Trading conditions are hard and looming increases in business and personal taxes will make conditions even harder. Business is rushing to move profits offshore and reduce taxes; legally and properly; and there’s not much the Revenue can do about it!
Companies are looking for legitimate solutions that enable them to remain profitable by reducing their costs and increasing profitability. Reviewing the way a business is structured can deliver big benefits. Even businesses with moderate taxable profits can reap rewards.
The outcome of such a review may demonstrate that a business can legitimately and significantly reduce its tax burden by re-organising its structure. A corporate re-structure may include the addition of offshore or international business companies, that take advantage of the UK’s Double Taxation Treaties and low rates of tax in treaty partner countries.
In the following case study a UK company (‘UK Co’) that buys goods from China (‘China Co’) and sells to consumers in the UK.
• China Co sends goods worth £100 per unit, with invoice directly to UK Co.
• At the end of the financial year, UK Co makes a taxable profit of £1,500,000. The corporation tax at 28% = £420,000 so the profit after tax was £1,080,000.
Upon review the owners of UK Co decide to make changes to their corporate structure. They transfer their shares in UK Co and form two new companies:
• Belize company (’Belize Co’) with a Swiss bank account
• Cyprus company (‘Cyprus Co’) with a Cyprus bank account
• The shares in UK Co are transferred to Cyprus Co. Cyprus Co is owned 100% by Belize Co. Belize Co is owned 100% by the owners.
The new corporate structure took only a few days to establish and was ready for operations by the beginning of the next financial year. The business now operated like this:
• China Co sends the invoice for £100 each unit to Cyprus Co but the goods are sent directly to UK Co.
• Cyprus Co issues an invoice to UK Co for each unit at £150.
• UK Co continues to sell the goods at the same retail price as before.
Therefore at the end of the first financial year using the new corporate structure, UK Co made a smaller taxable profit but this was offset by increased profits of Cyprus Co. The detail looked like this:
• UK Co had made a smaller taxable profit of £750,000. The reduced UK Co profits qualify for tax relief reducing the tax payable to £196,875. Therefore UK Co makes an after tax profit of £553,125
• UK Co pays the £553,125 to Cyprus Co as a dividend. Because of the double taxation treaty between UK and Cyprus the dividend payment to Cyprus Co incurred no tax.
• Cyprus Co made £750,000 profit from the ‘sales’ it made to UK Co and received £553,125 dividends from UK Co. Therefore total Cyprus Co profits were £1,303,125.
• Cyprus Co paid the £1,303,125 to Belize Co as a dividend into the Swiss bank account. Under Cyprus tax rules the dividend is tax free.
• By making changes to their corporate structure, in the first year after the changes the owners reduced their corporate tax burden by from £420,000 to £196,875: a saving of £223,125.
The above example structure cost £2,000 to set up, and £2,500 annually for government fees, accounting/audit and corporate services. YourBooks Ltd in Cyprus offers a wide range of bespoke solutions and special ‘packages’ at cost-effective rates.
Choice of countries and cost of services vary widely and advice from a competent service provider should be sought. In addition to costs there are other important considerations to take into account when planning a new corporate structure.
• Country/Jurisdiction: the choice of which country or jurisdiction to choose when forming a company or choosing a bank account may be influenced by such factors as; tax regime; confidentiality rules; reputation and stability; an extensive network of double taxation treaties; high standard of professional service providers.
• Owner’s vision: Whether an exit plan, divestment plan; or public listing; a corporate structure should support and promote the vision and goals of the owners.
• Flexibility: Things happen; businesses grow, tax regimes shift, an owner’s vision changes; so a corporate structure should be able to be adapted to accordingly.
• Cost-effectiveness. The cost of setting up and administering new companies and banking arrangements.
YourBooks Ltd: http://yourbooks.com.cy/
Form-a-Cyprus-Company-for-€700: http://articlestars.com/submitarticles.php
Sunday, 11 October 2009
Wednesday, 30 September 2009
Small companies can save tax too
SIZE DOES NOT MATTER: Small business can enjoy the same tax planning as big business
UK individuals who do not declare income that is held in foreign bank accounts are breaking the law. Her Majesty’s Government recently paid £100,000 for information about Liechtenstein bank accounts held by UK individuals.
However, the same does not necessarily apply to UK companies: Some of the UK’s biggest companies use complex and secretive but perfectly legal tax plans to limit the tax they pay.
Some companies will simply shift the management and control of the business to a low-tax country, however others adopt a different approach:
Diageo plc (UK drinks giant) transferred ownership of brands including Johnnie Walker and J&B to an off shore subsidiary virtually tax-free. It pays UK corporation tax equal to about 2% of gross profits.
Two major drug firms have shifted ownership of their brands to tax havens. Their UK operations can then be made to pay royalties for the use of the trademarks, reducing the “UK profit” and thus the amount of UK tax.
A household name has been deliberately loaded with debt so that it no longer has any profits to pay tax on.
According to the National Audit Office, 30% of the UK’s biggest companies pay no corporation tax – NOTHING!
UK individuals who do not declare income that is held in foreign bank accounts are breaking the law. Her Majesty’s Government recently paid £100,000 for information about Liechtenstein bank accounts held by UK individuals.
However, the same does not necessarily apply to UK companies: Some of the UK’s biggest companies use complex and secretive but perfectly legal tax plans to limit the tax they pay.
Some companies will simply shift the management and control of the business to a low-tax country, however others adopt a different approach:
Diageo plc (UK drinks giant) transferred ownership of brands including Johnnie Walker and J&B to an off shore subsidiary virtually tax-free. It pays UK corporation tax equal to about 2% of gross profits.
Two major drug firms have shifted ownership of their brands to tax havens. Their UK operations can then be made to pay royalties for the use of the trademarks, reducing the “UK profit” and thus the amount of UK tax.
A household name has been deliberately loaded with debt so that it no longer has any profits to pay tax on.
According to the National Audit Office, 30% of the UK’s biggest companies pay no corporation tax – NOTHING!
Tuesday, 22 September 2009
Cyprus - Russia tax treaty - changes...
Cyprus and Russia have signed a protocol to their 1998 double taxation treaty. Hitherto the treaty has been regarded as one of the most favourable signed by Russia. In the 2009 protocol measures will be adopted that will affect the tax treatment of the sale of Russian real estate to the possible disadvantage of Russian sellers. The protocol will come into effect in 2014, so if advice is taken now, the tax effect might be mitigated.
At first glance the protocol is a simple case of updating the long-standing treaty and bringing certain definitions into line with the latest OECD double taxation treaty model. On the other hand it may be regarded as an attempt by Moscow to close what has hitherto been one on the most lucrative loopholes for Russian 9and other0 property speculators for many years.
Advantage: The new protocol includes the provision for the removal of Cyprus from the Russian blacklist. This means that dividends received by Russian companies from Cyprus subsidiaries will finally be able to qualify for the Russian dividend participation exemption. Subject to ratification, the protocol is expected to come into effect on 01/01/2010.
Changes:
• Withholding tax remains at 0% on interest and royalties.
• The maximum withholding tax rate of 10% is reduced to 5% (if the beneficial owner has directly invested the capital of the company paying dividends a minimum investment equivalent to €100,000 (from $100,000 USD).
Capital gains on immovable property
• Companies which hold more than 50% of their assets in Russian immovable property will be taxed in the country where the property is situated.
• However this does not include gains from the alienation of shares listed on an approved stock exchange or from a corporate reorganisation and further does not include gains derived from a pension fund, provident fund or from the governments of either the Russian Federation or Cyprus.
• This provision will not come into effect until 2014 thus allowing time to prepare mitigating the tax implications of this change subject to requests from clients.
Redefinition:
• ‘Dividends’ have been given a broader definition to include payments on shares of mutual investment funds or other similar collective investment vehicles and depository receipts for shares.
• ‘Interest’ now includes debt claims of any type (penalty charges for late payments or interest are classified as dividends).
Clarity:
• Where the ‘effective management’ of a person (other than an individual) cannot be determined: The competent authorities of the two countries will agree to reach a mutual decision on the matter at hand.
• The definition of ‘Permanent Establishment’ has been expanded to include the taxation of profits from services performed in one country by an entity of another country through an individual(s) present in the other country exceeding in aggregate 183 days in any 12 month period.
• Distributions from mutual investment funds are to be treated as dividends. This is a welcome change as dividends are subject to a maximum withholding tax of 10% whereas under current Russian law, distributions from mutual funds are subject to a 20% withholding tax.
Conclusion: The effects of the only major amendment being the capital gains tax amendment to be introduced in 2014 can be limited by seeking timely tax advice.
The treaty remains the most favourable double taxation treaty concluded with the Russian Federation and retains the attractive 5% withholding tax on dividends for investments equivalent to €100.000.
For more info and advice about mitigating affects of the above chnages please contact: YourBooks Ltd in Cyprus (http://yourbooks.com.cy/)
At first glance the protocol is a simple case of updating the long-standing treaty and bringing certain definitions into line with the latest OECD double taxation treaty model. On the other hand it may be regarded as an attempt by Moscow to close what has hitherto been one on the most lucrative loopholes for Russian 9and other0 property speculators for many years.
Advantage: The new protocol includes the provision for the removal of Cyprus from the Russian blacklist. This means that dividends received by Russian companies from Cyprus subsidiaries will finally be able to qualify for the Russian dividend participation exemption. Subject to ratification, the protocol is expected to come into effect on 01/01/2010.
Changes:
• Withholding tax remains at 0% on interest and royalties.
• The maximum withholding tax rate of 10% is reduced to 5% (if the beneficial owner has directly invested the capital of the company paying dividends a minimum investment equivalent to €100,000 (from $100,000 USD).
Capital gains on immovable property
• Companies which hold more than 50% of their assets in Russian immovable property will be taxed in the country where the property is situated.
• However this does not include gains from the alienation of shares listed on an approved stock exchange or from a corporate reorganisation and further does not include gains derived from a pension fund, provident fund or from the governments of either the Russian Federation or Cyprus.
• This provision will not come into effect until 2014 thus allowing time to prepare mitigating the tax implications of this change subject to requests from clients.
Redefinition:
• ‘Dividends’ have been given a broader definition to include payments on shares of mutual investment funds or other similar collective investment vehicles and depository receipts for shares.
• ‘Interest’ now includes debt claims of any type (penalty charges for late payments or interest are classified as dividends).
Clarity:
• Where the ‘effective management’ of a person (other than an individual) cannot be determined: The competent authorities of the two countries will agree to reach a mutual decision on the matter at hand.
• The definition of ‘Permanent Establishment’ has been expanded to include the taxation of profits from services performed in one country by an entity of another country through an individual(s) present in the other country exceeding in aggregate 183 days in any 12 month period.
• Distributions from mutual investment funds are to be treated as dividends. This is a welcome change as dividends are subject to a maximum withholding tax of 10% whereas under current Russian law, distributions from mutual funds are subject to a 20% withholding tax.
Conclusion: The effects of the only major amendment being the capital gains tax amendment to be introduced in 2014 can be limited by seeking timely tax advice.
The treaty remains the most favourable double taxation treaty concluded with the Russian Federation and retains the attractive 5% withholding tax on dividends for investments equivalent to €100.000.
For more info and advice about mitigating affects of the above chnages please contact: YourBooks Ltd in Cyprus (http://yourbooks.com.cy/)
Cheap Cyprus Companies - How much?
A newly formed Cyprus private limited company complete with articles of association, memorandum, certificates of; incorporation; registered address; share allocation and; director and secretary, company stamp...
How much for a Cyprus Co?
...An average price for the above is about €1900 - €2000.
You don’t have to look very hard to find them for sale for up to €3,000, though above that embarrassment kicks in, and so the price is bundled with other services to mask the true cost (up to €4,000).
The cheapest provider we have found is YourBooks Ltd (http://yourbooks.com.cy/) based in Limassol: prices from €700
How much for a Cyprus Co?
...An average price for the above is about €1900 - €2000.
You don’t have to look very hard to find them for sale for up to €3,000, though above that embarrassment kicks in, and so the price is bundled with other services to mask the true cost (up to €4,000).
The cheapest provider we have found is YourBooks Ltd (http://yourbooks.com.cy/) based in Limassol: prices from €700
Offshore banking in Cyprus
Cyprus Bank Account for your offshore company
Any company no matter where it is registered, or where it has it offices can open a bank account in Cyprus. The process is easy and straightforward (unlike some other countries) and is of course subject to international standards of due diligence.
No matter how small or large your business is, whether the turnover is large or small or in US dollars, Sterling, Yuan, and ‘milk-bottle tops’; there are many reasons why you should open a Cyprus bank account for your International Business Company (IBC) or offshore company.
Cash Flow, when you are a small business you will need to get the money from the sold products or service in your bank account as fast as possible to be able to re invest.
When you are a large corporation doing millions a month, you know all about the cash flow issues but you might not know how easy it is to optimize it with a Cyprus bank Account.
When you are doing business with customers all around the world and selling your services or products to them, you need them to pay as fast as you can get them to do it.
But what is the point getting people to pay fast and issue the SWIFT Transfer if the banks in between and also you existing bank takes ages to transfer funds from one bank account to another?
If you for instance live in Canada and your client is in the UK, it could take at several days for the funds to arrive; 5 days where the banks are holding funds that should be in your account earning interest or simply available for you to use in your business.
Whereas if you has a Cyprus bank account it will take less than 24 hours for the funds to be credited to your account!
It is essential for your business when you are conducting business with Europeans to make it as easy, cheap and fast as possible for all parties.
For more information see at http://yourbooks.com.cy/, Yourbooks Ltd is based in Cyprus and can obtain a bank account number for your business within 1 working day.
Any company no matter where it is registered, or where it has it offices can open a bank account in Cyprus. The process is easy and straightforward (unlike some other countries) and is of course subject to international standards of due diligence.
No matter how small or large your business is, whether the turnover is large or small or in US dollars, Sterling, Yuan, and ‘milk-bottle tops’; there are many reasons why you should open a Cyprus bank account for your International Business Company (IBC) or offshore company.
Cash Flow, when you are a small business you will need to get the money from the sold products or service in your bank account as fast as possible to be able to re invest.
When you are a large corporation doing millions a month, you know all about the cash flow issues but you might not know how easy it is to optimize it with a Cyprus bank Account.
When you are doing business with customers all around the world and selling your services or products to them, you need them to pay as fast as you can get them to do it.
But what is the point getting people to pay fast and issue the SWIFT Transfer if the banks in between and also you existing bank takes ages to transfer funds from one bank account to another?
If you for instance live in Canada and your client is in the UK, it could take at several days for the funds to arrive; 5 days where the banks are holding funds that should be in your account earning interest or simply available for you to use in your business.
Whereas if you has a Cyprus bank account it will take less than 24 hours for the funds to be credited to your account!
It is essential for your business when you are conducting business with Europeans to make it as easy, cheap and fast as possible for all parties.
For more information see at http://yourbooks.com.cy/, Yourbooks Ltd is based in Cyprus and can obtain a bank account number for your business within 1 working day.
OFFSHORE PAYROLL - why pay more than you need?
Cyprus has a first rate reputation as a centre for financial excellence and professional expertise and is a full member of the EU.
In today’s competitive employment markets, employers must consider tax efficient ways in which to remunerate their international executives. Cyprus is the centre of 1st choice for multinational employers. Cyprus makes it entirely possible to achieve substantial tax savings and thereby cut costs to both the employer and the employee.
This article will briefly examine the more popular arrangements established offshore.
1. International Payroll and Employment Companies
If an employer pays staff who are spread around the world (and often working on short-term or long-term projects), the use of a single ‘Employment Company’ in a neutral tax free environment can deliver significant benefits for the employer and employee.
Employer benefits:
• More flexible pay policies
• Increased efficiency
• Reduced tax and social security liabilities
Employee benefits:
• Reduced social insurance contributions by dividing payment of salary between;
o a portion paid to cover living expenses in the field and;
o A nest-egg to be built up in Cyprus for the future enjoyment of the employee.
2. Deferred Compensation Packages
A significant proportion of the cost associated with posting employees abroad is local income tax.
A Cyprus DCP allows employers to
• Save costs by reducing tax employment tax liability and still be bale to
• increase employee pay, at no net increase to the employer
The employer makes income contributions into the plan, which will be neither taxable domestically nor in the host country. However, subsequent distributions to the employee will be taxable in the year that they are paid out to him.
Taxation is thus deferred; during the intervening period the settled gross funds are available for investment and grow in their entirety providing the employee with the opportunity to achieve substantially better growth and return overall even after taxation is eventually applied.
The term deferred compensation may be applied to any payment for services not made at the time the services are rendered.
These arrangements hinge upon a Cyprus discretionary trust. Lawyers and professional trust companies based on the Island are very familiar with the process of formation and the administration of these trusts.
3. Employee Share Ownership Plans (ESOPs)
the principal purpose of an ESOP is to enable employees to participate in the ownership of their employer¹s equity; whilst motivating employees and ensuring loyalty.
The employer establishes a Trust, whose sole purpose is to invest in the equity of the business, for whom both employer and employee work.
An ESOP may be devised to benefit as many or as few of the employees as the employer desires.
However, the plan need not treat all employees as equals and may be drafted to favour certain groups or individuals.
The trust deed is invariably discretionary in nature thereby assisting the employer to effect changes on an on-going basis.
To acquire shares in the employing company, the trust must be funded (say by a loan from the company). In any event, shares will be purchased for the future benefit of the participating employees.
These plans will fall into one of three categories:
• All-Employee Plans
• Executive Plans
• International Share Ownership Plans
It is common for ESOP¹s to employ trustees resident offshore in order to avoid the incidence of Capital Gains Tax (or its equivalent) and Cyprus has become the most favoured choice of jurisdiction in recent years for the establishment of ESOP¹s.
Note: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Susan Davies. YourBooks Ltd Accounting and Finance part of the Your Group of companies based in Cyprus (http://yourbooks.com.cy/)
In today’s competitive employment markets, employers must consider tax efficient ways in which to remunerate their international executives. Cyprus is the centre of 1st choice for multinational employers. Cyprus makes it entirely possible to achieve substantial tax savings and thereby cut costs to both the employer and the employee.
This article will briefly examine the more popular arrangements established offshore.
1. International Payroll and Employment Companies
If an employer pays staff who are spread around the world (and often working on short-term or long-term projects), the use of a single ‘Employment Company’ in a neutral tax free environment can deliver significant benefits for the employer and employee.
Employer benefits:
• More flexible pay policies
• Increased efficiency
• Reduced tax and social security liabilities
Employee benefits:
• Reduced social insurance contributions by dividing payment of salary between;
o a portion paid to cover living expenses in the field and;
o A nest-egg to be built up in Cyprus for the future enjoyment of the employee.
2. Deferred Compensation Packages
A significant proportion of the cost associated with posting employees abroad is local income tax.
A Cyprus DCP allows employers to
• Save costs by reducing tax employment tax liability and still be bale to
• increase employee pay, at no net increase to the employer
The employer makes income contributions into the plan, which will be neither taxable domestically nor in the host country. However, subsequent distributions to the employee will be taxable in the year that they are paid out to him.
Taxation is thus deferred; during the intervening period the settled gross funds are available for investment and grow in their entirety providing the employee with the opportunity to achieve substantially better growth and return overall even after taxation is eventually applied.
The term deferred compensation may be applied to any payment for services not made at the time the services are rendered.
These arrangements hinge upon a Cyprus discretionary trust. Lawyers and professional trust companies based on the Island are very familiar with the process of formation and the administration of these trusts.
3. Employee Share Ownership Plans (ESOPs)
the principal purpose of an ESOP is to enable employees to participate in the ownership of their employer¹s equity; whilst motivating employees and ensuring loyalty.
The employer establishes a Trust, whose sole purpose is to invest in the equity of the business, for whom both employer and employee work.
An ESOP may be devised to benefit as many or as few of the employees as the employer desires.
However, the plan need not treat all employees as equals and may be drafted to favour certain groups or individuals.
The trust deed is invariably discretionary in nature thereby assisting the employer to effect changes on an on-going basis.
To acquire shares in the employing company, the trust must be funded (say by a loan from the company). In any event, shares will be purchased for the future benefit of the participating employees.
These plans will fall into one of three categories:
• All-Employee Plans
• Executive Plans
• International Share Ownership Plans
It is common for ESOP¹s to employ trustees resident offshore in order to avoid the incidence of Capital Gains Tax (or its equivalent) and Cyprus has become the most favoured choice of jurisdiction in recent years for the establishment of ESOP¹s.
Note: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Susan Davies. YourBooks Ltd Accounting and Finance part of the Your Group of companies based in Cyprus (http://yourbooks.com.cy/)
Consultant or professional? - Read this and save tax
CONSULTANCY SERVICES COMPANIES
If you thought being a consultant or a provider of professional services was tough before, then the last year has proved you right!
Today professionals are working for tighter margins, chasing smaller markets, and in a more tightly regulated market. However there are ways in which a professional can help him or herself; professionals who work internationally can benefit from forming an offshore company.
Such a company, actually more accurately described as an International Business Company (IBC), can be used to great effect as a tax planning tool by Accountants, lawyers, financial advisors and consultants etc, who conduct their business internationally either in or outside the European Union. The Cyprus IBC may be used thus:
The professional closes a deal with a client. The Client does not sign a contract directly with the Professional. Instead the contract is between the Client; and the Cyprus IBC.
The Client pays the Cyprus IBC. Therefore profits will accrue in Cyprus which has one of the lowest rates of corporate tax in the World. The Professional then might send an invoice to the Cyprus IBC for services rendered
The Cyprus IBC pays the invoice to the Professional wherever he chooses or resides, thereby the balance of profits sits in Cyprus and not in a higher taxed country
Costs:
• The cost of a Cyprus IBC starts from €700
• Nominee fees (optional) are 160 per year
What makes Cyprus so attractive is the fact it has concluded so many double taxation treaties. The Russia-Cyprus treaty for example, is one of the most favourable for non-Russia resident that Russia has signed with any other country.
The advantages of a Cyprus IBC offering consultancy services are the following:
• Consultancy income: The income from consultancy services will be subject to corporation tax at the rate of 10% after deducting all allowable expenses such as salaries and consultancy fees.
• Salaries: The salaries paid by a Cyprus IBC to employees who are not resident in Cyprus are not subject to any taxation or social insurance contributions in Cyprus.
• Consultancy fees: The fees paid by a Cyprus IBC to consultants who are not resident in Cyprus are not subject to any taxation in Cyprus
• Dividends distributed: No withholding tax on dividends distributed to non resident shareholders of Cyprus Companies.
The above is an indicative guide about to approach the issue for more information visit http://yourbooks.com.cy/
If you thought being a consultant or a provider of professional services was tough before, then the last year has proved you right!
Today professionals are working for tighter margins, chasing smaller markets, and in a more tightly regulated market. However there are ways in which a professional can help him or herself; professionals who work internationally can benefit from forming an offshore company.
Such a company, actually more accurately described as an International Business Company (IBC), can be used to great effect as a tax planning tool by Accountants, lawyers, financial advisors and consultants etc, who conduct their business internationally either in or outside the European Union. The Cyprus IBC may be used thus:
The professional closes a deal with a client. The Client does not sign a contract directly with the Professional. Instead the contract is between the Client; and the Cyprus IBC.
The Client pays the Cyprus IBC. Therefore profits will accrue in Cyprus which has one of the lowest rates of corporate tax in the World. The Professional then might send an invoice to the Cyprus IBC for services rendered
The Cyprus IBC pays the invoice to the Professional wherever he chooses or resides, thereby the balance of profits sits in Cyprus and not in a higher taxed country
Costs:
• The cost of a Cyprus IBC starts from €700
• Nominee fees (optional) are 160 per year
What makes Cyprus so attractive is the fact it has concluded so many double taxation treaties. The Russia-Cyprus treaty for example, is one of the most favourable for non-Russia resident that Russia has signed with any other country.
The advantages of a Cyprus IBC offering consultancy services are the following:
• Consultancy income: The income from consultancy services will be subject to corporation tax at the rate of 10% after deducting all allowable expenses such as salaries and consultancy fees.
• Salaries: The salaries paid by a Cyprus IBC to employees who are not resident in Cyprus are not subject to any taxation or social insurance contributions in Cyprus.
• Consultancy fees: The fees paid by a Cyprus IBC to consultants who are not resident in Cyprus are not subject to any taxation in Cyprus
• Dividends distributed: No withholding tax on dividends distributed to non resident shareholders of Cyprus Companies.
The above is an indicative guide about to approach the issue for more information visit http://yourbooks.com.cy/
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