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PROGRAM  The day after the Cyprus banking crisis. Is Cyprus still an option for the Russians?  Malta, Competing Cyprus. A comparison of Malta and Cyprus  The Netherlands and Luxembourg: The high profile players in the Russian market and comparison with Cyprus/ Malta  Efficient structures: Holding, Financing and Royalty COFFEE BREAK  Family office in Luxembourg: New Regulations in 2013  Hong Kong –Singapore and their territorial tax system; How are they used in the Russian market. Comparison with the above group  UAE, a different concept of international jurisdiction  Transparency and confidentiality. Banks and compliance procedures  Banking options for account opening

The day after the Cyprus banking crisis Is Cyprus still an option for the Russians?? Globalserve Moscow Seminar September 2013 By Phani Schiza Antoniou

CYPRUS, offshore financial centre for Russia “Cyprus is effectively the offshore financial services centre for Russia”. To this end, 2011 foreign direct investments in the Russian economy reached $48.5 billion. During his visit in the end of 2010, the Russian president had described Cyprus as the most important channel for attracting foreign investment to his country. ““

BOOM!!!! 16 TH March 2013 EUROGROUP DRIVEN BAILE IN ON THE TWO MAJOR BANKS DEPOSIT HAIRCUT HIGH LOSSES FOR RUSSIAN DEPOSITORS/ INVESTORS DEPOSITS CONVERTED INTO EQUITY

Cyprus Banking Crisis Following the decision on Cyprus of the Eurogroup meeting held on 25 March 2013, the two major banks of the island Bank of Cyprus and Laiki Bank have been affected and their depositors were forced to contribute to the banks’ recapitalization through deposit haircut for deposits above the minimum guaranteed amount o € per depositor. More specifically the following actions were taken: 1. Laiki Bank was placed under resolution as per the Resolution of Credit and other Institutions Law of 2013 of the Republic of Cyprus (the “Resolution Law”). Under the resolution Laiki Bank was separated into a “good” and a “bad” bank, with full protection of insured depositors (up to € per depositor). The unsecured deposits over € remained with the ‘bad’ Laiki

Cyprus Banking Crisis 2. The “good” Laiki Bank was absorbed by the Bank of Cyprus, in the framework of the resolution and restructuring of the two banks together with most of the bank’s assets and loans, including the transfer of the amount of the Emergency Liquidity Assistance (ELA) of Laiki Bank. 3. The Bank of Cyprus was capitalized through a bail-in of depositors under which 47.5% of the unsecured deposits over € has been converted into equity; account holders with deposits up to € were fully protected, in line with the relevant EU legislation

Cyprus Banking Crisis 4. The existing shareholders’ equity was diluted to below 1% of the bank’s share capital while 18% of the bank’s equity was issued to Laiki Bank to compensate for the acquisition of certain assets and liabilities including the insured deposits. At the moment these shares are held by the Laiki Bank Administrator 5. Following the completion of the recapitalization of Bank of Cyprus, the bank ceased to be under resolution and a new Board of Directors has been elected with 6 Russians out of total 16 members, consisting from depositors who are now the shareholders of the bank as a consequence of the Baile in 6. The resolution process applied only to the two banks. The rest of the Cypriot banking system was not affected by the resolution process nor by the decisions of the Eurogroup.

Temporary Restrictive measures The haircut sapped trust in Cypriot banks, prompting authorities to impose restrictions on money transfers and withdrawals to prevent a run. Many restrictions have since been relaxed, but officials say it may take many months before they're fully lifted. BUT the restrictions apply to money that was deposited till 15 th of March New money is not subject to the restrictive measures. Also even old money can be transferred out if it is deposited in the current account and is to be used for commercial purposes, supported by relevant contract or invoice, without the need for approval upto € 0.5 million per day For funds in fixed deposits, these are released at the rate of 20% upon maturity and transferred in the current account to be used as above

The Day After……  Are the Investors into Russia moving out of Cyprus to other jurisdictions and banking systems?  What has changed with respect to the tax and other advantages of Cyprus?  What are the options?

Why was Cyprus attractive to investors into Russia?? Cyprus was used as an ideal vehicle mainly due to its: -Tax advantages -The excellent double tax treaty with Russia  5% withholding tax on dividend if investment over €  0% withholding tax on interest and royalty income  Cyprus on the Russia white list Other advantages as below -Member of the European union applying the European directives -The existence of an extensive network of DTT with 46 countries -Strategic location -High standard of business environment & legal system -Efficient and experienced banks specialised in commercial banking -Tax system in full conformity to European law & oecd directives against harmful tax practices- white list jurisdiction -Transactions with offshore companies are accepted -Reasonable pricing

Are the Cyprus advantages still there? The major tax advantages of the Cyprus tax regime remain unchanged as we discuss in the following slide. The tax changes introduced as a result of the crisis are mostly affecting the locals with the exemption of the following changes. The corporate tax rate has increased from 10% to 12.5% on the net profit Defense tax on interest income has increased to 30% but through the use of correct tax planning by using financing company for the financing operations, this tax is avoided and interest income is taxed at the corporate tax rate The Double Tax Treaty with Russia remains unchanged

Summary of Cyprus Tax Rates Main rate Cyprus Tax resident Co’s12.5% Main rate Non - Cyprus Tax resident Co’s 0% Dividends received Royalty income 0% 2.5% Profit from the sale of securities0% Ship owning – Cyprus flag0% Ship owning (foreign flag ships), ship management & shipTonnage tax Trusts0% Profit from permanent establishment abroad0% Withholding taxes on dividends, interest, royalties paid to non Cyprus tax residents 0%

other Issues Summary of other Cyprus Issues Losses are carried forward upto 5 years No inheritance tax No wealth tax No thin capitalisation rules No CFC rules No transfer pricing rules Generous tax deductibility rules Offshore invoices are accepted Permanent establishment profits are tax exempt

CORPORATE TAX RATE 12.5% A low corporate tax rate is ideal for: International Trading, Service and Management Companies Financing Companies Intellectual Property Companies

DIVIDEND INCOME Exempt Dividend income is exempt from tax: no minimum holding period no minimum participation minimum conditions for exemption to apply Dividends received by a Cyprus company from a company abroad are only taxed if both of the below conditions are met (which is very rare):  The company paying the dividends or the original company from which the income was generated engages more than 50% in activities that lead to investment income And  The foreign tax burden on the income of the company paying the dividends is substantially lower than the tax burden of the company in Cyprus No cfc rules (from the Cyprus side)

EXEMPTION OF OVERSEAS BRANCH PROFITS Overseas profits are exempt from tax: profit of a permanent establishment Minimum conditions for exemption to apply No strict transfer pricing rules

Exempt Wide definition to cover all types of investment instruments No minimum holding periods or shareholdings Trading in securities is exempt too, not just participations, like in most of the competitive jurisdictions Rulings if not specifically provided for No strict transfer pricing rules PROFIT FROM DISPOSAL OF SECURITIES

EXEMPTION OF IP INCOME 80% Exempt An 80% exemption of profit from the exploitation of Intellectual Property applies to: Net profits after deduction of all direct expenses and depreciation Depreciation over 5 years Maximum effective tax rate 2.5%

WITHHOLDING TAXES ON DIVIDENDS No withholding tax on dividends received from a European subsidiary company ( parent subsidiary directive) Lower withholding tax on incoming dividends paid by a non European company with which Cyprus has a double tax treaty e.g with Ukraine it is 5% No withholding taxes on dividends paid out to non Cyprus tax residents

INTEREST RECEIVED Trading interest is taxed at 12.5% income tax after deducting interest expense and all other company expenses Non trading interest is exempted from income tax but it is taxed at defence tax on the gross amount at the rate of 30% for Cyprus tax resident companies). However with a good tax planning this case is avoided and above applies Losses Losses carried forward can be set off against future profits for a period of 5 years as per the last tax amendments Losses incurred abroad can be set off against the company’s profits Losses of one co in the group can be set off against profits of another co

What about banking for the Cyprus companies? In view of the Cyprus banking crisis, Russians may have lost trust in the Cyprus Banking Sector and are hesitant in maintaining their deposits in Cyprus Still however there are options: – they can use the Cyprus banking system for their commercial transactions as in this line of business the Cyprus banks are flexible and experience understanding the Russians’ needs as opposed to the European banks – Also the crisis has affected the two major banks which were heavily exposed to the Greek bonds and the Greek banking sector. There are other banks locals and foreign which are fully capitalised and can meet the clients’ needs – But also the Cyprus company may maintain bank account abroad and Globalserve can help you in this

Conclusion The Cyprus Banking crisis and the Russian deposits lost had a negative impact on Cyprus as an International Business Centre and has lost an important advantage that it had, being the efficient banking system BUT Russians have not moved out of Cyprus as a result of the following competitive advantages The advantageous tax regime remains unchagned The Cyprus tax system is very simple and straightforward compared to other competitive jurisdictions The DTT with Russia is valid The costs of Cyprus companies are highly competitive Russians are welcome to Cyprus and generally there is a positive attitude from both sides Still other banking institutions in Cyprus or abroad can support the commercial banking needs of the Russians, although in Europe there are a lot of restrictions as the recent experience of many Russians evidences