AMINEWS | JANUARY 2013
 
 
Two years onwards from the removal of Cyprus from Italy’s Black List, we revisit existing opportunities and consider new possibilities offered through Cyprus. Italian tax law contains numerous provisions to:
  • Ensure that profits are not shifted to tax-havens; and
  • Serve as measures against the avoidance of Italian taxes.
The Italian government has issued a list of jurisdictions with favorable tax regimes, jurisdictions not allowing exchange of information, and other tax havens (the Italian blacklist). Most of the anti-avoidance measures in question are directed towards transactions with parties resident in such blacklisted countries.

In June 2009, Italy and Cyprus signed a protocol on the Italy – Cyprus Double Tax Avoidance Agreement (hereinafter DTAA(s)) and, as a result, from August 2010, Cyprus was taken off the Italian blacklist.
 
Outline of Italian Anti-avoidance Rules
 
Non-deductible Costs
Costs paid by an Italian resident business to blacklist resident entities/suppliers may not be deducted for tax purposes.

CFCs
Profits of Italian-controlled entities resident in blacklisted countries will be ascribed to their Italian resident owners whether remitted to Italy or not.

Participation Exemption on Dividends and Exemption of Capital Gains from Share Disposals in Participations
The dividend participation exemption (95% exempt from Italian tax) cannot be availed in case the payee is resident in a blacklisted country and thus will be fully subject to Italian tax in the hands of the Italian resident recipient. Also, in case of participation share disposal gains, the exemption cannot be utilized when the country of residence of is a blacklisted country, and will be fully taxable in the hands of the Italian resident seller.

Italian Tax Residents Changing their Residence Status
Italian tax residents shifting their tax residency to a blacklisted country continue to be:
  • Deemed Italian tax residents by the Italian Revenue Authorities; and
  • Subject to Italian Income Tax on their worldwide income.
If, however, they shift residence to a non-blacklisted country, they are subject to Italian tax only on their Italian sourced income.

Italian Revenue Reporting Requirements
Purchases from entities resident in blacklisted countries are reported separately on the Italian Annual Income Tax Returns. Also, reporting requirements applicable for all transactions taking place after 01/07/2010 determine that all sales to and purchases from blacklisted countries need to be e-filed with the Italian revenue authorities. As a result, the Italian authorities are fully aware of Italian residents doing transactions with Italian blacklisted counterparties, and very frequently target such for tax audits.
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Removal from the Italian Blacklist: Reaping the Benefits
 
The benefits of Cyprus’ removal from the Italian blacklist are evident as none of the restrictions outlined above any longer apply, thus facilitating:
  • The use of Cyprus companies as trading partners in business transactions with Italian counterparts, and
  • The use of Cyprus companies in structuring Italian outbound investments to countries with which Cyprus maintains favorable DTAAs.
Alternatively, Cyprus can be used effectively for structuring Italy inbound investments either through equity holding or financing structures:
  • Italy will not be levying any withholding tax (hereinafter referred to as WHT) on dividend payments to Cyprus company shareholders (apart from a 1.35% domestic WHT) nor on any interest payments;
  • Dividends will be tax exempt in the hands of the Cyprus holding company whereas any interest income will be taxed at 10% on the required spread which rises to a maximum of 0.35% for facilities of less than €50m; and
  • Outward remittances from Cyprus whether in the form of dividends or interest are not subject to any WHT.
Finally, Italian tax resident individuals can now opt for Cyprus for shifting their tax residency as the island offers:
  • An efficient and dynamic corporate, financial, and legal environment;
  • An attractive and familiar to Italian nationals, Mediterranean life style;
  • A “close-to-home” location served by an extensive flight schedule; and
  • The benefits of a fully-fledged EU member together with a favorable tax system, which offers the potential of reducing tax leakages for individuals by more than 20%.
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How Amicorp Can Assist You
 
In business since 1992, Amicorp operates in over 25 countries globally. We specialize in business and knowledge process outsourcing, providing innovative solutions that meet our clients’ individual needs.

In cooperation with globally recognized professional intermediaries, Amicorp:
  • Assesses and becomes thoroughly familiar with your requirements;
  • Assists through its extensive experiences and resources in structure design;
  • Assumes structure implementation, management, and on-going maintenance; and
  • Provides on-the-ground local support with highly qualified multi-lingual personnel.
We operate on a fully integrated turnkey basis, inspiring your confidence in us and ensuring your complete peace of mind.

For further information on using Cyprus limited companies for your structuring requirements and for shifting your tax residency, contact your nearest Amicorp office or Amicorp Cyprus directly.
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Apollon Athanasiades
Amicorp Cyprus
a.athanasiades@amicorp.com

 
 
 
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