Cyprus (Republic of Cyprus)
Without nominee services
With nominee services
|Company incorporation / Shelf (ready-made) company||
|Registered office address for 1 year||
|Set of documents with Apostille||
|Opening a corporate bank account in a Cypriot bank||
|Sending of documents||
|Nominee services (director, shareholder, secretary – residents of Cyprus), issue of power of attorney with Apostille||
|Total cost of registration||
All companies in Cyprus are also obliged to pay annual state duty in the amount of EUR 350 (before the 30th of June each year).
|International sending of documents||
|Certificate from the Register of Companies||
|Tax residency certificate (for avoidance of double taxation)||
|Additional power of attorney||
|Cost of accounting and auditing services depends on number of transactions and turnover of a company and can be defined basing on the results of the first year of company’s activity.|
BENEFITS OF CYPRUS FOR FOREIGN INVESTORS
- One of the lowest corporate tax rates in Europe (12,5%);
- Favorable tax regime within the EU, which replaced the popular Cyprus offshore companies;
- Treaties for avoidance of double taxation with 48 countries including Russia, Ukraine, other countries of the CIS, United Kingdom, Germany, Italy, China, Norway, USA, France, the majority of the EU countries;
- Good conditions for establishing holding companies and organization of business in other countries of the EU;
- Good opportunities for organization of real business;
- Corporate income tax rate is 12,5%;
- Dividends paid to non-resident shareholders of Cypriot company are not subject to tax;
- Dividends received by a Cyprus company are exempt from corporate tax and special contribution for defense (in case if the company receiving dividends holds at least 1% in the capital of the company paying dividends);
- Profit of non-resident companies received outside Cyprus is not subject to corporate income tax.
BASIC FEATURES OF CYPRIOT COMPNAIES
Companies may operate in Cyprus in the following legal forms:
- Public or private limited company;
- Branch of a foreign company.
Private limited companies constitute a majority of companies registered in Cyprus for international business. A company members’ liability is limited to value of their shares. If the shares are fully paid-up, the shareholder does not have to pay any additional contributions.
Company registration in Cyprus
Company name. Company name is subject to approval by the Registrar of Companies. A company will not be registered with the name, which is identical or similar to the name of an existing company or to the well-known trademark; or with the name, which implies religious denominations, names of countries, geographic locations or cities, or with the name, which is misleading. A company will not be registered as well if its name is similar to the name of a company engaged in a similar activity. It will not be registered with the name, which implies royal or governmental proprietorship or is found unacceptable by the Register.
Share capital. Share capital must be nominated in euros. There are no legal requirements in respect of the amount of share capital.
“Authorized” capital is to be declared on company registration. Its increase demands general meeting of shareholders and getting their consent.
“Issued” capital is a part of authorized capital, for which the shareholders are subscribed. Its part may be paid and is “paid-up” capital, while the other part is “called-up” capital, which is to be paid at any time determined by the Board of Directors.
Both individuals and legal entities of any nationality may be the shareholders. The minimal number of shareholders is one.
Directors. The minimal number of directors is one. Both individuals and legal entities of any nationality may be the directors. In order to enjoy the advantages of tax system it is important to exercise management and control over the company from Cyprus. Therefore, company must have a director resident in Cyprus.
A company must have a secretary. Any individual or legal entity of any residence may act as a secretary. All companies must have registered office in Cyprus.
When registering a company in Cyprus the relations between lawyers and clients are based on “know your customer" principle. All law firms involved in registration of companies are required to keep in their files the most comprehensive information about their customers, including copies of passports, proof of address and other information.
State duty. All companies registered in Cyprus are obliged to pay annual state duty of EUR 350 beginning with the first year of company’s existence. The fee must be paid before the 30 of June of the current year. Late payment entails penalties.
DISTINCTIONS BETWEEN CYPRUS AND OFFSHORE JURISDICTIONS
Offshore zone in Cyprus existed until 2004. Upon joining the European Union since the 1 of May 2004, Cyprus implemented a tax reform and ceased to be a tax haven. Therefore, despite the low tax rates (among the lowest in Europe) today’s Cyprus is not an offshore jurisdiction.
All resident companies must pay taxes and submit audited financial statements. Another difference from the previously existed offshore companies is transparency of Cypriot companies. Information about shareholders and directors of the company is open and is publicly available.
All these facts make Cypriot companies prestigious corporate instrument recognized throughout the world. Companies registered in Cyprus and conducting their activities legally can easier prove the legitimate origin of their funds when investing in advanced economies, which is a significant advantage against offshore companies.
However, many entrepreneurs wishing to register an offshore company traditionally continue to pay attention to Cyprus.
Before 31 July, all Cypriot companies must file an interim tax return, which indicates the anticipated profit for the current year and includes the calculation of tax payable due to the budget.
Cyprus has an advance system of payment of corporation tax (tax on income of legal entities).
Corporate tax is to be paid during the current fiscal year in two steps:
- the first sum – until 31 July,
- the second – until 31 December.
If at the end of the reporting year the sum of payable tax declared in the interim return appears to be less than the sum payable in fact, the following rules apply:
- if the difference between the advance payment and the final payment does not exceed 25%, the taxpayer pays only such difference;
- if the advance payment is less than 75% of the final amount of payable tax, the taxpayer is to pay such difference and a 10% penalty of the owing amount.
Failure to pay the provisional tax in time entails the following sanctions:
- €100 fine;
- Interest accrued on outstanding sum (4.75% per year).
Therefore, where the tax payments are considerable, it is important to predict the financial result of company’s activity for the reporting period correctly in order to avoid additional fines for wrongly assessed payment.
The first financial statement and tax return must be filed not later than 18 months after date of company’s incorporation. The further statements and returns must be filed annually in accordance with the following rules;
- If the company was registered before the 30 of June (inclusive), its first reporting period starts from the date of its registration and continues until the 31 of December of the current year. The first financial statement must be filed until the 31 of December of the next year.
- If the company was registered after the 1 of July of the current year, its first reporting period starts from the date of its registration and continues until the 31 of December of the next year. The first financial statement must be filed until the 31 of December of the year following the reporting period.
The financial statement must be checked and certified by the local licensed auditor, who confirms that the statement is completed in accordance with the Companies Act and shows the true financial position of the company.
Every company must maintain the accounting records of all their receipts and expenses, all sales and purchases and all assets and liabilities.
CORPORATE TAXATION IN CYPRUS
After joining the European Union and change of certain aspects of the tax law, the term ‘resident” was introduced in Cyprus. This means that persons (legal entities or individuals) are taxed depending on their residence. The income of non-residents is taxed in case if it is received from the sources in Cyprus.
The term “resident” of the Republic of Cyprus is applied only to the companies, which are managed and controlled in Cyprus. In practice it means that company’s directors must be Cyprus residents and work there.
Corporation tax. The net profit of Cyprus resident companies is subject to tax at a rate 12.5%. The profit of partnerships is fully exempt of tax. The profit of branches which are managed and controlled from outside Cyprus is fully exempt of tax. If management and control are exercised in Cyprus the tax rate will be 12.5%.
There is no withholding tax on interest, dividends and royalties payable to other countries.
Corporate income is also exempt from corporation tax in the following cases:
a) income received from sale of securities (with exception for promissory notes) – 100% of income;
b) passive income, e.g. interest on deposits and other interest received not in the course of usual company’s activities, - 50% of such income. Interest received from the usual activity or from the activity related to usual are taxed in full (“usual” or related activity connected with receiving interest is activity of banks, insurance, financial or leasing companies, financing companies);
c) dividends – 100% of the income.
Cyprus has signed many treaties for avoidance of double taxation (DTT), including treaties with the following states:
Austria, Belarus, Belgium, Bulgaria, Canada, China, Russia, most of CIS member states, Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Mauritius, Norway, Poland, Romania, Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Thailand, United Kingdom, USA, former Yugoslavian countries.
The purpose of the double taxation treaties is protection of income received in one country and transferred to another to avoid taxation in both jurisdictions. The DTT usually provide a tax allowance for the receiver of income equal to the amount of tax paid in the country of origin of the income.
The typical types of income covered by the DTT are dividends, interest and royalties. The double taxation treaty between Cyprus and Russia is applied to both individuals and legal entities, which are residents of any of the two countries.
Particular provisions of Russia-Cyprus double taxation treaty
The double taxation treaty between Russia and Cyprus entered into force on August 17, 1999.
Royalties are exempt from withholding tax and are taxable only in the location of the recipient of income.
Interest is also exempt from withholding tax and is taxable only in the location of their recipient. Therefore, in case if the interest is paid to the resident of Cyprus, it is not subject to withholding tax in Russia. The term "interest" means income from debt-claims of every kind, and in particular income from government securities, bonds and debentures, including premiums and prizes attaching to such securities, bonds or debentures.
Dividends may be taxed in the location of their recipient. At the same time, dividends may also be taxed in the state of the company paying dividends, but such tax cannot exceed the rates provided in the DTT.
The withholding tax on outgoing dividends must not exceed:
(a) 5% of the gross amount of the dividends if the beneficial owner has directly invested in the capital of the company not less than the equivalent of 100000 EUR;
(b) 10% of the gross amount of the dividends in all other cases.
Value added tax (VAT). VAT is an indirect tax. It is imposed on sales of goods and services in Cyprus, as well as importation of goods to Cyprus. This tax is not applied to transactions exercised by the international business companies. Such companies, therefore, do not need VAT registration.
Standard VAT rate is 19% (the reduced rates may be applicable, e.g. 0% for export of goods).
The common EU VAT rules are in force in Cyprus. Supply of goods and services is subject to VAT (as per the EU VAT Directive). The tax is to be calculated and payable if Cyprus is a place of supply of goods or services.
When paying VAT the taxpayer indicates the tax in declaration and reduces it in the sum of tax deductions. The input tax (the tax paid to suppliers of goods and services) is to be credited if the received goods and services are used for VAT-taxable transactions.
Personal income tax
Persons who reside in Cyprus for more than 183 days during the fiscal year are Cyprus residents. The tax rate depends on the size of the taxable income (from 0% to 30%).
Salaries of staff working outside Cyprus are exempt from taxation.
Special defense contribution. Special contribution for defense is imposed on income received by the Cyprus residents. Non-residents are exempt for this contribution.
The following types of income of Cyprus residents are subject to SDC: dividends (received by individuals), rental income and income from semi-governmental organizations.
Dividends received by a company are exempt from SDC (provided that the company receiving dividends holds at least 1% in the capital of the company paying dividends). This rule, however, has exceptions: if a company paying dividends is engaged in the activity, which leads to investment income to the extent of more than 50%, and foreign tax on the paying company’s income is considerably lower than tax burden of the company receiving dividends.
Interest received from usual commercial activity or from activity, which is closely related thereto, is not subject to SDC. While the interest from other types of activity is subject to SDC at a 30% rate (e.g. interest which company receives from bank deposits).
There are also the following taxes:
- capital gains tax;
- immovable property tax (located in Cyprus);
- transfer fees by the department of land and surveys (within Cyprus);
- social insurance (calculation is based on employees’ salary);
- stamp duty.
Non-resident companies: almost “classical offshore” companies in Cyprus
If management and control of the Cypriot company are exercised outside Cyprus, such company is not resident in Cyprus. The corporate tax base of non-resident companies includes income from commercial activity held through the permanent establishment in Cyprus, as well as income from sales of intangible assets. It means that if Cypriot company has no business activity in Cyprus, its income is not subject to corporate tax in Cyprus.
This fact makes Cypriot non-resident companies closer to the so-called “classical” offshore companies incorporated in such states as British Virgin Islands, Panama, Seychelles, Belize etc. However, such an “offshore” Cypriot company cannot be considered “offshore” in the full sense of the word, and the activity of Cypriot non-resident companies is more strictly regulated by the Cyprus law. Information of directors and shareholders is publicly available.
Non-resident status of the company does not release it from its obligations to file annual financial statements with the independent auditor’s report. One of the disadvantages of Cypriot non-resident companies is the fact that they cannot, unlike resident companies, use double taxation treaties.