9.1 Exemption or Reduced Income Tax Rates for International Business Entities
International business entities are subject to payment of minimal corporate income tax, as follows:
9.1.1 International companies, irrespective of where management and control is exercised, are taxed at 4.25%.
9.1.2 International branches whose management and control is based in Cyprus are taxed at 4.25%, but pay no tax when management and control is located abroad.
9.1.3 Partnerships, irrespective of where management and control is exercised, pay no income tax at all.
9.1.4 There is no withholding tax payable on the dividends of international entities.
9.2 Reduced Income Tax Rates for Foreign Employees of International Business Entities
Foreign employees of an international company living and working in Cyprus are liable to income tax in respect of their emoluments which, in addition to the salary, include benefits in kind accruing to the employees from their office or employment. They are taxed at half the normal income tax rates applicable to individuals i.e from 0% to 20% (at current tax rates) depending on the level of the income. Foreign employees of international entities living and working outside Cyprus are taxed at 10% of the normal tax rates, ie from 0% to 4%, unless their remuneration is payable through any bank in Cyprus in which case it is completely exempt from tax. Employees who render services partly in Cyprus and partly abroad are taxed according to the aforesaid rates for income from services rendered in Cyprus and income from services rendered abroad respectively. The basis for establishing the income for services rendered in Cyprus is the employee's period of stay in Cyprus.
Foreign employees are not allowed to claim tax credits but they may opt to be taxed in the normal way where the special mode of taxing their income results in increased tax.
9.3 Exemption from payment of Income Tax on Foreign Capital Interest
Income in respect of interest earned on foreign capital which is imported into Cyprus and deposited with any bank operating in the Republic is tax exempt. If it is considered to contribute to the economic development of the island, the Minister of Finance may exempt from tax interest earned on borrowed foreign capital invested in Cyprus.
9.4 Reduced Income Tax Rates for Foreign Investment Income
Foreign investment income remitted to Cyprus by foreign citizens or Cypriots previously resident abroad is tax exempt up to £2,000 per annum and any amount in excess thereof is taxed at a rate of 5%.
9.5 Exemption from Estate Duty
Property in Cyprus will be exempt from payment of estate duty if it belonged to a person who was domiciled in Cyprus at the date of his death provided it was purchased with foreign capital imported into the Republic and the deceased was permanently resident in a foreign country at any time before death.
9.6 Exemption from Capital Gains Tax
No gain accrues to international companies from the disposal of immovable property outside Cyprus. Capital gains tax is imposed on an indexed basis, only on gains on immovable property, or shares in companies deriving value from immovable property in Cyprus. The tax is levied at the rate of 20% on the proceeds less the cost of acquisition as adjusted by reference to the monthly retail price index.
9.7 Exemption from Stamp Duty
The documents and transactions of all international business entities are exempt from payment of stamp duty.
9.8 Exemption from Value Added Taxation
Transactions effected by Cyprus international business companies are by definition outside the Republic of Cyprus and therefore do not come within the ambit of VAT legislation. Consequently, offshore entities have neither to register for VAT purposes nor to charge VAT when supplying goods or services. However, they have to pay VAT on their local expenditure except on their telephone bills.
9.9 Exemption from Exchange Control
International business entities, their foreign shareholders and their foreign employees are permitted to maintain freely convertible foreign currency bank accounts in any currency, in Cyprus and abroad.
International business entities maintaining an office in Cyprus and their expatriate employees are obliged to open a local disbursement current account (LDCA) with a local bank out of which payments to residents and living expenses in Cyprus are to be made.
9.10 Exemption from Social Insurance Contributions
International business entities and their foreign employees are fully exempt from payment of social insurance contributions. However, such contributions are payable in respect of local employees.
9.11 Duty-Free Facilities
9.11.1 Duty-free facilities are extended to international business entities and their expatriate personnel under item 0.1.18 of the Fourth Schedule to the Customs and Excise Duties Law, 1978. In accordance with this law, duty-free relief is granted, on request, in respect of the following items:
9.11.1.1 motor vehicles e.g. saloon cars, sports cars, station wagons;
9.11.1.2 office equipment of a durable nature (e.g. computers, fax machines, photocopiers) but not of a consumable nature; and
9.11.1.3 household effects of a durable nature (e.g. television sets, video recorders, washing machines), but expressly excluding air-conditioning equipment and furniture.
An international business company is regarded as "any company or enterprise which is engaged exclusively in activities outside the Republic and maintains an office in the Republic."
Relief from duty is granted only in respect of reasonable quantities of office and household equipment. An international business enterprise may acquire a duty-free car provided that it is necessary for business purposes or is to be allocated to a full-time member of its expatriate personnel who is eligible for a duty-free car but has not yet acquired one.
9.11.2 Entitled to relief are:
9.11.2.1 International business companies, a term which applies not only to companies but also to partnerships, individuals and unincorporated associations, which are engaged exclusively in activities outside the Republic and which maintain a continuously proper office in distinct premises (i.e. not part of living accommodation) equipped with normal office facilities and full-time personnel, for use as an office; and
9.11.2.2 their full-time expatriate personnel, consisting of foreigners entitled to live and work in Cyprus under a temporary residence permit issued for that purpose. Expatriates earning an annual salary of CY£12,000 may initially be approved for eligibility and in order to continue to be eligible their expenditure in Cyprus should not be less than CY£12,000 per annum.
The purpose of this publication is to assist clients and associates in clarifying and appreciating the range of opportunities which are available in or through Cyprus. Although every effort has been made to provide the reader with a clear and comprehensive picture of the island's beneficial regime, it should be appreciated that is not possible to cover all aspects comprehensively in a publication of this size.
Individuals or companies who are seriously considering using Cyprus for any of their international business activities are advised to obtain expert professional advice before taking positive action.