CYPRUS, an introduction

Cyprus as a Country

In spite of the fact that Cyprus is usually associated with sandy beaches and an amiable climate, it is equally true that this small island is perhaps the one of the most up and coming jurisdictions in international tax planning.

Cyprus is located in the eastern node of the Mediterranean Sea, in close proximity to Israel and Egypt. The island, about 15 times the size of Singapore, has 800,000 inhabitants, who are mainly of Greek descent. Smaller minorities of Turkish, Armenian, British and Eastern European origin are also quite prominent in the island, contributing to the island’s multicultural and cosmopolitan nature. Although Greek and Turkish are the official languages of the Republic of Cyprus, English is very widely spoken and it is considered to be the language of preference when conducting business.

Government and Administration

Cyprus is a presidential republic and, since 2004, a full member of the European Union. Nicosia is both the administrative and financial capital of Cyprus, housing all the government departments (including the Registrar of Companies), the Presidential Residence, the House of Parliament and the Central Bank of Cyprus. Since 2008, the Euro is the official currency of Cyprus. Cyprus is served by two international airports, one port and three marinas. All cities are connected to each other with a modern transport system of highways, allowing reach of the most distant parts of the island within 70 minutes.

Legislation

Cyprus has a common law legal system, a legacy of the British who ruled the island up to 1960. Cyprus still follows the common law system, similar to Singapore, the UK, India, the British Virgin Islands and so on.

Administration

A Cyprus company shares many characteristics with its Singapore counterpart. The company needs to have a shareholder, a secretary and a director. It is worth noting that the director does not need to be resident of Cyprus, although it is something we strongly suggest for tax residence purposes. Cyprus companies are also allowed to have corporate officers. The Registrar of Companies is the official government body in which all the public filings are made.

Taxation

Cyprus has experienced a dramatic change in the recent decade. With the accession to the European Union and the subsequent adoption of the Euro as its currency, Cyprus had to evolve into a more tax compliant regime. By overhauling its tax system, Cyprus has created a modern, simple and efficient regime with the lowest tax rate in the European Union. Cyprus is now regarded as an onshore, low tax jurisdiction, boasting the lowest corporation tax rate in the European Union, a rate of 10%, one of the lowest VAT rates in the world and an enviable holding company tax regime that allows extraction of dividends from European countries with virtually no tax leakage (see below). Unlike the Singapore company, the Cyprus company is taxed on its worldwide income.

Reasons for including a Cyprus Company in International Tax Planning

In the words of our ex-minister of Finance, “Cyprus aspires to be the Singapore of the Mediterranean Sea”. This eloquently captures the fact that Cyprus is a jurisdiction which shares a number of similarities with Singapore and is making a steady progress towards achieving the efficiency for which Singapore is so renowned. Incorporating a Cyprus company into an international structure would allow you to extract dividends from any European subsidiary with no tax withheld (due to the EU Parent / Subsidiary directive) and then pay them out to a foreign shareholder with no tax withheld in Cyprus. The 10% tax rate does not apply to income from dividends so any dividend income from European subsidiaries can be paid out to foreign parent companies with no tax liabilities whatsoever. It is also worth adding that Cyprus companies are also invaluable tools when carrying out trading or commercial transactions within the European Union or with Russia (with whom Cyprus still has the best double tax treaty).

A Few Words About the Author

Pericles is the Managing Director of the Cyprus Office of the Morgan & Morgan Group. He joined our team in June 2011, having a wealth of experience in corporate structuring and tax advice. He qualified as a chartered accountant with Blick Rothenberg in London and worked at the investment Banking division of J.P. Morgan. He is an associate member of STEP, a member of the Institute of Chartered Accountants in England and Wales, a member of the International Tax Planning Association and a member of the Institute of Leadership and Management. It is worth adding that Pericles is a published novelist and a part-time lecturer of business strategy.

Cyprus as a Country

In spite of the fact that Cyprus is usually associated with sandy beaches and an amiable climate, it is equally true that this small island is perhaps the one of the most up and coming jurisdictions in international tax planning.

Cyprus is located in the eastern node of the Mediterranean Sea, in close proximity to Israel and Egypt. The island, about 15 times the size of Singapore, has 800,000 inhabitants, who are mainly of Greek descent. Smaller minorities of Turkish, Armenian, British and Eastern European origin are also quite prominent in the island, contributing to the island’s multicultural and cosmopolitan nature. Although Greek and Turkish are the official languages of the Republic of Cyprus, English is very widely spoken and it is considered to be the language of preference when conducting business.

Government and Administration

Cyprus is a presidential republic and, since 2004, a full member of the European Union. Nicosia is both the administrative and financial capital of Cyprus, housing all the government departments (including the Registrar of Companies), the Presidential Residence, the House of Parliament and the Central Bank of Cyprus. Since 2008, the Euro is the official currency of Cyprus. Cyprus is served by two international airports, one port and three marinas. All cities are connected to each other with a modern transport system of highways, allowing reach of the most distant parts of the island within 70 minutes.

Legislation

Cyprus has a common law legal system, a legacy of the British who ruled the island up to 1960. Cyprus still follows the common law system, similar to Singapore, the UK, India, the British Virgin Islands and so on.

Administration

A Cyprus company shares many characteristics with its Singapore counterpart. The company needs to have a shareholder, a secretary and a director. It is worth noting that the director does not need to be resident of Cyprus, although it is something we strongly suggest for tax residence purposes. Cyprus companies are also allowed to have corporate officers. The Registrar of Companies is the official government body in which all the public filings are made.

Taxation

Cyprus has experienced a dramatic change in the recent decade. With the accession to the European Union and the subsequent adoption of the Euro as its currency, Cyprus had to evolve into a more tax compliant regime. By overhauling its tax system, Cyprus has created a modern, simple and efficient regime with the lowest tax rate in the European Union. Cyprus is now regarded as an onshore, low tax jurisdiction, boasting the lowest corporation tax rate in the European Union, a rate of 10%, one of the lowest VAT rates in the world and an enviable holding company tax regime that allows extraction of dividends from European countries with virtually no tax leakage (see below). Unlike the Singapore company, the Cyprus company is taxed on its worldwide income.

Reasons for including a Cyprus Company in International Tax Planning

In the words of our ex-minister of Finance, “Cyprus aspires to be the Singapore of the Mediterranean Sea”. This eloquently captures the fact that Cyprus is a jurisdiction which shares a number of similarities with Singapore and is making a steady progress towards achieving the efficiency for which Singapore is so renowned. Incorporating a Cyprus company into an international structure would allow you to extract dividends from any European subsidiary with no tax withheld (due to the EU Parent / Subsidiary directive) and then pay them out to a foreign shareholder with no tax withheld in Cyprus. The 10% tax rate does not apply to income from dividends so any dividend income from European subsidiaries can be paid out to foreign parent companies with no tax liabilities whatsoever. It is also worth adding that Cyprus companies are also invaluable tools when carrying out trading or commercial transactions within the European Union or with Russia (with whom Cyprus still has the best double tax treaty).

A Few Words About the Author

Pericles is the Managing Director of the Cyprus Office of the Morgan & Morgan Group. He joined our team in June 2011, having a wealth of experience in corporate structuring and tax advice. He qualified as a chartered accountant with Blick Rothenberg in London and worked at the investment Banking division of J.P. Morgan. He is an associate member of STEP, a member of the Institute of Chartered Accountants in England and Wales, a member of the International Tax Planning Association and a member of the Institute of Leadership and Management. It is worth adding that Pericles is a published novelist and a part-time lecturer of business strategy.