Cyprus: International Business Companies in Cyprus

Last Updated: 22 November 2001
Article by Augoustinos Papathomas

Contents

  1. Cyprus as an International Business Centre
  2. Advantages of establishing International Business Company in Cyprus
  3. Types of International Business Companies
  4. Registration Requirements

International Business Companies in Cyprus

    A. Cyprus as an International Business Centre

    Cyprus is located in the Eastern Mediterranean close to Europe, Asia and Africa. It is the third largest island in the Mediterranean.

    The island is considered to be a primary offshore and international business centre offering facilities and many benefits to the international businessman.

    There are many factors that make Cyprus an attractive place for the establishment of an International business entity, known as an offshore entity.

    The major ones are outlined below:

    • a stable democratic Government
    • the island enjoys a good climate most of the year and is a safe place to live
    • standard of living is high at a relatively low cost
    • excellent telecommunications services connecting the island with the rest of the world
    • there are a lot of highly respectable local banks offering banking services of a very high standard with complete confidentiality
    • no exchange control restrictions for offshore companies
    • Cyprus has signed an impressive number of double tax treaties with many countries for the avoidance of double taxation, giving the foreign investor the ability to reduce taxation on his investments with careful international tax planning
    • Professional services including legal, accounting and consulting are of a very high standard.

    B. Advantages of Establishing International Business Company in Cyprus

    International business entities established in Cyprus enjoy a great number of advantages, as follows:

    1. there are no exchange control restrictions for offshore entities. Any currency accounts can be kept both in Cyprus and abroad.
    2. The net profit of International business entities is taxed at the low rate of 4.25%.
    3. Profits of International Business partnerships are non taxable.
    4. International business branches having their management and control outside Cyprus are not liable to income tax on their profits or are subject to tax at the rate of only 4.25% if their management control is in Cyprus.
    5. No withholding of tax on dividends received by the shareholders of international business companies.
    6. Interest earned on foreign funds imported into Cyprus and deposited with any bank, either local or offshore in Cyprus is non taxable.
    7. No inheritance tax on inheritance of shares in an international business company.
    8. No capital gains tax on capital sales except on sale of immovable property situated in Cyprus.
    9. Full stamp duty exemption on contracts entered into by offshore entities.
    10. Foreign employees of International business entities providing their services in Cyprus, are liable to Cyprus income tax at a rate equal to half of the n9rmal Cyprus tax rates, these vary from 0 to 20%.
    11. Foreign employees of International business entities working outside Cyprus but receiving their salaries out of foreign funds remitted through Cyprus are not liable to Cyprus income tax. If their salaries are paid from foreign funds which are not remitted through Cyprus they are taxed at rates between 0to 4%
    12. Full import duty exemption for the importation or purchase of cars, office and household equipment for the use of the offshore entity and its foreign employees provided they have an office in Cyprus and employ expatriate personnel.
    13. The use of a wide range of double tax treaties with may countries of the world offering significant possibilities for international tax planning. For example, the double tax treaty with Russia provides that dividends are subject to either 5% or 10% withholding tax whereas royalties and interest are not subject to withholding tax.

    C. Types of International Business Companies.

    There are several types of International business companies;

    Holding and Investment Companies

    Corporations and Individuals regularly make use of offshore companies to hold investment portfolios. Such portfolios may consist of stock, bonds and other investment products.

    The extensive double tax treaty network of Cyprus with other countries will allow substantial tax savings on withholding tax on any dividends paid. Withholding tax with countries that a double tax treaty has been signed varies from 0% to 15%.

    Similar will be the tax savings in respect to any royalties and interest paid from a company in a contracting state to a Cyprus company. Numerous were the cases where the ownership of patents copyrights and trademarks was assigned to a Cyprus company simply to avoid paying the high withholding taxes in the other contracting state, upon the payment of any royalties

    On the disposal of the investment portfolio no capital gains tax will be payable in Cyprus.

    In some instances individuals and corporations has used an International business company to avoid large amounts of capital gains tax on the disposal of land and/or buildings.

    In other cases companies wishing to invest in Eastern Europe and CIS countries have used a Cyprus International business company to channel their investment to make full utilisation of the benefits of the Cyprus Double tax network with these countries.

    Shipping companies

    Due to its strategic position Cyprus has attracted some of the biggest shipping companies in the world. Shipowning companies are completely exempt from tax.

    Employment companies.

    Many companies utilise International business companies for the employment of staff working on overseas assignments thus providing extensive savings on the company as well as to the employee in respect to social security benefits and personal taxation.

    Trading and re-invoicing

    One of the most popular uses of a company incorporated in a low tax area is for international trading. Significant tax saving opportunities can arise by interposing an offshore company into an international trading transaction. If an International business enterprise were to procure products from one country and then sell them to another the profits arising out of the transaction may be accumulated in the International business enterprise.

    Other Types

    • finance companies
    • construction and engineering companies
    • offshore branches
    • offshore partnerships

    D. Registration Requirements

    1. Name

    The proposed name should not be too general and should not contain words such as international, group etc.

    A choice of two or three names must be given in sequence of preference.

    2. Share capital

    The minimum recommended share capital is 1.000 shares of CYP1 each.

    If an office is to be established on the island the authorised, issued and fully paid share capital must not be lower than 10.000 shares of CYP1 each.

    3. Shareholders

    Each company must have at least two shareholders.

    In case there is a sole shareholder, it is usual that one share is held by a nominee person or by a local trustee company in trust for the beneficial owner.

    We require full names, address, nationality and the proportion of shareholding for each shareholder. However if confidentiality is required, nominee shareholders can be offered. Even though the Central Bank of Cyprus requires the names of the beneficial owners of the company to be disclosed these are kept confidential.

    4. Central Bank of Cyprus permission

    The Central Bank of Cyprus in order to preserve the good name of Cyprus and to ensure that its permission is given only to reputable persons, requires bank references for the shareholders.

    A specimen of the Bank reference to be sent to the Central Bank of Cyprus by fax

    (02 - 378153) or by mail (P.O. Box 25529, Nicosia, Cyprus) with a copy send to our office, with the following or similar wording:

    The Manager

    Foreign Department

    The Central Bank of Cyprus

    Nicosia, Cyprus.

    "Mr / Mrs ..................................................... has had an account with us since............and we consider him respectable, trustworthy and good for normal business engagements. "

    For and on behalf of

    ....................................... BANK

    ....................................... Signed"

    The permission of the Central Bank normally contains the following conditions:

    • The business shall be confined to activities outside Cyprus.
    • The ownership shall at all times be held beneficially by non-residents.
    • No finance shall be obtained from local sources.
    • All local expenses shall be covered from funds to be imported from external sources.
    • Annual audited accounts shall be submitted to the Central Bank regularly.

    5. Directors

    There are no restrictions as to the manner of appointing directors and the procedure

    is usually laid down in the Articles of Association.

    From a tax planning point of view, it is important that the company is managed and controlled in Cyprus. It is, therefore, recommended that the majority of directors appointed are Cyprus residents.

    If it is desirable that expatriate directors be appointed, it is advisable that no more than one director be appointed from each country particularly where two directors constitute a quorum.

    The following particulars are required for the appointment of a director.

    • Full names
    • Occupation
    • Residential address
    • Nationality

    6. Secretary

    The appointment of a secretary is required by law and this is normally made by the directors in accordance with the provision of the Articles of Association of the Company. It is usual a body corporate that provides secretarial services here in Cyprus to be appointed as Secretary.

    7. Registered Office

    Every company by law must have a registered office where writs, summonses, notices, orders and other official documents can be served upon the company.

    8. Period needed to register a company

    All the registration procedures, including the approval of Central Bank, the approval of the Company’s name, the printing of the Memorandum and Articles of Association, the opening of Bank accounts, up to the time the certificate of Incorporation is issued, can be completed within two weeks.

    9. Nominee services

    Nominee services can be provided (shareholders, directors) should the beneficial owners wish to maintain anonymity.

    10. Corporate documents

    On incorporation of the company the owner of the company will be provided with a full

    set of corporate documents properly legalised and translated from the official language which is Greek, into English.

    Such documents normally comprise:

    • The certificate of Incorporation
    • The Memorandum and Articles of Association
    • The address of the Company’s registered office
    • List of directors, secretary and shareholders
    • Share certificates and/or trust documents

    The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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