Investment in Cyprus Analysis & Advice

There are several reasons for the international business appeal of Cyprus, the most important of which are being outlined here below:

  • Membership of European Union as of 1st May 2004
  • Anonymity of the beneficial owners of a company
  • A well developed banking system
  • No exchange controls in place
  • Strategic geographical location, being at the cross-roads of Europe, Asia & Africa
  • No formalities are present for obtaining work permits for EU citizens
  • Low company operating costs
  • High quality standards of professional services, at competitive and reasonable prices
  • Excellent telecommunication system
  • High level of standard of living
  • Very low crime rates
  • Pleasant climate, being an island in the northeastern basin of the Mediterranean Sea
  • Excellent health care system
  • English language is widely spoken
  • Availability of English speaking schools

  • One of the lowest tax system in the European Union, currently at 12.5 % on taxable profits
  • One of the most favorable Holding company jurisdiction
  • Availability of Group losses relief, under certain conditions
  • No withholding tax on dividends paid to non-residents shareholders
  • Exemption from taxation of capital gains, apart from the disposal of immovable property situated in the Republic of Cyprus (which is also exempt under some conditions - see article in our web site: Amendments to the Capital Gains Tax law Capital gains tax exemption till 31.12.2016)
  • Introduction as from 16.7.2015 of the domicile concept which allows full exclusion of payment of special contribution of defense tax on dividends, interest and rental income ,even for tax residents of Cyprus (for more details please see here: Amendments to the Capital Gains Tax law Capital gains tax exemption till 31.12.2016)
  • A sophisticated network of double tax treaties in operation
  • Non resident companies are taxed only on the income derived in the Republic of Cyprus
  • Sales of shares and securities are tax free
  • No taxation on dividend income
  • V.A.T. optional registration allowing them to claim back any V.A.T. imposed on local expenditure and services offered
  • Salaries from services outside Cyprus for more than 90 days in a non-Cypriot resident employer or in the permanent establishment of a Cypriot resident employer are not taxed in Cyprus
  • Low income tax rates for expatriates
  • No inheritance tax
 

Illustrative examples of structures that are commonly used (A.Groups and B.Triangular Trading)

A. Group Structure Illustration

Remittance of Dividends

  • The amount remitted as dividends by the subsidiary to the International Holding Company varies according to the tax rates of the country of incorporation of the subsidiary and the provisions of the Double Tax Treaty between Cyprus and that country.

Tax free receipt of dividend by the Holding company

The receipt of dividends by an International Cyprus Holding company can be completely tax free as:

  • Dividend income is exempt from corporation tax in Cyprus, and
  • Dividend income may be exempt from Special contribution of defense under certain conditions.

Zero withholding tax

The reimbursement of dividends to the beneficial owners has a zero withholding tax regime (0%) in the situation that the beneficial owner is a corporate entity or an individual not tax resident in Cyprus.

Reduced tax burden & Increased amount of Net income receivable by beneficial owners

Due to the fact that (a)Dividends received by the International Holding company from abroad are tax free (under certain conditions) and (b) no withholding tax is deducted on the reimbursement of dividends by the International Holding company to the beneficial owner, then the amount of the cumulative tax burden is minimized, and the net amount of the dividend income paid out to the ultimate beneficial owners is maximized.

B. Triangular trading with a Cyprus Company

By utilizing the low tax corporation rate in Cyprus, a Company incorporated in Cyprus, can be used as an intermediary for the purchase of goods from a third country without the goods being imported to Cyprus but instead transferred directly to the country of final destination and sale.

Illustrative example

Triangular trading Illustrative example

Purchase of goods by the Cyprus Company from a third country

  • A Cyprus Company will purchase the goods from the third country manufacturer.
  • The goods purchased need not be imported to the island of Cyprus, but instead the goods are being transferred directly from the third country to the country of sale of the final consumer.
  • The Cyprus Company will issue a sale invoice to the company that is receiving the goods in the country of final sale of the products

Re-invoicing of goods

  • The sale invoice issued by a Cyprus Company will result to part of the profit made in the transaction to be taxed in Cyprus at the low rate of 12,5 % on the net taxable profit (one of the lowest tax rate in the world)
  • This will reduce substantially the overall tax burden of the ultimate beneficial owner. 


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