Ask a question – get an answer!
- Harris Sharpe
The Idea
In my strive to to create an information website I create this page where you may ask questions concerning the Laws of Cyprus. I will answer questions as they arise and in any case not later than two business days.
Disclaimer
Please have in mind that information provided is for your personal knowledge and not to be applied in your personal or professional dealings. Should you require legal advice please consider engaging an independent professional who will be happy to provide his services for a fee.
How to ask a question
To ask a question please insert your details below above the comment box. Note your email address will only be made available to me and it will not be shown or made available to any other visitor or third party.
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Dear Elena,
Thank you for your message – please consider whether :
1. the shareholder (new lender) is a physical person or a company?
2. The first loan agreements were between the shareholder of a Cypriot Company in his capasity as what and who else?
3. How does the Cyprus Company link into this transaction? – e.g. If I am a shareholder of a Publicly Traded Company and borrow money is the bank required to pay?!?
4. Was an agreement between the Cyprus Company and the shareholder entered in order to cover and pay his debts? – If yes – does the Cypriot company have a benefit or in any way avoids a disbenefit?
5. How will the companies accountants book this transaction?
6. How will the companies auditors view, asses and if possible adjust this transaction?
From a legal side I would argue that the payment of interest arose as specified in the loan agreements. The provisions of the deemed interest only apply after the assignment which is . . . the earliest moment it may apply.
However I believe you should contact the company’s accountants in order to specify how they would book this transaction.
Income tax Law
The Income tax Law has recently been amended so that the deemed interest of 9 % to apply only to individulas and not to Companies. In this connection so long as the shareholder is a company then the deemed interest shall not apply but rather it will fall under Art. 33 of the same law whereby related parties are required to carry on transactions at arms lenght between them. This means that you should consider the loan agreement as ‘assigned’ and asses and inquire whether it has been made on terms that independent parties would enter. As to Special Defence Contribution I believe this may be eliminated by submitting the relevant forms to the Inland Revenue Department of Cyprus.
Directors Duties
The company’s directors are bound to act in the best interest of the Company as a whole. Should any agreement be in contrary to the spirit of the numerous case laws then they may be personally liable.
Dear Harris,
May I request you to advise on the following.
A shareholder (majority shareholder) borrowed money in the form of loans from some Russian companies, members of the Parent group. Recently it was decided to consolidate his debts by assigning the creditors’ rights from the said Russian companies to the Parent Company (the “Company”).
According to the Cyprus tax law, where funds are borrowed by a shareholder from the Company, the former is subject to the imputed interest charge of 9% pa payable on the loan principal and to the Defense Tax.
Question: Do the aforementioned tax considerations apply to where the Company was not initially a lender and has assumed the rights of creditor only (though for some consideration payable in return to the respective Russian companies for that assignment)? If so, do they apply as from the date of assignment or as from the date on which the liability to pay off the consideration was discharged or terminated otherwise?
As a junior Lawyer I am in the position to advise for legal issues. This is somehow a tax query and I would really appreciate it if I have your advise and help.
Regards,
Elena