The Republic of Cyprus is a Member State of the European Union and a member of the Eurozone. Cyprus is right at the top of the EU tax league table in terms of the attractiveness of its tax regime due to its combination of consistency in interpreting EU tax legislation and stability in resisting frequent changes to EU tax laws. It is a well-known fact that operating in a country with an attractive corporate tax regime provides a competitive advantage when competing with overseas businesses. Cyprus is, also, a member of the British Commonwealth, Council of Europe, IMF, UN, World Bank and WTO and is signatory to many international conventions and treaties.
Cyprus has proven to be an exceptional jurisdiction by virtue of its advantageous tax system. This coupled with the added advantages of EU Membership rightly justify The World Bank’s characterization of Cyprus as the region’s “Miracle”. Cyprus is now a premier holding, finance, royalty and trading company jurisdiction.
Below you will find facts why Cyprus is an ideal jurisdiction for an EU Base:
- Low Tax Jurisdiction
- Diversified, Skilful and Well Educated Workforce
- EU Member and International business hub
- Utilization of EU Directives
- Transparent regulated banking system aligned with the comprehensive EU legislative framework
- Wide Network of DTT’s
- No Inheritance Tax – Attractive Legislation for Inheritance Tax Planning
- Cyprus Holding Companies – Exemptions
- Can be used as Regional office for Middle East Countries
- Favourable Corporation Tax and Tax Exemption on Dividends
- Administration and Operational Costs much lower than any other EU Country
- Favourable treatments on HNWI and Non-Dom individuals
- Significant tax reliefs for foreign employees
- Cyprus Climate
- Excellent infrastructure, Multilingual Country
- No CFC Legislation
- Flexible and Modern Legislation
- OECD White List Jurisdiction
- EU Passporting for funds, investment companies, public companies [through Cyprus Securities and Exchange Commission, Cyprus Stock Exchange and Emerging Companies Market (ECM equivalent to UK’s AIM)]
Eligibility Criteria for Companies
- Cyprus Private Entities which at least 50% of the ownership is held by foreign third-country (non-European).*
- No minimum capital requirements (EUR200.000 minimum share capital has been abolished)
- Public Companies registered on any Stock Exchange
- International Business Companies (previously offshore) which operated as offshore entities under the Central Bank of Cyprus
- Cypriot Shipping Companies
- Cypriot High-Tech/Innovative Companies
- Cypriot Pharmaceutical Companies or Bio-genetics and/or Biotechnology Companies
- Cypriot Companies which are owned by persons with Cypriot Citizenship obtained according to economic criteria
- Cypriot Companies which less than 50% is owned by third-country nationals but fulfilled the foreign participation of EUR200.000
*An affidavit by a director of the eligible company confirming this fact is one of the supporting documents that needs to be submitted to the Business Facilitation Unit of the Migration Department in order to obtain such an approval.
Legal Substance / Presence in Cyprus
Cyprus eligible entities mentioned above must hold independent offices / premises in Cyprus.
Employment and Residency Eligibility Criteria
70:30 Ratio: The maximum number of third country nationals is set at 70% of the total number of employees over a 5-year period from the date the Cyprus company has been registered as a “foreign interest company” at the Business Facilitation Unit. Re-assessment will be done by the BFU after 5 years on a case by case basis if the criterion of 30% Cypriot employees is not met.
Distinction between Highly-Skilled and Non-Highly Skilled Personnel
A. Highly Skilled Personnel
a minimum gross monthly salary is set at: Euro 2.500
must have a university diploma or degree or equivalent qualification or confirmation of relevant experience in a corresponding job of at least 2 years duration
The employment contract of highly skilled personnel must be for at least two years
The duration of work permits issued is up to three years
Families of Highly-skilled personnel have an immediate and free access to the labour market on condition that the financial supporter (employer) has obtained his/her work permit.
B. Non-Highly Skilled Personnel
- Employment of third country nationals is permitted as support staff or non-highly skilled personnel, provided their number does not exceed 30% of all support staff employed and provided that the third country national and the employer have entered into an employment contract duly ratified by the competent Authority in accordance with the existing applicable law. The salary level is determined on the basis of the existing applicable legislation.
- The duration of work permits issued is up to three years
Tax Incentives (non-exhaustive)
- Non-Domicile Status: Individuals who spent 183 days in Cyprus or 60 days in Cyprus (provided they do not spend more than 183 days elsewhere) are considered non-domiciled Cyprus tax residents and can enjoy a tax free distribution of dividend, interest income and also, tax exemption from any gains from the disposal of securities for the next 17 years.
- Exemption of 50% from personal Income tax to new employees with employment remuneration of over EUR 55.000 for a period of 10 years.
- Corporation Tax on net profits is only 12,5%.
- Dividend income is tax exempt.
- Profits realized on disposal of securities/shares in subsidiaries, bonds, derivatives, stocks etc., are not subject to taxation in Cyprus. This applies to all gains including capital gains and gains from trading in securities.
- A Notional Interest Deduction (NID) is allowed on paid, newly introduced capital.
- Having a wide network of double tax treaties providing zero or low withholding tax rates on interest, dividends and royalties.
- No withholding tax on dividend, interest and royalties paid to non-resident individuals, and corporations.
- Interest paid to non-resident group companies is tax deductible.
- Intellectual Property (IP) including copyrights, patented inventions and trademarks have an exemption of 80% of the overall profit derived from the qualifying intangible asset; the following rule applies for intellectual property assets developed after 30th June 2016.
- There are no general transfer pricing rules but transactions between related parties should be at “arm’s length”.
- Losses offset against other sources of income, are carried forward for five years and can be set off against profits of another company of the same group (Group of Cyprus tax-resident companies).
- Capital gains are not taxable in Cyprus except for the 20 % tax on gains on immovable property located in Cyprus
Action Plan in a nutshell
- Register a company in Cyprus according to the legislative requirements
- Apply at the Business Facilitation Unit of the Migration Department as a company of “foreign interests”
- Obtain premises to house the employees and satisfy the legal substance requirement
- Apply for a visa for each employee according to the eligibility criteria
Contact us for a tailored advice.