Tax planning opportunities in Central and Eastern Europe Cyprus is in a unique position as a result of the recent political and economic changes in Central and Eastern European countries. It is a Western type economy with excellent political and economic relations with Central and Eastern Europe. It has double tax treaties with practically all of these countries and also has double tax treaties with West European and North American countries. Furthermore, its own economic development policies encourage through the offering of incentives, foreign and local investors to seek business opportunities abroad. Royalty Companies Considering that the most likely scenario for investment in these countries would inevitably involve the transfer of technology and the collection of royalties, the use of a Cyprus offshore royalty company appears very attractive indeed. Royalty payments from Central and Eastern European countries would be a deductible expense in the source country and they will be subject to 10% tax after deduction of expenses in Cyprus. This profit can either be accumulated in Cyprus to be reinvested within the group or be repatriated without any additional Cyprus tax. Finance Companies There may be instances where participation in a Central and Eastern European investment takes the form of a combination of equity and debt. Local rules permitting, high debt structures would be most beneficial for the Western investor since interest would be a charge against profit . Depending on the investment target country, the use of a Cyprus offshore finance company would entitle the investor to collect the interest at reduced withholding taxes. Distributions (if any) to the holding company of the Cyprus offshore would carry tax benefits, depending on the country, as already explained under Royalty companies. Investment/Dividend companies Dividend is received by the Cyprus offshore company from treaty Central and Eastern European Countries at reduced withholding tax rates. Substantial reductions accrue to distributions from investment in these countries all having a good network of double tax treaties. Few treaties have lower withholding tax rate for dividend than the Cyprus tax treaty.
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