In brief: post-acquisition planning in Cyprus

Submit-acquisition planning

Restructuring

What post-acquisition restructuring, if any, is usually carried out and why?

There is no such thing as a particular post-acquisition restructuring required for transactions going down in Cyprus. Any post-acquisition restructurings going down are made to serve particular enterprise functions and usually are not made to acquire any form of extra pre-set taxation advantages. The goal might proceed with a capital enhance, discount or perhaps a demerger of an unbiased department of exercise.

A brand new capital enhance could also be benefited from the provisions of the notional curiosity deduction (NID).

The NID is a theoretical curiosity expense calculated on new fairness launched right into a Cypriot firm. Because the NID is a ‘notional’ deduction there isn’t a want for any expense to be booked for accounting functions.

The NID is calculated for tax functions solely and has the identical tax remedy of curiosity expense. In impact, the NID encourages fairness finance in company constructions by granting the notional curiosity deduction, substituting the curiosity from the debt finance that was preferable for tax functions.

The NID is calculated by multiplying the quantity of the ‘new fairness’, particularly, the brand new capital launched both by a rise of the share capital of the corporate or by changing current liabilities to fairness, with the ‘reference rate of interest’. The reference rate of interest is the prior yr’s (31 December) 10-year authorities bond yield of the nation during which the funds raised from the brand new fairness are invested, elevated by 5 per cent.

The quantity of NID granted, nonetheless, is restricted to the decrease of:

• 80 per cent of the taxable revenue that every asset or exercise or group of property or actions individually has generated; or
• 80 per cent of the taxable revenue that the property or actions collectively have generated.

Within the case the place tax losses come up from the injection of recent fairness into the enterprise, no NID must be granted within the related tax yr.

Spin-offs

Can tax-neutral spin-offs of companies be executed and, if that’s the case, can the web working losses of the spun-off enterprise be preserved? Is it doable to attain a spin-off with out triggering switch taxes?

A tax-neutral spin-off might be achieved supplied it falls inside the definition of a demerger reorganisation as supplied within the Earnings Tax Legislation. To attain this, the spin-off exercise have to be considered an unbiased department of exercise able to working individually and independently from the opposite actions of the corporate. In the course of the spin-off of a selected department of exercise, all related property and liabilities can be transferred to the brand new entity.

In reorganisations the place Cypriot firms are concerned (or entities with a everlasting institution in Cyprus), any tax losses incurred by the transferring entity through the previous 5 years that may be linked to the actions transferred to the spun-off entity might be transferred to the receiving (spun-off) entity and be utilised accordingly.

Migration of residence

Is it doable emigrate the residence of the acquisition firm or goal firm out of your jurisdiction with out tax penalties?

After the transposition of the provisions of the EU Anti-Tax Avoidance Directive (ATAD) to the native tax laws exit taxation might exist on the migration of the residence of a Cypriot firm.

Based mostly on the provisions of exit taxation when a Cypriot tax resident firm transfers its tax residence outdoors Cyprus (particularly, to a different EU member state or to a 3rd nation), it shall be topic to taxation on an quantity equal to the market worth of the transferred property on the time of exit, much less their worth for tax functions.

Exit tax provisions usually are not relevant if the property transferred relate to:

• the financing of securities;
• property supplied as collateral; or
• the place the switch of property is effected to fulfill prudential capital necessities or for the aim of liquidity administration (supplied that it’s anticipated that these property will return to Cyprus inside a interval of 12 months).

It’s doable to pay the related exit tax in instalments over a five-year interval, topic to circumstances.

Curiosity and dividend funds

Are curiosity and dividend funds made out of your jurisdiction topic to withholding taxes and, if that’s the case, at what charges? Are there home exemptions from these withholdings or are they treaty-dependent?

In line with the native taxation legal guidelines, no withholding taxes apply on funds of dividends or curiosity made by a Cypriot firm to non-tax resident individuals.

The Particular Defence Tax Legislation in Cyprus has not too long ago been amended to introduce the duty as of 31 December 2022 to withhold tax on outbound dividends, curiosity and royalties funds made to entities registered or resident in a rustic included within the EU checklist of non-cooperative jurisdictions.

The withholding tax imposed on such funds can be as set out within the following desk.

The EU checklist of non-cooperative jurisdictions for tax functions, as adopted by the EU Council on 24 February 2022, consists of:

• American Samoa;
• Fiji;
• Guam;
• Palau;
• Panama;
• Samoa;
• Trinidad and Tobago;
• US Virgin Islands; and
• Vanuatu.

The above checklist is repeatedly reviewed and amended by the EU Council.

Tax-efficient extraction of earnings

What different tax-efficient means are adopted for extracting earnings out of your jurisdiction?

Essentially the most environment friendly technique of extracting earnings out of a Cypriot firm is thru the distribution of dividends. Outbound dividends usually are not topic to withholding tax deductions in accordance with the provisions of the native tax laws except outbound dividends are paid to entities registered or resident in a rustic included within the EU checklist of non-cooperative jurisdictions and can be topic to tax at 17 per cent.

Such withholding tax applies provided that the recipient firm holds immediately, alone or along with related firms (which are additionally resident or registered in a non-cooperative jurisdiction):

• 50 per cent or extra of the voting rights or share capital; or
• the precise to obtain earnings of the Cyprus tax resident firm that pays the dividend.

The above doesn’t apply to dividends paid by a Cyprus tax resident firm listed on a recognised inventory change.