Doing Business in Cyprus: Key Benefits for Companies

Thanks to its strategic location and favourable tax regime, Cyprus has long been a favoured location for many international companies to conduct their business.

Stable corporate legislation, low tax rates and widespread recognition among Russian investors all contribute to the fact that the number of Russian companies operating in Cyprus is growing year on year.

Cyprus’s economy, having weathered a difficult period during the crisis of 2013, is beginning to recover, as evidenced by increased interest from foreign investors and the unfreezing of deposits by the country’s main bank – the Bank of Cyprus.

International standards in the field of taxation

In 2009, Cyprus was officially included by the Organisation for Economic Co-operation and Development (OECD) on the ‘white list’ of countries that comply with accepted international standards in the field of taxation and business conduct.

Cyprus’s inclusion on this list (which currently comprises around 40 countries) was seen as a positive development and strengthened Cyprus’s position in the international market.

Since then, Cyprus has become one of the key centres for international trade and attracts multinational corporations that prefer to conduct business in tax-efficient jurisdictions.

Key advantages of doing business in Cyprus

1. Cypriot tax legislation is characterised by predictability and ease of application. Relations between the business community and the tax authorities are characterised by a high level of cooperation and mutual understanding, which ensures effective taxation, particularly in the trade and finance sectors.

The transparency of the tax system and the absence of bureaucratic red tape enhance the island’s competitiveness in the business world and make Cyprus an attractive jurisdiction for conducting international operations.

2. The corporate income tax rate in Cyprus is the lowest in the European Union, standing at 10 per cent.

3. Dividends in Cyprus are not subject to taxation regardless of their source, provided that at least 50 per cent of the profits of the company paying the dividends are not directly or indirectly linked to activities generating investment income, or if the tax rate applicable to the company paying the dividends is at least 5 per cent.

Dividends are not treated as investment income if they are paid, directly or indirectly, by a subsidiary engaged in manufacturing or trading activities. Dividends paid to shareholders who are not tax residents of Cyprus are not subject to tax at the level of the company in Cyprus.

No tax is withheld from a Cypriot company in respect of interest or royalties received from the use of intellectual property rights not registered in Cyprus and paid to persons who are not tax residents of Cyprus.

4. No taxation on securities transactions. Securities transactions in Cyprus are exempt from income tax and capital gains tax, regardless of whether they arise from the company’s commercial activities or are of an investment nature.

5. Income from property is exempt from corporation tax and capital gains tax. Companies registered in Cyprus may be used to acquire property or other assets outside the island, as income from the sale of such assets is exempt from tax in Cyprus.

In the case of transactions involving property situated in Cyprus and shares in companies that own property in Cyprus, where such shares are not listed on a stock exchange, capital gains tax may apply.

6. Cypriot legislation does not provide for a ‘thin capitalisation’ rule; in other words, there is no minimum capitalisation requirement applicable to companies.

7. Cyprus has concluded a significant number of double taxation agreements (such agreements have been concluded with 45 countries), including with countries in North America and Eastern Europe, such as Russia. Such agreements have also been concluded with China and India.

Under these conventions, a reduced or zero rate will apply to dividends, interest and royalties, whilst ensuring that there is no double taxation on the income of individuals and companies.

8. Cyprus grants a unilateral tax credit in respect of taxes paid in another country, provided that the relevant income is taxable in Cyprus. These deductions are granted unilaterally, regardless of whether a double taxation convention exists.

9. The Cypriot tax authorities provide advance rulings on the interpretation of legislation in specific cases, as applied in practice.

10. There are no annual capital or wealth taxes (net worth tax) in Cyprus. The duties and stamp duties levied are negligible.

11. Cyprus complies with the European Union Directive on mergers and acquisitions, therefore transactions involving companies that fall within the definition of ‘reorganisation’ are exempt from corporation tax, capital gains tax, and fees and duties levied on the transfer of assets.

Furthermore, Cypriot legislation permits the merger of one or more companies within the European Union. These companies may be tax residents of Cyprus or may include residents of other EU Member States, regardless of which company is carrying out the acquisition.

12. Upon the liquidation of a company registered in Cyprus and owned by persons who are not tax residents of Cyprus, no capital gains tax, income tax or other taxes provided for under Cypriot law are levied.

Conclusion

Thus, the favourable tax climate, clear legal framework and efficient business practices in Cyprus are extremely advantageous and attractive to international companies.