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New Bill for Immovable Property Tax in Cyprus

11/07/2014 - by Eurofast Taxand
Until 2013, the tax was levied on an annual basis according to the market value of the property at 1 January 1980. All owners of property in Cyprus whose 1980 value exceeds €12,500 are liable to pay an annual tax to the Inland Revenue based on the total 1980 value of all immovable property in their name on the 1st day of January.
 
Based on last year changes, one of the measures which were taken was to reform the fiscal framework of real property. Specifically scales were created in order to calculate the tax for each person or company.

On 2nd of July 2014, the government submitted a bill suggesting properties worth up to €200.000 to be excluded from the immovable property tax and also to reduce the tax rated. It is expected that 54% of the property owners will be excluded from paying property tax in contrast with last year 40% property owners which they were excluded from the property tax.

It was also suggested that the tax to be levied would be calculated in accordance with today’s market value. The matter has been subject to intense debate in Parliament. As of the date of writing, 10 July 14 the Cyprus Parliament has finally passed the new law which once again is based on the 1980 valuations. Various Political parties of Cyprus had strongly objected in using the 2013 valuations.

Zoe Kokoni
zoe.kokoni@eurofast.eu
+357 22 699 222

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  • 07/07/2014 - by Eurofast Taxand

    The rationale behind the European company was to create a company having its own legislative framework, which would allow companies incorporated in different member states to merge or form a holding company or joint subsidiary, without facing the legal and practical constraints arising from the existence of different legal systems. A European Company would therefore provide greater mobility for businesses in the integrated EU market and a simpler way for running businesses under a single European label.

    Law 98(I)/2006 introduced the European Company in Cyprus.

    The formation of a European can be achieved by either:

    -  A merging  of two or more public or European companies from at least two different member states;
    -  A creation of a holding European company by two or more public or private limited liability companies, including European companies, from at least two different member states or if it had for at least two years a subsidiary or branch in another member state;
    -  A set up of a subsidiary by two or more companies, including European companies, from at least two different member states or an existing  for at least two years  subsidiary or branch in another member state; or
    -  A conversion of a Cyprus public company, having a subsidiary for at least two years in another member state.

    The requirements for the creation of the European company are the following:

    -  The Minimum required  share capital  must be at least  EUR 120,000.00 (or equivalent in any other currency);
    -  The registered and head office can be situated in Cyprus, but this is not mandatory, it can be different addresses;
    -  It must be registered in the local Commercial Registry and the registration is published in the European Companies’ Official Journal;
    -  The statutes of a Cyprus European company must include its name, registered office and objects of the company. They must also state whether there is a one-tier or two-tier board structure and the number of the members-    Accounting and audit is obligatory; and
    -  SE to be included on the name of the European Company.In relation to the transfer of seat it is important to note that there is no restriction on moving the seat from one member state to the other. In Cyprus the concept of continuation is more important than winding up during the re-domiciliation process as long as this is permissible under the domestic legislation of the new jurisdiction.  

    A special resolution of the shareholders (taking the decision) is mandatory and must be filed at the Cyprus Registrar of Companies.. In addition the following shall apply:

    -  The legislation protects Creditors’ rights in case of the company’s relocation.
    -  The company is entered into in a single national register.The effective date is when the company is registered under the commercial registry of the new member state.

    If an SE wishes to transfer its seat from Cyprus to a jurisdiction outside the European community then the company must follow the procedure of winding up and publish it in the European Official Journal.

    A determining factor for establishing an SE is the tax system of the host country.

    It follows from the above that the tax system of Cyprus makes it an exceptionally ideal and striking location for an SE, as it is a combination of favourable tax rates , a vast network of double tax treaties and a straight-forward tax legislation. Following the complete implementation of the EU Merger Directive by Cyprus pre-existed companies in other Member States can now transform into a Cypriot SE devoid of any tax charge.  

    Zoe Kokoni
    zoe.kokoni@eurofast.eu
    +357 22 699 222+357 22 699 222

    European Company (Societas Europaea) in Cyprus.

  • 26/06/2014 - by Eurofast Taxand

    The ECM constitutes a Multilateral Trading Facility (“MTF”) which operates under the Regulative Decisions adopted by the CSE and it has proven to be the most successful MTF that the CSE has initiated.  The ECM is seen as a "non-regulated market" as it does not come under the continuous and cumbersome conforming obligations imposed to regulated markets by the Cyprus Securities and Exchange Commission (“CySec”).

    Raison d'être


    Its raison d'être is to support the raising of capital for small and medium-size enterprises (SMEs) as well as to enable the easy, fast and affordable admission to public trading.  What distinguishes the latter from the main listing on the CSE, are its simplified listing requirements and trading criteria. 

    Listing methods

    Listing a company on the ECM can effectively be achieved in two ways.  Through a public offering, seeking for more than 2.5 million Euros and addressed to more than 100 persons. In this case a prospectus must be prepared and approval from CySec shall need to be obtained.  Alternatively, the offering can be done through a private placement, that is to say addressed to institutional investors only (strategic or other) or to less than 100 persons and for less than 2.5 million Euros. The approval of CySec is not required in this case but instead, an Admission Document must be submitted to the CSE.  Listing may also be achieved through a combination of the above two.

    An advantageous alternative

    The ECM constitutes an alternative method to raise finance which can be easily obtained at the time of a flotation or later on through subsequent share issues.  Taking into consideration that the regulations imposed upon listed companies on the ECM are lighter, corporate transactions may be carried out in a more cost efficient way.  Moreover, it offers greater marketability since the mere existence of a public market promotes share transactions that were not possible before.  In addition, higher and improved value, through positive share price performance and enhanced corporate profile, substance, recognition and credibility may be some of the advantages offered by the admission on the ECM.  There is no minimum share capital requirement to be dispersed to the public, no criterion as to the minimum market capitalization and no criterion for the minimum shareholders equity.  Last but not least, the ECM constitutes a gateway to a regulated market.

    It should not be misunderstood however, that the ECM is free of any supervision.  On the contrary, the Securities and Exchange Commission indirectly supervises the ECM through its supervision on the CSE as a market operator which operates the ECM.

    Russian CFC Rules

    The Russian Ministry of Finance has recently published a draft law on anti-offshore measures which introduces, amongst others, the concept of controlled foreign companies’ rules (CFC rules).

    The implementation of the said CFC rules essentially empowers the Russian tax authorities to tax international corporate and private structures directly or indirectly controlled by Russian tax residents.  The proposed rules provide, inter alia, that a controlled foreign company is a legal entity whose shares are not listed on a stock exchange approved by the Russian Central Bank.  Therefore, if a Company is listed on a reputable and recognized market, then such a company will simply not fall under the onus imposed by the proposed CFC rules.  

    Conclusion

    In conclusion, Russian tax residents who own companies listed on the Cyprus ECM will be safeguarded by the application of the forthcoming Russian CFC rules.  Having the aforesaid in mind and in combination with the easy of accessibility through its simplified requirements, its reduced regulation, additional capability to attract capital, cost efficiency, marketability and creditability, paired with the enhanced substance that listed companies are offered, listing on the ECM is undoubtedly an alternative which is worthwhile to consider.  

    Antonis Michaelides
    antonis.michaelides@eurofast.eu

    Michalis Zambartas
    michalis.zambartas@eurofast.eu
    Tel : +357 22 699 222

    The Cyprus Emerging Companies Market. A safeguard to CFC rules?

  • 20/06/2014 - by Pitsas Insurance

    Based on a recent report of the IMF industrial economies in Europe and North America will face significant difficulty in supporting future pension payments above the poverty threshold. This problem arose in western economies in the last four decades but it has become more severe in the last 5 years due to the financial crisis and the massive losses suffered by the government pension funds due to their over-exposure on the subprime mortgages in USA and public debt in Europe. Nevertheless, the two main long-term factors that contribute to the existence of the Pension Crisis are the significant decrease of the birth rates, or as it is widely known the reversal of the Baby Boom, and the extension of the life expectancy.

    A basic indicator showing the seriousness of the problem is the “support ratio”, which is defined as the number of workers per pensioner. The table shows that in the last 40 years the number of pensioners increases faster than the number of workers, despite the enthusiastic participation of women in the labor force that took place at the same time. This tendency seems to become more intensive in 2050, where each pensioner will be supported by two workers per average, in comparison with five in 1970. 

    In order to prevent the collapse of the Social Security System (SSS) the governments should alter the conditions that create the problem. The prolongation of the pension age, the promotion of pro-immigrant policy in order to increase the number of contributions in the SSS and the provision of motivations for increasing the birth rates (e.g. benefits for multiple children families) are the most popular solutions. Nevertheless, the introduction of these measures will lead to negative socioeconomic side effects such as strikes and protests from trade unions against the extension of working age, decrease of local wages due to the introduction of cheap labor from abroad and budget deficits. 

    Given that the introduction of these measures will be extremely difficult and probably unsuccessful individuals are advised to take action on their own. 

    Experienced Professional Financial Advisors can help you plan your pension by removing the insecurity for the future.  

    --

    Antonis Theofanous is an awarded economist with multiple academic researches on mutual funds. He is a professional IFA and Director of company Pitsas Insurances Agencies and Consultants Ltd. 

    The Pension Crisis

  • 28/05/2014 - by Eurofast Taxand

    The aforementioned tax was initially introduced as a way to ensure that the financial sector makes a fair and substantial contribution to public finances in order to counter financial crises.

    The financial transaction tax received contradicting arguments from numerous Member States in the EU arena from the outset. Following the lack of a unanimous view towards its application, the decision was taken by the Economic and Financial Affairs (ECOFIN) Council of the EU in January 2013 to authorize 11 Member States to move forward with a common financial transaction tax under the enhanced cooperation procedure, whereby subject to certain procedural and legal requirements the Member States would adopt measures that will only apply to them.

    Building from the original proposal introduced in 2011 the EU Commission also issued a revised proposal in February 2013 for a Directive to introduce a common financial transaction tax in the 11 interested Member States, namely France, Germany, Estonia, Spain, Portugal, Italy, Greece, Austria, Belgium, Slovenia and Slovakia. As per the proposal of the EU Commission a tax charge would be imposed on all kinds of financial transactions involving one or more financial institutions. More specific a tax charge of 0,1% would be imposed on the exchange of shares and bonds and a charge of 0,01% across derivative contracts.

    The opposition of other Member States as to the charge of a financial transaction tax materialized when the UK government filed a legal action in April 2013 requesting for the annulment of the ECOFIN decision authorising enhanced cooperation. The argument put forward by the UK government was that the said tax would have extraterritorial effects and it would impose costs on non-participating Member States. However, the outcome of the legal action did not prove fruitful as the CJEU decision concluded that the core of the arguments set out by the UK government were directed at elements of a potential financial transaction tax and not at the authorization of enhanced cooperation itself. The legal action was subsequently dismissed.

    Cyprus was also amongst the Member States that were against the implementation of the tax and it was characterized by the former Ministry of Finance as catastrophic for the economy of Cyprus. However, it was a close call since the adoption of the financial transaction tax was avoided in the negotiations that took place in March 2013 for the agreement on the terms of a Cyprus bail-out.  

    It is undeniable that the controversy surrounding the financial transaction tax will not cease.  Member States and businesses continue to express their opposition towards the tax contesting that its application could have adverse results on the European economy, especially at a time when the long-awaited recovery is still at a fragile stage. Further legal actions are therefore likely to be filed from the UK government and possibly other opposing Member States at a future point. Nonetheless, during the Council of the EU that took place in May 2014 the 11 participating Member States affirmed their intention to move forward with a progressive implementation of a financial transaction tax that could enter into force by January 2016.

    Katerina A. Charalambous
    katerina.a.charalambous@eurofast.eu

    Michalis Zambartas
    michalis.zambartas@eurofast.eu
    Tel : +357 22 699 222

    Financial Transaction Tax Developments.

  • 20/05/2014 - by Eurofast Taxand

    Recent updates from the Indian press reveal that considerable attention is attributed towards the conclusion of a new revised and modernised Tax Treaty between the Republic of Cyprus and the Republic of India.   This followed the announcement of the Ministry of Foreign Affairs of Cyprus that the two governments have come to an agreement to finalise the negotiations for the revision of the Treaty in the very near future.

    India and Cyprus, as both ex-British colonies and currently members of the Commonwealth of Nations, have always been cooperating in subjects of trade and investments, with Cyprus being among the largest investors in India.

    The existing DTT between India and Cyprus was concluded in 1994 and it is in force since then.  The principal purpose of the amendments to the Treaty is said to be the incorporation of the provisions of Article 26 of the OECD's model tax convention in relation to the exchange of information between the two countries.

    The decision for the revision of the DTT has been taken in light of the last year’s declaration of Cyprus, by the Indian tax authorities, as a notified jurisdictional area under Section 94A of the Indian Income Tax Act of 1961.  This unilateral movement has essentially increased reporting and disclosing requirements of the Indian taxpayers when claiming deductions on transactions with Cypriot entities, pursuant to the DTT between the two countries.

    Both countries have agreed that upon signing the revised DTT this classification of Cyprus as a notified jurisdiction will be revoked with retroactive effect from 1 November 2013, when the notification was first issued.

    It is expected that decisive steps are going to be taken now that the Indian Elections have been concluded.

    Antonis Michaelides
    antonis.michaelides@eurofast.eu

    Michalis Zambartas
    michalis.zambartas@eurofast.eu
    Tel : +357 22 699 222

    Revision of the Tax Treaty between Cyprus and India.

 

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