Reference in these provisions is made to:-
- The prohibition of discrimination on the basis of nationality. National laws and regulations shall not impede the freedom of cross-border movement of goods, services, labour or capital.
- Indirect taxation which demands that foreign products are not taxed more heavily than similar domestic products.
- The common customs code and the freedom of movement of persons, services and capital as well as the co-operation in the field of social policy including all measures relating to working conditions, employment, training, social security etc.
There are certain offshore centres in the EU which, although are not exempted from the directives on financial services and money laundering, enjoy certain privileges and have special features which are outside the scope of the acquis communautaire. These offshore centres are dealt with briefly below and can be cited as useful precedents for Cyprus.
Ireland
Ireland has a network of double tax treaties with 23 countries which contain very few anti-avoidance provisions. The Ireland/USA treaty for instance has no "Limitation of Benefits" clause at all.
Manufacturing companies in Ireland are taxed at the rate of 10%. This rate is guaranteed until 2010 and is expressly permitted by the EU. Financial service companies which are established in the IFSC in Dublin also pay tax at the rate of 10% which is guaranteed until 2005 with the blessing of the EU.
Additional benefits such as no withholding tax on dividends paid and interest, exemption from municipal tax, no capital gain, no exchange control etc. are also enjoyed by these companies. Ireland is known for its IFSC and its fund management business largely because of its favourable Irish tax regime.
Holland
Holland is a low-tax holding company jurisdiction with a large number of double tax treaties and with an advantageous system of advanced binding tax rulings. Holland offers considerable tax concessions to companies owning shares on intellectual property rights and to financing companies.
Like Cyprus, Holland has double tax treaties with all the Eastern European countries. In some respects, these treaties are more beneficial than those of Cyprus and they offer more opportunities in international tax planning set-ups in Eastern Europe.
Luxembourg
Luxembourg is one of the oldest members of the EU and has double tax treaties with more than 25 countries.
The well known tax free "1929 Luxembourg Holding Company", as well as the undertakings for Collective Investment in Transferable Securities "UCITS", are excluded from the benefits of the treaties. The Societe de Participation Financiere "SOPARFI" which was introduced in 1990, is considered to be a tax-privileged company which is not excluded from enjoying the benefits of Luxembourg's treaties.
Madeira
Madeira is a small island in the Atlantic and an autonomous region of Portugal.
Non-residents may establish tax free offshore companies there with the guarantee of Portugal and the acceptance of the EU until the year 2011.
Portugal has a network of double tax treaties (which apply to Madeira as well) with more than 14 countries. However, recently certain countries are either terminating their treaties with Portugal or unilaterally excluding Madeira's zero-tax companies from the benefits of their treaties.
The Channel Islands
Jersey and Guernsey are two small islands between France and the U.K. They are known as low tax international financial centres for the status of their "exempt company", the trust, the captive insurance company and the "limited liability partnership".
Special provisions were negotiated for the Channel Islands in terms of which their rights were unaffected by the accession of the U.K. in 1973. Although they are treated as forming one territory with the U.K. in some areas relating to fiscal harmonisation, the Channel Islands are considered to be third countries and are maintaining their status as offshore centres.
Other zero tax or low tax regimes in the EU.
Whilst on the subject, special reference ought to be made to offshore or semi-offshore centres within the EU, the United Kingdom non resident company and the International Headquarter Company (IHC) as well as to the exemption of certain classes from income tax, such as shipowners.
It is also worth mentioning the tax free companies of the Law 89 of Greece, the Co-ordination Centres legislation in Belgium, the new holding companies legislation in Germany and the beneficial holding company regime in Austria.
CAUTION: The information in this article is subject to change without notice. Application of the information to specific circumstances requires the advice of lawyers who must rely upon their own sources of information before providing advice. The information in this article is intended only as a general guide and is not to be relied upon as the sole basis for any decision without verification from reliable professional sources familiar with the particular circumstances and the applicable laws in force at that time.
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