Alter Domus NEWSLETTER November 2017 WE RE WHERE YOU NEED US.
Alter Domus Alter Domus is a fully integrated Fund and Corporate services provider, dedicated to international private equity & infrastructure houses, real estate firms, multinationals, private clients and private debt managers. Our vertically integrated approach offers tailor-made administration solutions across the entire value chain of investment structures, from fund level down to local Special Purpose Vehicles. Founded in Luxembourg in 2003, Alter Domus has continually expanded its global service offer and today counts 32 offices and desks across five continents. This international network enables clients to benefit globally from the expertise of more than 1,200 experienced professionals active in fund administration, corporate secretarial, accounting, consolidation, tax and legal compliance and debt administration services. We are proud to serve 9 of the 10 largest private equity houses, 6 of the 10 largest real estate firms and 5 of the 10 largest private debt managers in the world. Disclaimer: Please note that this Update is not intended as a complete study on all applicable legislation nor has it been written with a view to providing legal advice on any matter. Edited November 2017 2 ALTER DOMUS NEWSLETTER
7,000 STRUCTURES UNDER ADMINISTRATION Alter Domus 1,200 EMPLOYEES WORLDWIDE UPDATE REVISED TAX TREATMENT OF INTRA-GROUP BACK TO BACK FINANCING ARRANGEMENTS...04 $ EXTENDS THE DEFINITION OF TAX RESIDENCY FOR INDIVIDUALS...04 SIGNS THE MULTILATERAL TAX CONVENTION...04 160bn USD ASSETS UNDER ADMINISTRATION SIGNS A DOUBLE TAXATION CONVENTION WITH LUXEMBOURG... 05 SIGNS A DOUBLE TAXATION CONVENTION WITH BARBADOS... 05 THE -IRAN TAX TREATY TO BECOME EFFECTIVE AS FROM 1 JANUARY 2018... 05 32 OFFICES & DESKS WORLDWIDE CONTACT...06 N 25 SPOKEN LANGUAGES ALTER DOMUS NEWSLETTER 3
Alter Domus UPDATE REVISED TAX TREATMENT OF INTRA-GROUP BACK TO BACK FINANCING ARRANGEMENTS In line with the commitment of Cyprus to align its tax legislation with the Base Erosion Profit Shifting (BEPS) recommendations, the Cyprus Tax Department has issued a Circular including the revised tax treatment of intragroup back to back financing arrangements, which are effective as from 1st July 2017. The provisions of the Circular apply to Cyprus tax resident companies and Cyprus Permanent Establishments (PE) which are involved in intragroup back to back financing arrangements. Activities related to holding of participations are not taken into consideration. As per the Circular, the term intragroup financing arrangement is defined as being any activity of granting loans or cash advances remunerated by interest (or should be remunerated by interest) to related companies, financed by debentures, private loans, cash advances and bank loans. Furthermore, the Circular also provides that the remuneration of all existing and future intragroup financing transactions should adhere to the arm s length principle (i.e. corresponds to the price which would have been accepted by unrelated entities). Therefore, in order to determine whether the remuneration charged in an intragroup transaction is at an arm s length, it is necessary to perform a comparability analysis (transfer pricing analysis) testing the intragroup transaction against a similar transaction undertaken between unrelated entities. Such a comparability study should be conducted in accordance with the OECD Transfer Pricing Guidelines. Simplification measures (no requirement to prepare a transfer pricing analysis) will apply to a group financing company that: (i) (ii) Pursues a purely intermediary activity; Fulfills the actual presence criteria (included in the Circular); and (iii) Receives in relation to its controlled transactions a minimum return of 2% after tax on assets. EXTENDS THE DEFINITION OF TAX RESIDENCY FOR INDIVIDUALS An amendment to the Income Tax Law (ITL), extending the definition of tax residency for individuals, has been voted by the Parliament on 14th July 2017. The extension of the definition of tax residency for individuals will apply retrospectively as from 1st January 2017. Based on the provisions of the ITL, an individual who stays in the Republic for a period or periods exceeding in aggregate 183 days in a tax year (i.e. January to December) will be considered to be Cyprus tax resident. Based on the amendments in the ITL, an individual who does not stay in another state for a period or periods exceeding 183 days in the same tax year and who is not a tax resident in any other state in the same tax year, will also be considered to be a tax resident of Cyprus, if all the following conditions are satisfied: The individual stays in Cyprus for at least 60 days in the tax year; The individual exercises a business in Cyprus and/or is employed in Cyprus and/or holds an office in a Cyprus tax resident company at any time during the tax year; and The individual has a permanent home in Cyprus (rented or owned). In addition to the above, the amendment also provides that an individual who fulfils all the above conditions, will not be considered to be a tax resident of Cyprus in the tax year where his/her exercise of business in Cyprus and/ or employment in Cyprus and/or holding of an office in Cyprus tax resident company, is terminated. SIGNS THE MULTILATERAL TAX CONVENTION On June 7th, 2017 Cyprus along with 70 other jurisdictions members of the Organization for Economic Co-operation and Development (OECD), have co-signed the Multilateral Tax Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI ). Taxpayers opting for the simplified method should disclose their election in their tax return and could be subject to exchange of information. Once the MLI is ratified, Cyprus will update all its Double Tax Treaties (DTTs) to include the Principal Purpose Test (PPT) which is the minimum standard recommended by the Action 6 report (Treaty Abuse) of the Base Erosion Profit Shifting (BEPS) project. The aim of the PPT is to tackle treaty shopping. 4 ALTER DOMUS NEWSLETTER
Alter Domus As per the PPT, the benefits of a DTT will not be granted where one of the principal purposes of any arrangement or transaction was to obtain a benefit. SIGNS A DOUBLE TAXATION CONVENTION WITH LUXEMBOURG On 8th May 2017, Cyprus and Luxembourg have signed for the first time a Double Tax Treaty (DTT), which will pave the way for new opportunities between the two countries. The main provisions of the new DTT are as follows: ENTITLEMENT TO BENEFITS The treaty incorporates the Principal Purpose Test (PPT) to minimize treaty shopping. Therefore and subject to certain conditions, a benefit under the Cyprus- Luxembourg DTT will not be granted, where one of the principal purposes of any arrangement or transaction was to obtain that benefit. Contracting State. It s worth to mention at this point that no taxation apply for the sale of shares of a Cyprus company in Cyprus unless it owns immovable property in Cyprus. ENTRY INTO FORCE The treaty will enter into force once the ratification procedures, required by the laws of both Contracting States are completed and notifications between the two countries are exchanged. The treaty will come into effect as from 1st January of the year following the year in which it will enter into force. SIGNS A DOUBLE TAXATION CONVENTION WITH BARBADOS On 3rd May 2017 Cyprus has signed a Double Tax Treaty (DTT) with Barbados which will pave the way for new opportunities between the two countries. DIVIDENDS Dividend payments made by a resident of a Contracting State to a resident of the other Contracting State will be subject to a maximum withholding tax of 5%. In case where the recipient of the dividends is a company (other than a partnership) which holds directly, at least 10% of the capital of the dividend paying company, no withholding tax will be levied in the State where the dividend paying company is resident. INTEREST Interest payments made by a resident of a Contracting State to a resident of the other Contracting State, will be exempt from any withholding tax in the first mentioned State. ROYALTIES Royalty payments made by a resident of a Contracting State to a resident of the other Contracting State, will be exempt from any withholding tax in the first mentioned State. CAPITAL GAINS Gains arising from the sale of shares will be taxable only in the Contracting State where the seller is resident, unless such shares derive more than 50% of their value directly from immovable property which is situated in the other Under the DTT, no withholding tax is levied on dividend/ interest/royalty payments made by a resident of a Contracting State to a resident of the other Contracting State. Further, gains arising from the sale of shares of a company will be taxable only in the State where the seller is resident. The treaty will enter into force once the ratification procedures, required by the laws of both Contracting States are completed and notifications between the two countries are exchanged. The treaty will come into effect as from 1st January of the year following the year in which it will enter into force. THE -IRAN TAX TREATY TO BECOME EFFECTIVE AS FROM 1 JANUARY 2018 On 5th March 2017, the Cyprus-Iran Double Tax Treaty (DTT) has entered into force and will become effective as from 1 January 2018. The tax treaty with Iran will further expand the Cypriot treaty network and will pave the way for new opportunities between the two countries. ALTER DOMUS NEWSLETTER 5
DIVIDENDS Dividend payments made by a resident of a Contracting State to a resident of the other Contracting State are subject to a reduced 5% withholding tax rate, provided the beneficial owner of the dividends owns directly at least 25% of the capital of the dividend paying company. ROYALTIES Royalty payments made by a resident of a Contracting State to a resident of the other Contracting State will be subject to a maximum withholding tax at the rate of 6%, provided that the recipient is the beneficial owner of such income. In all other cases, dividend payments will be subject to a 10% withholding tax rate. INTEREST Interest payments made by a resident of a Contracting State to a resident of the other Contracting State will be subject to a maximum withholding tax at the rate of 5%, provided that the recipient is the beneficial owner of such income. CAPITAL GAINS Gains arising from the sale of shares will be taxable only in the Contracting State where the seller is resident, unless such shares derive more than 50% of their value directly from immovable property which is situated in the other Contracting State. OFFICE Alter Domus (Cyprus) Ltd 11 Limassol Avenue Galatariotis Building 2112 Nicosia Cyprus T + 357 22 46 51 51 Contact.Cy@alterDomus.com www.alterdomus.com Alter Domus 2017 MAIN CONTACTS ALKIS KAILOS Country Executive Cyprus +357 22 46 51 51 Alkis.Kailos@alterDomus.com EVDOKIA STAVRAKI-STEPHANOU Director +357 22 46 51 51 Evdokia.Stavraki-Stephanou@alterDomus.com 2013, 2014, 2015 & 2016 WE RE WHERE YOU NEED US.