ARTICLE
30 December 2024

Cyprus Revises Its Start-Up Visa Scheme

MK
Michael Kyprianou Law Firm

Contributor

The firm, based in Cyprus, has an international presence. Its services include Dispute Resolution, Property, Shipping, Immigration, Commercial and Corporate Law. It is highly ranked by leading legal directories, including Legal500 and Chambers and regularly receives accolades from the Cyprus Government and international bodies, in recognition of its excellent service and commitment to the values of integrity, efficiency and professionalism.
The Council of Ministers of Cyprus has approved a number of revisions to the existing start-up visa scheme, with a goal of making it more attractive for talented entrepreneurs from third countries, to enter...
Cyprus Immigration

The Council of Ministers of Cyprus has approved a number of revisions to the existing start-up visa scheme, with a goal of making it more attractive for talented entrepreneurs from third countries, to enter, reside and work in Cyprus in order to establish and operate a start-up.

The decisive revisions to the scheme include:

  • An extension to the residence permit offered to successful applicants from 2 to 3 years, with a possibility of 2-year renewals, instead of the original renewal for 1 year;
  • A reduction to the required percentage of equity the third country applicants must have in the Cypriot company from 50% to 25%. It is noted that a start-up group applying for this specific visa may consist of up to five founders (or one founder and additional executive members), and must have a minimum of €20.000 capital or €10.000 if the founders are less than two;
  • An increase to the ability of employing third country nationals from 30% to 50% of the company's entire staff, with the option of hiring additional foreign personnel if the start-up investment in Cyprus is equal to or exceeds €150,000;
  • The implementation of different evaluation criteria for start-ups that have sales revenues of at least €1,000,000, and whose research and development expenditures amount to at least 10% of their total operating expenses for one of the past 3 years.

While the updated programme offers greater flexibility to foreign entrepreneurs and investors, it also establishes more distinct and objective conditions for the renewal of the start-up visa after the initial 3-year period. Specifically, start-ups wishing to renew their relevant visas will be required to demonstrate either a minimum increase of 15% in their revenues or investments of at least €150,000 during the period of their operation in Cyprus. Additionally, the companies applying for a renewal visa will be expected to have either created in Cyprus at least 3 new jobs, or participated in a local innovation support scheme, or launched at least one product or service.

The above amendments are aimed at enhancing the emerging start-up ecosystem of Cyprus, which is generally known for its diverse and business-friendly environment. A successful start-up visa application will offer to the company the ability to benefit from a number of advantages, particularly crucial for the start-up's early development stages. Some of these benefits are indicatively listed below.

Tax benefits

With an ever-expanding double tax treaty network of approximately 70 countries across the globe, Cyprus offers a number of tax benefits to start-ups and foreign investors of such start-ups, such as:

  • A non-Cypriot individual relocating to Cyprus to set-up their startup is exempt from tax on both dividend and interest income, though they will still be subject to income tax on any income earned from their employment in Cyprus.
  • Corporate tax on net profits of Cypriot companies is currently set at 12,5%. Technology companies producing Intellectual Property can apply for an 80% tax exemption, reducing the corporate tax rate to an effective 2.5%.
  • Capital gains arising from the disposal of the qualifying IP are fully exempt from tax. Any gains earned by the entrepreneur from the disposal of his/her shares in a Cypriot tax resident company are generally exempt from tax in Cyprus.
  • Cyprus tax resident companies may carry forward tax losses incurred during a tax year over the following five tax years to offset future taxable profits, allowing startups, which are commonly loss making in their early stages, to benefit from reduced taxation in the future.
  • Upon the introduction of new equity, a Cyprus tax resident company is entitled to claim a notional interest deduction (NID) as a tax-deductible expense. The deduction is available on an annual basis and may reach up to 80% of the taxable profit generated from the new equity. Depending on the level of capitalisation, a startup company may reduce its effective tax rate to as low as 2,5%.
  • Profits from disposals of corporate 'titles' are tax exempted from corporate income tax. Capital gains on immovable property situated in Cyprus (and on non-quoted shares directly or indirectly holding such Cyprus-situated immovable property) are however taxed.
  • Special defence contribution is imposed only on non-exempt dividend income, 'passive' interest income, and rental income earned by Cypriot tax resident companies and Cypriot permanent establishments of non-Cyprus tax resident companies.
  • Investors in innovative start-up companies (which have been certified as such by the Ministry of Finance in Cyprus) can enjoy an up to 50% tax exemption on their annual taxable income in Cyprus.

Low business costs

The costs involved with setting up and operating a Cypriot start-up are significantly lower than those in other major European countries. These costs include the average hourly rates for labour, costs for technical and professional talents, office rental rates and critical business support services, such as legal and accounting services.

Our services

Our firm's dedicated team includes specialists on the full spectrum of the law, which can offer support, guidance and advice either during the establishment of the start-up or throughout its development and operation, with extensive experience on matters relating to, amongst others, intellectual property protection, the incorporation and administration of Cypriot companies, tax benefits and structures, preparation and negotiation of all necessary funding, shareholders or joint venture agreements, and many more.

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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