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Hong Kong
Hong Kong removed from EU’s Tax Cooperation Watchlist
6 marzo 2024
- Derecho Fiscal y Tributario
On 20th February 2024, the European Union (EU) issued an update regarding the classification of non-cooperative tax jurisdictions. Hong Kong was removed from the EU’s tax cooperation watchlist and placed on the «white» list. This removal indicates that Hong Kong has taken significant measures to tackle the EU’s apprehensions and enhance its tax cooperation framework to adhere to international tax standards.
In 2021, the EU included Hong Kong in its tax cooperation watchlist due to concerns about potential instances of «double non-taxation» stemming from certain foreign-sourced passive income (FSIE) not being taxed in Hong Kong. In response to these concerns, Hong Kong introduced a new FSIE regime in January 2023. Under this regime, multinational enterprise entities receiving foreign-sourced dividends, interest, income from intellectual property usage, and gains from the disposal of shares or equity interests in Hong Kong must meet economic substance requirements to qualify for tax exemption.
On 1st January 2024, Hong Kong made further adjustments to its FSIE regime, broadening the range of assets related to foreign-sourced disposal gains to encompass assets beyond shares or equity interests. Subsequent to implementing these refinements, the EU conducted an assessment and concluded that Hong Kong had honored its commitment by amending the tax regime.
Acknowledging Hong Kong’s efforts and progress in addressing the concerns raised, the EU transferred Hong Kong from its tax cooperation watchlist to the «white» list on 20th February 2024.This signifies a significant step forward for Hong Kong, demonstrating its commitment to addressing concerns raised by the EU and its dedication to aligning with international tax standards.
Addressing EU Concerns and Implementing Change
In 2021, the EU expressed concerns regarding potential «double non-taxation» arising from certain foreign-sourced passive income (FSIE) not being subject to taxation in Hong Kong. In response, Hong Kong proactively implemented a new FSIE regime in January 2023. This regime requires multinational enterprises receiving qualifying foreign-sourced income, including dividends, interest, intellectual property income, and gains from the disposal of shares or equity interests in Hong Kong, to meet specific economic substance requirements to benefit from tax exemption.
Further demonstrating its commitment, Hong Kong expanded the scope of its FSIE regime on 1st January 2024 to encompass foreign-sourced disposal gains from assets beyond shares or equity interests. Following these improvements, the EU acknowledged Hong Kong’s efforts and reclassified its status, signifying its satisfaction with the implemented changes.
Looking Ahead: Navigating Complexities
Although the EU’s removal of Hong Kong from the watchlist is a positive development, challenges remain. Hong Kong needs to navigate a complex landscape to fully regain its position as a premier financial and business hub. Reassuring international investors and markets of its long-term stability will be crucial in this endeavor.
Balancing Priorities and Building Confidence
While Hong Kong enjoys a strong reputation for rule of law in the business sphere and maintains independence from mainland China, concerns regarding political freedoms persist. Addressing these concerns transparently and effectively will be essential in building international confidence and fostering a thriving business environment.
Ultimately, Hong Kong’s success lies in its ability to strike a balance between its unique position and the evolving global landscape. By demonstrating its commitment to international tax standards, upholding the rule of law, and addressing all areas of international concern, Hong Kong can solidify its position as a leading financial and business center.
Vietnam has embraced the global minimum tax (GMT) to harmonize its tax policies with global standards. While this new tax regime is anticipated to have certain adverse effects on foreign direct investment (FDI), the Vietnamese government is devising proactive measures to mitigate these repercussions and maintain the country’s appeal as an investment haven.
Key Ramifications of the GMT for Vietnam
The GMT mandates multinational corporations (MNCs) with consolidated revenue surpassing €750 million to pay a minimum tax rate of 15%, irrespective of the tax rate in the country where they operate. In Vietnam, this translates to the concept of a qualified domestic minimum top-up tax (QDMTT).
The QDMTT places an extra tax burden on foreign-invested enterprises (FIEs) that are part of an MNC, potentially deterring them from investing or expanding in Vietnam. This is particularly concerning for industries that heavily rely on tax incentives to attract FDI.
Vietnam’s Response: Investment Support Fund and Proactive Measures
In response to the anticipated negative impacts of the GMT, the Vietnamese government has established an investment support fund (Fund) to incentivize investments in targeted sectors. The Fund is primarily funded by proceeds from the State Budget generated by the GMT.
Eligible enterprises for the Fund are those engaged in high-tech product manufacturing, high-tech enterprises, high-tech application projects, and enterprises with investment projects in research and development centers. Eligibility is based on capital size, annual revenue, industry, or technology utilized.
Eligible taxpayers can receive cash subsidies for five specific expense categories:
- Human resource training and development
- Research and development expenses
- Fixed asset investments
- High-tech manufacturing expenses
- Social infrastructure systems
To qualify for Fund benefits, eligible taxpayers must submit an application dossier to the Fund Office in Hanoi between August 15th and 30th of the year following the incurred Supported Expenses. Each Supported Expense category will have a distinct reimbursement ratio, and support payments will be contingent on the actual expenses incurred by eligible taxpayers.
In addition to the Fund, the Vietnamese government is also implementing proactive measures to address the concerns of foreign investors. These measures include:
- Focusing on targeted industries with high growth potential that align with Vietnam’s strategic development goals
- Utilizing the additional revenue collected from top-up tax to enhance infrastructure and labor quality
- Considering cash grants for long-term qualified investments in high-tech industries
Conclusion
The introduction of the GMT poses challenges for Vietnam in attracting FDI. However, the government’s establishment of the investment support fund and proactive measures demonstrates its commitment to safeguarding the country’s competitiveness as an investment destination. By combining targeted support with infrastructure improvements and incentives for specific industries, Vietnam can mitigate the negative impacts of the GMT and continue to attract foreign investors.
Los artistas (actores, cantantes) y deportistas, no residentes en territorio español, que desarrollan ocasionalmente sus actividades artísticas o deportivas en España, habitualmente desconocen las obligaciones fiscales que tienen frente a la Hacienda española.
Al respecto destacamos que, en este último año, la actuación inspectora de la Administración Tributaria Española se ha incrementado considerablemente con relación a estos contribuyentes.
Es fácil suponer que lo anterior es consecuencia de que el Plan Anual de Control Tributario y Aduanero de la Agencia Estatal de la Administración Tributaria (AEAT) incluyó de forma expresa, para el año 2020, la intensificación del control de las rentas obtenidas por artistas y deportistas no residentes que actúen o desarrollen una actividad en España.
La legislación española, que regula el Impuesto sobre la Renta de los No Residentes (IRNR), establece textualmente que se consideran rentas obtenidas en territorio español, entre otras, aquellas que deriven, directa o indirectamente, de la actuación personal en territorio español de artistas y deportistas, o de cualquier otra actividad relacionada con dicha actuación, aun cuando se perciban por persona o entidad distinta del artista o deportista.
Lo anterior significa que el artista o deportista que realiza una actividad en España por la que obtiene unos ingresos está sujeto a obligaciones fiscales y al pago de impuestos en España, y debe declarar no solo la renta directamente relacionada con su actuación sino también otras rentas vinculadas a su actuación profesional, como pueden ser sponsors, patrocinio, derechos de imagen, etc. Lo anterior se entiende con independencia de que el efectivo perceptor de las rentas derivadas de la actuación del deportista o el artista sea el propio artista o deportista, una sociedad participada por el mismo o una tercera persona física o jurídica sin vinculación aparente con el deportista o el artista.
Por lo tanto, incluso aunque la empresa pagadora de los rendimientos sea no residente en territorio español y el pago tubiese lugar fuera de dicho territorio, se considerará renta obtenida en España sujeta a impuesto (19% para los residentes en la UE y 24% para los que no lo son), toda aquella que se obtenga con motivo de la actividad artística o deportiva desarrollada en territorio español.
La mayoría de los convenios para evitar la doble imposición que España ha firmado con otros países, permiten al país en el que tiene lugar la actividad del artista o deportista someter a tributación la renta generada con motivo de dicha actuación. También en todos estos convenios se establecen, los mecanismos para evitar la doble tributación, pero tal posibilidad se complica considerablemente cuando, como ocurre en muchos casos, el artista o deportista percibe sus rendimientos a través de una sociedad constituida en su país de residencia o en un tercer país.
Con frecuencia los contratos que suscriben los artistas y deportistas son firmados por sociedades vinculadas a estos -normalmente domiciliadas en su país de residencia-, esta situación está dando lugar a que se encuentren con serias dificultades para, en aplicación del CDI, deducirse en su país de residencia (y en el ámbito del Impuesto sobre Sociedades) el impuesto pagado en España como persona física.
Concluimos por tanto en resaltar (i) la existencia de importantes obligaciones tributarias que afectan a artistas y deportistas no residentes en territorio español por las actividades que desarrollen en el mismo y, además, (ii) la necesidad de que reciban el asesoramiento adecuado y con carácter previo acerca de las consecuencias fiscales de su actividad y, en consecuencia, de cuál sea el mejor vehículo para formalizar su contratación.
Belgian residents working abroad, e.g. in Luxembourg, may have a company car registered in their country of employment. The Belgian regional tax administrations exercise checks to verify whether the user of the company car complies with regional vehicle tax rules allowing an exemption from registration of the car in Belgium and from Belgian vehicle taxes. Especially in the Walloon Region this has given rise to a lot of litigation in recent years, especially regarding Luxembourg workers residing in Belgium.
Belgian vehicle registration rules stipulate that the user of the car must have on board of the car a copy of his employment contract as well as a document drawn up by the foreign employer showing that the latter had put the vehicle at the employee’s disposal. If the driver cannot produce these documents, he is supposed by the Walloon tax administration to have violated the legal obligation to register the car in Belgium and to pay Belgian vehicle taxes.
The consequences are severe. In addition to the vehicle taxes, the driver must pay a hefty fine. Failing to pay these large amounts (often more than EUR 3,000.-) on site at the time of the road check, the authorities withhold the on-board documents of the car, which results in the immobilization of the car.
The Walloon tax administration, initially, did not pay back the vehicle taxes even if it was proven afterwards that the conditions of the exemptions of registration in Belgium and Belgian vehicle taxes were met. At first, the tax administration claimed that the vehicle taxes remained due if the employee showed the required documents only afterwards to the competent authorities. The position of the Walloon tax administration was that the employee must be able to produce the required documents on the spot during the check to be exempted from registration and vehicle taxes in Belgium.
In a recent reasoned order, the European Court of Justice (‘ECJ’) confirmed that this harsh position by the Walloon tax administration was in violation of the freedom of movement for workers. A reasoned order is issued by the ECJ a.o. where a question referred to the ECJ for a preliminary ruling is identical to a question on which the ECJ has previously ruled or where the answer to the question referred for a preliminary ruling admits of no reasonable doubt.
In other words, the ECJ confirms that the requirement to have the abovementioned documents permanently on board of the vehicle to be exempted from Belgian registration and Belgian vehicle taxes is manifestly disproportionate and thus a violation of the freedom of movement for workers.
From a practical perspective, this ruling confirms that an employee resident in Belgium but working in another member state does not have to pay the Belgian vehicle taxes (or is entitled to be paid back) if he demonstrates after the check that he met the conditions to be exempted from registration and vehicle taxes in Belgium.
Climate change has become part of our everyday lives. This includes tax lawyers on the lookout of tax incentives for their clients. Below you will find an outline of green tax incentives for industrial or commercial buildings in Belgium. Indeed, such tax incentives may help you achieve your companies’ sustainability goals. Other green tax incentives exist in Belgium but the focus here is on industrial and commercial buildings.
Reduction of Machinery and equipment tax (MET)
Fixed assets, such as machinery & equipment in industrial or commercial companies are considered immovables (buildings), subject to property tax (the MET). In Belgium this is a regional tax. The Brussels Capital Region and the Walloon Region abolished the MET.
The Flemish Region adopted a different policy by reducing (possibly to nothing) the MET and by incentivizing companies to invest in new machinery and equipment or to replace older machinery and equipment.
How is this achieved?
- No indexation of the taxable base
- A (full) reduction of the portion of the Flemish treasury in the MET (the local authority where the company is situated receives the proceeds of the MET)
- Exemption for new investments or the replacement of machinery & equipment: the exemption depends on an energy policy agreement between the company and the Flemish government (on the basis of the Flemish Energy Code). The purpose is to reduce CO2-emissions and to enhance energy efficiency.
However, companies with a historical presence in the Flemish region (brownfield companies) felt that they had a competitive disadvantage compared to greenfield companies: their older machinery was taxed as before. It must be noted that some of these companies employ a lot of people.
The Flemish government therefore adopted legislation that for investments in machinery and equipment between 01/2014 and 12/2019 a reduction of the taxable base of older machinery and equipment is granted on the basis of the taxable base of the new (exempted) investments. It is not yet confirmed that this tax exemption will be prolonged or made permanent beyond 2019, however it is expected that the above tax policy in the Flemish Region will be continued, thus reducing (possibly to nothing) the MET.
120% cost deduction for investments in bicycle infrastructure for employees
Personal and corporate income tax is mainly a national matter in Belgium. A 120% cost deduction has been put in place for investments in bicycle infrastructure for employees, such as a bicycle parking and other infrastructure for cyclists (shower, …).
Exemption of taxable profits for investments in new fixed assets
Another (national) income tax incentive is the exemption of taxable profits (‘investeringsaftrek’ – ‘déduction pour investissement’) of 13,5% of the investments in new fixed assets in energy efficient technology.
A tax credit for investments in sustainable fixed assets
In corporate income tax (as I said before a national matter) there is a tax credit for research and development (’belastingkrediet’ – ‘crédit d’impôt’) calculated on the basis of the corporate income tax rate (currently 29,58%) for investments in sustainable fixed assets.
Please note that Belgian corporate income tax for SME’s is 20% on the first 100.000,00 EURO turnover (subject to conditions). For all companies the corporate income tax rate will decrease to 25% as from 2020.
Hopes are that both at the national level and at the respective regional levels new green tax incentives will be adopted in order to encourage sustainable investments in Belgium.
As of January 01, 2019, the VAT rate will be increased in Russia from 18% to 20%.
Additional changes recently introduced to the Russian tax legislation require that foreign companies that render IT services in Russia shall register with the tax authorities in Russia; file VAT tax returns and pay VAT in Russia.
As from January 01, 2019 such obligation will be imposed on all foreign companies that render IT services in Russia independent of the fact who is the buyer of such IT services – a natural person, an individual entrepreneur or a legal entity.
Earlier the obligation to pay VAT was imposed only on customers of IT companies in Russia. As a rule, in case of sale of goods, works, services where the territory of Russia is recognized as a place of supply, the obligation to calculate and pay VAT is generally imposed on buyers of such services (legal entities or individual entrepreneurs registered with the tax authorities in Russia) recognized in such cases as tax agents.
In accordance with new tax requirements the foreign companies that render IT services where the territory of Russia is recognized as a place of supply of such IT services shall calculate and pay VAT themselves unless such obligation is imposed on a tax agent.
As from January 01, 2019 the tax agents in such cases will be considered only intermediaries (legal entities or individual entrepreneurs registered with the tax authorities in Russia) engaged in settlements directly with buyers of IT services on the basis of mandate, agency or commission agreements or similar contracts concluded with foreign companies that render such IT services (if there are several intermediaries involved, the intermediary who is involved in settlement directly with buyers will be recognized as the tax agent independent of the existence of the contract concluded with foreign IT company that renders such IT services).
Thus, as from January 01, 2019 the buyers of IT services from foreign companies are no longer considered as tax agents and respectively no longer obliged to calculate and pay VAT for foreign IT companies. Such obligation will be imposed on foreign IT companies themselves with some exceptions specified above.
As a result, all foreign companies that render IT services in Russia shall be registered with tax authorities in Russia in order to fulfil its tax obligations, file VAT tax returns in electronic form and pay taxes respectively.
The buyers of IT services (legal entities or individual entrepreneurs registered with the tax authorities in Russia) will have the right to deduct VAT paid to foreign IT companies provided that such foreign IT companies are duly registered with the tax authorities in Russia.
The registration of foreign IT companies in Russia will require submission of application and a set of documents. Such application can be filed by the representative of such foreign company, by mail or in electronic form through official Internet page of Russian tax authorities.
As an example, Facebook has already announced officially that all its clients in Russia both natural persons and legal entities will pay VAT in the amount of 20% from January 01, 2019. This will be applied to all advertisement accounts where Russia is specified as a country of the company.
The Italian Budget Law for 2017 (Law No. 232 of 11 December 2016), with the specific purpose of attracting high net worth individuals to Italy, introduced the new article 24-bis in the Italian Income Tax Code (“ITC”) which regulates an elective tax regime for individuals who transfer their tax residence to Italy.
The special tax regime provides for the payment of an annual substitutive tax of EUR 100.000,00 and the exemption from:
- any foreign income (except specific capital gains);
- tax on foreign real estate properties (IVIE ) and tax on foreign financial assets (IVAFE);
- the obligation to report foreign assets in the tax return;
- inheritance and gift tax on foreign assets.
Eligibility
Persons entitled to opt for the special tax regime are individuals transferring their tax residence to Italy pursuant to the Italian law and who have not been resident in Italy for tax purposes for at least nine out of the ten years preceding the year in which the regime becomes effective.
According to art. 2 of the ITC, residents of Italy for income tax purposes are those persons who, for the greater part of the year, are registered within the Civil Registry of the Resident Population or have the residence or the domicile in Italy under the Italian Civil Code. About this, it is worth noting that persons who have moved to a black listed jurisdiction are considered to have their tax residence in Italy unless proof to the contrary is provided.
According to the Italian Civil Code, the residence is the place where a person has his/her habitual abode, whilst the domicile is the place where the person has the principal center of his businesses and interests.
Exemptions
The special tax regime exempts any foreign income from the Italian individual income tax (IRPEF).
In particular the exemption applies to:
- income from self-employment generated from activities carried out abroad;
- income from business activities carried out abroad through a permanent establishment;
- income from employment carried out abroad;
- income from a property owned abroad;
- interests from foreign bank accounts;
- capital gains from the sale of shares in foreign companies;
However, according to an anti-avoidance provision, the exemption does not apply to capital gains deriving from the sale of “substantial” participations that occur within the first five tax years of the validity of the special tax regime. “Substantial” participations are, in particular, those representing more than 2% of the voting rights or 5% of the capital of listed companies or 20% of the voting rights or 25% of the capital of non-listed companies.
Any Italian source income shall be subject to regular income taxation.
It must be underlined that, under the special tax regime no foreign tax credit will be granted for taxes paid abroad. However, the taxpayer is allowed to exclude income arising in one or more foreign jurisdictions from the application of the special regime. This income will then be subject to the ordinary tax rule and the foreign tax credit will be granted.
The special tax regime exempts the taxpayer also from the obligation to report foreign assets in the annual tax return and from the payment of the IVIE and the IVAFE.
Finally, the special tax regime provides for the exemption from the inheritance and gift tax with regard to transfers by inheritance or donations made during the period of validity of the regime. The exemption is limited to assets and rights existing in the Italian territory at the time of the donation or the inheritance.
Substitutive Tax and Family Members
The taxpayer must pay an annual substitutive tax of EUR 100,000 regardless of the amount of foreign income realised.
The special tax regime can be extended to family members by paying an additional EUR 25,000 substitutive tax for each person included in the regime, provided that the same conditions, applicable to the qualifying taxpayer, are met.
In particular, the extension is applicable to
- spouses;
- children and, in their absence, the direct relative in the descending line;
- parents and, in their absence, the direct relative in the ascending line;
- adopters;
- sons–in-law and daughters-in-law;
- fathers-in-law and mothers-in-law;
- brothers and sisters.
How to apply
The option shall be made either in the tax return regarding the year in which the taxpayer becomes resident in Italy, or in the tax return of the following year.
Qualifying taxpayer may also submit a non-binding ruling request to the Italian Revenue Agency, in order to prove that all requirements to access the special regime are met. The ruling can be filed before the transfer of the tax residence to Italy.
The Revenue Agency shall respond within 120 days as from the receipt of the request. The reply is not binding for the taxpayer, but it is binding for the Revenue Agency.
If no ruling request is filed, the same information provided in the request must be provided together with the tax return where the election is made.
Termination
The option for the special tax regime is automatically renewed each year and it ends, in any case, after fifteen years from the first tax year of validity. However, the option can be revoked by the taxpayer at any time.
In case of termination or revocation, family members included in the election are also automatically excluded from the regime.
After the ordinary termination or revocation, it is no longer possible to apply for the special tax regime.
The author of this post is Valerio Cirimbilla.
Like in other jurisdictions, in Cyprus the term ‘joint venture’ connotes business arrangements that involve the pooling of resources, knowledge and experiences of the participants for the purposes of accomplishing or implementing a specific task, whether this is a particular project or business activity. There is no specific statute governing joint ventures yet in practice such arrangements take one of the following structures.
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Corporate Joint Venture
The cooperation materialises through the setting up of a legal entity separate from its participants with constitutional documents governing its operation and the relations between the participants and the entity in addition to the statutory provisions of the Cyprus Company Law, Cap 113. A shareholders’ agreement is typically executed operating in parallel. It is possible that further agreements such as licences for use of intellectual property etc. will be signed. This vehicle might be more appropriate where it is expected that the joint venture will need to enter into contractual arrangements with third parties due to the limited liability benefits. The termination is usually addressed in a shareholders’ agreement which specifies events of termination e.g. change of control, insolvency of a participant, attainment of objective etc. as well as the relevant processes e.g. sale of shares among participants, liquidation etc.
Taxation of income occurs at the level of the company. Participants are not taxed on dividends in Cyprus if they are not tax residents or if they are companies. If the company is to be taxed in Cyprus, the management and control will need to be exercised in Cyprus. Any assets, including intellectual property created by the company, become property of the new entity. The setting up of the company might be subject to notification to the competent competition authority under merger control rules. Corporate joint ventures are commonly used by international clients aiming to benefit from the network of double tax treaties maintained by Cyprus. They are also a vehicle often employed to enter the Cyprus market with the assistance of a local participant.
Advantages:
- Limited liability; liability of participants limited to capital.
- Participants control the company through the power of appointment of the board of directors.
- The company is governed by the Cyprus Companies Law, Cap. 113, a statute based on English company law rules, which gives more legal certainty and familiarity for participants as well as the counterparties. The relationship is not purely contractual.
- Tax optimisation possibilities given the low rate of corporate taxation applicable in Cyprus (at the rate of 12.5%). The numerous double tax treaties maintained by Cyprus may be exploited.
Disadvantages:
- Less flexibility compared to the other structures due to the applicable legal framework both in terms of operation and compliance.
- Governance and control questions might need to be addressed e.g. to deal with deadlocks.
- Restrictions and or conditions for the transfer of shares are typically adopted.
- Both the corporate profit and the dividends returned to participants might, under certain circumstances, be subject to taxation e.g. where participants are natural persons residing in Cyprus.
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Partnership Joint Venture
The relationship is governed by the relevant statute which specifies the liability of each partner depending on whether the partnership would be a general or limited partnership. In the first case, each partner has unlimited liability with the other partners for all debts and liabilities of the partnership. In the second case, only the general partner has unlimited liability; limited partners are only liable for the capital they agreed to invest but should not participate in the running of the business. The relevant statute imposes default and overriding rules governing the arrangement e.g. in relation to the termination or profit sharing. The termination of the partnership will typically be governed by the partnership agreement, but the statute also provides for specified circumstances which would apply unless the parties agree otherwise. Business assets and intellectual property contributed by each party become the property of the partnership (except if agreed otherwise) and should be exploited in accordance with the partnership agreement for the purposes of the partnership.
Partnerships are tax transparent, accordingly, taxation occurs at the level of the participants and profits and losses accrue to them. Partnerships might be subject to competition law rules prohibiting the restriction of competition. Further, the creation of a partnership might be subject to notification to the competent competition authority under merger control rules. Partnership joint ventures are regularly used for economic activities of professionals. They have also been used as a vehicle in the context of tenders (public or other).
Advantages:
- Relatively fewer formalities apply than in the case of corporate joint ventures.
- Registration requirements exist but no requirement for disclosure of the actual partnership agreement i.e. the constitutional document.
- Although the partnership has no legal personality, it may sue and be sued in its own name and may trade under its name.
- Apportionment of profits and losses on the basis of discretion.
- Attribution of profits to the partners; not to the partnership.
- Independent tax planning possibilities for each participant as regards losses incurred and profits earned. Wide options may be available due to the extensive network of double tax treaties maintained by Cyprus.
Disadvantages:
- Significant powers to unlimited partners. Given the powers of partners to bind the partnership, decision-making process needs to be addressed carefully.
- Liability comes with involvement in the management/control. Unlimited liability of general partners towards third parties. Solutions alleviating the effect of this may be possible.
- Tax transparency may not be beneficial where the partners are natural persons as they might be taxed at higher rates. Yet with appropriate structuring this may be avoided.
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Contractual joint ventures
The basis of the cooperation of the participants is solely a contractual agreement between them. It is expected that such agreement will include detailed provisions regulating the rights and liabilities of the parties towards each other, the distinct role and input of each, their contributions, their share in the income generated etc. No separate legal personality is created. Business assets and intellectual property remain the property of the participant who contributed or developed them (unless of course the parties agree otherwise).
Profits and losses accrue to the participants and taxation is also incurred at the level of the participants. Such arrangements might be subject to competition law rules prohibiting the restriction of competition. Contractual joint ventures are commonly used in the context of tenders (public or other).
Advantages:
- Governed solely by contact law thus greater flexibility as to the operation and termination. Contract law in Cyprus is based on common law principles.
- No registration requirements.
- Minimal formalities compared to the other possible structures.
- No joint liability; liability towards third parties limited to own acts or omissions of each participant.
- Independent tax planning possibilities for each participant as regards losses incurred and profits earned.
Disadvantages:
- Lack of legal personality might cause difficulties in establishing commercial or contractual relationships with third parties.
- Need for detailed regulation of all aspects of the cooperation in the agreement due to the lack of legal framework for the relationship; careful and skilful planning is required.
- Depending on the facts and provisions adopted, risk of classification of the relationship as a partnership by a court with the consequence of joint liability.
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European Economic Interest Grouping (EEIG)
A vehicle established and governed predominantly by European law (Council Regulation 2137/85) instead of national law. Specific purposes for EEIGs apply i.e. to facilitate or develop the economic activities of the members to enable them to improve their own results. In that context the activities of EEIGs must be related to the economic activities of the members but not replace them. The purpose is not to make profits for the EEIG itself. EEIGs are governed by a contract between their members and Council Regulation 2137/85. They have capacity, in their own name, to have rights and obligations of all kinds, to contract or accomplish other legal acts as well as to sue or be sued. There is unlimited joint liability of the participants for the debts and liabilities of the EEIG but the exclusion or restriction of liability of one or more members for a particular debt or liability is possible if it is specifically agreed between the third party and the EEIG. EEIGs enjoy tax transparency. Profits or losses are taxable at the hands of the participants.
Advantages:
- Established under European law; EEGIs might be ideal for alliances of firms in different member states of the European Union for joint promotion of activities.
- Relatively fewer formalities apply than in the case of corporate joint ventures though there are registration requirements.
- Tax transparency.
Disadvantages:
- Managers bind EEIGs as regards third parties, even if their acts do not fall within the objects (unless the third party had knowledge).
- Unlimited liability of participants.
- More limited scope for use due to the statutory purposes dictated.
Which option is the most appropriate and or efficient in terms of structuring in a particular case depends on the facts at hand and the actual needs of the participants. The different factors need to be carefully examined with the help of experts so that the most suitable solution is adopted.
España 
Vehicle taxes for foreign workers residing in Belgium
- Derecho Societario
- Derecho Fiscal y Tributario
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Bélgica
Belgium – Green tax incentives for industrial and commercial buildings
- Derecho Fiscal y Tributario
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Bélgica
Rusia 
Italia 
Chipre 
EU – Request of exchange of information for tax purposes: the Berlioz case
- Derecho Fiscal y Tributario
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Europa
Portugal
Singapur Contacta con Hong Kong removed from EU’s Tax Cooperation Watchlist
Vietnam Tackles Global Minimum Tax Implications
2 febrero 2024
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Vietnam
- Derecho Societario
- Inversiones extranjeras
- Derecho Fiscal y Tributario
On 20th February 2024, the European Union (EU) issued an update regarding the classification of non-cooperative tax jurisdictions. Hong Kong was removed from the EU’s tax cooperation watchlist and placed on the «white» list. This removal indicates that Hong Kong has taken significant measures to tackle the EU’s apprehensions and enhance its tax cooperation framework to adhere to international tax standards.
In 2021, the EU included Hong Kong in its tax cooperation watchlist due to concerns about potential instances of «double non-taxation» stemming from certain foreign-sourced passive income (FSIE) not being taxed in Hong Kong. In response to these concerns, Hong Kong introduced a new FSIE regime in January 2023. Under this regime, multinational enterprise entities receiving foreign-sourced dividends, interest, income from intellectual property usage, and gains from the disposal of shares or equity interests in Hong Kong must meet economic substance requirements to qualify for tax exemption.
On 1st January 2024, Hong Kong made further adjustments to its FSIE regime, broadening the range of assets related to foreign-sourced disposal gains to encompass assets beyond shares or equity interests. Subsequent to implementing these refinements, the EU conducted an assessment and concluded that Hong Kong had honored its commitment by amending the tax regime.
Acknowledging Hong Kong’s efforts and progress in addressing the concerns raised, the EU transferred Hong Kong from its tax cooperation watchlist to the «white» list on 20th February 2024.This signifies a significant step forward for Hong Kong, demonstrating its commitment to addressing concerns raised by the EU and its dedication to aligning with international tax standards.
Addressing EU Concerns and Implementing Change
In 2021, the EU expressed concerns regarding potential «double non-taxation» arising from certain foreign-sourced passive income (FSIE) not being subject to taxation in Hong Kong. In response, Hong Kong proactively implemented a new FSIE regime in January 2023. This regime requires multinational enterprises receiving qualifying foreign-sourced income, including dividends, interest, intellectual property income, and gains from the disposal of shares or equity interests in Hong Kong, to meet specific economic substance requirements to benefit from tax exemption.
Further demonstrating its commitment, Hong Kong expanded the scope of its FSIE regime on 1st January 2024 to encompass foreign-sourced disposal gains from assets beyond shares or equity interests. Following these improvements, the EU acknowledged Hong Kong’s efforts and reclassified its status, signifying its satisfaction with the implemented changes.
Looking Ahead: Navigating Complexities
Although the EU’s removal of Hong Kong from the watchlist is a positive development, challenges remain. Hong Kong needs to navigate a complex landscape to fully regain its position as a premier financial and business hub. Reassuring international investors and markets of its long-term stability will be crucial in this endeavor.
Balancing Priorities and Building Confidence
While Hong Kong enjoys a strong reputation for rule of law in the business sphere and maintains independence from mainland China, concerns regarding political freedoms persist. Addressing these concerns transparently and effectively will be essential in building international confidence and fostering a thriving business environment.
Ultimately, Hong Kong’s success lies in its ability to strike a balance between its unique position and the evolving global landscape. By demonstrating its commitment to international tax standards, upholding the rule of law, and addressing all areas of international concern, Hong Kong can solidify its position as a leading financial and business center.
Vietnam has embraced the global minimum tax (GMT) to harmonize its tax policies with global standards. While this new tax regime is anticipated to have certain adverse effects on foreign direct investment (FDI), the Vietnamese government is devising proactive measures to mitigate these repercussions and maintain the country’s appeal as an investment haven.
Key Ramifications of the GMT for Vietnam
The GMT mandates multinational corporations (MNCs) with consolidated revenue surpassing €750 million to pay a minimum tax rate of 15%, irrespective of the tax rate in the country where they operate. In Vietnam, this translates to the concept of a qualified domestic minimum top-up tax (QDMTT).
The QDMTT places an extra tax burden on foreign-invested enterprises (FIEs) that are part of an MNC, potentially deterring them from investing or expanding in Vietnam. This is particularly concerning for industries that heavily rely on tax incentives to attract FDI.
Vietnam’s Response: Investment Support Fund and Proactive Measures
In response to the anticipated negative impacts of the GMT, the Vietnamese government has established an investment support fund (Fund) to incentivize investments in targeted sectors. The Fund is primarily funded by proceeds from the State Budget generated by the GMT.
Eligible enterprises for the Fund are those engaged in high-tech product manufacturing, high-tech enterprises, high-tech application projects, and enterprises with investment projects in research and development centers. Eligibility is based on capital size, annual revenue, industry, or technology utilized.
Eligible taxpayers can receive cash subsidies for five specific expense categories:
- Human resource training and development
- Research and development expenses
- Fixed asset investments
- High-tech manufacturing expenses
- Social infrastructure systems
To qualify for Fund benefits, eligible taxpayers must submit an application dossier to the Fund Office in Hanoi between August 15th and 30th of the year following the incurred Supported Expenses. Each Supported Expense category will have a distinct reimbursement ratio, and support payments will be contingent on the actual expenses incurred by eligible taxpayers.
In addition to the Fund, the Vietnamese government is also implementing proactive measures to address the concerns of foreign investors. These measures include:
- Focusing on targeted industries with high growth potential that align with Vietnam’s strategic development goals
- Utilizing the additional revenue collected from top-up tax to enhance infrastructure and labor quality
- Considering cash grants for long-term qualified investments in high-tech industries
Conclusion
The introduction of the GMT poses challenges for Vietnam in attracting FDI. However, the government’s establishment of the investment support fund and proactive measures demonstrates its commitment to safeguarding the country’s competitiveness as an investment destination. By combining targeted support with infrastructure improvements and incentives for specific industries, Vietnam can mitigate the negative impacts of the GMT and continue to attract foreign investors.
Los artistas (actores, cantantes) y deportistas, no residentes en territorio español, que desarrollan ocasionalmente sus actividades artísticas o deportivas en España, habitualmente desconocen las obligaciones fiscales que tienen frente a la Hacienda española.
Al respecto destacamos que, en este último año, la actuación inspectora de la Administración Tributaria Española se ha incrementado considerablemente con relación a estos contribuyentes.
Es fácil suponer que lo anterior es consecuencia de que el Plan Anual de Control Tributario y Aduanero de la Agencia Estatal de la Administración Tributaria (AEAT) incluyó de forma expresa, para el año 2020, la intensificación del control de las rentas obtenidas por artistas y deportistas no residentes que actúen o desarrollen una actividad en España.
La legislación española, que regula el Impuesto sobre la Renta de los No Residentes (IRNR), establece textualmente que se consideran rentas obtenidas en territorio español, entre otras, aquellas que deriven, directa o indirectamente, de la actuación personal en territorio español de artistas y deportistas, o de cualquier otra actividad relacionada con dicha actuación, aun cuando se perciban por persona o entidad distinta del artista o deportista.
Lo anterior significa que el artista o deportista que realiza una actividad en España por la que obtiene unos ingresos está sujeto a obligaciones fiscales y al pago de impuestos en España, y debe declarar no solo la renta directamente relacionada con su actuación sino también otras rentas vinculadas a su actuación profesional, como pueden ser sponsors, patrocinio, derechos de imagen, etc. Lo anterior se entiende con independencia de que el efectivo perceptor de las rentas derivadas de la actuación del deportista o el artista sea el propio artista o deportista, una sociedad participada por el mismo o una tercera persona física o jurídica sin vinculación aparente con el deportista o el artista.
Por lo tanto, incluso aunque la empresa pagadora de los rendimientos sea no residente en territorio español y el pago tubiese lugar fuera de dicho territorio, se considerará renta obtenida en España sujeta a impuesto (19% para los residentes en la UE y 24% para los que no lo son), toda aquella que se obtenga con motivo de la actividad artística o deportiva desarrollada en territorio español.
La mayoría de los convenios para evitar la doble imposición que España ha firmado con otros países, permiten al país en el que tiene lugar la actividad del artista o deportista someter a tributación la renta generada con motivo de dicha actuación. También en todos estos convenios se establecen, los mecanismos para evitar la doble tributación, pero tal posibilidad se complica considerablemente cuando, como ocurre en muchos casos, el artista o deportista percibe sus rendimientos a través de una sociedad constituida en su país de residencia o en un tercer país.
Con frecuencia los contratos que suscriben los artistas y deportistas son firmados por sociedades vinculadas a estos -normalmente domiciliadas en su país de residencia-, esta situación está dando lugar a que se encuentren con serias dificultades para, en aplicación del CDI, deducirse en su país de residencia (y en el ámbito del Impuesto sobre Sociedades) el impuesto pagado en España como persona física.
Concluimos por tanto en resaltar (i) la existencia de importantes obligaciones tributarias que afectan a artistas y deportistas no residentes en territorio español por las actividades que desarrollen en el mismo y, además, (ii) la necesidad de que reciban el asesoramiento adecuado y con carácter previo acerca de las consecuencias fiscales de su actividad y, en consecuencia, de cuál sea el mejor vehículo para formalizar su contratación.
Belgian residents working abroad, e.g. in Luxembourg, may have a company car registered in their country of employment. The Belgian regional tax administrations exercise checks to verify whether the user of the company car complies with regional vehicle tax rules allowing an exemption from registration of the car in Belgium and from Belgian vehicle taxes. Especially in the Walloon Region this has given rise to a lot of litigation in recent years, especially regarding Luxembourg workers residing in Belgium.
Belgian vehicle registration rules stipulate that the user of the car must have on board of the car a copy of his employment contract as well as a document drawn up by the foreign employer showing that the latter had put the vehicle at the employee’s disposal. If the driver cannot produce these documents, he is supposed by the Walloon tax administration to have violated the legal obligation to register the car in Belgium and to pay Belgian vehicle taxes.
The consequences are severe. In addition to the vehicle taxes, the driver must pay a hefty fine. Failing to pay these large amounts (often more than EUR 3,000.-) on site at the time of the road check, the authorities withhold the on-board documents of the car, which results in the immobilization of the car.
The Walloon tax administration, initially, did not pay back the vehicle taxes even if it was proven afterwards that the conditions of the exemptions of registration in Belgium and Belgian vehicle taxes were met. At first, the tax administration claimed that the vehicle taxes remained due if the employee showed the required documents only afterwards to the competent authorities. The position of the Walloon tax administration was that the employee must be able to produce the required documents on the spot during the check to be exempted from registration and vehicle taxes in Belgium.
In a recent reasoned order, the European Court of Justice (‘ECJ’) confirmed that this harsh position by the Walloon tax administration was in violation of the freedom of movement for workers. A reasoned order is issued by the ECJ a.o. where a question referred to the ECJ for a preliminary ruling is identical to a question on which the ECJ has previously ruled or where the answer to the question referred for a preliminary ruling admits of no reasonable doubt.
In other words, the ECJ confirms that the requirement to have the abovementioned documents permanently on board of the vehicle to be exempted from Belgian registration and Belgian vehicle taxes is manifestly disproportionate and thus a violation of the freedom of movement for workers.
From a practical perspective, this ruling confirms that an employee resident in Belgium but working in another member state does not have to pay the Belgian vehicle taxes (or is entitled to be paid back) if he demonstrates after the check that he met the conditions to be exempted from registration and vehicle taxes in Belgium.
Climate change has become part of our everyday lives. This includes tax lawyers on the lookout of tax incentives for their clients. Below you will find an outline of green tax incentives for industrial or commercial buildings in Belgium. Indeed, such tax incentives may help you achieve your companies’ sustainability goals. Other green tax incentives exist in Belgium but the focus here is on industrial and commercial buildings.
Reduction of Machinery and equipment tax (MET)
Fixed assets, such as machinery & equipment in industrial or commercial companies are considered immovables (buildings), subject to property tax (the MET). In Belgium this is a regional tax. The Brussels Capital Region and the Walloon Region abolished the MET.
The Flemish Region adopted a different policy by reducing (possibly to nothing) the MET and by incentivizing companies to invest in new machinery and equipment or to replace older machinery and equipment.
How is this achieved?
- No indexation of the taxable base
- A (full) reduction of the portion of the Flemish treasury in the MET (the local authority where the company is situated receives the proceeds of the MET)
- Exemption for new investments or the replacement of machinery & equipment: the exemption depends on an energy policy agreement between the company and the Flemish government (on the basis of the Flemish Energy Code). The purpose is to reduce CO2-emissions and to enhance energy efficiency.
However, companies with a historical presence in the Flemish region (brownfield companies) felt that they had a competitive disadvantage compared to greenfield companies: their older machinery was taxed as before. It must be noted that some of these companies employ a lot of people.
The Flemish government therefore adopted legislation that for investments in machinery and equipment between 01/2014 and 12/2019 a reduction of the taxable base of older machinery and equipment is granted on the basis of the taxable base of the new (exempted) investments. It is not yet confirmed that this tax exemption will be prolonged or made permanent beyond 2019, however it is expected that the above tax policy in the Flemish Region will be continued, thus reducing (possibly to nothing) the MET.
120% cost deduction for investments in bicycle infrastructure for employees
Personal and corporate income tax is mainly a national matter in Belgium. A 120% cost deduction has been put in place for investments in bicycle infrastructure for employees, such as a bicycle parking and other infrastructure for cyclists (shower, …).
Exemption of taxable profits for investments in new fixed assets
Another (national) income tax incentive is the exemption of taxable profits (‘investeringsaftrek’ – ‘déduction pour investissement’) of 13,5% of the investments in new fixed assets in energy efficient technology.
A tax credit for investments in sustainable fixed assets
In corporate income tax (as I said before a national matter) there is a tax credit for research and development (’belastingkrediet’ – ‘crédit d’impôt’) calculated on the basis of the corporate income tax rate (currently 29,58%) for investments in sustainable fixed assets.
Please note that Belgian corporate income tax for SME’s is 20% on the first 100.000,00 EURO turnover (subject to conditions). For all companies the corporate income tax rate will decrease to 25% as from 2020.
Hopes are that both at the national level and at the respective regional levels new green tax incentives will be adopted in order to encourage sustainable investments in Belgium.
As of January 01, 2019, the VAT rate will be increased in Russia from 18% to 20%.
Additional changes recently introduced to the Russian tax legislation require that foreign companies that render IT services in Russia shall register with the tax authorities in Russia; file VAT tax returns and pay VAT in Russia.
As from January 01, 2019 such obligation will be imposed on all foreign companies that render IT services in Russia independent of the fact who is the buyer of such IT services – a natural person, an individual entrepreneur or a legal entity.
Earlier the obligation to pay VAT was imposed only on customers of IT companies in Russia. As a rule, in case of sale of goods, works, services where the territory of Russia is recognized as a place of supply, the obligation to calculate and pay VAT is generally imposed on buyers of such services (legal entities or individual entrepreneurs registered with the tax authorities in Russia) recognized in such cases as tax agents.
In accordance with new tax requirements the foreign companies that render IT services where the territory of Russia is recognized as a place of supply of such IT services shall calculate and pay VAT themselves unless such obligation is imposed on a tax agent.
As from January 01, 2019 the tax agents in such cases will be considered only intermediaries (legal entities or individual entrepreneurs registered with the tax authorities in Russia) engaged in settlements directly with buyers of IT services on the basis of mandate, agency or commission agreements or similar contracts concluded with foreign companies that render such IT services (if there are several intermediaries involved, the intermediary who is involved in settlement directly with buyers will be recognized as the tax agent independent of the existence of the contract concluded with foreign IT company that renders such IT services).
Thus, as from January 01, 2019 the buyers of IT services from foreign companies are no longer considered as tax agents and respectively no longer obliged to calculate and pay VAT for foreign IT companies. Such obligation will be imposed on foreign IT companies themselves with some exceptions specified above.
As a result, all foreign companies that render IT services in Russia shall be registered with tax authorities in Russia in order to fulfil its tax obligations, file VAT tax returns in electronic form and pay taxes respectively.
The buyers of IT services (legal entities or individual entrepreneurs registered with the tax authorities in Russia) will have the right to deduct VAT paid to foreign IT companies provided that such foreign IT companies are duly registered with the tax authorities in Russia.
The registration of foreign IT companies in Russia will require submission of application and a set of documents. Such application can be filed by the representative of such foreign company, by mail or in electronic form through official Internet page of Russian tax authorities.
As an example, Facebook has already announced officially that all its clients in Russia both natural persons and legal entities will pay VAT in the amount of 20% from January 01, 2019. This will be applied to all advertisement accounts where Russia is specified as a country of the company.
The Italian Budget Law for 2017 (Law No. 232 of 11 December 2016), with the specific purpose of attracting high net worth individuals to Italy, introduced the new article 24-bis in the Italian Income Tax Code (“ITC”) which regulates an elective tax regime for individuals who transfer their tax residence to Italy.
The special tax regime provides for the payment of an annual substitutive tax of EUR 100.000,00 and the exemption from:
- any foreign income (except specific capital gains);
- tax on foreign real estate properties (IVIE ) and tax on foreign financial assets (IVAFE);
- the obligation to report foreign assets in the tax return;
- inheritance and gift tax on foreign assets.
Eligibility
Persons entitled to opt for the special tax regime are individuals transferring their tax residence to Italy pursuant to the Italian law and who have not been resident in Italy for tax purposes for at least nine out of the ten years preceding the year in which the regime becomes effective.
According to art. 2 of the ITC, residents of Italy for income tax purposes are those persons who, for the greater part of the year, are registered within the Civil Registry of the Resident Population or have the residence or the domicile in Italy under the Italian Civil Code. About this, it is worth noting that persons who have moved to a black listed jurisdiction are considered to have their tax residence in Italy unless proof to the contrary is provided.
According to the Italian Civil Code, the residence is the place where a person has his/her habitual abode, whilst the domicile is the place where the person has the principal center of his businesses and interests.
Exemptions
The special tax regime exempts any foreign income from the Italian individual income tax (IRPEF).
In particular the exemption applies to:
- income from self-employment generated from activities carried out abroad;
- income from business activities carried out abroad through a permanent establishment;
- income from employment carried out abroad;
- income from a property owned abroad;
- interests from foreign bank accounts;
- capital gains from the sale of shares in foreign companies;
However, according to an anti-avoidance provision, the exemption does not apply to capital gains deriving from the sale of “substantial” participations that occur within the first five tax years of the validity of the special tax regime. “Substantial” participations are, in particular, those representing more than 2% of the voting rights or 5% of the capital of listed companies or 20% of the voting rights or 25% of the capital of non-listed companies.
Any Italian source income shall be subject to regular income taxation.
It must be underlined that, under the special tax regime no foreign tax credit will be granted for taxes paid abroad. However, the taxpayer is allowed to exclude income arising in one or more foreign jurisdictions from the application of the special regime. This income will then be subject to the ordinary tax rule and the foreign tax credit will be granted.
The special tax regime exempts the taxpayer also from the obligation to report foreign assets in the annual tax return and from the payment of the IVIE and the IVAFE.
Finally, the special tax regime provides for the exemption from the inheritance and gift tax with regard to transfers by inheritance or donations made during the period of validity of the regime. The exemption is limited to assets and rights existing in the Italian territory at the time of the donation or the inheritance.
Substitutive Tax and Family Members
The taxpayer must pay an annual substitutive tax of EUR 100,000 regardless of the amount of foreign income realised.
The special tax regime can be extended to family members by paying an additional EUR 25,000 substitutive tax for each person included in the regime, provided that the same conditions, applicable to the qualifying taxpayer, are met.
In particular, the extension is applicable to
- spouses;
- children and, in their absence, the direct relative in the descending line;
- parents and, in their absence, the direct relative in the ascending line;
- adopters;
- sons–in-law and daughters-in-law;
- fathers-in-law and mothers-in-law;
- brothers and sisters.
How to apply
The option shall be made either in the tax return regarding the year in which the taxpayer becomes resident in Italy, or in the tax return of the following year.
Qualifying taxpayer may also submit a non-binding ruling request to the Italian Revenue Agency, in order to prove that all requirements to access the special regime are met. The ruling can be filed before the transfer of the tax residence to Italy.
The Revenue Agency shall respond within 120 days as from the receipt of the request. The reply is not binding for the taxpayer, but it is binding for the Revenue Agency.
If no ruling request is filed, the same information provided in the request must be provided together with the tax return where the election is made.
Termination
The option for the special tax regime is automatically renewed each year and it ends, in any case, after fifteen years from the first tax year of validity. However, the option can be revoked by the taxpayer at any time.
In case of termination or revocation, family members included in the election are also automatically excluded from the regime.
After the ordinary termination or revocation, it is no longer possible to apply for the special tax regime.
The author of this post is Valerio Cirimbilla.
Like in other jurisdictions, in Cyprus the term ‘joint venture’ connotes business arrangements that involve the pooling of resources, knowledge and experiences of the participants for the purposes of accomplishing or implementing a specific task, whether this is a particular project or business activity. There is no specific statute governing joint ventures yet in practice such arrangements take one of the following structures.
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Corporate Joint Venture
The cooperation materialises through the setting up of a legal entity separate from its participants with constitutional documents governing its operation and the relations between the participants and the entity in addition to the statutory provisions of the Cyprus Company Law, Cap 113. A shareholders’ agreement is typically executed operating in parallel. It is possible that further agreements such as licences for use of intellectual property etc. will be signed. This vehicle might be more appropriate where it is expected that the joint venture will need to enter into contractual arrangements with third parties due to the limited liability benefits. The termination is usually addressed in a shareholders’ agreement which specifies events of termination e.g. change of control, insolvency of a participant, attainment of objective etc. as well as the relevant processes e.g. sale of shares among participants, liquidation etc.
Taxation of income occurs at the level of the company. Participants are not taxed on dividends in Cyprus if they are not tax residents or if they are companies. If the company is to be taxed in Cyprus, the management and control will need to be exercised in Cyprus. Any assets, including intellectual property created by the company, become property of the new entity. The setting up of the company might be subject to notification to the competent competition authority under merger control rules. Corporate joint ventures are commonly used by international clients aiming to benefit from the network of double tax treaties maintained by Cyprus. They are also a vehicle often employed to enter the Cyprus market with the assistance of a local participant.
Advantages:
- Limited liability; liability of participants limited to capital.
- Participants control the company through the power of appointment of the board of directors.
- The company is governed by the Cyprus Companies Law, Cap. 113, a statute based on English company law rules, which gives more legal certainty and familiarity for participants as well as the counterparties. The relationship is not purely contractual.
- Tax optimisation possibilities given the low rate of corporate taxation applicable in Cyprus (at the rate of 12.5%). The numerous double tax treaties maintained by Cyprus may be exploited.
Disadvantages:
- Less flexibility compared to the other structures due to the applicable legal framework both in terms of operation and compliance.
- Governance and control questions might need to be addressed e.g. to deal with deadlocks.
- Restrictions and or conditions for the transfer of shares are typically adopted.
- Both the corporate profit and the dividends returned to participants might, under certain circumstances, be subject to taxation e.g. where participants are natural persons residing in Cyprus.
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Partnership Joint Venture
The relationship is governed by the relevant statute which specifies the liability of each partner depending on whether the partnership would be a general or limited partnership. In the first case, each partner has unlimited liability with the other partners for all debts and liabilities of the partnership. In the second case, only the general partner has unlimited liability; limited partners are only liable for the capital they agreed to invest but should not participate in the running of the business. The relevant statute imposes default and overriding rules governing the arrangement e.g. in relation to the termination or profit sharing. The termination of the partnership will typically be governed by the partnership agreement, but the statute also provides for specified circumstances which would apply unless the parties agree otherwise. Business assets and intellectual property contributed by each party become the property of the partnership (except if agreed otherwise) and should be exploited in accordance with the partnership agreement for the purposes of the partnership.
Partnerships are tax transparent, accordingly, taxation occurs at the level of the participants and profits and losses accrue to them. Partnerships might be subject to competition law rules prohibiting the restriction of competition. Further, the creation of a partnership might be subject to notification to the competent competition authority under merger control rules. Partnership joint ventures are regularly used for economic activities of professionals. They have also been used as a vehicle in the context of tenders (public or other).
Advantages:
- Relatively fewer formalities apply than in the case of corporate joint ventures.
- Registration requirements exist but no requirement for disclosure of the actual partnership agreement i.e. the constitutional document.
- Although the partnership has no legal personality, it may sue and be sued in its own name and may trade under its name.
- Apportionment of profits and losses on the basis of discretion.
- Attribution of profits to the partners; not to the partnership.
- Independent tax planning possibilities for each participant as regards losses incurred and profits earned. Wide options may be available due to the extensive network of double tax treaties maintained by Cyprus.
Disadvantages:
- Significant powers to unlimited partners. Given the powers of partners to bind the partnership, decision-making process needs to be addressed carefully.
- Liability comes with involvement in the management/control. Unlimited liability of general partners towards third parties. Solutions alleviating the effect of this may be possible.
- Tax transparency may not be beneficial where the partners are natural persons as they might be taxed at higher rates. Yet with appropriate structuring this may be avoided.
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Contractual joint ventures
The basis of the cooperation of the participants is solely a contractual agreement between them. It is expected that such agreement will include detailed provisions regulating the rights and liabilities of the parties towards each other, the distinct role and input of each, their contributions, their share in the income generated etc. No separate legal personality is created. Business assets and intellectual property remain the property of the participant who contributed or developed them (unless of course the parties agree otherwise).
Profits and losses accrue to the participants and taxation is also incurred at the level of the participants. Such arrangements might be subject to competition law rules prohibiting the restriction of competition. Contractual joint ventures are commonly used in the context of tenders (public or other).
Advantages:
- Governed solely by contact law thus greater flexibility as to the operation and termination. Contract law in Cyprus is based on common law principles.
- No registration requirements.
- Minimal formalities compared to the other possible structures.
- No joint liability; liability towards third parties limited to own acts or omissions of each participant.
- Independent tax planning possibilities for each participant as regards losses incurred and profits earned.
Disadvantages:
- Lack of legal personality might cause difficulties in establishing commercial or contractual relationships with third parties.
- Need for detailed regulation of all aspects of the cooperation in the agreement due to the lack of legal framework for the relationship; careful and skilful planning is required.
- Depending on the facts and provisions adopted, risk of classification of the relationship as a partnership by a court with the consequence of joint liability.
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European Economic Interest Grouping (EEIG)
A vehicle established and governed predominantly by European law (Council Regulation 2137/85) instead of national law. Specific purposes for EEIGs apply i.e. to facilitate or develop the economic activities of the members to enable them to improve their own results. In that context the activities of EEIGs must be related to the economic activities of the members but not replace them. The purpose is not to make profits for the EEIG itself. EEIGs are governed by a contract between their members and Council Regulation 2137/85. They have capacity, in their own name, to have rights and obligations of all kinds, to contract or accomplish other legal acts as well as to sue or be sued. There is unlimited joint liability of the participants for the debts and liabilities of the EEIG but the exclusion or restriction of liability of one or more members for a particular debt or liability is possible if it is specifically agreed between the third party and the EEIG. EEIGs enjoy tax transparency. Profits or losses are taxable at the hands of the participants.
Advantages:
- Established under European law; EEGIs might be ideal for alliances of firms in different member states of the European Union for joint promotion of activities.
- Relatively fewer formalities apply than in the case of corporate joint ventures though there are registration requirements.
- Tax transparency.
Disadvantages:
- Managers bind EEIGs as regards third parties, even if their acts do not fall within the objects (unless the third party had knowledge).
- Unlimited liability of participants.
- More limited scope for use due to the statutory purposes dictated.
Which option is the most appropriate and or efficient in terms of structuring in a particular case depends on the facts at hand and the actual needs of the participants. The different factors need to be carefully examined with the help of experts so that the most suitable solution is adopted.