Cyprus: ‘Film In Cyprus' Online Platform And The New Cyprus Filming Scheme

Last year in September the Cypriot cabinet has approved a new filming scheme, which was created with the aim to attract overseas filming companies to shoot their films in Cyprus.

The new filming scheme was developed by the Unit of administrative Reform of the Presidency in cooperation with the Cyprus Investment Promotion Agency (CIPA) and the Ministry of Finance.

The new scheme entered into force recently with the creation of the Online Platform 'Film in Cyprus'.

'cyprus film industry' online platform

The Online Platform was introduced by Cyprus Invest (CIPA) on the 11th of September 2018 in Nicosia. CIPA is the responsible body for examining the applications and the chairs the Committee for the Evaluation of the Filming Scheme.

Through the online platform interested filming companies can submit their application to participate.

On the 'Film in Cyprus' online platform visitors can find information regarding the competitive advantages to film in Cyprus, film industry professionals (overseas and Cypriot), ideal filming locations that can be used for shooting in Cyprus and a list of local professionals for cooperation.

Cyprus filming scheme – The Incentives

The new Cyprus filming scheme provides, both Cypriot and overseas producers with a number of incentives, cash rebates, tax credits, discounts on investments made in infrastructure and equipment and VAT returns on expenditure.

The proposals will be evaluated based on a specific cultural criterion, which was established for this purpose.

• Cash rebate
  
  Production companies can be granted a cash rebate of up to 35% on eligible expenditures incurred in Cyprus. In order to be eligible for a cash rebate applicant must satisfy certain criteria, which shall ensure that the aid promotes the Cypriot or European world culture. The amount of cash rebate depends on the score of the film at the cultural test.
• Tax Credit (pending parliamentary approval)
  
  Production companies can choose tax credits as an alternative to cash rebates, offering a reduction of applicable corporate tax liability of the company. The maximum aid shall represent 35% of the eligible expenditure made in Cyprus. The amount of reduction depends on the score of the film at the cultural test.
• Tax allowance for investment made in infrastructure and equipment (pending parliamentary approval)
  
  Small and medium-sized companies investing in film production infrastructure and technological equipment are entitled to deduct the amount invested from their taxable income.
  
  The maximum aid for small enterprises is up to 20% of the qualifying production expenditures and up to 10% of the qualifying expenditures for medium-sized enterprises.
  
  The investment in technological equipment shall remain in Cyprus at least for 5 years.
• VAT refund on qualifying production expenditures for third countries
  
  The VAT tax rates in Cyprus are 19%, 9% and 5% on all products and services provided in Cyprus and 19% and %% on all taxable imports.
  
  Qualifying production expenditures incurred in Cyprus by third country film production companies are entitled to a VAT refund.

UK: UK Inheritance Tax : Planning For Non-Doms

The UK has a favourable tax regime for individuals who are non-UK domiciled, and this extends to inheritance tax (IHT). With careful planning, which may involve the use of offshore trusts, most non-UK domiciled individuals can protect their non-UK assets from UK inheritance tax, even after they have become deemed domiciled in the UK.

Scope of Inheritance Tax

A charge to UK inheritance tax can arise on the following events:

1. On death, in relation to the deceased's chargeable estate, and on certain gifts made by the deceased within the previous seven years;
2. When a 'chargeable lifetime transfer' is made, which would usually occur when chargeable assets are settled into trust during an individual's lifetime.

The extent to which an individual's assets are within the scope of inheritance tax depends on the individual's domicile status at the time of the event. Domicile is a concept of general law and is much more adhesive than residence. It is generally construed as the place which an individual regards as their permanent home and with which they have the closest ties.

From 6^th April 2017, an individual is deemed to be domiciled in the UK (even though they may continue to have a non-UK domicile under general law) if they have been UK resident for at least 15 out of the past 20 tax years.

Where an individual is UK domiciled or deemed domiciled at the date of the taxable event, his global assets are within the charge to inheritance tax, subject to any specific reliefs or exemptions.

Individuals who are neither domiciled nor deemed domiciled in the UK are only liable to inheritance tax in respect of their UK assets. Their non-UK assets are 'excluded property' and outside the scope of IHT.

From 6 April 2017, the shares of an overseas company holding UK residential property are regarded as UK assets for IHT purposes. At present, there is no charge to IHT on shares in overseas companies owning UK commercial property.

The domicile or residence status of the beneficiary is not relevant for UK inheritance tax purposes. However, some jurisdictions levy tax on gifts or inheritances received by a resident of that country, so particular care needs to be taken where cross-border gifts or inheritances are made as there is potential for double taxation. In many cases, however, double tax relief should be available through a treaty or under domestic law.

Rate of Tax

Every individual has a Nil Rate Band (currently £325,000) to offset against his chargeable assets. From 6 April 2017, an additional Residential Nil Rate Band may be available if the deceased's main residence (or equivalent value if it has been sold) is included in their chargeable estate, and is left to one or more direct descendants. The Residential Nil Rate Band increases each year up to a maximum of £175,000 in 2020/21 but gradually tapers away where the chargeable estate is worth more than £2 million.

Spouses and civil partners

References to spouses include civil partners. Assets passing to a spouse or civil partner are generally exempt from UK IHT without limit. However, there is one exception to this rule, and that is where assets pass from a UK domiciled spouse to a non-UK domiciled spouse. In this instance, the spouse exemption is limited to £325,000.

If some or all of an individual's nil rate band is unused on his or her death, the proportion of the deceased's unused nil rate band (including any unused residential nil rate band) can be transferred to the surviving spouse.

For example, if none of the nil rate band is used (because, for example, the deceased's assets pass to the surviving spouse who is exempt, the surviving spouse will have double the nil rate band on their death (i.e. £650,000, based on current rates), plus potentially double the residential nil rate band, if available.

Election for  non dom rules cyprus  spouse to be treated as UK domiciled

A non-domiciled spouse or civil partner can, at any time, make an election to be treated as UK domiciled for the purposes of inheritance tax. This may be a favourable option for a mixed domicile couple where the UK domiciled spouse passes away first. In this case, if an election is made by the non-domiciled surviving spouse to be treated as UK domiciled for IHT purposes, any assets received by that spouse will be exempt from inheritance tax. If the election were not made by the surviving spouse, only assets up to a value of £325,000 would be exempt. Therefore, by making the election, inheritance tax can be deferred to the second death.

The potential drawback to making the election is that the worldwide assets of the surviving spouse would then be brought within the charge to inheritance tax, as for any other UK domiciled individual.

Nevertheless, the election automatically lapses once the electing spouse has been non-UK resident for four successive tax years, at which point they regain their non-UK domicile status for IHT purposes. In this instance, their non-UK assets (including those inherited from the UK domiciled spouse) will fall outside the scope of UK inheritance tax altogether, allowing potentially significant IHT savings to be achieved.

This type of planning can be particularly useful where a mixed domicile couple is resident overseas, or where the electing spouse returns to their home country (or elsewhere) following the death of their UK domiciled spouse.

Professional advice should be taken if an election is being considered as, once an election is made, it cannot be revoked.

Deductibility of Debts

Under general inheritance tax rules, there are three circumstances in which a debt is not deductible:

1. Debt used to acquire excluded property

Where the debt proceeds are used (directly or indirectly) to acquire, maintain or enhance excluded property (i.e. property that is outside the scope of inheritance tax), the debt is disallowed for IHT purposes.

For example, a debt would be disallowed in circumstances where:

• a non-UK domiciled individual borrows money, secured against UK assets, and uses the borrowed funds to purchase assets situated overseas; or
• trustees of a trust settled by a non-domiciled individual borrow against UK assets and use the funds to invest in assets overseas.

The debt will be allowable, however, where the excluded property has been sold and the proceeds have become chargeable assets in the deceased's estate, or where the assets themselves are no longer excluded property.

2. Debt used to acquire property that qualifies for another relief (e.g. Business Property Relief).

This rule only applies to liabilities incurred on or after 6 April 2013.

The broad effect of this provision is that the loan is first set against the relievable assets, thus reducing their value. Where the value of the loan exceeds the value of the relievable assets, the excess may then be deducted against the remaining chargeable estate.

3. Debts that are not repaid on death

A debt can only be deductible from the value of an estate if it is repaid after death out of the estate, unless there is a commercial reason for not repaying the liability, and it is not left unpaid as part of an arrangement to obtain a tax advantage. This rule applies regardless of when the debt was incurred.

Offshore Trusts

Non-UK assets settled into an offshore trust by a non-domiciled individual before they become deemed domiciled are 'excluded property' and are outside the charge to UK inheritance tax (provided there is no underlying UK residential property).

The assets of the trust will continue to enjoy excluded property status even after the settlor has become deemed domiciled in the UK as a result of having been UK resident for 15 out of the last 20 tax years.

Trusts settled by non-UK domiciled individuals can also benefit from significant income tax and capital gains tax advantages. Professional advice should always be taken when considering setting up an offshore trust as the UK tax rules are particularly complex.

UK residential property interests

It was common planning for non-domiciled individuals to hold UK real estate through an offshore company (which may, in turn, have been held by offshore trustees) in order to avoid a charge to IHT on the real estate. The overseas shares were non-UK assets, and therefore excluded property, in the hands of the non-domiciled individual or trustees (if held through a trust structure). There was no look-through to the underlying UK real estate.

However, changes to the legislation, which became effective from 6 April 2017, now bring all UK residential property within the scope of UK IHT, as well as certain loans used to purchase UK residential property. A property under construction or being adapted for residential use is treated as residential property for these purposes.

The legislation is widely drawn, and brings the following assets within the scope of IHT:

• Interests in non-UK close companies (e.g. shares and loans) and overseas partnerships which derive (directly or indirectly) their value from UK residential property. The value for IHT purposes is based on the shareholding or partnership interest and therefore minority interests may be significantly discounted. Interests of less than 5% (when aggregated with interests of connected persons) of the total value of the close company or partnership are disregarded. A connected person is a spouse, ascendant, descendant, sibling, niece or nephew, uncle or aunt, and companies owned, or trusts settled, by any of the above.
• A loan used to acquire, maintain or enhance a UK residential property (a 'relevant loan') in the same way as a direct interest in a UK residential property. This includes loans made by a trust, partnership or an individual.
• Any asset given as security, collateral or guarantee by a borrower, or a third party, in connection with a relevant loan, up to the value of the loan.
• The proceeds of a loan used to acquire any asset where that asset is sold and the proceeds reinvested in a UK residential property interest (either directly or indirectly).

It is the lender of the funds who is subject to inheritance tax where the loan proceeds have been used to finance the purchase or enhancement of a UK residential property (directly or indirectly). These rules also apply where the lender is a close company, but would not normally catch bank loans, unless the bank is a close company.

Lenders will therefore need to be aware of what the loans are being used for. If they are being used to invest in UK residential property, this may give rise to an IHT liability in hands of the lender. Difficulties may arise for lenders who are resident and domiciled outside the UK and who have no understanding of the UK tax implications of the loan, and who have no knowledge of the intended use of the funds.

Similarly, care will need to be taken by non-UK resident trustees who make loans (or provide guarantees) to a beneficiary. They will need to enquire what the loan is for, and also have an understanding of the IHT implications if the beneficiary intends to use the loan to purchase UK residential property.

Two Year Tail

In circumstances where the shares of a non-UK company or an interest in an overseas partnership that holds UK residential property are sold, the sale proceeds remain within the scope of inheritance tax for the following two years.

In addition, where a loan is taken out to invest in UK residential property, or assets are used as security for such a loan, and the loan is repaid or the security/guarantee released, the consideration received (or any asset purchased with that consideration) will continue to be subject to IHT for a two year period following the loan repayment or release of security.

On the other hand, where the residential property itself is disposed of, the loan will cease to be a relevant loan (and will therefore cease to be within the scope of IHT) from the date of disposal.

Double Tax Treaties

Where the terms of a tax treaty provide for exemption from UK IHT in relation to a UK residential property interest, the UK legislation will override the terms of the tax treaty unless a liability to inheritance tax or an equivalent tax (however small an amount) arises in the other jurisdiction.

Summary

Non-UK domiciled individuals benefit from significant planning opportunities to minimise or avoid liability to UK inheritance tax. In particular, non-UK assets can be sheltered from inheritance tax by settling those assets into an offshore trust before acquiring deemed domicile status in the UK. The protection from inheritance tax can continue even after the settlor has become deemed domiciled, allowing the assets to be passed down to future generations free of UK inheritance tax.

Nevertheless, there are also potential pitfalls due to the extensive anti-avoidance provisions that have been enacted over recent years, particularly in relation to debts and indirect interests in UK residential property.

Professional advice should be taken to maximise the opportunities for inheritance tax planning and to avoid the pitfalls.

Cyprus: Cyprus Tax Law: New Non Domiciled Rules And Notional Interest Deduction

This summer brought some very significant amendments to the Cyprus tax laws, further enhancing Cyprus' favourable tax regime. On 17 July 2015, the following laws were amended:

1. The Special Defense for Contribution law No. 117(I) of 2002 as amended;
2. The Income Tax Law No 118(I) of 2002 as amended; and
3. The Capital Gains Tax Law No. 119(I) of 2002 as amended.

New  non dom rules cyprus

The new non domiciled rules were introduced to further entice corporate executives and high net worth individuals (currently entitled to a 50 per cent tax exemption of personal income tax for a five year¹ period where income exceeds €100.000) to take up residency in Cyprus.

The Special Contribution for Defense Law (the SDC Law) imposes tax on income (dividends, interest, rental income) received from within or outside of Cyprus by individuals who are considered to be tax residents of Cyprus. An individual is considered to be a tax resident of Cyprus if he/she physically spends at least 184 days in Cyprus during the tax year.

The SDC Law has now been amended to incorporate the non domiciled rules exempting the income (whether actual or deemed) of persons who are not considered to be domiciled in Cyprus from payment of special contribution for defense tax, even if they are considered to be tax residents of Cyprus.

An individual can be considered as domiciled in Cyprus either (i) by domicile of origin; or (ii) by domicile of choice. In order to understand the concept of "domiciled in Cyprus" one must look to the Wills and Succession Law Cap. 195.
In accordance with the Wills and Succession Law:

• A person at any time can have either the domicile which he/she acquired at birth (domicile or origin) or the domicile which he/she acquired or maintained as a result of actions taken by him/her (domicile of choice).
• For a legitimate child, which was born when the father was alive, the domicile of origin of the child is the domicile of origin of the father, at the time the child was born.
• For a legitimate child, which was born after the father died or in the case of an illegitimate child, the domicile of origin in the domicile of origin of the mother, at the time the child was born.
• A person may acquire a domicile of choice with his establishment in any country outside Cyprus with the intention of the permanent or indefinite residence in such a country.
• A domicile of choice is maintained until abandoned in which case a new domicile of choice is acquired or the domicile of origin is reinstated.

For the purposes of the SDC Law only, an individual who has a domicile of origin in Cyprus as described above may still be considered not to be domiciled in Cyprus if:

• He/she had the domicile of origin in Cyprus on the basis of the Wills and Succession Law but has obtained a domicile of choice in another country, provided he was not a tax resident of Cyprus for at least 20 years before the tax year in which he became a tax resident of Cyprus.
• He/she has not been a tax resident of Cyprus for a period of 20 years prior to the introduction of the amendment to the SDC Law.

Notwithstanding the above, an individual who has been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year will be considered to be "domiciled in Cyprus" and as such will be subject to special contribution for defence from the 18th year.

Notional Interest Deductions

The House of Representatives introduced a Notional Interest Deduction (NID) regime on corporate equity in an effort to encourage the injection of new equity capital into corporate structures rather than interest bearing and interest free loans (currently entitled to a tax deduction), effectively deleveraging the economy.

NID is allowed on new equity funds introduced into a Cyprus tax resident company and which are used for the operations of the company. The NID will be calculated on the basis of a "reference interest rate" which is equal to the yield on the ten year government bond of the country where the new funds are invested, plus three per cent with the minimum rate being the yield on the ten year government bond of Cyprus (currently around five per cent) plus three per cent.

It is important to understand the meaning of "new equity" in this context. New equity means any equity introduced into the business after 1 January 2015 including both share capital and share premium to the extent that it has been fully paid but does not include capitalisation of reserves resulting from the revaluation of movable and immovable property.

In order for NID to apply, the subscription price paid for the issue of shares must either be by cash or in kind. If consideration is in kind it cannot exceed the market value of the assets contributed with the valuation being subject to the satisfaction of the Director of Inland Revenue.

It should be noted that NID granted on new equity cannot exceed 80 per cent of the taxable profit of the company for the year preceding the deduction. If the company has made a loss, then the NID will not be available.

The Income Tax Law includes a number of anti-avoidance provisions aiming to:

• Restrict the re-characterisation of old equity into new equity which would lead to claiming notional interest twice on the same funds through the use of multiple companies or arrangements lacking valid economic or commercial reasons.
• Restrict claims of NID in case where the amounts of new capital of a business carried out by a company resident of Cyprus is derived directly or indirectly from amounts of new equity of another business carried out by a company resident of Cyprus so as to ensure that the deduction is granted only to one of these companies. 
• Reduce claims of NID in the event that amounts of new equity are derived directly or indirectly from loans for which a discount regarding interest has been granted, so that the amount of interest deduction on the new equity is reduced by the amount of the interest deduction granted to the other company.
• Ensure that the NID is calculated as if no company re-organisation has taken place.
• Limit claims for NID from equity that existed prior to 1 January 2015 which are presented as new equity.

Capital Gains Tax Law

The Capital Gains Tax Law has been amended, exempting any capital gains from the disposal of immovable property purchased between 17 July 2015 and 31 December 2016 from tax. This exemption covers both land and buildings but does not cover property acquired as a result of a settlement of debt.

Cyprus: The Cyprus ‘Non-Dom' Rules

Introduction

In July 2015, a number of bills relating to the Cyprus taxation system were approved by the Council of Ministers and subsequently enacted into legislation by the Parliament1.

The key highlight of these new bills is the introduction for the very first time of the "non-dom" status for Cyprus tax residents, who are not considered as domiciled in Cyprus and will be exempted from defence tax applicable on dividends, interest and rental income.

'Non-Dom' Rules- Exemption form Payment of Defence Tax on Dividends, Interest or Rent

The amendment of the law relating to the Special Contribution for the Defence of the Republic ('SCD') is without a doubt the most significant amendment, directly encouraging high net worth individuals to choose Cyprus as their location for residence and investment.

Cyprus tax residents are liable to SCD at the rate of 17% on dividends, 30% on bank deposit interest and 3% on rental income. The new amendment to the law distinguishes the Cyprus tax residents into those who are domiciled in Cyprus and those who are not, thus introducing the notion of 'non-domiciled' individuals ('Non-Doms'); SCD is now applicable only to the former, and not the latter. non dom rules cyprus are henceforth exempted from SCD irrespective of whether such income is derived from sources within Cyprus or whether such income is brought and/or used in Cyprus.

Definition of Non-Dom

The term "domiciled in Cyprus" is defined by law as a person who has either his/her domicile of origin (given at birth) in Cyprus or domicile of choice (establishing a home with the intention to reside in Cyprus permanently or indefinitely). It is noted that the determination of domicile is a distinct concept from citizenship or residence.

For the purposes of SCD, the following are exempted from the above definition (i.e. labelled Non-Doms):

a) An individual who has obtained and maintained a domicile of choice outside Cyprus, provided that this person was not a Cyprus tax resident for any period of at least 20 consecutive years preceding the tax year in question; or

b) An individual who has not been a tax resident of Cyprus for a period of 20 consecutive years prior to the introduction of the law (i.e. prior to 16 July 2015),

provided the qualified individual has not been a Cyprus tax resident for 17 years out of the last 20 years prior to the tax year in question2.

Applicability- Tax Residency Requirements

• 183 Day Rule

The current '183 day rule', i.e. an individual is deemed a Cyprus tax resident if he/she spends at least 183 days in the tax year in Cyprus, remains in place and unchanged.

• 60 Day Rule

In July 2017, the Income Tax Law was amended by adding a second tax residency test- the '60 day rule'. Under the '60 day rule', an individual is now considered as a tax resident of Cyprus if, in the relevant tax year, he/she:

a) remains in Cyprus for at least 60 days in the year of assessment; and

b) is engaged in any business in Cyprus and/or is employed in Cyprus and/or holds an office (director) under a Cyprus tax resident company at any time during the year of assessment, provided that such is not terminated during the tax year; and

c) maintains a permanent residence in Cyprus (whether owned or rented).

The '60 day rule' allows an individual who in the relevant tax year (i) does not remain in any other country for more than 183 days in total, and (ii) who is not a tax resident in any other country, to be considered as a tax resident of Cyprus.

The aforementioned rules apply for the entire 2017 tax year, i.e. as of 1 January 2017, irrespective of the date of the amendment of the said law.

Related Details

• The Non-Dom rules apply as of 16 July 2015. Dividends, interest and rental income received/credited to Cyprus tax residents prior to this date are subject to SCD.

• A reminder that no tax applies to individuals on interest and dividend income under the Income Tax Law.

Footnotes

1 Please visit our Website for a briefing on the said amendments as a whole.

2 Anti-abuse provisions restrict the application of the exemption where domiciled persons transfer their assets to non-domiciled persons so as to benefit from the exemption.