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

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

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

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

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

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

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

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

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

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

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

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

The rate of Corporation Tax in Cyprus is 10%.  Companies pay Corporation Tax, Sole traders and partnerships do not pay Corporation Tax in Cyprus.

All companies that are tax-resident in Cyprus are taxed on income whether it comes from Cyprus or anywhere else in the World.  Companies which are not tax‑resident in Cyprus, but have a permanent establishment (office) in Cyprus are taxed on income from business activity conducted in Cyprus.

Some exemptions from Cyprus Corporation Tax are:

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

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

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

The following types of expenses are not allowed:

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

Tax Losses

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

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

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

Annual wear and tear

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

Here are some examples:

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

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

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

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

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

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

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

Contact us now and start saving tax.

A Cyprus Company from €700* might be the answer.

• 10% corporation tax; one of the lowest rates in the EU

• No withholding tax on dividends paid to non-resident shareholders

• No tax on the sale of shares or securities

• No inheritance tax

• No taxation on dividend income

• Group losses relief without any time restrictions (under certain conditions)

• Exempt from capital gains tax apart from the disposal of immovable property in Cyprus

Registration of your Cyprus Private Company Limited by Shares includes:

• Company name confirmation and reservation

• The appointment of your candidates as Director; Secretary, and Shareholder (YourBooks can provide nominee each if required)

• The registration of your chosen Cyprus address as the registered address (YourBooks can provide a registered address if required)

• The payment of government registration fees and stamp duties

• The registration of your €1,000 authorised share capital divided into 1,000 shares valued at €1.00 each

• The preparation and submission of the Memorandum and Articles of Association of your company

• The following documents, Apostilled, and in both English and Greek, will be sent to you by courier:

–        The original Certificates of; Incorporation; Directors and Secretary; Shareholders; Registered address

–        A bound copy of the Memorandum and Articles of Association of your company

–        Company seal

Buy today and start saving tax and increasing profitability

*€700 additional services are purchased

Prices do not include taxes

Tax Cheats will make false declarations, on their tax returns or maybe don’t declare anything at all.

A Tax Chump can’t be bothered to review the amount of tax he/she pays or to research more efficient models of how to order his/her affairs.

A Tax Champ actively seeks out the most effective legal model of paying only the tax which id due and nothing more.

Of more than 500 super-rich only 50 completed a tax return last year.  The remainder used the following top tips, so they didn’t have to…

Top tips for would be champs:

1. Non-domicile status:  “Seemed like a good idea at the time”. This was originally thought up to attract colonial types to move to the UK. If you’re a Russian oligarch this is the route for you.
2. Non-resident status: If you are a British citizen, live outside the UK and spend less than 90 days a year (for 4 years) you could qualify.  If you’re a two days a week CEO this might suit you?
3. Off-shore Trusts and Companies: for the rich and famous; the income from an offshore trust that is not in the name of the individual and is not brought back to the UK remains untaxed.  An offshore company is a poor mans trust but can be effective.

For more information on cost effective and legal tax plan visit www.yourbooks.com.cy

However, the same does not necessarily apply to UK companies:  Some of the UK’s biggest companies use complex and secretive but perfectly legal tax plans to limit the tax they pay.

Some companies will simply shift the management and control of the business to a low-tax country, however others adopt a different approach:

Diageo Plc (UK drinks giant) transferred ownership of brands including Johnnie Walker and J&B to an off shore subsidiary virtually tax-free.  It pays UK corporation tax equal to about 2% of gross profits.

Two major drug firms have shifted ownership of their brands to tax havens. Their UK operations can then be made to pay royalties for the use of the trademarks, reducing the “UK profit” and thus the amount of UK tax.

A household name has been deliberately loaded with debt so that it no longer has any profits to pay tax on.

According to the National Audit Office, 30% of the UK’s biggest companies pay no corporation tax – NOTHING!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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