Category: Taxation

During the Autumn of 2022, changes to UK corporate tax and personal tax regimes were subject to a number of amendments.

However, it is now confirmed that two significant changes are taking place in the near future:

• The UK Government announced that from 1 April 2023, non-UK resident property companies will be subject to an increased corporate tax rate of 25%, a 6% increase compared to the current rate of 19%, tax year 2021/2022.

• An existing set of rules which, have not been directly relevant for some time, will now definitely need to be taken into account and will see many companies under common control, now being viewed as ‘associated’ with each other. This can have a significant impact on the amount and dates on which UK corporate tax is payable.

The Increase in the UK Corporate Tax Rate

From 1 April 2023, corporate tax rates in the UK will vary between 19% and 25%. The previous single rate having been 19%.

Where a UK resident company has taxable profits of less than £50,000, the 19% small profits rate will apply. UK resident companies with profits of between £50,000 and £250,000 will pay a tapered rate of between 19% and 25%. Above the higher limit of £250,000, the 25% rate will apply to all taxable profits.

These bandings are reduced if there are associated companies, please see further details below.

Where an accounting period spans across the date of 1 April 2023, taxable profit will be split to the period before and after 1 April 2023, with differing rates applied.

Companies Incorporated or Tax Resident Overseas

Companies which are incorporated and/or tax resident overseas and which are subject to UK corporation tax, will pay a flat rate of 25% corporation tax on taxable profits arising after 1 April 2023.

This 25% rate will apply to all UK based property and trading income and to capital gains on all sales of UK investment property.

Action could be taken ahead of 1 April 2023, to mitigate some of the implications of these changes. Any proposed action would, however, need to be assessed to ensure it makes commercial sense and take into account any prevailing case law and HMRC practice. Professional advice from a company such as Dixcart should be taken.

The Option of De-enveloping UK Property Held in a Non-UK Resident Company

If the de-enveloping of UK properties being held by non-UK resident companies is being considered, this should take place as far ahead of 1 April 2023, as possible.

Each situation needs to be considered based on its merits and an evaluation needs to take place as to whether this is the most appropriate action, from both a tax and a wider perspective. Any decision also needs to take into account that it might take some time to put changes in place to achieve the desired end result.

Associated Companies – Changes to the Rules

The current rule of a ‘related 51% group company’; where companies have generally been deemed to be related 51% companies, where there is common corporate ownership greater than 50%, is also due to change on 1 April 2023. As a consequence, companies that previously did not fall within the quarterly instalment payment regime (QIPs), may now do so.

The new definition of associated companies will be significantly broadened to include companies controlled by the same person/s. A ‘person’ includes not only individuals but also trustees of a trust and partners of a partnership.

A simple example is detailed below: a trust holds all of the shares (100%), in 8 separate companies. The companies undertake similar activities and the shares were settled into the trust by the same settlor. Under the pre-1 April 2023 rules there are no 51% group companies, under the new rules there could be up to 8 associated companies.

QIPs: Definition

Most companies pay UK corporation tax within 9 months and 1 day, after their year-end. This is unless they fall under QIPs. As detailed above, whether a company is deemed to be an associated company and the number of associated companies will determine whether a company must pay its UK corporation tax via the QIPs regime.

Generally, QIPs applies, where:

• Taxable profit exceeds £1.5million in two consecutive accounting periods,

OR

• Taxable profit exceeds £10million on any accounting period.

It is very important to note that the taxable limits are divided by the number of associated companies.

QIPs does not increase the tax payable, but it does have a considerable impact on cash flow and missing or underpaying QIPs can result in penalties and/or interest being applied.

Additional Information

If you have any questions regarding the forthcoming changes to UK corporation tax, please contact Paul Webb, at the Dixcart office in the UK: advice.uk@dixcart.com.

As the UK tax authority (‘HMRC’), are returning to normal operations, they are revising their approach to encourage compliance. HMRC have at their disposal vast pools of information from overseas jurisdictions, from Companies House and from the Land Registry. They are using this data to subtly push people towards compliance, which is why they are called ‘nudge’ letters. The letter is designed to prompt or nudge the taxpayer into reviewing their tax returns and finances to determine whether further income or gains need to be notified to HMRC.

HMRC has recently issued ‘nudge’ letters to UK taxpayers who it believes hold crypto assets. The letter advises them that Capital Gains Tax issues can arise on any gains realised from the sale, or deemed disposal, of crypto assets. This can include the outright sale of crypto assets for cash, exchanging one crypto asset for another or using crypto assets to acquire goods or services.

What should you do if you get a ‘nudge’ letter?

It is important to undertake a thorough review of your sources of income and gains to consider if your filings are correct and complete. If you are sure that everything is in order, you can respond to HMRC to this effect.

The HMRC ‘nudge’ letter asks the individual to sign and complete a ‘certificate of tax position’ declaration. This includes a confirmation of understanding that a false declaration is a criminal offence and can result in an investigation or even criminal prosecution. There is no legal obligation on the taxpayer to sign the declaration and if your affairs are in order it may be best to respond to HMRC by letter rather than with the ‘certificate of tax position’ provided.

If you have overlooked a source of income or gain, then this will need to be corrected as soon as possible. Different disclosure routes are available depending on the individual’s circumstances and one such route is via the Digital Disclosure Service (DDS).

How We Can Help

It is advisable for the individual to seek specialist tax advise on receipt of a HMRC ‘nudge’ letter.

Our tax team, in the UK office, can help you review your tax position and can respond to HMRC and confirm what action, if any, will need to be taken to resolve the matter. In our experience, getting the strategy right to resolve the enquiry, in the most cost-effective way, is the key to minimising any potential damage.

For more information, please contact Paul Webb or Karen Dyerson at the Dixcart office in the UK: advice@dixcartuk.com as soon as possible to discuss the position.

Background

A new Double Taxation Agreement between Malta and the Ukraine was ratified in 2017 and was made effective as from 1 January 2018.

As a result of this DTA, tax advantages for both countries are available and the Maltese holding company regime may prove attractive to Ukrainian investors. This DTA allows for dividends to be taxed in the country of source, at a withholding tax rate of 5%, if the volume of shares held is greater than 20%.

Taxation of Income

The tax treaty provides a low withholding tax rate on dividends, interest and royalties. 

• Dividends

Withholding tax for dividends is capped at 15%. A lower rate of 5% applies to dividends received by a company owning at least 20% of the capital of the company paying the dividends. 

Due to its full imputation tax system, Malta does not withhold tax on distribution of dividends, irrespective of the nationality, domicile or residence of the beneficial owner of those dividends.

• Interest and Royalties

Interest and royalty income is subject to a maximum 10% withholding tax.

The country of source has a limited primary right to tax the income, while the country of residence has a secondary right, with the obligation to grant relief from double taxation.

According to the Maltese Income Tax Act, interest and royalties received by non-residents is exempt from Malta tax and therefore no tax is withheld on such payments.

Additional Attractive Malta Double Tax Treaties

Malta has a network of over 70 double tax treaties.

In addition to the Ukraine, Cyprus and Switzerland have particularly beneficial double tax treaties with Malta.

Malta-Cyprus Double Tax Treaty

Foreign companies seeking to establish a certain type of entity in Europe, for example a company established for financing activities, should consider establishing a Cyprus company and managing it from Malta. This can result in double non-taxation for the passive foreign sourced income.

• The Malta-Cyprus Double Tax Treaty contains a tie breaker clause that provides that the tax residence of the company is where its effective place of management is. A Cyprus company with its effective place of management in Malta will be resident in Malta and would therefore only be subject to Cyprus tax on its Cyprus source income.

It will not pay Maltese tax on non-Maltese passive source income not remitted to Malta. It is therefore possible to have a Cyprus company resident in Malta that enjoys tax-free profits, as long as the proceeds are not remitted to Malta.

Malta-Switzerland Double Tax Treaty

Malta’s holding company regime, coupled with the beneficial Double Taxation Agreement between Malta and Switzerland, provides a number of advantages when a Malta company is used to hold shares in a Swiss subsidiary.

The key features of the Double Taxation Agreement are:

• The standard withholding tax on dividends paid from Switzerland is 35%. The agreement provides for a withholding tax exemption on dividends from Switzerland to a Maltese company, where the Maltese company directly holds 10% or more of the Swiss company’s capital for at least one year. Both companies must be subject to taxation.
• Interest received in Malta is taxed at 35%. However a shareholder can claim a refund from the Maltese tax authorities in respect of a substantial element of the taxation paid by the Maltese company relating to dividend payments to shareholders.  This results in low net Maltese taxation on interest, generally an effective Maltese tax rate of 10%.
• There is no withholding tax on royalties. This, coupled with Malta’s tax refund regime and unilateral double tax relief, in the form of a flat rate tax credit, results in very low net Maltese tax on royalty income.

Additional Information

If you would like additional information regarding the double tax treaty between Malta and Ukraine, or other Maltese Double Taxation Treaties, please contact Sean Dowden or Jonathan Vassallo at the Dixcart office in Malta: advice.malta@dixcart.com or your usual Dixcart contact.

Background 

Guernsey is one of the Channel Islands and is situated in the English Channel, close to the French coast of Normandy.

Whilst retaining very close links to Britain, Guernsey is independent from the UK and has its own democratically elected parliament which controls the island’s laws, budget and levels of taxation. 

What Tax Advantages are Available to Individuals Moving to Guernsey?

1. Capped Rate of Income Tax

Guernsey residents pay 20% income tax on Guernsey source income (above a tax-free allowance of £13,025). Individuals can cap the liability on non-Guernsey source income at a maximum £150,000 per annum OR cap the liability on worldwide income at a maximum £300,000 per annum.

2. Additional Tax Cap Available for ‘Resident only’ Individuals

‘Resident only individuals’ (generally, defined as individuals spending more than 91 days per year in Guernsey and 91 days or more in another jurisdiction during the calendar year):

• Can elect to be taxed on their Guernsey source income only, by paying a standard annual charge of £40,000. Non-Guernsey source income will then be ignored, whether it is remitted to Guernsey or not.

3. Further Potential to Cap Guernsey Income Tax Liability

New residents to Guernsey, who purchase an ‘open market’ property, can enjoy a tax cap of £50,000 per annum on Guernsey source income in the year of arrival and subsequent three years, as long as the amount of Document Duty paid, in relation to the house purchase, is at least £50,000.

Eligibility to Move to Guernsey

British citizens, EEA nationals and Swiss nationals are eligible to move to Guernsey. Nationals of other countries require permission or “leave to remain” in Guernsey. Visa and immigration rules are comparable to the UK.

Individuals who do not have an automatic right to live in Guernsey but want to move there, must fall within one of the following categories:

• Spouse/partner of a British Citizen, EEA national or settled person.
• Investor (minimum £750,000 invested in Guernsey) (and a minimum £1million under their control in Guernsey).
• Person intending to set themselves up in business. A minimum £200,000 investment into a new or existing Guernsey company which the applicant will manage themselves.
• Writer, artist or composer.

Any other individual wishing to move to the Bailiwick of Guernsey must obtain an entry clearance (visa) prior to his/her arrival. The entry clearance must be applied for through the British Consular representative in the individual’s country of residence.

Other Reasons to Want to Move to Guernsey

There is no inheritance tax, no capital gains tax, no value added tax and no withholding tax. Guernsey is also a leading international financial centre and the general rate of corporation tax is zero.

Other Positive Factors – the Lifestyle

• The island of Guernsey is 79 square kilometres, with 50 kilometres of stunning coastline, including 27 beaches. It has an approximate population of 65,000 and is well known for its temperate climate and relaxed, high quality standard of living. It combines many of the reassuring elements of UK culture with the benefits of living abroad.

• The island is only forty-five minutes from London by air and has good transport links to seven key airports which enables easy access to Europe and international connections.

• Guernsey is ideal for families, with its beautiful beaches, emphasis on sport, low crime rate and a very good education system.

Further Information

For further information about moving to Guernsey, please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com.

 

 

 

 

 

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission.

 

Guernsey registered company number: 6512.

Background

The Malta – Poland Double Tax Treaty (DTT) has recently been revised with amendments being published as Legal Notice 64 of 2021. The changes are aimed to eliminate base erosion and profit shifting (BEPS), with the Treaty being based on the OECD Model Tax Convention.

Modifications were made to Articles relating to the following; dividend definition, withholding tax on interest, royalty income, capital gains from the sale of shares, and director’s fees, the method of elimination of double taxation, the mutual agreement procedure, the exchange of information to provide for tax arbitration, and  prevention of treaty abuse.

These changes are outlined below:

• The definition of ‘dividend’ has been amended, and a new definition in Article 10 explicitly includes; income from distributions on certificates or participating units of an investment fund and their redemption, income from liquidation or partial liquidation of a company and income from the purchase or redemption of its own shares, by a company.

• Withholding tax on interest payments, which is defined in Article 11, has been reduced. The maximum withholding tax that a Contracting State can levy, on outbound interest payments, when the beneficial owner is a resident of the  Contracting State, is 4%. In the previous version it was 5%.

• Article 12 on royalty payments has been revised. New provisions include not only royalty payments but also payments for technical services. Such payments are now subject to the shared taxing right. The Resident State has the obligation to provide relief for the taxes suffered at the Source State. The Source State may tax payments for technical services at a maximum rate of 5%.

• Income from an immovable property company, regulated by Article 13, was amended. The updated version details, that gains derived by a resident of a Contracting State, such as interests in a partnership or trust, or certificates or the participating units  of an investment fund, may be taxed in the other Contracting State if, during the 365 days preceding the sale or transfer of these shares or comparable interests, more than 50% of their value was derived directly or indirectly from immovable property situated in the other State.

The previous provision stipulated that if more than 50% of the value of shares directly or indirectly were derived from immovable property the capital gains from the sale of those shares could be taxed in the State where the property, owned by the company, was situated.

• Article 16 dealing with director’s fees has been changed. The old rule stated that this type of income earned by a resident of a Contracting State could be taxed in the other Contracting State, where the company is resident. The new Article 16 provides that this type of income shall be taxed only by the Resident State. This change provides an exclusive taxing right in the State where the individual director is resident.

The new Article also expands on the definition of ‘director’, as a member of the board of directors and as a member of the supervisory board.

• New Article 23 amends the method of elimination of double taxation. It now provides that if a Polish resident’s income is liable to tax in Malta, the amount  paid will be subject to a tax deduction in Poland.
• Article 25 – Mutual Agreement Procedure has been changed. The amendment states that the competent authority will try to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the agreement. Any agreement reached shall be implemented notwithstanding  obligations under the domestic law of the Contracting States. 

• Exchange of Information – Article 26, authorises the use of such information, received by a Contracting State for other purposes, provided that the competent authority of the supplying State authorises such use.

A new Article 26A has also been inserted which provides for the prevention of tax treaty abuse practices.

Date of Implementation

The changes will come into the force the first day of January of the year following the date on which the Protocol comes into force.

This is therefore likely to be January 2022.

Additional Information

For further information about Malta-Poland Double Tax Treaty please contact Jonathan Vassallo, at the Dixcart office in Malta: advice.malta@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

Background

The past few years have seen dramatic changes to the taxation of UK residential property for both UK and non-UK residents. Detailed below is a summary of the current position (as of June 2019).

It is important that existing structures (particularly those with foreign company ownership) are continually reviewed to ensure that the anticipated benefits of such structures remain relevant.

On Purchase of the Property

Before changes to the England and Northern Ireland Stamp Duty Land Tax (SDLT) rates were announced in December 2014, the SDLT regime worked on a ‘cliff edge basis’ and had a top rate of 7% (having been 4% for several years).  A series of amendments to the SDLT regime resulted in two charging systems for SDLT:

1. If a property is acquired in the personal name of an individual, the SDLT rate is charged on a stepped basis rather than on a cliff edge basis, as detailed below:

Value up to £125,000	0%
Over £125,000 to £250,000	2%
Over 250,000 to £925,000	5%
Over £925,000 to £1,500,000	10%
Over £1,500,000	12%

2. If the property is acquired through a corporate structure the SDLT rate will be 15%.  The only exception is if the residential property is acquired by a property development company, in which case SDLT will be charged at the same rate as for an individual.

An additional 3% is payable where a second or subsequent property is purchased, with a small number of exceptions. Worldwide property ownership is taken into account when considering whether a property is an additional residential property.  Buy to let investors or those purchasing a second home will therefore pay the extra tax, and trustees also fall within the scope of the 3% extension, unless a specific exemption applies. For this purpose, spouses are treated as one person so the extra SDLT cannot be avoided by purchasing properties in separate names.

SDLT is charged on the full acquisition price of the property.

During Ownership of the Property

The Annual Tax on Enveloped Dwellings (“ATED”) is a UK tax, which was introduced in 2013. Subject to certain exceptions, it is payable in respect of any residential property situated in the UK that was worth more than £1million in April 2012 or worth more than £500,000 in April 2016, and was/is owned or acquired, in whole or in part, by a company (but not by an individual).

ATED is charged on a daily basis and is payable annually in advance. Penalties and interest may apply to late and/or incorrect returns.

From April 2018 the annual charges range from £3,650 per annum, through to over £232,350 per annum for properties worth over £20million.

On Disposal of the Property

The ATED charge does not apply to property owned in the name of individuals.

Generally, all residential property, other than that used by the owner as his principal private residence, is subject to CGT on disposal

Amendments have been made to the CGT element of the tax regime:

• ATED-related CGT charges were abolished with effect from 6 April 2019, after this date the relevant tax regime for companies disposing of UK residential property has been UK corporation tax.

The amendment to ATED-related CGT presents a potential tax saving opportunity for companies disposing of UK residential property. ATED-related CGT was charged at 28% on all gains made since 5 April 2013 with no indexation allowance, while corporation tax will be charged at 19% on all gains made since 5 April 2015, with an indexation allowance up to 31 December 2017.

• Residential property owned by individuals, that is not their principal private residence, whether rented out or not, is now subject to CGT on disposal for gains arising since 2015. Individuals are taxed on such gains at either 18% or 28%, dependent on the total amount of UK income and gains received by the taxpayer.

On Death

As from April 2017, all UK situs residential property has been subject to the UK Inheritance Tax Regime (IHT), irrespective of the ownership structure.

Inheritance tax is chargeable at 40% of the market value at the time of death and is also potentially chargeable if the property was gifted away within 7 years prior to death.

Each individual has a £325,000 nil rate band (£650,000 per couple) and this will increase to a maximum of £500,000 per individual (£1million per couple) in 2020, where the property is the main residence of the deceased.  This allowance is restricted for estates with a net value of more than £2million.

In most cases, there is an exemption from IHT on property left to a spouse.

Considerations for New Property Acquisitions

When acquiring UK residential property it is important to consider the ownership structure prior to an exchange of contracts.

As indicated above, the CGT and IHT positions for the owner of a UK residential property, personally or through a company, are now broadly the same.  There can still however be some tax savings achieved particularly if, the property is not to be used as the owner’s main residence.

Other objectives may also be of importance. For example, a structure may be required to provide confidentiality, and this would need to be carefully planned, in order to minimise tax liabilities.

Additional Information

If you require additional information on this topic please contact your usual Dixcart adviser or speak to Paul Webb or Peter Robertson in the UK office: advice.uk@dixcart.com.

Background

Angola is one of the fastest growing economies in the world. Additional opportunities are available for companies established in Portugal due to implementation of double taxation provisions and the increased certainty that this brings.

Detail

One year after its approval, the Double Tax Agreement (DTA) between Portugal and Angola finally came into force on the 22^nd of August 2019.

Until recently Angola did not have any DTAs, which makes this agreement even more significant. Portugal is the first European country to have a DTA with Angola. It reflects the historic ties between the two countries and completes Portugal’s treaty network with the Portuguese-speaking world.

Angola is a country rich in natural resources including; diamonds, petroleum, phosphates and iron ore, and it is one of the fastest growing economies in the world.

Following on from the United Arab Emirates (UAE), Portugal is the second country with which Angola has a DTA. This reflects Angola’s increasingly international perspective, and Angola also has approved DTA’s with China and Cape Verde.

Provisions

The Portugal: Angola treaty allows for reduced withholding tax rates for dividends, interest and royalties:

• Dividends – 8% or 15% (depending on specific circumstances)
• Interest – 10%
• Royalties – 8%

The treaty is valid for a period of 8 years starting from September 2018, and will therefore remain in force until 2026. The DTA will be automatically renewed and will further develop the economic relationship between Portugal and Angola, as well as enhancing tax cooperation, and avoiding double taxation of pensions and income generated by both individuals and companies.

Additional Information

If you require additional information regarding the Portugal and Angola DTA please speak to your usual Dixcart contact, or to António Pereira, at the Dixcart office in Portugal: advice.portugal@dixcart.com

Background

The Brazilian and Swiss Governments signed a Double Tax Treaty (DTT) on 3 May 2018.

Switzerland is one of the biggest investors in the Brazilian market and Brazil and Switzerland have already signed an Automatic Exchange of Information Agreement, which came into force on 1 January 2018.

This new treaty, follows current OECD standards, including Base Erosion and Profit Shifting (BEPS) measures and anti-abuse rules and is anticipated to significantly increase investment between the two countries.

Main Impact

The new DTT not only introduces a number of tax advantages but also provides certainty in terms of tax treatment and will therefore generate increased confidence.

Key Measures

The Treaty is unique from a Brazilian perspective, as certain clauses are not included in any of Brazil’s other 33 DTTs.

• Dividends: will be taxed in the source country, up to the general limit of 15%.

The exception is companies holding more than 10% of the shares for at least one year, where the tax rate will be 10%.

The clauses relating to dividends are only relevant for dividends paid from Switzerland to Brazil. This is due to the fact that where dividends are paid from Brazil to Switzerland, existing domestic rules are more beneficial than the provisions of the Treaty.

• Interest: will be taxed in the source country, up to the general limit of 15%.

If the beneficial owner is a bank and the loan has been granted for at least five years, to finance the purchase of equipment or investment projects, the tax rate will be 10%.

Switzerland does not levy Swiss withholding tax on interest arising from regular loan agreements. However, interest on bonds and bank interest are generally subject to Swiss withholding tax.

• Royalties: will be taxed in the source country, up to the general limit of 10%.

The tax rate will be 15% for royalties arising from the use of trademarks. Technical assistance is included in the definition of royalties, whereas technical services are not.

Switzerland does not levy Swiss withholding tax on royalties.

Additional Important Clauses

Gains from the disposal of shares or comparable interests in ‘land-rich’ entities will be taxable in the country where the land is situated.

• A Swiss company receiving dividends from a Brazilian company will be entitled to the same relief, as if the company paying the dividends were resident in Switzerland, for Swiss tax purposes.

This provision allows a credit even if dividends are not taxed in Brazil (current withholding tax is zero).

Next Steps

The DTT needs to be approved by the Brazilian Congress and Swiss Parliament, before coming into force. It is difficult to anticipate, at this stage, precisely when this date will be, but it is likely to be in the first half of 2019.

Additional Information

If you would like further information regarding the potential for investment between Switzerland and Brazil, please speak to Christine Breitler, in our Swiss office: advice.switzerland@dixcart.com or to Catarina Sardinha: at the Dixcart office in Portugal: advice.portugal@dixcart.com.

South Africa, currently, hits the headlines for the ‘wrong’ reasons but it remains a jurisdiction where investment, in the correct manner, can be attractive.

The South African economy offers a diversity of sectors and industries. It has a modern and extensive transport infrastructure and  labour costs are priced competitively.

These factors, together with the country’s significant natural resources, have made it an investment destination worth consideration.

South Africa and Withholding Tax

South Africa does not levy a withholding tax on interest and royalties paid to non-residents. The withholding tax rate on dividends is 5% if the dividend is received by a company which holds at least 10% of the capital of the dividend paying company. 10% in all other cases.

The Double Tax Agreement between Cyprus and South Africa

The initial Cyprus-South Africa DTA was signed in 1997, and a Protocol was signed in April 2015, which amended certain key clauses.

• The Cyprus-South Africa DTA remains very attractive and reduces withholding tax on interest and royalties to zero.

In terms of dividends, the following amounts of withholding tax are payable:

• 5% – if the beneficial owner of the company holds at least 10% of the capital of the company paying the dividend.
• 10% – in all other cases.

Dividend payments from Cyprus continue to enjoy a zero rate of withholding tax. The withholding tax payments for dividends, detailed above, only relate to the payment of dividends from South Africa.

The Exchange of Information article was revised in 2015, in line with the OECD Model Tax Convention.

Use of Cyprus Financing Companies for South Africa

There are benefits in using Cyprus companies as financing companies for South Africa.

The advantages relate to the zero withholding tax rate on interest payments from South Africa to Cyprus and the low 12.5% rate of corporation tax applied to any margin on the interest in Cyprus. In addition, no withholding tax is applicable on interest payments from Cyprus.

Cyprus as a Location for the Holding of Intellectual Property (IP) exploited in South Africa

Cyprus is an efficient jurisdiction in which to hold intellectual property that is to be exploited in South Africa:

• Zero withholding tax on royalty income paid from South Africa to Cyprus.
• Subject to certain conditions, only 20% of royalty income is taxed in Cyprus. Application of the Cyprus corporate tax rate of 12.5% therefore provides an effective tax rate of 2.5%.
• It is possible to transfer profits from a Cyprus company without there being withholding tax payable on dividends or on onward royalty payments.
• On disposal of the IP rights, 80% of the proceeds are exempt from corporation tax in Cyprus.

Other Advantages Offered by the Jurisdiction of Cyprus

Cyprus offers a number of other important benefits:

• Profits from a permanent establishment located outside of Cyprus are exempt from Cypriot tax as long as no more than 50% of the income has arisen from investment income (dividends and interest).
• There is no capital gains tax. The only exception to this is on gains from the sale of immovable property in Cyprus or shares in companies owning such property.
• The availability of tax rulings from the Cypriot Tax Authority make tax planning a more certain and efficient process.
• No withholding tax on dividends, interest and royalties.
• No tax on dividend income.
• No tax on income or gains derived from the disposal of securities.
• Shipping regime whereby tax is based on an annual tonnage rate instead of a corporate tax.

Summary

The Double Tax Agreement between Cyprus and South Africa is very favourable, due  to its zero withholding tax on interest, royalties and dividends paid from Cyprus, and its relatively low rate of withholding tax on dividends paid from South Africa.

This can be particularly tax efficient for the holding of IP in Cyprus that is to be exploited in South Africa, and the use of Cyprus financing companies for South Africa.

Additional Information

If you require any additional information regarding the benefits available through the Double Tax Agreement between Cyprus and South Africa, or have any questions relating to the advantages that the jurisdiction of Cyprus offers, please speak to Charalambos Pittas at our office in Cyprus: advice.cyprus@dixcart.com.