Few international business centres can offer tax advantages similar to those available from the Cyprus taxation regime, making Cyprus one of the most attractive onshore tax jurisdictions in the world. With its accession to the European Union (EU) in 2004, Cyprus has evolved from an offshore tax haven, to one of the world’s foremost financial centres. With its privileged geographical location, and with the combination of favourable business taxation incentives and an extensive network of double tax treaties, Cyprus has become the world’s bridge between East and West, North and South.
Cyprus, being a full member of the EU, participates in the EU’s internal market where there is free movement of goods, services and capital, and citizens are able to conduct business, travel to, and live in Cyprus with no legal restrictions. The offshore tax haven regime which existed until 2005 is no longer in place, and was replaced by a new EU-compliant tax regime offering one of the lowest rates of business taxation in the EU, currently standing at 12.5%.
Cyprus is also a full member of the Eurozone since 1 January 2008, further confirming the country’s macro-economic stability and its commitment to low inflation, low interest rates and high growth.
Due to its attractive personal and business taxation regimes, Cyprus is a highly favourable tax planning jurisdiction. Cyprus companies are commonly used as follows:
Cyprus Holding Company: Commonly stated as being the easiest exit route out of Europe, and also used extensively in combination with emerging markets such as Russia and India. Dividends from subsidiaries can be received in most cases free of withholding tax and in most cases exempt from tax in Cyprus. Disposal of such shares can be made without any tax consequences, and dividends can be paid by the company without withholding tax.
Cyprus Royalty Company: Many license holders choose to use Cyprus for royalty routing structures because it offers no withholding taxes on the payment of royalties (provided that the rights are exercised outside of Cyprus), tax is only paid on the license fee retained by the Cyprus company, Cyprus has a worldwide network of Double Tax Treaties (DTTs), the EU Directive on Interest and Royalties providing for nil withholding taxes between EU countries is applicable and the corporate tax rate is 12,5% which is among the lowest within the EU.
Cyprus Investment Company: Gains on the sale of securities are exempt from tax in Cyprus and dividend income is also exempt in most cases (subject to certain provisions). Dividends can be paid by the company without withholding tax.
Cyprus Finance Company: Main activities can include, but are not limited to group financing, whereby interest income can be received subject to zero or minimal withholding tax in accordance with the provisions of the EC Interest and Royalties Directive or under Cyprus’ extensive network of DTTs. Interest pay ments are made free of withholding tax and the net profits from financing activities are subject to 12,5% corporate tax.
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