Cyprus is situated in the Eastern Mediterranean with an estimated population of 760,000 inhabitants. The legal system is based on the same principles as those of the United Kingdom and all statues regulating business matters and procedures are based essentially on English law.
Language
An official language is Greek; however English is very widely spoken especially in the business environment.
Taxation
Previously a special taxation regime could be enjoyed by Cyprus International Business Companies, the main advantage of which is a corporate tax rate of 4.25% on profits. This special regime was abolished at the end of 2002 and replaced by the new tax legislation which will take effect on 1 January 2003. With the view of Cyprus’s accession to the European Union together with the need to comply with the OECD regulations against unfair tax competition, the Cyprus government decided to implement new taxation law which will apply to all companies which are resident in Cyprus, whether operating locally or internationally. A company is considered resident in Cyprus if it is managed and controlled in Cyprus.
International Business Companies which have been in existence as at 31 December 2001 and had income during 2001 will be eligible to elect to be taxed under the transitional provisions for the years 2003, 2004 and 2005, provided that they continue to derive their income exclusively from sources outside Cyprus.
The main features of the new tax law are as follows:
* A uniform corporate tax rate of 10% is introduced for all companies. * Dividend income is exempt from tax in Cyprus irrespective of its source, provided certain conditions are satisfied. Where the exemption does not apply, 15% defense tax is payable but credit for foreign tax suffered is given irrespective of the existence of a treaty. * Interest income is 50% exempt from corporate tax, unless it is received in the ordinary course of business in which case it is taxed like normal trade income. That portion of interest income which is exempt from corporate tax, is subject to defense tax at 10%, but credit is given for foreign tax suffered irrespective of the existence of a treaty. * * Profit from the disposal of securities is exempt from tax in Cyprus. * Profits of a permanent establishment maintained abroad by a Cyprus company are exempt from tax in Cyprus. * There is no withholding tax on dividends paid to non resident shareholders. * There is no withholding tax on interest payments made abroad. * * There is no withholding tax on the payment of royalties derived from outside Cyprus. * Various reliefs are introduced on company reorganizations. * Group relief is introduced. * Losses can be carried forward indefinitely
The above benefits, coupled with the fact that Cyprus has an extensive treaty network with around 40 countries, provide an environment in which very advantageous tax structures can be put in place using a Cyprus company.
Shareholders
A minimum of one shareholder is required and details appear on the public file but anonymity can be retained by the use of nominee shareholders. Bearer shares are not allowed
Directors
A minimum of one director is required and details appear on the public file but anonymity can be retained by the use of third party directors.
Annual Returns
Companies need to comply with the following filings annually:
1. Submission of the company annual return to the Registrar of Companies. 2. Submission of audited financial statements to the Central Bank of Cyprus and to the Income Tax Authorities. 3. Submission of provisional tax returns on 1 August in the tax year and final tax returns on 31 December of the year following the end of the tax year to the Income Tax Authorities.
Double Tax Treaties
Cyprus has an extensive treaty network with around 40 countries.
Secrecy
Although details of the shareholders and directors appear on the public file, statutory secrecy provisions protect details of the beneficial owners supplied to the Central Bank.
Local Requirements
As a matter of local company law the company MUST maintain a registered office address within Cyprus and must also appoint a company secretary who, for practical reasons, must be resident in Cyprus. We would normally provide these services as part of our domiciliary service fee.
