Vistra is pleased to present you with the latest edition of our newsletter.
On the 6th of November it will be two years since we have launched the Vistra brand. Today Vistra employs some 200 professionals in ten countries and is therefore able to provide a full range of cross border solutions for wealth protection and the structuring of assets and cash flows. Our services include amongst others trustee and corporate services, immigration and yacht management.
In this newsletter we have a closer look at the advantages Cyprus can bring in international tax planning. In addition we analyse the possibilities of the Luxembourg Specialised Investment Fund. The instant popularity of this new entity suggests that they are especially useful as a lightly regulated, low tax investment vehicle for the fund business.
Also we give you an overview of Vistra events in the coming weeks and how you can register. Finally we share with you an article in Banque & Finance, a prestigious Swiss industry magazine, where Vistra director Walter Stresemann is the subject of a profile in the "Leaders" section.
As always we hope you enjoy reading this edition, we have certainly enjoyed writing it!
Bart Deconinck
Group Chief Executive
International tax planning opportunities in Cyprus
Cyprus is considered to be one of the most favourable jurisdictions within the European Union for international tax planning purposes and is particularly useful for holding, financing and royalty structures. This brief guide outlines the main features and opportunities that Cyprus has to offer.
Key elements of the Cypriot tax system
1. General
In principal, all companies in Cyprus are taxed at a rate of 10%. To determine taxable income, the "at arm’s length principles" apply and all companies have to prepare their annual accounts in accordance with International Accounting Standards (IAS).
Companies whose management and control is exercised from Cyprus are taxed on their worldwide income. Although no definition is given of management and control, it is clear that the major management decisions and decision making processes should, if possible, take place in the Island. In this respect, it is important that the majority of the board should be Cypriot-resident directors who are responsible for the key management decisions of the company.
2. Taxation on interest
Interest earned by a company in "the ordinary course of its business", or closely related to these activities, will be taxed at a rate of 10%. Interest received that falls outside the scope of this definition, passive interest, will effectively be taxed at a rate of 15%. This 15% is divided into an income tax of 5% (50% of the interest remains tax exempt) and a Special Contribution for Defence Tax (SDT) of 10%. Although the law does not define what is regarded as "the ordinary course of business", (group) financing activities are considered to fall under this definition and therefore qualify for the 10% rate.
3. Taxation on dividends
Dividends received by a resident company will not be taxed with Cypriot income tax, but will instead be subject to the SDT at a rate of 15%. Dividends received from Cypriot companies, however, remain fully tax exempt. Furthermore, dividends from shareholdings in foreign companies also remain tax exempt if the shareholding in the dividend paying company is at least 1% and one of the two following criteria is met:
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Less then 50% of the non-resident subsidiary’s activities result, directly or indirectly, in investment income; or
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The foreign tax burden on the income of the non-resident subsidiary is not substantially lower than the Cypriot income tax burden. Not substantially lower in this respect normally means that the foreign tax burden should be at least 5%.
Based on the first exemption, most of the dividends received by a Cypriot company already remain tax exempt as the activities of the direct or indirect subsidiary are mostly considered to be sufficient to apply the exemption and in case of doubt, a confirmation can be requested from the tax authorities.
4. Exemption for capital gains on securities
One of the most important features of the Cypriot income tax system is the full capital gains exemption on the sale of shares, bonds and other securities. This is especially attractive for Cypriot holding and portfolio investment companies. Importantly, there are no requirements that need to be met in order for the exemption to apply, this includes there being no need to hold the security for any specific length of time.
5. No withholding taxes
Cyprus does not levy withholding tax on interest, dividends and royalties , which, in combination with the dividend exemption and the full capital gains exemption on shares (and other securities), make Cyprus one of the most favourable holding regimes within the European Union. Based on the aforementioned points, dividends and capital gains can be received by the Cypriot entity without any Income Tax and can be paid out to any shareholder abroad without any tax being withheld in Cyprus.
Structures for which Cyprus is being used
The low income tax rate of 10% offers impressive opportunities to establish a variety of companies, however, Cyprus also has proven to be an excellent jurisdiction for specific types of companies:
1. Holding companies
Cyprus has become one of the most important holding jurisdictions in the European Union. The obvious reasons for this are the broad dividend exemption, the capital gains exemption on all securities and the absence of a dividend withholding tax on dividends paid out from the Cypriot holding company to its shareholders. In addition, Cyprus has numerous favourable tax treaties based on which the dividend withholding taxes on dividends received by the Cypriot company are substantially reduced, in many cases to nil.
2. Financing companies
The effective income tax rate on financing activities performed by a Cypriot company is 10%. Depending on the structure, this rate can be reduced if Cyprus is used as a "flow- through" entity. In this case the margin of, for instance, 0.50% (or lower if this can be justified) would only be taxed at 10%.
Also for financing companies, Cyprus’ network of tax treaties can be used to reduce possible foreign withholding tax on interest received. In case any tax is being withheld, such amount can be offset against the income tax due in Cyprus.
3. Royalty companies
For royalty companies, the situation is basically the same as for financing companies, meaning that income is taxed at the 10% rate. In case of a flow-through entity, the normally acceptable margin for royalties would be 5%. Also for withholding taxes on royalties received by a Cypriot company, the same credit system applies as described for financing companies.
For any questions that you may have on taxation in Cyprus or the use of Cypriot companies in general, please contact
Arjan Schaapman or Adriaan Coppens on +357 25 817411.
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Spotlight on... The Luxembourg Specialised Investment Fund
In 2007, Luxembourg introduced the Specialised Investment Fund (SIF), a new collective investment fund vehicle that has given an immediate boost to Luxembourg’s fund business. The instant popularity of SIFs suggests that they are fulfilling their intended purpose as lightly regulated, low tax investment vehicles.
But what exactly are they and how can they help investors? Frank Walenta and Marjoleine van Oort of Vistra Luxembourg take a closer look at SIFs in this quick guide.
What investments can be held in a SIF?
SIFs are able to invest in all kinds of assets from classic investments like shares, bonds and deposits to, amongst others, hedge funds, private equity investments, derivatives, debt funds, convertibles, transferable securities, money market instruments and real estate.
However, investments made by a SIF must comply with some risk diversification rules laid down by Luxembourg’s financial regulator.
Who can invest?
SIFs are restricted to investment by sophisticated investors. These include, institutional investors, professional investors and any other investor who, as well as declaring that they adhere to the informed investor status, also invests a minimum of €125,000. Alternatively, they can hold a confirmation from a credit institution, investment firm or management company that certifies the investor’s expertise, experience and knowledge in regard to evaluating investments in the SIF.
Flexibility
The SIF can take a variety of forms, which provides it with great flexibility. SIFs can be set up as:
- FCP (contractual fund) represented by a management company;
- within a corporate fund with variable capital (i.e. SICAV e.g. SA, Sarl, SCA);
- any other legal form available under Luxembourg law.
Net assets and subscribed capital
The net assets of the contractual fund and the subscribed capital for the legal entities, including the share premium, may not be less than €1,250,000. This amount must be reached within a period of twelve months following authorisation by the CSSF, Luxembourg’s financial regulator.
The capital of a SICAV or of any statutory entity must be entirely subscribed and paid up to at least 5% per share by payment in cash or in kind.
Central Administration
The SIF’s registered office and central administration (or the management company in the case of a contractual fund) must be situated in Luxembourg. The directors of the SIF must also have professional experience and be of good reputation. However, the asset management functions can be performed outside Luxembourg.
In addition, the SIF’s assets must be supervised by an appointed custodian which can either be a Luxembourg depository bank or an EU branch approved by the CSSF.
CSSF approval
Although the SIF must be approved and supervised by the CSSF, it may begin its activities prior to approval being granted as long as it files the appropriate application for approval within one month.
A low tax regime
SIF taxation:
As SIFs are exempt from corporate income tax, municipal business tax and net wealth tax, they only pay capital contribution tax as well as an annual subscription tax.
The capital contribution tax, which is a fixed amount of €1,250, is paid at the point of incorporation. The annual subscription tax of 0.01% is levied on the net asset value of the SIF as measured on the last day of each quarter. It is worth noting that exemptions from the annual subscription tax are available.
Investor taxation:
No withholding tax is levied on income distributed by the SIF to investors unless the European Savings Directive is applicable.
Management services provided to a SIF are exempt from VAT and Luxembourg’s double taxation treaties may be of benefit to corporate SIF’s.
Conclusion
SIFs are suitable for a wide range of investors and are particularly attractive because of the light regulation and low taxation that is applied to them.
Perhaps the greatest benefit of SIFs is their potential for investing in all kinds of assets, however, investors will also be attracted by the ease with which they can be set up whilst still being considered to be a regulated fund.
For more information about SIFs or the range of services offered by Vistra Luxembourg, please contact
Frank Walenta or Marjoleine van Oort on +352 42 22 291.
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Vistra events calendar
Vistra Cocktail Party at the IFA (1st September, Brussels)
The Vistra Group Directors are holding a private cocktail party to mark the occasion of the 62nd Congress of the International Fiscal Association being held in Brussels.
The event is for Vistra contacts and will be held on the evening of 1st September in the exclusive surroundings of De Warande in the royal heart of Brussels, just minutes from the Congress itself. Beginning at 9pm, we’d be delighted for you to join us for an evening of fine drinks and company.
Please contact Yolanda Garcia on +41 (0)22 319 1892 for more details.
Vistra and Kinetic Partners joint presentation (23rd September, Geneva)
Vistra in conjunction with Kinetic Partners is holding a series of presentations under the title: "Regulatory Trends: mastering risks and maximising opportunities in the investment world". Kinetic Partners is a global professional services firm focused exclusively on the investment management industry.
The event will be held at Geneva’s Beau Rivage Hotel and will feature guest speakers from the Swiss federal Banking Commission and the Geneva Office for Economic Development.
Please contact Manuela Maymo on +41 (0)22 319 1890 for more details.
Monaco Yacht Show (24th to 27th September, Monaco)
Following the success of last year’s stand at the Monaco Yacht Show, Vistra Marine & Aviation will again have a significant presence at the world’s premier super yacht exhibition.
Last year, over 26,000 people visited the show and hundreds took an interest in the services that Vistra Marine & Aviation offer to yacht owners. Manned by Matt Ruane and Marina Gall, the customised stand stood out from the crowd and was an ideal way to connect with existing clients, captains and industry professionals.
If you are visiting the show, please come and see us at our stand located at Darse Sud at any time during the show, or contact Matt Ruane on +44 (0)1534 504700 to book an appointment.
Champagne reception at ITPA (10th November, London)
Vistra is delighted to sponsor the champagne reception at the International Tax Planning Association’s annual congress on the evening of the 10th November at the Dorchester Hotel in London.
The congress is one of the main events in the ITPA’s calendar and brings together hundreds of professionals from a variety of disciplines. This year topics under discussion include: the effects of the UK’s new non-domiciled laws, hedge fund location, a look at tax in Iceland and the changing role of the protector in trusts.
Please contact Yolanda Garcia on +41 (0)22 319 1892 for more details.
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Vistra features in May/June issue of Banque & Finance
Vistra director, Walter Stresemann was the subject of a profile in the "Leaders" section in the May/June issue of prestigious Swiss industry magazine, Banque & Finance. The article by respected finance journalist Mohammad Farrokh, discusses Walter’s work in Geneva, the town where his Nobel Peace Prize winning grandfather gave a pivotal speech to the League of Nations 80 years ago. Farrokh describes Walter as one of "Geneva’s foremost trust specialists", a natural leader with an "innate understanding of human relations" and briefly outlines his career in the Swiss finance industry which spans over twenty years.
After acquiring "impeccable academic credentials" in both the USA and Geneva, Walter began his career with the Cantrade Group. A number of mergers and acquisitions resulted in him working for the Belgo-Dutch group Fortis. However, dissatisfied with organisational changes, Walter joined the Board of Directors at Vistra in 2007. Farrokh acknowledges the work of Walter and Vistra CEO, Bart Deconinck, in driving the growth of Vistra, which "less than two years after its formation, employs 200 people worldwide".
Farrokh’s article is a short but fascinating insight into the life and history of one the driving forces behind Vistra’s success.
Please click here for the original article in French or here for the English translation.
You can contact Walter Stresemann on +41 (0)22 319 1890.
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DISCLAIMER
The contents of this document are made available for information purposes only. Nothing within this document should be relied upon as constituting legal or other professional advice. Neither Vistra Holdings Limited nor any of its companies, subsidiaries or affiliates accept any responsibility whatsoever for any loss occasioned to any person no matter howsoever caused or arising as a result, or in consequence, of action taken or refrained from in reliance on any of the contents of this document.
This document must be read in conjunction with our Legal and Regulatory notice at http://www.vistra.com/notices.