In the light of the Panama Papers topic which has been the center of international news recently specialists ServPRO would like to take the opportunity to highlight a common misconception regarding Cyprus.
The Panama Papers leakage puts Switzerland at the top of list of the countries with the most offshore companies registered by the law firm Mossack Fonseca with 38,433 companies whereas only 3.636 companies where found in Cyprus.
According to the figures of the country report prepared by the International Consortium of Investigative Journalists (ICIJ), Cyprus is a reliable country which tops the list of the best countries, along Hong Kong, Britain and others, providing fiduciary services to international companies and high worth net individuals.
Since the late 70s and early 80s Cyprus has been an attractive destination to international investors who brought their offshore companies to Cyprus due to the attractive tax incentives that the country offers.
The use of an offshore company is not illegal; it is a legitimate business activity which is used for the purposes of lawfully maximizing tax benefits and protect assets. Therefore, the majority of money that has made its way to Cyprus was derived from legitimate activities.
Countries around the world have been following strict legislative frameworks in order to deal with loopholes that allow money laundering and tax avoidance to occur. For instance, the US passed the FATCA regulations which requires financial firms to disclose to the US tax authorities information on the accounts of US citizens abroad. The European Commission and OECD follow similar steps.
Cyprus has been implementing international standards in order to reach a status of “fully compliant” business center for the provision of fiduciary services. Naming a few steps taken by Cyprus, the implementation of legislation preventing money laundering and financing of terrorist activities which is in line with the EU directives, the implementation of a 12,5% corporate tax, all companies in Cyprus are incorporated based on the provisions of the Companies’ Law and directors have criminal liability and most significantly lawyers, accountants, providers of fiduciary services and Banks f Cyprus are all controlled by their respective authorities (Cyprus Bar Association, ICPAC, Cyprus Securities and Exchange Commission and Central Bank of Cyprus) in order to ensure compliance with regulatory framework, reporting and transparency.
Therefore, Cyprus does not fit the criteria of other tax heavens which offer tax free incentives but it is an attractive business center to international investors due to the competitive tax advantages and strong regulatory framework which places it at the top of the list of reliable countries providing fiduciary services.