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Afxentiou. Chartered Accountants. CYPRUS: A POPULAR ROUTE TO / FROM RUSSIA. FEBRUARY 2008 Stelios C Prodromitis -Member of the Board. Afxentiou. Chartered Accountants. 1. BASIC DATA ON THE CYPRUS ECONOMY. The island’s economy is characterized by dynamic growth and macroeconomic stability

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CYPRUS: A POPULAR ROUTE TO / FROM RUSSIA

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Cyprus a popular route to from russia

Afxentiou

Chartered Accountants

CYPRUS: A POPULAR ROUTE TO / FROM RUSSIA

FEBRUARY 2008

Stelios C Prodromitis -Member of the Board


1 basic data on the cyprus economy

Afxentiou

Chartered Accountants

1. BASIC DATA ON THE CYPRUS ECONOMY

  • The island’s economy is characterized by dynamic growth and macroeconomic stability

  • Cyprus economy is expected to continue growing at a steady rate over the next two years

  • The Cyprus economy grew by 3,8% in 2006, 3,9% in 2007 and expected to grow by 3,8% in 2008

  • Major sectors:

    • i) services (legal, financial, banking, accounting etc) and

    • (ii) tourism with >2,5 million per year


Cyprus a popular route to from russia

Economic Indicators Forecasts by the EU

2006

2007 F

2008 F

2009 F

GDP growth

3,8%

3,8%

3,9%

3,9%

Harmonised inflation

2,2%

2,0%

2,3%

2,1%

Fiscal deficit (% of GDP)

1,2%

1,0%

0,8%

0,6%

Unemployment rate

4,6%

4,3%

4,1%

3,9%

Public debt (% of GDP)

65,2%

60,5%

53,3%

49,6%

Afxentiou

Chartered Accountants

1. BASIC DATA ON THE CYPRUS ECONOMY (cont’d)

  • According to European Commission (EC) forecasts, Cyprus’ GDP growth is expected to remain stable in 2007, whilst EC expects a decline in fiscal deficit, harmonised inflation and unemployment


Cyprus a popular route to from russia

Afxentiou

Chartered Accountants

1. BASIC DATA ON THE CYPRUS ECONOMY (cont’d)

  • The Council of the European Union has decided on 10 July 2007 to grant permission to Cyprus to adopt the Euro as its national currency, as from 1 January 2008, at the pre-existing central parity of CYP1 = €1,7086 (€1 = CYP0,585274)

  • Based on recent statistics, the GDP per capita for 2006 is €18.500

  • In 2006, the GDP per capita was 94%, in purchasing price parity units, of the average price between member states of EU


Cyprus a popular route to from russia

Growth Rate of GDP in Real Prices

Afxentiou

Chartered Accountants

1. BASIC DATA ON THE CYPRUS ECONOMY (cont’d)

  • The diagram below presents the growth rate of GDP in real prices


Cyprus a popular route to from russia

Afxentiou

Chartered Accountants

2. CYPRUS TAX SYSTEM

  • Revised tax system in 2003, before EU accession

  • Single tax rate for all Cyprus resident companies-10%- the LOWEST rate in EU

  • Extensive double tax treaties network with over 40 countries

  • In line with EU requirements and within OECD requirements

  • Tax on Cyprus resident individuals and corporations on their worldwide income

  • Tax residency:

    • Corporations: management and control in Cyprus

    • Individuals: > 183 days in Cyprus


Cyprus a popular route to from russia

  • Double tax treaty- withholding taxes on:

Dividend

Interest

Royalty

Received in Cyprus

5%*

0%

0%

Paid from Cyprus

5%**

0%

0%

* 10% if investment < $100K

** 0% unilaterally

Afxentiou

Chartered Accountants

3. INVESTING IN RUSSIA

  • Cyprus is the second largest investor in Russia with over €27 billion investments in 2007

  • Cyprus holding company: most typical vehicle for inbound investments in Russia. Also “CIF” and trusts


4 cyprus holding companies

Afxentiou

Chartered Accountants

4. CYPRUS HOLDING COMPANIES

  • Favourable tax system

  • Wide network of double tax treaties

  • EU directives applied

  • Link of investments in and out EU as well as Russia


Cyprus a popular route to from russia

Afxentiou

Chartered Accountants

5. TAXATION OF HOLDING COMPANIES

  • Trading income @ 10% corporation tax

  • Dividend income exempt from corporation tax

  • No 15% special contribution on dividends from foreign corporations

    if: ownership >1% of S.C of paying company and other provisions

  • No capital gains tax on disposals of property abroad

  • No taxes on profits from equity, bonds, derivatives etc

  • No W/H tax on dividends, interest and royalty payments from Cyprus to non residents

  • Tax credit in Cyprus for W/H tax in the country of origin on income received by Cyprus company from abroad due to:

    • bilateral treaty provisions (sometimes credit for underlying tax too)

    • unilateral Cyprus tax law provisions


Cyprus a popular route to from russia

Afxentiou

Chartered Accountants

6. SETTING UP HOLDING COMPANIES

  • Private limited liability company ( most typical type)

  • No minimum/ maximum share capital

  • 1 director/ 1 corporate secretary/ 1 shareholder

  • Audited IFRS financial statements annually to Tax Office and Registrar of Companies

  • Consolidated financial statements except if: «small group» or ultimate holding company prepares itself

  • Time required: 2-3 weeks


Cyprus a popular route to from russia

Afxentiou

Chartered Accountants

7. FINANCIAL SERVICES COMPANIES

  • Approved by the Cyprus Securities & Exchange Commission: Cyprus Investment Firms (‘CIF’)

  • Zero tax on worldwide gains from dealing in equity, bonds, derivatives or other instruments

8. TRUSTS

  • To protect assets in Russia

  • Zero taxation


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