Cyprus offers a favourable tax system and a wide network of double tax treaties.Whether a client wants to expand internationally or set up a tax resident base in Cyprus, we can offer advice at local level.

 

 Non-Resident Companies

Companies managed and controlled outside of Cyprus are not tax resident in Cyprus and will be taxable in Cyprus on their Cyprus source income only. Therefore, a company deriving income from sources outside Cyprus will not be liable to taxation while at the same time it can enjoy the prestige of an EU registered company. In the case of a trading company, it may also receive an EU VAT registration number (subject to eligibility).

  

Financing Company Structure

 

 

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Cyprus companies can be used very efficiently for group financing activities as Cyprus has no thin capitalization rules or withholding tax on interest. A Cyprus financing company can provide subsidiaries interest bearing loans using the wide double tax treaty network of Cyprus. This can result in a double dip effect provided the financing is undertaken from a tax efficient location i.e., the interest will be tax deductible in the operating location and will be tax free in the recipient jurisdiction. Any margin remaining in the Cyprus company will be subject to income tax at the rate of 12.5%.

 

Holding Company Structure

 

 

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Cyprus has become the most popular holding company jurisdiction in Europe and amongst the most popular in the world. A Cypriot holding company enjoys the following tax advantages:

 • Full exemption from tax on dividend income received from participations (subject to non stringent conditions).

 • No withholding tax on distributions of profits irrespective of the country of residence of the recipient or the existence of a double tax    

   treaty.

 • No capital gains tax or income tax on the liquidation of the Cypriot Holding Company;

 • No capital gains or income tax on the liquidation of participations;

 • No capital gains or income tax on the sale of the shares of the Cypriot Holding Company;

 • Reduced withholding taxes on dividends received from treaty countries;

 • No capital taxes or net worth taxes during the life of the Cypriot Holding Company;

 • Use of the wide double tax treaty network with over 50 countries which provide for

 • Full exemption from capital gains tax and income tax on the disposal of securities;

 • Unilateral tax credit relief irrespective of the existence of a double tax treaty;

 • No substance requirements, no debt-equity restrictions, no minimum holding period and no thin capitalization rules;

 • Use of EC Directives.

 

 Companies trading in goods and services

 

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Cyprus companies can be used efficiently in trading activities either in the form of purchasing and selling goods or receiving and providing services. Any profit realised by the Cypriot company would be taxable at the rate of 12.5% with no further corporate tax implications. In addition, the profits accumulated in the Cypriot company can be expatriated to the holding company with no withholding taxes irrespective of the country of residence of the recipient or the existence of a double tax treaty. The Cypriot company conducting the trading activities would be able to obtain a VAT registration number but the physical delivery of the goods in Cyprus is not a requirement.

 

 Companies trading in securities

 

 

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Any profits from the disposal of securities, irrespective of whether the profits arise from the company’s trading activities or are of a capital nature, are exempt from tax in Cyprus. Hence, security trading companies can structure their operations via Cyprus and achieve nil taxation and at the same time enjoy EU identity and regulations. In accordance with the tax legislation “Securities” are defined as shares, debentures, Government Bonds, founder’s shares or other shares of companies or other legal entities which have been incorporated in Cyprus or abroad and any kind of options thereon.

 

Employment Company Structure

 

 

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A Cyprus company can be used tax efficiently as an employment company. It can employ staff on overseas assignments and charge operating companies at a cost plus basis. The profits will be taxable in Cyprus at the rate of 12.5% and the taxable profits of the operating companies will be reduced accordingly. In addition, the salary costs for the operating companies will be significantly reduced as social security and other employer contributions are much lower in Cyprus than most other EU countries. The employees will not be subject to tax in Cyprus.

 

Royalty Company & Intellectual Property Structures

 • Royalty income

 The legislation provides for an 80% exemption on royalty income (net of any direct expenses) arising from the exploitation of IP by a Cyprus company. The remaining 20% will be subject to the corporation tax rate of 12.5%, resulting in an effective tax rate of 2.5% or lower. For the determination of net income from royalties, the law allows for deduction of expenditure incurred wholly and exclusively for the development or acquisition of the Intellectual Property

 • Intellectual Property (IP)

 Gains from the disposal of IP

 A Cyprus IP holding company will also benefit from the 80% exemption provisions in regards to gains (after deducting direct expense) arising from the disposal of the IP.

 5 Year amortization period

 Capital Expenditure related to Intellectual Property acquisition or development may be deducted in the first year in which the expense was incurred as well as in the subsequent four years, i.e. development or acquisition expenses are amortized over a period of 5 years. This in practice lowers the effective tax rate to less than 3%

Conditions

• No conditions, either in the form of a limited definition of IP, related party acquisitions and/or a minimum holding period are attached to the above advantageous tax regime.

 

Shipping Companies

The main taxation provisions available for the shipping industry are:

 

Ship owners

Exemption from any Cyprus income tax on: •the income of a ship owner of a Cyprus ship from the operation of such ship in any shipping activity between Cyprus and ports abroad or between foreign ports (the operation of ship includes the chartering of a ship)

 • dividends that are paid directly or indirectly from profits of ships

 • salaries and other benefits paid to master, officers and the crew

 • no withholding taxes on dividends paid by ship owning companies

 • no capital gains tax on the sale of the ship or on the sale or transfer of the shares of a ship owning company

 • reductions on tonnage taxes where the ship is managed by a Cyprus ship management company

 • no estate duty (death duties) on the shares of the ship owning companies

 

Ship managers

 • tax is paid at rates equal to 25% of the tonnage tax rates. Ship managers could elect to be taxed at a special corporation tax rate of

    4.25%

 • exemption from taxation of dividends that are paid directly or indirectly from ship management profits

 • no withholding taxes on dividends paid by ship management or their related companies

 • no capital gains tax on the sale of shares of these companies

 • no estate duty (death duties) on the shares of these companies

 

Crew earnings

The earnings of the crew of Cyprus ships are exempt from Cyprus income tax or social security payments. In addition, because of the Double Taxation Treaties of Cyprus or because of domestic legislation in their countries, foreign crew may enjoy up to total freedom from taxation in the countries of their nationality or residence.

 

Cyprus International Trusts

The main Trust law of Cyprus enacted in 1955 is based on the English Trustee Act 1925 and on the doctrines of equity and case law of England. In 1992 the law on Trusts was amended to introduce legislation to meet demands emanating from the globalization of trade, which resulted to the concept of the Cyprus International Trusts.

Characteristics of the Cyprus International Trust

 The main characteristics of the Cyprus International Trust are:

 • the settlor must be a non-resident of Cyprus

 • with the exception of a charitable institution, the beneficiary must be a non-resident

 • at least one of the trustees is at all times a permanent resident of Cyprus

 • the trust property does not include any immovable property in Cyprus

 

Benefits from the use of a Cyprus International Trust

 • no formal registration is required

 • no taxation on any income or capital gains of the trust

 • no estate duty is payable

 • complete confidentiality is imposed on the trustees on the disclosure of financial

    or other information

 • subject to the provisions of the Trust Deed, complete freedom of the trustees

    to invest the whole or part of the funds in any kind of investment

 • the settlor may through a Cyprus international business company controlled by him,

    become a trustee or its sole trustee thus effectively managing the trust