The Cyprus Tax Regime

1. The Cyprus Tax Regime International Tax Practice Group Meeting Lex MundiEurope/Middle East/AfricaRegional Conference, Munich 3-5 May 2007

4. Corporate income taxation Income Tax Law Resident companies in Cyprus taxed on worldwide income (subject to certain exceptions) Non-resident companies taxed on source of income from Cyprus (subject to certain exceptions) Entities taxed under special regimes International Trusts � income is exempt from tax (trustees & beneficiaries) Shipping � profits/dividends of company in Cyprus (beneficially owned by non-Cyprus tax residents) which owns ships registered under the Cyprus flag, are exempt from taxation. This extends to crew emoluments. Ship management companies (beneficially owned by non-Cyprus tax residents) may be taxed at 4,25% or pay tonnage tax at 25% of rates of calculated tonnage tax imposed on ships under their management

5. Corporate income taxation The tax base Taxable income, as defined in s.2 of the Income Tax Law, is �the aggregate remaining amount of income of any person from the sources specified in section 5, following deduction of such amounts as are permitted by or under this Law�.

6. Corporate income taxation Tax exempt income Profits from the disposal of �securities� (e.g. shares, stocks, bonds, debentures of companies incorporated in Cyprus or abroad and options thereon) Dividends 50% of the interest income of companies (exception: interest income generated from/closely connected to ordinary activities of taxable entity)

7. Corporate income taxation Applicable income tax rates The taxable income of a company is taxed at the rate of 10% The taxable income of public utility corporate bodies is taxed at the rate of 25%

8. CAPITAL GAINS TAX Applicable income tax rates Companies (& individuals) subject to capital gains tax (20%), on gains arising from the disposal of:

9. Corporate income taxation Withholding taxes Under the Income Tax Law No imposition of withholding tax on royalty payments to non-Cypriot resident recipients for use of a right/asset outside Cyprus. For rights/assets within Cyprus, and unless recipient is an associated EU company, a 10% withholding tax is applied.

10. Corporate income taxation Withholding taxes Under Special Defence Contribution Dividend income: nil (0%) (15% if, however, paid to a Cyprus resident) Interest income: nil (0%) (10%, if however, paid to a Cyprus resident) N.B. Rentals are subject to 3% SDC (after a 25% deduction) payable by self-assessment but nil for non-residents

11. Corporate income taxation Anti-avoidance rules The arm�s length principle governs transfer pricing rules in Cyprus. There is no controlled foreign corporation (CFC) legislation, similar to other countries undistributed profits of foreign subsidiaries not assessed at parent company level. Therefore, Cypriot CFC rules only concern genuinely passive income, and do not extend to active income. No provision by Cypriot tax legislation for thin capitalisation rules (i.e. minimum dept/equity ratio requirement)

12. Corporate income taxation Administrative requirements of local tax authority Each corporate entity (and individuals) must deliver a return of income to the Inland Revenue, following deduction of tax exempt, tax deductible expenses and credits granted under laws in force. Double taxation treaties 34 treaties in force, covering 43 jurisdictions, including most European countries, the USA, Canada, China, India, South Africa, Singapore, Egypt, Syria, Kuwait, Lebanon and the Seychelles.

13. Individuals Taxable persons Taxable income Applicable tax rates (for 2005 & 2006)

14. Individuals / Companies Immovable property tax

15. Indirect taxes Value added tax (VAT) Low rates Standard rate (15%) Zero rate

16. Individuals Indirect taxes Customs & Excise (on limited number of goods) Transfer fees for immovable property (range 3% to 8%) Capital duty (0.6% on authorised share capital)