CYPRUS AS AN INVESTMENT CENTRE

General

The geographical position of Cyprus makes it the most Middle East, European country in combination with the infrastructure it has developed and invested in, as well as the tax incentives available to foreign investors and the large number of double tax avoidance treaties signed with other countries, have instituted it as an exceptionally important commercial and financial centre in the wider part of the South-Eastern Mediterranean.
The taxation on profits (10%, the lowest in the EU), which is valid for all companies who use Cyprus as their headquarters, as well as the large number (43) of double taxation avoidance treaties with other countries, have played an important role in attracting foreign companies (international, marine) who elect Cyprus for their establishment, registering companies in the form of a Cypriot company limited. According to the official records of the Registrar of Companies and Official Receiver, the number of registered companies has significantly increased in new company registrations in the last few years.
In the framework of combating corruption, all the banks (local-foreign) are expected to obey specific rules in certifying their clients’ facts (non keeping of anonymous accounts or accounts in fictitious names) and to informing the Central Bank of the movement of sums larger than US$10.000.

Taxation-legal form-characteristics of Cypriot companies

In was passed in 2003, that an individual or legal entity is taxed according to the Cypriot legislation, only if he resides in Cyprus for more than 183 days annually (individual) or if the management and auditing of the company is carried out in the Republic of Cyprus.
To every legal entity or an individual who is a resident of Cyprus, for every tax year, tax is imposed on the earnings which are earned or derived from sources in and out of Cyprus (profits, salaries, dividends, interest, pensions, rents, royalties, etc.).
The normal registration of a company in Cyprus does not entail its taxation according to the existing legislation, nor the possibility of enjoying any favourable provision in the double taxation avoidance treaties which Cyprus has agreed to, if its management is not carried out in Cyprus.
If the management of the company is not carried out in Cyprus, then the company is obligated to pay taxes according to the Cyprus legislation for earnings obtained from their activities in Cyprus.

The commonest form of companies in Cyprus is a limited company, with all the basic characteristics of a company with shares based on the Continental (European) law. The company is registered when the memorandum (containing the name, the intentions and purposes, the responsibility of the members and the amount of the share capital) and the articles of association are signed by the founders or appointed representatives and their lodging with the Department of Registrar of Companies and Official Receiver so that the company will be registered in the Companies Register.
The minimum number of founders/shareholders is one and each shareholder will have to divulge his complete details (full name, address, nationality, profession, passport no., number of shares). The appointment of secretary – charged with the preparation and submission of the annual report to the Registrar of Companies, the keeping of the minutes of meetings, the preparation of votes and the submission of changes to the Registrar of Companies – is binding by the existing legislation.
As far as the amount of the share capital is concerned, although there is no relative forecast, the Central Bank proposes that the approved share capital must be at least €1.709= (equivalent to CY£1.000=), which would be divided into 1709 shares of €1= each.
Besides the lowest tax ratio (10% of the profits) which is valid in the countries-members of the EU, the registration of a holding company in Cyprus with the intention of a better taxation programme for the company, presents amongst others the following advantages:

• The withholding of tax on the outgoing dividends from a Cypriot company to a shareholder, who is not a resident of Cyprus, is nil.
• There is no capital gains tax except for profits gained from the disposal of immovable property in Cyprus or profits from the disposal of shares which represent immovable property in Cyprus.
• The possibility of executing payments, distribution of dividends and profits, interest and fees overseas without a tax burden.
• Companies who administer ships are taxed with 4.25%.
• Complete exemption of tax in the distribution of capital and payments.

Treaties for the avoidance of double taxation

Cyprus has signed treaties for the avoidance of double taxation with 43 other countries : Egypt, San Marino, Armenia, Austria, Azerbaijan, Belgium, Bulgaria, France, Germany, Denmark, Greece, United Kingdom, USA, India, Ireland, Italy, Canada, China, Kurdistan, Kuwait, Belarus, Lebanon, Malta, Mauritius, Moldavia, South Africa, Norway, Hungary, Uzbekistan, Ukraine, Poland, Romania, Russia, Serbia, Seychelles, Slovakia, Slovenia, Sweden, Singapore, Syria, Tajikistan, Thailand, Czech Republic.
According to the abovementioned treaties, tax which is imposed in one country is credited to the tax which is imposed in the country in which the taxpayer resides, with the result that the taxpayer will not be burdened with a higher tax ratio, from the tax ratio of the country with a higher tax ratio .

Income tax ratio for individuals and legal entities

For the companies as mentioned before, the tax ratio is 10% of the profits, whereas for individuals the tax ratio fluctuates as follows:

• For a taxable income of €0=-€19.500= : 0%
• For a taxable income of €19.501=-€28.000= : 20%
• For a taxable income of €28.001=-€36.300= : 25%
• For a taxable income of over €36.301= : 30%
• We point out that for individuals as well as legal entities; income derived from dividends is non-taxable.

Specific tax ratios

• For intellectual property rights, other royalties, compensations or any other income derived from sources in Cyprus from a non-resident, the retention of tax is 10%.
• The gross earnings of any rental from the projection of films in Cyprus, which is derived by a non-resident, the retention of tax is 5%.
• The gross earnings by a non-resident in the practice of any profession or vocation or from entertainment to the public including football clubs and other athletic missions in Cyprus are subject to the retention of tax at 10%.

Ratio of contributions to social insurance

• The ratio of contributions to the social insurance for the self-employed is at 11.6%.
• For employees the above ratio is 6.3%.
• For employers it is 6.3%.
• The contribution of employers to the Redundancy Fund is 1.2%.
• The contribution of employers to the Personnel Development Fund is 0.5%.
• The contribution of employers to the Social Coherence Fund is 2%.

Capital gains tax

The above tax is imposed on the 1st January of every year and is calculated at the valuation of the immovable property on the 1.1.1980 and is payable until the 30th September of every year.
The tax ratio according to the valuation of the immovable property is as follows:

• For valuation of immovable property from €1= - €170860=, the ratio is 0 per thousand.
• For valuation of immovable property from €170.861= - €427.150=, the ratio is 2.5 per thousand.
• For valuation of immovable property from €427.151= - €854.300=, the ratio is 3 per thousand.
• For valuation of immovable property over €854.300=, the ratio is 4 per thousand.

V.A.T.

Value added tax is at 15% and is charged on imports, goods and services which occur in Cyprus, with the following exceptions as per category:

Ratio 0% : Exports, foodstuffs, medicines and vaccinations, agency commissions from abroad for imports/exports to/from Cyprus, international air and sea cargo and movement of passengers, management marine services, delivery of goods which are destined to be kept in the storerooms of the Cyprus Port Authority and Customs and which are part of temporary import or transit, etc.
Ratio 5%: Delivery of forage, fertilizers and pesticides, seeds, animals, non-bottled water, manufactured drinks and fruit drinks, bottled water – with the exception of cold drinks and spirits -, books, newspapers and magazines, various goods for the use of paraplegics, ice-creams, salted cereals or chips, dried salted nuts etc.
Ratio 8%: Restaurant services, residence in hotels, tourist apartments and similar places, movement of passengers in the Republic of Cyprus, movement of passengers in local waters.