CYPRUS – LITHUANIA TAX STRUCTURING. Holding Company - Inbound Investment Plan Establish Cyprus company to hold operating subsidiary in Lithuania for dividend.

Παρουσίαση με θέμα: "CYPRUS – LITHUANIA TAX STRUCTURING. Holding Company - Inbound Investment Plan Establish Cyprus company to hold operating subsidiary in Lithuania for dividend."— Μεταγράφημα παρουσίασης:

1 CYPRUS – LITHUANIA TAX STRUCTURING

2 Holding Company - Inbound Investment Plan Establish Cyprus company to hold operating subsidiary in Lithuania for dividend stream income Benefits Eliminate withholding tax in Lithuania on dividend payment to Cyprus Participation exemption on dividend income – No tax in Cyprus No withholding tax on dividends to parent whether EU or Non-EU No CFC rules in Cyprus Parent Non-EU Lithuania Opco Cyprus Holdco 0% withholding tax on dividends EU Parent – Subsidiary Directive Parent EU \ ЕС 0% withholding tax on dividends Cyprus – Lithuania: tax restructuring 2

3 Holding Company - Inbound Investment Investor from a country with no DTT with Lithuania Investment through Cyprus Dividends received by Cyprus holding Co exempt from tax (subject to conditions) No withholding taxes on payments out of Cyprus Investor Non EU No Treaty Cyprus Holding Co Lithuanian Subsidiary Cyprus – Lithuania: tax restructuring 3

4 Treaty Subsidiary Lithuanian Investor Co Lithuanian Investor Co Holding Company - Outbound investment Plan Lithuanian investor establishes Cyprus company to hold various EU and non-EU operating subsidiaries for dividend stream income Benefits Access to EU directives and DTTs of Cyprus in relation to holding EU and non-EU subsidiaries – No or low withholding tax on dividend (for example 5% in Russia, 0% in Ukraine) Full participation exemption on dividend income - No tax in Cyprus No withholding tax on dividends to Lithuanian parent No CFC rules in Cyprus Cyprus Holdco Cyprus Holdco EU Subsidiary EU Subsidiary Dividend payment 0% withholding tax Dividend payment 0% or low withholding tax Dividend income 0% tax Cyprus – Lithuania: tax restructuring 4

5 Holding Company - Outbound investment Plan Lithuanian investor establishes Cyprus company to hold various operating subsidiaries for dividend stream income Benefits Access to favorable treaties –No withholding tax on dividend from Ukraine –Withholding Tax in accordance with Treaty Full participation exemption on dividend income - No tax in Cyprus No withholding tax on dividends to parent No CFC rules in Cyprus Lithuanian Investor Cyprus Holdco Dividend payment 0% withholding tax Dividend payment 0% withholding tax Dividend income 0% tax Ukrainian Opco Ukrainian Opco Cyprus – Lithuania: tax restructuring 5

6 Holding Company with Foreign PE In Cyprus : 1.Profits from PE abroad exempt provided: Active income>50% or Tax burden >5% 2.Losses of PE set off against Cyprus Co’s other income (but recapture rule) 3.Profits in PE country exempt if they relate to construction and/or assembly activities lasting within the periods specified in the Cyprus DTT Network. Example: Austria<24 months Romania<12 months Russia Ukraine <12 months <24 months Other Eastern European Countries<12 months Cyprus Co Investor Foreign PE Cyprus – Lithuania: tax restructuring 6

7 Financing Company - Inbound Interest deductible in operating country (Lithuania) No WHT in Lithuania based on EU Interest & Royalties Directive Small margin taxable in Cyprus at 12,5% No withholding taxes on payments out of Cyprus Foreign Co / BankCyprus Financing Co Lithuanian Operating Co Interest Payable Interest Receivable Cyprus – Lithuania: tax restructuring 7

8 Finance Company - Outbound investment Plan Lithuanian investor establishes Cyprus company to be the group finance company of EU and non – EU operations. Capitalisation with equity Benefits Tax on profit margin 12,5% Access to EU interest directive and DTT network of Cyprus – No or low withholding tax on interest Interest deductibility in paying company No WHT on dividends paid from Cyprus Cyprus Financing Company Lithuanian Investor EU / non- EU Opco Dividend payment 0% withholding tax Interest payment 0% or low withholding tax Profit Margin - 12,5% tax Cyprus – Lithuania: Tax restructuring 8

9 Financing Company - Outbound Profits reduced in operating company Low or no WHT in operating company based on DTT or EU Directive Small margin taxable in Cyprus at 12,5% No withholding taxes on payments out of Cyprus to Lithuania Lithuanian Financing Co. Cyprus Financing Co. Operating Co Treaty/ EU Interest Payable Interest Receivable Cyprus – Lithuania: tax restructuring 9

10 Financing Company Margins on Loans – back to back structures Transfer Pricing Considerations – Acceptable indicative profit margins where low financing risk retained in Cyprus: Up to EUR€50m 0.35% From EUR€50m - EUR€200m0.25% Above EUR€200m0.125% Cyprus – Lithuania: tax restructuring 10

11 Intellectual Property Rights Royalty Company (Inbound): Royalty premiums deductible in Lithuania No WHT in Lithuania based on EU Interest & Royalties Directive (subject to conditions) Small margin taxed at 12,5% in Cyprus No withholding taxes on payments out of Cyprus As from 1/1/2012:  cost of acquisition of IP can be amortised over 5 years  80% of the profits from royalties, including the profit from disposal of the IP, exempt from 10% corporation tax in Cyprus EU or No DTT Licensor Co Cyprus Royalty Co. Lithuanian Operating Co Royalty Payable Royalty Receivable Cyprus – Lithuania: tax restructuring 11

12 Cyprus IP Co. Cyprus IP Co. Royalty company - Outbound investment Lithuanian Investor Co. EU or DTT Opco Dividend payment 0% withholding tax Royalty payment 0% or low withholding tax Profit - less than 2% effective tax Dividend Payable Royalty Receivable Cyprus – Lithuania: tax restructuring 12 Plan Lithuanian investor establishes Cyprus company to be the owner of intellectual Property Rights. Capitalisation with equity (contribution of the IP) Benefits Amortisation of cost of acquisition of IP over 5 years Tax on 20% of the profits from royalties, including profits from sale of IP, at the rate of 10% (therefore, effective tax rate lower than 2%) Access to EU interest & royalty directive and DTT network of Cyprus – No or low withholding tax on royalties Royalty deductibility in paying company No withholding taxes on dividend payments from Cyprus Royalty premiums are deductible in operating country Credit relief in Cyprus for WHT in operating country if any

13 Trading in Securities Profit is exempt from tax Use of Double Tax Treaties No withholding tax on payments out of Cyprus Result = 0% tax in Cyprus Cyprus Trading Co Buy Securities Sell Securities Cyprus – Lithuania: tax restructuring 13

14 Non Resident Trading Company Managed and controlled outside Cyprus Exempt from tax in Cyprus Non resident Cyprus registered company Use of EU VAT number and reputation Result = 0% tax in Cyprus Cyprus Trading Co Buy Products Sell Products Cyprus – Lithuania: tax restructuring 14

15 Employment Company Cyprus Company employs staff Charges at cost plus Profits taxable in Cyprus at 12,5% Profits reduced in operating country Employee costs reduced as employees pay less tax and S.I. Contributions * Employees exempt from tax in Cyprus Parent Co Cyprus Employment Co. Lithuanian Operating Co. * Depends on nationality of employees and rules of operating country Cyprus – Lithuania: tax restructuring 15

16 Cyprus International Trusts Plan Set up a trust under the Cyprus International Trusts Law of 2012 Benefits Exempt from any taxation in Cyprus Exempt from any Capital Gains and Inheritance Tax Protection of Property Confidentiality Trading activities through the set up of a company owned by the trust Beneficiary & Settlor Not residents of Cyprus Trustee At least one Cyprus tax resident Trust Property Cyprus – Lithuania: tax restructuring 16

17 International Collective Investment Schemes An ICIS can take one of the following legal forms: –Fixed Capital Company; –Variable Capital Company; –Unit Trust Scheme; –Investment Limited Partnership. Cyprus – Lithuania: tax restructuring 17

18 An example: Overseas Investments Overseas Investments Cyprus HoldCo ICIS Partnership General Partner (CyprusCo) General Partner (CyprusCo) Limited Partners Lithuanian Parent Cyprus – Lithuania: tax restructuring 18