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

The Republic of Cyprus has concluded a Double Tax Treaty with Grand Duchy of Luxembourg. The treaty was signed on the 8th of May 2017.

The new treaty shall enter into force upon both Cyprus and Luxembourg 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.  

As the new treaty was publication in the Gazette on 29th of December 2017 it is effective from 1/1/2018.

The new treaty is based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention framework, 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 the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and avoidance through non taxation or reduced taxation effected through treaty shopping. 

The main provisions of the Double Tax Treaty

The convention shall apply to the following taxes: 

In the Republic of Cyprus:

  1. The income tax;
  2. The corporate income tax;
  3. The special contribution for the defence of the Republic; and
  4. The capital gains tax.

In the Grand Duchy of Luxembourg:

  1. The income tax on individuals;
  2. The corporation tax;
  3. The capital tax; and
  4. The communal trade 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 12  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 derived by alienation of shares in a company, where 50% of the value of the shares derives directly from immovable property situated in the other Contracting State may be taxed in that other state.

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

Withholding tax rate on dividend payments

  • 0% withholding tax where the beneficial owner is a company that holds at least 10% in the paying company’s capital; 5% otherwise

Withholding tax rate on royalty payments

  • 0% withholding tax

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.

 

Circular No. 27/2017 of the Department of Merchant Shipping on the Cyprus Tonnage Tax System (Law 44(I)/2010): Calculation of the Global Share for the Owners of Foreign Ships, Charterers and Ship Managers – applied for the fiscal year 2018

As per Circular No. 27/2017, issued by the Department of Merchant Shipping,  for the purpose of assessment of the Community-flagged Share of each company or group of companies under the Tonnage Tax system, the Director of the Department of Merchant Shipping (DMS) shall carry out an assessment upon the expiry of the third year (on 31st December) as from the date of opting to be taxed under the Tonnage Tax System (TTS) (i.e. on 31st December 2017 for the companies which entered the TTS on 01 January 2015 or during the period 02 January 2014 – 01 January 2015 (as per DMS Circular No. 13/2011) and thereafter a further assessment every three years throughout the duration of validity of the Law 44(I)/2010.

In the case of a company or group of companies whose Community-flagged Share at the time of assessment is less than its Reference Share (unless it is over 60%) then no additional non-Community ships can enter the TTS until it raises its Community-flagged Share back to its Reference Share as minimum.

However as provided by sections 15(3) (a), 25(3) (a) and 35(2) (a) of the Merchant Shipping (Fees and Taxing Provisions) Law of 2010 (Law 44(I)/2010 – the “Law”) and by paragraphs 8 and 10 of The Tonnage Tax (Special Provisions for the Calculation of the Community Flagged Share) Notification of 2010 (P.I. 536/2010- the “Notification”) those companies or group of companies may take advantage of the sectoral Global Share to include additional non-Community ships in the TTS.

In this case, the said owner, charterer or ship manager shall be subject to an increase of ten per cent (10%) on the total amount of tonnage tax payable for all the qualifying non- Community ships in his fleet, by virtue of the provisions of sections 15(4), 25(4) and 35(3) of the Law respectively.

As provided by paragraph 10 of the Notification and for the purposes of implementing sections 15(3) (a), 25(3) (a) and 35(2) (a) of the Law, the DMS has calculated, in accordance with paragraph 11 of the Notification, the Community-flagged Share of the relevant global tonnage eligible for tonnage tax in the Republic of Cyprus (Global Share) on a sectoral basis for 2016.

Upon the results of the calculations, the Director of the DMS informs that for 2016:

  • The Global Share for Owners of foreign ships has decreased in comparison to 2015 (from 27.29% to 24.52%),
  • The Global Share for Charterers has increased in comparison to 2015 (from 62.39% to 64.15%),
  • The Global Share for Ship Managers has decreased in comparison to 2015 (from 51.97% to 49.04%).

Therefore, Owners of foreign ships and Ship Managers whose Community-flagged Share is at the time of assessment (i.e. on 31st December 2017) below their Reference Share (unless this is over 60%) shall not include additional non-Community ships in the TTS until they raise their Community-flagged Share back to their Reference Share as minimum. The said ships cannot be considered as qualifying ships and will be taxed with corporate-income tax by the Department of Taxation and the company shall maintain separate books, records and accounts for those ships as provided by section 44 of the Law.

Charterers whose Community-flagged Share is at the time of assessment (i.e. on 31st December 2017) below their Reference Share (unless this is over 60%), may, for the fiscal year 2018, include additional non-Community ships in the tonnage tax system. In that case an increase of 10% on the tonnage tax on all non-Community ships will apply.

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

Мальта предлагает внесение изменений в систему налогообложения на основе ремитирования

Одно из изменений, предложенных в последнем проекте Бюджета, относится к налогообложению на основе ремитирования, при котором физические лица могут рассчитывать на минимальный ежегодный налог – 5 000 евро. Мальта предлагает чрезвычайно привлекательную систему налогообложения на основе ремитирования, в соответствии с которой, лица не имеющие домициля на Мальте, облагаются налогом только на доходы  возникшие или полученные на Мальте.

Для лиц, не имеющих домициля, минимальный налог оплачивается, когда лицо:

а) не является налогоплательщиком на Мальте в соответствии с одной из схем, устанавливающих минимальную сумму налога на Мальте, включая Программу по получению вида на жительство, Глобальную программу резидентства, Программу для лиц-пенсионеров и Положения о получении резидентства; а также

б) получает доход в размере как минимум 35 000 евро или эквивалент в другой валюте, возникающий за пределами Мальты. В случае супружеской пары будет учитываться совокупный доход.

  • При расчете минимального налога учитывается любой мальтийский подоходный налог, уплаченный путем удержания или иным образом, за исключением налога, уплаченного с прироста капитала.
  • Если доход лица, не имеющего домициля, в течение одного налогового года, образует налоговое обязательство менее 5 000 евро, то  минимальный налог в размере 5 000 евро все равно должен быть оплачен. Например, если физическое лицо обязано уплатить 2 500 евро по возникшим или полученным на Мальте доходам, , эта сумма налога должна будет еще быть «дополнена» на 2 500 евро.
  • В отношении налога на доход от прироста капитала, возникающего за пределами Мальты, никаких изменений не предлагается. Независимо от того, приведен ли этот доход на Мальту или нет, налог не уплачивается.
  • Ожидается, что эти изменения вступят в силу с 1 января 2018 года и будут введены в середине 2018 года.

За дополнительной информацией или содействием пожалуйста обращайтесь к нам.

Мальта вводит систему вычета условного процента ВУП (Notional Interest Deduction (NID)

На презентации бюджета Мальты за 2017 год, Министр финансов рассказал о введении режима вычета условного процента (Notional Interest Deduction (NID)). ВУП является новой налоговой льготой, направленной на приравнивание долевого и заемного финансирования.

ВУП – это инновационный инструмент сокращения налоговой нагрузки для компаний. Он позволяет компаниям вычитать  сумму условного процента на основании «рискового»капитала компании. Такие компании смогут прибегнуть к вычету условного процента в отношении их налогооблагаемого дохода, который считается начисленным на их собственный капитал.

Основные особенности ВУП

  • ВУП не будет обязательным для компаний.
  • Расчет: условная процентная ставка Х остаток рискового капитала компании на конец года.
  • Условная процентная ставка определяется как «безрисковая ставка»; текущая доходность к погашению по государственным облигациям Мальты с оставшимся периодом около 20 лет плюс премия в размере 5%.
  • Рисковый капитал определяется как: акционерный капитал, эмиссионный доход, нераспределенная прибыль, беспроцентный долг и любой другой капитал.
  • Заявленный к вычету ВУП в течение одного года не может превышать 90% от налогооблагаемого дохода компании. Любое превышение может быть перенесено на неопределенный срок для вычета из налогооблагаемого дохода в последующие годы. Оставшаяся сумма дохода облагается налогом по стандартной ставке 35%.
  • В рамках ВУП не производится возврат налога акционерам , что освобождает от необходимости двухуровневой структуры компании.
  • В целях налогообложения на Мальте при использовании ВУП, будет считаться, что акционер получает ту же сумму условного процентного дохода. Если акционер не является резидентом Мальты, то предполагаемый процентный доход не будет облагаться налогом на Мальте, при условии соблюдения определенных критериев.
  • В целях предотвращения злоупотребления режимом существуют специальные правила, направленные на противодействие уходу от налогообложения.
  • Налогоплательщики смогут претендовать на ВУП в отношении доходов за 2017 год, так как эти доходы облагаются подоходным налогом в 2018 году.

За дополнительной информацией или содействием пожалуйста обращайтесь к нам.

Circular No. 26/2017 of the Department of Merchant Shipping on The Protection of Cyprus Ships against Acts of Piracy and Other Unlawful Acts Law of 2012

The Department of Merchant Shipping (‘DMS’), based on the provisions of the Protection of Cyprus Ships against Acts of Piracy and Other Unlawful Acts Law of 2012 (“the Law”), issued  the following instructions under Circular No. 26/2017:

  1. The maximum total number of firearms a Private Ship Security Company (‘PSSC’) is entitled to register on its Cyprus certificate has been increased from four hundred (400) (as indicated previously by Circular No. 1/2016) to six hundred (600); and
  1. The number of firearms shall be proportional to the number of guards at a ratio of two (2) to one (1). That is, for each approved private ship security guard, the PSSC can register on its Cyprus certificate up to two (2) firearms and not vice versa as indicated by Circular No. 1/2016.

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

Malta proposes changes to the Remittance Basis of Taxation

Malta offers an extremely attractive remittance basis, whereby an individual ordinarily resident but not domiciled in Malta (“non-domiciled person”) is only taxed on income arising or received in Malta. One of the changes suggested in the Budget Bill 2018, relates to the remittance basis of taxation, where “non-domiciled person” may be subject to a minimum annual tax of €5,000.

The minimum tax of €5,000 will apply if the individual:

  1. Is Ordinarily resident in Malta but Non-domiciled therefore taxable on a source and remittance basis; and
  2. Is not taxable in Malta in accordance with a scheme establishing a minimum amount of tax in Malta, including The Residence Programme, Global Residence Programme, Malta Retirement Programme and the Residents Scheme Regulations; and
  3. Derives income arising outside Malta of at least €35,000 (not received in Malta), or its equivalent in another currency. In the case of a married couple, the €35,000 will be considered as a total.
  • In computing the minimum tax, one should take to consideration any tax paid in Malta, whether by withholding or otherwise, excluding tax paid on capital gains.
  • If the income of a non-domiciled individual in any single tax year results in a tax liability of less than €5,000, the minimum tax of €5,000 will be payable. For example, if an individual is liable to pay €2,500 on income arising or received in Malta, they will be required to ‘top up’ that tax by an additional €2,500.
  • No changes are proposed regarding tax payable on capital gains arising outside of Malta. Irrespective of whether this income is brought into Malta or not, no tax is payable.
  • It is anticipated that these changes will be implemented in the Maltese Income Tax Act with effect from 1st January 2018 upon approval by Parliament and will be introduced mid-2018.

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