Cyprus is the third largest island in the Mediterranean after Sicily and Sardinia. Located in the north-eastern end of the Mediterranean Sea Cyprus is effectively a
crossroads linking Europe, Asia and Africa. It covers an area of 9,251 sq km
and lies 65 km south of Turkey, 96 km west of Syria, 385 km North
of Egypt and some 980 km south-east of Athens. The capital is Nicosia. The principal topographical
features of Cyprus are the two mountain ranges running along the centre
and north-east of the Island, separated by a wide and fertile plain.
Cyprus has a pleasant climate with dry, hot summers and mild winters.
» Population
The population of Cyprus is about 802,500. Greek Cypriots form the largest ethnic community representing approximately 85%; Turkish Cypriots comprise the second largest community representing 12% and the remaining 3% representing other minorities.
» Political
Structure
Cyprus became an independent Republic in 1960. The political system
is modelled on Western democracies in which individual rights are
respected and private enterprise is given every opportunity to develop.
Under its Constitution, Cyprus has a presidential system of Government.
The President is the Head of State and is elected for a five-year
term of office.
The executive arm of the Government is the Council of Ministers
to which the President appoints members. The Ministers are responsible
for the administration of all matters falling within the domain
of their ministries and for the implementation of legislation. Legislative
power is in the hands of the House of Representatives, which consists
of 56 elected members who hold office for a period of five years.
A multi-party system operates in Cyprus and the electoral system
is based on proportional representation.
The legal system is based on that of the United Kingdom and all
statutes regulating business matters and procedure are based on
English Law. Most laws are officially translated in to English.
» Infrastructure
and Economy
Cyprus is readily accessible by air and sea. The major port
facilities are those of Limassol and Larnaca, situated along the
south coast of the Island.
The economy of Cyprus is based on a free enterprise system. The
Government's role is limited to regulation, planning and the provision
of public utilities. During the last fifteen years, the economy
of Cyprus has demonstrated spectacular growth and its currency has
enjoyed relative stability.
» Language
Greek, English and Turkish are the official languages of Cyprus.
English is widely spoken and understood, particularly in commercial
and government sectors.
» Currency
Euro.
» Type of Law
Civil with many English Common Law influences.
» Principal
Corporate Legislation
The companies' law in Cyprus is the Cyprus Companies Law, Cap.113, which is based on the English 1948 Companies Act. Single member companies were introduced by the Companies (Amendment) Act 2000 and other amending legislation was passed in 2000 and 2001.
When wholly foreign-owned, a private company is referred to as an international business company. On 1 st January 2003 the favorable tax regime previously available to IBC’s was abolished and all companies are now taxed on the same basis.
» Type of Company
for International Trade and Investment
Company Limited by shares which is subdivided into:
(a) Public companies and
(b) Private companies which are also subdivided into:
i. Exempt Private Company
ii. Limited Private Company
Company Limited by guarantee
The Partnerships and Business Name Law, Chapter 116, also provides for two general types of Partnerships:
a) General Partnership
b) Limited Partnership
» Procedure
to Incorporate
By submission of the Memorandum and Articles of Association to the Registrar of Companies, together with an affidavit before a Court and the appropriate registration fee. The powers and objects of a Cyprus Company are contained within the Memorandum & Articles of Association and have to be specific.
» Restrictions
on Trading
Cannot undertake to the business of banking, insurance or the rendering
of financial services to the public unless special permission is
granted. Companies cannot trade with resident individuals or companies
situated in Cyprus other than in relation to the maintenance of
premises, banking and professional services, unless they have special
permission from the Central Bank of Cyprus.
» Language
and Legislation of Corporate Documents
English and Greek.
» Registered
Office Required
Yes,
must be maintained in Cyprus.
» Time
to Incorporate
Approximately five
days, subject to name approval.
» Name Restrictions
Any word that the Registrar considers undesirable. Any name that is identical or similar to an existing company or sounds similar. Any name that implies illegal activity or implies royal or government patronage, the following words or their derivatives: asset management, asset manager, assurance, bank, banking, broker, brokerage, capital, credit, currency, custodian, custody, dealer, dealing, deposit, derivative, exchange, fiduciary, finance, financial, fund, future, insurance, lending, loan, lender, option, pension, portfolio, reserves, savings, security, stock, trust or trustees. If the word “Group” is to be used in the company name the minimum number of corporate shareholders are two.
» Language
of Name
Names may be expressed in Greek or any language using the Latin
alphabet if the Registrar is in receipt of a Greek or English translation
and the name is not considered undesirable.
» Names Requiring
Consent or Licence
The following names or their derivatives require consent or a licence:
“Asset Management” “Asset Manager”, Assurance”, “Bank”, “Banking”, “Broker (s) / Brokerage”, “Capital”, “Credit”, “Currency (ies)”, “Custodian(s)”, “Custody”, “Dealer(s)” “Dealing”, “Deposit(s)”, “Derivative (s)”, “Exchange”, “Fiduciary (ies)”, “Finance”, “Financial”, “Fund (s)”, “Future (s)”, “Insurance”, “Lending”, “Loan(s)”, “Lender(s)”, “Option(s)”, “Pension(s)”, “Portfolio”, “Reserves”, ‘Savings”, “Security(ies)”, “Stock”, “Trust”, Trustees” their foreign language equivalents or any name that the Registrar considers may have a connection with the aforementioned
» Suffixes
to Denote Limited Liability
Limited or Ltd.
» Company Seal
No mandatory requirement but is permitted and generally used.
» Disclosure
of Beneficial Ownership to Government Authorities
The identity of the beneficial owners of a Cyprus Company may remain confidential if corporate shareholders are engaged to act as the shareholder on behalf of the ultimate beneficial owners. This confidentiality is maintained as long as the company and its ultimate beneficial owners are not involved in any criminal activity .
The share capital must be expressed in Euros. The usual authorised share capital of a Cyprus IBC company is € 5,000 and the minimum issued capital is € 1,000.
» Classes of
Shares Permitted
Registered shares of par value, preference shares, redeemable preference shares and shares with no voting rights.
» Taxation
By virtue of special provisions in the Cyprus Income Tax Laws, the
net chargeable profits of Cyprus IBC Companies are taxed at a rate
of 10%.
» Double Taxation
Agreements
Cyprus has concluded 34 double tax treaties with: Austria, Bulgaria, Belarus, Belgium, Canada, China, the Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Mauritius, Norway, Poland, Romania, Russia, (including most of the CIS countries, i.e. Azerbaijan, Armenia, Kyrgyzstan, Moldova, Uzbekistan and Ukraine), Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Thailand, United Kingdom, USA and the former Yugoslavia.
» Licence Fees
Not applicable.
» Financial
Statement Required
Amendments made in 2003 to the Companies Law as part of the EU accession process included the following changes:
Every company must prepare a full set of financial statements in accordance with International Financial Reporting Standards, and every parent company that has one or more subsidiaries, other than a company which is itself a wholly owned subsidiary, should present consolidated financial statements
Under article 120, every company must complete an annual return within a period of 42 days from the date of its Annual General Meeting and must file immediately with the Registrar of Companies, a copy of the annual return, signed by a director and the company secretary. Under article 121, the annual return filed with the Registrar of Companies must be accompanied by the full set of financial statements
» Directors
The minimum number of directors is One.
They may be natural persons or bodies corporate, be of any nationality
and need not be resident in Cyprus.
» Company Secretary
All Cypriot companies must appoint a company secretary, who may
be a natural person or body corporate. It is advisable to appoint
a resident company secretary.
» Shareholders
The minimum number of shareholders is One.
Holding Companies
Cyprus' a well established international centre, has been critically
assessed as constituting an attractive location for holding companies
from a tax perspective, among others. This is due to the accession
of Cyprus to the European Union (EU) and the enactment of the new
Cyprus tax legislation, which is now compatible with the acquis communautaire.
Cyprus laws and practices are now harmonised with the EU Laws and
Directives, the Code of Conduct and the Organization for Economic
Cooperation and Development's recommendation on Harmful Tax Corporation.
» Tax Regime
Unlike other countries in Europe, a Cyprus Holding Company must only hold a minimum 1% of the share capital of a foreign subsidiary in order to receive the tax benefits awarded by the new tax reform.
» New Tax Legislation
A uniform 10% corporate tax rate, applicable to the worldwide income,
is now levied on all resident companies. This is the lowest corporate tax rate in the European Union
and thus the most advantageous standard rate of corporation tax
for Cyprus.
The new taxation status on Company is residence-based. A company
is only 'resident in the Republic' if its business is centrally
managed and controlled in Cyprus. Therefore, under the new rules,
a resident corporation is taxable on its worldwide income accrued
or arising from sources both within and outside Cyprus if it is
managed and controlled from Cyprus.
In view of the new tax legislation, the Holding International Business
Companies operating from Cyprus are now in a much more beneficial
position because they can enjoy the benefits deriving from the tax
exceptions as well as the corporate tax benefits by virtue of the
new tax legislation.
» Tax Exemptions
In view of the new tax legislation 50% of interest received by a corporation is tax exempt, excluding interest received from the recipient's ordinary course of business or closely connected with the recipient's ordinary business.
» Dividends received
Dividends
received from abroad are now totally exempt from corporation tax
by virtue of the new tax legislation. Furthermore, they are also
exempt from the 15% defence contribution provided that the direct
holding is at least 1% of the share capital of the overseas company.
» Restructuring provisions
In view of the incorporation of
the EC Merger Directive 90/434/EEC into the new tax law, there are
tax exemptions on the transfer of assets (including shares) under
a reorganisation (merger / de-merger / transfer of assets).
» Gains on shares and Capital Gains Tax
Profits from buying and selling shares are exempt from tax. Furthermore, there is no capital gains tax except for the 20% capital gains tax applying on gains accruing from disposal of immovable property held in Cyprus and shares in non-listed companies, which own immovable property in Cyprus.
» Profits from activities of Permanent Establishment abroad
The profits from a permanent establishment abroad are exempt from taxation. The exemption does not apply if (i) the Permanent establishment directly or indirectly engages in more than fifty per cent (50%) in activities that produce investment income, and (ii) the foreign tax burden is substantially lower than that in Cyprus.
» Cyprus Branches of Companies
With the accession of Cyprus
in the EU, double taxation relief will be available to all Cyprus
branches, of companies resident in other member states in the European
Union, since there is no discrimination between the companies' resident
in a Member state and the branches of such companies' residence
in another member state.
» Distributions by Cyprus Holding Companies
Dividends paid
to non-resident shareholders are exempt from withholding tax. In
fact, Cyprus does not impose withholding taxes on payments of dividend,
interest and royalties (provided the intellectual property rights
are not used in Cyprus) to non-resident recipients.
Corporate Tax Benefits
» Carry forward of Losses
Tax
losses for the year 2000 onwards may be carried forward indefinitely.
Losses incurred abroad by a permanent establishment of a Cyprus
company can be offset against profits of the Cyprus Company.
» Group relief
The Group relief rules are now enacted, providing
for group relief of tax losses between a holding Company and its
subsidiaries in the event where the Holding Company owns at least
75% of the Subsidiary directly or indirectly and/or otherwise among
companies of the same group for the whole year. However, losses
brought forward will not be available for Group Relief.
By virtue of the said rules a company is considered as a member
of a group if it is at least a 75% subsidiary of the other, or both
companies are at least the 75% subsidiaries of a third company.
Network of Double Tax Treaties
Cyprus combines a low-tax regime with a network of double tax treaties.
It has concluded the highest number of double tax treaties compared
to any other offshore jurisdiction, particularly with Central and
Eastern European Countries and a number of Middle Eastern countries.
Most of the Treaties follow the OECD model and all of them have
the impact of reducing or eliminating the normal withholding taxes
imposed by the Contracting states on dividends, interest and royalty
payments. This is beneficial for trade with certain Eastern European
Countries and Russia because foreign investors investing in Eastern
Europe have the opportunity to channel their investments through
a country, such as Cyprus, which has a treaty with the investment
recipient country allowing for a reduction and in some cases elimination
of the withholding taxes.
Conclusions
Cyprus, one of the smallest European low tax jurisdictions, is a
suitable place for locating an intermediary company due to the island's
combination of tax treaties and low-tax regime. Dividends can flow
through the Cyprus company totally tax free and the company can
be used to take advantage of the extensive network of double tax
treaties.
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. OCRA Worldwide does not accept any responsibility, legal or otherwise, for any errors or omission.
