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 Tax Resident 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 term Tax Resident Company means a company whose management and control is exercised in Cyprus. Companies incorporated in Cyprus but the management and control is not exercising in Cyprus then are not considered tax Residents in Cyprus and for this reason is not taxed in Cyprus.
Double tax treaties have been concluded with more than 41 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.
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 15% 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:
- Shipping companies owning ships registered under Cyprus flag
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).
Dividend income received in Cyprus will not be subject to tax in Cyprus under minor conditions.
More advantages of Cyprus international business companies (offshores)
- 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 (offshore) 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 is a member of the European Union since May 2004.
- 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 270 days of sunshine. Housing and office accommodation is easily available at very reasonable prices.
- Work permits for non European employees of the IBCs and their families are easily obtained.
- IBCs (offshore) 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).