Arbitrage is finding the opportunity to buy a distressed business at a less than market value and in more complex terms Arbitrage is the purchase and sale of an asset in order to profit from a difference in the asset’s price between markets. It is a trade where someone can generate profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms.
The Arbitrage Opportunity leading to MERGERS AND ACQUISITIONS
After COVID hit the world in end of 2019 beginning of 2020 our daily life has turned upside down – in economic terms that means uncertainty.
Definitely no one can argue that in such difficult times some may benefit and some others may take the “easy way out”. For most of those “easy way out” means Selling their business and possibly moving to the next one while they still can or even part of the business to the right buyer of course.
When an Investor spots an Arbitrage there is only one way to go about it!
Via a Cyprus Holding Company
Cyprus adopted the European Union Mergers Directive which allows the companies to engage into an approved reorganization scheme.
There are different ways in re-organizing a Cyprus structure and therefore obtaining tax benefits. While the tax burden of a re-organization is an important part Investors should always understand and decide what is they are going after. For example, is it the whole business or just part of it or even just transferring out some of its assets.
The bottom line is that we are going to advise our clients having in mind of all the above and what works for them at the end of the day.
Exempted Tax Liabilities
Under an approved reorganization scheme the companies can obtain tax benefits which otherwise they would not – these are to be exempted from the following tax liabilities:
- Income Tax
- Special Defence Contribution
- Capital Gains Tax
- Value added Tax
- Land Transfer Fees
- Χαρτοσήμου
Approved Reorganizations schemes by the Tax Department in Cyprus include the following:
- Merger
- Division
- Partial division
- Transfer of assets
- Exchange of shares
- Transfer of registered office
Under an approved reorganization scheme the companies can obtain tax benefits which otherwise they would not – these are to be exempted from the following tax liabilities:
Approved Reorganizations schemes by the Tax Department in Cyprus include the following:
Merger means an act by which:
one or more companies, upon dissolution without going into liquidation, transfers all its assets and liabilities to another pre-existing company against a compensation to the previous shareholders such as; shares in the capital of the other company and, where appropriate, against payment of cash which does not exceed ten per cent (10%) of the nominal value of the shares or, in the absence of a nominal value, the book value of those shares,
two or more companies transfer, upon dissolution without going into liquidation, the whole of their assets and liabilities, to a newly established company, against a compensation to the previous shareholders such as; shares in the capital of the new established company and, where appropriate, against payment of cash which does not exceed ten percent (10%) of the nominal value of the shares or, in the absence of a nominal value, the book value of those shares,
a company, upon its dissolution, without going into liquidation, transfers all its assets and liabilities, to the company which holds the 100% of its share capital (its parent Company).
Division
An act by which a company, upon its dissolution without going into liquidation, transfers all its assets and liabilities to two or more pre-existing or new companies, in proportion to the percentages held by its shareholders, shares in the capital of the receiving companies and, where appropriate, against payment of cash which does not exceed ten per cent (10%) of the nominal value of the shares or, in the absence of the nominal value of the book value of those shares.
Partial Division
Means an act by which a company, without being dissolved, transfers one or more of its activities in one or more pre-existing or new companies, leaving at least one activity to the transferring company, in proportion to the percentages held by the shareholders of the companies which receive the assets and liabilities and, where appropriate, against payment of cash which does not exceed ten percent (10%) of the nominal value of the bookkeeping/accounting value of these shares.
Transfer of assets
Means an act by which a company, without dissolution transfers the whole or one or more of its activities to another company in exchange of shares in the capital of the receiving company;
Exchange of shares
Means the act by which a company acquires shares in the capital of another company at a percentage which gives it the majority of the voting rights of that company or, having acquired such a majority holding, acquires a further participation, in return for an allocation of shares to the shareholders of that second company, in exchange for their shares in the capital of the first company and, where appropriate, against payment of an amount of cash which does not exceed ten per cent (10%) of the nominal value of the shares or, in the absence of a nominal value, the book value of those shares.
Transfer of registered office
A company that is incorporated in a member state without being dissolved transfers its registered office form one member state to another.
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