In the meeting of Secretaries of the Latvia State, was announced the draft law, prepared by the Ministry of Finance of Republic of Latvia, regarding Convention between Republic of Latvia and Cyprus for avoidance of double taxation and prevention of fiscal evasion in respect to taxes on income.

The agreement aims to promote trade, foreign investment and facilitate investment from both Latvia and Cyprus. The draft DTA includes provisions for the exchange of information in accordance with the Organization for Economic Cooperation and Development model.

The draft DTA must receive approval from the Latvian Cabinet of Ministers before being signed with the Cyprus government. Following the signing, the agreement requires approval from parliament.

Finally, the barrier was lifted as the two countries signed an agreement to be ratified for the avoidance of double taxation. Double taxation is perhaps the most vivid example of a barrier in international relations and economic cooperation, arguably, an unfortunate remnant of the past. Cyprus and Spain signed on 14 February 2013 an agreement to be ratified for the avoidance of double taxation. The new agreement is the result of strong governmental resolution to seal the cooperation bond between the two countries. The agreement was signed at a ceremony held at the residence of Spain’s Ambassador in Nicosia, Ana Salomon Perez and during the addresses of the representatives of the two countries one could certainly realize that we are entering a new era of cooperation, trade and investment between the two countries.

LLPO has a long-standing cooperation with professionals and investors in all major cities in Spain. We literally witnessed the 2006 policy of the Spanish Authorities to reject any private commercial utilization of the structures of the two countries in a single transaction and a unified tax treatment. Even after the amendment of this irrational policy and Cyprus reinstatement from such treatment, back in 2009 we dealt with the commercial difficulties investors and traders faced in attempting to enter into transactions resulting in the moving of funds or services form one country to the other, whereby to benefit from Spain’s participation exemption regime, the taxpayer ought to have been able to demonstrate that there were valid economic and business reasons for operating through a Cypriot company.

As Spain’s Ambassador in Nicosia stated this important new agreement “…will certainly facilitate investments from Spain to Cyprus and from Cyprus to Spain and strengthen economic relations between our two countries”. As she noted “the Spanish authorities showed a considerable amount of flexibility in order to reach an agreement”, expressing the gratitude of the Spanish government particularly of the Minister of Finance and the Minister of Foreign Affairs who made major efforts to complete all necessary domestic procedures so that the signatures could take place before the term in office of Minister of Finance Vassos Sharly and the current government came to an end.

The Cypriot Finance Minister Mr. Vassos Sharly on his part said that “what you need is a commitment that you believe in what you are doing and everything else falls into place”. He said that double tax agreements do not progress simply because you have commitment but you need a partner and in this context “we had a very good partner to work with. We did it and we are doing a lot but we need friends and in Spain we have a very good friends which we always believe in and I hope that this relationship will develop from a double tax agreement at the moment to become a great strength in the relationship between us”, he noted.

LLPO consistent in our pledge to exceed our clients’ expectations, all these years we maintained very close cooperation with Spanish professionals and upgraded our professional network. That’s why LLPO has an extra reason to welcome this long awaited development. Cyprus and Spain may now share each other’s incentives and resources in order to afford traders and investors the freedom to utilize the advantages of each country’s opportunities, without having the concern of the imposition of double taxation. 

LLPO and its expert network are ready to facilitate investors’ and clients’ decisions. , ¿Vamos? 

On 11th of December 2012 the European Parliament approved the EU regulation on Unitary Patent for Europe. The regulation creates a system where the EPO (European Patent Office) will be able to issue one single patent protecting rights in all 25 member states which opted in this system. Italy and Spain opted out of the unitary patent scheme because their languages were not included as official languages of the scheme. The unitary patent system will be in force on 1/1/2012 and its use will be optional. The applicant will have the ability to choose either the current system of distributed filing through EPO or the new unitary system.

It is common knowledge that the current system of patents in Europe is fine tuned but very expensive as after initial grant of the patent the procedure requires “validation” in all 27 European Countries. This was characterised as “tax on innovation”. The new system is expected to lower the fees and costs of registration of patents at least ten fold, making it comparable to that of US and Japan.

Innovation is considered a cornerstone of Europe’s future growth and many schemes are under consideration and others already implemented with this strategy in mind.

Cyprus is maybe positioning it self in the centre of this strategy, by becoming the european jurisdiction of choice for Intellectual Property routing. The recently amended royalty tax of Cyprus, makes the jurisdiction indispensable in royalty tax structuring. The main reasons for this are:

• Royalty Profits Tax: 2%
• Effective Tax on Royalty Profits: as low as 0%;
• No withholding tax on royalties payable to Cyprus companies from EU and US;
• No withholding tax payable from Cyprus to any other jurisdiction;
• Network of 46 Double tax treaties; and
• Excellent Professional workforce.

Following the removal of Cyprus from the Portuguese “black list”, on 19 November 2012 the representatives of Cyprus and Portugal have concluded and signed a Double Tax Treaty. 

The Portuguese Ministry of Finance has removed Cyprus from the country’s “black list” of jurisdictions which are considered to have privileged tax regimes, based on the Decree No. 292/2011, in both countries’ efforts to be in full compliance with relevant EU Directives, such as the EU Directive on mutual assistance and exchange of information in the field of direct taxation 

This removal of Cyprus from the black list means that: 

1. Portuguese CFC Rules do not apply in respect of Cyprus companies, where previously Cyprus companies profit taxed in Portugal 
2. Payments from Portuguese companies to Cyprus companies are now deductible for Portuguese tax purposes 
3. Cyprus companies can now benefit from the exemption of Portuguese Capital Gains Tax, where previously Cyprus companies were subject to Portuguese Capital Gains Tax 
4. Interest income and capital gains from registered debt securities are now generally exempt from Portuguese withholding tax, which previously were subject to Portuguese withholding tax 
5. The real estate tax payable by Cypriot owners of Portuguese property was reduced to the standard rate – from 0.2% to 0.8% (previously the increased rate of 5% applied) 
6. The transfer tax payable by Cypriot purchasers of Portuguese property was reduced to the standard rate of 5%-6.5% on the transfer of property (previously the increased rate of 8% applied)

The removal of Cyprus from the “black list” and the singing of the double tax treaty between the two countries provide new opportunities in efficient and effective tax planning in doing cross border business for both Portuguese and Cypriot enterprises. 

The European Commission will present today a Communication to the European Council and Parliament titled Action Plan to Strengthen the Fight against Tax Fraud and Tax Evasion. The Communication, sets out the practical steps to be followed the next couple of years by all involved institutions including EU member countries to battle tax evasion. In short, the measures outlined in the communication will be the following:
Old resurfaced initiatives or policies

1. New framework for administrative cooperation, mainly enhancing exchange of information between member states;
2. Amendment of the Savings Taxation Directive mainly to close loopholes of the system;
3. Adoption of an Anti-fraud and tax cooperation agreement;
4. Adoption of a Quick Reaction Mechanism for VAT fraud, mainly allowing a member state to deviate from the Directives in case an abuse of the system creates a massive VAT fraud issue;
5. Wider adoption of optional application of VAT reversed charge mechanism;
6. Adoption of a forum for streamlining the EU Vat system to battle fraud.

New Immediate Initiatives

1. Common EU – wide definition of Tax Heavens and the adoption of a common “toolbox” of coordinated measures towards third countries;
2. Recommendation for adopting a general anti-avoidance clause in all double tax treaties between member states and third countries;
3. Improving the effectiveness and applicability of the Code of Conduct on Business Taxation;
4. Adoption of a central Tax Identification Number (TIN) repository called “TIN on Europa”;
5. Adoption of Standard form for exchange of information on taxation issues;

New Initiatives for December 2013

1. Revision of the Parent – Subsidiary Directive;
2. Promote the standard for automatic exchange of information on tax issues;
3. Implementation of a European Taxpayer Charter;
4. Reinforcement of cooperation with law enforcement units to battle tax evasion;
5. Promote simultaneous controls (“common raids”);

New Initiatives for December 2014

1. Development of a computerised format for automatic exchange of information; 
2. Full implementation and use of TIN;
3. Implementation of EU-wide information technology tools for administrative cooperation;
4. Reinforcing the ability of tax administrators to trace money flows;
5. Extend EUROFISC to direct taxation;
6. Create a one stop shop in every country for matters relating taxation;
7. Develop motivational incentives and voluntary disclosure programmes;
8. Develop a web tax portal;
9. Promote alignement of EU-wide common administrative and criminal sanctions;
10. Develop an EU- standard audit file (SAF-T);
11. Start negotiation with third parties for administrative cooperation on VAT issues.

Longer term Initiatives

1. Central Joint Audits (joint raids);
2. Develop mutual direct access to national databases;
3. Propose a single legal basis for administrative cooperation of all taxes.

Cyprus and Finland signed an agreement on 15th November 2012 in Nicosia for the avoidance of double taxation, with both sides pointing out its significance for facilitating investments and strengthening bilateral ties.

The agreement was signed by Cypriot Minister of Finance Vasos Shiarly and Ambassador of Finland in Nicosia Anu Saarela, at the Ambassador’s residence.

The agreement will be approved by the respective parliaments in the course of 2013 and it will come into force at the beginning of the year 2014.

On 8 November 2012 during an official visit of the President of Ukraine Viktor Yanukovych in Cyprus the two countries signed a new Double Tax Treaty (DTT). The agreement is to replace the 1982 treaty for the avoidance of double taxation as concluded between Cyprus and the USSR.

The DTT will come into effect on 1st January following the year in which the parties exchange notifications of ratification. 

The most important provisions of the treaty are as follows:

Permanent Establishment
A building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 12 months.

Dividends
In cases where the beneficial owner holds at least 20% of the capital of the company paying the dividend or has invested an amount of at least €100,000 in the acquisition of the shares or other rights of the company, the withholding tax rate is set at 5%. In all other cases the withholding tax rate is 15%.

Interest 
The withholding tax rate on interest is 2%.

Royalties 
The withholding tax rate on royalties in respect of any copyright of scientific work, patents, trademarks, secret formula, process or information concerning industrial, commercial or scientific experience is 5% (10% in all other cases).

Gains
Capital gains arising from a disposal of shares or any other movable property are granted to the country in which the person making the disposal is a tax resident.

Last week, Cyprus government and Troika agreed in principle on an MOU on Specific Economic Policy Conditionality. The MOU contains several provisions and measures relating to:

• The Financial and Banking Sector;
• Fiscal Policy;
• Fiscal and Structural Measures;
• Labour Market;
• Goods and Services Markets;

Beside the austerity measures which are costly in terms of growth, at least in the short term, many of the policies proposed are generally and widely supported by many in Cyprus. The fact that austerity is undertaken simultaneously with bank de-leveraging is indeed going to weight a lot to the growth prospects in Cyprus, at least for the next 3 years to follow. However there is a balancing effect which is fully in line with the fact that Cyprus is an international business centre. Our fast and hard observations regarding the international position of Cyprus post MOU are the following:

1. Non of the tax advantages of Cyprus tax system are under policy consideration in accordance to the MOU. More specifically all the tax policies target primarily local tax payers. The only deviation to that principle is probably the abolition of exceptions for the payment of Euro350 annual levy. These exceptions however were not particularly used by international investors using Cyprus for international business purposes.
2. The reputation and safe status of the Banking sector is re-instated following the MOU. 
• The institutions will receive a full third party appraisal by 1/3/2013 and will be recapitalized fully with an agreed Euro 10 billion recapitalization loan;
• The non performing assets of the banks shall be bought by a government led Asset Management Company (AMC);
3. The enlargement of the financial sector is achieved. The inclusion of Cooperative Credit Institutions under the umbrella of Central Bank of Cyprus changes the financial sector in Cyprus considerably. International business was for many years out of reach for such institutions but it seems that now the new regulatory regime will change that dynamic towards a more extrovert approach.
4. The agreed modernisation of the regulative regime relating to Public Private Partnerships (PPP) together with the privatisation of state owned enterprises (SOE) will create new opportunities for international investment for large projects.
5. The restructuring of Professions and Services sector will further open up the market for new international investments in these sectors.
6. The necessary restructuring of the Public Sector will create a trend of abolishing red tape in the public sector creating efficiencies which will certainly benefit fast track licensing, registration and approval of actions related to international investment and routing.

It was always our expectation that even though Cyprus is cash strained, austerity and taxes would be of such nature that will safeguard the position of Cyprus as an international business centre. The fact is that in the last one year amendments to Cyprus Tax enhanced Cyprus position in international scene by lowering taxes for international investors. The new royalties tax regime, the new yacht leasing scheme, the new investment immigration regime and the new trust law regime, are only few of the such recent amendments. Together with the non abolition of traditional tax benefits of Cyprus (i.e. the lowest tax rate in Europe), the support of Euro10billion towards Cyprus troubled banks and the enlargement of the financial sector we strongly maintain that Cyprus is back in business.

The Russian government has published an Order in the nation’s Official Gazette to provide for the removal of Cyprus from the nation’s ‘blacklist’ of non-cooperative ‘tax havens’ from January 1, 2013, when a Protocol to the nations’ double tax agreement becomes effective.

The ‘blacklist’ was part of an amendment to the Russian tax code which introduced a tax exemption on the repatriation of dividends from foreign subsidiaries of Russian companies, but specifically excluded Russian subsidiaries based in territories and countries on the blacklist.

The Protocol will enter into force upon signing of the ratifying law by President Dmitry Medvedev and after due procedural publication and notification to the Government of Cyprus, which already ratified the Protocol in September 2011.

The new article concerning taxation of sale of shares in companies deriving their value primarily from the real estate will apply as from January 1, 2017, after a 4-year grace period.This will improve the position of Cyprus and will allow Russian companies to structure their investments in foreign ventures through Cyprus, since dividends coming to a Russian parent company from a Cypriot subsidiary will be exempt from taxation. Currently they are subjected to 9% taxation.