CYPRUS

The Republic of Cyprus lies in the Mediterranean where 602 thousand people, who speak Cypriot Greek, or Turkish or Greek, inhabit its area of 5,896 square kilometers.
The capital Nicosia has 186,000 inhabitants.  

The currency is called the Cypriot pound. Cyprus is divided into two parts: the Republic of Cyprus and the North Cyprus Turkish Republic, recognized only by Turkey.

 

Legal form of tax-preferred company

There can be considered to be two primary forms of Cypriot companies:
1. Resident companies pay 10% corporate tax in Cyprus and benefit from treaties limiting double taxation in effect with nearly 40 countries (including the Czech Republic and all of Eastern Europe).
2. Non-resident companies pay 0% corporate tax (but do not claim treaty benefits).

Founding Procedure

Through a licensed company manager or a Cyprus Bar admitted attorney at law, a company files Articles of Association and its Deed of Foundation, stating its registered office in Cyprus and local registration agent. The company must also submit a list of directors and shareholders. The Central Bank of Cyprus (CBC) requires bank references for the beneficial owners, but the information is kept confidential. The Registrar of Companies maintains the data on directors, shareholders and registered office. Companies are usually established within 2 to 4 days.

Directors and shareholders

Cypriot companies may have a minimum of one director and one shareholder. In order to take advantage of the double taxation treaties, it is strongly recommended that at least one director is a Cypriot natural or legal person. Shareholders can be individuals or companies, and need not be residents of Cyprus. Bearer shares are not used in Cyprus, though the ownership form of foreign companies acting as directors or shareholders is not restricted.

Registered Capital and Taxes

Companies that are tax residents of Cyprus (registered after 2001) are subject to a 10% corporate tax rate. A company must be considered to be tax resident in order to claim tax treaty benefits.
Companies may also choose to have non-resident tax status, but only if they are controlled and managed from abroad.
Non-resident companies are taxed only on Cypriot source income, meaning that they pay 0% tax when their business is carried on outside of Cyprus. please see below
Capital gains that companies derive from the trading of shares are not subject to tax in Cyprus, regardless of the amount of time elapsed between purchase and sale. Cypriot companies can hold trading accounts with international banks and brokerages in Cyprus as well as internationally.
It is not required that registered capital be fully paid up.

Ready Made Companies

In cooperation with our Cypriot partners we constantly have several ready-made companies for immediate delivery to our clients.

Accounting and Audit

Cyprus based companies must maintain an accounting system and file audited annual financial statements. Our licensed accountants in Cyprus will be happy to provide you with accounting assistance. Audit results must be filed each year with the Cyprus Tax Authority and the Central Bank of Cyprus. There is an 18-month grace period after a company is registered, during which no accounts need to be filed.

Tax Planning for International Business

New Tax Resident Companies

There is no distinction in the income tax laws between local or foreign businesses. In fact the term IBC or offshore is no longer of significance and hence irrelevant. Foreign owned entities will no longer be ring-fenced and are allowed to conduct activities in Cyprus as well
The main features of the new tax laws, which became effective as of 1.1.2003, as applied to companies, are as follows:

1.    Their net profits are taxed at a flat rate of 10%.
2    Tax is applied on the corporations' worldwide income.
3.    a)    There is no withholding income tax on the payment of dividends to its shareholders. This applies regardless of whether shareholders are resident or non resident.
    b)    Dividends distributed to resident shareholders are subject to a 15% special (defence) withholding tax. In case of Cypriot companies which do not distribute their profits in a period of 2 years following the end of a tax year, they will be considered to have distributed 70% of such profits and such deemed distribution will be subject to the above 15% special defence contribution tax. The above special withholding tax of 15% does not apply when dividends are paid or payable to non-Cypriot residents.
4.    Dividends received are exempted from income tax.
5.    50% of the interest received by corporations, excluding interest received in the context of the ordinary trading activity of the corporation (i.e. banks, interest on debtors) is exempted.
6.    Trading profits from disposal of shares and rights thereon in any recognized Stock Exchange are exempted from Cyprus income tax.
7.    There are new provisions allowing the carry forward of tax losses indefinitely.
8.    There are provisions allowing group relief (between parent and subsidiaries) for transferring tax losses between group companies under certain conditions.
9.    There are tax exemptions in the case of reorganizations (see above) covering VAT stamp duty, income tax, capital gains tax etc.
10    Capital gains tax will be imposed only on disposal of property situated in Cyprus. There is a specific provision to exempt from capital gains tax any gain from the disposal of shares in any recognized Stock Exchange.
11    Interest received by non-residents (companies or individuals) will not be subject to any withholding tax. In the case of payments to residents a 10% special "defence" withholding tax is applicable.
12.    The income of a permanent establishment abroad will be exempted from Cyprus income tax. Also losses from permanent establishments can be offset against Cyprus income. The above are subject to anti abuse Controlled Foreign Company (CFC) legislation as is the exemption on dividend income. However, the criteria for triggering CFC legislation are very strict.
13.    There is no withholding tax on interest paid to non-residents (see also 12) or on payments for intellectual property (royalties) to non-residents for use abroad. These exemptions provide significant scope for international tax planning and tax minimization, as these exemptions are available regardless of any double tax treaty.
14.    Unilateral tax relief. Regardless of the existence of any double taxation agreement with a given country and any available double taxation relief, foreign taxes paid abroad can be credited against any Cyprus taxes on the same income.

Non-resident Cyprus companies

As discussed earlier tax residency for corporations is based on management and control. So if a Cyprus registered company is controlled and managed from abroad it will not be considered tax resident in Cyprus and hence will not be subject to any Cyprus taxes except on their Cyprus source income. Thus a new type of entity will emerge similar to the UK non-resident company or the old Irish non-resident company. These entities will not be of course entitled to any double taxation treaty benefits nor be subject to exchange of information under the present legal system.

Companies with Parallel Registrations

The new definition of residence of companies will reinforce the usefulness and application of certain structures where companies were first registered in one country (i.e. UK) and subsequently were also registered in Cyprus and based on the legislation of the first country or the tie-breaker rules of a double tax treaty were taxed in the second country such as Cyprus on their international business income (i.e. UK non-resident company).

Final Note

The above information is by no means comprehensive and it is necessarily of a several nature. Interested parties are therefore advised to obtain further professional advice. We shall be pleased to provide you with any additional information and professional advice you may require and please do not hesitate to call us in that regard.

Anonymity and Discretion

The data concerning directors and shareholders are looked after by the Central Bank of Cyprus and are not available to the public. Should you require total anonymity, we can provide, for an annual  fee, professional company managers with cooperation with our foreign registered agents.

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Asset Protection s.r.o. is not a law firm and does not provide legal advices or legal services. We recommended to consult licensed professionals with regards to local tax and legal matters.