Cyprus: International Business Companies In Cyprus

Last Updated: 2 October 2000

A. Cyprus As An International Business Centre

Cyprus is located in the Eastern Mediterranean close to Europe, Asia and Africa. It is the third largest island in the Mediterranean.

The island is considered to be a primary offshore and international business centre offering facilities and many benefits to the international businessman.

There are many factors that make Cyprus an attractive place for the establishment of an International business entity, known as an offshore entity.

The major ones are outlined below:

  • a stable democratic Government
  • the island enjoys a good climate most of the year and is a safe place to live
  • standard of living is high at a relatively low cost
  • excellent telecommunications services connecting the island with the rest of the world
  • there are a lot of highly respectable local banks offering banking services of a very high standard with complete confidentiality
  • no exchange control restrictions for offshore companies
  • Cyprus has signed an impressive number of double tax treaties with many countries for the avoidance of double taxation, giving the foreign investor the ability to reduce taxation on his investments with careful international tax planning
  • professional services including legal, accounting and consulting are of a very high standard.

B. Advantages Of Establishing International Business Company In Cyprus

International business entities established in Cyprus enjoy a great number of advantages, as follows:

  1. there are no exchange control restrictions for offshore entities. Any currency accounts can be kept both in Cyprus and abroad.
  2. the net profit of International business entities is taxed at the low rate of 4.25 %
  3. profits of International business partnerships are non taxable
  4. International business branches having their management and control outside Cyprus are not liable to income tax on their profits or are subject to tax at the rate of only 4.25 % if their management and control is in Cyprus
  5. no withholding of tax on dividends received by the shareholders of International business companies
  6. interest earned on foreign funds imported into Cyprus and deposited with any bank, either local or offshore in Cyprus is non taxable
  7. No inheritance tax on inheritance of shares in an International business company
  8. No capital gains tax on capital sales except on sale of immovable property situated in Cyprus
  9. full stamp duty exemption on contracts entered into by offshore entities
  10. foreign employees of International business entities providing their services in Cyprus, are liable to Cyprus income tax at a rate equal to half of the normal Cyprus tax rates, these vary from 0 to 20%
  11. foreign employees of International business entities working outside Cyprus but receiving their salaries out of foreign funds remitted through Cyprus are not liable to Cyprus income tax. If their salaries are paid from foreign funds which are not remitted through Cyprus they are taxed at rates between 0 to 4%.
  12. full import duty exemption for the importation or purchase of cars, office and household equipment for the use of the offshore entity and its foreign employees provided they have an office in Cyprus and employ expatriate personnel.
  13. the use of a wide range of double tax treaties with many countries of the world offering significant possibilities for international tax planning For example the double tax treaty with Russia provides that dividends are subject to either 5% or 10% withholding tax whereas royalties and interest are not subject to withholding tax.

C. Types Of International Business Companies

There are several types of International business companies;

Holding And Investment Companies

Corporations and Individuals regularly make use of offshore companies to hold investment portfolios. Such portfolios may consist of stock, bonds and other investment products.

The extensive double tax treaty network of Cyprus with other countries will allow substantial tax savings on withholding tax on any dividends paid. Withholding tax with countries that a double tax treaty has been signed varies from 0% to 15%.

Similar will be the tax savings in respect to any royalties and interest paid from a company in a contracting state to a Cyprus company. Numerous were the cases where the ownership of patents copyrights and trademarks was assigned to a Cyprus company simply to avoid paying the high withholding taxes in the other contracting state, upon the payment of any royalties

On the disposal of the investment portfolio no capital gains tax will be payable in Cyprus.

In some instances individuals and corporations has used an International business company to avoid large amounts of capital gains tax on the disposal of land and/or buildings.

In other cases companies wishing to invest in Eastern Europe and CIS countries have used a Cyprus International business company to channel their investment to make full utilisation of the benefits of the Cyprus Double tax network with these countries.

Shipping Companies

Due to its strategic position Cyprus has attracted some of the biggest shipping companies in the world. Shipowning companies are completely exempt from tax.

Employment Companies.

Many companies utilise International business companies for the employment of staff working on overseas assignments thus providing extensive savings on the company as well as to the employee in respect to social security benefits and personal taxation.

Trading And Re-Invoicing

One of the most popular uses of a company incorporated in a low tax area is for international trading. Significant tax saving opportunities can arise by interposing an offshore company into an international trading transaction. If an International business enterprise were to procure products from one country and then sell them to another the profits arising out of the transaction may be accumulated in the International business enterprise.

Other Types

  • finance companies
  • construction and engineering companies
  • offshore branches
  • offshore partnerships

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.

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