Cyprus: Doing Business With Russia And Eastern Europe Through Cyprus

Cyprus is considered to be a very popular international business centre in the European Union. This is mainly due to the fact that Cyprus has a very beneficial tax system, wide range of Double Tax Treaties (DTT), high qualified personnel and developing infrastructure. The past decades the country has attracted a lot of multinational companies and international investors from all over the world that use Cyprus and Cyprus Companies as the base of operations when making investments in jurisdictions other than Cyprus.

International investors usually use Cyprus Companies when making investments in Russia and Eastern Europe. Cyprus is ranked 1st (2015 figures) investing jurisdiction in term of Foreign Direct Investment (FDI) into Russia. Cyprus is considered as top investing jurisdiction in other countries as well as clearly indicated in the table below.

"There is no alternative to Cyprus as a jurisdiction. The tax system for holdings is far too advanced and flexible. The Netherlands and Luxembourg do contain some features, but those conditions are still not as favourable for investors. There is no direct matching. You cannot simply take a Cyprus company and replace it like a piece of Lego in Luxemburg. You would need to use several jurisdictions, with several layers of holding companies in order to achieve a cascading system of tax distributions." (Source: Cyprus – Russia relations WIKIPEDIA, Vladimir Gidirim, Partner in the International Tax Department of Ernest & Young)

The table also indicates the FDI ranking Cyprus has in these particular jurisdictions and also the applicable rates of the DTT and the EU directives that Cyprus may apply with these jurisdictions.

Source: https://en.santandertrade.com/

Main features of the Cyprus Tax System:

• Resident companies pay one of the lowest taxation rates in Europe (12.5%) on their net profits.
• Dividend Income is exempted from Corporation Tax.
• Profit from sale of titles is exempted from Corporation Tax.
• No capital gains tax paid on the transfer of immovable property situated abroad (outside Cyprus).
• No tax on profits of an overseas establishment, subject to certain conditions.
• 80% of Royalty Income is exempted from taxation of IP owning companies.
• Notional Interest Deduction (NID)on new equity introduced into a Cyprus company.
• Shipping companies are taxed under Tonnage Tax System.
• No CFC rules.
• No Thin Capitalisation rules.
• Group relief is granted (75% holding).
• Unilateral tax credits granted on tax paid abroad.
• Tax Losses can be carried forward for 5 years.
• No withholding taxes (WT) on payments of dividends, interest and royalties to non – residents.

Significant exemptions are also in place for Tax Resident non-domiciled individuals:

• No taxation on passive income (dividends and passive interest) for non-domiciled individuals.
• 50% exemption on income from employment in Cyprus of a person who was not previously resident in Cyprus. The exemption applies for ten years, provided that the income from employment in Cyprus exceeds €100,000 per annum.

Citizenship and Residency Schemes for Investors

• Foreign citizens may obtain Cyprus passport if the criteria are met.
• Foreign citizens may obtain Permanent Residency if the criteria are met.

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.