What are the tax advantages of registering a company in Cyprus?
Cyprus has one of the lowest corporate tax regimes in Europe and has become a well-established, popular international financial centre. Local companies and International Business Companies are taxed at the same corporation tax rate. Cyprus is a prestigious tax-incentive EU country and is free of the suspicions usually associated with "tax-havens" which have zero tax. The main tax incentives are outlined as follows:
An International Business Company (IBC) will pay a tax of 12.5% on its net profits if it is a Cyprus resident. An IBC is resident if its management and control is in Cyprus. Management and control is usually determined by the place of residence of the majority of the directors and the place where board meetings take place. Full advantage of the Cyprus double-tax treaty network can be taken by resident IBCs.
An IBC will pay zero tax if it is not considered to be resident in Cyprus. This will be the case when its management and control is outside Cyprus.
A non-resident IBC will not be able to obtain a Cyprus Tax residence certificate and therefore cannot utilise the double-tax treaty network.
There is no withholding tax if the ultimate beneficial owner is tax resident in Cyprus but non-domiciled in Cyprus. A declaration must be completed in order to obtain this benefit.
Dividend income received in Cyprus by an IBC is wholly exempt from tax in Cyprus (under certain conditions).
Profits earned from a permanent establishment abroad are fully exempt from corporation tax.
Under certain circumstances, profits from the disposal of shares of companies that have a significant area of land and number of buildings in Cyprus are subject to capital gains tax.
All interest received is exempted unless the interest arises in the ordinary course of business (e.g. interest on overdue debtor balances).
Tax losses can be carried forward for the next 5 years to be set off against future profits.
Group relief is available whereby losses from a company can be set off against taxable profits of other companies in the same group.
Reorganisations, amalgamations, mergers and acquisitions of companies can be effected without any tax implications, though the assistance of one of our legal consultants will be required for this.
- Exemption from capital gains tax (except on sale of immoveable property situated in Cyprus).
No exchange control restrictions - an IBC can open a bank account in any currency in Cyprus and abroad.
Cyprus has 32 Double Tax Treaty agreements which apply to 40 countries that can be used to minimise tax.
The confidentiality and anonymity of beneficial owners is safeguarded (their true identity is only disclosed to local banks if a local account is opened. No information is disclosed to any third parties or to people in other countries, except in the case of a duly authorized criminal investigation (into drugs, terrorism, etc.)).
Resident or Non-Resident? What are the options?
The option of whether to set up a resident or non-resident IBC depends partly on whether the IBC wants to take advantage of Double Tax Treaties. A non-resident IBC does not qualify for Double Tax Treaty benefits.
The pros and cons of the two options are:
Option A - Company with non-resident shareholders set up, having its management and control in Cyprus (resident IBC)
- is subject to 12.5% corporation tax.
- is subject to a 30% special defence contribution on interest and 3% on rents (after deduction of 25%)
- is subject to 2% special coherence contribution on the emoluments of their employees in Cyprus
- qualifies for Double Tax Treaty protection
- qualifies for unilateral tax credit
Option B - Company with non-resident shareholders set up having its management and control outside Cyprus (non-resident IBC)
- is not subject to tax in Cyprus except for income derived from Cyprus
- does not qualify as resident of Cyprus for Double Tax Treaty benefits
- unilateral tax credit is irrelevant
If profits from an IBC are not to be repatriated but instead transferred to a foreign bank account by the shareholders (e.g. Switzerland) or left in a foreign currency account in Cyprus, then option B may be the option to choose. If Double Tax Treaty protection is required, then option A should be considered.
It is obvious that there are many opportunities for successful corporate tax planning which may effectively lead to reduced or even 0% tax in Cyprus.
What about foreign employees of IBCs? How will they be taxed?
IBCs may decide to set-up a fully fledged office in Cyprus in order to carry out their operations. Such companies can obtain permission to employ expatriate staff who will be living and working in Cyprus.
Work permits can be readily obtained by foreign employees of such IBCs which set up an office in Cyprus provided they work in executive positions or in positions where similar skills cannot be found amongst the local labour force.
All Cyprus (local and expatriate) resident individuals are taxed at the same tax rates on their income arising in Cyprus and abroad. An individual is deemed resident if he lives in Cyprus for one or more periods which exceed 183 days per fiscal year. Non-residents are taxed only on their income arising in Cyprus.
- Taxation of expatriates
- If employed outside Cyprus, no taxation
- If employed in Cyprus for 183 days or more, taxed on all income from employment
If employed in Cyprus for less than 183 days, taxed in Cyprus on the salary attributable to the employment in Cyprus.
Are "nominee services" necessary?
Cyprus International Business Companies enjoy all of the tax advantages that you require, regardless of who the actual registered shareholders are. Using nominees is just useful in order to fulfil certain legal requirements (ie. to reach the minimum number of shareholders, directors, etc.) or if you require confidentiality or anonymity but in practice, you will be the registered shareholders and beneficiaries of this company. The majority of people make use of nominee services. In all cases though, the beneficial owners are supplied with a trust deed, an instrument of transfer authorising the nominees to hold shares in trust for the undisclosed beneficiaries.
Do I have to come to Cyprus to register an IBC and/or to open a bank account?
The banks in Cyprus have tightened up their client-acceptance policies and they mostly insist on meeting the ultimate beneficial owner of the company in person. However, in some cases, alternatively, a Skype meeting with the bank officials may be arranged instead.
Is a Cyprus International Business Company (IBC) entitled to open an office in Cyprus?
Yes. Work permits and residence permits are required for non-EU nationals who may wish to live in Cyprus and work at the company's office.
Is there a minimum capital requirement for setting up a Cyprus company (IBC)?
There is no minimum capital requirement. The money for the company’s share capital does not have to be paid in a bank account of the company. In case the fees that are paid for the registration and set-up of the company exceed the share capital amount, this automatically means that the share capital has been paid.