the associate handling my case; easily accessible, good knowledge; easy to communicate.’
Key clients
Parsimony Ltd
Electi Consulting Limited
Constantinos Christodoulou
ARK36 AIFLNP V.C.I.C. LTD
Mikkel Morch
Anto Paroian
KINANIS LLC > Firm Profile
The firm: Kinanis LLC, a law and consulting firm, is one of the leading business law firms in Cyprus and advises international investors and private clients on all aspects of law, tax and accounting. Kinanis LLC’s involvement and participation in international transactions over the years has established the firm as one of the key players in the field.
Areas of practice
Corporate/M&A and securities: the firm has extensive experience in advisory, procedural and transactional matters for JV transactions, M&A, reorganisation and restructuring, due diligence and legal opinions, pre-IPO compliance, as well as IPO and listings in stock exchanges both locally and internationally.
Taxation: the firm provides consulting on all aspects of Cyprus tax law, to both corporate and private clients, and assists clients in international tax planning, creating tax efficient corporate structures as well as providing ancillary services.
Banking and finance: the firm provides advice on banking and finance transactions consisting of drafting, reviewing and structuring finance projects, including advising on securities, guarantees, pledges and other encumbrances.
Incorporations and management of companies: the experienced corporate team advises clients on company matters such as incorporation, re-domiciliation, administration and management of Cyprus and overseas companies. It provides management services and may assist in the introduction of executive directors. Part of its consulting services include office facilities, IT support and HR consulting. Its specialist foreign desks can assist clients in the incorporation and management of companies of various jurisdictions (EU and Offshore).
Trusts, estate planning and succession: the firm has extensive experience in wills and probate, the establishment and administration of Cyprus international trusts, as well as local and foreign trusts and foundations, including acting as trustee and protector.
Financial services and funds: the team is ready to provide appropriate solutions and may assist with the establishment, registration and licensing of AIFs, CIFs, UCITS, FOREX, BINARY OPTION and insurance companies.
Accounting and VAT: maintaining proper books and records and management reporting under IFRS. The team of accountants provides VAT advice, compliance and payroll, as well as liaising with external auditors.
IP: the firm advises on IP tax structuring as well as on registration and protection of IP rights locally, internationally (CTM)/(WIPO) or EU-wide, as well as handling relevant oppositions at the corresponding fora.
Immovable property: the firm advises on commercial and residential legal issues regarding dealings with real estate, as well as providing ancillary services regarding management of real estate.
Litigation: the highly specialised litigation team represents clients in all aspects of corporate or commercial disputes, injunctions and interim relief, recognition and enforcement of foreign judgments or arbitral awards, representations in arbitration proceedings and pre-court negotiations.
Corporate liquidation: provides advice on the procedure of corporate liquidation and dissolution of companies locally and internationally.
Immigration and migration: the firm advises and assists individuals on making the best choice of citizenship or residency schemes based on their relocation needs. It obtains permanent residence permits, and also handles applications for citizenship by naturalisation or by exemption for Cyprus and Malta, Schengen Visa applications for Malta and other related ancillary services.
Energy: the firm advises on all aspects and activities related to energy operations, including advising on oil and gas finance transactions, advising on renewable energy and environmental law and regulations, and assisting with application/tenders on all types of energy projects etc.
Aviation and shipping: the firm provides advice on all legal, tax and VAT aspects of the acquisition, registration, financing, operation and disposal of vessels and aircrafts.
Main Contacts
Department | Name | Telephone | |
---|---|---|---|
Corporate, M&A and securities | Christos P Kinanis | ||
Litigation | Christos P Kinanis | ||
Trusts, Estate Planning and Succession | Christos P Kinanis | ||
Taxation | Charalambos Meivatzis | ||
Accounting and VAT | Charalambos Meivatzis | ||
Corporate liquidation | Natalie Petrides | ||
Immigration | Natalie Petrides | ||
Real Estate, Immovable Property | Natalie Petrides | ||
Financial services & Funds | Andri Michael | ||
Blockchain Consulting | Andri Michael | ||
Capital Markets & Listings | Andri Michael | ||
Banking & Finance | Andri Michael | ||
Banking & Finance | Andrea Ioakim | ||
Corporate, M&A and securities | Andrea Ioakim | ||
Data Protection & Privacy | Andrea Ioakim | ||
Accounting and VAT | Demetra Constantinou | ||
Taxation | Marios Palesis | ||
Intellectual property | Yiolanda Rotsides | ||
Litigation | Costas Apokides |
Lawyer Profiles
Photo | Name | Position | Profile |
---|---|---|---|
Mr Archimidis Andreou | Associate Lawyer | View Profile | |
Mr Costas Apokides | Counsel | View Profile | |
Ms Theodora Charalambous | Senior Advisor | View Profile | |
Ms Dona Constantinou | Senior Associate Lawyer | View Profile | |
Mrs Andrea Ioakim | Partner | View Profile | |
Ms Valando Kavazi | Senior Associate Lawyer | View Profile | |
Mr Christos Kinanis | Managing Partner | View Profile | |
Mr Charalambos Meivatzis | Partner | View Profile | |
Mrs Andri Michael | Partner | View Profile | |
Ms Savvina Miltiadou | Senior Associate Lawyer | View Profile | |
Mrs Syma Parthenidou | Associate Lawyer | View Profile | |
Ms Maria Pavlou | Senior Associate Lawyer | View Profile | |
Mrs Natalie Petrides | Partner | View Profile | |
Mrs Yiolanda Rotsides | Counsel | View Profile | |
Ms Chrysanthi Siantani | Associate Lawyer | View Profile | |
Mr Andreas Siapanis | Partner | View Profile | |
Ms Nikoletta Vanezou | Senior Associate Lawyer | View Profile |
Staff Figures
Number of lawyers : 17Languages
Greek English French Hungarian Romanian Russian German UkrainianMemberships
Cyprus Bar Association International Bar Association (IBA) International Tax Planning Association (ITPA) Society of Trust and Estate Practitioners (STEP) Cambridge Commonwealth Trust Cyprus Investment Funds Association (CIFA) International Trademark Association (INTA) Commercial Law Group (CLG) Cyprus Chamber of Commerce & Industry US-Ukraine Business Council (USUBC) International Fiscal Association C.B.T. Cyprus Blockchain Technologies Great Britain - Cyprus Business Association CGBA - Cyprus German Business AssociationOther
Contact : Christos P KinanisPress Releases
The Digital Value Group
12th April 2024 It is with great pleasure that Kinanis LLC, a forward-looking law firm, and VFTee, a boutique technology firm, introduce The Digital Value Group (TDVG) Ltd. TDVG is a dynamic new entity offering tailored IT advisory, technology solutions and application development services.Legal Developments
Immigration permit for Investors The Cyprus Permanent Residency Permit
28th March 2024 HISTORY Due to the fact that Cyprus is part of the EU and is very strategically located at the crossroads of 3 continents,The Management and Control Test Taxation of Cyprus and Foreign Companies
27th March 2024I. INTRODUCTION
In this publication, we shall examine the notion of “management and control” οf companies as this is applicable in Cyprus and how it affects the taxation of Cyprus and Overseas companies.II. THE LAW
Basis of Taxation A company or an individual are taxed in Cyprus, if they are residents of Cyprus, subject to specific exceptions[1]. The residency requirement as the basis of taxation, is provided in article 5(1) of the Income Tax Law, No. 118(I) of 2002 as amended, hereinafter referred to as the “Income Tax Law”. Article 5(1) of the Income Tax Law provides the following: “Subject to the provisions of this law, in the case of a person who is resident in the Republic, tax shall be charged at the rate or rates specified hereinafter for each year of an assessment upon the income accruing or arising from sources both within and outside the Republic, in respect of: …” Meaning of Resident in the Republic The meaning of “Resident in the Republic” is defined in the Income Tax Law article 2 which provides the following: “Resident in the Republic, when applied to an individual, means an individual who stays in the Republic for a period or periods exceeding in aggregate 183 days in the year of assessment and when applied to a company, means a company whose management and control is exercised in the Republic and “non-resident or resident outside the Republic” shall be construed accordingly and non-resident or resident outside the Republic shall be interpreted accordingly”. Pursuant to this provision, a company is considered to be resident of Cyprus, and in effect subject to Cyprus taxation, when its “management and control” is exercised in Cyprus. In addition to the above meaning of Resident in the Republic as to companies, as from 31.12.2022, a company, which is established or registered pursuant to any law in force in Cyprus, will by default be considered as Resident in the Republic, provided it is not tax resident in any other country. In article 2 of the Income Tax Law, the proviso of the definition of the meaning of “Resident in the Republic”, provides the following: “It is provided that, a company which has been established or registered pursuant to any law in force in the Republic, of which its management and control is exercised outside the Republic, it is considered that it is resident in the Republic, unless the said company is tax resident in any other country”. This provision is applicable as from 31.12.2022, identified as the incorporation rule for taxation purposes. Meaning of Company The Income Tax Law, in article 2, identifies the notion of company to be “any legal body registered either in Cyprus or abroad”. Taxation of Companies All companies, anywhere registered, being residents of Cyprus are taxed on their worldwide income, accrued or arising from sources in Cyprus and/or abroad. As per the above provisions of the Income Tax Law, a company:- If it is incorporated in Cyprus, it is resident of Cyprus, the incorporation rule applies and it is subject to Cyprus taxation;
- If it is incorporated in Cyprus with management and control outside Cyprus, as from 3.12.2022, it is resident of Cyprus, unless it is tax resident in any other country[2];
- If it is incorporated outside Cyprus but its management and control is in Cyprus, then it is resident of Cyprus, subject to Cyprus taxation.
III. DEFINITION OF MANAGEMENT AND CONTROL IN CYPRUS – LACK OF STATUTORY OR JUDICIARY INTERPRETATION
There is no definition in the Income Tax Law or in any other enactment as to the meaning of the notion of “management and control” which will identify whether a company is resident of Cyprus or not. There is no definition in the law, stating who exercises management and control and how it should be exercised. There is also, no definition in the law as to what particular acts substantiate the management and control. Having in mind this interpretation gap as to the meaning of management and control in the Cyprus legislation, we should request assistance from any court judgements in place interpreting this notion. Unfortunately, though there are no Cyprus court cases interpreting the notion of management and control. The only one court case which touched the notion not directly but indirectly, without giving any interpretation, is, Lanitis Bros Ltd., v. The Central Bank of Cyprus 27/06/1974 – case No. 74/74 which is a recourse case and adopted the notion of management and control as this was adopted in the most known UK court case on the subject, namely, De Beers Consolidated Mines Ltd. v. Howe (1906) A.C., 455. In the Lanitis court case above, J. Loizou, confirmed the following: “…….. a company's residence is where it really keeps house and does its business, ... where the central management and control is exercised, as laid down in the De Beers Consolidated Mines Ltd. v. Howe (1906) A.C., 455”. Article 29 (1) (c) of the Courts of Justice Law no. 14/60 By operation of article 29 (1) (c) of the Courts of Justice Law no. 14/60 as amended, Common Law[3] and the Principles of Equity[4], are among the sources of the Cyprus legal system, provided they do not come in conflict with local statutes. In this respect, since among the sources of the Cyprus legal system are the Common Law and the Principles of Equity, we may refer to English court cases, in the absence of Cyprus court cases, in order to interpret the meaning of management and control. IV. INTERPRETATION OF MANAGEMENT AND CONTROL NOTION BASED ON UK COURT JUDGEMENTS The management and control test to identify the residency of a company was applicable in the UK until 1988 for UK registered companies. In 1988, it was replaced by relevant statutory provision, (Finance Act 1988), and now all UK registered companies are by default treated as residents of UK, taxable in UK, irrespectively of their place of management, unless they can show that their place of effective management is in a country with which UK has relevant double tax treaty[5]. In such a case, where possible dual residency of companies may be in place, the so called “Tie – breaker” article of the OECD model treaty as to effective management, usually included in all double tax treaties signed among the countries, apply and controls the residency of a company. The management and control test, which is the Common Law test of corporate residence, irrespectively of the above statutory provision which applies by default to all UK companies, is according to the UK law, applicable to non-UK companies i.e., foreign registered companies. Under these Common Law provisions, a foreign company i.e., Cyprus, BVI etc., might be taxable in the UK if their management and control is exercised in the UK. This corporate residency test is a fundamental concept of international corporate taxation and is the tool of income tax authorities to impose taxation on foreign companies for their activities undertaken abroad BUT managed and controlled onshore. In view of the provisions of the UK law as above indicated, there is a considerable number of court decisions which deal with the interpretation of the management and control test and from which we are getting guidance as to how this test will be applicable in Cyprus, if a case arise and interpretation of this term will be required by the Cyprus authorities and courts. In this respect, since among the sources of the Cyprus legal system are the Common Law and the Principles of Equity, our courts and the Commissioner of Income Tax, is expected to follow the principles laid down by UK court cases in interpreting the notion of management and control, which court cases, will give the guidance to Cyprus authorities in the interpretation of this notion.V. TO WHAT THE MANAGEMENT AND CONTROL OF A COMPANY REFERS TO?
The management and control notion refers to the management and control of the strategic decisions related to the business of the company. Management and control is not:- The exercise of powers vested in the shareholders in general meeting (for example, the appointment of directors, the amendment of the Articles, the winding up of the company or the increase or reduction of the share capital);
- The day-to-day administration of a company’s business (since this is the implementation of the policy and decisions of those who ultimately manage and control the company) – this generally has a more administrative flavour; or
- The management and control notion was first used as the main factor in determining a company’s residence in the cases of Calcutta Jute Mills Co Ltd v Nicholson andCesena Sulphur Co Ltd v Nicholson (1876) LR 1 Exch D 428, which were heard and decided together by the Court of Exchequer.
- The ‘control’ test was affirmed by the House of Lords in De Beers Consolidated Mines Ltd v Howe[1906] AC 455, 5 TC 198. There the company was incorporated in South Africa and the whole of its profits were made from mining and disposal of diamonds. The head office of the company was at Kimberley in the Cape of Good Hope, where general meetings were held.
- The place at which a company’s management and control is exercised, and therefore its residence, is to be determined by reference to the facts as they exist, rather than according to any requirement of the law or of the company’s regulations.
- Further, the residence of those directors will not necessarily determine the residence of the company; the directors of a company may all be UK resident but if they exercise central management and control of a company outside of the UK, the company will not be UK resident (Laerstate BV v R & C Commrs [2009] TC 00162).
VI. THE CORE ELEMENTS OF THE MANAGEMENT AND CONTROL NOTION
In the following chapters we shall deal with the interpretation of the notion of management and control and we shall try to identify its core elements. In this respect we shall examine:- Who exercises the management and control of the business of the company?
- In which place a company is considered as resident according to the management and control test?
- Which are the substance requirements that connect the exercise of the management and control with a particular place?
- How the management and control must be exercised in order for a company to be considered as resident in the place where the management and control is exercised?
VII. ANALYSIS OF THE CORE ELEMENTS OF THE MANAGEMENT AND CONTROL NOTION
A. Who exercises the management and control of the business of the company?
The question in effect is, which company body has been entrusted with the power to decide the fundamental policies and the key strategic decisions as to the business of the company? The board of Directors? The shareholders? Third persons? Who? The distribution of powers between the general meeting of shareholders and the board of directors as per the Companies’ Law Cap 113, is left to the Articles of Association which in practice confer extensive powers on the directors. The Articles of Association generally follow Table A of the Companies’ Law Cap 113 as to the distribution of powers. Table A, in section 80, provides that the business of the company shall be managed by the directors, subject to any special provisions of the Articles of Association of the company or the law. Section 80 provides the following: Powers and Duties of Directors- The business of the company shall be managed by the directors, who may pay all expenses incurred in promoting and registering the company, and may exercise all such powers of the company as are not, by the Law or by these regulations, required to be exercised by the company in general meeting, subject, nevertheless, to any of these regulations, to the provisions of the Law and to such regulations, being not inconsistent with the aforesaid regulations or provisions, as may be prescribed by the company in general meeting but no regulation made by the company in general meeting shall invalidate any prior act of the directors which would have been valid if that regulation had not been made.
B. In which place a company is considered as resident according to the management and control test?
Place of management and control- The leading case on company residency is De Beers Consolidated Mines Ltd v Howe [1906] AC 455, 5 TC 198. In this case it was established that a company resides, there where its real business is carried out. In the same case it was decided that the real business of a company is carried out, not there where the trading operations are taking place, but where the central management and control of its business actually takes place, as said in the judgement, “there where the central management and control actually abides”.
- Loizou, confirmed the following:
- Important is also the Court of Appeal case in Bullock v Unit Construction Co Ltd (1959) 38 TC 712 at 729 – 730 also at, [1960] AC 351.
- The same principle has been reconfirmed in R v Dimsey (1999) STC 846, where the court emphasised that the central management and control test is a composite test designed to identify where the decisions of fundamental policy are made as opposed to the place where the day - to - day profit earning activities are undertaken.
- In addition, inTrevor Smallwood Trust v HMRC [2010] EWCA Civ 778, the Court of Appeal confirmed that a Mauritian trust that has been arranged and orchestrated in the UK was ultimately controlled and managed in the UK.
C. Which are the substance requirements that connect the exercise of the central management and control with a particular place?
The question as to which are the substance requirements that connect the exercise of the central management and control with a particular place is a question of fact. We need to identify the facts that connect the exercise of the central management and control with a particular place. Indicatively these are: Location of Board meetings It has been decided and stressed repeatedly in court cases that, the place where the directors meet in order to reach their strategic decisions on company’s policy, finance and related matters, subject to various qualifications which will be discussed further below, will be the place of central management and control of the company’s business. If the intention is to have a Cyprus resident company, avoiding any possible allegations that the company is resident abroad, then all board meetings should be held in Cyprus. It is best practice therefore, to avoid a moving / transit board, since that makes it harder to demonstrate clear residence in any one location and might create issues of multiple residencies. In effect, the place where the directors meet for their board meetings, deciding on strategic company’s issues such as its policy, finance and related fundamental matters, is the location of the central management and control of the company’s business and consequently once the other factors are in place, the company is resident at that location. Art. 191A of the Companies Law Cap 113 As to this issue, it is worth noting the provisions of Art. 191A of the Companies Law Cap 113, which provides the following: “Participation in the directors meeting by electronic means 191A. Unless expressly provided for in the company's articles of association, a meeting of the directors may be held by telephone or by any other means by which persons participating in it can simultaneously listen and be heard by all the other persons participating in it and the persons participating by in this way, for the purposes of establishing a quorum and for any other purpose, and the people participating in this way are counted as present at the board meeting: Provided that, in the above case, the meeting of the directors is considered to have taken place where the person who kept the minutes of the relevant meeting of the directors is located”. In effect, in case the board meetings are held through electronic means such as the Zoom platform, once the directors are located in various jurisdictions, the place of the meeting is considered to be the place of the person who kept the minutes of the relevant meeting of the directors. In such a case the decision is considered as taken in the place where the minutes are kept. Directors’ permanent residence The residence of the directors is closely connected to the place where the board meetings are held. If the intention is to have a Cyprus tax resident company, the directors or at least the majority of them must be permanent residents of Cyprus. In this way, it is easily proved that the board meetings are taking place in Cyprus and the management and control is exercised in Cyprus. Appointment of directors residing outside Cyprus If a Cyprus company resident is desired, the appointment of directors residing outside Cyprus, although possible, must be avoided. In case it is impossible to avoid such appointment, then the law of the country of residence of the foreign director to be appointed, must be very carefully examined to avoid adverse possible tax effects. There are countries which apply the management and control test in a similar manner that Cyprus does, i.e., UK, and in implementing this test, they might consider that, if a foreign company (i.e., Cyprus) is managed by a director who resides in their jurisdiction, becomes their tax resident of UK and impose or claim taxation from the company concerned. The fact that as from 31.12.2022 such a Cyprus company, from Cyprus law perspective, will be considered resident of Cyprus unless it is tax resident in another country, does not save the situation. The foreign country might claim that the company is resident in its jurisdiction and impose taxation, despite the implication of the Cyprus law. In such a case we may have dual residency issues which will be explained further below under chapter, “IX. Double Tax Treaties – Their impact on the residency issue of Cyprus Companies”. Appointing directors residing in countries in which the management and control test for foreign companies is applicable, such as the UK as explained above, must be avoided. There are considerable risks which need not be taken. Appointment of directors residing in the place where the income of the company is generated It is also advisable to avoid appointing directors who reside in the foreign country where the income of the Cyprus resident company is expected to arise or in which country tax issues might be raised as to the taxation of the Cyprus company or as to the taxation of its beneficial shareholder. If for example, the activities of the company are in Romania and the income is generated in or from Romania, it seems not proper to appoint as directors of the Cyprus resident company, persons residing, living and working in Romania. In case of such appointments, one leaves room for arguments, that the company or its real beneficial shareholder are taxable in Romania, as the effective management of the company is situated in Romania. Also, an argument which can be put forward is that the company is not resident of Cyprus as its management and control might be alleged not to be exercised in Cyprus. Again, in such cases, there is possibility for dual residency issues as discussed in chapter “IX. Double Tax Treaties – Their impact on the residency issue of Cyprus Companies of this brochure”. We would like to clarify though, that the crucial issue is not the nationality of the director but his / her residency, where he / she permanently resides. A foreign national permanently residing in Cyprus, being a resident of Cyprus, will be a suitable director. Appointment of directors residing in Cyprus, as directors in foreign / overseas companies The same factors that will strengthen the position of a Cyprus company to be considered as managed and controlled in Cyprus, will be also considered to examine whether a foreign / overseas registered company is managed and controlled from Cyprus. In this respect, it is not advisable to appoint directors residing in Cyprus as directors in companies registered in tax haven countries like BVI, Panama, Bahamas, Nevis, Cayman Islands, etc. In such a case, there might be a real risk that these companies may be considered to be managed and controlled in Cyprus, and consequently taxable in Cyprus, as a consequence of the applicability of the management and control test. If such a claim is put forward by the Inland Revenue, BVI, Panama, Bahamas, Nevis, Cayman Islands, etc., companies, in order to avoid taxation in Cyprus, will need to prove that the Cypriot director acts only on instructions of the real owners or other advisors situated abroad transferring the management and control abroad, there where the shareholders or other advisors, reside. In effect, the director who follows blindly the instructions of the shareholders, or other advisors, is a mere cipher, simply stamping documents and doing what he is told, not managing and controlling the company. Relevant evidence and confidential information will need to be disclosed to the Inland Revenue to prove the director’s symbolic status. Risk of permanent settlement in Cyprus What must be noted in this case is that the director appointed to the foreign company, being resident of Cyprus, does not have authorization to enter into contracts in the name of the company, because this company can be considered to have a permanent establishment in Cyprus in relation to any activities that this person undertakes for the business with the result that these activities are also taxable in Cyprus. There is no need though to be engaged in such complications since the possibility can easily be avoided with the appointment of directors not residing in a country which applies the management and control principle. Frequency of Board meetings Board meetings should be sufficiently frequent to enable the directors to exercise control over the strategic affairs of the company. Depending on the level of activity in the company, a minimum of six board meetings in each year with each board meeting taking no more than two months after the last one. Administrative Office A fully fletched office must be established in Cyprus where the actual management and control of the company’s business will be exercised. In this office, the fundamental policy and management decisions must take place, and the properly recorded board minutes must be kept. The company secretary should be resident of Cyprus and accounting records, corporate records and other significant original documents should be maintained. Employees Employees must be employed and paid reasonable salaries according to market levels. Stationery Stationery must be printed with the letterheads of the company and its office address and other contact details such as telephone, fax numbers, email address and website. Bank accounts Bank accounts must be opened also in Cyprus and managed by the local directors or employees. Accounting records Maintenance of accounting records should be in Cyprus. In conclusion, as to the factors which will support the argument that the management and control is exercised in Cyprus in order to have a resident company in a particular place, the directors must meet, manage and control the affairs of the company in Cyprus, proper board meetings with minutes must be taken place in Cyprus, all or at least the majority of the directors to be permanent residents of Cyprus and the positive surrounding factual circumstances to be present in Cyprus and avoid the negative surrounding factual circumstances as explained above. The provisions of Art. 191A discussed above must be born in mind. Any appointments in a Cyprus company of directors not residents of Cyprus, raise serious risks as the company might be considered as resident in another jurisdiction with adverse tax consequences. The provision of the law that such company without being officially tax resident in another jurisdiction, as from 31.12.2022 will be considered as tax resident of Cyprus, does not save the situation. The foreign jurisdiction where the directors reside and decide, might claim the residency for such company and claim to impose taxation for its activities. The appointment of Cypriot resident directors in foreign companies, should be avoided because the company may be considered to be managed and controlled from Cyprus and in effect resident in Cyprus with adverse tax consequences.D. How the management and control must be exercised in order for a company to be considered as resident in the place where the management and control is exercised?
This is the most crucial and most important criterion in order for a company to be considered as resident in the place where the management and control is exercised.- Real exercise of management and control by the board of directors - Decision process – effective consideration and knowledge of the facts
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- The acquisition or disposal of assets;
- Capital expenditure;
- Budgets approval;
- Operational decisions;
- Financial decisions such as granting or receiving loans;
- Decisions on the engagement or dismissal of directors and other senior personnel;
- Concluding and execution of contracts;
- Mergers and acquisitions;
- Expanding or changing the line of business;
- Appointment of consultants; and,
- Nominating accountants and auditors.
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- The time and place of the meeting and who was present;
- What was resolved and the reasons for such resolution should be recorded in as much detail as possible. Discussions in board meetings should be recorded in detail. Any views or debates or agreements or disagreements are important to be recorded in detail as these are important evidence that the directors applied their minds to the relevant questions. Establishing a pattern of decision making is also important. The key point is that these minutes are likely to be more comprehensive than is perhaps the norm.
-
- The provisions of Art. 191A discussed above must be born always in mind.
- Wood v Holden, 2005 BTC 253 - High Court 18.4.2005
- Laerstate BV v HMRC [2009] UKFTT 209
- HMRC v Development Securities plc and others [2020] EWCA Civ 1705
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- Decisions by subsidiaries should be taken at proper board meetings and that,
- Such board meetings properly consider the merits of any decisions to be taken as well as the legality of those steps. Particular care should be taken that, in implementing proposals given by a parent company, directors do not treat such proposals as instructions and that they consider carefully the commercial context for the decision.
VIII. TAX RESIDENCY OF CYPRUS COMPANIES AND SUBSTANCE REQUIREMENTS UNDER THE PROPOSED THIRD ANTI-TAX AVOIDANCE DIRECTIVE, KNOWN AS “ATAD 3”
The European Commission on the 22nd of December 2021 published a legislative proposal for a Directive to be issued, named, the Third Anti-Tax Avoidance Directive, known as “ATAD 3”, which sets forth rules to prevent the misuse of shell companies for tax purposes. The Proposed Directive should have been adopted early 2022 by the European Union Council and be implemented by the Member States by the 30th of June 2023 at the latest. The provisions should subsequently be effective in all Member States as from the 1st of January 2024. The Directive lays down a uniform test that will help Member States to identify undertakings that are engaged in an economic activity, but which do not have minimal substance and are misused for the purpose of obtaining tax advantages. Once these minimum substance requirements are not met, the undertaking will be classified as “shell entity” and will sustain certain adverse tax consequences. In order to examine if an entity meets the minimum substance requirements, so that not to be characterised as “shell entity”, the following information must be provided:-
- Whether the entity has an office space, (owned or rented), through which it exercises its activities;
- Whether the entity has an active EU bank account; and
- Whether at least one of its directors is an in-house director properly qualified to handle the business of the undertaking or the majority of its full - time employees reside in the same country as the undertaking.
- the principle of management and control which will identify whether a company is resident of Cyprus, being a principle related to the directors’ and third persons powers to decide the policy issues and business of the company, and
- the substance requirements as per ATAD 3 which substance requirements will identify whether the company is a shell one or not.
IX. DOUBLE TAX TREATIES – THEIR IMPACT ON THE RESIDENCY ISSUE OF CYPRUS COMPANIES
Cyprus has signed a considerable number of Double Tax Treaties which regulate taxation on various matters between the contracting states. In order for a company to take advantage of the provisions of the Double Tax Treaties, it must be resident of one of the two contracting states. In our case, the Cyprus company, must be resident of Cyprus for tax purposes. A definition of what a “resident of a Contracting State” means, is given in article 4.1 of the Organisation for Economic Co-operation and Development - OECD, model treaty which provides the following: “RESIDENT For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein”. Further, according to the Commentary to the OECD Model Tax Convention: “The place of effective management is the place where the key management and commercial decisions that are necessary for the conduct of the entity's business are in substance made. To determine the tax residency of a company, tax authorities would be expected to take into account various factors, including among others where the chief executive officer and other senior executives usually carry on their activities and where the senior day-to-day management of the person is carried on.” Place of effective management as per relevant article in Double Tax Treaties. Tie – breaker article Article 4.3 of the OECD model treaty, provides the following: “Where by reason of the provisions of paragraph 4.1, cited above, a person other than an individual is a resident of both Contracting States then it shall be deemed to be a resident only of the State in which its place of effective management is situated”. The above crucial provision, known as the “Tie – breaker article”, which provides the solution to a possible problem of dual residency, is included nearly in all treaties that Cyprus has signed. Definitions of the terms in the Double Tax Treaties There is no definition of the terms, place of management, effective management, head office, registered office, place of registration, headquarters, place of incorporation, or other similar criteria which are used in the Double Tax Treaties. Applicability of local laws as to residency The lack of any definition of the above terms used in respect of all legal bodies in the Double Tax Treaties, leads to the consideration of the laws of contracting States, Cyprus law in our case, in order to establish the residency of a Cyprus company, under such law, for tax purposes and consequently for treaty purposes as well. In effect, the treaties point to the local laws of the contracting States, in order to identify, under which conditions a company registered in their jurisdiction, or not registered there, will be considered as their tax resident. Local tax law provisions will need to be examined in order for a company to be considered as tax resident under the provisions of the Double Tax Treaties. In considering whether a Cyprus company is a resident of Cyprus, and consequently being benefited from the provisions of the Double Tax Treaties, the analysis provided in the previous chapters of this brochure as to the management and control test, applies. Dual residency There might be a situation where a company is a resident of more than one country. This might be the case when the management and control of the affairs of the company is not centred in one country but is divided or distributed among one, two or more countries. Such situations might appear when the directors of the company, which form the highest level of management of the company, are resident in various countries and execute their management duties from their place of residence and not from only one country. Also, such situations might appear when the advisors or the shareholders of the company reside in different countries than where the board meets and from their place of residence direct the decisions of the board. If such factual situations exist, then the allegation and possibility of dual residency of a company can be raised by Inland Revenues with drastic tax effects. It is for this reason that we are of the opinion that if a Cyprus tax resident company is needed, the appointment of directors with effective management, residing outside Cyprus must be avoided, as dual residency issues may arise. The above possibilities as to the dual residency of a company have been considered in many court cases[8]. The authorities clarify and confirm that there where there is a fragmentation of the management and control of the business of the company exercised in effect from two or more countries, there can be dual residency for the company with further tax issues to be considered. Allegation of dual residency by a treaty country If dual residency exists or if such allegation is raised by any one of the treaty States, e.g., that a Cyprus company is also resident in that other State which claims taxation, then the solution is provided by the “tie – breaker” article of the Double Tax Treaties, article 4.3 discussed above. According to article 4.3, if dual residency exists, the company is deemed to be resident where its effective management is exercised. The answer to the question, where the effective management is exercised, identifies the tax residency of the company and in effect the country of its taxation. As to the effective management test and its conditions, the analysis provided in the previous chapters of this brochure relating to the management and control test, apply accordingly. In the court case, Wensleydale’s Settlement Trustees v IRC [1996] STC (SCD) 241, a Special Commissioner considered that the place of effective management is there where the shots are called, implying realistic positive management. In effect, the analysis of the management and control test provided above applies for this issue too. Case study Suppose that the Russian or the UK tax authorities or the Inland Revenue of any other treaty country, allege that a resident Cyprus company, for matters of management, domicile or other similar issues, is also resident of Russia or UK or in that other country and not only in Cyprus. Because of this conclusion, they seek to impose taxation on the Cyprus resident company for a particular operation. In case of such a dual residency problem, (Cyprus also alleges that the company is a resident of Cyprus liable to taxation in Cyprus) article 4.3 of the Double Taxation Treaty signed between Cyprus and Russia, and the relevant article of the UK treaty or as the case might be with the other treaty countries, applies and gives the solution. This tie – breaker article, as being a provision of an international treaty, supersedes any local laws and directs that the residency of the company is deemed to be there where the effective management of the company is exercised. If the effective management is exercised in Cyprus, taxation cannot be imposed in Russia or in the UK or in the other contracting State by operation of the Double Taxation Treaty. In view of this provision which provides a solution, special attention must be paid to what has been said above in order to establish and to secure that the management and control of the company’s affairs is exercised in Cyprus. Similar arguments can be put forward in all other cases where Double Tax Treaties have been signed with the above provision in place. The judgement in Wood v Holden mentioned above, handles also the issue as to the effective management test, due to the fact that a relevant provision is in the Double Taxation Treaty between UK and Holland and the case was decided on this principle. It was decided that the effective management was situated in Holland and not in the UK. In more recent court cases though, it was decided that the effective management was situated in UK and not overseas where the companies were registered and the board of directors was situated. See, HMRC v Development Securities plc and others [2020] EWCA Civ 1705 and Laerstate BV v HMRC [2009] UKFTT 209 and Laerstate BV v HMRC [2009] UKFTT 209, discussed above.X. THE CYPRUS INLAND REVENUE APPROACH IN IMPLEMENTING THE NOTION OF MANAGEMENT AND CONTROL
The Cyprus Inland Revenue has not yet issued any practice guidelines as to how it will deal with the management and control test, its interpretation and implementation.- Cyprus companies under investigation by Cyprus Inland Revenue
- Foreign registered Companies under investigation by Cyprus Inland Revenue
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- The directors of that foreign company exercise management and control in Cyprus; or
- Someone other than the appointed directors, such as consultants, shareholders, or third parties, acting in effect as shadow directors, exercise management and control from within Cyprus over the business of the foreign company; or
- It has a permanent establishment in Cyprus.
- Cyprus companies under investigation by foreign Inland Revenue departments
XI. THE MANAGEMENT AND CONTROL TEST IN ONE PAGE
What has been discussed in this publication is summarized below in the following diagram:Cyprus Registered Company | Irrespective of place of Management and Control as from 31/12/2022 | Resident of Cyprus |
Cyprus Company | Management and Control outside Cyprus – Tax resident in another country | NOT Tax Resident of Cyprus | ||
Overseas Company | Management and Control outside Cyprus | NOT Resident of Cyprus |
Overseas Company | Management and Control in Cyprus | Resident of Cyprus |
Cyprus Company or Overseas Company | Management and Control not centred in one country. Dual Residency DTT-Double Tax Treaty in place | Resident there where the effective management is exercised - “tie-breaker” provision of DTT |
Cyprus Company or Overseas Company | Management and Control not centred in one country. Dual Residency. NO Double Tax Treaty in place | Resident as per local laws of each country the management and control is exercised |
- If it is incorporated in Cyprus, it is resident of Cyprus, the incorporation rule applies, and it is subject to Cyprus taxation;
- If it is incorporated in Cyprus with management and control outside Cyprus, it is still resident of Cyprus unless it is tax resident in any other country;
- If it is incorporated outside Cyprus but its management and control is in Cyprus, then it is resident of Cyprus, subject to Cyprus taxation.
- The management and control is exercised in Cyprus, if the board of directors resides or at least the majority resides in Cyprus and genuinely holds board meetings in Cyprus having in mind all the positive and negative factors explained above;
- The directors, at the board meetings held in Cyprus, give genuine consideration as to the affairs and business of the company and decide its policy, structural and main issues without simply following the instructions of the owners or their advisors. The directors must apply their mind, think and decide autonomously on all issues of the company and in its best interests; Knowledge of the business of the company and the business factual situation is of paramount importance.
- Any instructions and decisions relating to the business, management matters of the company, must be generated and given solely by the board of directors.
- Dual residency issues might be raised in case of fragmentation of power, namely, the management and control of the company’s business is exercised by the directors / shareholders / advisors, in various countries. In such a case, if there is a Double Tax Treaty in place, the effective management rule “tie-breaker” article applies and identifies the residency of the company. If there is not any Double Tax Treaty in place, local laws will apply and give the solution.
XIII. DISCLAIMER
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.Author: Christos Kinanis
Footnotes [1] See further below under the heading,” Taxation of Companies” at page 5, what is provided as to the taxation of non-resident companies of Cyprus. [2] The law provides … of being tax resident in any other country. There is no condition that the taxation laws of that other country impose any taxation on the income earned. So, any country, where the Cyprus company is tax resident, meets the requirement. [3] “Common Law” is the body of legal rules, based upon court decisions and not on statutory law made by a parliament, embodied in reports of decided cases, that has been administered by the common-law courts of England since the Middle Ages. Common laws vary depending on the jurisdiction, but in general, the ruling of a judge is often used as a basis for deciding future similar cases. [4] “Principles of Equity” are set of rules which rectify injustice done by the rigid application of court precedents and statutory law. It is the rectification of legal justice. [5] FA 1994 s.249. [6] The shadow director principle is also provided in Cyprus companies’ Law Cap 113, in section 192(9). [7] Re Little Olympian Each Ways Ltd [ 1994] 4 All ER 561; Untelrab Ltd v McGregor [1996] STC (SCD) 1; R v Crown Court at Kingston [2001] STC 1615; Esquire Nominees Ltd v Commissioner of Taxation [1971] 129 CLR 177; New Zealand Forest Products NV v Commissioner of Inland Revenue [1995] 17 NZTC 12,073}; Wood v Holden, 2005 BTC 253 - High Court 18.4.2005; Laerstate BV v HMRC [2009] UKFTT 209; and, HMRC v Development Securities plc and others [2020] EWCA Civ 1705. [8] Swedish Central Rly Co Ltd v. Thomson [1925] 9 TC 342; Union Corp Ltd v IRC [1952] 34 TC 207; Koitaki Para Rubber Estates Ltd v Federal Comr of Taxation [1940] 64 CLR 15; R v Holdon, High Court 18.4.2005.
LISTING ON THE CYPRUS EMERGING COMPANIES MARKET: AN UNDERESTIMATED POTENTIAL?
19th March 2024 The Emerging Companies Market (“ECM”) is a recognised unregulated market of the Cyprus Stock Exchange (“CSE”), offering the opportunity to Cyprus and international companies to list their shares or bonds.RESIDENCY OF CYPRUS COMPANIES APPLICABILITY OF THE INCORPORATION RULE AS FROM 31/12/2022
12th January 2023 As from 31/12/2022, an important development applies as to the residency of Cyprus companies and in effect their taxation under Cyprus tax laws.HEADQUARTERING AND BUSINESS RELOCATION TO CYPRUS
21st March 2022INTRODUCTION
By now everybody knows that Cyprus belongs to the EU, about our unrivalled sunny days and our strategic location. This is old news. Why bring Cyprus back on the Headquartering map? Does Cyprus have something new to offer to businesses and individuals that wish to relocate their businesses to Cyprus?The Third Anti-Tax Avoidance Directive (ATAD 3) The tombstone of shell entities
15th March 2022A. INTRODUCTION
The European Commission on the 22nd of December 2021 published a legislative proposal for a Directive to be issued, the Third Anti-Tax Avoidance Directive, known as “ATAD 3”, which sets forth rules to prevent the misuse of shell companies for tax purposes. The Directive should be adopted early 2022 by the Council and be implemented by Member States by 30 June 2023 at the latest. The provisions should subsequently be effective in all Member States from 1 January 2024. The Directive lays down a uniform test that will help Member States to identify undertakings that are engaged in an economic activity, but which do not have minimal substance and are misused for the purpose of obtaining tax advantages. Once these minimum substance requirements are not met, the undertaking will be classified as “shell entity” and will sustain certain adverse tax consequences. The methodology followed by the proposed Directive to identify shell entities There are 7 steps to be followed:- Identification of undertakings being at risk to be classified as shell companies;
- Substance reporting requirements;
- Exempted undertakings from reporting;
- Presumption of being classified as a shell entity or not, for tax purposes;
- Rebuttal of the presumption of being classified as shell entity - Exemption;
- Tax Consequences of not meeting the substance requirements;
- Exchange of information, tax audits and Penalties.
B. SUMMARY OF THE PROVISIONS OF THE PROPOSED DIRECTIVE
The proposed Directive will be applied following the above identified methodology, step by step. At first, undertakings, tax residents of member states which are engaged in economic activity, will be examined whether they meet cumulatively the following three conditions:- Whether the undertaking has passive income more than 75% of its revenues, such as interest, dividends and royalties; and
- Whether it is engaged in cross border activity; and
- Whether it outsources its management and administration to third parties.
- Whether the undertaking has an office space, (owned or rented), through which it exercises its activities;
- Whether the undertaking has an active EU bank account; and
- Whether at least one of its directors is an in-house director properly qualified to handle the business of the undertaking or the majority of its full - time employees reside in the same country as the undertaking.
THE PROVISIONS OF THE PROPOSED DIRECTIVE IN DETAIL
Definitions - Interpretation For the purposes of this Directive the following definitions shall apply: “Undertaking” means any entity engaged in an economic activity, regardless of its legal form, that is a tax resident in a Member State1; “Member State of the undertaking” means the Member State where the undertaking is resident for tax purposes2; In effect, any type of a legal body engaged in economic activity, being tax resident in a Member State, is subject to the provisions of the Directive. Cyprus Local or International Trusts, not being a legal person, and not liable as such to taxation in Cyprus, do not fall within the provisions of the Directive. Their subsidiary companies being tax residents of Cyprus might be caught by the provisions of the Directive unless exempted. “Relevant income” shall mean income falling under any of the following categories:- interest or any other income generated from financial assets, including crypto assets,
- royalties or any other income generated from intellectual or intangible property or tradable permits;
- dividends and income from the disposal of shares;
- income from financial leasing;
- income from immovable property;
- income from movable property, other than cash, shares or securities, held for private purposes and with a book value of more than one million euro;
- income from insurance, banking and other financial activities;
- income from services which the undertaking has outsourced to other associated enterprises3.
- more than 75% of the revenues accruing to the undertaking in the preceding two tax years is relevant income as relevant income is above identified;
- the undertaking is engaged in cross-border activity on any of the following grounds:
- more than 60% of the book value of the undertaking’s assets that fall within the scope of points (e) and (f) above, was located outside the Member State of the undertaking in the preceding two tax years;
- at least 60% of the undertaking’s relevant income is earned or paid out via cross-border transactions;
- in the preceding two tax years, the undertaking outsourced the administration of day-to-day operations and the decision-making on significant functions4.
- the undertaking has own premises in the Member State, or premises for its exclusive use;
- the undertaking has at least one own and active bank account in the Union;
- the undertaking meets one of the following two indicators:
- One or more directors of the undertaking:
- are resident for tax purposes in the Member State of the undertaking, or at no greater distance from that Member State insofar as such distance is compatible with the proper performance of their duties; and,
- are qualified and authorised to take decisions in relation to the activities that generate relevant income for the undertaking or in relation to the undertaking’s assets; and,
- actively and independently use the authorisation referred to in point (2) on a regular basis; and,
- are not employees of an enterprise that is not an associated enterprise and do not perform the function of director or equivalent of other enterprises that are not associated enterprises;
- The majority of the full-time equivalent employees of the undertaking are resident for tax purposes in the Member State of the undertaking, or at no greater distance from that Member States insofar as such distance is compatible with the proper performance of their duties, and such employees are qualified to carry out the activities that generate relevant income for the undertaking5.
- One or more directors of the undertaking:
- address and type of premises;
- amount of gross revenue and type thereof;
- amount of business expenses and type thereof;
- type of business activities performed to generate the relevant income;
- the number of directors, their qualifications, authorisations and place of residence for tax purposes or the number of full-time equivalent employees performing the business activities that generate the relevant income and their qualifications, their place of residence for tax purposes;
- outsourced business activities;
- bank account number, any mandates granted to access the bank account and to use or issue payment instructions and evidence of the account’s activity6.
- companies which have a transferable security admitted to trading or listed on a regulated market or multilateral trading facility;
- regulated financial undertakings;
- undertakings that have the main activity of holding shares in operational businesses in the same Member State while their beneficial owners are also resident for tax purposes in the same Member State;
- undertakings with holding activities that are resident for tax purposes in the sameMember State as the undertaking’s shareholder(s) or the ultimate parent entity;
- undertakings with at least five own full-time equivalent employees or members of staff exclusively carrying out the activities generating the relevant income7.
- Other Member States will disregard application of tax treaties and disregard the application of the Parent-Subsidiary and Interest and Royalties Directives in relation to transactions with the reporting entity. The relevant Member State may nonetheless allow benefits under domestic law or tax treaties to apply in relation to the shareholder of the reporting company (i.e., look-through treatment)
- If the reporting entity has an EU shareholder, the EU jurisdiction of the shareholder will tax the relevant income of the reporting company as if it had accrued to them directly, according to its national rules, with a credit for taxes paid at the level of the reporting company, and
- The reporting entity will, in principle, no longer receive a certificate of tax residency, or the respective tax authority will issue an amended tax residency certificate indicating that the reporting company is no longer entitled to benefits of treaty or relevant EU Directives.
THE PROCESS OF THE PROPOSED DIRECTIVE IN A DIAGRAM
The methodology of the proposed Directive in order to identify shell entities proceeds as follows:E. OUR OBSERVATIONS
Tax residency of Cyprus Companies and substance requirements under ATAD 3 The proposed Directive is applicable only to tax resident undertakings having economic activity. As per art. 2 of the Income Tax Law No. 118(I)/2002 as amended, a company, anywhere registered, is tax resident of Cyprus only if its management and control is exercised in Cyprus. In addition, as from 31/12/2022 Cyprus registered companies, which are managed and controlled from abroad, will be automatically considered as tax residents of Cyprus by registration, unless they are tax residents of any other foreign country. Relevant analysis of this concept has been given in our publication, “The Management and Control Test – Taxation of Cyprus and Foreign Companies” published, January 2022, which can be found at https://www.kinanis.com/Publications The Income Tax Law above, does not specify the meaning of management and control, neither the Commissioner of Income Tax has given any guidance as to the interpretation of this principle, so as to identify which companies are managed and controlled from Cyprus and consequently to be tax residents of Cyprus. In this respect, in order to interpret and apply this notion, we refer to UK court cases as we have pointed out in detail in our above-mentioned publication. As per the interpretation given to the principle of management and control, if the directors of the company meet and decide independently the business issues of the company in Cyprus, the company is considered as having its management and control in Cyprus and consequently the entity is a tax resident of Cyprus. Important role to identify whether the board of directors meets and decides in Cyprus, is the substance issue of the company and especially if the company maintains an office in Cyprus where the board of directors meets and decides the company issues accordingly. Also, important issue is the residency of the directors and whether the company employs personnel stationed in Cyprus to undertake the business of the company from Cyprus. These were crucial factors in identifying whether the management and control of the Cyprus company is exercised in Cyprus but were not officially framed so far. ATAD 3 with its requirement as to particular substance conditions so that the characterization of the company as a shell company is avoided, officially gives a way out to the substance issue which should have been present in identifying the management and control of a company. In effect, once the substance requirements of ATAD 3 are met, in the case where the in- house qualified director has been appointed, and is indeed managing the affairs of the company from Cyprus, the management and control test identifying the tax residency of a company is strengthen and supports the allegation that such a company is managed and controlled from Cyprus and therefore is a tax resident of Cyprus. The substance requirement as per ATAD 3 is also met if the majority of the full-time employees are resident for tax purposes in the Member State of the undertaking. This condition though, cannot be connected with the management and control of the company which is a notion related to the directors’ powers. If the substance requirement as per ATAD 3 is met only with the majority of the employees stationed in Cyprus in the absence of the directors’ involvement and capacity residing and deciding from Cyprus, then such a company might not be managed and controlled form Cyprus and in this respect, it might not be a tax resident of Cyprus and the Directive will not be applicable to it. The below diagram clarifies the particular situation under discussion. So, in the case where the company has the majority of its employees stationed in Cyprus, but the management and control is outside Cyprus, the directors meet and decide abroad, such a company is not a tax resident of Cyprus and consequently the Directive does not a apply despite the fact that the coamony meets the substance requirements. If the company is a Cyprus registered company a from 31/12/2022, irrespectively of the fact that the management and control will be exercised abroad, and provided that such company does not have a tax residency in any country abroad, it will be considered, by reason of its registration in Cyprus, as tax resident of Cyprus as well. Corporate Service Providers The substance requirements of ATAD 3 and the whole approach of the Directive points to the fact that the tax resident company, in order to meet the substance requirements must have a self-managed office situated there where is tax resident. This requirement, in addition to the requirement of the Income Tax Law, that in order to have a tax resident Cyprus company the Cyprus company must be managed and controlled from Cyprus, renders redundant the provision of administrative services such as nominee directorships by the various corporate service providers. If the Directive will be implemented the provision of such services will be considerably weakened and the role of the administrative service providers will be diminished. Also, the provision of the well-known services of “virtual offices” without real substance and without full-time employees working in the office of the tax resident company will be diminished and gradually will come to an end. Real headquartering structures will then be brought up creating a more solid business environment with in house management and real substance in Cyprus. Criticism of the proposed Directive The proposed Directive has received a strong criticism as not being in compliance with the EU Law and especially with the principles of proportionality and subsidiarity. It is not though the aim of this article to discuss these possible complications and if these principles are infringed. In any event, we do not consider that such arguments will easily walk through or have positive outcome, having also in mind the political aspect of such type of Directives and their background. It is certain that, if the Directive is finally implemented as it is proposed, it will affect drastically holding companies without substance which are used extensively. As a result, the allocation of taxes among the Member States will be disturbed and re-distributed. The exceptions though provided in the Directive, might give sufficient protection and a way out for holding companies that can prove that they exercise genuine business activities or that the structure implemented does not create any tax benefit to themselves or to their groups or to their shareholders. The particular facts of each case will need to be examine accordingly. What the proposed Directive has not provided for, is what happens with the subsidiary companies of a parent company which parent meets the substance requirements. Do all the companies in the row need to fulfil the substance requirements, in addition to the parent, or the fulfilment of the conditions by the parent will be satisfactory? It remains to be seen if this issue will be clarified. Future Planning Tax resident companies which do not fall within the exceptions of the Directive must plan their future set up to avoid the disadvantages of being characterised as shell companies. Shell companies, unless they fall within the exceptions do not have future. They will face, from various angles, adverse tax consequences. Headquartering has a promising future once is based in real business environment, with real substance and proper central management and control form Cyprus.F. HOW KINANIS LLC CAN HELP YOU
We shall be glad to assist you to assess the impact of this Directive on your structure and examine the steps that need to be taken in case of final implementation. The Directive seems to have serious impact on holding companies and some requirements to meet the tests and parameters employed, have retrospective effect as from 2022. In this respect, planning as from now seems imperative.G. DISCLAIMER
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.1 Article 3(1) of the proposed Directive. 2 Article 3(4) of the proposed Directive. 3 Article 4 of the proposed Directive. 4 Article 6(1) of the proposed Directive. 5 Article 7(1) of the proposed Directive. 6 Article 7(2) of the proposed Directive. 7 Article 6(2) of the proposed Directive. 8 Article 8 of the proposed Directive. 9 Article 9 of the proposed Directive. 10 Article 10 of the proposed Directive.
DAC6 and Hallmark E1 Use of unilateral safe harbour rules in Cyprus
2nd February 2022 The purpose of this tax bulletin is to shed some light on the use of unilateral safe harbour rules in Cyprus and specifically as to when an arrangement becomes reportable for DAC6 purposes for meeting the requirements of Hallmark E1.The Management and Control Test: Taxation of Cyprus and Foreign Companies
27th January 2022INTRODUCTION
With this publication, we shall explore the notion of management and control as this is applicable in Cyprus and affects the taxation of Cyprus and Overseas companies.The Defence of Illegality – “Ex turpi causa non oritur actio” – The Cyprus Approach
13th January 2022HISTORICAL BACKGROUND
There is a long-standing common law principle, that the courts will not assist a party whose case is based upon an immoral or illegal act.EXPRESS TRUSTS: THE REGISTER FOR BENEFICIARIES
2nd July 2021 INTRODUCTION On the 18th of June 2021, the Cyprus Securities and Exchange Commission (the “CySec”) pursuant to Article 61C of the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2021 (the “AML Law”) issued a regulation (Regulatory Administrative Act 257/2021) (the “Directive”), identifying the obligations and procedure for the registration, notification, administration, maintenance and update of the information in relation to the Beneficial Owners (the “BOs”) of express trusts and other similar legal arrangements with the electronic system created by CySec (the “System”).COMMENCEMENT OF THE BENEFICIAL OWNERS REGISTER WITH THE REGISTRAR OF COMPANIES
25th March 2021INTRODUCTION
On the 12th of March 2021, the Registrar of Companies and Official Receiver (the “Registrar”) pursuant to Article 61A of the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2021 (the “AML Law”) issued a regulation (Regulatory Administrative Act 112/2021) (the “Directive”), identifying the obligations, methodology and procedure companies and legal bodies will have to follow in order to register their Beneficial Owners with the register it created accordingly.CYPRUS – THE REGISTERS FOR REAL BENEFICIARIES (Companies – Trusts and other Legal Bodies)
9th March 2021A. INTRODUCTION
On 18/02/2021 the Cyprus House of Representatives has enacted the amending law on the Prevention and Suppression of Money laundering and Terrorist Financing Law of 2021 (the “AML Law”) transposing at a national level the 5th Anti-Money Laundering EU Directive 2018/843 (the “AMLD”) which imposes minimum standards to the Member States for the prevention of the flow of illicit funds and terrorist financing activities. Under the implementation of the AMLD at a national level, it has been decided to establish central registries of ultimate beneficial owners (the “UBOs”) which are set to contain information on the physical persons who ultimately own or control companies or other legal entities, legal bodies, trusts or other legal arrangements. In accordance with the provisions of the AML Law, the following registers as to ultimate beneficial owners must be established:- the Central Registry of real Beneficiaries of Companies and other legal entities;
- the Central Registry of real Beneficiaries of legal bodies;
- the Register of express trusts and similar legal arrangements.
B. ULTIMATE BENEFICIAL OWNERSHIP REGISTERS
As per the AML Law, a ‘UBO’ means any physical person who ultimately owns or controls a legal entity through direct or indirect shareholding ownership of 25 per cent (25%) plus one share.1. The Central Registry of real Beneficiaries of Companies and other Legal Entities
Companies and other legal entities that have been incorporated in the Republic of Cyprus must ensure that adequate, accurate and current information on their UBOs, including the name, date of birth, nationality, country of residence and extent of the interest held, are kept in their records and submitted to the Registrar of Companies and Official Receiver in Cyprus. The Central Registry of real Beneficiaries of Companies and other legal entities will be maintained by the Registrar of Companies and the following persons shall have access to this Registry:- The responsible Supervisory Authority, as defined by Section 59 of the AML Law, the Unit for Combating Money Laundering (the “Unit”), Police, Customs and Excise Department and Tax Department without any limitations;
- Obliged entities* in the context of customer due diligence; and
- The public that will have access ONLY to the following information of the UBO: name and surname, month and year of birth, nationality, country of residence and nature and extent of the beneficial interest.
Announcement of the Registrar of Companies and Official Receiver dated 19/02/2021
The collection of information of UBOs of Companies and Other Legal Entities shall commence on 16/03/2021. It is emphasized that a grace period of six (6) months for the registration of the information concerning the UBOs in the system has been granted by the Registrar.Regulations
Within the following days, the Registrar is expected to publish the regulations for the maintenance and operation of the registry along with a manual on the operation of the system that has been developed for this purpose. The Registrar of Companies is also expected to revert with an informative seminar on the implementation of the regulations and the mechanisms available to the public.2. The Central Registry of real Beneficiaries of Legal Bodies
Legal bodies refer to bodies not registered with the Registrar of Companies which include clubs, federations, unions and charitable foundations. Clubs, federations and unions are defined and governed by the Clubs and Foundations and Other Related Matters Law of 2017, No. 104(I)/2017 while charitable foundations are governed by the Charities Law, Cap. 41. The Charities Law, Cap 41 though, will be rendered soon obsolete, (there is a pending bill as to this issue) and any charitable foundation will need to be registered under the Clubs and Foundations and Other Related Matters Law of 2017. It is worth noting that charitable trusts, which are those trusts created for a charitable purpose(s), must be distinguished from charitable foundations. A charitable trust may be also set up as per the provisions of the International Trusts Law provided that it meets the requirements mentioned therein. Clubs, federations, unions and foundations must ensure that adequate, accurate and current information on their UBOs must be submitted with the General Commissioner. The General Commissioner (who is the general director of the Ministry of Interior) is appointed as the competent authority for the maintenance of the Central Registry of UBOs of Legal Bodies and the persons who shall have access to this Registry are identical to the ones having access to the Central Registry of real Beneficiaries of Companies and Other Legal Entities. The information on the UBOs of the legal bodies shall be available through the Register maintained by the General Commissioner and through the system of interconnection of registers for ten (10) years after the legal body has been struck off from the Register. However, five (5) years after the date of strike off of the legal body from the Register, access to such information contained in the Registry will be permitted only in the course of administrative or criminal enquiry conducted by the Supervisory Authority, Unit, Customs Department, Tax Department and the Police.3. The Register of express trusts and similar legal arrangements (the “Trusts’ Registry”)
Following the implementation of the AMLD in Cyprus, CySec is responsible for the creation and maintenance of the Trusts’ Registry in which information as to the UBOs of express trusts and other legal arrangements must be included. The exact procedure of maintaining and updating the Trusts’ Registry as well as the meaning of ‘express trusts’ will be provided by CySec through a relevant circular.Conditions for registration
The registration of express trusts in the Trusts’ Registry is obligatory and applies to express trusts of which:- the trustee is placed or resides in Cyprus; or
- the trustee is placed or resides outside the EU but concludes a business relationship or acquires immovable property on behalf of the express trust.
Exceptions
The registration requirement does not apply to the following express trusts that have been registered in the register of another member state and,- the trustee is placed or resides in another member state other than Cyprus; or
- in the case there are more than one trustees and the one is placed or resides in Cyprus; or
- the trustee concludes various business relationships on behalf of the trust in various member states including Cyprus.
Trustees’ obligations
The application to CySec for the registration of an express trust in the Trusts’ Registry must be made by the trustee of the trust by submitting information regarding the trust and its UBOs. The timeframe relevant to the application for the registration of an express trust and the information to be included there in as well as the procedure of registration will be determined by CySec with a relevant circular. The trustee of an express trust which is administered in Cyprus is obliged to maintain adequate, precise and updated information as to the UBOs of the trust which identify of the following:- Settlors;
- Trustees;
- Protectors, if any;
- Beneficiaries or the classes of persons for the benefit of which the trust has been set up;
- Any other physical person who exercises control over the trust through direct or indirect ownership or with other means.
Powers and obligations of CySec
The trustee of an express trust registered in the Trusts’ Registry must comply with all requests and/or recommendations of CySec. Pursuant to the AML Law, CySec may:- Approve or reject an application for registration in accordance with the conditions of the circular;
- Remove a registered express trust from the Trusts’ Registry in the event that the conditions for registration are not fulfilled or in the event that the trust is no longer effective;
- Postpone the registration of an express trust in accordance with the conditions of the circular;
- Impose monetary penalties for failure to submit the required information for registration;
- Impose monetary penalties or suspend or delete the registration of an express trust in the following cases:
- for failure to comply with the provisions of the AML Law or the circulars issued by CySec;
- for submission of false or misleading information or for not disclosing essential information.
Access to the Trusts’ Registry
CySec may grant access to the Trusts’ Registry:- to the Supervisory Authority, Unit, Customs and Excise Department, Tax Department and Police without any limitations;
- to obliged entities for due diligence purposes and identification of their clients upon payment of respective fee;
- to legal or physical persons that can demonstrate legitimate interest in accessing the registry and proving the same through relevant procedure to be implemented, upon payment of respective fee;
- to legal or physical persons in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in Cyprus upon the written request of the said persons and payment of respective fee;
- The name of the beneficiary;
- The month and year of birth;
- The country of residency;
- The nationality of the beneficiary; and
- The type and extend of the rights they have in the express trust.
- approve application for disclosure or reject it;
- specify the procedures for applying, approving or rejecting the applications, for accessing the Trusts’ Registry and procedures as to the type of information for which access will be granted.
- such disclosure would expose the UBO to a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment violence or intimidation; or
- the UBO is a minor or legally incompetent.
- obliged entities that are credit and financial institutions;
- by the responsible Supervisory Authority, Unit, Customs and Excise Department, Tax Department and the Police.
C. CONCLUSION
Undoubtedly, the current reality paves the way to a new era of disclosure and transparency. Guidelines on the registration and application process for accessing the registers and applicable timeframes are expected to be announced by the authorities responsible to maintain each register. Although companies and other legal entities are required to disclose information on their UBOs, disclosure can be limited in the event that an express trust is included in the company’s holding structure. In this case, where a company has a trust as a shareholder and not a nominee it is expected that only the name of the trust or trustee(s) in place shall be included in the Registry of Companies. The details of the UBO of the express trust included in the company’s structure shall be submitted only to the Trusts’ Registry which, in contrast to the Registry of Companies, is not available to the public unless legitimate interest is proved. Hence, protection on the information of the company’s UBO is enhanced without overruling the provisions of the AMLD and AML Law.DISCLAIMER
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.AUTHORS
Maria Pavlou Associate Lawyer - Corporate Department Maria.Pavlou@kinanis.com CorporateLegal1@kinanis.com Androniki Onisiforou Associate Lawyer – Corporate Department Androniki.Onisiforou@kinanis.com CorporateLegal1@kinanis.comCYPRUS AND DAC6
5th March 2021INTRODUCTION
The Directive (EU) 2018/822 expand once more the provisions of the Directive 2011/16/EU - Directive on Administrative Cooperation (DAC), regarding mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. The Directive (EU) 2018/822 represents the 6th modification of DAC, and for this purpose it is called DAC6. DAC6 reflects new initiatives in the field of tax transparency at the level of the EU, through the introduction of an early warning mechanism for tax avoidance schemes. DAC6 is expected to be enacted in Cyprus within the following months. The below is a summary of the provisions of the implementation of DAC6 in Cyprus, in accordance to the draft bill circulated by the Cyprus Tax Authorities.WHO WILL REPORT?
Reporting will be done by Intermediaries to National Tax Authorities, or by the Taxpayers in certain cases. The definition of Intermediary includes:- any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement, or
- a person that based on the information in his possession and his relevant expertise and understanding required to provide such services, knows or could be expected to know that such persons have undertaken aid or advice with regards to the above.
- be resident for tax purposes in an EU Member State;
- have a permanent establishment in an EU Member State through which the services with respect to the arrangement are provided;
- be incorporated in, or governed by the laws of an EU Member State;
- be registered with a professional association related to legal, taxation or consultancy services in an EU Member State.
EXEMPTIONS
The draft bill provides for an exemption on the reporting requirements where the Intermediary is a lawyer who practice the profession as defined in the Lawyers Law and complies to the following requirements:- Is subject to legal confidentiality, and
- Has notified the reporting obligations to any other Intermediary or, if no other Intermediary, the taxpayer concerned.
WHAT SCHEMES ARE REPORTABLE
A scheme or arrangement is reportable if the following apply:- It is Cross-Border, as defined and
- It falls in the Hallmarks, as defined.
CROSS-BORDER
In order for an arrangement to be categorized as cross-border, it must be an arrangement concerning either more than one EU Member State, or a Member State and a third party or country, whereby at least one of the following conditions is met:- Not all participants in the arrangement are tax resident in the same jurisdiction;
- A permanent establishment linked to any of the participants is established in a different jurisdiction and the arrangement forms part of the business of the permanent establishment;
- At least one of the participants in the arrangement carries on activities in another jurisdiction without being resident for tax purposes or creating a permanent establishment situated in that jurisdiction;
- At least one of the participants has residency for tax purposes in more than 1 jurisdiction;
- Such an arrangement has a possible impact on the automatic exchange of information or the identification of beneficial ownership.
THE HALLMARKS
The draft bill provides for five specific Hallmarks (i.e. characteristics or features of arrangements) in order to determine whether the cross-border arrangement is reportable or not. In certain cases, the hallmarks have to satisfy a Main Benefit Test in order to be disclosed to the authorities. Main Benefit Test is satisfied if it can be established, having regards to all relevant facts and circumstances, that the main benefit or one of the main benefits of entering into such an arrangement is the obtaining of a tax advantage. Tax Advantage includes the following:- Tax Relief or increased tax relief;
- Tax refund or increased tax refund;
- Tax avoidance or reduction of tax liability;
- Postponement of tax or acceleration of tax refund;
- Avoidance of withholding tax;
- Category A: Generic Hallmarks Linked to Main Benefit Test- these include the following provided that they fulfil the “Main Benefit Test”:
-
- An arrangement where the taxpayer or a participant, undertakes the obligation to comply with a condition of confidentiality that may require him not to disclose the manner in which the arrangement could secure a tax advantage to other intermediaries or to the Tax Authorities;
- An arrangement where the Intermediary receives a fee for its services proportionate to the amount of the tax advantage received by the tax payer or a success fee in case that a tax advantage is obtained;
- An arrangement that has substantially standardised documentation and/or structure and is available to more than one relevant taxpayer without a need to be substantially customised for implementation;
- Category B: Specific Hallmarks Linked to Main Benefit Test – these include the following provided that they fulfil the “Main Benefit Test”:
-
- The acquisition of loss-making companies and entering into such arrangements for the purpose of benefiting through group tax relief, including the transfer of taxable losses to another jurisdiction or acceleration of such losses;
- Conversion of income into exempt or lower-taxed revenue streams (such as capital, gifts etc);
- Circular transactions resulting in the round-tripping of funds, namely through involving interposed entities without other primary commercial function or transactions that offset or cancel each other or that have other similar features;
- Category C: Specific Hallmarks Related to Cross-Border Transactions: these include:
-
- Arrangements that involve deductible cross-border transactions between associated enterprises in cases where:
- the recipient is not resident for tax purposes in any jurisdiction, or
- the recipient is resident for tax purposes in a jurisdiction:
- charging corporate income tax at the rate of 0% or almost 0%, or
- the recipient is resident for tax purposes in a jurisdiction of third-country jurisdictions which is assessed as non-cooperative by the EU or the OECD;
- the payment benefits from full exemption from tax in the jurisdiction where the recipient is resident for tax purposes, or
- he payment benefits from a preferential tax regime in the jurisdiction where the recipient is resident for tax purposes;
- Tax deductions for the same depreciation of assets are claimed in more than one jurisdiction;
- Tax relief is claimed for the same income/capital in more than one jurisdiction;
- Arrangement that includes transfer of assets where there is a material difference in the amount being treated as payable in consideration for the transferred assets in the jurisdictions involved.
- Arrangements that involve deductible cross-border transactions between associated enterprises in cases where:
- Category D: Specific HallmarksConcerning the Automatic Exchange of Information and Beneficial Ownership - these include the following, under conditions:
- Arrangements that undermine the EU reporting obligations or of equivalent significance reporting obligations in relation to the exchange of Financial Account information, including obligations raised from conventions with 3rd countries;
- Arrangements involving a non-transparent legal or beneficial ownership chain with the use of persons, legal arrangements or structures;
- Category E: Specific HallmarksConcerning Transfer Pricing- these include the following:
- Arrangements that involve unilateral safe harbour rules;
- Arrangements that involve transfer of hard-to-value intangibles, subject to conditions;
- An arrangement involving an intragroup cross-border transfer of functions and/or risks and/or assets, if the projected annual earnings before interest and taxes (EBIT), during the three-year period after the transfer, of the transferor or transferors, are less than 50 % of the projected annual EBIT of such transferor or transferors if the transfer had not been made;
SUMMARY OF DISCLOSURE SCENARIOS
AUTOMATIC EXCHANGE OF INFORMATION
Automatic exchange of information amongst the relevant Authorities of all the Member States will be carried out through the common communication network (‘CCN’). Automatic exchange of information by the authorities will occur within one month from the end of the quarter in which the information was submitted or the reporting was made. The first automatic exchange of information shall be made by 30 April 2021.HOW AND WHAT INFORMATION WILL BE DISCLOSED?
It is expected that reporting will be made via a standard prescribed format, and the following details will be included in the mentioned-form:- Identification of taxpayers, associated parties thereof and intermediaries involved.
- Details of the hallmarks that generated the reporting obligation.
- A summary of the reportable arrangement.
- The date which the first step in implementing the reportable cross-border arrangement was made (or will be made).
- Details of the relevant domestic rules forming the basis of the reportable arrangement.
- The value of the reportable cross-border arrangement.
- The Member State of the taxpayer and any other Member State which are likely to be concerned by the reportable cross-border arrangement.
- Any other person in a Member State likely to be affected by the reportable cross-border arrangement and the Member State in which such person is linked.
TIME FRAMES AND DEADLINES
Action | Date / Timeframe |
Entry into Force | 01 January 2021 |
Filing information for the first, second and third period. | The deadline is on 31.03.2021 however, no penalties will be imposed for the filing of information up to 30.06.2021 for the following cases:
|
Reporting by Intermediary (primary or secondary) | Within 30 days following the day that:
|
Reporting by Taxpayer concerned | Within 30 days from the day that:
|
Disclosing of Information by Intermediary or taxpayer concerned | Within 14 days from the date of receipt of the written request by the relevant Authorities. |
CONSEQUENCES OF NON-COMPLIANCE
Failure of compliance to the reporting requirements entails to heavy penalties, depending on the reasoning for such failure. The penalties are as follows:Penalty | Reasoning | |
The penalty starts from EUR 10,000 up to EUR 20,000 | Omission of Reporting by the Intermediary or the taxpayer concerned. | Failure of notification by the Intermediary to either another Intermediary or the taxpayer concerned, their respective obligation for reporting, due to the Intermediary’s exemption from reporting. |
The penalty starts from EUR 1,000 up to EUR 5,000 | Delay of reporting by either Intermediary or taxpayer concerned, for a period of up to 90 days from the date that the reporting obligation is raised. | Delay of notification of the Intermediary to either another Intermediary or the taxpayer concerned, their obligation for reporting due to the Intermediary’s exemption from reporting, for a period of up to 90 days from the date that the reporting obligation is raised. |
The penalty starts from EUR 5,000 up to EUR 20,000 | Delay of reporting by either Intermediary or taxpayer concerned, for a period in excess of 90 days from the date that the reporting obligation is raised. | Delay of notification of the Intermediary to either the another Intermediary or the taxpayer concerned, their obligation for reporting due to the Intermediary’s exemption from reporting, for a period in excess of 90 days from the date that the reporting obligation is raised. |
The penalty starts from EUR 1,000 up to EUR 10,000 | If the Intermediary or the taxpayer concerned submits incomplete or untruthful information. | If the Intermediary or the taxpayer concerned fails to submit the information within 14 days from the date of receipt of the written request from the Authorities. |
DISCLAIMER
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication. February 2021Author
Charalambos Meivatzis Partner – Head of Tax, Accounting and VAT Charlambos.Meivatzis@kinanis.com Marios Palesis Partner – Tax Department Marios.Palesis@kinanis.comANNEX A
The EU list of non-cooperative jurisdictions for tax purposes as of date of publication of this article are the following:BLACK LIST | GREY LIST |
• American Samoa • Anguilla • Dominica • Fiji • Guam • Palau • Panama • Samoa • Seychelles • Trinidad and Tobago • US Virgin Islands • Vanuatu | • Australia • Barbados • Botswana • Eswatini • Jamaica • Jordan • Maldives • Thailand • Turkey |
CYPRUS – THE TAX TREATMENT OF INTEREST
1st March 2021A. INTRODUCTION
With this publication we outline the main provisions of the Taxation Laws in relation to the tax treatment of interest income and interest expense and we elaborate on the various financing schemes available.B. THE BASIS OF TAXATION OF INTEREST INCOME
Generally, the Taxation Laws in Cyprus are applicable only to tax residents of Cyprus, both individuals and companies, on their world-wide income.Definition of tax resident
- In the case of an individual – means an individual who stays in Cyprus for one or more periods exceeding, in aggregate 183 days in the year of assessment.
- In the case of a company – means a company whose “management and control” is exercised in Cyprus.
- The place of directors’ meetings. Where board decisions are taken. This factor is treated as being the most crucial;
- The residence of the directors or at least the majority of them;
- The degree of control exercised by the directors on company decisions;
- Whether the directors think and decide on the crucial management decisions affecting the business of the company or they simply follow instructions and rubber stamp;
- Where the general policy of the company is formulated and by whom.
Taxation of Interest Income
Taxation on interest income is imposed according to: -- The “Income Tax Law’’; or
- The “Special Defence Contribution for the Republic Law’’.
- Interest income acquired from the ordinary activities of the business or closely connected with those activities.
- In this case the interest is treated as active interest and is regarded as trading income and taxed according to Income Tax Law at the rate of 12.5% on any resulting net taxable profits, and
- Interest income not acquired from the ordinary activities of the business or closely connected with those activities.
- In this case the interest is considered as passive interest and is taxed under Special Defense Contribution Tax at the rate of 30% on the interest income accrued or credited.
Interpretation of “ordinary activities” and “activities closely connected with ordinary activities”
As the definition of what is regarded as “ordinary activities” or activities closely connected with ordinary activities” is not clearly identified in the Law, The Commissioner of Income Tax, has interpreted the above provisions of the Law in a separate circular as follows: - 1. Interest that is acquired “from the ordinary activities of the business”: - This type of interest is considered to be: - a) The interest of banking businesses. This category includes all the banks, co-operative credit institutions and enterprises that have as their main purpose the granting of loans such as the Housing Finance Corporation. b) The interest that is acquired by financing companies. These are the companies which provide finance by the method of hire - purchase or leasing agreements or any other type of financing. In effect, the interest that the banks and financial institutions or financing companies receive or credited, is considered as trading income and is NOT liable to Special Defence Contribution Tax but only liable to Income Tax at 12.5% on any resulting net profits. 2. Interest that is acquired from “activities closely connected with the ordinary activities of the business”:- This type of interest is considered to be:- a) The interest received or credited from trade debtors: For example, the interest received or credited by companies or individuals when their normal business activity is the buying, selling or development of immovable property, or the interest received or credited by companies or individuals that are selling or re-selling cars or other vehicles or machinery or other products. In effect, the interest that companies or individuals receive or credited from their ordinary trading activities with their debtors is considered as interest closely connected with the ordinary activities of the business and is not subject to Special Defence Contribution Tax but only to Income Tax. b) Interest on current accounts The interest that companies or individuals receive from banks in their commercial banking accounts (current accounts) used for their ordinary trading activities. c) The interest of Insurance Companies; d) The interest that companies receive or credited when they act as the vehicle through which the companies of the group are financed. In effect, companies which are used as a financing vehicle of their group, i.e. financing a mother, subsidiary or other related company (associate), then the interest received or credited is considered as trading income and is not subject to Special Defence Contribution Tax, but only subject to Income Tax at a rate of 12.5% on any resulting net profits.The meaning of “group companies”
The meaning of group of companies is defined in the Companies’ Law Cap. 113, where according to Art. 2 of this law, “group of companies” means the whole body of companies which consists of the mother and its subsidiary or its subsidiaries. Further, according to Art.148 of the Companies’ Law Cap. 113, the meaning of subsidiary and holding companies is defined as follows:- A company is deemed to be a subsidiary of another if, but only if,- that either –
- is a member of it and controls the composition of its board of directors; or
- holds the majority of the voting shares (rights) ; or
- is its member and controls the majority of the voting shares (rights) by agreement which has been signed with other members.
- the first mentioned company is a subsidiary of any company which is that other’s subsidiary.
Interest received or credited liable to Special Defence Contribution Tax
Examples of interest liable to Special Defence Contribution Tax: -- Interest received by the resident company/individual from fixed deposit accounts and bonds that are not held as a trading activity;
- Interest received or expected to be received from loans granted by companies that do not qualify as an ordinary activity or an activity closely connected with the company’s ordinary activities.
C. TAX DEDUCTIBILITY OF INTEREST EXPENSE
According to the Income Tax Law, for an expense to be considered as tax deductible the general rule is that it must be made wholly and exclusively for the production of taxable income.The general rule
In regards to the tax treatment of the interest expense, the decisive factor is the purpose for which the loan that generates the relevant interest expense was used for. If the loan was used for the production of taxable income, i.e. for the acquisition of a business asset, then such interest expense is regarded as a tax deductible expense for income tax purposes. If, on the other hand, the loan was acquired for the acquisition of a non-business asset, i.e. an asset that will not be used in the business for the production of taxable income, then such interest expense will not be regarded as tax deductible. It must be stressed that shares or other non-interest bearing titles are considered as non-business assets. Therefore, when the acquisition of shares in other companies is financed by interest bearing loans, the interest expense will not be deductible for taxation purposes. The acquisition, however, of interest bearing titles such as debentures and bonds are considered as business assets as they generate taxable income (i.e. interest income) for the company. This restriction on the deductibility of interest expense on loans obtained for the acquisition of non-business assets will apply for a period of seven years from the date of acquisition of these assets or up to the date of disposal of such assets. If a loan acquired is used for the acquisition of both business and non-business assets, then the restriction is apportioned according to the acquisition cost of each asset.Notional Interest Deduction (NID) provisions on Qualifying Equity
The Law provides that a company can to claim a Notional Interest Deduction (NID) on the new capital introduced into the company. The NID can be set against any income generated by the company during the specific tax year. The NID will equal the multiple of the “Reference interest rate” and the “new equity” as defined below: “Reference interest rate” is defined as the 10-year government bond yield of the country in which the new equity is invested increased by 5%. The 10-year government bond yield used for the calculation of the NID is the rate as at 31st December of the year preceding the tac year in which the NID and there is no minimum reference rate. The 2020 reference rates that have been announced by the Cyprus Tax Department are set out on the table below.Country | 10-year Bond Yield | 2020 NID Reference Rate |
Armenia | 7.485% | 12.485% |
Abu Dhabi | 1.618% | 6.618% |
Albania | N/A | N/A |
Argentina | 3.269% | 8.269% |
Australia | 1.005% | 6.005% |
Austria | -0.433% | 4.567% |
Azerbaijan | N/A | N/A |
Bulgaria | 0.190% | 5.190% |
Belgium | -0.388% | 4.612% |
Belarus ($ USA) | 6.075% | 11.075% |
Bermuda (US $) | 1.783% | 6.783% |
British Virgin Islands | N/A | N/A |
Canada | 0.675% | 5.675% |
Cayman Islands | N/A | N/A |
China | 3.180% | 8.180% |
Cyprus | 0.136% | 5.136% |
Costa Rica | 9.627% | 14.627% |
Croatia | 0.548% | 5.548% |
Czech Republic | 1.252% | 6.252% |
Denmark | -0.459% | 4.541% |
Dubai (€) | N/A | N/A |
Dubai (US $) | 2.594% | 7.594% |
Egypt | 14.006% | 19.006% |
Egypt ($ USA) | 6.678% | 11.678% |
Estonia | -0.211% | 4.789% |
Finland | -0.425% | 4.575% |
France | -0.343% | 4.657% |
Germany | -0.388% | 4.612% |
Greece | 0.190% | 5.190% |
Guernsey | N/A | N/A |
Hong Kong | 0.541% | 5.541% |
Hungary | 2.135% | 7.135% |
India | 5.865% | 10.865% |
Ireland | -0.318% | 4.682% |
Isle of Man | 0.985% | 5.985% |
Israel | 0.770% | 5.770% |
Israel ($ USA) | 1.551% | 6.551% |
Italy | 0.541% | 5.541% |
Ivory Coast | N/A | N/A |
Jordan (US $) | 4.480% | 9.480% |
Kazakhstan (€) | 0.653% | 5.653% |
Kazakhstan (US $) | 4.030% | 9.030% |
Kenya | 11.977% | 16.977% |
Latvia | -0.180% | 4.820% |
Luxembourg | -0.415% | 4.585% |
Lithuania | -0.197% | 4.803% |
Marocco | 2.403% | 7.403% |
Mauritius | 1.580% | 6.580% |
Netherlands | -0.490% | 4.510% |
Nigeria (€) | N/A | N/A |
Nigeria | 7.261% | 12.261% |
Norway | 0.944% | 5.944% |
Poland | 1.229% | 6.229% |
Portugal | 0.026% | 5.026% |
Romania | 2.959% | 7.959% |
Russia | 5.910% | 10.910% |
Russia ($ USA) | 1.546% | 6.546% |
Saudi Arabia | 2.399% | 7.399% |
Serbia | 3.480% | 8.480% |
Singapore | 0.834% | 5.834% |
Slovakia | -0.520% | 4.480% |
Slovenia | -0.187% | 4.813% |
South Africa | 8.736% | 13.736% |
Spain | 0.043% | 5.043% |
Switzerland | -0.523% | 4.477% |
Sweden | 0.022% | 5.022% |
Taiwan | 0.300% | 5.300% |
USA | 0.916% | 5.916% |
Ukraine (€) | N/A | N/A |
Ukraine ($ USA) | 6.062% | 11.062% |
United Arab Emirates | N/A | N/A |
United Kingdom | 0.192% | 5.192% |
Vietnam | 2.202% | 7.202% |
Exceptions of assets from the interest restriction calculation
The above mentioned restriction on the deductibility of interest expense on loans obtained for the acquisition of non-business assets will not apply for assets acquired under the following situations:-- In case the acquisition of the non-business assets was financed through the issue of new share capital without any actual cash movement (i.e. share for share exchange) given that there will not be a reduction of capital while the non-business asset is still held by the company, for a period of seven year from the date of the acquisition of such asset.
- In case the acquisition of the non-business assets was financed through the issue of new share capital given that this can be clearly verified and that the payment for the acquisition of such assets is made within 6 months from the date of the issue of the new share capital.
- In case the acquisition of the non-business assets was financed through an interest free loan received from a related party specifically for the purpose of obtaining the non-business assets, given that this can be clearly verified, and provided that the payment for the acquisition of such assets is made within 6 months from the date the interest free loan was obtained. Such interest free loan must remain outstanding for at least a period of seven years or up to the date the non-business asset is disposed.
- In case the acquisition of the non-business assets was financed through the company’s own capital and reserves given that within a period of six months from the acquisition of the non-business assets the company has not created any other loan obligation, provided that for a period of seven years from the acquisition or up until the disposal of the non-business asset, there will be no capital reduction or dividend payment.
- In cases of back to back to loans, either between related parties or between the company and third parties, and given that it can be clearly verified that it relates to back to back loans, then there will be no interest expense restriction on the loan acquired, provided that the time between the date of obtaining the loan and the date of granting the respective loan will not exceed a period of six months.
D. INTRA-GROUP BACK-TO-BACK FINANCING
The term intra-group financing transaction refers to any activity consisting in the granting of loans or cash advances remunerated by interest to related parties. The companies are considered to be related if they fall within the scope of Article 33 of the Income Tax Law. As per Article 33 of the Income Tax Law where a business or person(s) in the Republic participates directly or indirectly in the management, control or capital of a business and conditions are made or imposed between the two businesses in their commercial or financial relations which differ from those which would be made between independent businesses, then any profits which would have accrued to one of the businesses, but, by reason of those conditions, have not so accrued, may be included in the profits of that business and taxed accordingly. The law provides for a very wide definition of “connected parties” as well as a wide definition of what constitutes “control” of a company. As per the Circular issued by Tax Department of Cyprus dated 8th of February 2017 such transactions should be supported by a Transfer Pricing Study. The Transfer Pricing legislation is put in place to ensure that transactions between related parties are performed based on the at arm’s length principle (ALP). This means that a commercial or financial transaction between two or more related parties should not differ from those which will be made between independent parties.E. TAX IMPLICATIONS OF LOANS GRANTED BY THE COMPANY TO ITS SHAREHOLDERS AND DIRECTORS
The Law makes a distinction on the loans or other facilities granted by the company to its shareholders or directors based on whether they are legal or natural persons.To legal persons
Loans provided by the company to legal persons acting as directors or shareholders of the company are treated as normal loans granted to related parties and should therefore be made in accordance with the arms-length principle, i.e. they must be provided at an interest rate according to the market rates prevailing at the date the loan was granted, as if the transaction was performed between unrelated parties.To natural persons
On the loans provided by the company to natural persons acting as directors or shareholders of the company there is a deemed benefit of 9% per year on the outstanding balance. This deemed benefit is allocated and taxed on the natural person receiving the loan and not to the company granting it. If this natural person will be a tax resident of Cyprus (i.e. spends more than 183 days in Cyprus) then this benefit will be added to his worldwide income and be taxed according to the income tax rates applicable for individuals. If however, this person is not a tax resident of Cyprus, then this benefit will be taxable in Cyprus if the Cyprus income of non-tax resident exceed the EUR 19.500.Unpaid Share Capital
It must be noted that the above principles will apply also in the case where the company’s share capital remains unpaid, as this unpaid share capital is regarded in effect as a loan facility from the company to its shareholders, legal or natural persons.F. THE USE OF DOUBLE TAX TREATIES, EU DIRECTIVES AND UNILATERAL TAX CREDIT RELIEF
For the operations of the Cyprus companies with international financing activities in foreign countries, the wide network of double tax treaties as well as the applicability of the EU Interest and Royalty Directive, is of immense importance as it allows for interest income to be received from treaty countries or from other EU member states with low or no withholding tax deductions at the country from which interest is paid. Under the EU Interest and Royalty Directive, interest payments from one member state company to another should not be subject to any withholding tax at source. The directive allows countries to impose some minimum shareholding or minimum duration of investment holding conditions in order for the directive to be applicable. Under the relevant provisions of the Double Tax Treaties, the amount of withholding tax deduction on interest is agreed between the states. Usually the withholding tax rates between treaty countries are significantly lower than withholding tax rates between countries that they have not concluded into a Double Tax Treaty. On payments of interest from Cyprus to a foreign lender in any country, under local legislation there is no withholding tax deduction. A table with all the double tax treaties Cyprus have signed and the respective withholding tax rates for dividends, interest and royalties can be found in Appendix I of this publication. In cases where there will be a withholding tax deduction on the interest income that a Cyprus company will receive from abroad, there is the possibility for the Cyprus Company to claim a tax credit relief on the taxation paid abroad in any foreign country so that taxation will not be paid on the same income twice. In these cases, proper documentation evidencing the payment of taxes on the same income in the foreign country will have to be provided.G. CONCLUSION
It is evident from the above analysis of the tax treatment of interest in Cyprus has significantly evolved in order to improve the jurisdiction’s attractiveness for conducting financing activities. The flexibility of the legal and tax legislation, the applicability of the Interest Directive as well as the wide network of double tax treaties makes the Cyprus company one of the most efficient vehicles for conducting financing activities in Europe. The international investors should always be aware of the possibilities that are offered when doing business through Cyprus. The above analysis of the Law can provide to the international investor an excellent overview on the tax treatment of interest in Cyprus.H. DISCLAIMER
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.Appendix I – Double Tax Treaties Table
The following table gives a summary of the withholding taxes for dividends, interest and royalties received in Cyprus provided by the double tax treaties entered into by Cyprus. It must be mentioned that for payment made from Cyprus to any foreign jurisdiction, there is no withholding tax deduction under the local legislation. In case royalties are paid on rights used within Cyprus, there is a withholding tax of 10% unless restricted by a treaty.Received in Cyprus | |||||||||
Payer | Dividends (%) | Interest (%) | Royalties (%) | Notes | Payer | Dividends (%) | Interest (%) | Royalties (%) | Notes |
Treaty countries: | Treaty countries: | ||||||||
Andorra | 0 | 0 | 0 | Latvia | 0 | 0 | 0 | * | |
Armenia | 0 | 5 | 5 | * | Lebanon | 5 | 5 | 0 | |
Austria | 10 | 0 | 0 | Luxembourg | 5 | 0 | 0 | * | |
Bahrain | 0 | 0 | 0 | Lithuania | 0 | 0 | 5 | * | |
Barbados | 0 | 0 | 0 | Malta | 15 | 10 | 10 | ||
Belarus | 5 | 5 | 5 | * | Mauritius | 0 | 0 | 0 | |
Belgium | 10 | 10 | 0 | * | Moldova | 5 | 5 | 5 | * |
Bosnia | 10 | 10 | 10 | * | Montenegro | 10 | 10 | 10 | * |
Bulgaria | 5 | 7 | 10 | * | Norway | 0 | 0 | 0 | * |
Canada | 15 | 15 | 10 | * | Poland | 0 | 5 | 5 | * |
China, P.R. | 10 | 10 | 10 | Portugal | 10 | 10 | 10 | ||
Czech Republic | 0 | 0 | 0 | * | Qatar | 0 | 0 | 5 | * |
Denmark | 0 | 0 | 0 | * | Romania | 10 | 10 | 5 | * |
Egypt | 5 | 10 | 10 | * | Russia | 15 | 15 | 0 | * |
Ethiopia | 5 | 5 | 5 | San Marino | 0 | 0 | 0 | ||
Estonia | 0 | 0 | 0 | Saudi Arabia | 0 | NA | 5 | * | |
Finland | 5 | 0 | 0 | * | Serbia | 10 | 10 | 10 | * |
France | 10 | 10 | 0 | * | Seychelles | 0 | 0 | 5 | |
Georgia | 0 | 0 | 0 | Singapore | 0 | 10 | 10 | * | |
Germany | 5 | 0 | 0 | * | Slovak Republic | 10 | 10 | 5 | * |
Greece | 25 | 10 | 0 | * | Slovenia | 5 | 5 | 5 | * |
Guernsey | 0 | 0 | 0 | South Africa | 5 | 0 | 0 | * | |
Hungary | 5 | 10 | 0 | * | Spain | 0 | 0 | 0 | |
Iceland | 5 | 0 | 5 | * | Sweden | 5 | 10 | 0 | * |
India | 10 | 10 | 15 | * | Switzerland | 0 | 0 | 0 | * |
Iran | 5 | 5 | 6 | * | Syria | 0 | 10 | 10 | * |
Ireland, Rep. of | 0 | 0 | 0 | * | Thailand | 10 | 15 | 5 | * |
Italy | 15 | 10 | 0 | United Arab Emirates | 0 | 0 | 0 | ||
Jersey | 0 | 0 | 0 | Ukraine | 5 | 5 | 5 | * | |
Kazakhstan | 5 | 0 | 10 | * | United Kingdom | 0 | 0 | 0 | * |
Kuwait | 0 | 0 | 5 | * | United States | 5 | 10 | 0 | * |
Cryptoassets in Cyprus – Under the ambit of the 5th AML Directive
1st March 2021A. INTRODUCTION
The enactment of the amending law to the Prevention and Suppression of Money Laundering and Terrorist Financing Law 188(I)/2007 on 18.02.2021 (“the new AML Law”) fully implementing the EU Directive 2018/843 (“the 5th AML Directive”), constitutes the introduction of cryptoassets in the Cyprus regulatory system.Cyprus implements the 5th AML Directive
23rd February 2021 Key developments and the introduction of cryptoassets service providersThe Management and Control Test – Taxation of Cyprus and Foreign Companies
16th February 2021I. THE LAW
For taxation purposes, companies and individuals, are categorised as: (a) residents or (b) non – residents.NEW RULES EXPANDING THE CROSS-BORDER MOBILITY OF EU COMPANIES WITHIN EU – DIRECTIVE (EU) 2019/2121
15th February 2021Introduction
The freedom of establishment, one of the fundamental principles of Union law, allows for the mobility of businesses within the EU. Up until the entry into force on the 1st of January 2020 of the new Directive (EU) 2019/2121 on cross-border conversions, mergers and divisions (hereafter “the 2019 Directive”) one could argue that the harmonisation of the European company law system was sluggish and behind.Cyprus, a “bonus stage” in the gaming business world?
9th February 2021 Cyprus has long been an established hub for international business and recent years have seen an increasing number of tech companies and start-ups choosing Cyprus for their regional headquarters from where to service clients in, amongst others, Europe, Middle East and North Africa. In addition to being established as a safe and reliable jurisdiction, Cyprus is also high in the list of choices because of its cost-effective services, favourable tax and business environment, including more than 60 double tax treaties, as well as its skilled workforce.The Disclosure of Companies’ Beneficiaries – The implementation of the 5th AML Directive
8th January 2021 The 5th AML Directive As per the 5th AML EU Directive, (the “Directive”) member states should import the Directive into national legislation.Analysis of the Protocol amending the Agreement for the Avoidance of Double Taxation between Cyprus
21st October 2020EQUITABLE ESTOPPEL and LACK OF JURISDICTION for the refusal of injunctive relief
21st October 2020The Cyprus International Trust – a practitioner’s approach
18th August 2020Amended notional interest deduction provisions
18th August 2020 On 16 June 2020, amendment provisions on the Income Tax Law (N.66(I)/2020) were published in the Cyprus Government Gazette relevant with the application of the Notional Interest Deduction (NID).5% reduced vat rate applicable on tourism services
18th August 2020 VAT Decree κ.δ.π 268/2020 was issued by the cabinet on the 23rd of June 2020 to temporarily reduce the vat rate on tourism services.The end for visa requirements
9th July 2020 FAMILY MEMBERS OF EU CITIZENS WHO ARE NOT EU NATIONALS BUT HOLD PERMANENT RESIDENCE CARDS On the 18/06/2020 the Court of Justice of the European Union (΄CJEU΄) issued a judgement based on a request for a preliminary ruling in Case C-754/18 between Ryanair Designated Activity Company v Országos Rendőr-főkapitányság where it ruled, amongst others, on the issue of whether possessing a permanent residence card from a Member State exempts that person, not being a national of a Member State but who is a family member of an EU Citizen, from the requirement to obtain a visa in order to enter the territory of other Member States. With its judgement, the CJEU ruled that such persons, should be exempt from the entry visa requirement for the territory of Member States.COVID–19 AND THE PERFORMANCE OF CONTRACTUAL OBLIGATIONS
18th May 2020TAX INVESTIGATIONS ON CROSS BORDER STRUCTURES FROM FOREIGN TAX AUTHORITIES
18th May 2020 WHAT A TAXPAYER SHOULD EXPECT Introduction The last financial crisis changed the landscape around taxes throughout the world. The world has moved to greater transparency and additional measures were introduced in order to combat tax evasion and tax avoidance.Cyprus and DAC6
28th April 2020Transfer Pricing in Malta
28th April 2020 The tax environment has experienced significant changes the past years, in view of the international consensus to combat harmful tax practices. Countries around the world are collaborating to improve the coherence of international tax rules and ensure a more fair tax environment, through the OECD recommendations.Renegotiating the Cyprus Russia Double Tax Treaty – Suggestions
28th April 2020Data Protection in the Employment Sector During Covid-19 Outbreak in Cyprus
27th April 2020 Over the past few weeks, we have witnessed governments, public authorities as well as private organizations and companies within the EU, taking measures to contain the pandemic outbreak of Covid-19. Such measures have inevitably affected the processing of special categories of personal data especially with the context of employment.Covid-19 is «pushing» for the use of Electronic Signatures
27th April 2020 As the epidemic of the Covid-19 spreads around the globe, more and more professionals are required to work from home, a situation that leads to new challenges, one of which being the signing of documents. In order to tackle such an issue, more and more businesses are now using electronic signatures for the completion of agreements. What are however the legal implications that may follow from the use of electronic signatures with respect to their validity and how will the Courts in Cyprus treat such electronic signatures should their validity be challenged?OECD releases Transfer Pricing Guidance on Financial Transactions
5th March 2020 On the 11th of February OECD released the final Transfer Pricing guidance on financial transactions (the Report). The existing OECD TP Guidelines ( the Guidelines) will be updated to include these new guidelines which are expected to contribute to the avoidance of transfer pricing disputes and double taxation.DOUBLE TAXATION – Dispute resolution mechanism between EU member states
5th March 2020 INTRODUCTION The House of Representatives of the Republic of Cyprus has recently voted for the amendment of the Taxation of Income Law 118(I)/2002 (the ‘Law’) in order to be harmonized with the EU Directive 2017/1852 on tax dispute resolution mechanisms in the EU (the ‘Directive’).Rent Control Law (Law no. 23/1983) – Recent amendments on eviction for non – payment of rent
5th March 2020 Ι. Introduction In order to speed up procedures for eviction of tenants for purely reasons of non – payment of rent parliament has recently passed a law amending the Rent Control Law of 1983 (hereinafter referred to as the “Law”) which came into effect on the 31 January 2020.A critical approach on th Law Regulating the provision of Administrative Services
26th February 2020(Please refer to our website for the full article)
A. INTRODUCTION – THE LAW
TAXATION ON DIGITAL ECONOMY THE UNIFIED APPROACH
11th February 2020 A. INTRODUCTION A major change is expected to incur by the end of the new year 2020 in the tax environment at an international level, since new tax rules shall apply on digital economy.RELOCATION AND RETIREMENT IN CYPRUS THE TAX ASPECT
11th February 2020 A. INTRODUCTION Since 2004, Cyprus is a full Member State of the European Union. This fact, along with its good strategic location, highly skilled human capital, excellent infrastructure, reliable communications, relatively low cost of living, sound and stable legal system, warm climate and hospitality of its people, are some of the advantages which contribute to Cyprus’ continuous development as a competitive international financial, tourist, retirement and relocation centre.Cyprus – The ideal IP holdings jurisdiction
11th February 2020 A. INTRODUCTION Companies owning intangible assets, such as patents, copyrights etc. are often in need of an IP Holding vehicle through which they will hold these assets, license them for the generation of royalty income and conduct their business activities.Cyprus – The ideal IP holdings jurisdiction
31st January 2020 A. INTRODUCTIONSECURITY TOKEN OFFERINGS: EQUITY OR DEBT? HOW FINANCIAL STATEMENTS ARE AFFECTED
31st January 2020Beneficial Ownership Concept new interpretation from the Russian federal tax service
11th October 2019 The recent interpretative letter issued by the Russian Federal Tax Services (“FTS”) on 08th August 2019, has provided further guidance as to the application of the Beneficial Ownership Concept, further to the letter initially provided on the 12th of April 2018 which adopted a strict approach of the concept.Cjeu Ruled On The Application Of The Beneficial Ownership Concept
11th October 2019 The judgment of the Court of Justice of the European Union (CJEU) on February 26, 2019, in the “Danish Beneficial Ownership Cases”, can be perceived as a landmark on the interpretation of the Beneficial Ownership concept under the Interest and Royalties Directive (IRD) and the Parent-Subsidiary Directive (PSD).THE DECLINE OF THE MANAGEMENT AND CONTROL TEST and THE EU DIRECTIVE 2017/828
12th September 2019THE FULL DISCLOSURE OF EVERYTHING TO EVERYBODY DOCTRIN
INTRODUCTION
The law as to Listed Companies will undergo significant changes upon the implementation of the European Union Directive 2017/828, (hereinafter to referred to as “the Directive”).
Cyprus: A Relocation and Headquartering Center
2nd September 2019 WHY CYPRUS Cyprus, a services-oriented economy with years of experience in servicing international clients, is transposing itself as one of the top relocation and headquartering centers in Europe. The skills and knowhow obtained from lawyers and accountants during the past years are now put at work in servicing the international groups that are setting up regional headquarters in Cyprus. With a good choice of English-speaking private schools to ensure top class education as well as a range of private clinics to ensure access to good healthcare combined with the great climate conditions and the crystal clean beaches make Cyprus the obvious choice.EU Directive 2019/1151 – Formation of Companies and registration of Branches to be completed fully o
29th August 2019The European Parliament and the Council of the European Union on 20 June 2019 decided to amend the existing Directive in regards to the rules and procedures on the formation of companies, registration of branches, and filing of documents and information by companies and branches (“Online Procedures”) by issuing the Directive 2019/1151 (the “Directive”).
Blockchain Services in Cyprus
5th June 2019Cyprus as your Blockchain Jurisdiction of choice
Cyprus being an EU jurisdiction with a well-organized and regulated regime in full compliance with European legislation, provides additional comfort to prospective investors to rely on ICOs or STOs having Cyprus as their base. Further, Cyprus has a favorable tax system along with an extensive network of the double tax treaties making Cyprus an ideal jurisdiction from a financial aspect as well for both the issuing company and the investor. The flexible and well-organized infrastructure of Cyprus as well as the low costs for setting up an office in Cyprus for the ICO or STO project, are some additional advantages to be considered favorably for such a choice of jurisdiction.
Re-domiciliation of foreign companies to Cyprus
4th June 2019 A. INTRODUCTION As from 28.7.2006, the Companies Law Cap.113 (the “Law”) has been amended and the re-domiciliation of foreign companies to Cyprus is permitted, as per the provisions of the Law.Cyprus introduces legislation implementing the provisions of the EU Anti – Tax Avoidance Directive
24th May 2019A. INTRODUCTION
The Cyprus House of Representatives has recently voted a new law transposing the provisions of the European Union Anti-Tax Avoidance Directive (the “ATAD” or “Directive”) into the local legislation.
Listing on the Regulated Market of Cyprus Stock Exchange
23rd May 2019E. LISTING PROCESS
Depending on the method of listing, market and complexity of the issuer, the listing preparation and procedure can be summarized as follows:
(Please refer on our website for the chart)
Amendments to the Prospectus Law – L.114(I)/2005
23rd May 2019NO OBLIGATION TO PUBLISH A PROSPECTUS FOR PUBLIC OFFERING OF SECURITIES UP TO €5.000.000
A. INTRODUCTION
On 19 April 2019, the House of Representatives passed Law No. 57(Ι)/2019 amending the Public Offering and Prospectus Law No. 114(I)/2005, (the “Prospectus Law”).
Blockchain Services In Malta
16th May 2019Malta as your Blockchain Jurisdiction of choice
Malta is the perfect jurisdiction for your blockchain business. It is the first jurisdiction to effectively introduce a holistic regulatory framework targeting all the cryptocurrency and blockchain business.
Film Industry In Cyprus And Its Future – The Cyprus Film Scheme
16th May 2019 A. INTRODUCTION The Cyprus Film Scheme (the “Scheme”) which was drafted in accordance with European regulations, the objective of which is to promote the European culture and to provide investment aid for small and middle-sized enterprises (the “SMEs”), was approved in September 2017 as a means for promoting and advancing the film industry in Cyprus.The Alternative Investment Fund (aif)
16th May 2019A. INTRODUCTION
Cyprus is dynamically positioning itself as one of the top emerging investment fund centres in Europe. The fully upgraded and modernised legislative and regulatory framework, which is in full compliance with the European legislation, has enhanced competiveness and has placed the country in the league of important jurisdictions for the Alternative Investment Funds industry.
The Government, the Regulator and the Professionals have firmly committed in providing their full support in developing further the Funds industry in Cyprus and there is strong belief that this joint effort will create even more positive results.
The Alternative Investment Fund for Limited Number of Investors
15th April 2019 A. INTRODUCTION Cyprus is dynamically positioning itself as one of the top emerging investment fund centres in Europe. The fully upgraded and modernised legislative and regulatory framework, which is in full compliance with the European legislation, has enhanced competiveness and has placed the country in the league of important jurisdictions for the Alternative Investment Funds industry.The Registered Alternative Investment Fund
15th April 2019 A. INTRODUCTION Cyprus is dynamically positioning itself as one of the top emerging investment fund centres in Europe. The fully upgraded and modernised legislative and regulatory framework, which is in full compliance with the European legislation, has enhanced competiveness and has placed the country in the league of important jurisdictions for the Alternative Investment Funds industry.The Taxation Of Benefits In Kind In Cyprus
22nd March 20191. INTRODUCTION
The Tax Department has announced in October 2018 its intention to terminate the previous tax practice in relation to the benefits in kind, and instead provide clear guidelines as to the proper valuation of the benefits in kind, for the purpose of consistency, clarity and uniformity, clearing any ambiguities.
The broad definition of the Article 5 of the Income Tax Law in relation to the tax treatment of the benefits in kind, necessitate for a change as the previous tax practice was leaving room for the taxpayers to define and calculate the value of the Benefits in Kind in accordance to their discretion, allowing a more relaxed approach.
Based on the guidance, clear provisions for the valuation of the benefits in kind are set out, applicable as from 01.01.2019. Nevertheless, the subject provisions may be applied for previous years as well.
The Vat E-commerce Package
19th February 2019A. INTRODUCTION
The VAT E-commerce Package adopted by the Council on the 5th of December 2017 includes several changes that will be gradually implemented, some changes will be effective as from the 1st of January 2019 and the rest as from the 1st of January 2021.
Beneficial Ownership Concept – The approach of the Russian Federal Tax Service
9th January 2019The beneficial ownership of the income concept (“the Concept”) is nowadays a material aspect affecting the eligibility of the taxpayers to claim treaty benefits.
The Concept is defined by the OECD, however, it is not very specific leaving room for Tax Administrations of each jurisdiction to adopt a more relax or strict approach. In either case the Concept is a weapon to the tax authorities which enables them to attack aggressive tax planning by refusing granting treaty benefits to the entities that are not beneficial owners of the income. The most recent example is the new interpretation of the Russian Federal Tax Service (“FTS”) issued on 12th of April 2018 which followed a strict approach as of the concept.
MALTA – ICOs – THE NEW LEGISLATION (Updated 4th edition)
3rd January 2019Initial Coin Offering, known as “ICO”, is a relatively new phenomenon that has quickly become the main player in the Financial Services and Crowdfunding industries, as well as being the key subject of discussion in the Blockchain communities. In essence, it is one of the most advanced methods of raising finance from the public and is becoming increasingly popular to fundraise start-ups.
Security Token Offerings (STOs): The Future of Coin Offerings
5th December 2018The term ICO has been at the epicentre of discussions in the FinTech industry, being the main method of fundraising used by startup companies to develop innovative ideas on the Blockchain technology or other applications using Distributed Ledger Technology (“DLT”).
The Financial Instrument Test
27th August 2018A. INTRODUCTION
By enacting the Virtual Financial Assets Act (VFAA), the Maltese Government has regulated the Blockchain / ICO / DLT industry. The law appoints the Malta Financial Services Authority (MFSA) as the designated authority to oversee this business.
Since this industry has elements of the Financial Service Regulations (namely MiFID), it is important to clearly distinguish one from the other.
In order to ensure a clear difference, the MFSA has sought to further clarify the instances under which the new legislation applies. It has done this by introducing the Financial Instrument Test, which will be analysed below.
MALTA – ICOs THE NEW LEGISLATION
9th August 2018A. INTRODUCTION
Initial Coin Offering, known as “ICO”, is a relatively new phenomenon that has quickly become the main player in the Financial Services and Crowdfunding industries, as well as being the key subject of discussion in the Blockchain communities. In essence, it is one of the most advanced methods of raising finance from the public and is becoming increasingly popular to fundraise start-ups.
While all jurisdictions are shying away from regulating this industry, Malta has recently introduced a specific regulatory framework for ICOs and has become the first jurisdiction worldwide to regulate ICOs and Blockchain Technology.
This publication in fact seeks to give an overview of the recent laws and regulations relating to ICOs.
Malta – Virtual Financial Asset Services The New Legislation
9th August 2018A. INTRODUCTION
Blockchain technology has revolutionized the way of doing business globally. In fact, similar to Investment Services, a number of ancillary business activities are now connected to the industry, ejecting the Blockchain technology to endless fields of everyday life.
Instead of shying away from the technological challenge, the Maltese government has adopted legislation that regulates the offering of certain services (known as Virtual Financial Asset Services) to cryptocurrencies, which includes the operation of platforms to exchange such cryptocurrencies, portfolio management and providing investment advice amongst others. This makes Malta a pioneer in this sector and offers legal certainty, to such an extent that following such a commitment from the Government, crypto-giants are already relocating to Malta, seeking to benefit from a regulated environment and a beneficial tax rate.
THE CYPRUS BANKING CRISIS General Court of the European Union Judgments in Cases T-680/13 & T-786/14
24th July 2018On 13 July 2018 the General Court of the European Union ("the Court") issued its judgments on the cases T-680/13 and T-786/14 whereby the claims for compensation based on non-contractual liability launched by several individuals and companies in relation to the Cypriot banking sector claiming damages from the European Union have been rejected.
Listing on the Emerging Companies Market of the Cyprus Stock Exchange
28th June 2018A. INTRODUCTION
The Cyprus Stock Exchange provides to Cyprus and international companies a unique opportunity to list their shares or bonds on the Emerging Companies Market, a recognised eurozone unregulated exchange, which provides potential investors with an indication that the company is active and transparent, while the cost of listing is low comparing to the regulated market and other jurisdictions.
Brief Outline on Cyprus Taxation on Interest Dividends and Profits from the Sale of Titles
15th June 2018A. General
The below mentioned comments relate only to companies which are tax residents of Cyprus and refer to the worldwide income these companies may have. Precise reference to relevant provisions of the Income Tax Law or Special Defence Contribution Law, examples and definitions of terms used may be found in our separate extensive reports:-
MALTA – ICOs AND DIGITAL INNOVATION TECHNOLOGY – THE IMMINENT REGULATED ENVIRONMENT
14th June 2018While jurisdictions and legal systems around the world are expressing concern about cryptocurrencies, Malta is promulgating legislation that should give exchange owners and users certainty about the future. The rules are considered to be a one-stop-shop package that will deal with the establishment of a new authority, regulated exchanges and license Initial Coin Offering (ICO) companies and related business. The main aim is to offer legal certainty to the industry.
Initial Coin Offering (ICO) through Cyprus The Tax & VAT aspect
2nd May 2018ICOs have recently exploded and become an increasingly popular method of fundraising for start - ups and other companies with the intention to fund innovative projects based on the Blockchain technology.
Initial Coin Offering (ICO) Through Cyprus
22nd March 2018Initial Coin Offering, known as “ICO”, is a relatively new phenomenon in the crowdfunding industry being the main subject of discussion in the Blockchain and financial communities.
The new Prospectus Regulation EU
22nd March 2018On 30th June 2017, the European Parliament and the European Council published in the Official Journal of the European Union the Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the “New Prospectus Regulation”).
Relocation and Retirement in Cyprus – The Tax Aspect
22nd March 2018Since 2004, Cyprus is a full Member State of the European Union. This fact, along with its good strategic location, highly skilled human capital, excellent infrastructure, reliable communications, relatively low cost of living, sound and stable legal system, warm climate and hospitality of its people, are some of the advantages which contribute to Cyprus’ continuous development as a competitive international financial, tourist, retirement and relocation centre.
The new EU regulation on general data protection 2016/679 (“GDPR”)
7th March 2018A. INTRODUCTION
Globalization has rapidly and radically increased the ease in which data may be collected, stored and transmitted. The current Directive (95/46/EC) is out dated and does not correspond to today’s needs. Various reasons has led to the increased need for a united legal framework in relation to the protection of personal data, including the rapid technological developments, the excessive use of the internet, the use of internet banking, social media and more importantly the ease in which personal data are now made publicly available.
Notional Interest deduction 11/17
20th November 2017 Introduction Via the 2018 Budget Laws, the Maltese Government seeks to introduce new rules regarding deductions of notional interest on risk capital. The aim of the Notional Interest Deduction (NID) is to achieve neutrality between debt and equity financing. Such rules come into effect as from the year of assessment of 2018. Also in light of the international tax measures such as BEPS, the NID seeks to bring into line the tax treatment of the cost of equity with the cost of debt, since this latter is a tax-deductible expense. With this measure, debt financing is put on the same level playing field with equity financing, as entities now have the option to claim a deduction of a notional interest against their income.Ecj Case C-28/26 – Recoverability Of Input Vat Of A Holding Company
9th March 2017Case C-28/26 - Examines the right of a holding company to deduct input VAT on services acquired in the interest of its subsidiaries where those services are offered to its subsidiaries with no consideration.
On 12 January 2017, the European Court of Justice delivered its judgment in the case of MVM (C-28/16), concerning the right of MVM to deduct input value added tax (VAT) paid in relation to services procured in the interest of its subsidiaries.
European Commission proposes new VAT rules to support e-commerce and online businesses in the EU
9th March 2017On 1 December 2016, the European Commission has published proposals to improve the Value Added Tax (VAT) environment for e-commerce businesses in the EU. Particularly, the proposed changes, aiming to allow start-ups and SMEs, to buy and sell goods and services more easily online.
Common Reporting Standards – a practical review. (CRS)
7th February 2017>A. INTRODUCTION
The Common Reporting Standard (CRS) has been initiated by the Organization for Economic Cooperation and Development (OECD) aiming at improving international tax compliance and preventing tax evasion, through the automatic exchange of information between the countries that implement CRS. The participating countries are listed in Appendix I.
Article – EU commission proposal on E-commerce
3rd February 2017Article - European Commission proposes new VAT rules to support e-commerce and online businesses in the EU
On 1 December 2016, the European Commission has published proposals to improve the Value Added Tax (VAT) environment for e-commerce businesses in the EU. Particularly, the proposed changes, aiming to allow start-ups and SMEs, to buy and sell goods and services more easily online.
The Malta Individual Investor Programme (MIIP)
31st January 2017A. INTRODUCTION
The whole process to obtain a Malta passport via the Malta Individual Investor Program (MIIP) is divided into a number of stages.
With each stage, different documentation, forms and fees need to be submitted and paid accordingly.
The Malta Individual Investor Programme (MIIP)
31st January 2017A. INTRODUCTION
The whole process to obtain a Malta passport via the Malta Individual Investor Program (MIIP) is divided into a number of stages.
With each stage, different documentation, forms and fees need to be submitted and paid accordingly.
Comparative Guides
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Cyprus: Blockchain
Published: November 2023
Authors: Andri MichaelSavvina Miltiadou
This country-specific Q&A provides an overview of Blockchain laws and regulations applicable in Cyprus.
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Cyprus: Mergers & Acquisitions
Published: February 2024
Authors: Andrea IoakimYiolanda Rotsides
This country-specific Q&A provides an overview of Mergers & Acquisitions laws and regulations applicable in Cyprus.
- Tax
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