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January 2016

Globalization made international capital boundaries disappear. Market size has become more important than the size of countries.

Regions such as South East Europe with large number of smaller countries have attracted many foreign investors. When choosing a jurisdiction where to set up an entity for your business many elements should be considered but one of the most important is taxation. Bulgaria, Montenegro and Cyprus are three the most attractive investment destinations within SEE Region.

1.Company registration 

Montenegro and Bulgaria: Private Limited Liability companies characteristics

•Minimal share capital is 1 euro

•Managing Director can be resident or nonresident person

•Timeline for company registration after submission of all documents to the Registry is one week

•A company is not required to have its own office premises. From a compliance point of view at least a rental agreement is necessary

•Companies founded by nonresidents are in equal position as any other company with local shareholders.

Per legislative of both countries, statutory information that is needed in order to incorporate Company is following:

•Nаme of the company;

•Seat аnd registered аddress;

•Cаpitаl;

•Shаreholders;

•Ownership of the shаres;

•Representаtives аnd wаy of representаtion (for exаmple jointly or sepаrаtely by eаch of the representаtives in cаse of more thаn one);

•Term for which the entity is incorporаted – in cаse of such;

•Scope of аctivity.

Cyprus: Private Limited Liability companies characteristics

•There is no minimal share capital

•Minimum 1 Director must be appointed and can be resident or nonresident physical or legal person

•Minimum 1 Shareholder must be appointed and can be resident or nonresident physical or legal person

•Timeline for company registration after submission of all documents to the Registry is one to two weeks

•A company is not required to have its own office premises.

•Companies founded by nonresidents are in equal position as any other company with local shareholders.

Information required to register a Cyprus company:

•Company name;

•Objects of the company;

•Share capital;

•Shareholders;

•Articles of association;

•Directors;

•Company secretary

•Registered office address.

If anonymity is desired, then a nominee can be appointed for the positions of shareholder, secretary and director, in which case a person can hold the shares on behalf of the beneficial owner and direct the company based on their wishes. The identity of the beneficial owners is not known and information about their names are kept in confidence if desired.

2.Taxation 

Corporate Income Tax:

Montenegrin CIT rate is 9% while CIT rate in Bulgaria is 10% and in Cyprus 12, 5% on the net profits of a company.

In Cyprus, all expenses incurred for the earning of income (i.e. deprecia¬tion, allowances) is deducted from the gross income while per Montenegrin regulation, tax recognized depreciation is defined by the legislation (assets are structured in 5 groups with depreciation rates from 5% to 30% in line with life of usage). Allowances are recognized in amount of up to 1% of annual turnover. In Bulgaria for depreciable assets for tax purposes are considered those depreciable assets whose value is equal to or greater than 700 BGN or other lower value threshold set by the enterprise. All Bulgarian legal entities are required to keep a tax depreciation schedule, which contains information for depreciable assets, the cumulative tax depreciation recognized for tax purposes, tax depreciation during the year, etc. Assets are structured in 7 groups with depreciation rates from 4 % to 33,33 % in line with life of usage.

Loss carried forward period is 5 years in all three countries.

Withholding Taxes:

Withholding tax in Montenegro is 9% on all taxes.

Bulgarian WHT rates are the following:

– Dividends0% – 5%

– Interest5% to 10%

– Royalties5% to 10%

Withholding Tax in Cyprus for payments abroad are:

– Dividends                  0%

– Interest                      0%

– Royalties                   0%

3.Value Added Tax (VAT) 

In Cyprus the normal VAT rate is 19%, however 9% VAT is charged on holiday accommodation, public transportation and restaurants and 5% VAT is charged for convenience products or services such as water cinemas, newspapers, food, pharmaceutical, etc.

In Bulgaria VAT is levied on the sale of goods and the provision of services. The standard rate is 20%, with a reduced rate of 9% applying to hotel accommodation services. Exports and intercommunity supplies are zero-rated.

Montenegrin VAT rates are 19% for standard rate, and 7% for reduced rates.

4.Conclusion:

Thus, all three countries are intensively present on the international markets with main intention of attracting as many as possible big investors to their jurisdictions.

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