1. What is the single most important advantage your jurisdiction provides for Chinese clients?
1) Cyprus’s main advantage is that it’s a prime location for holding companies, which can lead to substantial tax savings. The following key factors make Cyprus the best jurisdiction for a holding company:
- The ability to extract dividends out of the operating company free of withholding tax or at a reduced rate
- Cyprus’s wide network of double tax treaties allows this – the highest tax rate is 15% and several countries have a zero tax rate
2) The ability to dispose of investment in an operating company without any liability for capital gains tax or its equivalent in the operating country. Capital gains are exempt from tax.
3) Exemption from local tax on dividends and capital gains in the holding company jurisdiction
- Dividends received by a holding company from its local and foreign subsidiaries are exempt from Cyprus tax
- There is no tax on capital gains upon disposal of investments
4) The ability to extract dividends from the holding company without charging tax in the holding company jurisdiction
- The only withholding tax levied by Cyprus is a 10% withholding tax on royalties derived from the use of a right or asset within Cyprus (subject to treaty provisions)
- All other dividends, interest and royalty payments made to non-residents of Cyprus may be made without deduction of tax
2. What is the main reason a Chinese client would consider using a shelf company in your jurisdiction?
There are no withholding taxes on dividends, interests or royalties irrespective of the existence of a Double Tax Treaty or the recipient’s country of residency. If a Chinese client wants to hold foreign shares (assets) and sell them with no tax to a third party in the future, the purchase of a Cyprus Shelf Company is the best solution from a tax point of view. Gains from disposing of any securities (shares, options, swaps, forward contracts, FX, GDR etc) are exempted from tax in Cyprus. Unilateral tax credit relief is available for taxes paid abroad if the respective income is subject to tax in Cyprus. Cyprus is also good for using within a holding “sandwich” between the EU and rest of the world.
3. What is your jurisdiction’s unique selling point in setting up offshore companies for Chinese clients?
Obtaining citizenship by investment in Cyprus within three months for individuals (from a five million euro investment for one family), or from a collective scheme of investments of 2.5 million euro from five families. These collective or individual schemes are most effective in Europe, and Cyprus’s Constitution does not require applicants to give up their current passport. Normally, this would be structured most effectively by setting up a Cyprus holding company.
4. It has been suggested that price remains a major factor for consideration for Chinese clients. Do you agree with this statement, and how do you think this will change in the years to come? Are you noticing a shift in emphasis on price to an emphasis on the quality of offshore structures?
I would agree with this statement only as it applies to the initial stage of client relations – when a client may be afraid to pay a high price for unqualified, low quality or slow services. This is an initial fare to pay high fees for nothing and it is normal. But as the majority of Chinese clients are reasonable businessmen, after receiving the corporate service provider’s verification and confirmation of their reliability – and once a business relationship has been established – they shift their emphasis to quality and mutual trust. High quality comes at a cost because personnel’s qualifications and caliber requires adequate investment from the service provider’s side.
5. Opening up a bank account for newly set-up companies has been a challenge for some jurisdictions in the past few years. Is this the case in your jurisdiction? How quickly can a company in your jurisdiction have their bank account set up?
Cyprus has a great advantage in setting up accounts for new companies. Cyprus remains flexible and oriented towards international business as a key to success for the island’s economy. Cyprus banks have specialized international business units with multilingual staff and extended cut-off times for the main currency payments. Almost any company can set up an account within ten working days of the day that full documents are submitted – apart from Bermuda (due to specific certification, this only applies to accounts opened within four months) and FATF listed jurisdictions, where no accounts can be opened. Cyprus has an excellent advantage in fast-tracking the opening of accounts for stock brokers and investment vehicles for stock markets.
Source: Brazhnikov & Partners Ltd