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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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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

  • 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


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


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


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


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


  • 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


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


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


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


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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