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ABOUT CYPRUS

Location
Cyprus is located in the eastern Mediterranean sea, surrounded by three continents: Europe, Asia, and Africa. It has a nice Mediterranean climate with dry, hot summers and mild winters.

Population
The population is about 800.000. Greek-Cypriots represent 78%, Turkish-Cypriots 18% and the remaining 4% represent other minorities.

Languages

The official language is Greek. English is almost spoken by all of the population and is frequently used in commercial and government sectors.

Political Structure
Cyprus has been an independent republic since 1960. The government structure is similar to other western countries, where free speech, political freedom, human rights and private property are safeguarded.

Cyprus has a presidential system where the President is the Head of State. He/she is elected for a five-year term. The executive power is in the hands of the Council of Ministers. The President appoints the members of the Council. The legislative body of Cyprus is the House of Representatives, which consists of 56 elected members who serve for five-year terms. The legal system is based on English Law. Cyprus is a member of the European Union, the Commonwealth, the UN and the Council of Europe.

Membership in the European Union and the Euro zone
On 1st May 2004, Cyprus became a full member of the European Union. From January 1, 2008 Cyprus has entered the Euro zone being the 15th member state to adopt the Euro as its national currency.

Economy and Infrastructure
Cyprus has first-class telecommunications, air and port connections. There are two international airports; one in Larnaca and one in Paphos, with the major sea ports being located in Limassol and Larnaca.

Cyprus has a free-enterprise economy, where the government’s role is limited to supervision, regulation, planning and provision of public utilities.

The banking facilities available are excellent with a number of onshore banks with international presence, offshore banking units (OBU’s) and other licensed financial institutions operating on the island.

ABOUT CYPRUS COMPANIES

Key Features & Advantages
The main tax and fiscal incentives may be outlined as follows:

  • International Business Companies pay a corporate tax of 10% on their net profits if they are a Cyprus resident. A resident IBC is a company with management and control in Cyprus. In order to determine the management and control of the company, look at the residence of the majority of directors and where board meetings normally take place. Resident IBCs may obtain full access and take advantage of the Cyprus double-tax treaty network (more on this below).
  • An IBC that is not considered to be resident in Cyprus, will pay zero tax in Cyprus.
  • A non-resident IBC does not have access to the double-tax treaty network.
  • Cyprus has no withholding tax on payment of dividends, interest and royalties by an IBC to non-resident individuals or companies.
  • Dividend income received by a Cypriot IBC is 100% exempt from tax in Cyprus (under certain conditions).
  • Profits earned from branches/daughter companies abroad are 100% exempt from corporation tax. Profits from the sale of shares are not taxable for all Cyprus tax residents.
  • 50% of interest bearing investments received is exempted from tax. The interest that arises in the ordinary course of business (e.g. interest on overdue debtor balances) is not exempted from tax.
  • There is no restriction on how many years you can carry-forward tax losses. You can bring them forward indefinitely to be set off against possible future profits.
  • Group relief is available whereby losses from a company can be set off against taxable profits accumulated by another company in the same group.
  • There are no tax implications on reorganizations, amalgamations, mergers and acquisitions of companies.
  • Exemption from capital gains tax (except on sale of real-estate in Cyprus).
  • No exchange control restrictions - an IBC can open a bank account in any currency in any country.
  • Cyprus has 34 Double Tax Treaty agreements, which apply to 40 countries. They can be used to minimize tax. The main purpose of these treaties is the avoidance of double taxation on income earned in any of these countries. Under these agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country and as a result the tax payer pays no more than the higher of the two rates

Further, some treaties provide for tax sparing credits whereby the tax credit allowed is not only with respect to tax actually paid in the other treaty country but also from tax which would have been otherwise payable had it not been for incentive measures in that other country which result in exemption or reduction of tax.

To give a simplified example:

  • A company is taxable in both treaty countries, say 40% at country A and 20% at country B. If the 20% tax at country B is paid, then a tax credit of 20% would be given in country A. The result is 20% tax in country A and 20% in country B
  • If now, in country B the normal tax of 20% is reduced to 5% (for incentive purposes), if a tax sparing credit is provided in the respective treaty, the tax to be deducted in country A would still be 20%, as if full tax of 20% was actually paid in country B. The result would be 5% tax in country B and, in spite of that, a tax of only 20% in country A (the remaining 15% being the tax sparing credit)

All Cyprus resident companies qualify for Double Tax Treaty protection.

  • Confidentiality and anonymity of beneficial owners is safeguarded (true identity is only disclosed to local banks, if a local account is opened and information is not disclosed to any third party or to other countries, except in the case of properly authorized criminal investigation (drugs, terrorism, etc.).

Other advantages of more general nature that Cyprus can offer:

  • Geographical location (in the middle of three continents)
  • Excellent infrastructure
  • First-class banking facilities
  • A stable, western-type economy
  • Legal system based on English Law
  • Readily available and highly educated local staff
  • Low cost of living in comparison with most Western European countries
  • Low crime level
  • Excellent schools incl. universities.
  • Excellent climate
 
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