The Tax Benefits of registering a company in Cyprus
Cyprus has become a desirable location for international business company to base their operations. The island offers numerous business and tax benefits which include, not least because of its unrivalled tax regime, its strategic location and its EU-Membership. Some of the benefits which Cyprus has to offer as an international financial center include the following:
- Cyprus has one of the lowest corporate tax rates in Europe with profits taxed at only 12.5%.
- Local companies and International Business Companies are taxed at the same low corporate tax rate of 12.5%.
- Cyprus is a Member of the European Union and Eurozone, thereby gaining a solid reputation for being a well-established and credible international financial center. Although it offers numerous tax advantages, it is not associated with the usual suspicions or stigma associated with jurisdictions considered to be ‘tax-havens’.
- Through its extensive network of Double Tax Treaties, Cyprus is able to offer extensive tax exemptions to both local and Cyprus-resident International Business Companies.
- Highly skilled and multinational workforce located on the island.
Tax features of an International Business Company (IBC)
- An IBC will be taxed at only 12.5% on its net profits if it is Cyprus resident.
- It is considered to be Cyprus tax resident if it is managed and controlled in Cyprus. This is usually determined by the place of residence of the majority of the IBC’s directors and the location of the board meetings.
- An IBC will be taxed at a rate of 0% if it is not considered to be resident in Cyprus (if it is managed and controlled outside of Cyprus).
- There is no withholding tax on payment of dividends, interest and royalties by an IBC to non-resident individuals or companies.
- Dividend income received by an IBC in Cyprus is exempt for paying taxes in Cyprus (under certain conditions).
- Profits earned from a Permanent Establishment abroad are exempt from corporate tax.
- Cyprus residents are not taxed on profits from the disposal of shares.
- 50% of interest received by an IBC is exempt from taxation unless the interest arises from the IBC’s ordinary business activities (e.g. interest on overdue debtor balances).
- There is no restriction in carrying forward tax losses; losses can be carried forward indefinitely to be set-off against future profits.
- Group relief is offered whereby losses from one company can be set-off against taxable profits of another company in the same group.
- Re-organizations, amalgamations, mergers and acquisitions of companies can take place without any tax implications.
- No capital gains tax imposed (except on the sale of immovable property located in Cyprus).
- No exchange control restrictions thereby allowing an IBC to open a bank account in any currency both in Cyprus and abroad.
- The anonymity of beneficial owners is safeguarded and their identity is only disclosed to local banks if a local bank account will be opened. No information is disclosed to any other third parties or individuals in other countries except in the case of a duly authorized criminal investigation.
- Note that a non-resident IBC will not be able to obtain a Cyprus Tax Residence certificate and will this not be able to benefit from Double Tax Treaties.
Features and Benefits of being Cyprus Resident or Non-Resident
The choice for an IBC on whether to become Cyprus resident or non-resident largely depends on whether the IBC wishes to take advantage of the Double Tax Treaties that Cyprus has, since a non-resident IBC does not qualify for taking advantage of the Double Tax Treaties.
A Cyprus Resident IBC
A Company with non-resident shareholders which is managed and controlled in Cyprus and thus considered to be a Cyprus resident IBC has the following features:
- It is taxed at only 12.5% corporate tax.
- Subject to 10% special defence contribution on interest and 3% on rent (after deduction of 25%).
- Subject to 2% special coherence contribution on the emoluments of their employees in Cyprus.
- Can benefit from Double Tax Treaty benefits and protections.
- Qualified for unilateral tax credit.
A Non-Resident IBC
A company with non-resident shareholders which is managed and controlled outside Cyprus and thus considered to be a non-resident IBC has the following features:
- Not subject to tax in Cyprus (except for income derived from Cyprus).
- Cannot reap the benefits offered by the Double Tax Treaties.
- Unilateral tax credit is irrelevant if profits from an IBC are not repatriated but instead transferred to a foreign bank account by shareholders or left in a foreign currency account in Cyprus. There are various ways and possibilities for efficient and successful corporate tax planning which can lead to reduced or even zero tax paid in Cyprus.
How foreign employees of IBCs will be taxed
IBCs can set up a fully fledged office in Cyprus to carry out their operations. In such cases, permission can be obtained to employ expatriate staff who will be living and working in Cyprus. Work permits for foreign employees of such IBCs can be readily obtained if they work in executive positions or in situations where similar skills cannot be sourced amongst the local workforce. All Cyprus (local and expatriate) resident individuals are taxed at the same tax rate on their income arising in Cyprus and abroad. An individual is considered to be tax resident in Cyprus if s/he lives in Cyprus for a period greater than 183 days in one fiscal year. Non-residents are taxed only on income arising in Cyprus. Expatriates who are employed outside Cyprus do not have to pay taxes in Cyprus. If expatriates are employed in Cyprus for 183 days or more, then s/he will be taxed on all income from employment. If expatriates are employed in Cyprus for less than 183 days, the s/he will be taxed in Cyprus on income received from the employment in Cyprus.
Are Nominee Services necessary?
Cyprus International Business Companies benefit from the same tax advantages, regardless of who the actual registered shareholders are. Using Nominees is useful to fulfil certain legal requirements such as the minimum number of shareholders and directors required. Nominees can also guarantee anonymity and confidentiality whilst allowing you to maintain ownership and control of your company. The majority of individuals make use of nominee services. In all cases, the beneficial owners are supplied with a Trust Deed and an Instrument of Transfer, authorizing the nominees to hold shares in trust for the undisclosed beneficiaries.
Do I have to be in Cyprus to register an IBC and/or open a bank account?
If you use Nominees, it is not necessary for you to come to Cyprus to establish an IBC since the nominees sign all the relevant applications and company memorandums. Nominee can also open bank accounts on behalf of the company. If Nominees are not used, then it will be necessary for you to come to Cyprus to sign the relevant company formation documentation.
Is a Cyprus IBC allowed to open an office in Cyprus?
Yes. Work permits and residence permits are required for non-EU nationals who will live in Cyprus and work at the company office in Cyprus.
Is there a minimum capital requirement for setting up a Cyprus IBC?
There is no minimum capital requirement. The money for the company’s share capital does not have to be paid in a company bank account. In case that the fees paid for the set-up of the company exceed the share capital amount, then this means that the share capital has been paid.
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