Cyprus is an island country in the eastern Mediterranean Sea, located south of Turkey, west of Syria and Lebanon, northwest of Israel, and southeast of Greece. It is the third largest and third most populous island in the Mediterranean.
There is a country at the junction of the three continents of Europe, Asia and Africa: Cyprus. It is the smallest EU member state by both population and territory.
Anyone who has visited the southern side of the island, inhabited primarily by Greek Cypriots, will have experienced the tangible prosperity: 800 000 inhabitants and 600 000 cars.
The state budget is expected to produce a surplus, and inflation is low. Unemployment is virtually non-existent; although on paper it is currently some 3.3%, this is counter-balanced by the 80 000 or so foreign workers who find work in the tourism and agricultural sectors.
For many years the driving force behind the economy was tourism, but nowadays this is no longer the case. The most significant income received by the state now comes from financial services.
From time to time, the income of the Registrar of Companies now reaches 1 000 000 euros per day. This figure is now given in euros, as since January 1st 2008 the official currency of Cyprus has been the Euro.
MOUXTIBAY Ltd. has been present in Cyprus since 1999, in the form of our own subsidiary company. We have been carefully watching the development of the system by which Cyprus alone within the European Union has committed itself to long-term low tax rates.
Is Cyprus: a tax haven within the EU?
The financial results of recent years have shown conclusively that in the case of a small country, this financial strategy can produce the expected results.
On the other hand, foreign investors can operate their companies within the framework of a stable and reliable financial environment and regulatory system.
With many years of experience in Cyprus behind us, we thought it would be a good idea to outline the main benefits of Cypriot companies and the tax system, which may be of use to both existing and future clients. Happy reading and calculating!
Facts about Cyprus:
| Country name: | The Republic of Cyprus |
| Location: | Island in the Mediterranean, close to the southern coast of Turkey |
| Area: | 9250 km2 (area of the whole island) |
| Capital city: | Nicosia |
| Time zone: | GMT + 2 |
| Official currency: | Euro |
| Official language(s): | Greek and Turkish, but English is widely used |
| Religion: | The majority of the Greeks are Orthodox, while the Turks are primarily Muslim |
Main characteristics of companies registered in Cyprus:
| Company type: | The most commonly registered company is the private limited company by shares. |
| Legislation: | Company Law, Cap. 113 as amended. |
| The registration process: | The Memorandum and Articles of Association of the company must be signed by the shareholders and witnessed. The Greek version is then filed with the Registrar of Companies. If the document satisfies all legal requirements, the Registrar of Companies issues the Certificate of Incorporation. Separate certificates are issued confirming the details of the directors and secretary, the shareholders, and the registered office. |
| Time required for registration: | 2-3 weeks. |
| Possible company endings: | Limited or Ltd. |
| Are shelf companies possible? | Yes. |
| Restrictions on company names: | The company name must first be approved by the Registrar of Companies. The expedited procedure takes approx. 4 working days. Certain words, such as Euro, European, Royal, National, Global, Imperial, Cooperative, Investment, Financial, Trust, Insurance, Bank, Building Society, Municipal, Chamber of Commerce, University, are either not permitted, or require special prior approval from the authorities. |
| Company activities: | Once formed, the company can carry out any of the activities set down in the Memorandum and Articles of Association. These documents include an extremely wide variety of activities. Activities involving finance, insurance, and asset protection are subject to the obtaining of special licenses. |
| Number of shareholders: | Minimum 1, maximum 50, who may be either private individuals or corporate entities. |
| Number of directors: | Minimum 1, no maximum is placed by law on the number of directors. |
| Capitalisation requirements: | The generally accepted capital is 1000 euros. |
| Type of shares: | Although the law officially allows for the issue of bearer shares, the Registrar of Companies only registers companies with registered shares. |
TAX RESIDENT COMPANIES: Companies that are registered in Cyprus, and whose “management and control” takes place in Cyprus can be considered as Tax Resident in Cyprus. Only resident companies are subject to corporate tax, and only they can take advantage of agreements entered for the avoidance of double taxation and obtain EU VAT numbers.
The benefits of the tax system in Cyprus for tax resident companies
- The basic rate of corporation tax is 10%, the lowest in the European Union.
- Dividends received by Cypriot companies are not generally subject to tax in Cyprus. The legislation treats income of this kind as a special, non- taxable, category
- There is no withholding tax in Cyprus on dividends paid by Cypriot companies to either private individuals or companies.
- Generally, there is no tax in Cyprus on profit from the sale of stocks and shares. The term “shares” is very broadly interpreted by the tax authorities in Cyprus; the shares in a limited liability company not registered in Cyprus, for example, also fall into this category.
- Only 50% of income from interest on the repayment of loans is taxable in Cyprus, provided that this is not in the form of financing within a group of companies, and not from financing as the usual business activity of the company.
- Salaries and honoraria not arising from activities performed in Cyprus and paid to private individuals not resident for tax purposes in Cyprus are tax-free in Cyprus.
- If a company is a tax resident in Cyprus, then it can apply for a so-called EU VAT number, which facilitates the acquisition and sale of goods and services within the EU. It should be noted, however, that the EU VAT number is not supplied automatically. The authorities treat every application on an individual basis, investigating the background and activities of the company making the application, as well as the identity of the individuals behind it.
- The accounting and administration systems are extremely liberal. In accordance with international standards, all companies must prepare audited accounts each year, but the tax laws in Cyprus do not recognize certain terms and concepts. In this way, there are no restrictions in regard to loans to members, regulations on under-capitalization are not applied, and transactions performed with controlled foreign companies (from countries with low rates of tax) are not examined.
- Cyprus has entered into an extremely wide range of agreements for the avoidance of double taxation. There are currently 43 such agreements ensuring the advantageous operation of companies registered in Cyprus; these are primarily of benefit to holding companies.
PRIVATE INDIVIDUAl RESIDENT for tax purposes in Cyprus: A private individual is considered a resident for tax purposes in Cyprus if, he/she spends a total, over one or more visits, of more than 183 days per year in Cyprus.
The advantages of the tax system in Cyprus for tax-resident individuals:
- The first 19 500 euros of salaries paid to private individuals resident for tax purposes in Cyprus are free from personal income tax.
- Private individuals are not required to pay tax on the sale of real estate or the shares of companies owning real estate, apart from capital gains tax. In this way, most income from the sale of stocks and shares is free from tax. This applies to both stock exchange and non-stock exchange transactions.
- Private individuals resident for tax purposes in Cyprus are not subject to tax on gifts
- Private individuals resident for tax purposes in Cyprus and their heirs are not subject to inheritance tax.
The banking system in Cyprus is stable, and, with the exception of cash movements, the banking transactions of foreigners are treated very liberally. It is possible to open accounts for both private individuals and companies with all of the large banks. Accounts are generally operated via the Internet, and the banks provide a wide range of bank cards to go with the accounts.
The major banks on the island are the Bank of Cyprus, Marfin Popular Bank, Hellenic Bank, Alpha Bank and Eurobank EFG.