Cyprus Tax Residency – Legislation on Non-domiciled individuals
On 16 July 2015 Cyprus has enacted a law which provides the exemption from taxation of personal investment income (dividends, interest and rent) earned by non-Cyprus domiciled individuals. Prior to this amendment, Cyprus tax resident individuals earning the aforementioned types of income from Cyprus or foreign sources, were subject to Special Defence Contribution (SDC) tax, at the rate of 17% on dividends, 30% on interest and 3% on the 75% of rental income, irrespective of their domicile status. That is, Cyprus non-domiciled tax residents, are now exempted from any tax on dividends and passive interest. Rental incomes, whether Cyprus or foreign sourced, are subject only to income tax, when received by Cyprus tax resident individuals who have non-dom status. The exemption to non-Cyprus domiciled individuals is granted for a period of 17 years from the date they become Cyprus tax residents.
Cyprus – Areas of Special Interest
The Cyprus Citizenship by investment scheme
The Cyprus Passport, which is currently rated as one of the top 20 passports worldwide, offers to investors the opportunity to enjoy all the benefits of an EU national, in just three to six months and with a relatively low investment amount of €2,5 million which includes the acquisition of a residence amounting to at least €500,000. There is no requirement for any donation to the Cyprus state and the investment, except the main residence, can be disposed after 3 years from the date it was made. It is significant to note that there is no requirement for residing in Cyprus, before, during or after the Citizenship application. The Cyprus passport gives the investor the opportunity to enjoy all the rights of an EU Citizen, including the right to reside, work and study in any EU member state as well as Norway, Iceland, Switzerland and Liechtenstein. Since Cyprus permits dual citizenship, the acquisition of the Cyprus passport is not reported to the investor’s country.
Cyprus is an attractive proposition for foreign investors since it has a reliable commercial and legal infrastructure; excellent professional services and a straight forward, transparent and well structured tax system. International investors can use Cyprus as their Gateway to the rest of the world, as it offers the ability to penetrate new markets in a tax efficient way and most importantly to exit tax free from investments in a number of countries. In addition, through Cyprus, companies are able to repatriate their profits with very low or even zero withholding tax. We set below a summary of the general benefits of utilizing a Cyprus company as part of an international tax structure.
In summary, the benefits accruing to using a Cyprus company as an efficient tax vehicle are:
One of the lowest corporation tax rates in Europe at 12,5%.
Dividend income is exempt from corporation tax. Zero or very low withholding tax when pulling profits from foreign subsidiaries.
No capital gain tax on the disposal of shares in companies (foreign and local) or property situated outside Cyprus.
No withholding tax on payments to non-residents (dividends, royalties and interest).
Ability to use trusts for wealth protection, financial planning and inheritance purposes.
Financial connection routes between countries through tax planning due to the favorable tax treaties with the most important countries of the financial world.
Cyprus entities may open and operate bank accounts in any currency and in any jurisdiction abroad.
EU VAT registration number for VAT “free” business transactions within the EU.
Double Tax Treaty Network benefits
Due to its large network of double tax treaties, Cyprus is utilized as a financial connection route for outbound/inbound investment to/from a number of countries. For example, the double tax treaty between Cyprus and Russia is one of the most favorable treaties that Russia maintains. Therefore, foreign investment in Russia is usually directed through Cyprus via a Cyprus entity so as to enjoy the full treaty benefits. The benefits include a very low dividend withholding tax of 5% when it comes to the extraction of profits from the Russian investment and no further taxation in Cyprus. Also, any capital gains arising from the sale of the Russian investment are not taxable in Cyprus as capital gains are tax exempt.
There are plenty of examples where inbound/outbound investment from/to various countries is done through Cyprus. Countries with which Cyprus maintains tax treaties with very favorable terms include Austria, Czech Republic, Denmark, Germany, Finland, Greece, Ireland, Iran, Italy, Norway, Poland, Russia, Qatar, Singapore, South Africa, Switzerland, Ukraine, United Kingdom, United States of America.
Cyprus Company - Frequently Asked Questions
There is no exchange control applied to corporate entities or natural persons.
Type of Law
The prevailing law is Civil Law with many English Common Law influences.
Principal Corporate Legislation
Companies Act, Cap. 113, as amended
Company Formation Procedure
By submitting the Memorandum and Articles of Association along with the initial appointments of corporate officers to the Registrar of Companies together with an affidavit before a Court and the appropriate registration fees.
Restrictions on Trade
There are no restrictions on trade. They can trade both within and outside Cyprus.
Disclosure of Beneficial Owners
The beneficial owners are not disclosed to the authorities.
Authorized & Issued Share Capital
The share capital of a corporate entity may be expressed in Euro or another currency. There is no minimum share capital requirement, however usually a share capital of Euro 1.000 is used.
Classes of Shares Permitted
Ordinary or preference shares of defined par value which can be either voting or non-voting.
Bearer Shares Permitted
Bearer shares are not permitted
Corporate Name Restrictions
Any word that the Registrar considers undesirable. Any name that is identical or similar to an existing company. Any name that implies illegal activity or royal or government patronage. The following words and their derivatives: asset management, asset manager, assurance, bank, banking, broker, brokerage, capital, credit, currency, custodian, custody, dealer, dealing, deposit, derivate, exchange, fiduciary, finance, financial, fund, future, insurance, lending, loan, lender, option, pension, portfolio, reserves, savings, security, stock, trust or trustees.
Language of Corporate Documents
Greek or English
Registered Office Required
Yes, the company must maintain a registered office in Cyprus.
All Cyprus companies must appoint a company secretary, who may be a natural person or a corporate body. It is advisable to appoint a resident company secretary.
The minimum number of shareholders is one.
The minimum number of directors is one. They may be natural persons or corporate bodies, of any nationality but for taxation purposes it is better to have Cyprus directors as the majority, to ensure that management and control of the company is exercised from Cyprus.
Time to Incorporate
Approximately five to seven business days.
The net profits of a Cyprus company (turnover minus expenses) are taxed at 12.5%.
Financial Statements Requirements
Audited financial statements have to be submitted annually to the Cyprus tax authorities along with the resulting corporate tax return. In addition, audited financial statements have to be submitted to the Registrar of Companies annually along with the company’s annual return.
Common Reporting Standard
As of 1 January 2016, Cyprus adheres to the Common Reporting Standard for the exchange of information
EU ratified Tonnage Tax Law for Ship management companies
The Cyprus Tonnage Tax law which has been enforced in 2010 is very beneficial to ship management companies which decide to relocate to Cyprus, provided that they meet certain criteria. The main highlights of the Tonnage tax law are:
EU approved -fully compliant with Guidelines on State Aid to Maritime Transport
In force up to 2019 and extendable for a further 10 years with the decision of Council of Ministers (following European Commission approval)
Tonnage tax is based purely on net tonnage-no profits link
Full exemption from all income taxes
Exemption from stamp duty on MOAs, ship mortgage deeds or other security documents
The Cyprus Stock Exchange – Emerging Companies Market (ECM)
The Cyprus Emerging Companies Market (ECM) was launched by the Cyprus Stock Exchange as an alternative to the main market. The ECM is specially designed for the needs of small and emerging companies, benefiting as it does from a simplified regulatory environment. As such, it has become the vehicle of choice for:
International smaller entrepreneurial companies looking to raise funds from investors in a simpler, cost effective way through a recognized EU secondary market
International companies looking to promote their reputation through a listing
More experienced investors looking to invest in higher risk businesses
Existing public companies looking for a cheaper and less burdensome IPO
The Cyprus ECM is an ideal way to achieve a cost effective and less burdensome EU listing and gain access to secondary investors. In particular, a private listing on the ECM is subject to minimal levels of regulation and cost.
The VAT Yacht Leasing Scheme
The Cyprus VAT authorities have implemented a Yacht Leasing Scheme, setting Cyprus as one of the most attractive destinations in the EU for the registration of Yachts. The VAT scheme is very simplified and offers substantial incentives for the EU registration of Yachts. Specifically, the effective VAT rate can be reduced from the normally imposed rates of 19% to 24% to as low as 1,9% on the value of the Yacht, depending on the type and length of the Yacht.
Re-domiciliation of foreign companies into Cyprus
Cyprus allows re-domiciliation of foreign companies into its companies’ registry. As a result, a lot of opportunities are created for international businesses in the sense that they can re-domicile their foreign companies to Cyprus and thus take advantage of the favorable features of the Cyprus tax system. The procedure is fairly straight forward and there are three prerequisites for a foreign company to re-domicile to Cyprus.
The legislation of the country of origin must allow the re-domiciliation to other countries
The Memorandum and Articles of Association of the specific company must provide for the re-domiciliation to other countries
The company has to appoint a local, approved representative who will deal with the re-domiciliation process.