http://www.metacafe.com/videosabout/slatewellholdingsltdcyprus/ A lot has happened to Cyprus over the past 12 to 18 months as the country found itself caught up in the conflagration of the Eurozone debt and banking crisis. As a result, some taxes have been raised on both individuals and companies, but, on the whole, Cyprus remains an attractive jurisdiction for holding companies. Cyprus is no longer an offshore jurisdiction in the strict sense of the word, but its tax regime, coupled with its location at the cross roads of Eastern Europe, the Middle East, North Africa and Asia, an extensive network of double-tax treaties, its membership of the European Union and its sophisticated European business environment and stable economy mean that the island has become an ideal place to locate holding, trading and intermediary companies. Cyprus's taxation regime doesn't stand out particularly among its offshore competitors, but changes to tax legislation approved in 2002 gave Cyprus the lowest rate of corporate tax in the EU at 10%. Cyprus has also adopted the EU's 'Code of Conduct' on 'harmful tax practices' and is placed on the Organization for Economic Cooperation and Development's (OECD) 'white list' of tax compliant jurisdictions and therefore has a reputational advantage over some of its offshore competitors. Cyprus was also rated as the most attractive tax regime in Europe (with the net attractiveness score of 90%) by a 2009 KPMG poll, ahead of Ireland, Switzerland and Malta. The Income Tax Act No. 118(I) of 2002 applied the 10% corporate tax rate to both 'offshore' and 'onshore' companies, although after a short transition period, this distinction has now been removed; as from January 1, 2003, an offshore company (IBC) no longer has a separate taxation status, and is taxed according to the same principles as a regular company. Thus, IBCs are now allowed to trade inside Cyprus. A pre-existing IBC which made an irrevocable commitment not to trade inside Cyprus until 2006 was able to claim the existing low tax rate for the three years 2003, 2004 and 2005. Cypriot companies also pay a 2% levy on wage bills (meant to subsidize pensioners), and a 'Special Contribution' (SDC) related to defence. In effect, the SDC applies the 10% corporate tax rate to inter-company dividend and interest payments. In a series of revenue-raising measures approved by the Cypriot House of Representatives in the second half of 2011, the SDC rate on deemed dividends payments to individuals was increased from 15% to 17% effective August 31, 2011, and to 20% effective January 1, 2012. Interest income not received in the ordinary course of business or that is not connected to the ordinary course of the business is subject to SDC of 15% (increased from 10% on August 31, 2011).In addition, as a result of the austerity measures approved in 2011, all companies registered in Cyprus are required to pay an annual levy of EUR350, up to a maximum of EUR20,000 for groups of companies. The first payment of this fee was due to be made by December 31, 2011, with subsequent payments falling due on June 30 each year. Profits from activities of a permanent establishment situated outside Cyprus remain completely exempt. This exemption will not apply to a Cyprus company if: (i) its foreign permanent establishment directly or indirectly engages in more than fifty per cent (50%) of its activities in producing investment income, and (ii) the foreign tax burden is substantially lower than that in Cyprus (unlikely unless the foreign PE is located in no- or low-tax jurisdiction). In Cyprus, the term "Permanent Establishment" has the same meaning as defined in the OECD Model Tax Convention on Income and on Capital with the exemption of "a building site or construction or installation project", which constitutes a permanent establishment only if it lasts more than three months. There are a number of company forms available in Cyprus, but the most commonly used for a Cypriot holding company is the private limited liability company. When 100% foreign-owned, a private company used to be referred to as an 'offshore company', although the expression International Business Company subsequently came into favour to describe such entities. Cypriot companies are formed under the Cyprus Companies Law, Cap. 113, which is virtually a copy of the English 1948 Companies Act. In order to form a foreign-owned company in Cyprus, a bank reference and copy of the owner's passport are required for the registration. The bank reference must be issued by a bank included on the Central Bank of Cyprus's list of qualifying banks. A holding company using the private limited company form will need at least one shareholder and at least one director, which can be a natural person or a body corporate of any nationality. A company must have a registered office. There is no minimum share capital. Under amendments to the Cyprus Company Law in 2003, every company must prepare a full set of financial statements in accordance with International Financial Reporting Standards, and every parent company that has one or more subsidiaries, other than a company which is itself a wholly owned subsidiary, should present consolidated financial statements. Under article 120, every company must complete an annual return within a period of 42 days from the date of its Annual General Meeting and must file immediately with the Registrar of Companies a copy of the annual return, signed by a director and the company secretary. Under article 121, the annual return filed with the Registrar of Companies must be accompanied by the full set of financial statements. A substantial number of companies involved in the trading or distribution of FMCG (fast moving consumer goods) and other physical goods use Cyprus as a trading base for the Mediterranean, Middle East and North African region. Non-resident enterprises (i.e. those neither 'managed and controlled' nor with a local permanent establishment) are allowed to store, maintain, break bulk or re-package their own transit goods in bonded warehouses, providing the handling doesn't result in any change of customs' tariff classification. They are also permitted to conduct sales activities on the island, as long as no local deliveries result, and no permanent establishment is created. Cyprus is not a particularly convenient base for supplying the CIS and Eastern Europe in physical terms, but that does not prevent companies with interests in those regions from establishing holding companies in Cyprus, and very many do so. Not only are the Cyprus treaty withholding tax rates normally lower than those in other countries' treaties, but there will be no local taxation as long as no permanent establishment is created, and even if it is, Cyprus's own 10% tax rate on company profits is itself low. The combination is quite hard to beat. However, a protocol amending the 1998 tax treaty between Russia and Cyprus, signed in November 2010, includes special provisions which change the way Cypriot real estate holding companies are taxed in Russia. The most important change in the treaty relates to source-state taxation of capital gains in companies which predominantly hold real estate as their main activity: where more than half the company's assets comprise Russian immovable property, Russia will be able to apply its domestic capital gains tax. This conforms to articles contained in the standard OECD model tax convention. Prior to this change, capital gains taxing rights were applied in the country of residence of the selling company. The protocol was ratified by Cyprus in 2010, and by the Russian State Duma in February 2012. The Protocol is due to take effect on January 1, 2013, but the amendments affecting real estate holding companies will become effective four years from the date on which the Protocol enters into force. A frequent feature of international trade and investment, particularly as between advanced and less advanced countries, is the transfer of technology or 'brand' or intellectual property in return for license, franchise or royalty payments. Due to its network of double-tax treaties and favourable taxation regime, Cyprus is a suitable place in which to locate an intermediary company to handle payments streams which might otherwise be highly taxed in the receiving country. Unusually for a 'low-tax' jurisdiction, Cyprus has more than 40 double-tax agreements, and this list is being added to on a regular basis; in 2012 new DTAs were signed with Austria and Luxembourg, and as of May 25, 2012, Cyprus has 46 double tax treaties. Such payments for intellectual property would normally be deductible expenses in the originating country, and under the tax treaties will be subject to low or zero withholding tax (Central and Eastern Europe, China, India, South Africa and a number of Middle Eastern countries). At worst, the income received in Cyprus will be taxed, after deduction of expenses, at 10%. It is not surprising in the light of the above factors that many international investors choose Cyprus as a location for financial holding and investment companies as conduits for investment to and from Eastern Europe, the Near and Far East, and Africa.