Business relocations made easy without losing great employees. Expand your borders, with Cyprus.
Headquartering your business and relocating to Cyprus is now easier than ever before. Due to numerous regulatory reforms taken place recently, foreign companies can now be established in Cyprus without losing their employees simple and fast.
On 15th of October 2021, the Council of Ministers approved the 'Strategy for Attracting Businesses for Activities or/and Expansion of their Activities in Cyprus'.
The Strategy constitutes an initiative towards the development of an international high-growth business centre in Cyprus. It provides numerous benefits for foreign entrepreneurs who wish to expand their business activities or for those who wish to enter the European market. It places Cyprus among the jurisdictions with significant advantages when it comes to relocating a foreign business in Cyprus.
As of January 1st, 2022, the Fast-Track Business Activation mechanism, has been evolved into the Business Facilitation Unit (BFU). The purpose of the BFU is the fast and efficient processing of requests received from foreign companies for the establishment of a company in Cyprus or the expansion of activities of existing companies. It acts as the central point of contact for all companies of international interest, either operating or wishing to operate in Cyprus.
Companies which fulfil the following criteria are considered 'eligible companies' able to apply through the BFU for fast-track registration and incorporation of a company in Cyprus.
- The majority of the company's shares are owned by third-country nationals;
- (It is noted that in the event that the percentage of the foreign participation in the share capital of the Company is equal to or below 50% of the total share capital, the Company is eligible when this percentage of the share capital represents an amount equal to or greater than the amount of €200,000.);
- Public companies registered on any recognised stock exchange;
- Companies of international activities (formerly offshore), which operated before the change of the regime, whose data are held by the Central Bank;
- Cypriot shipping companies;
- Cypriot high-tech/innovation companies;
- Cypriot pharmaceutical companies or Cypriot companies active in the fields of biogenetics and bio-technology;
- Companies of whom the majority of the total share capital is owned by persons who have acquired Cypriot citizenship by naturalization based on economic criteria, provided that they prove that the conditions under which they were naturalized continue to be met.
An enterprise qualifies as 'High Technology Company' and therefore as an eligible company able to register through the Business Facilitation Unit if it is already established and has a presence in the market, it has a high level or experimental R&D intensity, and it developed product/s that fall into one of the following categories: products related to aviation and space industry, computers, electronic and telecommunication products, pharmaceuticals, biomedical, research and development equipment, electrical machinery, chemicals, non-electrical machinery.
It is worth to note that the registration and incorporation of eligible companies is completed within 7 working days.
Therefore, a foreign interest company which opts to relocate to the Republic of Cyprus can do so quickly and easily. Further to this, relocating a foreign company to the Republic of Cyprus can be beneficial for the company, the shareholders as well as the employees.
The list of advantages for headquartering a business in the Republic of Cyprus is quite extensive offering strong incentives to foreign companies which consider relocating their business.
To start with, Cyprus has an attractive taxation system, considered to be one of the most competitive taxation systems in the European Union.
Tax Benefits for Companies | The Cyprus Corporation Tax
The corporation tax rate is 12.5% on any resulting net profits. Specific type of income are exempt; dividend income is exempt from Income Tax. In rare cases dividend income is taxed under Special Defense Tax. Also, any profit from the disposal of titles is exempt from taxation.
Royalty income from qualifying IP assets (i.e., patents) can be taxed under the "IP Box" with effective taxation as low as 2,5%.
In addition, and in respect to Capital Gains Tax, only the direct or indirect disposal of immovable property situated in Cyprus is subject to Capital Gains Tax.
The tax incentives do not stop here; there is also no withholding tax on outgoing payments of dividends, interest and royalties not used in Cyprus provided that recipient is not in EU's list of non-cooperative jurisdictions.
Cyprus has also a wide network of double tax treaties which enable the receipt of dividends, interest and royalties from abroad with low or zero withholding tax.
Companies established in Cyprus have also the ability to claim tax credit on taxation paid abroad on foreign income provided that the income is taxable in Cyprus.
Tax Benefits for Individuals
There is a great number of tax incentives for individuals in Cyprus. To start with personal taxation, the first €19.500 of taxable income is exempt from Taxation. A progressive system of taxation is applied on taxable incomes beginning from 20% and reaching up to 35% for taxable income above €60.000.
Dividend income is exempt from Income Tax and is taxed under Special Defence Contribution (SDC) Tax at 17%. This does not apply to Resident but non-domiciled individuals.
Any profit from the disposal of titles such as shares, bonds, ADRs, units of funds, options on titles etc, is exempt from taxation.
Social Insurance Contributions are set at 8.3% (capped on €54.864 of annual gross salary) and GESY Contribution at 2.65% (capped on €180.000 of annual income)
Contributions to Social Insurance, the GESY, approved pensions funds, health and life insurance premiums are deductible for the calculation of an individual's taxable income. It should be noted that such allowances cannot be more than 1/5 of the taxable income.
Also, capital gains tax applies only on direct or indirect sale of immovable property situated in Cyprus. Taxed at 20% on gains.
Regarding pension income, an individual may opt to be taxed at a flat rate of 5% (first €3.420 tax free).
In addition, resident individuals can benefit from zero or reduced withholding taxes on income received from abroad due to Double Tax Treaties.
Tax benefits for residents but non-domicile
Dividend income received by a non-domiciled individual is exempt from both SDC and Income Tax. Rental income received by a non-domiciled individual is exempt from SDC and is taxed only under Income Tax and passive interest income received by a non-domiciled individual is exempt from both SDC and Income Tax.
Tax benefits for relocated employees
There is a tax exemption of 50% of the Taxable Income derived from Employment in Cyprus subject to the fulfilment of the following conditions:
- The relocated employee must receive income from employment of at least €55.000 per annum;
- The exemption applies if the employee was not a Cyprus tax resident in the preceding 12 months before the commencement of employment;
- The exemption is applicable for a maximum of 17 years.
Tax Resident Individuals are taxed in Cyprus on their worldwide income.
An individual who spends at least 183 days in one or more periods in Cyprus within the same tax year is considered as a Tax Resident of Cyprus.
An individual who spends at least 60 days in one or more periods in Cyprus is considered as a Tax Resident of Cyprus subject to the fulfilment of all the following conditions:
- Does not spend more than 183 days in one or more periods within a tax year in another country and is not considered as a tax resident in another jurisdiction;
- Maintains an owned or rented property in Cyprus; and
- Is an employee or director of a Cypriot company.
Favourable IP Box regime
Under the Cyprus IP regime, 80% of the qualifying profits generated from qualifying assets is considered to be tax deductible expense from qualifying taxpayers.
Apart from the numerous tax incentives, a foreign interest company can headquarter its business in Cyprus without losing great employees.
Employment of third country nationals
Eligible companies may employ third country highly skilled nationals with minimum gross monthly salary of 2,500 EUR; the maximum number of whom is set at 70% of all employees over a period of five years from the date of joining the BFU. After the lapse of five years, and in case the company cannot employ 30% of Cypriot workers, the matter is re-examined on a case-by-case basis. This measure not only gives a major benefit to the foreign entrepreneurs who opt to headquarter their business in Cyprus having their employees relocated in the island, but also gives them the flexibility to keep their employees for five years or more if deemed necessary. The TCNs should be holders of a university degree or diploma or equivalent qualification or confirmation of relevant experience in a corresponding employment position of at least two years duration and should also submit an employment contract of not less than two years.
In addition, eligible companies may employ third-country nationals (TCNs) support staff with a gross monthly salary of less than 2500 EUR (salary determined by the current legislation) provided the TCNs do not exceed 30% of the total staff and provided that there is an employment contract between the TCN and the employer.
Of course, the question turns to be whether a TCN who relocates to Cyprus to work with an eligible company has the right to family reunification or not.
The answer is affirmative; spouses whose family member has obtained a residence and work permit in Cyprus, and who receive a minimum gross monthly salary of 2,500 EUR (excluding support staff) have the right to immediate and free access to the labour market.
Work permit and residence permit under the fast-track procedure shall be obtained within 4-6 weeks from the date of submission of an application.
TCNs may also transfer the social insurance contributions paid in Cyprus when he/she returns to his/her country of permanent residence based on bilateral agreements.
After 5 years of residence and work in Cyprus, the third country nationals have the right to apply for naturalization. In case of proven knowledge of Greek language, the third country nationals have the right to apply for naturalization after 4 years.
Digital nomad visa
Third country nationals (salaried employees) who work remotely with clients outside Cyprus can under the "Cyprus Digital Nomad Visa" Scheme reside in Cyprus for at least 1 year. Their family members may also obtain a residence permit but are not allowed to engage in any form of economic activity.
It should be noted that this is a residence permit, not a work permit and may be obtained provided the applicant meets the following conditions:
- Minimum monthly net income from abroad of 3500 euros, increased by 20% for spouse/cohabitee and by 15% for each child;
- A responsible declaration that he/she will not offer any services to an employer in Cyprus;
- An employment contract or proof of an employment relation with an employer situated outside the Republic of Cyprus;
- If self – employed: evidence to proof the capacity of the applicant in his/her company, line of business of his/her company.
The list of advantages that Cyprus offers to foreign interest companies and third country nationals is not exhaustive; though taking into consideration all the above, one can agree that Cyprus business ecosystem is very welcoming and offers substantial benefits to third country nationals who opt to relocate to the island as well as to foreign interest companies which can relocate their businesses easy without losing great employees.
The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.
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.