by Petros Krasaris, Senior Manager, International Tax

Report
Cyprus International Trusts
A tool for international tax planning
29 September 2014
Areas to be covered
1. Trusts:
a) Cypriot tax considerations
b) Setting up a trust: tax considerations
c) Tax considerations during trust’s life span
d) Use of Cyprus International Trust
2. Introduction of CFC rules in Russia
3. End of tax secrecy?
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Trusts: Cypriot tax considerations
►
Trusts: transparent entities (“pass through”) for Cyprus tax purposes
meaning that taxation is at the level of beneficiaries.
►
Beneficiaries: subject to tax in Cyprus (as applicable) as if they directly hold
the assets / directly earn the income. Separation of legal & beneficial owner.
►
Distributions by a trust are disregarded for Cyprus income tax purposes (no
withholding tax).
►
Trustee: responsible for payment of taxes arising on property and income of
trust and for any other statutory obligations of the trust (such as filing of
returns).
►
Different tax treatment? Irrevocable Vs Revocable? Fixed interest Vs
Discretionary? No formal guidance (tax circular) given hence no special
rules exist.
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Setting up a trust: tax considerations
►
Why? Tax deferral? Tax optimization?
►
In-depth tax analysis: Tax considerations relevant for:

the Settlor;

the property being transferred (e.g. real estate transfer taxes);

the beneficiaries;

ongoing taxation of property / income of the trust.
►
Will the trust arrangement be acceptable in the jurisdiction of the
settlor?
►
Personal tax considerations for the settlor /beneficiaries should be
carefully considered.
►
Country-by-country analysis is required to assess if the trust is eligible to
apply double tax treaties. Possible to use an underlying holding company
to overcome this.
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Tax considerations during trust’s life span
LIFE SPAN OF A TRUST
Establishment
During the life
Termination
• Acceptability of
trust in the
jurisdiction of the
settlor
• Transfer of
assets
• ….
• Taxation of
beneficiaries
(arising basis Vs
distribution basis)
• Fixed interest Vs
discretionary trust
• Foreign
withholding taxes
• ……
• Taxation of
beneficiaries
• Flow-back to
settlor
(revocable)
• …..
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Use of Cyprus International Trust
Business assets
CYP HoldCo
CYP
Trust
Personal assets
Portfolio
companies / assets
Foreign
OpCo
Alternative
investments
(real estate,
mutual funds)
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Fixed income
securities (money
market, bonds,
deposits)
Introduction of CFC rules in Russia
►
Beginning of September, Russian MinFin released a revised version of
proposed changes to tax laws.
►
CFC rules: Foreign trusts and foundations are excluded only if they are
unable to distribute profits to participants or beneficiaries.
►
“Control” over a trust (or a foundation) is defined as the ability to influence
the decisions adopted by the person who manages the assets of the trust
(or foundation) with respect to the distribution of profit rather than the level
of his/her participation interest.
►
Is there is scope for tax planning for CFC purposes?
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End of tax secrecy?
►
OECD Global Standard: “look through approach” to payments made to
trusts.
►
EU Savings Directive: closing the loopholes, such as use if trusts.
►
Registry of trusts (as of 2013) maintained in Cyprus.
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