- Despite the unexpected attack on Cyprus banking system and the rise of the corporate tax rate from 10% to 12.5%, it seems that Cyprus is succeeding in maintaining its status as a major international business centre. Someone may wonder what the reasons are for that.
1. Comparative taxation advantages have been safeguarded.
2. Business and tax planning jurisdiction – Traditionally Cyprus is mostly used as a business and tax planning jurisdiction and not as an investment location where foreign investors keep their funds.
3. Experience gained over the past years in corporate structuring and tax planning. Over the years Cyprus developed a niche through its professional people.
4. EU parent – subsidiary Directive is apparently widely used within EU structures and amongst third countries and EU countries (according to the provisions of the Directive, any payment of dividend from one member state to another is free of withholding tax provided the required conditions are satisfied under the local legislation of the member state). For a Cyprus Company there is still no minimum holding period and no particular percentage interest of participation.
5. Double tax treaties concluded with almost 50 countries, the ratification of the new double tax treaty with Ukraine on July 2013 and the certainty of the double tax treaty with Russia as opposed with other countries.
6. Cyprus Holding Companies (CHC) and holding company regime remains unaffected. Dividends received by a CHC from overseas participations is exempt; no withholding tax on distribution of CHC profits irrespective of the country of residence and the existence of a double tax treaty; and full exception from capital gains tax and income tax on the disposal of shares of a CHC.
7. Cyprus Finance Companies (CFC) – There are still no debt-equity restrictions in Cyprus and a company may therefore be financed in any proportion of debt-to-equity. Interest deduction is provided for borrowing costs. Intercompany loans receivable financed out of loans are acceptable under very low margins subject to easily met conditions. Margins are 0.35% for loan receivable less than € 50 million, 0.25% for loan receivable of € 50 million – € 200 million, 0.125% for loan receivable more than € 200 million. The additional 2.5% increase in the corporate tax rate will increase tax payable however in considering tax deductibility of expenses, companies remained substantially unaffected.
8. Intellectual-property-rights (IP) – The new regime competes with any other IP-box regime globally. Structuring intellectual-property rights through Cyprus can achieve an effective tax rate of less than 2.5% as opposed to other countries which the effective tax rate is much higher. IP rights such as 80% of the net profits generated from its exploitation and 80% of profits generated from its disposal being tax deductible are still applicable.
9. Cyprus International Trusts– The new Cyprus International Trust regime as amended enables settlors and beneficiaries to enjoy the highest possible degree of protection internationally. Matters arising relating to the validity or administration of an international trust will be determined by the laws of Cyprus, without the necessity to refer to any other jurisdiction. Dispositions to a trust may not be challenged on the grounds that they are inconsistent with the laws of another jurisdiction. The law now allows the settlor of a trust to reserve the powers of the trust, retain a beneficial interest, act as protector, revoke, vary or amend the terms of the trust and generally give binding directions to the trustee. Another important aspect is that the trust “shall not be void or voidable in the event of the Settlor’s bankruptcy or liquidation or in any action or proceedings against the settlor.
10. Collective Investment Schemes (reformed into Alternative investment Funds) –The exemption of tax on Capital gains and income tax in respect of a redemption of a unit of collective investment scheme remained unaffected and irrespective of the provisions of a double tax treaty.
11. Cross-border mergers combined with the Company’s transfer of Seat of limited liability companies (companies that re-domicile their registered office in Cyprus) proved most favorable for restructuring purposes. According to the Cyprus Company Law Cap. 113, transfer-in companies can be defined as the procedure of re-domiciling a foreign company’s registered office from a country or jurisdiction in the Republic of Cyprus and vice versa. Cyprus is planning to extend the meaning of the Cross-Border Mergers in countries outside the EU subject to certain conditions (this is expected to pass into law soon).
12. Financial Transactions – There is no tax imposed on financial transactions.
13. Broad definition of “Securities” – Inland Revenue broadened the definition of “Securities”, and therefore, a significant number of financial instruments falling within this definition are not subject to taxation.
14. Provision of certainty from Inland Revenue – Inland Revenue is issuing significant number of written statements for taxpayers and hence for international companies by providing them with the certainty regarding the tax treatment of their affairs.
15. Anti-money laundering – Cyprus’ very favourable ranking compared to other EU countries, regarding anti-money laundering regulation in the Basel Institute on Governance report and in the Financial Action Task Force (FATF).
16. Forex trading – The setting up of Cyprus forex companies created an over the counter market for foreign exchange transactions especially to operate in EU.
17. Cypriot passport / citizenship for non – resident investors – Cyprus government allows now non-Cypriot residents to apply for the acquisition of Cypriot citizenship by fulfilling one of the six criteria set by the Council of Ministers.
18. Cyprus Investment Immigration Program – Cyprus government has simplified and shortened the process for foreign investors to obtain immigration permit (visa), giving them a number of benefits.
19. Natural gas –The discovery of natural gas in Cyprus lead many multinational companies to set up offices in Cyprus for the management of their exploration and extraction of gas and in order to obtain Cyprus taxation benefits. It also gave them the advantage of operating within the EU and thus avoiding paying import duties as well as adding commercial value to their business activities due to the ability to register for EU VAT in Cyprus, i.e. VAT on E-Commerce etc., concluding EU contracts, issuance of invoices, passporting of various licenses etc.
20. Cyprus luxury marinas- Limassol Marina welcome its first residents triggering the beginning of a new lifestyle in Cyprus. Exclusive waterfront developments combining elegant residences and a state-of-the-art marina with exclusive restaurants and shops,created a lifestyle uniquely shaped by ‘living on the sea’.