Cyprus has become a very popular destination when it comes to overseas investments, increasingly so since it joined the European Union.  Cyprus is not a tax haven, but a low tax area with an annual tax rate between 0% and 10% payable in the case of an International Business Company. Cyprus has numerous double tax treaties for the avoidance of double taxation. In particular, extremely favourable treaties have been concluded with many countries for receipt of dividends, interest and royalty payments.

The Cyprus Companies may benefit of the following tax advantages:

  • In July, 2002, as part of the Income Tax Act No. 118(I) of 2002, Parliament approved a uniform 10% corporate tax rate, to apply to both onshore and offshore companies, and a ‘Special Contribution’ related to defence which in effect applies the 10% corporate tax rate to inter-company dividend and interest payments. The new regime was effective from January, 2003.
  • Cyprus became a member of the European Union on May 1, 2004 and since then it has continuously upgrading its status as an “offshore” Jurisdiction.
  • Cyprus is unusual among low-tax countries in having tax treaties with more than 40 other countries. These include the CIS and many Eastern European countries; for that reason Cyprus has developed particularly close links with that region.
  • Cyprus is the LOWEST-TAX EU JURISDICTION that is not offshore. The standard corporate tax rate of 10% on net profits is the lowest in the European Union, and the lowest “non-offshore jurisdiction corporate tax rate” in the world.
  • The corporate taxation for shipping companies is 0%, while the corporate taxation for ship-management companies is 4.25%
  • Due to the nature of their operations, Cyprus Companies usually show profits at a paced and regulated manner. This is possible through the implementation of significant and sophisticated legal tax-planning strategies, which, in turn could be formulated based on the special needs of every client.
  • There is added commercial value and monetary benefits due to the ability to register for EU VAT in Cyprus through VIES (VAT Inter-European System). This is done primarily with companies trading goods, (imports/exports), however, this is implemented also for companies offering services.
  • Security trading and the profit gained from the disposal of any type of security are tax-exempt.
  • The foreign beneficial Owners of Cyprus Companies do not pay any additional tax on dividends or over profits above the amount paid or payable by the respective legal entities. As it was mentioned above, only 10% Corporate Tax on Net Profits is applied.
  • Dividends paid by a foreign company to a tax resident Cyprus Holding company are tax free in Cyprus, if the Cyprus Holding Company holds at least 1 % of the share capital of the foreign company paying the dividend and if the revenue of the foreign company paying the dividend, derived directly or indirectly from investments activities does not exceed 50 % of the total revenue and if the corporation tax rate of the country of the paying company is not substantially lower than the Cypriot corporate tax rate.
  • The profits gained outside Cyprus by Non-Cyprus Resident Companies are tax-free.
  • Cyprus Companies managed and controlled from another jurisdiction than Cyprus are exempted from taxation for their out-of-Cyprus profits.
  • Exemption from capital gains tax (except on sale of immoveable property situated in Cyprus).
  • Group relief is available whereby losses from a company can be set off against taxable profits of other companies in the same group.
  • Mergers, Takeovers, Restructuring of Company Groups and other Re-Organizations can take place within groups without tax consequences.
  • Unilateral tax-relief is granted to all Cyprus Companies for foreign tax suffered irrespective of the absence of a double tax treaty.
  • Tax losses can be carried forward indefinitely to be set-off against future profits.
  • The overhead expense level for the provision of corporate professional services and consulting is very low in comparison with other European Jurisdictions.

In few words, the main advantages of a Cyprus Company are the follows:

•  reputation (entry into EU on 1 st May 2004.; complied fully with OECD criteria
relating to harmful tax practices, exchange control etc.);

•  advantageous geographical position – proximity to EU centres; to CIS countries and Russia
in particular, easy access to Middle East and Africa;

•  Solid professional infrastructure continuously adapted to new legislation, technological development etc.

•  Good telecommunication systems;

•  Lowest corporate tax rate (10%) among all EU countries;

•  Profits derived in any way from a permanent establishment outside Cyprus
are exempt from tax (if certain conditions fulfilled);

•  Participation exemption for dividends both receivable and payable with the
least onerous conditions attaching;

•  No tax liability on any capital gains from the disposal of shares;

•  Wide network of double tax treaties.