The managing director and partner of SPL Audit answers some questions for our network of partners, IR Global, which can educate and help an interested entrepreneur or business that is considering doing business in Cyprus. Mr Georgiou explains how the Cyprus jurisdiction and Tax regime can benefit the organisations and important features that Cyprus can offer to the business community, such as Cyprus Tax residency.
Read below the Q&A based on the latest issue of IR Global group.
What are the most common structures used when international clients want to form a company in Cyprus? Any examples?
Cyprus offers an attractive and transparent tax regime, fully compliant with EU, OECD and international laws and regulations. Its main features include one of the lowest corporate income tax rates in the EU at 12.5 per cent, dividend income exempt from income tax and tax exemption on disposal/trading of “securities” (e.g. shares, bonds, debentures).
There are also no succession taxes, no withholding taxes and an attractive IP regime, where 80 per cent of royalty income is exempted from tax. Notional interest deduction for capital introduced into the company is possible, as are incentives for investment into start-ups. Cyprus limited liability companies are being widely used by international businesses and investors with the most popular structures being;
The Cyprus Holding company.
Dividends received by a Cyprus tax resident company from overseas are exempt from corporate income tax, provided they are not allowed as a tax deduction in the jurisdiction of the foreign paying company (Hybrid structures). Dividends received from overseas are also exempt from Special Defence Contribution (SDC) if one of the following conditions is satisfied:
The company paying the dividend must not engage more than 50 per cent directly or indirectly in activities which lead to passive income (active vs passive test) OR the foreign tax burden on the income of the company paying the dividend is not substantially lower than the tax burden in Cyprus (effective tax test).
The Cyprus Intellectual property (IP) holding company.
Has an 80 per cent tax exemption on income derived from IP treated under the provisions of the nexus approach of the OECD guidance.
The Cyprus Finance Company.
Has notional interest deduction on capital introduced into the company and an interest profit margin taxed at 12.5 per cent flat rate.
Please detail some of the favourable and unfavourable legislation that businesses considering establishing a presence in Cyprus should be aware of? How can you help them to streamline the process?
The Cyprus Investment Firm (CIF) is regulated under the Cyprus Securities and Exchange Commission (CySEC). Electronic Money Institution (EMI) is regulated under the provisions of the Central Bank of Cyprus (CBC) and effectively the European Central Bank (ECB). Funds and other collective investment schemes are regulated under the provisions of the Cyprus Securities and Exchange Commission (CySEC).
If an individual does not remain in any other jurisdiction for one or more periods, which altogether exceed 183 days in the same tax year, and is not a tax resident of another jurisdiction, they can be considered a Cyprus Tax Resident. They must remain in Cyprus for at least 60 days during the tax year and the rule is subject to additional conditions.
Various incentives are provided for physical persons who are tax residents of Cyprus, that are considered to be non-domiciled from Cyprus (i.e. foreigners relocating to Cyprus).
A physical person is eligible to be considered as non-domiciled, if they were not a tax resident of Cyprus for 17 out of the 20 years before the tax year under review. The main benefits of being a tax resident, but non -domiciled from Cyprus are the following:
- Dividends received by the individual from Cyprus or overseas companies are exempt from taxation
- Interest Income received from Cyprus or overseas is exempt from taxation
- 50 per cent tax exemption on the remuneration from any employment exercised in Cyprus, as long as the individual was not a resident of Cyprus before the commencement of his employment. Exemption applies for 10 years and, provided that the remuneration exceeds EUR 100,000 per year.
Cyprus has a favourable naturalisation program and various other permanent residency schemes, for individuals who are interested in becoming a citizen of Cyprus. By a single investment the entire family can become citizens of Cyprus married couple plus children up to 28 years that are financially dependent from their parents). The procedure is fast, and it can be achieved through various investment options and combinations.
What due diligence is required to be undertaken by company formations agents under anti-money laundering laws in Cyprus?
Cyprus, as a jurisdiction, places utmost importance on complying with all applicable laws and regulations for the prevention of money laundering and terrorist financing activities as well as complying with international and other institutions guidelines on sanctioned entities and individuals. Due diligence measures adopted are in line with and are based on:
The Law – Legislation transposing into domestic legislation the provisions of:
The U.N. Convention (Vienna Convention) – 1988; The Council of Europe Conventions on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime – 1990 and 2005; EU Directives; EU Council Framework Decisions on Freezing and Confiscation; and FATF Recommendations.
The fourth and fifth AML Directive of the European Union are also important.