Structure considerations and tax incentive schemes
Following a lifetime of generating income, a high net worth individual may encounter various impediments, problems and obstacles when attempting to establish and ensure the continuity of their legacy. These issues may manifest in the form of estate taxes, laws, family issues, business issues and unfavorable succession terms among others.
The solution to the above referenced complex issues typically manifests in the establishment of a Family Office and ensures that the current wealth is increased, its transfer across generations is peacefully assured and any private needs of the family are catered to; however in the context of the above stated, a question springs up as to what exactly constitutes a Family Office ?
What is a Family Office?
The family office represents a largely untouched concept with its roots dating back to the early 18th century when such entities were established for the purposes of management and development of the considerable fortunes amassed by entrepreneurs and aristocrats. Contemporarily, a family established Family Office takes the form of a legal entity, whether it is a private company or foundation, with its main goal being the management financial assets and assist the family in generating more wealth. In this context the Family Office undertakes the functionality of a top tier private bank or investment firms albeit focusing primarily on the needs of a single family whilst reflecting the characteristics, ethos and values of the family in question.
Furthermore, as one of the most flexible types of legal entities, the functionality of the Family Office can be expanded in order to provide services relating to the private needs of the family, charitable initiatives and lifestyle choices. This flexibility however is co-related primarily on and forms a symbiotic relationship with the composition of the professionals within the family office.
What are the fundaments of the Family Office?
Each family is different and unique, with its own backstory of success and the same is true for each individual comprising the Family. First and foremost a family office ought to be reflective of the Family’s values, as this will both be the crucial moral compass under which the staff will operate and also the formal structure under which the legacy, core values and goals will be projected. The Family office at its core should be construed by carefully selected professionals which are capable of rendering services in a diligent manner without regard to the level of pressure they are under.
Furthermore, due to the potential diverse financial, personal and lifestyle interests of the Family the provision of comprehensive, multi-discipline high caliber services for wealthy families will require the co-ordination, planning, research and co-operation by an extensive team comprised typically of representatives of the legal, insurance, investment, estate, business and tax disciplines among others.
What services can the Family Office provide?
Financial Asset Management and Increase
The primary purpose behind the establishment of a Family Office is to first and foremost act as an income generating hub. The Family Office is established and dedicated primarily for the management and development of the Family’s financial assets. An assembled team of professionals will undertake the identification, acquisition, management and capitalization of financial investment opportunities whilst minimizing potential risk factors in order to generate wealth on behalf of the Family.
Due to the flexibility of the Family Office in terms of personnel, the professional advisers and consultants will be responsible for the management of the investment portfolio of the Family, undertake commercial or private property purchases, management and sales, private equity deals, tax planning, capital investments and others in order to generate income for the family for generations to come.
In specific, the Family Office can and will render the services in this category with the following elements in mind:
Management of the Economic and Compliance risks for the Family.
Promotion of the legacy, core values and target goals of the Family.
Capitalization and exponential growth of the Wealth of the Family.
To identify investment opportunities and minimization of expenditure of the Family.
The maintenance of confidentiality and the privacy of the affairs and business of the Family.
The provision of structural certainty and a cohesive system in place.
Management of Lifestyle
A successful and high value family may find itself at a crossroads with respect to the sheer amount of tasks required to enable and maintain their preferred choice of lifestyle in a discreet and confidential manner. Consequently, the family office can serve as a central nervous system for families handling their personal affairs, providing for their needs and addressing any potential issue so as to enable the family to enjoy their life and wealth.
These needs can range from holiday arrangements to school enrolment and from the systematic arrangement of continuous grocery supply to the purchase of private airplanes and yachts. As these services are diverse, expansive and may involve the conduct of background checks the family office can further arrange for the provision of security for the home or private property, management of household personnel, day to day accounting, and travel as well as organization of commercial, charitable or celebratory. In short, the Family’s wish represent the Family’s Office command, which will be executed to the satisfaction of the Client.
Education and Training of the Future Generations
One of the more nuanced aspects of the family office is the education and subsequent integration of young family members into the business operations of the family. Through a gradual and sensitive procedure, young members of the family can be introduced to the complex aspects of the real world via various actions such as integrating the young members in a working environment via internships, placements and training.
This method allows for the young members to become familiar with the intricacies of the family’s business, develop a work ethic, understand the complexity of human relations in a pressured environment as well as develop the necessary socialization, motivation and critical thinking required to enable the family to exist in continuity.
Legacy and Succession
Following a lifetime of generating income, a high value family may encounter various impediments, problems and obstacles when attempting to develop and establish their legacy and successors not unlike the various noble houses of Europe. These issues may manifest in the form of estate taxes, laws, family issues, business issues and unfavorable succession terms among others.
Given the complexity of the above elements, the utilization of a family office will ensure that the wealth transfer is handled comprehensively and will ensure, via coordinated actions and advanced planning that the management of business, the maintenance of the trusts, support for charitable organizations, financial assurance for the family and the transfer of business interests will occur in a fast and comprehensive manner according to the wishes of the family.
Why Cyprus ?
The republic of Cyprus is steadily developing toward becoming an economic powerhouse in the European Union due to the advantages of its legal system, unique geographical positions and international body memberships. Having become one of the most popular places in Europe for the conduct of business, the Republic offers simple common law based corporate legislation, a stable tax system which reflects the low rates thereof and favorable taxation legislation.
As a former colony of the British Empire, the Republic’s legislative system with respect to private law, trusts and equity is likewise the most similar to that of the United Kingdom. Furthermore, its legislative system is attuned to the that of the European Union, of which Cyprus is also a member and enjoys the benefits associated thereof.
As an illustrative example its worthy to note that in 2012 the assets under management in the Republic were estimated at EUR 2.1 Billion whilst in 2019 the figure grew EUR 7.7 Billion and by 2025 this figure is expect to grow to over EUR 20 Billion.
Consequently, the establishment of a family office and headquartering it in the Republic of Cyprus will allow the family to retain a high degree of benefits and advantages, including but not limited to:
Financial, Business and Taxation Benefits:
One of the lowest corporate tax rates in Europe, at only just 12.5 % of the income of the Company.
No taxes are extracted from the distribution or receipt of dividends by the Company.
No taxes are extracted from the payment of interest and patent rights.
Capital Gains taxes are imposed solely on the disposition of real estate property situated in Cyprus and on shares of a private company which owns real estate property situated in Cyprus.
No taxes are extracted from the sale or disposition of securities, bonds and shares.
Cyprus allows for tax losses to be transferable over a period of next 5 calendar years.
No taxes are extracted from the profits obtained by a company outside Cyprus.
Corporate mergers or re-organizations are not susceptible to taxation.
No contributions regarding social security are extracted from the shareholder of a Cyprus company.
80% of the income generated by a Cyprus company operating in activities relating to or deriving from Intellectual Property will not be taxed resulting in only 20% of the income being susceptible to the 12.5 % taxation rate.
Cyprus has executed over 60 double taxation treaties with other countries such as the United States, United Kingdom among others.
One of the lowest VAT rates in Europe valued at maximum 19%.
Purchase of a private immovable property with a value of at least EUR 300,000.00 (Three Hundred Thousand Euro) and are receiving stable annual income on a regular basis allows the purchaser to apply and obtain a permanent residency permit.
Following 7 years of legal residence, the holder of the residency permit is entitled to apply and receive a Cypriot passport.
Registration of a Company in Cyprus creates an entitlement for the owner and his immediate family to obtain a long term visa and work permit for two years in Cyprus. This visa can be continuously extended.
Foreign investors are not restricted in any manner with regard to the business they choose to invest in and are free to do the same with the exception of businesses which require a license to operate such as an Electronic Money Institution or a Gambling business.
The workforce in Cyprus is among the highest educated workforces in Europe with over 40% of the working population holding a degree of higher education.
The banking system is secure and no restrictions are imposed on foreign cash circulations.
The majority of the population are capable of speaking at least two languages, with English being one of them, whilst the diverse and cosmopolitan make up of Cyprus provides a high diversity of internationals and ex-pats as 20% of the Cyprus population are made up of the same.
The Republic of Cyprus likewise provides a safe and secure environment for its residents, with one of the lowest crime rates and coupled with having one of the highest standards of living in Europe, the Republic is one of the safest country in the world to live and work in.
The Warm Climate and the presence of Mountains on the Island create a positive leisure environment fit for all the seasonal holidays.
A great diversity and choice of schooling institutions with Greek, English, Russian and French schools being present on the territory of Cyprus and teaching the respective curriculum in accordance with the same standard in their country of origin.
How can we help?Here at AApartners we pride ourselves on our ability to delivery a comprehensive selection of services, in a timely and cost efficient manner. Our mission is to provide the same quality of services as the larger corporations whilst retaining a level of sensibility in our pricing approach.Our international, diverse and multidisciplinary educated team is capable of providing any of the following services in time-sensitive, discreet and precise manner:
Incorporation and Administration of Companies of any type in Cyprus and in any other jurisdiction as per the Family Office requests.
Provision of a tax structure and consultations.
Corporate, regulatory and compliance consultations and advisory.
Dispute Resolution Settlement.
Legal representation and services.
Personal and Financial migration services.
Solutions for income, tax and corporate obligations and optimization.
Staff and Personnel identification, recruitment and background checks.
Provision of Nominee Services for Companies, Trust Deeds and other Corporate Elements.
Advising, Applying and Obtaining any type of license or permit required for business operations.
Identification, Assessment and Purchase of Private Property, Immovable Property, Securities and Commercial Enterprises.
Accounting, Payroll, Bookkeeping, Assurance and Audit services.
Corporate, Financing and Transactional advisory services.
Philanthropic consultations and advisory services.
Research and Evaluation services.
Investment and Investment Consulting services.
Trust Development and Succession planning services.
Banking and associated services.
Drafting, Compilation and Development of documents ranging from Legal Opinions to Policies to Business Plans to Articles.