| CYPRUS - Double tax treaties with 34 countries
Old Treaty with Russia
Russia | Poland
| Romania | Hungary
| Ireland | Greece
| Czech Rep | India
| Sweden
The old treaty concluded between Cyprus and the USSR applies in
the case of a number of the Republics of the Commonwealth of Independent
States (CIS), because of legislation enacted by the respective Republics.
However many Republics are signing their own treaties (the treaty
with Russia has been revised recently).
The treaty is applicable in the case of IBCs (offshore companies ).
The old treaty provides:
- no withholding tax on dividends, interest and royalties
- income from the leasing of movable property (excluding motor
vehicles) is taxable only in the State of the resident owning
the property
- income of individuals from employment in the Republics which
last for less than 183 days is taxable only in Cyprus (if paid
by a Cyprus employer)
- other types of income such as management fees are taxable only
in Cyprus
Advantages may obtained by investors from the following
countries
- Netherlands - dividends (because of participation exemption)
- Australia - dividends, interest and royalties (because of absence
of a treaty)
- Greece - dividends, interest and royalties (because of absence
of a treaty)
- France - branches managed and controlled in Cyprus
- United Kingdom - deferment of payment of taxes
- Other countries and tax haven countries - with no treaty with
Russia
Other uses of the treaty
- Investments in Russian stock market securities through wholly
owned subsidiaries to channel and run investments in Russia, for
the avoidance of taxation on the capital gains of the sale of
shares and to a lesser extent the avoidance of taxation from dividends.
These Cypriot subsidiaries are considered to be trading in Stocks
and their income is subject to the tax rate of 10%
- management fees are received without any Russian taxes
- income from the leasing of equipment is free of tax
- income from employing personnel may be structured to be tax
free
- income from short term construction contracts (under 12 months)
is tax free
Example 1 - Royalties using a Cyprus offshore company
The following example compares the tax position of a company receiving
royalties from Russia, using Cyprus, with the case of receiving
royalties directly, in the absence of a double tax treaty with Russia.
| |
Using Cyprus |
Directly |
| Royalties |
10,000 |
10,000 |
| Withholding tax |
- |
(2,000) |
| Net Royalties |
10,000 |
8,000 |
| Cyprus tax (10%) |
(1000) |
- |
Net dividends to shareholders
|
9,000 |
8,000 |
|
- Result: Savings of 15.75%
Example 2 - Dividends using a Cyprus offshore company in
comparison with a Canadian company
The following example compares the tax position of a company receiving
dividends from Russia, using Cyprus, with a Canadian company receiving
dividends from Russia
| |
Using Cyprus |
Directly |
| Profits of Russian entity before tax |
10,000 |
10,000 |
| Russian profits tax |
(3,500) |
(3,500) |
| Profits after tax |
6,500 |
6,500 |
| Withholding tax on Dividends |
- |
(980) |
| Net dividends to share holders |
6,500 |
5,520 |
|
- No Canadian tax on dividends because of participation exemption,
thus there is a saving of 9.8%.
Example 3 - Royalties using a Cyprus IBC (offshore company ) in comparison with an Austrian company
The following example compares the tax position of a company receiving
royalties from Russia, using Cyprus, with an Austrian company receiving
royalties from Russia
| |
Using Cyprus |
Directly |
| Royalties |
10,000 |
10,000 |
| Withholding tax |
- |
- |
| Net Royalties |
10,000 |
10,000 |
| Tax |
(1000) |
(3,400) |
| After tax profits |
9,000 |
6,600 |
|
- No withholding tax on the payment of dividends by the Cyprus
Company
- No tax in Austria because of participation exemption rules (provided
certain conditions are fulfilled), thus there is a saving of 24%
|
