Cyprus is strategically located in a geographically important position which connects three continents, Europe, Asia and Africa, at the northeast part of the Mediterranean Sea and is the 3rd largest island of the area.
Aphrodite’s island has always been a very attractive holiday destination with rich cultural and historical background. Golden and crystal-clear beaches, beautiful forests with magnificent waterfalls and many wonderful natural landscapes is the rural scenic found in this blessed part of the Mediterranean Sea.
With low levels of criminality, Cyprus is a preferred destination for people searching to relocating as it offers high quality of life, excellent weather conditions and safety.
The total population of Cyprus is 865,000 in an area of 9,250 km2 and with a coastline of 648 km. The island’s capital is Nicosia (population of 246 900), Limassol is the second largest city followed by Larnaca, Paphos.
The official language is Greek even though English is preferably used in most businesses and is widely spoken by the locals as well as the foreigners.
Under the 1960’s Constitution, executive power is vested in the President, who is elected for a five-year term of office, by universal suffrage and exercised through a council of Ministers, appointed by him. The House of Representatives is the legislative organ of the island. The Judiciary is exercising the administration of justice and is a separate and independent body.
Cyprus is an EU member since May 2004 and the currency used is Euro (€) since January 2008. Additionally, Cyprus is a member of the following international organizations:
- United Nations
- Council of Europe
- World Bank
- International Monetary Fund.
As a small island, Cyprus offers two multi-purpose ports, in Limassol and Larnaca, which handle both passenger and freight cargo while offering logistics services. Furthermore, two international, recently upgraded airports in Larnaca and Paphos annually welcome and serve approximately 10 million visitors, connecting the island to popular destinations throughout the world.
Locals are very famous for their hospitality and the island is known for its vivid nightlife. World famous clubs, excellent restaurants, vibrant bars and unique urban scenery are some of the reason why foreigners choose Cyprus for relocation and business expansion. Simultaneously, the low crime rates, the well – developed education system and adequate medical system make Cyprus and ideal place for starting and raising a family.
Taking all the above into consideration, Cyprus has a lot more to offer in terms of attracting investors due to the numerous incentives and tax favorite regimes offered when forming a Cyprus company:
- Since 2004, Cyprus is a member state of the EU and the European Monetary Union.
- Eurozone member since 2008.
- Established Double Taxation Treaties with more than 67+ countries.
- 12.5% corporate tax, one of the lowest corporate tax rates in Europe.
- Dividend income is not included in the corporate tax.
- Effective tax on royalty income of 2.5%. (subject to conditions)
- Exceptional taxation regime for shipping corporations: Ship managers, ship – owners and charters may enjoy a favorable tax regime, when participating in the tonnage tax system of Cyprus, since they are relieved from income tax and / or any other tax or levy imposed on dividends that are paid to shareholders, on interest acquired on working capital, as well as on any profit that is made from the sale of eligible vessels.
- VAT exemption for international transport services when the effective use and enjoyment of the services taking place outside the EU.
- Modern and Efficient Legal, Accounting and Banking Services based on English practices (common law).
- No capital gains tax on profit from sale of securities. (subject to conditions)
- No withholding tax on payments to non-residents (dividends, interest and royalties). (subject to conditions)
- Only Cyprus-sourced income taxation for Non-resident entities.
- Profits from overseas permanent establishments are exempt from corporate tax.
- EU Directives use and wide treaty network.
- A very attractive Citizenship by Investment Scheme for granting naturalization.
- Business Hub – International business center with efficient legal, accounting and banking services.
- Advanced Telecommunications network and infrastructure.
- Credit Ratings upgrades to BB+.
- Up to 100% foreign participation in most sectors of the economy is allowed by the Liberal Foreign Direct Investment Regime.
It is important to take a closer look to some of the above – mentioned incentives in order to fully comprehend the dynamic of forming a company in Cyprus and choosing the island as your investment destination.
Established Double Taxation Treaties with more than 67+ countries
It is of upmost importance to note the significance of double taxation treaties established with more than 67 countries as it makes Cyprus a serious player when it comes to investment opportunities and business expansion. Double Tax Treaties serve the purpose of avoiding international double taxation, when the same profits are being taxed in two or more jurisdictions regarding the same person or entity. Double tax treaties also emphasize on the taxing rights of each engaging state, allowing a certain level of stability when international business is transacted. Consequently, Double Tax Treaties are vital tools for international tax planning and establish a significant advantage for any jurisdiction member of such treaties. Finally, Double Tax Treaties promote investments between various jurisdictions resulting in significant returns on investment for every involved party.
12.5% Corporate tax, one of the lowest corporate tax rates in Europe
Low corporation tax rate is linked to increased total tax revenue. This is due to the fact that, lower corporation tax encourages companies to invest in Cyprus and invest heavily as higher growth leads to higher tax revenue. Additionally, lower tax rates diminish the incentive for firms to use tax avoidance schemes.
Effective tax on royalty income of 2.5%. (subject to conditions)
Cyprus IP scheme, which also includes intangibles like software, trademarks and copyrights is quite attractive especially when compared with other EU jurisdictions. Taking into consideration that 80% of the worldwide royalty income generated from IP owned by Cypriot resident companies is not liable to income tax, the current scheme offers a maximum operative tax rate of 2.5% on any revenue earned from IP assets. The corresponding tax rate in other EU jurisdictions is minimum twice that number.
Only Cyprus-sourced income taxation for Non-resident entities
Under Cyprus tax regime, Cyprus tax resident individuals are taxed on all chargeable income derived from all sources in Cyprus and abroad. However, any individual who is not a Cyprus tax resident, is taxed on income derived only from sources within the Republic.
Credit Ratings Upgrades to BB+
Cyprus’ long-term BBB- credit rating has recently been upgraded to BB+ by the rating agency Fitch. Fitch assigned Cyprus’ credit ability a more stable outlook which consequently elevated the local economy to investment grade. Generally, investors, independent wealth funds and pension funds use credit ratings to estimate and evaluate the credit value of Cyprus and therefore they have a great effect on the country’s borrowing costs.
The rating agency commented on Cyprus’ upgrade rating and said “Cyprus is benefitting from a strong economic recovery with real GDP reaching pre-crisis level and the economy forecasted by Fitch to grow 4% in 2018 and 3.8% in 2019, supported by large foreign-financed investment projects in construction and tourism, and robust private consumption. We forecast the fiscal surplus will remain high at 2.4% and 2.2% of GDP in 2019 and 2020, respectively, compared with 3.1% and 2.9% targeted in the 2019 Draft Budgetary Plan”.
As a result, robust economic growth will boost fiscal receipts, while previously adopted hiring freeze and collective agreements will likely limit growth in the wage bill.
Exceptional taxation regime for shipping corporations
Ship managers, ship-owners and charters may enjoy a favorable tax regime, when participating in the tonnage tax system of Cyprus, since they are relieved from income tax and / or any other tax or levy impose on dividends that are paid to shareholders, on interest acquired on working capital, as well as on any profit that is made from the sale of eligible vessels.
Choosing a preferred destination to invest and expand your business’ operations is definitely a challenging task. It is not a black and white situation and considering the investment jurisdictions multiplicity, investors should be extremely cautious during the decision-making process.
Taking everything into consideration, Cyprus is the queen of investments both literally and metaphorically.
A gem of natural beauty which combines numerous incentives and tax favorite regimes to investors!