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   Cyprus Company

Cyprus International Business Companies

We are pleased to have a direct relationship with a professional Cyprus firm that specialises Cyprus company incorporation, registration and administration in Cyprus, and provides all the professional services that a client may require. 

• Advantages of the Cyprus jurisdiction

• Cyprus as an International Business Centre

• Incorporating a Cyprus company

• Personal Income Tax

• Corporate Income Tax

• Defence Fund

• Capital Gains

• Estate Duty

• Trusts

• Tax Treaties

• Practical Examples

Advantages of the Cyprus jurisdiction                                        

Incorporating a company in Cyprus has many tax benefits.  Some of the main factors and advantages that developed Cyprus into a successful international business and financial centre, and that secure Cyprus’ attractiveness to international businesses and worldwide investments, are the following:-

• 10% corporate tax rate for business profits

•  No withholding taxes imposed on dividends, interest and royalties for non-residents (whether a company or an individual)

•  Income from dividends is exempt from income or corporation tax

•  Exemption from income or corporation tax of gains made by an individual or company resident of Cyprus from the sale of securities

• The attractive platform and  tax regime that Cyprus provides for a holding company (i.e. subject to certain conditions full exemption from local taxation in respect of dividends received by a holding company from its local and foreign subsidiaries)

• The attractive platform and  tax regime that Cyprus provides for international trusts

• The network of favourable double taxation treaties that Cyprus maintains with more than 40 countries

• Tax advantages available to non-residents including non - E.U. residents

• Cyprus does not have any rules stating that holding companies cannot perform operating activities

• Cypriot tax regime permits losses to be carried forward indefinitely

• The U.K. Company Law heritage/common law tradition

• The geographic location of Cyprus, located at the crossroads of Europe, Asia and Africa

• The English language being widely known and used in Cyprus.

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Cyprus as an International Business Centre                        

Cyprus became an independent sovereign republic in 1960 after 82 years of British Rule on the island and under its Constitution it has a presidential system of government. The economy of Cyprus is based on the free market system with the private sector forming the backbone.

Cyprus offers a high standard of living, it has a well developed and highly organized banking system and a well trained and highly skilled workforce as it has a large number of University graduates and persons with professional qualifications.

In the last 30 years Cyprus has developed into a reputable international business and financial centre due to the very favourable tax regime that the island offers. The admission of Cyprus to the European Union as full member in May 2004, established Cyprus as a prestigious, stable and attractive jurisdiction.

Though the offshore company status was abolished as from January 1, 2003 the favourable tax regime for the international investor has been maintained. In addition, the liberalization of investments coming from non-EU countries and the abolition of maximum and minimum participation percentages in investments in all the sectors of the economy in October 2004 (unless it is otherwise provided by the Law), has transformed Cyprus into a major destination for the location of international, holding companies and worldwide investments.

The tax advantage Cyprus offers may be enhanced when, under certain circumstances, is combined with other jurisdictions in appropriate legal structures.

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incorporating a Company                                                                                         

We work with a company in Cyprus that specialises in the establishment, incorporation, registration and administration of companies in Cyprus and in the provision of professional services for the achievement of a successful Profile with optimum Profitability. They are able to provide excellent professional services because of their in-depth expert knowledge in all matters and laws governing and relating to the tax and company regime and affairs.  The directors of the company bring a very high level of professional expertise as they include highly qualified lawyers and accountants, qualified and experienced in the US, UK and Cyprus.

All information in our possession regarding a client and its business is treated as absolutely confidential and under no circumstances is released to any third party unless so instructed by the client in writing or through a court order.

The company works with different types of clients - well established companies, new businesses, the professional firms, private individuals and others. Their objective is to serve the best interests of their clients by helping them meet their goals and achieve their business objectives.

Services provided:

 Services provided include the following:-

• International Tax planning

• Company formation

• Corporate administration

• Auditing services

• Maintenance of corporate records

• Bookkeeping services

• Provision of nominee shareholders

• Provision of directors and company secretary

• Registered office

• Trustee services

• Assistance with changes in the Memorandum and Articles, the share capital, the company directors, secretary, name and registered office

• Arrangement of transfer of shares

• Preparation of company documents - company resolutions, powers of attorney, minutes of directors meetings

• Legalizations of company documents

• Assistance in drafting contracts and agreements

• Formation of Cyprus International Trusts

• Preparation and submission of all relevant reports to the Cyprus Authorities

• All tax payroll issues

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Personal Income Tax                                                                                                              

Basis

Income tax is imposed on every tax resident of Cyprus on his or her worldwide income.

Non-tax residents of Cyprus are only taxed on their income accrued or derived from sources in Cyprus.

Tax resident is any person irrespective of nationality who spends more than 183 days on aggregate in Cyprus in any year of assessment.

Tax rates

 Some types of income exempt from taxation:-

- Interest Income (under certain conditions)

- Dividend Income

- Profits from the sale of securities

- Profits from of a permanent establishment abroad (under certain conditions)

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Corporation Tax                                                                                                                             

Basis

Corporation tax is imposed on every legal entity which is a tax resident of Cyprus on its worldwide income. A company is considered to be a tax resident of Cyprus if it is managed and controlled in Cyprus.

Non- tax residents of Cyprus are only taxed on their income that is accrued or derived from a business activity which is carried out from a permanent establishment in Cyprus.

Tax rate:  10%

Some types of income exempt from taxation:-

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Special contribution for Defence Fund                                            

Special contribution for defence fund is only imposed on income earned in Cyprus by tax-residents of Cyprus. Non-tax residents are exempt of the special contribution for defence fund.

 *Note:- Dividend income from abroad is exempt from the special contribution for defence fund provided that the company receiving the dividend owns at least 1% of the company paying the dividend. This exemption does not apply if more than 50% of the paying company’s activities result directly or indirectly in investment income and the foreign tax burden on the income of the non-resident company paying the dividend is substantially lower than the tax burden of the company which is tax-resident in Cyprus.

Credit against foreign tax withheld:

Any foreign tax paid on income that is subject to the defence tax can be credited against the defence tax liability irrespective of the existence or not of double taxation treaty.

Deemed dividend distribution:

Tax-resident companies not distributing a dividend within 2 years from the end of the tax year are liable to 15% defence tax on 70% of their accounting profits.

Profits attributable to non-tax residents are not subject to the deemed distribution.

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Capital Gains Tax                                                                                                                                  

Capital gains tax is imposed at the rate of 20% on gains from the disposal of immovable property situated in Cyprus including gains from the disposal of shares in companies which own immovable property in Cyprus and not listed in any recognized stock exchange.

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Estate Duty                                                                            

No estate duty.

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Trusts                                                                                       

Trusts have been very important tax planning devices.

International trusts are governed by the International Trust Law of Cyprus, 1992. International trusts are not taxed in Cyprus and enjoy important tax advantages. The Law defines an International trust as a trust where both the settlor and the beneficiaries (unless a charitable institution) are non-residents of Cyprus and the trust property does not include immovable property situated in Cyprus. The Law prescribes that at least one of the trustees is a permanent resident of Cyprus.

The most common types of trust are the discretionary trust where the trustees have the power to decide any distribution of income or capital to the beneficiaries and the fixed trust where the trustees must distribute the income and the capital to the beneficiaries in specified proportions.

 Some of the tax and other advantages are the following:-

 - All income whether trading or otherwise of an international trust is not taxable in Cyprus

 - An individual can invest overseas using an international trust so that dividends will not be remitted in his country

 - An individual can protect his property from future lawsuits, future bankruptcy and other claims by creditors

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Tax Treaties                                        

 Cyprus has signed tax treaties with the following countries:-  

Note:- Management and control in Cyprus is a prerequisite for obtaining advantages under Cyprus  double tax treaties as only in such cases is the company treated as resident of Cyprus for Treaty purposes.

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Practical Examples                                     

The Cyprus holding company - Use of Cyprus Double Tax Treaties

A Cyprus holding company can be used very effectively for international investment purposes. This is through the use of, on the one hand, the tax incentives and, on the other, the treaties for the avoidance of double taxation.

The most important advantage of a Cyprus Holding Company is that the dividends received by the foreign company can flow totally tax free in Cyprus through the Holding Company, avoiding in this way the payment of any tax on dividends.  For the payments made to non-Cyprus Resident Shareholders there is zero (0) withholding tax, so the Shareholder receives the dividends absolutely tax free.

Examples of use of Cyprus companies for investment abroad

Further to the simple use of Cyprus Holding Companies for receiving tax free dividends Holding Companies can be very beneficially used for investment abroad.    Below are two Scenarios of the use of a Cyprus Holding Company:

Scenario A:

A Greek company is to carry out business in Ireland and Russia and it establishes subsidiary companies in these two countries. We have two Irish subsidiaries the first one owned 100% by the Greek company (first Irish company) and the second one owned 25% by the Greek company (second Irish company).   According to Irish law if the parent company, with interest over 25% over the subsidiary company, is registered in an EU country then there is no withholding tax.   In the example, the Russian and Irish subsidiary companies will make a net profit of USD 100,000 each.

This net profit will be taxed at the rate of 12.5% in Ireland and at the rate of 24% in Russia because this is the prevailing tax rates in these countries, so net profits of USD 87,500 for the Irish company after tax and USD 76,000 net profits after tax for the Russian company.

If these profits are to be received in Greece as dividend then, withholding tax at the rate of 0% will apply in the case of the first Irish company, withholding tax at the rate of 24% will apply in the case of the second Irish company and withholding tax at the rate of 20% will apply in the case of the Russian company.

The dividend received in Greece will then be taxed at 35% which is the prevailing tax rate leaving net income of USD 56.875 in the case of the first Irish company, USD 43.225 in the case of the second Irish company and USD 39.520 in the case of the Russian company.

 Scenario B:

The Greek company has a subsidiary company in Cyprus which acts as a holding company to its immediate subsidiaries in Ireland and Russia.  In this case there is no withholding tax when the Cyprus Company receives the profits in the form of dividend from the two Irish companies and 5% from the Russian Company.   This is because of the double tax treaty signed between Cyprus and Ireland and that signed between Cyprus and Russia which so provide. Although Cyprus corporation tax is at 10%, in this case there will be no tax incidence since, as stated previously, dividend income received from abroad is exempt from tax.  Moreover, the net dividend received in Greece will not be taxed at 35% as in the case of  Scenario A, but at 20%. This is because a tax credit of 15% will be given for the underlying tax on the dividend due to a tax sparing credit provided for in the double tax treaty between Cyprus and Greece.  Therefore, we will have a final net income of USD 70.000 from the two Irish companies and USD 60.800 from the Russian company i.e. a tax saving ranging from 23,08% to 53,84% as shown in the table below.

Further example of use of Cypriot company receiving dividends from a Russian subsidiary.

The following tax situation will arise when dividends from a Russian subsidiary are paid to a Cypriot holding company. Dividend income from the Russian subsidiary is neither subject to Cypriot Income Tax nor to special defence contribution provided that the Cypriot holding company receiving the dividends owns at least 1% of its Russian subsidiary. However the exemption from the special defence contribution will not be granted if more than 50% of the paying subsidiary’s activities result in investment income and the foreign tax burden is significantly lower than the tax payable in Cyprus. As the Russian corporation tax rate is not lower than the Cypriot one this provision will not be applied.

Assuming however that the dividend income of the Cypriot holding company from its Russian subsidiary does not constitute exempt income but is subject to the 15% special defence contribution in Cyprus (i.e. if the holding in the Russian company is less than 1%) then any withholding tax suffered abroad would be credited against the special defence contribution. In accordance with the double taxation treaty between Cyprus and Russia the credit would take into account both the Russian withholding tax and the underlying tax (i.e. the Russian corporation tax on the profits out of which the dividend is paid).

Therefore, all dividend income received from Russia is unlikely to suffer any tax in Cyprus. The only tax suffered would be the Russian 5% withholding tax on dividends provided that the capital investment in the Russian company is more than US$ 100.000, or 10% in all other cases pursuant to the terms of the Cyprus/Russia double tax treaty.

Assuming that the shareholders of the Cypriot holding company are non-residents of Cyprus then the total tax on dividends distributed from Russia via the Cypriot company to the ultimate shareholder would be only 5% as dividends payable by a Cypriot resident company to a foreign shareholder (company or individual) do not attract any withholding taxes in Cyprus.

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