Advantages of Cyprus

There are currently a great number of international business entities registered and operating out of Cyprus.  A significant number of there international business entities have fully fledged off shore offices in Cyprus.

The growth of the use of Cyprus in international tax planning indicates the existence of clear advantages that attract both business entities and foreign private individuals.

Tax advantages

The use of a Cyprus entity in International tax planning can mitigate or eliminate completely the overall tax liability arising from an international activity. Specifically, proper structuring of a Cyprus entity in an international tax plan can:

  • Reduce the tax burden in the country where the income is earned
  • Reduce the withholding tax on getting the money earned out of the country where the income is earned
  • Reduce or defer the tax burden of the ultimate shareholder of the tax planning structure
  • Reduce the overall tax burden of an international activity increasing in this way the overall return on investment of the project.

The Cyprus fiscal legislation offers a number of incentives that give rise to these advantages.  The incentives include:

  • Introduction of the concept of tax Resident and Non-Resident companies
  • Taxation of worldwide income for tax Residents and Cyprus sourced income for non-Residents
  • Lowest corporate tax rate in the Europe union of 10%
  • Tax-exempt business profits of Non-Resident companies
  • Tax-exempt gains on the trading and disposal of securities
  • Tax-exempt gains on the disposal of subsidiaries
  • Tax-exempt dividend income (subject to applicable criteria)
  • Tax-neutral group reorganisations
  • Tax-relief for group losses
  • Full adoption of the EU Parent-Subsidiary Directive
  • Full adoption of the EU Mergers Directive
  • Full adoption of the EU Directive on Mutual Assistance and Cooperation
  • Full adoption of the EU Royalty and Interest Directive

The wide network of double tax treaties of Cyprus offers numerous opportunities for sophisticated tax planning structures.

Non-Tax advantages

The non-tax advantages of Cyprus offer the infrastructure for doing business internationally, of the highest professional standards, with significantly lower operating costs. The time zone of Cyprus allows an investor to operate via Cyprus their subsidiary in the East in the morning and report back to head-offices in the West in the afternoon.

The non-tax advantages include:

  • Advantageous geographical location and time zone
  • English as a business language
  • Pleasant climate
  • European standard of living
  • Comparatively lower set-up and maintenance costs of international business entities
  • Highly developed and efficient accounting, legal and banking sectors
  • Strict confidentiality with the local authorities and the banks
  • Excellent transport and telecommunication facilities
  • Exemption from foreign exchange control

  • Possibility for acquisition of immovable property

A. Tax incentives for international business entities

  • A Cyprus international business company is subject to tax at the rate of 4.25% on its profits regardless of where the management and control of the company is exercised.
  • A Cyprus international branch is subject to tax at the rate of 4.25% on its profits if managed and controlled in Cyprus. If management and control is outside Cyprus the international business branch is exempt from tax.
  • International business partnerships as an entity as well as its partners are totally exempt from tax.
  • Ship owning companies with ships flying the Cyprus flag and operating in international waters are totally exempt.
  • International trusts are totally tax exempt.

  • All international business and shipping entities are not subject to any capital gains tax, except on the profit of the disposal of immovable property in Cyprus.

B. Tax incentives for foreign employees of international business entities

  • Foreign employees of international business entities, who are employed outside Cyprus and paid through Cyprus, are totally exempt from tax. If they are not paid through Cyprus they are liable to income tax at reduced rates varying from 0 to 4 percent, which are equal to one-tenth of the normal tax rates.
  • Foreign employees of international business entities, who are employed in Cyprus, are liable to income tax at reduced rates varying from 0 to 20 percent, which are equal to one-half of the normal tax rates.

  • If an employee works both in and outside Cyprus and the salary is paid in Cyprus, then the part of the salary attributable to the time spent outside Cyprus is exempt from tax. The part of the salary attributable to the time spent in Cyprus is taxed at half the normal tax rates.

C. Tax incentives for both international business entities and foreign employees

  • Wide network of double tax treaties
  • Full exemption from capital gains tax, except on sale of immovable property situated in Cyprus.
  • Full exemption from local social insurance schemes in respect of foreign employees.
  • Full exemption from special contribution for the defence of Cyprus.
  • Full exemption from income tax on income derived by way of interest on foreign capital imported into Cyprus and deposited with any bank operating in the island.
  • Entitlement to duty-free concessions

 

  • Cyprus Tax Planning