Situated at the crossroads of Europe, Asia and Africa, Cyprus is in a strategic position, which has contributed to its development into an international business center. The island’s legal system, its well developed banking system and the high standard of professional and other support services combined with the security of investment and the generous tax incentives create an ideal location for registration of IBCs.
Following a tax reform approved in July 2002 aiming to conform to the standards of the European Union, there is no longer a distinction between local companies and IBCs. The Cyprus tax law is in line with the European Union tax directives and the Cyprus IBCs are in essence European companies with all the advantages this entails.
The taxable profits of all Cyprus Companies as from 1st January 2005 are taxed at the rate of 10%.
The new taxation system applies only to the world wide income of:
Tax residents of Cyprus; andCyprus – source income of non residents.
“Tax residence” – In the case of a Company it means a company whose “management and control” is exercised in Cyprus. This is a factual matter which is affected by a number of factors, the most crucial factor being the place of Directors’ meetings, where Board decisions are taken. Also, the residence of the Directors and the degree of control exercised by them on Company decisions are factors taken into account.
The following are exempted from corporation tax:
Profits from the sale of securities are not taxable for all Cyprus tax residentsProfits earned from a permanent establishment abroad are fully exempt from corporation tax (there are exceptions)Dividend income received in Cyprus by a foreign corporation is wholly exempt from tax in CyprusDividends payable – there is a 15% withholding tax on dividends distributed to shareholders who are residents of Cyprus, but no tax on dividends paid to non resident shareholdersDividends receivable – dividends received from a foreign company are not subject to withholding tax of 15% (under certain provisions)there is no tax on dividends paid by a Cyprus resident company to another Cyprus resident CompanyInterest income acquired from the main activities of the company or closely connected to those activities (“trading interest”) is subject only to corporation tax at a rate of 10%.50% of interest earned other than interest earned in the ordinary course of business is exempt from tax. The other 50% of such interest is treated as “trading interest” and is subject to corporation tax at the rate of 10%.There is no withholding tax on payment of interest and royalties to non residents.
The impressive network of double tax treaties combined with the low tax paid by the Cyprus companies offer tremendous possibilities for international tax planning through Cyprus in view of the fact that:
Any tax paid in a country with which Cyprus has a treaty is deducted from the Cyprus tax payable on the same income; and Cyprus does not impose any withholding tax on dividends, interest and royalties paid by Cyprus international business companies.
The main purpose of these treaties is the avoidance of double taxation of income earned in any of the two contracting States. Under these agreements either a credit is allowed in a contracting State in respect of tax levied by the other State on the same income or such income is exempt from tax. Thus the taxpayer does not pay more than the higher of the two rates or is not taxed twice on the same income.
Holding Companies satisfying minimum requirements can be established with 0% tax rate on dividends, making Cyprus the most competitive jurisdiction for holding companies.
Trading Companies engaged in global international trading may be established with 0% taxation in all respects, provided their management and control is outside Cyprus. Trading companies which are now looking for respectable jurisdictions with EU “stamp” have the possibility to use such a structure on their trading tax planning.
Companies engaged in the trading of titles i.e. shares etc may be formed with 0% taxation on profits.
Nominee Shareholders – Full secrecy may be achieved by using nominee shareholders.
Reorganizations – mergers, de-mergers, transfer of assets and exchange of shares – are exempt from income tax (0%).
Unilateral tax-relief is granted to all Cyprus companies including IBCs for foreign tax suffered irrespective of the absence of a double tax treaty. Any amount of tax paid for any income taxable in Cyprus, in any foreign country is given as a tax credit in Cyprus and the tax due in Cyprus is reduced accordingly.
Losses suffered by a Cyprus company are carried forward and set off against future profits indefinitely.
Group relief is allowed. Losses of one company in the same group are set-off against the profits of another company of the group.
The first step to set up an IBC is to apply to the Registrar of Companies for approval of the company’s name. This takes about 4 working days.
Secondly, an application is made to the Registrar of Companies to register the company in accordance with the Cyprus Company Law and Regulations.
All companies have to file with the Registrar a Memorandum and Articles of Association of the company, which will indicate the objects, the share capital and the names of the subscribers to the Memorandum as well as regulations for the General Meetings, voting rights of the members, powers of directors etc.
The registration of the company usually takes about 10 days from the date of filing of all the necessary documents.
We have shelf companies and approved names available for immediate use. When the company name is available and acceleration fees are paid, registration may be concluded in approximately 5-6 working days.
If a shelf company is purchased, the procedure for dispatching the documents may be concluded in 2-3 days.
For the registration of the company, the following is required:
The name of the company, the names, addresses and nationalities of the Directors, Company Secretary and Shareholders, together with copies of their passports. A form shall be provided by our firm to be completed by each foreign shareholder, director, company secretary to this respect.References for each Shareholder. We require a reference from a bank, professional accountant, lawyer or existing client.The amount of the Authorized and Issued Share CapitalThe number of shares to be held by each ShareholderCompany’s main activities/objects.
Upon registration of the company, the Registrar issues a Certificate of Incorporation as well as certificates of Shareholders, Directors and Secretary, and registered Office. True copies of the Memorandum and Articles of Association of the company are also provided by the Registrar.
Each company must have at least one director, but it is recommended that at least two Directors be appointed. Directors may be Cypriots or Foreigners. However, for tax purposes it is advisable to appoint Cypriot Directors. Facilities for appointing local Directors are offered by our firm.
The company must have a Secretary which will act on the instructions of the Directors and will keep the company’s statutory registers and will perform the general administration of the company.
Every company must have a registered address in Cyprus where writs, summonses, notices, orders and other official documents may be served upon the company.
Preparation of Financial Statements – Tax returns
Annual financial statements must be prepared and filed with the Registrar of Companies presenting a true and fair picture of the affairs of a company and explaining its transactions. The financial statements must be prepared according to International Accounting Standards.
Annual Tax returns must also be prepared and filed with the income tax authorities.