Cyprus is a key international business centre used in international structuring for investments/transactions into Europe as well as for certain non-EU countries. The main reasons are:

  • Member of the EU and Eurozone
  • EU and OECD compliant tax laws
  • Stable and favourable tax regime
  • One of the lowest corporate income tax rates in Europe
  • Access to a wide tax treaty network and EU Directive benefits. Cyprus is considered to have excellent treaties with many non-EU countries, including but not limited to Russia, Ukraine and South Africa
  • No Cyprus withholding tax on outbound payments to non-Cyprus residents
  • Legal system based on the English Model - the principles of Common Law and Equity apply
  • High level of professional services
  • Advanced infrastructure
  • English widely spoken

MAIN TYPES OF FRENCH BUSINESS ENTITIES

 

Limited liability company Read more

This is the most commonly used business vehicle. It is a private limited company with a maximum of 50 shareholders who can be either natural or legal persons. They are generally run by the company directors.

Limited liability companies are registered with the Office of the Registrar of Companies and the following are required for their incorporation:

  • Name and address for the company
  • At least one director (legal or physical person)
  • At least one shareholders (legal or physical person)
  • A secretary (legal or physical person)
  • Share capital (no statutory minimum)
  • Memorandum and Articles of Association

 

Public limited companyRead more

Public limited companies are required to have a minimum of seven shareholders, share capital of at least EUR25,630 and generally freely transferable shares.

 

Company Limited by GuaranteeRead more

This is a company registered with or without capital and the liability of each member is limited to the amount agreed in the memorandum of association to be contributed if the company goes into liquidation. These companies are incorporated as non-profit making organisations.

 

PartnershipsRead more

Partnerships may take the form of limited liability partnerships or general partnerships and are not commonly used by foreign investors. In the case of general partnerships, all partners are liable for the partnerships debts and obligations jointly. Limited partnerships are formed by one or more General Partners, liable for all debts and obligations of the partnership and one or more limited liability partners, whose liability is limited to their fixed contribution on formation of the partnership.

On registration of Partnerships with the Office of the Registrar of Companies the following are required:

  • Name of Partnership
  • General nature of the business
  • Place of business
  • Name (and previous names if and where applicable), address, nationality, occupation and classification (including amount contributed in case of limited partners) of the Partners
  • Duration (if applicable) and date of commencement of business (registration application must be made within 30 days of commencement of business)
  • Other business/trade names used to carry on business

 

Cyprus International Trusts Read more

Cyprus International Trusts are mainly used for wealth protection and estate planning and their popularity in international tax structures is high.

A Cyprus International Trust is a trust where:

  • The settlor is not a resident of Cyprus in the calendar year preceding the year of creation of the trust
  • The beneficiary is not a resident of Cyprus in the calendar year preceding the year of creation of the trust (with the exception of charitable institutions)
  • A minimum of one trustee is resident in Cyprus

Income and gains of a Cyprus International Trust derived from sources outside Cyprus are exempt from Cyprus taxes provided the beneficiaries are non-Cyprus residents.

 

Sole proprietor Read more

Cypriot or EU citizens may carry on business either on their own name or through a business / trade name. A business / trade name, not being a legal entity, can be registered by any natural or legal person carrying on business under a name other that its own.

To register a business/trade name with the Office of the Registrar of Companies the following are required:

  • Business name
  • Place of business
  • General nature of the business
  • Name, address, nationality and occupation of the applicant
  • Date of commencement of business (registration application must be made within 30 days of commencement of business)

 

AUDIT AND REGULATORY ENVIRONMENT

 

Companies Law, Cap. 113Read more

Cyprus Companies Law requires companies to keep adequate accounting records and to prepare accounts for each financial year which have to be filed at the Registrar of Companies. Such accounts must give a true and fair picture of the transactions of the company, must be kept at the registered office or such other place as the Directors deem fit, and must be open for inspection by the Directors. The Directors may also impose conditions subject to which the accounts of the company must also be open for inspection by the members.

 

AuditingRead more

Companies must have their accounts audited, unless they qualify for exemption. The following companies require statutory audit by an independent auditor:

  • Companies that are required by law to prepare consolidated financial statements.
  • Public companies.
  • Every company that is not classified as a “small” company

To qualify for audit exemption as a small company the company must meet a maximum of two out of the three quantitative criteria listed below for the period of a financial year:

  1. have a balance sheet total of not more than €17,500,000 (excluding any liabilities);
  2. have a turnover of not more than €35,000,000
  3. have an average number of employees which does not exceed 250.

Irrespective of the above, Cyprus tax law requires that company annual tax returns be based on audited accounts. As such, in effect all Cyprus resident companies should prepare audited accounts.

 

Cyprus Securities and Exchange Commission (CySEC)Read more

Companies established in Cyprus providing investment services to third parties and / or perform investment activities and / or fiduciary related services are subject to regulation by CySEC.

 

Central Bank of Cyprus (CBC) Read more

Companies offering financial, banking and other related services are subject to a regulatory system established by the CBC

 

Anti-Money Laundering Regulations (AML) Read more

The Prevention and Suppression of Money Laundering Activities Law of 2007 (as amended) applies to a number of different sectors including accounting, legal, financial, banking, investment and other.

 

Data Protection Read more

The processing of personal data in Cyprus is governed by the Processing of Personal Data (Protection of the Individual) Law of 2011 (as amended), sets out specific obligations for those processing personal data (data controllers).

 

INDUSTRY INCENTIVES

 

The Cypriot Government provides for schemes and incentives aiming to improve and enhance productivity and labour skills; develop technologically advanced products and services, attract capital-intensive foreign investments in new high-tech industries and the develop of skill intensive products.

 

Free Zones Human Resource Development Authority of Cyprus (HRDAC)Read more

In Cyprus there are three free zones, the Larnaca Free Zone, the Free Port Areas of Limassol and Larnaca. All of these operate as “Control Type II” free zones. In a “Control type II” Free Zone, controls are principally based on the procedures carried out by the Customs & Excise Dept of the Ministry of Finance pertaining to the warehousing customs requirements.

 

Human Resource Development Authority of Cyprus (HRDAC)Read more

The Human Resource Development Authority of Cyprus (HRDAC) provides funding in the form of grants to support a wide spectrum of training needs for any size company registered in Cyprus. Among the most popular funding opportunities are:

  • In-company training for developing and upgrading skills
  • Training provided by private training organizations in various fields

 

Research Promotion Foundation (RPF)Read more

The Research Promotion Foundation (RPF) provides funding in the form of Governmental grants aiming to promote the development of scientific and technological research in Cyprus and highlight fundamental importance of research in knowledge economies.

 

De Minimis Funding OpportunitiesRead more

The Government of Cyprus provides funding in what are known as de minimis schemes which cover a wide spectrum of entrepreneurial interest. The planning of such funding is reviewed every three years and is limited to €200,000 per case over a period of three years.

 

The Ministry of Commerce, Industry and Tourism Read more

The Ministry of Commerce, Industry and Tourism provides funding in the form of Governmental grants. The beneficiaries are existing, or new companies in the field of agriculture, technology, the environment,  trade and services and business  start-up.

 

Cyprus Tourism Organization (CTO) Read more

The Cyprus Tourism Organization (CTO) provides funding in the form of Governmental grants intended to attract investment for Sustainable Enrichment and upgrading on the Cyprus  tourism product and support  schemes for international  sport events ,conferences  etc.

 

Cyprus Institute of Energy (CIE) Read more

The Cyprus Institute of Energy (CIE) administers funding in the form of Governmental grants for the materialization of investments in the field of Energy Conservation (EC) and the promotion of the Renewable Energy Sources (RES) utilization.

 

PRINCIPAL TAXES

 

Income tax: Corporations

 

Corporate income tax is charged at a flat rate of 12.5%, with certain types of income, such as profit from sale of shares (and other qualifying titles) and dividend income, being specifically exempt from the scope of application of income tax.

Note that while certain types of income are not taxed under income tax, they are taxed on their gross amount under the Special Defence Contribution tax (see section below).Read more

Cyprus resident companies are taxed on their worldwide income with credit available for foreign tax against Cyprus tax resulting from the same income. Companies are considered resident in Cyprus if they are managed and controlled from Cyprus. In the absence of a formal definition of what constitutes management and control, practice suggests that management and control is where the Board decisions of the company are taken. Companies not managed and controlled in Cyprus are not considered as residents of Cyprus and hence are taxable only on their Cyprus source income.

Expenses are fully tax deductible to the extent that they are incurred wholly and exclusively for the production of taxable income. Certain allowances are given for wear and tear on the use of business assets as well as investment allowances in the case of assets used in the manufacturing industry. Tax losses can be carried forward 5 years to set against future income/profits from the same source.

As from 1 January 2012 profits from the use or sale of own Intellectual Property are tax exempt by 80% (by way of a notional expense deduction) before being taxed at the flat corporate income tax rate of 12.5%. The acquisition or development cost of Intellectual Property is amortised by 20% per annum (i.e. 5 year straight line depreciation for tax purposes).

As from 1st July 2016 the  benefits  for  intellectual property apply mainly for computer software and patents .

Transitional provisions are in place for certain intellectual property assets until 30 June 2021.

Profits earned from a resident company’s permanent establishment abroad are exempt from corporation tax if either of the following conditions apply:

  1. the income of the permanent establishment does not derive directly or indirectly, by more than 50%, from activities leading to investment income or
  2. the foreign tax incurred is not substantially lower than the Cyprus tax.

 

Income tax: Individuals
The 2013 personal income tax rates are as follows:

Up to €19,500 0%
€19,501 – €28,000 20%
€28,001 – €36,300 25%
€36,300 – €60,000 30%
Over €60,000 35%

 

Read more

Cyprus tax resident individuals are taxed on their worldwide income. Certain types of income (such as profit from the sale of shares, dividends and bank deposit interest) are exempt from income tax. Dividends and bank deposit interest are taxed separately under Special Defence Contribution (see section below).

Individuals staying in Cyprus for a period or periods exceeding in aggregate 183 days in a year of assessment are considered to be tax resident in Cyprus for that year. The year of assessment is the same as the calendar year.

Incentives are granted to non resident employees who come to work in Cyprus as follows:

  • Exemption  20% of the remuneration or  eur8.550 (which ever is the lower) on the remuneration from any employment exercised in the Republic by an individual who was resident outside the Republic before the commencement of the employment.
  • Exemption of  50% of the remuneration  from any employment exercised in the Republic by an individual who was resident outside the Republic before the commencement of the employment , provided that the annual remuneration of the employee exceeds the EUR100.000.

 

Special contribution to the defence
Special Defence Contribution is imposed on the gross amount of certain types of income earned by Cyprus tax residents. Non-Cyprus tax residents are generally exempt from Special Defence Contribution.

Within the scope of Special Defence Contribution are:
    • Interest of a ‘passive’ nature (being in effect bank deposit interest).
      This is taxed at the rate of 30%. Unilateral double tax relief is available by way of tax credit for foreign tax suffered on the same income. Interest income deriving from the ordinary course of business or closely related to the ordinary course of business of a person is exempt from Special Defence Contribution and subject to Income Tax. The tax rate is reduced to 3% for individuals whose total income (including interest) does not exceed €12.000 in a tax year.
    • Interest income from Cyprus government savings bonds and development bonds and interest earned by a provident fund or the social insurance fund is subject to special defence contribution at the rate 3%.
    • Dividends received from a Cyprus tax resident company
      • Dividends received by a Cyprus tax resident company from another Cyprus tax resident company are exempt from special defence contribution. This exception does not apply in the case of dividends received after four years from the year such profits were generated and the ultimate shareholder of the recipient company is tax resident of Cyprus.
      • Dividends received by a Cyprus tax resident individual are subject to 17% special defence contribution.
    • Dividends received from foreign subsidiaries
      • Dividends received by a Cyprus tax resident company are also exempt from special defence contribution, unless:
        • the company paying the dividend engages directly or indirectly as to more than 50% in investment activities which lead to investment income and
        • the foreign tax payable on the dividend is substantially lower than the tax payable by the company in Cyprus

Anti-avoidance provisions for hybrid instruments and artificial transactions for dividends

In a number of cases, with respect to dividends received by a Cypriot company from a company located outside Cyprus, whereas in the case of Cyprus these amounts received are considered as dividends, in the country where the company paying the dividend is located these payments are  not treated as dividends paid, but instead are treated as a tax deductible expense.  These are called “hybrid instruments”.

The EU Parent / Subsidiary Directive has been amended to excluded such payments from benefiting under the directive and the member states must introduce legislation in order to avoid double non taxation of these dividends.

The tax laws of Cyprus have ben amended, so that as from 1 January 2016 dividends received by a Cypriot tax resident company which fall under the above provisions will no longer be exempt from income tax, but instead will be taxed as normal business income subject to income tax and will be exempt from SDC.

o    Dividends received by Cyprus tax resident individuals , who are not considered as Cyprus non- domicile , are subject to special defence contribution at 17%.

This Cyprus tax may be reduced or eliminated via credit relief on the related foreign withholding tax. Credit relief for the underlying tax may also be given provided that the dividend is received from a company resident in any other member state of the European Union or if the applicable double taxation agreement so provides.

  • Rental income

    The gross rental income of a person reduced by 25% is subject to 3% special defence contribution. Rental income is also subject to income tax. Foreign taxes paid with respect to this income can be credited against the special defence contribution liability.

 

Value Added Tax (VAT)

Standard rate 18% up to 12 January 2014

19% as from 13 January 2014
Reduced rate 8% up to 12 January 2014

9% as from 13 January 2014
Reduced rate 5%
Zero rate 0%

 

Read more

The Cyprus VAT legislation is in compliance with the relevant EU VAT directives and imposed on the provision of goods and services in Cyprus (with the exception of exempt supplies), on the acquisition of goods from European Union countries and also on the importation of goods into Cyprus.

Compulsory registration arises when (i) the turnover subject to VAT of a business is in excess of €15,600 during the 12 preceding months or (ii) at any time, the expected turnover subject to VAT is in excess of €15,600 within the next 30 days.

Businesses with a turnover less than €15,600 have the option to register voluntarily. The same applies for businesses with supplies that fall outside the scope of VAT, but which are granted the right to claim the amount of the related input VAT.

Further, businesses are under a registration obligation if they are acquiring goods from other EU Member States in excess of €10,251.61 during any calendar year. EU resident suppliers engaged with distant sales to Cyprus (sale of goods to Cyprus non-VAT registered persons) in excess of €35,000 are also under a registration obligation.

As from 1 January 2010, a VAT registration obligation also arises for businesses providing intra community services, with no registration threshold being applicable, for which the recipient must account for VAT under the reverse charge provisions.

Businesses carrying out economic activities from the receipt of services from abroad for which an obligation to account for Cyprus VAT under the reverse charge provision exists are also under a VAT registration obligation. A registration threshold of €15,600 for any consecutive 12-month period applies.

A person who has a business establishment in Cyprus or whose usual place of residence is in Cyprus who makes supplies outside Cyprus which would be taxable if made within Cyprus is entitled to register voluntarily.

A scheme exists where, under conditions, a reduced rate of 5% applies on the acquisition and/or construction of residences for use as the primary and permanent place of residence.

 

Capital Gains Tax (CGT)

Capital gains tax is charged at the rate of 20% on the profit as adjusted for CGT purposes.

Its scope of application is limited only to gains from the disposal of Cyprus situated immovable property, including gains from the disposal of shares (excluding shares listed in any recognised stock exchange) in companies that own such immovable property.

Certain disposals of immovable property are specifically exempt from Capital Gains Tax, such as; transfers on death, gifts from parent to child or between husband and wife or between persons that are up to third degree relatives, gifts to and from family own companies subject to conditions, transfers as a result of reorganisations, exchange of properties (subject to conditions).

 

NATIONAL INSURANCE (SOCIAL INSURANCE AND OTHER EMPLOYER’S CONTRIBUTIONS)

 

Social insurance contributions (2014-2018)

 

Employers 7.8% of employee’s salary
Employees 7.8% of employee’s salary
Self-employed 14.6%

 

Social insurance contributions are capped to an amount that is annually being increased. The 2015 amount is set at an annual salary of €54.396 (weekly €1.046/monthly €4.533).

 

Other employer’s contributions

 

Social cohesion fund 2% of employee’s salary
Redundancy fund 1.2% of employee’s salary
(subject to the social insurance applicable salary threshold)
Industrial training fund 0.5% of employee’s salary
(subject to the social insurance applicable salary threshold)
Holiday fund (if applicable) 8% of employee’s salary
(subject to the social insurance applicable salary threshold)

Note: The above Social Insurance and other Contributions do not generally apply for employees residing and working outside Cyprus.