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Cyprus plans sweeping changes to bring in offshore investors

Cyprus is considering making substantial changes to its tax regime to make funds registered there more attractive to offshore investors.

Initiatives being discussed with Cyprus’s ministry of finance that are expected to become statute at the end of the year include the amendment of conditions surrounding the tax exemption of foreign dividends on Cypriot companies or funds and clarity over the taxation of interest. Currently,Cypriot leg- islation imposes conditions on the exemption of foreign dividends while domestic dividends are generally unconditionally exempt.

The corporate tax rate in Cyprus is 10 per cent on profits after expenses. Funds are considered to earn interest in their ordinary course of business, which would be subject to the tax.

Deloitte head of tax services partner Pieris Markou says the changes will result in virtually zero tax on profits of Cypriot-domiciled tax-resident funds and qualification under the jurisdiction’s double tax treaties.

Cyprus International Financial Services Association chairman Kevin Mudd says: “Clearly, Cyprus is aggressively positioning itself to compete with its more established rivals such as Luxemburg and Dublin.”

AES International managing director Sam Instone says: “Regardless of what they do with internal treatment of foreign overseas dividends, Cyprus is not a domicile of choice to start a reputable fund. It has a very poor regulatory history and is known as being a centre for money laundering.”


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Elephant in the room

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  1. Pieris Markou, Head of Tax Services, Deloitte Cyprus 27th May 2009 at 6:50 am

    Cyprus plans sweeping changes to bring in offshore investors
    I read with great surprise Mr Sam Instone’s comments in the above article. Especially at a time when Cyprus receives a White listing from the OECD’s report issued on 2 April 2009 as a jurisdiction which has complied fully with all the requirements for the effective exchange of information on tax issues. Mr Instone should have a look at this list as he will see that some of his preferred jurisdictions are still Grey listed. The anti-money laundering measures taken in Cyprus have been repeatedly evaluated, in the last few years, by international organisations such as the Moneyval Committee of the Council of Europe and the FATF. The Council of Europe (Moneyval Committee) assessed three time the Cyprus’s anti-money laundering system in April, 1998, September, 2001 and April 2005. All subsequent evaluation reports concluded that Cyprus has implemented in a generally sound and comprehensive manner measures against money laundering and terrorist financing in line with international standards and has put in place a very comprehensive legal framework to that effect. The latest report assessed and rated Cyprus, with very good results, for its level of compliance against the 49 Recommendations of the Financial Action Task Force against money laundering and terrorist financing. Cyprus’s anti-money laundering system was subject to review by the FATF in the context of the latter’s initiative to identify “non-cooperative countries and territories” in the international fight against money laundering. In its official report published in June, 2000, the FATF also recognised that the anti-money laundering system of Cyprus is in line with international standards and excluded Cyprus from the published list of “non-cooperative countries and territories”. Moreover, in July, 2001, the Internal Revenue Service of the United States of America, officially approved Cyprus’s “Know-Your-Customer” rules which form a basic part of Cyprus’s anti-money laundering system. As a result of the above approval, banks in Cyprus which may be acquiring US Securities on behalf of their customers are eligible to enter into a “withholding agreement” with the Internal Revenue Service and become qualified intermediaries. It makes one wonder where the real money laundering is taking place.

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