Introduction

Cyprus, by virtue of its exceptionally advantageous tax system, is emerging into the most favoured jurisdiction in Europe to conduct international business from. This, coupled with the added advantages of EU Membership rightly justify The World Bank’s characterization of Cyprus as the region’s “Miracle”. Cyprus is now a premier holding, finance, royalty and trading company jurisdiction and it is also utilized in other types of tax structures e.g. employment structures, shipping structures and foreign permanent establishment structures.


Cyprus Tax incentives

Details of the tax incentives offered by the Cypriot jurisdiction are as follows:

1. A standard uniform corporate tax rate of 10% is applicable to all companies. This is the lowest corporate tax rate in Europe.
2. Dividend income (participation) exemption subject to non-stringent conditions
3. No withholding taxes on payments of dividends, interest and royalties irrespective of the recipient and the existence of a Double Tax Treaty
4. No taxation on profits from the sale of securities (no minimum holding period, percentage etc)
5. No taxation on profits of permanent establishments
6. No taxation on the liquidation of a Cypriot company
7. No debt-equity and thin capitalization rules
8. A fully EU and OECD compliant tax system. Cyprus is a respectable EU, non-offshore, non-tax haven jurisdiction.
9. Investor-friendly Tax Authorities
10. Access to EU Directives which have been enacted into Cyprus Law.
11. Access to a wide and in many cases particularly beneficial double tax treaty network.
12. No capital gains tax or net worth taxes except with respect to real estate situated in Cyprus.
13. No specific substance requirements and an absence of strict transfer pricing rules.
14. Foreign beneficiaries are not liable to pay additional tax on dividends or profits over and above the amount paid or payable by the respective legal entities.
15. Low personal tax rates and low social insurance contributions.
16. Mergers, Takeovers and other Re-Organizations can take place within groups without tax consequence.
17. Unilateral tax-relief for foreign tax suffered is granted to all Cypriot companies.
18. Tax losses can be carried forward indefinitely and can also be surrendered as group relief.
19. Interest deduction for borrowing costs provided.
20. Added commercial value and monetary benefits due to the ability to register for EU VAT in Cyprus.

Cyprus non-tax Incentives

1. Cyprus has an excellent infrastructure allowing clients to create substance to their tax planning in the form of setting up fully-flexed offices and operations.
2. Very low expense level for financial and professional service provision and operational costs in general, compared to other EU Jurisdictions.
3. English is the most widely used business language. The Cyprus Legal System is based upon English Common Law.
4. Modern and efficient multilingual banking & financial services sector.
5. Professional, friendly and efficient Government services and Tax Authorities and a mature professional services sector.
6. Strategic location and time zone, excellent air and sea connections and telecommunications.

Tax Planning ideas

In the following sections we outline the most popular structures using a Cyprus Limited Liability Company. A Cyprus limited liability company is a fully taxable entity and is able to carry out all kinds of business activities by having a general corporate object.