APC Audit Tax Advisory announces its cooperation with the Greek Law Firm of Benteniotis & Associates for the provision of AML consulting services in Greece.
The complexity of AML requirements and the constantly changing AML landscape have made it a necessity for regulated entities to continuously adjust and enhance their internal procedures to keep up with regulatory changes.
Our firms have joined forces to fully support regulated entities in assessing and understanding the relevant risks as well as guide them in fulfilling their obligations which stem from the prevention and suppression of Money Laundering and Terrorist Financing Laws and Regulations.
5th Anti-Money Laundering Directive: What is changing?
In June 2018, the 5thAnti-Money Laundering Directive (AMLD) became law. The new AML Directive brings major changes and developments to the existing Directive (4thDirective), and the EU member states must transpose those changes and developments into their national law until 10 January 2020.
What is changing about the 5thAnti-Money Laundering Directive?
Professional service providers
The 5thAnti-Money Laundering Directive clarifies that all professional service providers, including tax advisors either certified or uncertified, are under the scope of the legislation.
Beneficial Owners Information
Under the 5thAnti-Money Laundering Directive, every EU member state must establish a beneficial ownership register, which will provide information about entities, group entities and trusts and disclosing the names of the beneficial owners and the senior management personnel, responsible for the management of the group and/or entity.
The beneficial owners and accountants of the entities and trusts are responsible to provide such information in order for the register information to be adequate, accurate and current.
The beneficial ownership registers must be established by the member states, following the enforcement of the 5thAnti-Money Laundering Directive into national law. The timeframe for establishment is as follows:
Corporate and other legal entities: 18 months from the enforcement of the 5thAML Directive (10 January 2020)
Trusts and similar structure legal arrangements: 20 months from the enforcement of the 5thAML Directive (10 March 2020)
The 5thAnti-Money Laundering Directive, requires the European Union to interconnect all member states beneficial ownership registers, 32 months after the 5thAML Directive became into law (10 March 2021).
The 5thAnti-Money Laundering Directive recognizes the need for technological usage of the clients’ identification/verification process, through electronic means. The electronic means must be secured, independent, reliable and regulated by the national authorities.
The electronic clients’ verification means will facilitate and speed up the clients’ acceptance procedures, clients’ maintenance/ongoing procedures and service.
Senior Managing Officials
The 5thAnti-Money Laundering Directive states that whenever a senior managing official or an official authorized representative is considered to be the responsible person under the law for representing an entity or a group of entities, then the same principles and procedures as for a beneficial owner apply for that official (i.e. identification procedures, record keeping, etc.).
Enhanced Due Diligence
The 5thAnti-Money Laundering Directive requires that whenever a professional accountant of a member state is dealing with a high risk 3rdcountry client, then specific measures to mitigate these risks need to be taken, such as, additional information for limiting the business relationship with clients from 3rdcountries and the prohibition of the professional accountants from establishing representing firms in such countries.
Political Exposed Persons (PEPs)
The 5thAnti-Money Laundering Directive requires that each EU member state must establish a list with the national PEPs.
In addition, the EU will establish a list of PEPs which will include persons that represent bodies, functions, institutions and organizations of the EU.
The extensive usage of virtual currencies forced the need for additional measures that need to be taken by the exchange service providers in order to mitigate the risk for any potential financial crime. Such measures are the enhanced due diligence procedures for the potential clients that receive exchange virtual currencies services through an exchange service provider platform.
Member States must ensure that the exchange service providers are licensed, registered and regulated.
Bank and Real Estate Register
In the view of terrorism financing fight, Member States are required to set up a register which will allow the competent authorities to retrieve information such as natural and legal persons’ bank accounts, safe deposit boxes ownership and natural and legal persons’ ownership of real estate, that are situated in their territory.
Anonymous prepaid cards are included in the scope of the 5th Anti-Money Laundering Directive, by introducing stricter measures for payment transactions above the amount of €50. In cases where the payment amount exceeds the €50, customer identification procedures must apply.
The changes of the 5thAnti-Money Laundering Directive require measures and actions that need to be taken by the professional accountants, advisors and regulatory bodies, in order to stay compliant and in line with the Directive requirements.
Cyprus Tax Residency with 60 days stay
On 13 July 2017 the Cyprus Parliament voted for the amendment of the Income Tax law regarding the criteria for an individual being a tax resident in Cyprus according to certain conditions. The amended law has been published on 28 July 2017 and is in force as of 1 January 2017.
As per the amended law, a person who does not remain in any other state for one or more than one periods which cumulatively exceed hundred and eighty-three (183) days within the same tax year and which is not taxable resident in any other state for the same tax year is deemed to be resident in Cyprus for that tax year, provided that it meets the following cumulatively:
the individual remains in Cyprus for at least sixty (60) days in the tax year,
carries out any business in Cyprus and/or is employed in Cyprus and/or holds an office (i.e.
being a director) in a tax resident person in Cyprus at any time during the tax year,
the individual has a permanent residence in Cyprus which is owned or rented.
It is further understood that for the purposes of the above reservation, a person who fulfills the above cumulatively, is not considered being a Cyprus tax resident in the tax year, if during that year the exercise of any business and/or the employment and/or its occupying office to a person tax resident in Cyprus, is terminated.
According to the new income tax law amendment, an individual who fulfills the above conditions can transfer its tax residency in Cyprus and be benefited from the special non- domicile tax regime of Cyprus and also apply for a Cyprus tax residency certificate.
Individuals who become tax residents in Cyprus can be benefited from the “non-dom” scheme which allows an individual who becomes tax resident in Cyprus to be tax exempted from defense tax for the next 17 years starting from the year that they become tax residents. Defense tax is the tax that it is imposed on dividend, interest and rental income. Also, for an individual whose employment earnings in Cyprus exceed the €100.000, a 50% tax exemption on his/her employment income is allowed for a period of 10 years.
Intellectual Property – The new Cyprus IP Box
Since 2012 Cyprus has had one of the most beneficial Intellectual Property (IPBox) regimes in the world. On 1 July 2016, new IP legislation came into effect so that it is harmonized with the international developments relating to the tax treatment of IP income and the recommendations of the OECD’s BEPS project.
The old IP regime and the rules of transitioning into the new IP regime
The old IP regime provides for an 80% tax exemption from the net profits arising from IP exploitation. The net IP Profit calculation is derived by deducting from IP income, all the direct expenses associated with the production of such income including capital allowances at a 20% rate. Qualifying assets under the old regime were broadly defined and include copyrights, patents, trademarks, service marks, etc. Qualifying income consisted of royalties and gains derived from the IP disposal.
The old regime is being phased out by 30 June 2021 and it will continue to apply until the phase out date, provided that:
The asset qualified under the old regime before 2 January 2016, or
The asset qualified for the benefits of the current regime and was developed or acquired from a related party between 2 January 2016 and 30 June 2016 and such acquisition was not effected mainly for the avoidance of tax, or
The qualifying asset was acquired from a third party or was self developed between 2 January 2016 and 30 June 2016.
The new IP regime
Under the new IP regime, 80% of qualifying profits generated from qualifying assets are considered to be tax deductible expenses whereas qualifying assets are strictly defined as those which are the result of R&D expenditure and for which the person is the economic owner, excluding any IP relating to marketing. The new IP box regime is based on the “nexus approach” which limits the application of the benefit/tax allowance, if research and development is being outsourced to related parties.
Qualifying profits, eligible for the 80% tax exemption depend on the level of R&D expenditure carried out by the taxpayer to develop the qualifying asset.
Qualifying taxpayers, eligible for the IP regime, include Cyprus tax residents, permanent establishments of non-residents and foreign permanent establishments which are subject to tax in Cyprus.
The qualified profits are calculated on the basis of a formula whereby the Overall Income derived from qualifying assets is multiplied by a fraction. The fraction is calculated by adding the Qualified Expenditure with the Uplift Expenditure and the sum is divided by the Overall Expenditure
Overall Income x (Qualified Expenditure + Uplift Expenditure)/Overall Expenditure
The components of the above formula are explained below:
Overall Income consists of the gross profit from the qualified asset (total income less direct expenditure. The Overall Income normally includes:
Royalties or amounts directly related to the use of the asset
Trading income from the disposal of the qualifying asset
Licensing income from the exploitation of the qualifying asset
Amounts related to the insurance or compensation of the qualifying asset
Embedded income resulting from the sale of goods or services or processes which are directly related to the qualifying asset.
It should be noted that capital gains which arise on the disposal of qualifying assets are not included in qualifying profits and they are fully exempt from income tax.
Qualifying Expenditure is the total of all R&D expenses incurred towards the development or enhancement of the qualifying asset. Such expenses include salaries, direct costs, other general expenses associated with R&D activities, R&D costs outsourced to third parties, etc.
Uplift Expenditure is derived by the lower of (a) 30% of the qualifying expenditure and (b) the total acquisition cost of the qualifying asset plus any R&D outsourced to related parties.
Overall Expenditure consists of the qualifying expenditure plus the total acquisition cost of the qualifying asset, plus any R&D costs outsourced to related parties.
It should be noted that under the new regime, all intangible assets are entitled to tax deductible capital allowances over their useful economic lives with a maximum useful life of 20 years.