International Business Companies (IBC) are taxed at the rate of 10% on their taxable income. All expenses incurred in earning the income are tax deductible. Capital gains are tax free in Cyprus (except on immovable property located in Cyprus). The provision of services and the sales of goods by the I.B.C. are outside the scope of Cyprus Value Added Tax.

There is no withholding tax on the payment of dividends, interest, royalties and management fees an I.B.C. company to non-residents.

The treaty with Russia

Under the treaty (1st January 2000) are no withholding taxes on the payment of:

- Interest

- Management fees

- Royalties

- Leasing of equipment

In relation to dividends the treaty provides for 5% withholding tax if the investment is greater than US$100.000, otherwise 10% is applicable.

Income from movable property, including capital gains, is not subject to tax in Russia. Income from immovable property, including capital gains, is taxed in Russia.

The treaty applies to persons (individuals or corporations) who are taxed in Cyprus by reason of domicile, incorporation or place of management. IBC qualify under the treaty because they are taxed in Cyprus by reason of their incorporation.

A tax exemption certi­ficate is required to be obtained from the Russian tax authorities, which is given on the basis of tax certi­ficate obtained from the Cyprus tax authorities.

Structuring the investment activity – An example

The investor sets up a Cyprus company, either by himself or together with other interested parties. The Cyprus subsidiary becomes the partner in a Russian joint stock company.

The Russian Joint Stock company becomes the operating company in Russia which generates all income. The Russian Joint Stock company pays Russian taxes on its pro­fits and distributes the dividend to its shareholders at reduced withholding taxes. Russian taxation may be reduced by charging management fees, interest, royalties etc.

The Cyprus IBC will not pay Cyprus income tax on the dividend received because it will claim a tax credit for the 5% tax paid in Russia. It can then distribute the pro­fits after tax to its shareholder without any withholding tax.

The investor can sometimes treat the dividend as exempt surplus and not pay any tax in his country (e.g. Canadian investor).

Many different structures can be set up. These are to be designed taking into consideration the merits of each case.

It is imperative for any company wanting to be established in Cyprus to ask the right questions and take the proper decisions regarding the kind of the legal entity and everything following after this.

Type of Legal Entity

The most important question which needs to be asked is which tool is the most appropriate for a client. Is it a company? After deciding the right tool, the next question on the table is the structure. A corporate structure can take three forms, public limited company, private company and limited liability company.

Company Name

It is important to choose the name of the company carefully as it will play a consistent role in its incorporation. This is so, as after choosing the name, the company must be submitted to the Registrar of Companies (by your lawyer). While at the Registrar of Companies, the name will be checked and if it is too similar to another, misleading, deceptive or offensive the company will not be given a permit and as a result will not be incorporated.

The Share Capital

Each company is authorized to issue a specific amount of shares to its shareholders, also known as share capital. These are then divided into individual shares of fixed sums, commonly upon creation the share capital will be 1000 shares of € 1 each. These numbers can increase when issuing new shares at any given time.

The Shareholders

Shareholders are the ones to whom the shares are allocated. There must be at least one registered shareholder, which can be either a person or a legal entity (i.e. company).

Directors

The appointed director or directors of a company can either be Cypriot or a foreigner. However the nationality of the director will play a role in determining if the company can benefit from the Cypriot taxation laws (if it is managed and controlled in Cyprus).

The main responsibility and role of the directors is the approval of the constitutional documents of the company, such as the Memorandum of Association. Furthermore they have the obligation to ensure the implementation of the company’s fundamental documents and Cypriot Law in its day to day functioning.

Company Secretary

The post of company secretary is fulfilled by a person voted by the Board of Directors. This person is the administrator of the company instructed by the Board of Directors and, without the Board’s or Shareholders’ approval, has no binding authority.

Registered Office

This is the official address of the company and to which all correspondence will be sent. For Cypriot companies it is imperative that the registered address be in Cyprus.

Objects

The Memorandum is considered to be the most important company document. Although it is drafted in general terms, it is the document clarifying the fields in which the company is allowed to take action and undertake the activities, again, described in the Memorandum.

Articles of Association

The Articles of Association are the main document describing the functioning of a company. They outline the procedures for any company activity. Each document drafted is according to the client’s needs and wants for their company. It is not uncommon for these articles to change in time as long as this change follows the appropriate procedure.

Creation of the Company

For the ease of clients, there are some companies already created and incorporated (off-the shelf companies) which can be changed to fit, accordingly, the client’s needs. Or they can be created from scratch based on the client’s description of the company they have in mind.

Our Firm can provide this for you, as well as any other assistance needed for the incorporation of the company. The firm provides the client with services regarding all the above mentioned steps towards becoming the owner of a Cypriot company.

Cyprus is now a premier holding, finance, royalty and trading company jurisdiction and it is also utilized in other types of tax structures e.g. employment structures, shipping structures and foreign permanent establishment structures.

Cyprus has developed a reputation as one of the most attractive European tax regimes ranking top for the stability of its tax law, consistency in interpretation of tax legislation as well as comparatively low tax rates.

By providing a transparent and efficient environment the tax system of the island enhances competitiveness and contributes to making the country a very attractive jurisdiction in which to structure international operations.

Cyprus is now a premier holding, finance, royalty and trading company jurisdiction and it is also utilized in other types of tax structures e.g. employment structures, shipping structures and foreign permanent establishment structures.
Taxable profits of all Cyprus tax resident companies are taxed at the corporate tax rate of 10% although various tax exemptions on income make Cyprus’ tax regime one of the most favourable worldwide.
Tax legislation distinguishes between tax resident and non-tax resident companies

• Member of the Commonwealth, The Council of Europe and The United Nations since 1961
• Member of the International Monetary Fund and The World Bank since 1962
• Member of The World Trade Organization since 1995
• Member of the European Union since May 2004 and the Euro zone since 2008
• Strategic location: Europe’s middle-eastern outpost
• Politically and economically stable environment
• Robust liquid banking system
• Strong credit ratings
• 10% Corporate tax
• Sophisticated legal framework based on English Legal System applying common law, transparent regulatory environment
• Advanced telecommunications
• Highly Qualified and multilingual labor force
• International shipping centre
• Enviable quality of life

Each trust or foundation needs to be carefully formulated including a detailed needs analysis with special attention on the tax aspects. In addition, special care is taken when choosing the appropriate jurisdiction ( British Virgin Islands, Panama, Liechtenstein), the rights of the settlor/founder and beneficiaries, their place of residence and the location of the assets. This is our speciality and for further information on the mechanisms and procedures involved, please email us.

Now, we will define exactly what a trust and foundation are and the benefits that may be derived from using them.

The main characteristic of a trust is that the legal right to handle the trust assets, is seperate from the right to benefit from them. The settlor of a trust (the one who sets up the trust), transfers land, money and other property to the trustees, who acquire legal ownership of these assets, but are bound by law to manage them in the best interest of the beneficiaries, who have the beneficial ownership.

A trust is established by a trust deed or will and the law applicable to the trust, trustee’s powers, administration rules, trust duration and final distribution of the assets are defined by the trust instrument. For added protection, a settlor may appoint a third party, protector, who exercises control over the trustees in regards to certain important decisions. The rights of the beneficiaries are detailed in a letter of wishes from the settlor to the trustees.

A foundation is a seperate legal entity which the founder endows with assets for a particular purpose as specified in the foundation deed and articles. The purpose of a foundation is usually to provide benefits for members of a family and is usually formed in Liechtenstein due to the flexibility offered in this jurisdiction. A board, appointed by the founder, is responsible for managing the assets and distributing the benefits to the beneficiaries, in accordance with the foundations articles and by-laws. A supervisory committee may be used where prior consent is necessary for important decisions. The articles are supplemented by confidential by-laws detailing the composition and powers of the supervisory committee as well as the names and/or classes of beneficiaries.

One of the benefits of a Trust or Foundation is the ability to limit the first beneficiaries to income and/or a portion of the assets thereby preserving the family fortune for the benefit of several generations. Another possibility may be for the protection of minors and young adults, by having the trust or foundation support them financially and defer their right to receive a share of the assets until they have reached a certain age.

For tax purposes, the use of a trust or foundation allows the elimination of wealth tax that would normally be imposed on the assets placed therein, as well as tax on capital gains resulting from their subsequent sale. Income tax is deferred or eliminated as long as the assets are kept within the trust or foundation and no distribution is made. Transmission of the assets to the beneficiaries does not give rise to inheritance tax on the death of the settlor or founder, or if new beneficiaries are substituted for those no longer alive.

For further information and a quotation on establishing an offshore trust or foundation, please email us and we will provide complete and detailed information.

An exporter in Australia sells $1,000,000 of exports to Malaysia each year. On average, the cost of the goods supplied and the operating expenses are approximately $600,000, thus earning the exporter $400,000 on sales, before taxes. On average, the taxes are approximately $160,000 thus leaving a net profit of $240,000 after taxes.

Now, we will examine the exact same situation, but this time using a tax-haven corporation.

The Australian exporter establishes a tax-haven corporation managed by our company. The exporter sells his products to the tax-haven corporation on paper for $600,000. The tax-haven corporation in turn sells the products to the Malaysian company for $1,000,000 and earns $400,000 in a tax-free environment and saves approximately $160,000 in taxes. The Australian exporting company shows no profit ( $600,000 gross sales less $600,00 cost of goods and operating expenses) and thus pays no tax.

This $400,000 in tax-free income may then be deposited in any bank account or investment instrument worldwide according to the wishes of our client.

We form all of our tax-haven corporations in the British Virgin Islands and Panama due to their no-tax policies on import/export transactions. To provide total anonymity, the nominee officers and directors are provided by our company. Bearer shares are then delivered to our clients as proof of ownership and ultimate control. Our company will follow explicit instructions from our clients and will manage their offshore tax haven corporations accordingly.

Once a tax-haven corporation has been formed, we will assist our client in setting up a post office box, telex and telephone/fax service for their new offshore company. For further information and a quotation on setting up an offshore tax-haven corporation, please email us and we will provide complete and detailed information.

Our staff is composed of mostly corporate administrators, bankers and accountants whose expertise in financial services are comprehensive and of the highest standard.

Please peruse our asset management services below:

• Current and Savings bank accounts in all major currencies.
• Call and Time deposits in all major currencies.
• Short Term Instruments including money market and U.S. treasury bills.
• Foreign Exchange Trading at competitive rates, both spot and forward.
• Comprehensive securities trading including stocks, bonds and mutual funds may be executed through our experienced private banking network. We offer instant information on more than 100 markets and access to every major financial center. The absence of investment restrictions offers an extensive array of available investments.
• We offer an efficient money transfer service which enables us to move funds quickly to any destination in the world. This service is available in all major currencies.
• Our discretionary investment management and consulting services offer tax-free returns and put great emphasis on risk management.

A nominee structure works as follows:

A nominee company is formed in the United Kingdom and acts on behalf of an offshore company. The offshore company is the principal in all transactions with the nominee company acting much like an agent for the offshore company. The onshore nominee company handles all the advertising, marketing and promotion. All transactions are invoiced by the nominee company in its own name and the monies received by the nominee company pass straight to the offshore company. Your customers will believe that they are dealing with an onshore company and there is no need to disclose the relationship between the nominee company and the offshore principal.

The nominee company receives its only income from a fee charged for providing its services. The amount of the fee paid by the offshore company should be approximately between 5% and 15% of the gross turnover. Expenses of the nominee company are deducted from this amount and tax will be paid in the UK on the resulting profit. The UK tax authorities will see a resident company with a resident bank account which is paying taxes.

Important Considerations

• Both companies, both offshore and onshore may not trade in their own countries of incorporation.
• Any assets should be held/owned by the offshore company.
• With the sale of physical goods, ownership will be with the offshore company and sold on its behalf by the nominee company. Title always remains with the offshore company.
• Money is received into an offshore bank account, in the name of the offshore company and is controlled by the directors of the offshore company.
• A second bank account, usually offshore, is opened to receive the fee income of the nominee company and to handle payment of expenses.
• Contracts with the nominee company must be signed outside its country of incorporation.
• Non-resident individuals and corporations only pay UK tax on their source income and the offshore principal is tax exempt.
• The onshore nominee company will need to have audited accounts prepared annually by an independent auditor. We can help with this.

Our Nominee Structure Package

• Incorporation and administration of a UK company to act as nominee.
• Incorporation and administration of an offshore company to act as principal.
• Preparation of a nominee agreement between the parties.
• Registered offices for both companies.
• Provide directors and a secretary for both companies, if required.
• Nominee Shareholders.
• Opening of bank accounts, both offshore and onshore for the two companies.
• Complete invoicing and bookkeeping facilities.
• Introduction to suitable auditors.
• Total corporate documentation including corporate kit, completed minutes and registers, printed share certificates, corporate seal,etc.
• Delivery of all documents by Fedex or DHL.