Cyprus: The Developing International Financial Centre

Last Updated: 12 April 2000
In view of its strategic location, situated in the eastern part of the Mediterranean sea at the crossroads of Europe, Asia and Africa, Cyprus has since ancient times been regarded as an important international business centre.

In addition, its past historical connection with the United Kingdom has given it the advantages of English based legal, accounting and banking systems, which have contributed to the development of the infrastructure necessary for Cyprus's growth as a financial centre. Cyprus law closely follows English law and nearly all the major international accounting firms are represented on the island. The local law firms are of a very high calibre, many of them specialising in international trusts, international tax planning and finance.

It was the combination of the above environment with the advantageous tax policies, introduced in 1975 - tax on profits from international business operations ranging from 0% to 4,25% - that triggered off the rapid evolution of Cyprus as an international business and financial centre.

As a result of Cyprus's success in becoming one of the world's primary international business centres for trading, investment and shipping activities, more than 36.500 international business companies and about 2.673 ships are currently registered in Cyprus. The development of the banking and financial services industry was therefore a natural consequence.

In this respect, Cyprus offers not only impeccable professional, technological services and ample skilled human resources to cater for international financial needs, but also an agreeable living environment combined with its people's welcoming attitude.

INTERNATIONAL BANKING

Cyprus has attracted a substantial number of international banks, its 34 International Banking Units (IBUs) / Administered Banking Units (ABUs) and 4 Representative Offices of foreign banks come from a variety of countries including: Belgium, Bulgaria, France, Germany, Greece, Jordan, Lebanon, Luxembourg, Romania, Russia, Switzerland, the UK and the USA.

Applications for the establishment of an IBU / ABU in Cyprus may only be submitted by foreign incorporated banks enjoying a good reputation internationally and which have an established track record of growth and profitability. Out of a total of 34 IBUs / ABUs, only 9 are locally incorporated the rest being branches of established foreign banks.

An applicant bank must originate in a country which exercises strict banking supervision. The Central Bank of Cyprus, always obtains the written consent of an applicant bank's home licensing and / or banking supervisory authority as well as its undertaking that it will exercise consolidated supervision over the global activities of the applicant bank, including the operations to be carried out from within Cyprus.

The Central Bank supervises IBUs / ABUs by both on-site inspections and by monitoring through the various prudential periodic returns which are submitted to it by IBUs / ABUs. The main purpose of the supervisory framework is to ascertain whether IBUs / ABUs abide by the conditions attached to their banking business licence and to verify that prudent banking policies are followed.

Cyprus is a tax incentive orientated country, but not a tax haven, and offers benefits aimed at foreign individuals and enterprises who wish to conduct their affairs in confidentiality, from within the island. Having stated the above, it must be emphasised that Cyprus is not prepared to tolerate criminal activity. In this regard, it should be noted that Cyprus has signed and ratified the "1988 U.N. Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention)" and the "1990 Council of Europe Convention on Laundering, Seizure and Confiscation of the Proceeds from Crime" on the basis of which the Cyprus House of Representatives has enacted the Prevention and Suppression of Money Laundering Activities Law of 1996. Under this law, a person is obliged to disclose to the Unit for Combating Money Laundering a suspicion or belief that any funds or investments are derived from or used in connection with all forms of serious criminal activity.

INTERNATIONAL FINANCIAL SERVICES COMPANIES

In the last ten years, there has also been a substantial growth in International Financial Services Companies ("IFC"s) which have established a presence in Cyprus. These IFCs originate from a variety of countries and offer a wide spectrum of financial services to the public, ranging from investment advice to the management of investment portfolios and the establishment and operation of collective investment schemes. The current number of IFCs offering financial services from within Cyprus is 105.

A person, whether natural or legal, submitting an application to the Central Bank for the establishment of an IFC, must be "a fit and proper" person before being allowed to be involved in the provision of financial services. An application for the establishment of an IFC is subject to a detailed vetting procedure and in this respect the applicants are required to complete specifically designed questionnaires, including details of their academic and professional qualifications as well as previous employment history.

The Central Bank, for instance, obtains a "Letter of Authorisation" from an applicant which enables it to exchange information with overseas regulatory authorities and to seek directly from other independent sources positive evidence of the good standing and experience of the applicant(s). It must also be emphasised that an applicant, in order to be successful, must be able to arrange for "Letters of Comfort", to be provided to the Central Bank, by overseas regulated financial services firm, with which the IFC will have a legal or other close business association.

INTERNATIONAL COLLECTIVE INVESTMENT SCHEMES

The Central Bank also welcomes applications for the establishment and management in Cyprus of International Collective Investment Schemes ("ICIS") which, at present, may take the form of either an International Public Investment Company ("IPIC") with fixed capital, with or without redeemable preference shares, established under the Cyprus Companies Law (by having redeemable preference shares an IPIC's paid-up capital can effectively be reduced if such flexibility is required) or as an International Unit Trust Scheme ("IUTS") constituted under the provisions of the 1992 Cyprus International Trusts Law.

A new law, which will govern the establishment and regulation of international collective investment schemes in Cyprus is expected to be enacted very soon which will consolidate into one law the regulation of existing forms of ICIS (i.e. IPIC and IUTS) and will introduce new forms of ICIS such as variable capital companies, investment limited partnerships and limited duration companies. The new law also provides for the authorisation of Trustees and Managers and its sets out their eligibility criteria and duties. Furthermore, it provides for the taxation of ICIS in a manner designed to encourage their establishment in Cyprus.

TRUSTS

In July, 1992, Cyprus brought in a new international trusts legislation. This is an excellent piece of legislation which has enhanced further the reputation of Cyprus as an international financial centre, creating the infrastructure for Cyprus to emerge as a major trust jurisdiction. The availability of the 27 tax treaties between Cyprus and other countries, together with the complete exemption from taxation of the income and profits of international trusts, can provide the international tax planner with a valuable tool for minimising the tax burden of a trust and its beneficiaries. Confidentiality is the cornerstone of the International Trusts Law of Cyprus, which ensures that the trustee of any other person, including officers of the Government and the Central Bank, may not disclose to any person any information or documents. In addition, the Cyprus International Trusts Law offers effective asset protection by making it difficult for third parties to invalidate the trust, even in the event of a settlor's bankruptcy, unless clearly fraudulent intention was behind the creation of the trust.

Good quality corporate trustee services are available in Cyprus from the trustee departments of banks, accountants and law firms as well as from international trustee services companies, which undergo the same vetting procedure as the one described for the establishment of IFCs above, prior to being permitted by the Central Bank to establish a presence on the island.

DOUBLE TAXATION TREATIES

Special mention deserves to be made to the double taxation treaties between Cyprus and the eastern European countries, including the members of the Commonwealth of Independent States (except Kazakhstan), Bulgaria, the Czech Republic, Hungary, Poland, Romania and the Slovak Republic. The existence of these treaties combined with the low tax paid by international business entities offer tremendous possibilities for international tax planning through Cyprus bearing in mind that:

  • Any tax withheld in a country with which Cyprus has a treaty is deducted from the Cyprus tax payable on the same income;
  • Dividends, interest and royalties paid by international business companies are exempt from Cyprus tax;
  • Cyprus is not considered as a tax haven by most tax jurisdictions and is thus free from reservations usually associated with tax haven operations. In contrast to tax havens, Cyprus is a tax incentive country which offers incentives aimed at attracting foreign enterprises and individuals that wish to conduct their business activities from or through Cyprus.

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 from a local lawyer or accountant.

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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.