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Leading Tax Advice in Cyprus... and across the World. Investments in and out of the Czech Republic Avoidance of double taxation. Prague, 17 th June 2010. Cross border transactions & Double Taxation Cyprus and the favourable DTT concluded with theCzech Republic

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Leading Tax Advice in Cyprus... and across the World

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Leading tax advice in cyprus and across the world

Leading Tax Advice in Cyprus...

and across the World

Investments in and out

of the Czech Republic Avoidance of double taxation

Prague, 17th June 2010


Leading tax advice in cyprus and across the world

Cross border transactions & Double Taxation

Cyprus and the favourable DTT concluded with theCzech Republic

Investing in & out of the

Czech Republic via Cyprus

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Leading Tax Advice in Cyprus... and across the World

Agenda


Cross border transactions

Cross border transactions

International cross border transactions may result in double taxation where a tax treaty is not in place

How?

Different domestic tax provisions governing the tax basis

Source of income versus residence

Residence versus residence

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Leading Tax Advice in Cyprus... and across the World


Double taxation

Double Taxation

Cross border transactions – cross border trouble?

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Leading Tax Advice in Cyprus... and across the World

Country A resident

Income from business

deriving from Country B

Country A

Country B

Tax claims on Residency

Tax claims on Source of Income


Double tax treaties

Double Tax Treaties

Prevention of double taxation

More favourable tax provisions; withholding taxes are in most cases reduced and/or eliminated

Enable the free flow of investments

Provide for the principles in sharing tax revenue between the countries involved

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Leading Tax Advice in Cyprus... and across the World


Why cyprus

Why Cyprus?

Favorable Tax Regime

Extensive network of Double Tax Treaties concluded

Treaties with key-destinations including the Czech Republic

Offers tremendous possibilities for tax planning

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Leading Tax Advice in Cyprus... and across the World


New double tax treaty czech republic cyprus

New Double Tax Treaty:Czech Republic - Cyprus

Signed on 28 April 2009;

Replaces the existing treaty between Cyprus and theformer Czechoslovakia effective since 1980;

In force since 1 January 2010

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Leading Tax Advice in Cyprus... and across the World


Withholding taxes dividends interest royalties

Withholding taxes: dividends, interest, royalties

Maximum withholding tax rates under the new Protocol are:

0-5% on dividends;

eliminated where a direct holdingof at least 10% in the capital of the subsidiary for an uninterrupted period of 1 year can be established

No withholding tax at source on interest; taxable only at the level of the recipient;

10% on royalties.

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Leading Tax Advice in Cyprus... and across the World


Capital gains o n investments in real estate companies

Capital Gains on Investments in Real Estate Companies

Capital gains:

Gains from the sale ofshares or other rights and interests in a company, a partnership or a trust deriving more than 50% of their value from immovable property situated in the other contracting state may betaxed where the immovable property is situated;

Income from immovable property

Taxed in the country the immovable property is situated in

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Leading Tax Advice in Cyprus... and across the World


Foreign investments in the czech republic via cyprus

Foreign Investments in the Czech Republic via Cyprus

Investing in the Czech Republic via Cyprus:

Withholding taxes capped under the Tax treaty as follows:

0 – 5% WHT at source on dividends;

No WHT at source;

10% WHT at source on royalties

Capital Gains

Generally taxed at the level of the alienator

Express limitations apply affecting real estate companies

Double layer of Cyprus Companies may be suggested

Application of the favorable domestic legislation of Cyprus as opposed to the provisions of the double tax treaty between Czech Republic and Cyprus on capital gains.

Fig. 1

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Leading Tax Advice in Cyprus... and across the World

Cyprus Holding Co

Dividends/

Interest/

Royalties

Cyprus Subsidiary Co

Dividends/

Interest/

Royalties

Czech Co


Overview of cypriot tax implications

Overview of Cypriot Tax Implications

Cyprus Companies

Corporate Income Tax 10%

Gains from the sale of securities – exempt

Incoming dividends – exempt

Interest not in the ordinary course of business – exempt

Capital Gains Tax 20%

Only triggered by the direct or indirect sale of immovable property situated in Cyprus

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Leading Tax Advice in Cyprus... and across the World


Analysis of investment

Analysis of Investment

Cyp Holding Company:

Dividends received from Cyp Subsidiary Co:

Exemption from CIT;

Exemption from Defence Tax.

Gains on the sale of shares of the Cyp Subsidiary Co:

No Capital Gains Tax;

No Corporate Income Tax.

Cyp Subsidiary Company:

Dividends received from Czech Subsidiary Co:

Exemption from CIT;

Exemption from Defence Tax.

Dividends paid to CypHoldCo:

No WHT (defence tax)

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Leading Tax Advice in Cyprus... and across the World

  • Czech Subsidiary Company:

    • Dividends paid to the Cyp Subsidiary Co:

      • 0% WHT at source (DTT) provided that: a. 10% participation

      • b. 1 year holding

      • 5% WHT at source if above is not met


Exit structure benefits of using cyprus

Exit structure: benefits of using Cyprus

Direct disposal of CZ Co would trigger a tax obligation in the Czech Republic

Capital gains tax provision under the treaty

Double layer of Cyp Companies

Cyprus HoldCo disposes its participation in the Cyprus SubsCo

Cyprus will have sole right to tax gains deriving therefrom

No tax in Cyprus

No Capital gains payable on gains from disposal of any property located outside Cyprus;

Gains on the sale of securities are exempt from Corporate Income Tax.

Fig. 2

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Leading Tax Advice in Cyprus... and across the World

Cyprus Holding Co

Capital gains

Dividends

Cyprus Subsidiary Co

Dividends

Czech Co


Investing out of the czech republic in real estate

Investing out of the Czech Republic: in real estate

Fig. 3

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Leading Tax Advice in Cyprus... and across the World

Czech Co / individual

No WHT on

Dividends/interest/

Royalties (rights exercised outside Cyprus)

  • Cyprus:

  • 10% CIT

  • Dividends:

    • No CIT

    • Generally exempt from SCDF

      • No participation requirements

      • No holding requirements

  • Extensive tax treaty network

  • No tax on sale of securities

100%

Cyprus Holding Co

No/low WHT on

Dividends/interest/

royalties

Russia

Ukraine

Balkans

Latin America

Central Eastern

Europe

China

India


Analysis of investment1

Analysis of Investment

Cyprus is an EU Member State hence eligible to qualify for the tax exemption on incoming dividends

Favourable regime for structuring investments

Used as a holding company for investments in RE Companies

Dividends received from RE Cos

Low/no WHT at source

Generally no tax in Cyprus

Capital gains from the disposal of participation in RE Cos

No tax in Cyprus (Assumption: no Cypriot RE)

Favourable tax treaty provisions generally eliminate any right to tax at the source state

Dividend payments to CZ Co

No WHT in Cyprus as per the domestic law provisions (irrespective of treaty provisions)

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Leading Tax Advice in Cyprus... and across the World


Leading tax advice in cyprus and across the world

Leading Tax Advice in Cyprus...

and across the World

Thank you!


Leading tax advice in cyprus and across the world

Leading Tax Advice in Cyprus...

and across the World

www.eurofast.eu

[email protected]


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