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Cyprus Companies should be aware of the deemed distribution provisions of the Special Contribution for the Defence Law on profits and dividends.
In accordance with the Cyprus Tax Law, Cyprus Companies are deemed to have distribute in the form of dividends, 70% of their accounting profits after deducting the Cyprus corporation tax, from the end of the second year of the year when the profits has been related. Special contribution for defence at 17% for the tax year 2014 will be payable on such deemed dividends to the extent that the shareholders (companies and individuals) are Cyprus tax residents. The amount of deemed distribution is reduced by any actual dividends paid out of the profits of the relevant year at any time. In this respect, profits of the year 2012 are subject to a deemed distribution on 31 December, 2014.This special contribution for defence is payable by a Cyprus Company on behalf of its shareholders.
Cyprus Companies are therefore required to declare actual dividends or declare deemed distribution on their 2012 profits on or before 31 December 2014 and pay the relevant special defence contribution by 31 January 2015. Cyprus Companies which declare and pay special contribution for defence after the due dates, additional fines and penalties will be imposed.
How we can help
We can help you to declare actual dividends or declare deemed distribution and pay the relevant special defence contribution for your Company.
For more information please contact our offices:
December 2014
PKF / ATCO Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. This publication is for information purposes only and should not be considered as professional advice.
Cyprus companies have to pay the second installment of their provisional tax declared to the Cyprus Tax Department earlier this year.
According to the Cyprus Income Tax Law, Cyprus companies had the obligation to submit a temporary tax assessment / estimation of their 2014 chargeable income and pay the first installment by 31st July 2014.
The temporary tax assessment / estimation is payable in two equal installments, before or at the following dates:
– 31 July 2014
– 31 December 2014
A 10% surcharge is imposed on the difference between the tax as finally determined in the relevant annual report (financial statements) and the temporary tax assessment / estimation when the temporary assessment / estimation is less than the 75% of the chargeable income as finally determined in the financial statements.
Revised tax assessment / estimations can be submitted at the Cyprus Tax department on or before 31 December 2014.
Cyprus Companies which pay their taxes after the due dates an additional 5% fine is imposed.
Cyprus Companies that do not estimate to have any taxable income or tax due have no obligation for the submission of the tax / assessment estimation form.
If in according to the company’s estimates there is no taxable income or any tax due, the Cyprus Company is not required to make a declaration.
How we can help
We can help you to revise your Cyprus Company temporary tax assessment and pay your Cyprus taxes. For more information please contact our offices:
December 2014
PKF / ATCO Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. This publication is for information purposes only and should not be considered as professional advice.
What is Russian CFC legislation ?
Russian CFC legislation can be defined as the measures adopted by Russian government to promote transparency and to combat tax avoidance by Russian taxpayers using foreign company structures.
The measures
Russian Controlled Foreign Company (CFC) new rules: Main aspects
Russian shareholders will be required to pay taxes in Russia on the retained earnings of foreign companies in which they hold a controlling stake the same way as Russian Companies. Any tax already paid by foreign companies will be given as a tax credit. A Russian shareholder is considered to be a legal/physical person holding more than 25% (50% 2015) of shares in foreign company or more than 10% if together with affiliated persons hold more than 50%.
Exemptions form the Russian Controlled Foreign Company (CFC) new rules
There are a number of exemptions from the taxation of Russian Controlled Foreign Company (CFC) new rules:
– On profits of up to 10 million RUB from 1 January 2017 (50 million RUB in 2015 and 30 million RUB from 2016).
– Active foreign companies with more than 80% of active business income
– Foreign companies controlled and managed by Russian residents which:
– Other exemptions
For Foreign companies controlled and managed by Russian residents with which Russia has signed a double tax treaty emphasis will be given on:
Tax Residency
Tax residency will apply for Russian residents who hold shares in foreign companies which are tax residents in foreign country. Reference can be made to the provisions of Double Tax Treaty concluded between Russia and the foreign country.
Effective management
A foreign company is to be regarded as tax resident company in Russia if the place of effective management is in Russia. The effective management is in Russia if:
(Different rules apply on the disposal of Russian property rich companies and on foreign companies managed and controlled from Russia.)
Beneficial Owner
Income earned by foreign company which is derived from activities or investments in Russia will lose the benefit of reduced withholding tax provided for in the double tax treaties with Russia, if such foreign company is not the beneficial owner of such income. The beneficial owner should be person who has power over the usage and distribution of such income.
Russian tax resident deadlines
Who will be the ones that might not be affected by the Russian Legislation (Russian Deoffshorisation)?
A) Those who meet the criteria of Control Foreign Company (CFC) rules exemptions
Foreign companies controlled and managed by Russian residents should meet the criteria of Control Foreign Company (CFC) rules exemptions i.e.
– Double tax treaty should exist
– Must meet the effective tax rate test
– There is an exchange of information between Russia and the foreign country
– Be a tax resident of a possible proposed “white list”
– Demonstrate economic substance in a foreign country by:
i. Establish independent offices i.e. purchasing or renting office space etc.
ii. Maintain group head offices thus having fully fledged offices with business telephone lines, domains etc.
iii. Own valuable intangibles i.e. intellectual property and performing the most important functions within the corporate structure
iv. Proper allocation of group assets
v. Recruit staff to administer the day to day management work of the company
vi. Appoint qualified directors who will have the ability to make decisions and really understand the nature of business
vii. Maintain business records, minutes of conferences, general meetings, accounting function etc.
viii. Demonstrate additional reasons for presence. I.e. to control activity risks, to improve costs control etc.
B) Possibly Russians that will obtain tax residency in another country
Russians that will obtain tax residency in another country and forgo Russian tax residency may not be affected by Russian Deoffshorisation. This can be achieved with the aid of obtaining visa or citizenship (passport) in a jurisdiction other than Russia.
International discretionary trust in which Settlor / beneficiary demonstrates that he does not influence profit distribution and has no rights to revoke assets after their transfer to the trust (except by inheritance etc)
More specifically:
An international trust / trust company which holds and manages the assets on behalf of the Settlor / beneficiary. Discretionary trusts are more likely not to be affected by the Russian Deoffshorisation Law.
Investment funds (Alternative Investment Funds (AIF)) which hold multiple categories of portfolios and Russian investors hold less than 10% in the investment fund.
E) Structures with the combination of 3 and 4 above.
Conclusion
It appears that a large number of Russian interest foreign companies are not covered by the exemptions of the Russian Controlled Foreign Company (CFC) new rules, though the status of such companies will need to be clarified based on the above criteria. However it is important to emphasize that the double tax treaties with which Russia has concluded with foreign countries cannot be overwritten. Double taxation agreements demonstrate taxing rights between two contracting states which cannot be superseded by any domestic law of any state. New Russian legislation will therefore have effect only to the extent that it is in line with Russia’s double taxation agreements, unless Russia is prepared to terminate them, which seems highly unlikely, given the potential impact of such an action. It should also be emphasized that for those financial centers, with which Russia has concluded a double tax treaty can be an opportunity, especially if they are transparent, well regulated and offer to investors low cost services.
How we can help
– We can help you to obtain visa or citizenship (passport) in another jurisdiction.
– We can review your corporate structure (holding, financing and trading) and propose changes to your structure.
Contact us
Please contact us for a free personal consultation. All information will be treated in the strictest confidence. We are happy to sign Non Disclosure Agreement (NDA) or any other legal safeguards.
PKF / ATCO Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. This publication is for information purposes only and should not be considered as professional advice.
Is the new Russian law likely to affect international financial centers which Russian investors use to invest outside Russia? Are they possible solutions for Russian tax residents?
Russian President Vladimir Putin recently approved a bill to deoffshorise Russian businesses. The law is expected to enter into force on 1st of January 2015.
What is Russian deoffshorisation
Russian Deoffshorisation can be defined as the measures adopted by Russian government to promote transparency and to combat tax avoidance by Russian taxpayers using foreign company structures.
The measures
Russian Controlled Foreign Company (CFC) new rules: Main aspects
Russian shareholders will be required to pay taxes in Russia on the retained earnings of foreign companies in which they hold a controlling stake the same way as Russian Companies. Any tax already paid by foreign companies will be given as a tax credit. A Russian shareholder is considered to be a legal/physical person holding more than 25% (50% 2015) of shares in foreign company or more than 10% if together with affiliated persons hold more than 50%.
Exemptions form the Russian Controlled Foreign Company (CFC) new rules
There are a number of exemptions from the taxation of Russian Controlled Foreign Company (CFC) new rules:
– On profits of up to 10 million RUB from 1 January 2017 (50 million RUB in 2015 and 30 million RUB from 2016).
– Active foreign companies with more than 80% of active business income
– Foreign companies controlled and managed by Russian residents which:
– Other exemptions
For Foreign companies controlled and managed by Russian residents with which Russia has signed a double tax treaty emphasis will be given on:
Tax Residency
Tax residency will apply for Russian residents who hold shares in foreign companies which are tax residents in foreign country. Reference can be made to the provisions of Double Tax Treaty concluded between Russia and the foreign country.
Effective management
A foreign company is to be regarded as tax resident company in Russia if the place of effective management is in Russia. The effective management is in Russia if:
(Different rules apply on the disposal of Russian property rich companies and on foreign companies managed and controlled from Russia.)
Beneficial Owner
Income earned by foreign company which is derived from activities or investments in Russia will lose the benefit of reduced withholding tax provided for in the double tax treaties with Russia, if such foreign company is not the beneficial owner of such income. The beneficial owner should be person who has power over the usage and distribution of such income.
Russian tax resident deadlines
Russian deoffshorisation Solutions
A) meet the criteria of Control Foreign Company (CFC) rules exemptions
Foreign companies controlled and managed by Russian residents should meet the criteria of Control Foreign Company (CFC) rules exemptions i.e.
– Double tax treaty should exist
– Must meet the effective tax rate test
– There is an exchange of information between Russia and the foreign country
– Be a tax resident of a possible proposed “white list”
– Demonstrate economic substance in a foreign country by:
i. Establish independent offices i.e. purchasing or renting office space etc.
ii. Maintain group head offices thus having fully fledged offices with business telephone lines, domains etc.
iii. Own valuable intangibles i.e. intellectual property and performing the most important functions within the corporate structure
iv. Proper allocation of group assets
v. Recruit staff to administer the day to day management work of the company
vi. Appoint qualified directors who will have the ability to make decisions and really understand the nature of business
vii. Maintain business records, minutes of conferences, general meetings, accounting function etc.
viii. Demonstrate additional reasons for presence. I.e. to control activity risks, to improve costs control etc.
B) Obtain tax residency in another country
Obtain tax residency in another country and forgo Russian tax residency. This can be easily achieved with the aid of obtaining visa or citizenship (passport) in a jurisdiction other than Russia.
C) Set up an international trust
Set up an international discretionary trust in which Settlor / beneficiary demonstrates that he does not influence profit distribution and has no rights to revoke assets after their transfer to the trust (except by inheritance etc)
A possible structure could be:
– Set up a written agreement between a service company/ trustee and the settlor / beneficiary.
– Set up an international trust / trust company to hold and manage the assets on behalf of the Settlor / beneficiary. The trust should be a discretionary trust. The international trust / trust company is managed 100% by a service company / trustee.
– Transfer the assets held by the settlor / beneficiary to the international trust / trust company.
D) Set up an investment fund
Set up an investment fund (Alternative Investment Fund (AIF)) structure or transfer the assets to an existing investment fund (Alternative Investment Fund (AIF)) which it can hold multiple categories of portfolios. The investment fund (Alternative Investment Fund (AIF)) could take the form of a company. The Russian investor will hold less than 10% in the investment fund company but will hold 100% of its own assets. Russian investors own asset portfolio can be managed and controlled by a consulting company controlled by the Russian investor.
E) Set up a structure with the combination of 3 and 4 above.
Conclusion
It appears that a large number of Russian interest foreign companies are not covered by the exemptions of the Russian Controlled Foreign Company (CFC) new rules, though the status of such companies will need to be clarified based on the above de-offshorisation criteria. However it is important to emphasize that the double tax treaties with which Russia has concluded with foreign countries cannot be overwritten. Double taxation agreements demonstrate taxing rights between two contracting states which cannot be superseded by any domestic law of any state. New Russian legislation will therefore have effect only to the extent that it is in line with Russia’s double taxation agreements, unless Russia is prepared to terminate them, which seems highly unlikely, given the potential impact of such an action. It should also be emphasized that for those financial centers, with which Russia has concluded a double tax treaty can be an opportunity, especially if they are transparent, well regulated and offer to investors low cost services.
How we can help
– We can help you to demonstrate economic substance outside Russia and recommend appropriate procedures in your structure so you activities are managed and controlled outside Russia. I.e. establishing independent offices, recruit staff to administer the day to day management work, appoint qualified directors, maintain business records, keep minutes of conferences, keep accounting records etc.
– If you are a Russian resident, we can help you to relocate yourself and to obtain residency in another country. This can be easily achieved with the aid of obtaining visa or citizenship (passport) in another jurisdiction.
– We can review your corporate structure (holding, financing and trading) and propose changes to the structures such as setting up of an international trust, investment fund (Alternative Investment Fund (AIF) or a combination of both.
Contact us
Please contact us for a free personal consultation. All information will be treated in the strictest confidence. We are happy to sign Non Disclosure Agreement (NDA) or any other legal safeguards.
December 2014
