Cyprus is an independent sovereign republic situated in the north - eastern basin of the Mediterranean sea.  It is the third largest island in the Mediterranean after Sicily and Sardenia. Through the ages the island was occupied by many different races the main ones being the Egyptians, Romans, Byzantines, Francs, Venetians, Turks and British.  Even though each one of these races left its mark on the island it was the Greeks, whose original settlement dates back to 1300 B C, who had a lasting influence on the language, culture and religion in the island.

Its strategic location at the crossroads of Europe, Asia and Africa have made Cyprus and international commercial center. In addition to this traditional trade, its constitutional and legal framework as an independent jurisdiction has enabled Cyprus to become an important offshore financial center. All this has produced a thriving business community well served by an established banking and professional infrastructure. 

The advantages of the registration in Cyprus:

* the lowest profit tax rate in Europe (10%);    

* high credibility of the Cyprus companies as the EU residents;    

* liberal tax laws (legislation of Cyprus is based on the common law);    

* stable political situation;    

* opportunity to open accounts in the reliable Cyprus banks;    

* the opportunity to use numerous double taxation avoidance agreements concluded between Cyprus and other countries;    

* absence of the state currency control.

The tax rate is 10%, which is the lowest standard rate in the EU.

Cyprus companies with the control and management outside Cyprus are not taxed in Cyprus

General Information:

The Republic of Cyprus is an island in the north-eastern Mediterranean. The total area is 9.2 sq km. The length of the coastal line is 800 km.

Cyprus is the third largest island in the Mediterranean after Sicily and Sardinia. The population of Cyprus is about 795 thousand due to the statistics. Nicosia is the capital of the country. The main cities are Limassol, Larnaca and Paphos. Cyprus is the bourgeois republic with the presidential form of governing. The foreign policy course of the government of Cyprus is worked out due to the policy of nonalignment to the various military and political blocks.

The official languages of Cyprus are Greek and English.

The legal system of Cyprus was combined during the period of the British colonial rule in the end of 19th - middle of 20th centuries, thus the British law influenced the formation of the law branches.

Recently the Republic of Cyprus has approved itself as the country with a free market economy giving vast opportunities for the international business as an effectual instrument in international tax and financial planning.

A Cyprus International Business Company (IBC) is one of the most popular and effective methods of tax planning. The basis of this method is determined by the Cyprus legislation containing the right of taxation on preferential terms for the companies belonging to non-residents.

An IBC can either be resident in Cyprus (provided its management and control is in Cyprus) or it can be non-resident (if its management and control is outside Cyprus).

The key condition of incorporating the IBC by a non-resident is the presence of the treaties for the avoidance of double taxation between the country of registration and the countries where the IBC or its subsidiaries will have activities, There are more than 30 such treaties signed between Cyprus and other countries. The existence of these treaties, combined with the low tax paid by a Cyprus company offer the possibilities for effective international tax planning. The main objective of the double tax treaties is to avoid the double taxation of income earned in any of the two contracting countries.

This is done through the tax sparing provisions whereby tax is credited against the tax that must be paid in the contracting state. In respect to International law an IBC is an independent legal entity which conducts its business activities in accordance with the law of the country of its registration. The principal corporate legislation under which companies are incorporated and administered in Cyprus is The Companies Laws, Cap 113 of 1951, which basically duplicates the Companies Act of 1948 of the United Kingdom.

Tax Exemption (Zero Tax):

As from 1st January 2003 tax is imposed on all Cypriot resident persons (individuals and corporations) on their worldwide income.

A corporation is tax resident when its management and control is exercised in Cyprus.

An individual, on the other hand is tax resident when he/ she spends more than 183 days in a calendar year in Cyprus.

Corporation Tax:

The tax rate is 10%, which is the lowest standard rate in the EU.

Cyprus companies with the control and management outside Cyprus are not taxed in Cyprus. This is the equivalent of an offshore company, non resident company or international business company.  

Dividend Income:

Corporations do not pay tax on dividends received from other Cypriot tax resident companies.

Dividends received from foreign corporations are exempt, when the following requirements are met.

The dividend receiving company must own at least 1% of the share capital of the paying company. The exemption will not be granted if:

·         Directly or indirectly more than 50% of the activities of the paying company result in investment income, and

·         The paying company is subject to tax at a rate substantially lower than the Cypriot rate

When dividend income is not exempt, there is a 15% defense tax contribution.  Tax credits for taxes paid abroad are available.

The exemption from tax also applies to profits of a permanent establishment the Cypriot Company has in another jurisdiction.

Interest Income:

When interest income is the result of the ordinary activities of the company, it is subject to tax. If the interest income does not derive from the ordinary activities of the company, then it is subject to tax both for corporation tax and defense tax contribution.

Group finance interest income is considered as trading income.

Other significant provisions:

Profits from sale of securities are not taxed

Companies part of a group, can consolidate their results and set off losses of one company against profits of another company.

Losses can be carried forward indefinitely.

Mergers, acquisitions and spin offs, can be effected without tax cost.

Withholding Taxes:

Cyprus does not impose any withholding tax on dividend, interest and royalty payments made to non-Cypriot resident recipients.

In the case of the royalties, the exemption applies for royalty payments when the right/asset is used outside of Cyprus. If the royalty payment is for right/asset used in Cyprus, there is 10% withholding tax, subject to treaty provisions.

Expense Deductibility:

According to the law all expenses incurred for the production of the income are deducted before arriving at the taxable income.

VAT:

If the company is a holding company without any other activity, it will not be a taxable person under the VAT legislation.

However, if the holding company is involved in other activities as well, such as the management services or granting of loans, then it may be entitled to deduct VAT that it suffers on expenses incurred in Cyprus or self-charged under the reverse charge provisions.

Privacy & Anonymity of shareholders and directors:

All information provided by the beneficial owner is treated as strictly confidential. The appointment of nominee directors, shareholders and secretary guarantees the protection from the disclosure of information about the beneficial owner in any governmental institutions.

Capital:

The share capital can be expressed in any currency. There is no minimum paid up capital but for practical reasons the amount of EUR 1.000 is usually used.

Shareholders, Directors and Officers:

The minimum number of directors is one, who can be either an individual or a legal entity. The same requirement is provided for the shareholders. The nationality of directors and shareholders is immaterial. Nominee directors may be appointed as  in order to execute the board meetings and resolutions in Cyprus.

The existence of the company secretary is required by the Law. The secretary of the IBC must be appointed by the directors. Although the nationality of the secretary is immaterial it is recommended the secretary of the company to be a resident in Cyprus.

Financial Reporting:

The typical obligations of the Cyprus company are:

· The filing of the annual return. This is a report that has to be filed every year at the Registrar of Companies and it outlines any changes that took place on the shareholding, directors, secretary of the company.

· VAT Reports. If the company is registered with the VAT then VAT returns must be filed every quarter.

· Accounts. Audited accounts must be prepared

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