Cyprus: Business And Investment Opportunities in Cyprus - 3. Cyprus As An Ideal Location

Last Updated: 1 December 1999

Cyprus compares extremely favourably with similar jurisdictions because of the numerous advantages which it offers. Many of these advantages are inherent in the country's geographical position, while others have been tailored to suit the demands of foreign investors and international entities. The result is a most attractive package of incentives which covers every facet of business life.

Prominent among these incentives are straightforward registration procedures, constructive administrative measures, an impressive range of double taxation treaties and favourable tax benefits. However, the authorities have successfully maintained a balance so that the creation of a favourable commercial environment has not disturbed the impeccable reputation enjoyed by all international businesses on the island. Clearly, the fact that the island is a low-tax jurisdiction and not a tax haven is material and ensures that these businesses do not attract the suspicion of foreign revenue or tax authorities.

The tremendous growth in the number of foreigners participating in the Cypriot economy is ample testimony to the enormous appeal which Cyprus has to international investors. Certainly, there are few locations which are able to offer the same extensive and wide-ranging incentives that are offered in Cyprus with warmth, hospitality and pride.

The following advantages are perhaps the most appealing:

3.1 Stability

Though located in the often volatile Eastern Mediterranean area, Cyprus is a centre of democracy and stability where businessmen from all nations are able to conduct their affairs in a harmonious and friendly environment. The rule of law is a well-entrenched principle which is endorsed by free elections and a European-style parliamentary system. In addition, the authorities' desire to assist foreign businesses is strengthened by the friendly and enterprising spirit of the Cypriot people themselves.

3.2 Geographical Location

Cyprus is privileged to enjoy what is possibly one of the most strategic geographical locations in the world. The island is situated at the crossroads of Europe, Asia and Africa and also forms a gateway to the oil-rich Arab states and the rest of the Middle East. It is, therefore, a convenient springboard for business activities in any of the trade centres located in these areas.

In addition, the island shares the same time zone as other major centres in the area and is also within easy travelling distance of the rest of Europe and the Middle East. The international airports at Larnaca and Paphos offer daily flights to all major destinations in these areas.

3.3 Taxation

All Cyprus international business entities may take advantage of the many tax benefits which the authorities have designed specifically to provide maximum profit potential. Chief among these benefits are the low tax rate of 4.25% applicable to the net profits earned by international business companies and the total tax exemption for international partnerships. Foreign personnel enjoy equally favourable tax rates. In addition tax incentives have been introduced to attract foreign investment in respect of certain local companies and projects. The various tax benefits are examined in more detail in sections 4 and 9.

3.4 Double Taxation Treaties

Cyprus has concluded double taxation agreements with more than 40 countries which provide important tax advantages. Cyprus' double taxation treaties with the Central and Eastern European countries, China and India contain no anti-avoidance provisions and Cyprus international business companies may therefore be used beneficially as holding, licensing and finance investment vehicles in those countries. Of the treaties now in force, only Canada, Denmark, Germany, France, Sweden, the UK and the USA contain "limitation of benefits" articles. With the exception of Canada and the USA which exclude Cyprus international business companies from all the provisions of the relevant treaties, in all other treaties Cyprus international business companies, albeit denied the reduced rates of withholding taxes, may still claim the benefit of other treaty provisions such as the permanent establishment clause or tax sparing credits. The "limitation of benefits" article contained in the above treaties only affects the flow of income from those countries to Cyprus and not income flows from Cyprus to other countries. The treaties and some of the ways in which they can be put to beneficial use from a tax planning point of view are discussed in section 21.

3.5 Respectability

While the policy of the authorities has been in favour of assisting and promoting all business sectors in Cyprus, this has not operated to affect adversely their respectability or good standing in the eyes of the international business community. The framework of control placed on most business activities serves to boost the reputation of all Cyprus-based entities while also allowing them to operate in an environment which is as free from onerous bureaucratic restrictions as possible.

In many sectors no specific legislation has been passed to give international business entities special advantages or benefits. For this reason, international business companies, international banking units (IBUs), captive insurance companies and international trusts are subject to the same laws and regulations as those pertaining to their local counterparts and so there can be no suggestion that they operate in accordance with inferior standards or in an unprofessional manner.

3.6 Registration Procedures

The procedure for the incorporation of a Cyprus legal entity can be completed within a period of two weeks at the most and enables the legal entity to start business forthwith. Applications for registration of captive insurance companies, international banking units and shipping companies as well as all other forms of international business entities are favourably considered. In certain instances, these companies may also be exempt from many of the regulations applying to their local onshore counterparts, although not to an extent which will endanger their respectability.

3.7 Commercial Infrastructure

The commercial infrastructure of Cyprus is well developed. It offers a civilized and respectable environment in which pleasant working and accommodation conditions are combined with low operational costs and living expenses.

Not only are there many well qualified lawyers who are experienced in company law and tax planning but also a number of international accounting firms are represented in Cyprus as well as many engineering, insurance, trust and shipmanagement companies. Furthermore, there is an ample supply of university graduates who are available to work in all sectors of the economy.

The English legal system, practice and procedures which the island acquired during the period of British rule are firmly embodied in the fabric of almost every commercial sector. As these procedures are widely used in most English speaking countries and certainly in the majority of former British colonies, they are usually readily understood by foreigners who have registered Cypriot international companies or are engaged in international tax planning exercises on the island. Although the official languages of the Republic are Greek and Turkish, English is spoken by the majority of the population. It is also a language which is taught extensively in schools and is widely used in commerce, industry and administration.

Telecommunications in Cyprus are of a very high standard and Cyprus prides itself as one of the most developed countries in this field. Nearly 99% of the world's telephones in 197 countries can be reached automatically from Cyprus, while the rest of the world is accessible via the operators. The telefax service is available to all countries operating such a service, whereas the telex service is provided to almost all countries of the world. Audiotex, video conferencing, Videotext, electronic mail, message handling system X.400 and voice mail services are also available.

Cyprus is served by two international airports situated near Larnaca and Paphos. They handle about 360 scheduled flights operated each week by 33 international airlines as well as flights operated by 28 charter airlines. The island is rapidly becoming a major international transit station for commercial air transportation with excellent conditions with the entire region. Seaborne traffic is served by the two multi-purpose ports of Limassol and Larnaca which are being used increasingly as regional warehouse, distribution and container transhipment centres. About 100 shipping lines include Cyprus in their regular schedules to and from six continents. More than 5,500 ships totalling 15 million net registered tons call at Cypriot ports every year.

3.8 International Relations

The fostering and promotion of good international relations with neighbouring states and countries further abroad is an express policy of the Republic of Cyprus and every effort is made to ensure that good relations are maintained with all international organisations. Cyprus maintains extensive diplomatic relations and is a member of the United Nations, the Council of Europe, the Commonwealth, the World Bank, the International Monetary Fund, and the Non-Aligned Group. It is also a signatory to various international conventions and bilateral cooperation agreements.

An association agreement was signed in 1972 between Cyprus and the European Union which provided for the abolition of all barriers to trade and the establishment of a customs union in two stages; the first was completed in 1997 and the second is due to be completed by 2003, by which time the free and unrestricted movement of industrial and agricultural products between the member states of the E.U. and Cyprus, the abolition of all quantitative restrictions and the Common Customs Tariff will be fully effective. In July 1990 Cyprus applied for full membership of the E.U; the accession process began in March 1998 and Cyprus hopes to complete it by 2003.

3.9 Exchange Control

Cyprus international business entities are all exempt from the prevailing exchange control regulations due to their non-resident classification. Accordingly, the Island is an ideal location for the maintenance, transfer and conversion of funds which is facilitated by excellent telecommunication and efficient international banking services. For greater detail please refer to section 9.9.

3.10 Confidentiality

Confidentiality in all business transactions is an element which the Cypriot authorities have perfected in respect of the activities of nearly all commercial sectors. Laws and procedures governing financial and business conduct have been specifically drafted to ensure that this element is carefully protected and maintained. Thus the registration of Cypriot international business entities can be effected through the appointment of nominees to hold shares on behalf of the beneficial owners, whose identity remains secret. The identity of the beneficial owners need only be disclosed to the Central Bank of Cyprus which holds this information in the strictest confidence. Privacy of the constitution and membership of trusts as well as their transactions and activities is secured through an absence of registration or reporting requirements and even the identity of a settlor may be protected if required. In Cyprus the safeguarding of the confidentiality of a bank's customers and their transactions is a cornerstone of banking policy.

3.11 Access to international markets

Cyprus based entities have been increasingly expanding into international markets. There are already numerous multinational companies operating on the island and Cypriot businesses maintain good links with markets abroad. Naturally, the elements of respectability and confidentiality assist in foreign expansion and this is supported by the island's international relations.

3.12 Low costs

The incorporation costs of all Cypriot entities are quite reasonable when compared with those of other jurisdictions. In addition, all other administrative and official fees and levies are inexpensive. While office and living accommodation is both plentiful and of a high standard, it is not expensive. The overheads of all businesses can therefore usually be kept at a conservatively low figure.

The purpose of this publication is to assist clients and associates in clarifying and appreciating the range of opportunities which are available in or through Cyprus. Although every effort has been made to provide the reader with a clear and comprehensive picture of the island's beneficial regime, it should be appreciated that is not possible to cover all aspects comprehensively in a publication of this size.

Individuals or companies who are seriously considering using Cyprus for any of their international business activities are advised to obtain expert professional advice before taking positive action.

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