Cyprus: The Offshore Regime And Cyprus' Accession To The European Union

By Andreas Neocleous, Managing Partner

Mr Chairman

I will try during the next 15 minutes, to lay down certain legal aspects and problems of the present and future of the offshore regime of Cyprus, in conjunction with its prospect of becoming a member of the European Union.

There are two myths about this story:

Myth number one: the Cyprus accession to the European Union is a must. It will be a great victory and will act as a panacea automatically resolving most of the problems and misfortunes of Cyprus.

Myth number two: the Cyprus accession to the European Union will not affect its "offshore regime". There is much confidence that Cyprus will be successful in negotiating and securing preferential treatment like Ireland, Luxembourg etc. so that this regime will be preserved and safeguarded.

The answer to the first myth may be left to the politicians. Accession is desirable to gain leverage on Turkey and to provide a wider framework for the solution of the Cyprus problem. Accession is also desirable to bring challenges and opportunities, flow of capital in the form of loans and grants as well as in the form of technology and know-how. There is however certain scepticism amongst professionals and businessmen about the overall benefits, especially the economic ones of the EU membership. Some fear that the EU membership will not solve problems but on the contrary will create more.

The answer to the second myth is, that under no circumstances, would the existence and operation of an "offshore centre" be accepted as a full member of the European Union as it is not compatible with the Acquis Communautaire.

The examples of Ireland and Madeira are only exceptional cases for a limited period of time and in a limited geographical area - the International Financial Services Centre in Dublin.

Under no circumstances, I believe, the European Union will accept Cyprus or indeed any other member new or old, to operate as an "offshore centre", to shelter wealth or money, to assist in the tax avoidance of other member states, or unfairly compete with other established business or financial centres in Europe such as London, Frankfurt, Amsterdam etc.

Under no circumstances would the European Union accept the conception of the "offshore company" as it appears today and particularly:

  • with the discriminatory distinction between Cypriots and non-Cypriots (Aliens)
  • with the restrictions imposed on the offshore companies not to do business within Cyprus or with Cypriots.
  • and to some extent with the different tax treatment of the "offshore company".

Before proceeding any further, lets examine together what the Cyprus "offshore regime" really is.

First of all, I have not been able to find any definition of the offshore centre, although in many books and articles it is described as a country which has special legislation for offshore companies, offshore banks and offshore insurance companies all of which are usually taxed at nil or very low rate. The offshore centres have no double tax treaties, in fact they have not entered into any treaty with other countries and they are not signatories to international conventions. Moreover they are used by wealthy individuals or international corporations for "brass plate" structures and for sheltering their wealth without tax liabilities. For these reasons they are known as tax havens and they are combined with activities of dubious character or questionable legality.

The international business centres in contrast with the offshore centres, are countries which have suitable infrastructures and expertise to accommodate and service the international entrepreneurial community in conducting their international dealings and transactions.

These countries have a network of double tax and other treaties and they are signatories to many international conventions. They have strict laws and regulations regarding international crimes, money laundering and even tax evasion. Their banking and financial system is highly regulated and supervised and their tax system is uniform and contains no discrimination or favouritism whatsoever.

In these international business centres, we could find some "brass plate" companies, but we can also see the real thing - the fever of the real business life, of the dealings and of the transactions, we can see multi-storey company premises, meetings, financial dealings, investments and cross-border transactions. Such international business centres can be found around the world and also in Europe i.e. London, Frankfurt, Moscow, Brussels. Amsterdam, Athens.

In which of these two categories could one place Cyprus? In the offshore centres category or in the category of the international business centres?

Even the most prejudiced and biased person against Cyprus cannot do otherwise but to place Cyprus in the category of the international business centres, and indeed Cyprus is an international business centre.

  • It has an amazing network of double tax treaties with more than 40 countries
  • It has entered into many other treaties for the promotion and protection of foreign investments and developments, tourism, shipping etc.
  • It is a signatory to almost all the international treaties and conventions
  • It's financial system is strictly regulated and supervised, and
  • finally, here in Cyprus, one can see and touch the real international business life.

International companies, banks, shipping companies, insurance companies and generally many businessmen as well as international corporations have established a real presence and a base here in Cyprus from where they are conducting and administering their international activities and businesses.

I have gone through the legislation of Cyprus to find out whether there is something to substantiate the description of Cyprus as an "offshore centre" and I have found nothing.

Our laws do not distinguish between offshore and onshore companies - there is no definition in our laws for the offshore company. Our Income Tax Laws simply refer to companies which are taxed at the rate of 4.25% if they are owned exclusively by non-residents and if they generate their income from activities outside Cyprus.

If these two conditions co-exist then there is a legal presumption that a company is entitled to enjoy the concession of the lower tax rate of 4.25% instead of 20%.

A similar tax concession is also available to the residents of Cyprus who generate their income from sources outside Cyprus, however in this case the legal presumption does not exist and the Cypriots who are claiming the lower tax rate have the onus to prove that their income is emanated from sources outside Cyprus.

It is therefore about time to stop using terms and phrases which are not recognised by our laws and which can only create confusion and harm to the image and respectability of our country.

  • Cyprus is not an offshore centre - it is an international business centre.
  • Cyprus is not a tax haven - it offers certain tax incentives and concessions like all the other countries of the world.
  • Cyprus has no offshore and onshore companies
  • It has only one type of companies which may carry out their activities either in or out of Cyprus and can be owned exclusively by residents or by non-residents or jointly by residents and non-residents.

It is about time for all of us, the appropriate authorities, lawyers, accountants, bankers and all other professionals and professional organisations to put things into the right perspective and remove the obstacles which we ourselves have placed in our way to the European Union. We should stop promoting Cyprus as an "offshore centre" because it is not. It is much better than this. It is an international business centre.

Let us now examine in brief the policy of the European Union towards the international business centres.

The EU has not enacted any specific legislation regarding international business centres. However, it has enacted a number of regulations and directives which must be implemented by all member states of the EU including international or regional business centres, unless specifically exempted. More importantly, certain provisions of the Treaty of Rome have the same effect.

Reference in these provisions is made to:-

  • The prohibition of discrimination on the basis of nationality. National laws and regulations shall not impede the freedom of cross-border movement of goods, services, labour or capital.
  • Indirect taxation which demands that foreign products are not taxed more heavily than similar domestic products.
  • The common customs code and the freedom of movement of persons, services and capital as well as the co-operation in the field of social policy including all measures relating to working conditions, employment, training, social security etc.

There are certain international or regional business centres in the EU which, although are not exempted from the directives on financial services and money laundering, enjoy certain privileges and have special features which are outside the scope of the acquis communautaire. These centres are dealt with briefly below and can be cited as useful precedents for Cyprus.


Manufacturing companies in Ireland are taxed at the rate of 10%. This rate is guaranteed until the year 2010 and is expressly permitted by the EU. Financial service companies which are established in the International Financial Services Centre IFSC in Dublin also pay tax at the rate of 10% which is guaranteed until the year 2005 with the blessing of the EU.

Additional benefits such as no withholding tax on dividends paid and interest, exemption from municipal tax, no capital gain, no exchange control etc. are also enjoyed by these companies. Ireland is known for its IFSC and its fund management business largely because of its favourable Irish tax regime.


Holland is a low-tax holding company jurisdiction with a large number of double tax treaties and with an advantageous system of advanced binding tax rulings. Holland offers considerable tax concessions to companies owning shares on intellectual property rights and to financing companies.

Like Cyprus, Holland has double tax treaties with all the Eastern European countries. In some respects, these treaties are more beneficial than those of Cyprus and they offer more opportunities in international tax planning set-ups in Eastern Europe.

We know of many cases of non-residents who established a business base in Cyprus and who consequently moved to Holland transferring their business base thereto because of the more favourable concessions and treatment they were offered there.


Luxembourg is one of the oldest members of the EU and has double tax treaties with more than 25 countries.

The well known tax free "1929 Luxembourg Holding Company", as well as the undertakings for Collective Investment in Transferable Securities "UCITS", are excluded from the benefits of the treaties. The Societe de Participation Financiere "SOPARFI" which was introduced in 1990, is considered to be a tax-privileged company which is not excluded from enjoying the benefits of Luxembourg's treaties.


Madeira is a small island in the Atlantic and an autonomous region of Portugal.

Non-residents may establish tax free offshore companies there with the guarantee of Portugal and the acceptance of the EU until the year 2011.

Portugal has a network of double tax treaties (which apply to Madeira as well) with more than 14 countries. However, recently certain countries are either terminating their treaties with Portugal or unilaterally exclude Madeira's zero-tax companies from the benefits of their treaties.

The Channel Islands

Jersey and Guernsey are two small islands between France and the U.K. They are known as low tax international financial centres for the status of their "exempt company", the trust, the captive insurance company and the "limited liability partnership".

Special provisions were negotiated for the Channel Islands in terms of which their rights were unaffected by the accession of the U.K. in 1973. Although they are treated as forming one territory with the U.K. in some areas relating to fiscal harmonisation, the Channel Islands are considered to be third countries and are maintaining their status as offshore centres.

Other zero tax or low tax regimes in the EU.

Whilst on the subject, special reference ought to be made to the so many incentives, offered by the United Kingdom for the promotion of the international business and financial centre of London.

It is also worth mentioning the tax free companies of the Law 89 of Greece, the Co-ordination Centres legislation in Belgium, the new holding companies legislation in Germany and the beneficial holding company regime in Austria.

Mr Chairman

There is no doubt that Cyprus' way to the European Union would be a lengthy one full of difficulties and tough negotiations.

The position of Cyprus as an international business centre could be either jeopardised or further enhanced and strengthened.

In the very limited time which was designated to me, I would dare to make some general suggestions:

1. First of all, we have to prepare and carefully design a strategic plan setting out short-term and long-term goals in respect of each important sector of the Cyprus economy likely to be affected by the accession - the agricultural sector, the industrial sector and the services sector.

2. In our preparation, we have to secure the full and active participation of not only the various Governmental Departments and bodies, but also of all of those who contribute towards the island's economy, through and in conjunction with the relevant professional bodies, trade unions and associations.

3. We have to carry out a scientific study of all the developments which are taking place currently in Europe, with a view to formulating a strong and effective stance during the accession negotiations.

4. Most importantly, we have to re-engineer our status as an international business centre and not only bring it in line with the acquis communautaire but also to make it even more effective and attractive to the multi-national companies and generally to the international entrepreneurial community.

5. Such a re-engineering could provide for certain corrections to our so-called "offshore company" which would make it accessible to both Cypriots and non-Cypriots. There should be only one type of company which can carry out activities in Cyprus or outside Cyprus and which will be treated tax-wise with uniformity, when generating income from abroad, for instance, it could be taxed at a lower rate.

6. Such a re-engineering should also design and promote certain new products or certain areas where Cyprus could be useful to its future European partners, for instance its unique ties with Russia and other Eastern European countries and its increasing role in the financial sector.

Cyprus has no other resources. It has no raw material, no agriculture, no industry, no water, no oil, but only human resources.

The human resources of Cyprus combined with its key geographical position made Cyprus an effective international business centre throughout its long history.

Cyprus is nothing but an international business centre.

It offers its services to its neighbours and generally to the international entrepreneurial community. Cyprus is ready and willing to offer its services to its future European partners. After all this will be its only contribution as it has nothing else to offer.

It is up to the European Union to accept this contribution or reject it.

Thank you.

You may also be interested in the following sites:

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

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
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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 (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

To Use 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.


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.


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