Business In Cyprus
The Republic of Cyprus provides an excellent location for establishing and holding companies through its transparent legal system, with clear influences from its English counterpart. The island's market economy and lack restrictions on movements of capital and people - in full harmonization with EU laws and regulations - make it an ideal investment centre. Cyprus is a member of the European Union and the Eurozone, while its tax system is fully compliant with EU and OECD requirements. Since joining the EU in 2004, Cyprus has become a prominent investment gateway of the region connecting the EU and the dynamic economies of Central and Eastern Europe, and particularly Russia, Ukraine, China and India.
An Ideal Holding Company Location Of The EU And The Eastern Mediterranean Region
- Dividend income is entirely tax-exempt.
- Under the law of Cyprus, all expenses incurred for the production of associated income are deducted before arriving at taxable income.
- The corporation tax rate of Cyprus stands at 12.5%, which constitutes one of the lowest in the European Union.
- Dividends received by one Cyprus-resident company from another are exempt from all forms of tax.
- The profits of a Cyprus company's permanent establishment in another jurisdiction are similarly exempt, subject to the same conditions as for dividends.
- Non-exempt dividend income is subject to special tax contribution at the rate of 17% only for Cypriot residents. Tax credits are available for taxes paid abroad.
- Interest income which is the result of the main activities of the company or which is closely connected to those activities is subject only to corporation tax at a rate of 9%. Group finance income is treated identically to active trading income.
- Mergers, acquisitions and other corporate reorganisations may generally be implemented without any tax cost.
- The sole withholding tax levied by Cyprus is a 10% (subject to treaty provisions) tax rate on royalties derived from the use of a right or asset within the Republic of Cyprus. All remaining dividend, interest and royalty payments made to non-residents may be made without any tax deductions.
Tax Benefits Of Individuals & Prospective Investors In Cyprus
The benefits afforded by Cyprus' existing corporate and financial status quo render Cyprus a highly attractive investment and intermediate holding company jurisdiction, offering the following benefits:
- Groups investing outside Cyprus may flow through income streams, which will usually be tax-exempt in Cyprus and not attract withholding tax as they depart.
- Subsidiaries that have the potential for significant capital appreciation may be held in Cyprus and sold without any liability to tax on gain.
- Cyprus' double tax treaty network with several other countries, including the Russian Federation, Ukraine, China, the UAE and India, as well as the EU Parent-Subsidiary Directive offer several tax planning opportunities to prospective investors.
- Cyprus offers a favourable exit strategy under Cyprus law, which allows payment of dividend, interest and royalties without payment of withholding tax.
- In general, Cyprus offers a well-regulated, business-friendly environment with a minimum of unnecessary 'red tape', allowing investors to go about their business quickly and efficiently.
Cyprus can also be used as a location for an ultimate holding company, in particular being ideal for any fund or investment vehicle, as there is no tax on transactions in securities as defined, even if this is the specific entity's main trading activity. With there not being any withholding tax on dividends, there is no ambiguity or lack of clarity over recovery of paid tax.
The Ideal Location To Settle Disputes
The influence of the English legal system and case law have allowed Cyprus to preserve and implement a judicial structure whereby all cases are concluded precisely, while applying a contemporary and fair approach, fully based on case law precedents, in dispute settlements through multi-jurisdictional court actions and procedures.
Legal fees in Cyprus are competitive and in line with the European Union and international standards. Legal, court and local administration fees are also very competitive, in comparison to other countries providing a level of excellence equal to that of Cyprus.