cyprus private yacht regime (cpyr) benefits from joining the regime 11 june 2015

Cyprus Private Yacht Regime(CPYR)

Benefits from joining the Regime

11 June 2015

©2015 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Agenda

Overview of the Cyprus economy

Overview of the Regime

General Guidelines

Use of the yacht within EU territorial waters

Specific conditions for the Regime to operate

Other Taxes

Example

Tax effective rates at a glance

How can you apply for the regime?

How can KPMG assist you?

What Questions Do You Have?


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Overview of the Cyprus economy

Resilient economy and good long-term prospects

■ The economic adjustment program remains on track, with progress made in all key objectives set out by the country’s international lenders.

■ After a three-year exclusion, the country returned to international markets sooner than expected.

■ The recession moderated in 2014, with real GDP down by -2,4%, which is significantly less than the -5,4% contraction in 2013.

■ The growth momentum will gradually pick up in 2016 (late 2015).

*Source: European Commission

European Economic Forecast Spring 2015

Forecasts for Cyprus 2013 2014 2015 2016GDP grow th (%) -5,4 -2,3 -0,5 1,4

Inflation (%) 0,4 -0,3 -0,8 0,9

Unemployment (%) 15,9 16,1 16,2 15,2

Public budget balance (% of GDP) -4,9 -8,8 -1,1 -0,1


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Overview of the Regime

Historical overview

■ The Private Yacht Leasing Regime was initially introduced in March 2012.

■ Since the introduction of the regime the expected profit margin was reduced from 10% down to 5%

■ In April 2015 the Cyprus Tax Authorities issued new guidelines, amending the originally introduced Regime making it even more attractive for vessels exceeding 45m.

Current Regime

■ Currently, Cyprus is one of the most attractive jurisdictions for yacht registration in the EU. Why?

The effective Tax rate is reduced to as low as 3,05%.

Jan 2014 Jun Jul Aug Sep Oct

From 10% to 8%30 January 2014

From 8% to 5%11 September 2014


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General Guidelines

Key element of the regime: Yacht leasing agreement

■ An agreement whereby the lessor (the owner of the Yacht) enters into a contract with the lessee (the person who leases the Yacht) for using the Yacht for a consideration.

■ VAT liability is calculated on predetermined % based on type and length of the vessel relying on use and enjoyment provisions of the VAT Act.

■ It may grant the option to the lessee to purchase the Yacht.

■ There is no obligation to register the yacht under Cyprus flag.

VAT Treatment

Outside the regime Within the regime

■ Supply of leasing services

■ Constitutes a taxable transaction subject to the standard VAT rate of 19%

■ If B2C transaction: Place of supply, excluding short term leasing, is the country the vessel is actually put at the disposal of the lessee, when the lessor actually supplies the services from his business or fixed establishment located in that country

■ Right of input VAT deduction by the lessor

■ No VAT on acquisition by the lessor if registered under the regime

■ VAT rates a % of the standard rate

■ No input VAT can be claimed by the lessor on maintenance and running costs


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How is the use of the yacht within EU territorial waters calculated?

■ There are practical difficulties in recording the exact movement of a pleasure yacht.

■ Therefore, the percentage of the time spend within EU territorial waters has been predetermined.

■ The percentages have been determined according to the type (motorboat or sailing boat) and length of the yacht.

■ There is no requirement to maintain any documentary evidence including the yacht’s log books.


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Predetermined percentages of use within EU waters

Table A: Motor boats

Boat length Percentage of use within EU waters

Greater than 65 meters

Between 45,01 and 65 meters




Up to 8 meters

10%

15%

20%

30%

50%

60%

Table B: Sailing boats

Boat length Percentage of use within EU waters






Up to 10 meters

10%

15%

20%

30%

50%

60%


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The following conditions must be satisfied:

■ The Yacht leasing agreement must be between a Cyprus established company and any physical or legal person irrespective of origin.

■ The Yacht must sail to the Republic within one month from the date of signing of the lease agreement.

– Any time extension with regards to the one month period may be given only by the VAT Commissioner.

– It is understood that the extension under no circumstances can exceed the time at which the right of

purchase of the Yacht by the lessee is exercised.

■ An initial lump sum payment of at least 40% of the Yacht’s value and corresponding VAT amount must be paid by the lessee to the lessor.

■ The lease payments must be payable on a monthly basis and the term of the lease agreement cannot exceed the period of 48 months.

■ The lessor is expected to attain a profit margin from the lease agreement of no less than 5% of the total value of the Yacht.


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The following conditions must be satisfied (cont.):

■ The final payment at the end of the finance leasing term, the result of which the legal ownership essentially is transferred to the lessee, cannot be less than 2,5% of the value of the yacht which represents part of the agreement’s total profit.

■ The agreed residual price is subject to the prevailing standard rate of VAT (19%).

■ The advanced written approval of the Commissioner is required for approving the value of the yacht and the applicable amounts on which VAT will be levied according to the extent of its use within EU waters. The application must be accompanied with a certificate certifying the value of the yacht as well as the leasing agreement which is entered into between the parties.

T2L Certificate

■ As soon as the balloon payment is made a T2L certificate is issued.

VAT Certificate

■ If the lessee elects to buy the vessel at the end of the term of the finance lease, a certificate certifying the payment of VAT will be issued to the lessee provided that all payable VAT has been settled.


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Other Taxes

Income tax implication

■ The lessor company is subject to 12.5% Corporation tax on 5% of the value of the vessel (section 33 of Income tax Act), provided that the shareholders of the company are not Cyprus tax residents.

■ No capital allowance is allowed to the lessor.

Stamp duty implications

■ Cyprus stamp duty is levied on ‘documents’ (i.e. written agreements/contracts) relating to assets located in Cyprus and/or matters or things taking place in Cyprus. Stamp duty is calculated on the value of the agreement at 0.15% for the first €170.860 and at 0.2% thereafter.

■ Stamp duty due on agreements effected is capped to a maximum of €20.000 per stampable agreement. The person legally liable to pay such stamp duty (unless otherwise stated on the agreement) is the purchaser. The due date for such stamp duty payment is within 30 days from the day of the ‘signing’ of a document which is considered to be subject to stamp duty.

■ Stamp duty is only payable if the lease agreement is signed and executed in Cyprus.


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Example

Facts

■ An individual (EU or non EU resident) contemplates purchasing two yachts and would like to be informed whether there are any Tax and VAT advantages from using the Cyprus Private Yacht Leasing Regime.

■ The following information is made available in order to calculate the expected benefits from registering the following two new yachts in Cyprus:

■ What is the effective VAT and Tax saving within the Regime?

Facts presented

Type Value LengthEU use under

the Regime Lease period€ meters % months

Motor Boat 20m. 67 10 48

Sailing Boat 500k 15 50 48


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Example (cont.)

Calculation of the effective VAT and Tax saving resulting from joining the Regime

Sailing Boat Motor Boat€ €

Value of the Yacht 500.000 20.000.000

VAT liability on balloon payment 19.000 152.000

Total VAT liability on installments 29.688 237.500

VAT liability on f inal payment 2.375 95.000

Total VAT liability 51.063 484.500

Tax profit 5% on yacht's value 25.000 1.000.000

Tax rate 12,50% 12,50%

Tax liability 3.125 125.000

Stamp Duty Liability (Max. €20.000) 958* 20.000*

Total effective rate (VAT, Tax, Stamp Duty) 11% 3%

Total cash outf low under the Cypriot Regime 55.145 629.500

Total cash outf low outside the Cypriot Regime 95.000 3.800.000

Total cash savings from joining the Cypriot Regime 39.855 3.170.500

* Stamp duty is only pay able if the lease agreement is signed and executed in Cy prus

VAT and Tax liability after the reduction of the profit margin


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Tax effective rates at a glance

Table A: Motor boats

Boat length Effective Tax rate






Up to 8 meters

3,05%

4,02%

5,00%

6,94%

10,84%

12,79%

Table B: Sailing boats

Boat length Effective Tax rate






Up to 10 meters

3,05%

4,02%

5,00%

6,94%

10,84%

12,79%


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How can you apply for the regime?

Procedure to be followed:

■ Set up a Cyprus Company to acquire the yacht.

■ Conclude a lease agreement with the party who will be using the yacht for private purposes.

■ If the yacht is a new one, the agreement with the manufacturer or invoice will suffice to establish the value.

■ If the yacht is a second hand, a valuation from a registered valuer, either established in Cyprus or elsewhere must be produced.

■ The term of lease agreement must not be less than three months and no greater than 48 months.

■ Once the three months have elapsed the, total VAT on the remaining lease payments can be made together with the residual value so that the VAT certificate can be issued.


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How can KPMG assist you?

KPMG can assist on the following:

Indicative Fees (€) One-off

Recurring/annual

Registration procedure

Registering the company (lessor)

Provide nominee director(s), secretary registered office (per service)

Drafting of lease agreement*

Review lease agreement

Ongoing administration / compliance fee (submission of 12 VAT returns)

Accounting and audit

Annual levy payable to register of Companies

*If required

2.500

1.500

500

1.500*

600

1.500-1.800

1.000-1.300

350

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√

√

√

√

√

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What Questions Do You Have?

Thank you

Presentation by Harry Charalambous


The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

cyprus private yacht regime (cpyr) benefits from joining the regime 11 june 2015

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