Cyprus offshore company: pro and contra
2023 Cyprus offshore company: pro and contra: full guide
Many international companies seek to move their business assets to the European zone and Cyprus is the most attractive in terms of tax optimization among the Schengen Agreement countries.
In this article, we will examine why companies are registered in Cyprus.
Registering a company in Cyprus allows you to do business in an economically developed country with a stable political environment. There is practically no corruption and administrative barriers hindering the development of small and medium-sized businesses in Cyprus.
Despite the fact that Cyprus is not an offshore, the republic offers the most favorable conditions for doing business in terms of taxation. The corporate income tax (12.5%) is one of the lowest in Europe. There are various deductions for calculating the tax base, and residents and citizens of the republic are offered a number of benefits.
The Republic of Cyprus has a favorable geographical location, modern infrastructure and an advanced legal system that facilitates the creation of trusts and alternative investment funds (AIF).
Cyprus International Trusts (CITs) can be established for commercial and charitable projects. Trusts allow to protect the financial and other assets of a businessman from unskilled actions of heirs which can lead to significant material losses.
KMTs are often set up by wealthy individuals who want to protect their assets from division during a divorce proceeding. The purpose of the establishment of a trust can be a private pension provision for the employees of the company and their family members.
Why do companies incorporate in Cyprus?
The establishment of a company in Cyprus allows foreign citizens to enjoy the following advantages:
- No double taxation. The Republic of Cyprus has signed relevant international agreements with 58 countries.
- Legislation that simplifies corporate governance and company registration (Cypriot laws are based on the rules of the British legal system).
- High quality accounting and legal services. Local legal and financial professionals are members of self-regulatory organizations that adhere to international codes.
- Agreements and contracts are made in English.
- Relative ease of obtaining a residence permit for non-residents and key personnel.
- Educated and qualified workforce.
- Low cost of fiduciary services (asset management) compared to other EU countries (Luxemburg, Switzerland, Holland, etc.).
- Good climate and comfortable living conditions.
A foreigner who has registered a firm and created at least 5 jobs for the local population has the right to obtain a residence permit and citizenship of Cyprus. Foreign investors, who acquire the citizenship of Cyprus through an investment program, have the same right. The passport of the Republic of Cyprus allows you to travel to 170 countries of the world without obtaining a visa.
What does the registration of a company in Cyprus bring in terms of taxation
An entrepreneur who has set up a business in Cyprus can receive significant tax preferences. As of 2018, the corporate income tax is one of the lowest in the European Union at 12.5%.
Income received as a result of:
- accrual of dividends on shares;
- sale of securities and derivative financial instruments;
- interest income received that is not related to the main activity of the company.
Companies which are tax residents pay taxes on profits which are earned both in Cyprus and abroad (with the exception of states with which double taxation treaties are signed).
In addition to corporate tax, legal entities must pay VAT at a rate of 19% (for certain categories of goods and services the amount of this tax may range from 0 to 9%).
Organizations owning real estate in Cyprus must pay property tax, the amount of which depends on the market value of the object (the rate varies from 3 to 8%).
In addition to these taxes legal entities are required to pay a special defence contribution. The taxable base for this fee are dividends received by the organization (tax rate of 17%) and interest income (tax rate of 30%).
What else gives the registration of the company in Cyprus: firms that sell stocks and bonds are exempt from income tax. Organizations that have made additional contributions to the share capital, are entitled to a deduction of 80% of the amount paid (in accordance with the provisions of the law "On Income Tax").
In accordance with the local accounting regulations, current business losses can be carried forward to future accounting periods and can be set off against the income earned.