1. Member State of the European Union
After a long journey of over three decades, the Republic of Cyprus became a full member of the EU on May 1, 2004. Accession to the EU was a natural choice for Cyprus, driven by its culture, civilization and history, as well as its unwavering commitment to the values of democracy, freedom and justice. EU accession has launched a new era of opportunities and responsibilities for Cyprus.
With the dawn of 2008, Cyprus joined the European Monetary Union leveraging a robust economic performance marked by banner key indicators. Apart from achieving and maintaining the indicators to meet the strict EMU entrance requirements, a key advantage of joining the eurozone is price transparency: with exchange rate risk eliminated and costs significantly lower, prices are transparent across the Eurozone, fostering competition and lower prices in the medium to longer term.
Accession to the EU has also launched a new era of commitment to growth in Cyprus. Cyprus encourages Foreign Direct Investment opportunities in the priority economic growth sectors, highlighted in the country’s Strategic Development Plan 2007-2013.
2. Advantageous Tax Regime
Lowest Corporate Tax rate in the EU of 12,5%
Cyprus offers the Lowest Corporate tax in comparison to all other E.U countries.
Exemption from Tax on Dividend Income
Companies do not pay any tax on dividends received from other Cyprus tax resident companies.
Also, dividends received by Cyprus tax resident companies from foreign companies are exempt from tax. This exemption does not apply if:
(a) more than 50% of the paying company's activities result directly or indirectly in investment income and
(b) the foreign tax rate is significantly lower than the Cyprus tax burden. The tax authorities have clarified through a circular that "significantly lower" means a tax burden below 6,25%.
When dividend income is not exempt there is a 17% defense tax contribution. Tax credits for taxes paid abroad are available.
Capital Gains and Income Tax Exemption for Real Estate
Capital Gains that arise from the disposal of immovable property held outside Cyprus are completely exempt from capital gains tax.
No Withholding Taxes
Cyprus does not impose any withholding taxes on dividend, interest and royalty payments to non-Cyprus resident recipients.
In the case of royalties the exemption applies for royalty payments when the asset/right used is outside Cyprus. In case it is in Cyprus then there is a 10% withholding tax unless a tax treaty provides for a lower or nil withholding tax rate.
Unilateral Tax Credit Relief
Relief is given for taxes paid abroad, irrespective of the existence of a double tax treaty.
Capital Gains and Income Tax Exemption for Securities
Any income from trading in securities is completely exempt from corporate tax. The term securities includes: ordinary and preference shares, founders' shares, options on titles, debentures, bonds, swaps on titles, depositary receipts on titles, rights of claims on bonds and debentures, units in open-end or closed-end collective investment schemes such as Mutual Funds, International Collective Investment Schemes (ICIS) and other.
A Cyprus Holding Company is ideal to hold subsidiary companies that have a scope for significant capital appreciation and maybe sold in the future. Such disposals are not taxable in Cyprus.
Loss Carried Forward
Tax losses are carried forward subject to conditions and set off against profits of the next five years.
Group relief is allowed for at least 75% group structures, provided claimant companies are tax resident and members of the same group for the whole tax year.
No Inheritance Tax
Cyprus does not impose inheritance tax.
No Tax on Wealth
Cyprus does not impose tax on wealth.
Exemption of Profits from Permanent Establishments Abroad
Profits from activities of a permanent establishment (PE) situated outside Cyprus are completely exempt. This exemption will not apply if:
1.Its foreign permanent establishment directly or indirectly engages in more than 50% of its activities in producing investment income, and
2.The foreign tax burden is significantly lower than in Cyprus. The tax authorities have clarified through a circular that "significantly lower" means a tax burden rate below 6,25%.
If the profits of the PE are not exempt, there is a 12,5% corporation tax. Tax credits for taxes paid abroad are available.
Tax Free Exit Route
The Cyprus company offers an ideal Exit Route through a tax-free sale of participations and own shares or the liquidation of the company and distribution of proceeds completely tax free to the non-resident shareholders.
No Taxes on Liquidation
No capital gains tax, income tax or any taxes arise on the liquidation of a Cyprus company owned by non-resident shareholders, irrespective of the method of liquidation.
3. Expanded Double Taxation Network
Cyprus has developed a wide network of Double Tax Agreements with over 45 countries, ensuring that the same income is not taxed in more than one country. Cyprus is in the stage of negotiating the conclusion or awaiting ratification of Double Taxation Agreements with several more countries. Most treaties provide for reduced or nil rates of withholding tax on dividends, interest and royalties paid from the treaty country and the avoidance of double taxation in the case where a resident in one country derives income from the other treaty country.
Specifically, Cyprus has entered into agreement with the following countries: Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Kyrgyzstan, Lebanon, Malta, Mauritius, Moldavia, Norway, Poland, Qatar, Romania, Russia, Serbia and Montenegro, Seychelles, Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Tajikistan, Thailand, Ukraine, United Kingdom, United States of America and Uzbekistan. (Detailed list of the Double Tax Agreements can be found in the Useful Links of our website).
4. Exceptional Tax Benefits through International Trusts
Cyprus International Trusts are widely used as a vehicle for international tax planning, offering the following tax advantages:
- Income and gains of a Cyprus International Trust, derived from sources outside Cyprus are exempt from any tax imposed in Cyprus under certain conditions.
- Dividends, interest or other income received by a Trust from a Cyprus international business company are not subject to tax nor are they subject to withholding tax.
- No capital gains tax is charged on the disposal of assets of an international Trust.
- Exemption from taxation in the case of an alien who creates an International Trust in Cyprus and retires in Cyprus under certain conditions.
5.Member of the OECD
In November 2013, Cyprus was assessed as a Non- Compliant jurisdiction by the Global Forum of the Organization for Economic Cooperation and Development (OECD). This non-compliance assessment shook the professional services sector to its core, but the island took note and is now on the right track to being a compliant country, thanks to taking the necessary –and stringent - measures to meet requirements being enforced.
Set up in 2001 by OECD member countries, the Global Forum consists of 121 member jurisdictions (including Cyprus) and 12 observers, making it the largest tax group in the world. It has been a driving force behind the development of the international standards of transparency and exchange of information for tax purposes. A 30 member Peer View Group (PRG) meets three/four times annually to review the legal and regulatory framework of member jurisdictions for the exchange of information in tax matters and the implementation of the standard in practice, and to ascertain correct ownership and identity of information for all relevant entities and arrangements. The main areas of interest are the obtainability, availability, transparency and exchangeability of information for tax purposes.
In regards to Cyprus, the legislation governing the availability of information for ownership, accounting and banking, and legislation relating to access to information and rights and safeguards were all found to be in place, but the network of agreements for the exchange of information and the issue of confidentiality were evaluated to be in need of improvement. Although the legal framework was mostly in place, it was discovered that it was not being correctly implemented. The island was therefore evaluated as non-compliant for the availability of information for accounting and access of power to information and partially compliant on the grounds of availability of information for ownership and the timely exchange of information.
The response-time for the exchange of information was significantly longer that the accepted period of 90 days, the compliance rate for income tax return filings was evaluated at 35%, and the compliance rate for annual returns filed with the Registrar of Companies was a mere 23%.
The island has now taken significant measures to rectify the areas lacking, including collecting a more holistic database of information on companies operating on the island, improving long-term planning of information exchange and tracking information, ad clearing the backlog of pending requests for information. The government has announced that the tax authorities are working with the accounting and legal professions and all other relevant bodies in order to rectify all the reported deficiencies, and that it is confident that significant improvements will be noted at the next review, which is due to take place in 2015. Everything indicates that it is a matter of time for Cyprus to become a fully compliance member of the OECD.
6.Reputable International Shipping Centre
Cyprus is a highly reputable international shipping center, ranking among the 10 leading maritime nations in the world; with a merchant fleet exceeding 40 million gross tonnage and nearly 2000 vessels.
Cyprus is considered as one of the most competitive shipping centers in the world in terms of registration fees and taxes.
- No tax is imposed on profits from the operation of Cypriot registered vessels, or on dividends received from a ship-owning company.
- Income arising from ship management activities is subject to tax at 4,25%. Alternatively, a ship-management company may choose to pay at a rate equal to 25% of tonnage tax rates of vessels under management if deemed more beneficial.
Cyprus constitutes one of the largest ship management centers in the world; around 50 ship management companies and marine-related foreign enterprises are conducting their international activities in the country while the majority of the largest ship management companies in the world have established fully fledged offices on the island.
The accession of Cyprus to the European Union has undoubtedly had a considerable impact, both in terms of quality and quantity on the structure of the community fleet. In terms of tonnage, Cyprus accounts for 16% of the EU fleet, thus enhancing considerably the market share of the European fleet in international sea transport.
Cyprus has long developed into a transhipment centre for Asia Pacific trade with Europe as well as with shipping markets situated along the coasts of the Levant and Black Sea, or the North Adriatic. These markets can be easily accessed from Cyprus with minimum diversion from main arterial routes. This development is attributed to the key position of the island, the efficient customs formalities and the reliable handling and delivery system.
Led by its geostrategic position, the island has been a pioneer in the development of purpose-built container terminals in the Eastern Mediterranean, and was one of the first countries in the region to use specialised container gantry cranes. The main products re-exported from Cyprus are tobacco, processed foodstuffs, beverages, textiles and textile articles, minerals and chemicals. Cyprus is used as a base for exporting to the Middle East, North Africa and Asia.
Cyprus is an attractive location for the establishment of ship management companies and companies with shipping related activities. The geographical position of the island, its accession to the main international maritime conventions, as well as the generous tax incentives and the extensive network of bilateral agreements in merchant shipping, have enabled Cyprus to become an ideal shipping centre.
New Shipping Tonnage Tax System
The European Union´s approval of a fully revised and upgraded Cyprus Shipping Taxation System in March of 2010 is a turning point for Cyprus and European Shipping. The new Shipping Taxation System covers the three basic Shipping activities in International Shipping, namely Ship owning, Ship management (including Crew Management) and the Chartering of vessels. The benefits of the new system may soon render Cyprus, the “Shipping Metropolis” of Europe. Ship-owners are exempted from Income Tax and are automatically taxed under the Tonnage Tax System. Ship managers and Charterers can exercise their option to be taxed under the Tonnage Tax System.
7. Efficient legal, accounting and banking services
Acknowledging that information and knowledge would be the drivers of sustainable growth in the global economy of the future, Cyprus has undertaken a major role in facilitating the exchange of ideas, services and support among professionals worldwide. In fact, above 70% of the country’s economy is based on the provision of services.
Cyprus inherited a legal system based on Common Law. The legal profession is long established and consists of many independent law practices. Highly qualified and well trained professionals can provide expert and reliable advice on all aspects of business and commercial law, both local and international. At Keravnos Law Firm we are ready to provide you with tailor-made legal aid of the highest standard in reasonable prices, in order to keep your operational costs low.
The accounting profession is very well represented, with many international companies operating on the island, as well as a number of private individuals providing accounting, auditing and consulting services. Most accountants are British trained and members of either the Institute of Chartered Accountants or the Chartered Association of Certified Accountants.
Banking and financial services
The banking sector is well developed and caters for a wide variety of financial needs of both businesses and individuals. The commercial banks and specialized financial institutions offer full and varied local, national and international services on personal and corporate level. They offer a wide range of services including insurance, leasing, hire purchase finance, factoring, mutual fund management, investment and consulting as well as custody and asset management services. Cypriots and foreigners residing on the island enjoy the benefits of a well-developed insurance industry with all types of risk accepted mainly through agents and intermediaries.
Local business and financial consultants have typically trained at European or US universities and many have worked overseas before setting up in Cyprus. They offer advice on the whole spectrum of modern business and investment. Overall, the professional services sector plays a significant and rapidly expanding role in the Cyprus business landscape. Although recently the Cyprus economy has experienced some turbulence, it currently has been stabilized and sees the future more optimistic.
8. Strategic Location Europe’s Middle Eastern Outpost
Cyprus´s strategic location at the crossroads of three continents has been a major factor in shaping its history throughout the centuries and its development into not only a major eastern Mediterranean trading post but also a reputable international business and services center.
Upon membership into the European Union, Cyprus is being transformed into a key outpost in the Eastern Mediterranean, facilitating partnerships and serving as the springboard for investments among Europe, Africa, and Asia. Providing the perfect gateway for businesses to penetrate new markets, Cyprus is a heaven for modern business.
Cyprus location is further enhanced by its connectivity to the busy trade routes linking Western Europe with the Arab World and the Far East. Specifically, a wide network of air routes connects Cyprus with Europe, Africa and Asia; over a 1.100 scheduled flights per week are served by 32 international airlines while a large number of chartered flights are operated by 41 chartered airlines. In addition, about 70 shipping lines include Cyprus in their regular schedules to and from the 5 continents and 4.800 ships totaling 20 million net registered tons call at Cypriot ports each year.
Cyprus has become the EU´s key trading post in the eastern Mediterranean, providing a point of exchange between Europe, Africa, and Asia. Τhe island’s location also makes it an ideal transhipment center, with Cypriot companies operating independently and with foreign partners to ship goods into and out of the EU via Cyprus. Unsurprisingly, Cyprus is one of the key international transhipment centers with substantial amount of products re-exported; amounting in 2005 to approximately €802 million Euros.
9. Highly qualified and multilingual labour force
Cyprus has a young, well-educated talent pool. The country is committed to education and is focusing on reforms to achieve sustainable growth. Since 2004 Cyprus has consistently allocated over 6% of GDP of public expenditure on Education.
With accession to the EU in 2004, to ensure the highest standards of quality in education, The Ministry of Education and Culture has harmonized the educational system of Cyprus with the European standards & guidelines. Of all secondary students 88% speak English, 38% speak French.
In 2009, 47.5% of the population of Cyprus between the ages of 25-34 held a Bachelor, Masters, or PhD degree. The EU27 average equivalent for the same year was 32.3%. Also, 52% of Cypriot tertiary students studied abroad in 2009. In Nicosia alone, there are over 1300 researchers, providing ample opportunity for growth in research, knowledge and innovation.
10. Advanced telecommunications network and infrastructure
Two international airports, a modern road network and multipurpose port facilities have long established Cyprus as a commercial, financial and business center in the region. More than 33 Airlines operate scheduled flights from and to Larnaca International Airport (5 km from Larnaca town centre) and Pafos International Airport (15 km east of Pafos town).
A new airport in Paphos was inaugurated in Nov. 2008 increasing capacity by 58%. The new airport in Larnaca is expected to begin operations in late 2009, increasing arrival capacity up to 9 million passengers per year. One can be in London, Moscow or Dubai in about four hours from Cyprus! With shipping accounting to 4% of the GDP of Cyprus, ports and shipping terminals are critical components of this contribution.
Cyprus has one deep-sea port in Limassol which expands over 1.3 square kilometers. Operations have begun to also transform the Larnaca port into the second deep-sea port on the island. There is also a shipping terminal at Vasilikos, close to Limassol. During 2007, 5466 ships called at Cyprus ports. Given its location and infrastructure, Cyprus welcomes investment to strengthen capacity and growth in logistics.
Considerable investment has been made into transforming the island into a telecommunications hub for the region. Cyprus is connected to a number of advanced technology submarine cables which provide excellent connectivity to Europe, the Middle East and Asia. In addition, seven satellite earth stations provide further satellite telecommunications connectivity making it easy for companies to locate here and be connected globally through an advanced and reliable communications network.
11. Living and working on the island for all seasons
Cyprus offers a wonderful environment for a very comfortable standard of living.
Arts and culture have a long tradition in Cyprus with historical monuments dating back to 10,000 BC. In the capital of Nicosia there are over seventeen museums showcasing a broad array of archaeological collections, byzantine icons, coinage, paintings, and other cultural treasures. Cyprus boasts several artists and painters and the gallery community has grown steadily in the last few years. The Performing Arts are flourishing. Throughout the year, local and international festivals, concerts of renowned performers and events take place in ancient open air amphitheaters, including international independent fi lm festivals, annual classical music festivals and an opera festival at the end of summer.
In the recent years a burgeoning fashion milieu has grown from numerous young, creative and entrepreneurial fashion designers, many of whom have trained in the world’s renowned art and design institutions and fashion capitals.
Gastronomy and wine have a long tradition in Cyprus. Local cuisine based on the Mediterranean diet provides several culinary treasures ranging from healthy salads, the famous halloumi cheese and vegetable appetizers, to main courses which include goat meat on the spit, pork reduced in wine, and scrumptious honey dipped deserts and fruits preserved with recipes dating back hundreds years.
Stress levels are low and business is still largely done with a personal touch and slower pace of life. Crime rates are very low and the sense of safety and security is quite high across the country.
Commutes are minimal. The island has a developed network of four lane highways linking all main destinations. One can drive from the capital, Nicosia, to the beach in Larnaca, in about 25 minutes.
With a pleasant weather throughout the year, sports aficionados can ski in February, swim and kite surf until October, bike and play tennis and golf all year!