Cyprus: Why Cyprus Is A Tax Incentive Country

Last Updated: 5 June 1998
Cyprus is a tax incentive country and not a tax haven, i.e. a country with an acceptable level of taxation rather than no taxation at all. The amendment of the Cyprus tax law in 1977 introduced a favourable rate of tax for foreign companies registered in Cyprus. We have named these companies "offshore" simply to indicate that they carry on their business outside Cyprus. To complete the definition of an offshore company, we must say that these entities must be owned by non - Cypriots.

A number of favourable factors make Cyprus attractive to foreign businessmen and investors. These may be summarised as follows:

GEOGRAPHICAL POSITION

Cyprus is situated at the meeting point of the continents of Europe, Asia and Africa. The proximity of this location to the Middle East has led a large number of foreign companies operating in the area to set up a base on the island for their activities outside Cyprus. At the same time it has a very good climate and a convenient time zone in relation to Europe and Middle East.

STATUS OF CYPRUS

Cyprus is an independent country, a member of the United Nations, the Council of Europe, the Commonwealth, a member of the Non-Aligned Countries, it has an associated status with the European Economic Community (it has already signed a Customs Union Agreement with the EEC). Perhaps more significantly Cyprus has friendly relations with the Arab world and other developing countries. Such an important status is considered, from a business point of view, as most advantageous.

INFRASTRUCTURE

The infrastructure of the island is probably one of the most sound ones in its geographical area as a whole. A summary of the most notable features of the infrastructure in Cyprus are:

  • First class telecommunications system which is considered as one of the best in the world. Cyprus is ranked among the top 10 countries in the world as far as telephone facilities are concerned.
  • High quality professional and managerial services as well as efficient staff available at all levels.
  • Pleasant, European standard of living.
  • Efficiency of Government services and integrity in the administration of justice.
  • Low operational costs and relatively low cost of living.
  • English language widely spoken and used.
  • All important law, especially in business, is based on English law.
  • High standard of medical care and private clinics.
  • Well trained and educated labour force and academics.
  • Accounting firms and law offices are well organised and provide a service of a high professional standard.
  • A well developed banking system, capable of coping with the diversified needs of the local business community as well as those of the foreign investor.
  • Good climate, good food, beautiful scenery, historical interest and hospitable, friendly people.
  • Freedom of movement of foreign currency.
  • Crime free environment.
  • Availability of foreign schools.
  • Availability of shipping services.
  • Good industrial relations.
  • Frequent and in many cases daily air connections in all directions.
  • High quality hotel, housing and office accommodation.

Tax System

The fact that Cyprus has already tax treaties with a number of countries and bearing in mind that the substantial tax advantages and exemptions which are offered, Cyprus is perhaps one of the most attractive places for International Tax Planning. Furthermore, due to the favourable treaties that Cyprus has with "European Eastern Block" countries a lot of western corporations are using Cyprus for their operations in East European countries.

The important tax and other incentives enjoyed by offshore entities and their employees are as follows:

a. Reduced income tax rate for companies

Limited companies' profits are charged at the rate of 4.25%. In addition, there is not withholding tax on dividends paid by these companies. All expenses incurred for the earning of income as well as annual tax depreciation on fixed assets are allowed as tax deductions.

b. Exemption from exchange controls

Once an entity is given "offshore" status it is not subjected to exchange control restrictions which means that freely transferable foreign currency accounts ( in any currency ) can be kept both in Cyprus and abroad.

c. Reduced income tax rates for foreign employees

Foreign employees working for an offshore company enjoy the following tax incentives:

(a) For services rendered within Cyprus, they are taxed at rates equal to 50% of the normal income tax rates applicable for individuals. The normal income tax rates are as follows:

Chargeable               Tax
Income                   Rate
£                        £

Up to -   5.000          0
5.1  -   8.000            20 cents
5.2  8.001 - 11.000       30 cents
5.3  Over - 11.000        40 cents
(b) For services rendered outside Cyprus, they are taxed at rates equal to 10% of the normal income tax rates if their earnings are received outside Cyprus and they are completely exempt from taxation if received in or through Cyprus.

d. Duty free goods

Cars, office and household equipment (excluding office furniture) are free of import duty for offshore entities and their foreign employees.

e. Exemption from social insurance contributions

Offshore entities and their foreign employees are fully exempt from social insurance contributions.

f. Exemption from capital gains tax

Full capital gains tax exemption on capital gains, except on sale of immovable property situated in Cyprus.

g. Estate duty exemption on inheritance of shares in an offshore company.

h. Exemption from stamp duty

Full stamp duty exemption on contracts entered into by offshore entities.

i. Bonded facilities

Full facilities are offered for - bonded warehousing -bonded yards for keeping and maintaining equipment - storing of materials and goods in transit without payment of import duty.

j. Legalisation of documents from Cyprus Chamber of Commerce.

FORMATION OF OFFSHORE COMPANY

The basic steps that our firm will follow in setting up a company are:

a) Obtain approval of company name from the Registrar of Companies.

b) Draft memorandum and articles of association of the Company and submit to the Registrar of Companies together with the necessary documents ( i.e. list of directors and secretary, address of registered office etc. ).

c) Obtain approval from the Central Bank of Cyprus for the issue of shares to non-residents.

The following information is needed to incorporate the company:

a) Proposed share capital. This should be at least C£1.000 (approx. US$2.000).

b) The nature of company's principal activities.

c) Full name, address, occupation and nationality of each proposed shareholder.

d) Number of shares to be held by each proposed shareholder.

e) Proposed company name. Please avoid general names and if possible suggest two or three names in order of preference. The proposed company names should be sent to us by telefax as soon as possible, as obtaining the approval of the company name is the only procedure that delays the registration of an offshore company.

f) Full name, address, occupation and nationality of each proposed director and full name and address of the secretary. It is advisable to appoint at least two directors. There is no necessity to have local directors.

g) Name, address of company secretary and registered office.

h) Bank references as to the financial standing and integrity of each prospective shareholder ( required by Central Bank of Cyprus).

ANNUAL REQUIREMENTS

The company is obliged to file annual audited accounts to the Central Bank of Cyprus and the Income Tax office.

The provisions of the law concerning limited companies in Cyprus are practically identical to those of the U.K. 1948 Act (including requirements for book-keeping, accounting and auditing). Our firm can provide such audit and accountancy services our fees being based on time spent and the level of responsibility required.

Apart from audit and accountancy, our firm could offer its assistance in other areas such as:

a) Formalities in setting up an office

b) Assistance with obtaining the required work permits

c) Assistance with obtaining the required registration for duty free purchases

d) Taxation advice

e) Book keeping and payroll services

f) Recruitment of personnel

g) Company secretarial and directorships

h) General consultancy and other related services

i) Formation of company

j) Applications to the Central Bank for the issue of shares to non-residents

k) Provide registered office

l) Provision of nominee shareholders

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions