Following a major change in legislation in 1975,
very generous tax benefits were given to offshore
companies and their expatriate employees. The most
important feature of that legislation which attracted
a lot of international business companies to the island
was the low tax rate of 4.25% at which offshore companies
were taxed.
However, a new legislation has been passed which
will be effective from 1 January 2003.The tax reforms
introduce a lot of changes in the operations and regulations
of the international business companies to conform
with European Union law in the light of the Cyprus
accession to the EU and the EU Code of Conduct and
abide by its commitment to the OECD to eliminate harmful
tax practices and money laundering.
With the new legislation, Cyprus
maintains and enhances its competitiveness as a reputable
international financial center and distinguishes itself
from the infamous tax heavens. Furthermore, it remains
a perfect location for investments to and from Russia
and Central and Eastern Europe and a perfect business
base for the international businesses who are interested
for the markets of the region. At the same time, having
the lowest tax regime in the EU, it becomes a stepping
-stone for investments to and from the European Union.
Based on the recent tax reforms, the major fiscal
incentives offered to international business companies
are as follows:
• Zero to Low tax rate regime.
Taxable profits are taxed at the rate of 10% for all
Cyprus companies, as there is no more distinction
between local companies and IBCs. Still it is the
lower tax rate in Europe and the nearby countries.
The IBCs who had income from activities as at 31 December
2001, may choose to be taxed at the rate of 4.25%
until 2005..(For more detail information on taxation,
please visit our tax page)
• Double tax treaties
have been concluded with more than 40 countries. By
using the provisions of these treaties and with the
relatively low taxation in Cyprus, it is possible
to achieve very significant tax reduction in both
countries, as we have explained in the previous section
"Why establish an IBC?"(See separate section
below entitled "Double Tax Treaties".)
• There is no withholding
tax on payment of dividends, interest and royalties
to non-resident individuals or to non-resident corporate
shareholders.
• Capital gains realized on
immovable property held outside Cyprus are outside
the scope of Cyprus capital gains tax.
• VAT is lower than the other
European countries at 13% but gradually it
is expected to increase to harmonize with the EU.
• Tax heaven operations: There are three types of
legal entities enjoying full tax exemption:
1. Shipping companies owning ships registered under
Cyprus flag (see below relative section entitled "Shipping
companies").
2. Partnerships, registered in Cyprus, fully composed
of aliens and solely engaged in offshore activities.
3. Branches, of foreign companies, fully composed
of aliens, and solely engaged in offshore activities.
• No taxation on the profits from the disposal of
shares for all the companies and individuals that
are tax residents of Cyprus. (An individual is considered
tax resident if he lives in Cyprus for one or more
periods that exceed the total of 183 days per fiscal
year. A company is resident if its management and
control is in Cyprus).
• Dividend income received in Cyprus will not be
subject to tax in Cyprus under minor conditions.
More advantages of Cyprus international
business companies and Cyprus
• Details of beneficial owners
are confidentially disclosed to the Central Bank only
and anonymity is therefore assured as shares can be
held by nominee shareholders.
• Excellent location
of the island: Cyprus is strategically located at
the cross-roads of three continents Asia, Africa and
Europe and also forms a gateway to the oil-rich Arab
countries in the Middle East and the Gulf; thus being
a convenient springboard for business activities in
any of the trade centers in those areas. It is internationally
accessible by a wide network of sea and air connections
• Convenient time zone, being 7 hours ahead of New
York and 7 hours behind Tokyo.
• There are no exchange control
restrictions for the international business
companies and their expatriate employees; bank accounts
can be maintain in any currency anywhere in the world
as well as in the Cyprus local and foreign banks.
• It has a well developed
infrastructure with excellent telecommunications,
banking facilities and high standard professional
services
• Government structure is similar to western democracies,
with a free enterprise economy
• Respectable European jurisdiction.
Cyprus has applied for full membership to the European
Union and accession is expected to be completed by
2003.
• Excellent relationships are maintained with Eastern
European, African, Asian Arabic and many other countries.
• European standard living
conditions but at a lower cost, with the best type
of Mediterranean climate with about 300 days of sunshine.
Housing and office accommodation is easily available
at very reasonable prices.
• Work permits for the foreign employees of the
IBCs and their families are easily obtained.
• Offshore companies and their expatriate employees
are allowed to purchase immovable property in Cyprus
for their own office premises or their residence (subject
to obtaining the relevant approval which is easily
obtained provided the criteria are met).
