Cyprus is situated in the north-eastern Mediterranean at the crossroad of three continents linking Europe, Africa and Asia.
Cyprus has developed into an ideal place for the establishment of international companies. It is popular for its international tax planning because of its beneficial tax regime and its extensive network of double tax treaties. In particular, Cyprus has become a successful business centre for the following reasons:
- Favorable corporate tax system.
- Wide network of double tax treaties.
- Low set up and operating costs.
- Well-educated, experienced and flexible workforce.
- Political respectability.
- One of the most favorable holding company jurisdictions in Europe.
- Advantageous tax system for pensioners and expatriates.
- World class professional services.
- High standard of commercial banking following British model with more than 40 Cypriot and International Banks operating in the Island.
Formation of Companies
Through our skills and expertise we can provide comprehensive advice and recommend what entity should be formed in each case. Together with our qualified associates we can help on the formation of companies, partnerships and trusts, and offer valuable assistance on the issues of copyright, patents and trade names. Well known types of Cypriot companies include:
- Holding company: Its most important advantage is that dividends paid by a foreign company to a Cyprus resident company are tax free, provided the direct holding is at least 1% of the share capital of the foreign company. The exemption only applies if the paying company’s revenue derived directly or indirectly from investment activities does not exceed 50% of the total revenue, and the corporation tax rate of the paying company is not substantially lower than the Cyprus Company’s tax rate (5%). Outward dividends by the Cyprus Holding company to its non-resident shareholders are exempt from any withholding taxes.
- Finance company: undertaking a group financing function, a Cypriot company can receive interest income suffering no or little withholding tax at source. The net profits would be taxable at 10%.
- Trading company: can be used in cases where the Company is engaged in international trading, the goods do not have to be transported from the supplier to the customer through Cyprus. Instead, the goods may be transported directly from the supplier to the customer whilst purchases/sales invoices will be raised to/from the Cyprus International Business Company and duties will be transacted via bank accounts belonging to the Cyprus International Business Company held in Cyprus and/or outside Cyprus.
- Intellectual property holding company: royalty income can be derived suffering no or little withholding tax at source.
- Shipping company: a Cyprus shipping company which owns ships under the Cyprus flag and operates in international waters pays no tax on its profits or dividends. Also, there is no tax on the salaries of officers and crew of such ships. Ship management and crew management companies can opt to be taxed either at 4.25% or at rates equal to 25% of the tonnage tax rate of the foreign ships under management and registration abroad. Dividends derived directly or indirectly from profits from the exploitation of a ship under the Cypriot flag or from the rendering of ship management services are not subject to special contribution to the defense fund.
Cyprus International Trusts
Cyprus International Trusts are governed by the International Trusts Law of Cyprus. International Trusts are not taxed in Cyprus and as such, Cyprus International Trusts enjoy significant tax advantages, providing major tax planning opportunities. For a trust to be classified as an International Trust its property must be located and income must be derived from outside of Cyprus. Trusts are usually used by wealthy individuals in order to protect their estate from inheritance or capital gains taxes in their home country. They can also be used by expatriates settling into a trust before repatriating assets acquired while working abroad, to protect such assets from the tax net of their home country.
