Article published in Legal Gazette No. 185 (3323 W[2]) dated 24 September 2012
The island, although somewhat lost, will remain an important element in optimization mechanisms. Tax collectors will certainly pay attention to the UAE with which Poland has a double taxation agreement. The ratification of the Protocol amending the double taxation agreement with Cyprus is coming to an end.
As a result, the most widespread methods of international tax optimization in recent years will not be possible. Untaxed both in Poland and Cyprus, the remuneration of directors of Cypriot companies and dividends paid by them (taxed at the level of 9% through the use of a fictitious deduction of the Cypriot tax) they go to the lamus.
Island still attractive
Changes will almost certainly enter into force 1 January 2013 At the same time, Cyprus' internal legislation will retain a number of regulations that would be in vain to seek in other EU countries: unconditional exemption from the taxation of gains on securities, the absence of a withholding tax on transfers to offshore jurisdictions or the lack of taxation on Cypriot income tax on non-resident salaries, and the possibility of reducing the tax burden on real estate transactions even to zero.
This, as well as many other benefits of Cypriot law in conjunction with access to European directives, makes it impossible to expect a capital outflow from Cyprus. Especially as another jurisdiction can be used for tax-neutral return of capital to Poland.
A favourable agreement with the UAE
Companies registered in the UAE are free of charge both in terms of income taxes and turnover taxes. At the same time, the UAE has a very favourable agreement to avoid double taxation with Poland. In accordance with the provisions Article 19 Agreements with the UAE of remuneration and other similar claims which a person residing in Poland receives from a board of directors, supervisory board or other similar body of a company established in the UAE may be taxed in the United Emirates.
Under regulation Article 24(1) (a) contracts in the case of a person residing in Poland, where that person achieves income or holds assets which, in accordance with the provisions of the double taxation agreement, can be taxed in the UAE, Poland will exempt such income or assets from taxation, while in calculating the amount of tax on the remaining income or assets of that person, it may apply a rate which would have been applied if the tax exempt income in this way had not been so exempt from taxation (the so-called ‘progression exemption method’).
In the light of these regulations, as a result of the law of the UAE, Poland must exempt from taxation the income of directors of companies established in that country who are Polish tax residents. For this legal qualification, it does not matter whether the UAE benefits from the right to tax directors' salaries or not.
As a result, the income of directors of companies established in the UAE, who are Polish tax residents, is not effectively taxed either in Poland or in the UAE. The UAE authorities, despite the right to tax this category of income, do not benefit from this possibility.
Valid seat
Special attention should be paid to the fact that the aforementioned provisions of the double taxation agreement with the UAE use the concept of ‘company headquarters’ rather than ‘company tax residence’. UAE legislation provides for the existence of two the category of companies. first These are onshore companies with tax resident status in the UAE. Onshore companies benefit from the tax exemption for all their income, which does not alter the fact that they are formally taxed in the UAE.
second the category of companies in the UAE are offshore companies with the status of international companies. They are recorded in free trade zones located in individual emirates such as Dubai or Ras Al Khaimah. Although established in the UAE, they are considered non-tax residents and the income generated by them is not taxable. The offshore companies can be carried out in an ‘extra-territorial’ manner, not only without any tax burden, but also other restrictions provided for in the UAE's internal law.
The only form of public-law burden is the annual government fee of several hundred euros. Information on companies registered in the UAE free trade zones is not publicly available, which means that there is no effective exchange of tax information with other countries.
The UAE legislation does not provide for minimum capital requirements for its companies, nor does it require the legalisation of corporate documents from other countries when used in the UAE.
There are also no restrictions on the nationality and tax residence of shareholders and members of the board of directors of local companies, and it is important to bear in mind that the majority of local directors must be kept in mind in order to protect the company from the charge of tax residence in Poland due to the place of its management.
The director may also be a legal person. The directors and shareholders of the companies are not publicly available, and they must be disclosed to the competent authorities which register the company.
International companies established in the UAE may not operate with entities established or domiciled in the UAE, for which an appropriate licence is required, necessary for the incorporation of onshore companies.
Positive interpretations
The condition for the creation of an onshore company is to obtain a license to operate a given type of business in the territory of the UAE. Onshore must also hold an account with a bank located in the UAE and have a valid lease agreement for office space. Onshore companies are granted tax residence certificates.
one the conditions for obtaining the certificate are attached to the application for its issue of the audit report of the company. Both offshore and onshore companies are exempted from the requirements of accounting and financial reporting, which is, however, necessary when applying for a tax residence certificate.
No provision of the double taxation agreement with the UAE requires a tax residence certificate of the company paying the directors' remuneration. The place of establishment of the company confirms the certificate of its incorporation issued by the competent authority of the emirate concerned.
Thus, the fact that a company paying the remuneration of a director who is a Polish tax resident is registered in the free trade zone of Dubai or Ras Al Khaimah should not be of any importance to the application of the provisions of the agreement with the UAE.
The free trade zones of individual emirates are part of the territory of the UAE and the lack of legal capacity for companies to obtain a registered tax residence certificate there should have no effect on the undisputed fact that these companies are established in the territory of the UAE.
In this respect, the tax authorities' interpretation line is of uniform benefit to taxpayers. Director of the Tax Chamber in Łódź in interpretation dated 9 July 2012 (reference no.
IPTPB2/415-298/12-2/TS) considers that ‘if the applicant does not obtain other income taxed on a general basis in addition to the income obtained in the performance of his/her duties as a member of the board of directors of a company established in the United Arab Emirates, the above income will only be taxed in that country and the applicant will not be required to settle revenue in Poland and submit an annual tax return’.
The same position was also taken by the Director of the Tax Chamber in Katowice in the interpretation dated 7 March 2012 (reference no. IBPBII/1/415-1017/11/AA ), and Director of the Tax Chamber in Warsaw in interpretation dated 7 January 2011 (reference no.
IPPB2/415-853/10-2/AK ), in which the tax authority fully shared the taxpayer's view that "the remuneration and other claims earned by the applicant for the duties of director (member of Boards of Directors) of a company based in the United Arab Emirates, while obtaining other income taxable income tax in Poland, will be taxed only in the United Arab Emirates".
What to consider
Companies in the UAE may in themselves constitute an attractive vehicle to optimise tax burden, with the use of which must take into account several factors, in particular the issue of the so-called withholding tax and the certificate of tax residence. In case of payment to a foreign counterparty (e.g.
established in the UAE) for the services it has provided, and in the case of payments from other legal titles, as regulated Article 21(1) The CIT Act, the taxpayer is obliged to collect a flat-rate income tax (so-called withholding tax). This tax for most intangible services is 20%
Failure to collect this tax depends on whether the taxable person paying these claims is in possession of the tax residence certificate of his foreign counterparty. Under regulation Article 26(1) CIT Act legal persons and organisational units not having legal personality and natural persons who are traders who pay claims from the titles listed under Article 21(1) and under Article 22(1) The CIT Act is obliged, as payers, to collect on the date of payment, a flat-rate income tax on these payments.
However, the application of the tax rate resulting from the relevant double taxation agreement or the non-collection of the tax in accordance with that agreement is possible provided that the place of residence of the taxable person is documented for tax purposes by the residence certificate obtained from him.
Under a double taxation agreement with the UAE, profits of companies are taxed in the country of residence of the company. However, in order for this rule to apply, the Polish taxpayer making payments to a company in the UAE must be in possession of the residence certificate of its counterparty.
Since international companies registered in the UAE cannot obtain a tax residence certificate, direct payment to them from Poland would be charged for services 20-percent tax at source.
Of course, onshore would be free from these restrictions, as would the Cypriot company, acting as an intermediary in payments between Polish and offshore companies in the UAE. The Cypriot Company will obtain from its competent authority a certificate of tax residence (which will be important from the Polish perspective), while allowing tax-neutral payment to a nonresident company in its country of residence, i.e. the UAE.
In view of the above elements of the "legislative offer" of Cyprus and the UAE, it is expected that after the entry into force of the new tax advantages, the regulation of the Polish-Cyprus Agreement will increase the number of companies in the UAE based on Polish capital, and not necessarily the decrease in the number of Cypriot companies, which in many respects will remain irreplaceable.
Important
The Polish tax authorities will not have real opportunities to obtain information about the identity of the entity hidden behind the trust structure of the company. The income of directors of companies established in the UAE, who are Polish tax residents, is not effectively taxed either in Poland or in the UAE. The United Arab Emirates (UAE) are among the few countries in the world that, due to their wealth, give up tax collection. International companies operating in the UAE are not subject to taxation.
Discretion assured
one of the most important elements of the UAE's "legislative offer" addressed to the business world is the existence of a trust institution that allows the real beneficiaries of the company to hide behind the person of the trustee.
Thanks to such a solution, companies belonging to the same person in the UAE and in Cyprus (and sometimes other entities in Poland and other EU countries) will not be treated as related entities. The actual beneficiary is not, in a formal sense, a formal shareholder of the company, but retains economic power over these rights.
The trustee cannot act otherwise than on the basis of written instructions from his authority. As a result, the use of trust structures will not be subject to legal tax restrictions on transfer pricing, which could be a source of tax risk for the companies and their beneficiaries.
The Polish tax authorities will not have real opportunities to obtain information about the identity of the entity hidden behind the trust structure of the company.
The trust institution is legally protected by the State, both in Cyprus and in the UAE, by providing any information on the actual beneficiaries of local companies to the authorities of other States, unless it is carried out on the basis of a final judgment of the local court, infringes national law there.