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Why and how to liquidate your foreign company in the British Virgin Islands and Cyprus?

After the entry into force of the CFC rules in 2022, it will be impossible to hide a foreign company from the tax authorities, but the owners still have time until the end of 2021 to prepare for the strict changes of Ukrainian tax legislation and to acquire ownership of their companies’ assets without paying personal income tax.

Given the extreme relevance of the topic, on February 17, GOLAW law firm joined with the global offshore law firm HARNEYS and held a webinar on “Why and how to liquidate your foreign company in the BVI and Cyprus?”.

Speakers: Max Lebedev – Partner at GOLAW; Taras Lytovchenko – Counsel at GOLAW; George Apostolou – Partner at Harneys (Cyprus); Kerry Graziola – Director of Fiduciary & Custodial at Harneys (British Virgin Islands).

For those who are wondering how to proceed and whether to keep a foreign company in good standing, especially if it has ceased to perform its functions in business, the Ukrainian legislator has established rules on the so-called “tax-free liquidation”.

Taras discussed the conditions of application of the provisions on tax-free liquidation. Before commencing the liquidation, he recommended to adjust (and in cases where it is completely absent – to prepare) accounting documentation and ensure that the financial statements of the foreign company comply with IFRS, as well as stressed on the importance of properly drafting and keeping of all the documents issued in the process of liquidation, for their possible filing in the future to the tax authorities in Ukraine.

George Apostolou (Partner with Harneys Cyprus) and Kerry Graziola (Director with Harneys BVI) described all liquidation procedures available in Cyprus and the British Virgin Islands, with particular emphasis on: initiating the procedure of voluntary liquidation for both an insolvent and a solvent company, the procedure for validly appointing a liquidator whilst also drawing attention to common mistakes made by business owners such as appointing the liquidator prior to formally commencing the liquidation process,  rendering the company insolvent by removing assets and then trying to pursue a voluntary solvent liquidation, omitting to commence liquidation within the statutory timeframe thereby rendering the process an insolvent liquidation one and thus granting creditors control over the winding up process, distributing of dividends instead of distribution of the liquidation assets / estate, etc. Also, the speakers briefly discussed the available methods for strike-off (simplified procedure of company dissolution). They also explained that such a procedure in most jurisdictions will not qualify as liquidation for the purposes of applying the provisions of tax-free liquidation in Ukraine while also containing of significant pitfalls (and potential costs) for both the officers and the contributories of the company as opposed to a voluntary liquidation process.

Finally, George and Kerry drew attention to the need to assess the role and purpose of foreign companies in a structure as soon as possible, on the basis to decide whether to liquidate or keep such companies and also explained that in jurisdictions such as Cyprus, a liquidation may take significantly longer than in the BVI and, therefore, the earlier the decision to wind up is made, the better it is in order to meet the relatively narrow Ukrainian statutory tax-free timeframes.

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