Archive for January, 2018

VAT and Holding Companies: (VAT Interpretative Circular – VAT treatment of holding companies)

The Cyprus Tax Department issued on 9 January 2018 an Interpretative Circular (EE222–Holding Companies), clarifying the treatment of input VAT for holding companies based on existing ECJ case law.

Summary of the circular

The Circular distinguishes between cases whereby there is simple purchasing and holding of shares in companies and where there is management or administration of companies in which shares are held. This fundamental distinction is what will determine whether input VAT can be recovered by the holding company.

Purchasing and holding shares in companies and the relevant VAT treatment

The circular states that the mere holding of shares in other undertakings, without being involved in their management either directly or indirectly, for the purpose of receiving dividends does not comprise an economic activity for VAT purposes. Hence, such a holding company is not entitled to register for VAT and reclaim input VAT. The above position of the Cyprus Tax Department relies on the decisions of the CJEU in numerous cases, with the most important one being the CJEU Case C-60/90 Polysar Investments Netherlands.

The treatment of the Input VAT which is incurred by such a holding company is as follows:

VAT on local supplies that were made by Cypriot suppliers

Any VAT suffered on services supplied by local suppliers in Cyprus is not recoverable and therefore it constitutes an actual cost for the holding company which must be expensed.

VAT on intra-community supplies that were made by EU suppliers

Any intra-community services received by the Cypriot holding company from service providers which are established in another EU member state will be regarded as a Business to Consumers (B2C) service as a pure holding company cannot be regarded as a relevant taxable person. Hence, the EU service provider will charge the VAT of the other EU member state on its invoice, and the Cypriot holding company will not have the right to claim back such VAT. Therefore, the Input VAT constitutes again an actual cost for the holding company which must be expensed.

Management of companies and the relevant VAT treatment

The circular states that where the holding company is involved directly or indirectly in the management of the companies it holds shares in, by administrating, coordinating, organising, deciding or overseeing the actions of these companies, then the holding company engages in economic activity.  The dividend income received by the holding company may be regarded as a consideration for the direct or indirect management of the companies it holds shares in.  The areas the holding company may be involved in are financial, commercial, technical etc.  The holding company must prove that it has the available human and technical resources for supplying such management services.

As there are no certain criteria in determining the direct or indirect involvement in the management of subsidiaries, the Circular states that each case will be examined on its own facts.  Examples of evidence towards that effect would be the existence of common directors between the holding company and the companies it holds shares in and board minutes detailing the decision making process.

If such a holding company buys in such services and then resells them, then input VAT can be claimed if the services purchased are used for creating taxable supplies.

However, no input VAT can be claimed where the services purchased are used for the benefit of other companies it holds shares in.

The same VAT treatment applies to purchases related to raising finance for the acquisition of capital to be used for the acquisition of shares in its subsidiaries and the provision of its services. If however the company is exercising both economic and non-economic activities, then input VAT must be apportioned and claimed accordingly.

Specifically, the VAT treatment of the input VAT which is incurred by a holding company involved in the management of its subsidiaries is as follows:

VAT on local supplies that were made by Cypriot suppliers

Any VAT suffered on services supplied by local suppliers in Cyprus is recoverable only on the company’s economic activities, and the taxable portion thereof. On that ground, the holding company shall apportion the locally paid VAT accordingly. Any non – recoverable Input VAT shall be expensed.

VAT on intra-community supplies that were made by EU suppliers

Any intra-community services received by the Cypriot holding company from service providers which are established in another EU member state will be regarded as a Business to Business (B2B) service, and the holding company will be eligible for VAT registration in Cyprus in order to apply the reverse charge mechanism in Cyprus. The relevant reverse charge input VAT is recoverable based on the company’s economic activities, and the taxable portion thereof. On that ground, the holding company shall apportion the input VAT accordingly. Any non – recoverable Input VAT shall be expensed.

VAT on supplies that were made by non-EU suppliers

Any services received by the Cypriot holding company from service providers which are established outside EU will be also regarded as a Business to Business (B2B) services, and the holding company will be eligible for VAT registration in Cyprus in order to apply the reverse charge mechanism in Cyprus. The relevant reverse charge input VAT is recoverable based on the company’s economic activities, and the taxable portion thereof. On that ground, the holding company shall apportion the input VAT accordingly. Any non – recoverable Input VAT shall be expensed.

Summary of key implications

The Circular has emphasized the opportunity, for holding companies involved in the management of the companies they hold shares in, to recover input VAT under certain conditions.  It would be advisable for such companies to obtain a tax ruling confirming the extent of the recoverability of their input VAT.

Circular No. 01/2018 of the Department of Merchant Shipping on the Amendments to the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, STCW 78, as amended

As per Circular 01/2018 issued by the Department of Merchant Shipping (DMS) the amendments to the STCW Convention and STCW Code came into force on 01.01.2018. These amendments relate to the mandatory minimum requirements for the training and qualification of masters, officers, ratings and other personnel on passenger ships as well as mandatory minimum requirements for the training and qualification of masters and deck officers on ships operating in polar waters. These amendments can be found in the annex of Resolution MSC.416(97) and Resolution MSC.417(97) of the STCW Convention and STCW Code respectively.

The new amendments apply to Cyprus flagged passenger vessels and Cyprus flagged vessels which are operating in polar waters, foreign-flagged passenger vessels visiting Cyprus ports and seafarers employed on board the above mentioned vessels.

The DMS shall recognize seafarers’ certificates issued as per paragraph 4 of Resolution MSC.416(97), by a Country whose certificates of competency are recognised by the Republic of Cyprus.

The DMS supports the early voluntary implementation of the new amendments related to the mandatory minimum requirements for the training and qualification of masters and deck officers on ships operating in polar waters.

For further information or assistance, please do not hesitate to contact us.

Кипр и Саудовская Аравия подписали конвенцию об устранении двойного налогообложения

Правительства Республики Кипр и Королевства Саудовской Аравии подписали Конвенцию об устранении двойного налогообложения (далее «Соглашение»). Соглашение было подписано 1ого Января 2018 года.

Новое Соглашение вступает в силу, как на Кипре, так и в Саудовской Аравии, на момент обмена уведомлениями о том, что формальные процедуры ратификации были завершены. Положения Соглашения в отношении налогов вступят в силу в обоих Договаривающихся Государствах с или после 1ого Января после ратификации.

Соглашение основано на положениях Организации Экономического Сотрудничества и Развития (ОЭСР), с некоторыми изменениями, и будет способствовать расширению торгово-экономических отношений между двумя странами.

Преамбула к Соглашению говорит об устранении двойного налогообложения на доходы и о предотвращении уклонения от уплаты налогов.

Основные положения Соглашения

Соглашение относится к следующим налогам:

  1. Применительно к Республике Кипр:
    • Подоходный налог
    • Корпоративный налог на доход
    • Специальный сбор на защиту Республики; и
    • Налог на прирост стоимости капитала
  2. Применительно к Королевству Саудовской Аравии:
    • Закят; и
    • Подоходный налог, включая инвестиционный налог на природный газ

Постоянное представительство

Термин «постоянного представительства» в контексте конвенции означает постоянное место деятельности, через которое полностью или частично осуществляется предпринимательская деятельность.

Строительная площадка, строительный, сборочный или монтажный объект могут представлять собой постоянное представительство только в том случае, если такая площадка, объект или деятельность существует более 6 месяцев.

Налог на прирост стоимости капитала 

Доходы получаемые от продажи недвижимого имущества, будут облагаться налогом в том Договаривающимся Государстве, где оно находится.

Термин «недвижимое имущество» имеет то значение, которое он имеет по законодательству Договаривающегося Государства, в котором находится рассматриваемое имущество.

Доходы от продажи существенной доли в капитале компании (не менее 25%), которая является резидентом одного Договаривающегося Государства, может облагаться налогом в этом Договаривающемся Государстве.

Международные перевозки

Доходы от эксплуатации морских или воздушных судов в международных перевозках, подлежат налогообложению только в том Договаривающемся Государстве, где находится эффективное управление.

Гонорары директоров

Гонорары директоров, получаемые резидентом одного Договаривающегося Государства в качестве члена совета директоров компании, которая является резидентом другого Договаривающегося Государства, могут облагаться налогами в этом другом Государстве.

Налог у источника при выплате процентов

  • 0%

Проценты включают доходы от задолженностей, возникающих в Договаривающемся Государстве и выплачиваемые резиденту другого Договаривающегося Государства

Налог у источника при выплате дивидендов

  • 5%

Налог у источника при выплате роялти

  • 5% удерживается при использовании промышленного, коммерческого и научного оборудования / 8% во всех остальных случаях

 

Cyprus Signs a Tax Treaty with Saudi Arabia for the Avoidance of Double Taxation

The Republic of Cyprus has recently concluded a Double Tax Treaty with Kingdom of Saudi Arabia. The treaty was signed on the 3rd of January 2018.

The new treaty shall enter into force upon both Cyprus and Saudi Arabia exchanging notifications that the formal ratification procedures have been completed. The provisions of the treaty with respect to taxes will have effect in both contracting states on or after 1 January post ratification.  

The new treaty is based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention framework, with some modifications and will contribute to the expansion of Cyprus’ trade and economic relations between the two countries.

The preamble to the double tax treaty refers to both the avoidance of double taxation and prevention of tax evasion.

The main provisions of the Double Tax Treaty

The convention shall apply to the following taxes:

  1. In the Republic of Cyprus:
    • The income tax
    • The corporate income tax
    • The special contribution for the defence of the Republic; and
    • The capital gains tax
  1. In the Kingdom of Saudi Arabia:
    • The Zakat; and
    • The income tax including the natural gas investment tax

Permanent Establishment

The definition of the permanent establishment in the context of the double tax treaty is a fixed place of a business through which the business of an enterprise is wholly or partly carried on. Any building site or construction or installation project constitutes a permanent establishment only if it lasts more than 6 months.

Capital Gains Tax

Gains from the disposal of immovable property are taxed in the country where the immovable property is situated.

The term “immovable property” shall have the meaning which it has under the laws of the Contracting State in which the property in question is situated.

Gains from the alienation of substantial participation (at least 25%) in a company which is resident of a Contracting State may be taxed in that Contracting State.

Shipping and Air Transport

Profits from the operations of ships or aircraft in international traffic shall be taxed only in the Contracting State in which the place of effective management is situated.

Directors’ fees

Directors’ fees derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Withholding tax rate on interest payments

  • 0% withholding tax

Interest includes income from Debt-Claims arising in a Contracting State and paid to a resident of the other Contracting State.

Withholding tax rate on dividend payments

  • 5% withholding tax

Withholding tax rate on royalties payments

  • 5% withholding tax on the use of industrial commercial and scientific equipment / 8% on all other.

For further information or assistance, please do not hesitate to contact us.