В статье детально исследуются концепции офшорных и оншорных компаний. Особое внимание уделяется Кипру как офшорной юрисдикции и будущему интересов украинского капитала в этой юрисдикции. Особенный интерес вызывает сравнение статусов оншорных и офшорных компаний, а также анализ преимуществ и недостатков таких компаний.
Статья сопровождается комментарием эксперта, который рассматривает вопросы, связанные с открытием банковских счетов и налогообложением, в частности, вопросы, вытекающие из украино-кипрской Конвенции об избежании двойного налогообложения.
Тhe establishment and use of non-resident companies by medium and big sized businesses are among the essential and most important stages of their structuring and further de velopment today. In such a case, no matter what tax authorities and certain progressive-minded politicians say, “tax minimization” and confidentiality on the part of owners are far from the only purposes, which are pursued by businessmen when establishing or purchasing companies in the so-called “offshore” jurisdictions. The possibility to transfer a part of (or all) business and/or its assets to such non-resident companies has a lot of advantages for busi nesses. In particular, it enables the creation of effective holding struc tures with a high corporate gov ernance level, to spread business risks, ensure maximum protection of property and rights of investors, legally optimize a tax burden and to carry out transactions with ap plication of foreign law, etc.
However, as practice shows, often there is no uniform under standing among clients of what an offshore company is and how it is distinguished from an on shore company – another fre quently used instrument on the international business market. This issue is additionally exac erbated by the fact that some jurisdictions (e.g., the Seychelles, Belize) allow both offshore and onshore companies to coexist. In many cases a client does not distinguish between these types of companies and just call them offshore, although they do not have much in common at all. The only fundamental thing that makes them similar is that they are both incorporated and governed by laws of the country, where their shareholders do not have legal place of residence or registered of fice. Such confusion in terminol ogy and a lack of understanding of applied concepts can result in some serious negative consequences, such as the impossibility to carry out economic activities on international markets, erosion of reputation, problems with fur ther sale of business or assets to a future investor, etc.
Let’s try to consider the offshore and onshore company concepts in greater detail and to distinguish their major distinc tive features (both positive and negative).
Classic offshore concept
By the concept of offshore company is understood a legal entity, which carries out its business activities outside of the country of its registration (although there could be some exceptions, such as the British Virgin Islands, where they are allowed to carry out activities within the country). In the main such companies are incorpo rated in countries with a prefe rential tax treatment regime (so-called “tax havens”), and are generally regulated by special internal international compa nies laws. It is important to re member that respective Double Tax Treaties (DTT) concluded between offshore jurisdictions and other countries do not apply tо offshore companies.
The main advantages of an offshore company, which is in corporated in a tax haven, are as follows:
– fast and low cost registration procedure (it usually takes up to 1 or 2 days to incor porate an offshore company);
– no tough requirements to the share capital actually paid in;
– low cost company main tenance procedure (USD or EUR 1000 or 2000 per year);
– low or zero taxation rates in the country of registration (a low fixed annual duty is usually paid);
– no, or almost complete absence of, internal currency exchange controls;
– no or little obligation to maintain accounting records, submit financial reporting and conduct audits;
– complete confidentiality of shareholders and directors of the offshore company (in formation on their names are not submitted to registrars of companies).
At the same time, an off shore company has certain shortcomings, which, with the lapse of time, may create some substantial problems for a de veloping business. They are, in particular, as follows:
– inclusion of an offshore zone in “black lists” by most countries, in particular in the List of Offshore Zones of the Ukrainian Government and, as a result, scrutiny of such coun tries’ controlling agencies as to operations of the companies registered in the respective offshore zone;
– the necessity to care fully structure tax optimization schemes to be implemented through an offshore company;
– prohibition to carry out business in the country of the offshore company’s registra tion;
– low level of trust in the offshore company or its share holders on the part of its con tractors, which do not have an offshore status.
Onshore companies
Onshore companies are quite the opposite of offshore ones. Onshore companies are usually registered in a country with a standard or preferential tax treatment regime and have the right to operate both within the country of registration and abroad.
Compared to offshore companies, the major distinctive features of an onshore company are:
– more complicated, lengthy and costly registration and liquidation procedures;
– place of management of and control over the onshore company shall be in the country of its registration;
– the onshore company shall comply with laws of the country of its registration, including its currency exchange control rules;
– statutory obligation to maintain and submit accounting records and financial reporting of the company to controlling agencies on a regular basis;
-obligation to pay all taxes and duties in the country of its registration;
– no confidentiality of information on shareholders and directors of the onshore company; such information ap pears in the register of companies and there is free access to it by any third party.
On the other hand, the advantages of an onshore company are the absence of the jurisdiction of incorporation in offshore zone lists and, therefore, more gentle control over an
onshore company’s transactions by the controlling authorities of other jurisdictions, a high level of confidence from counterparties and the right to enjoy numerous benefits provided by DTis.
The republic of Cyprus and peculiarities of its “offshore” status
Cyprus is the youngest and one of the most prospective “offshore” zones in the world. The word “off shore” is taken in quotation marks, since, by virtue of the introduction of Cyprus to the European Union in
2004 and radical reform of its tax
legislation, as of now this country (the issue here is the Greek and not of the Turkish part of Cyprus) is, in fact, not an offshore jurisdiction and is not perceived as such by European countries. This approach is adopted by the Ukrainian Go vernment, which does not consider Cyprus to be an offshore jurisdic tion, and does not include Cyprus on its list of offshore zones (though the reason why Cyprus is not en tered in the list is a more prosaic open secret).
On top of that, the most im portant fact is that of all the off shore jurisdictions Cyprus has the most developed network of Double Taxation Treaties -over 45 such treaties. It would be worth noting that the DTI between Ukraine and Cyprus has the most liberal nature and allows many incomes/ profits derived by Cyprus com panies from sources in Ukraine to be exempted from taxation. The DTis signed and ratified by Cyprus are based on the model DTI of the Organization of Eco nomic Cooperation and Develop ment (OECD). All the more so, Cypriot membership of the Eu ropean Union gives it the right to take advantage and use in relations with other countries a number of benefits established by European Union Directives regarding capital flow and in come payout operations.
For the reasons stated above,
Cyprus is the most popular tax
harbor, which Ukrainian busi nesses prefer to use. By structur ing the business through Cyprus, one should not bother about its “offshore nature”, since neither by its criterion nor under the Ukrai nian offshore list, this jurisdiction is not such.
As regards Cyprus companies,
they are divided by territorial in dicator – residents or non-resi dents in Cyprus (there is a great analogy with offshore and on shore companies). A company is considered as resident in Cyprus if it is directly controlled and man aged from Cyprus. A non-resident company is one controlled and managed from abroad.
Considering the place of con trol and management of a Cyprus company, it has respective tax liabilities.
One’s attention should be drawn to the fact that last August the Cypriot Parliament decided to introduce a number of measures to make financial policies more rigid. The most important point is that rigidity has touched upon the tax domain. Nevertheless, even with the toughening of the tax regime, Cyprus still has one of the most soft tax regimes among European countries.
One should attribute the following to the specifics of the Cypriot tax system:
– a 10% corporate tax rate (remained unchanged after last year initiatives by Parliament), which is the lowest effective rate of this tax in the European Union;
– foreign source income is generally tax exempt;
– profits on transactions in shares are tax exempt; ”
– non-Cyprus tax resident companies are completely tax exempt, except for the profits accrued or derived from their busi ness activity in Cyprus (though they cannot enjoy benefits pro vided by DTTs);
– the rates of a special de fense tax on interest is 15% (pre viously 10%) and on dividends is 17% (previously 15%); however, these taxes are not applicable to outbound interest and dividends to non-Cyprus residents;
– the standard Value Added Tax rate is 17% (a 15% rate ap plied previously); most interna tional transactions are VAT free, it is levied on the sale of goods, the provision of services and the import of goods from outside the European Union only;
– no rules regulating activities of foreign subsidiaries;
– no detailed transfer pricing rules (arm’s length principle shall apply only, that is to say transactions between connected parties shall be carried out under regular market value and other reasonable commercial terms);
– no capital gains tax, except on real estate in Cyprus;
– no currency exchange controls;
– low and flexible per sonal income tax burden – the maximum 35% rate is applied to taxable income exceeding EUR 60,000;
– all companies registered in Cyprus are subject to a fixed annual EUR 350 fee to the Register of Companies, except for dormant companies and companies with no assets; also, a EUR 20,000 fee limit is established for all the companies making up one group;
– respective financial and tax reporting shall be periodically submitted to the Central Bank of Cyprus and respective tax authorities.
It is also worth mentioning that all a company’s registers on shareholders and directors, infor mation on its structure, registered office and share capital are freely accessible by any third parties for an insignificant duty. A failure to report on the mentioned informa tion may result in severe sanctions against the company – up to and including the exclusion of the lat ter from the Register of Companies. Nevertheless, the problem of shareholders and directors confidentiality may be solved by the widespread and elaborated nominal service mechanics, where the beneficial owner of the company appoints its nominal shareholders and directors.
As a result, only the names of nom inal shareholders and directors ap pear in the Register of Companies, and the identity of the real owner remains undisclosed.
Therefore, Cyprus companies the most attractive and respectful European companies by having many more benefits than offshore companies and not having offshore status. The high popularity of Cyprus in the Ukrainian business environment is clearly evidenced by the volumes of capital which have passed through this jurisdiction for a long time.
Cyprus future for Ukrainian businesses
It should be noted that repeated and unsuccessful attempts have been made by both sides over many years to resolve the Cyprus “problem”, which is zero tax rates established by an effective DTT (starting from 1997). According to Cyprus it, in most recent times, actively stated its view as a party to denounce the DTT and conclude a one which would promotes less beneficial terms compared to the effective treaty. However, Cyprus says that the negotiations are being deliberately tailed by Ukraine.
On the eve of the Ukrainian parliamentary elections, the issue of denunciating the DTT has become more topical among the Ukrainian opposition, which gives utterance that the operations of “Ukrainian” Cyprus companies must be taxed.
In its tum, the current Ukrainian Government does not voice a great desire to denounce the trea ty. In particular, Ukrainian Vice Prime Minister Serhiy Tyhypko insists that Cyprus is interesting for Ukrainian businessmen not because of its zero tax rates, but because Cyprus “has English law”, which creates more “foolproof conditions for the protection of ownership”. Exactly because of this, he believes, that while the Ukrainian Government has not created better conditions “we should not twist the arms of our business sector”. This is exactly why the Government lacks interest in including Cyprus in the offshore list.
As of now, three Draft Acts on denunciation of the Ukrainian and Cyprus DTT are registered in the Ukrainian Parliament. However, taking into account the fact that Cyprus is a “money box” for the majority of powerful Ukrainian citizens, it is obvious that neither businesses nor politicians are “financially” interested in terminating the DTT in place and entering the Cypriot jurisdiction into the offshore zones list or concluding a new, less favorable DTT between Ukraine and Cyprus. Therefore, one should doubt that the Cyprus issue will be resolved in Ukraine soon.
Автор: О. KVYAT
Источник: Ukrainian Journal of Business Law. – 2012. – № 11. – Р. 14 – 17.
EXPERT OPINION
1) Under the current Ukraine – Cyprus DTT, any income of a Cypriot resident in Ukraine is not subject to taxes in Ukraine. Such incomes include dividends, interest, royalty, capital gain, etc. Moreover, there is no withholding in Ukraine on any money transfers from Ukraine to a Cypriot payee. Therefore, Cyprus seems to be a pretty handy jurisdiction for the purposes of various types of business transactions. Moreover, Cyprus is formally not an offshore jurisdiction, and is a full member of the EU since 1 May 2004 with a new tax system effective from 1 January 2003. The reformed Cypriot tax system is in full compliance with EU and DECO rules. No significant changes are expected in the foreseeable future.
2) Dividends and interest to be received in Cyprus with zero withholding tax, under DTTs with Ukraine. In Cyprus, a 17% defense fund tax is levied from individual residents. If the shareholders are not Cyprus residents, there is no tax on dividends.
3) The lowest EU flat corporate income tax rate of 10% on taxable profits of Cyprus tax resident companies and Cypriot PE’s. No transfer pricing rules in Cyprus allow transfer such profits back-to-back to some zero offshore company like BVI or Belize, which will optimize on Cypriot corporate income tax.
4) As a matter of practicality, the first bank account is recommended by Cypriot secretary companies so that they have immediate access to the company’s bank accounts for the purposes of the annual audit.
Автор: A. BONDAR
Источник: Ukrainian Journal of Business Law. – 2012. – № 11. – Р. 15.