Taxation features and business benefits in Cyprus

Cyprus is not an island. It’s a dream! A warm Mediterranean climate, the sea, and favorable conditions for doing business. What else could we ask for? But, like everywhere else, there are nuances of business immigration to this paradise island. Let’s deal with everything in order 🙂 

The advantages of opening a company in Cyprus

You can read about the advantages of starting a business in Cyprus in the Doing Business report, but we will highlight the most interesting ones:

• Ease of doing business.
• There is a treaty on avoiding double taxation between the Republic of Cyprus and more than 40 other countries
• Since 2004, the country has been a member of the EU
• One of the lowest corporate tax rates in Europe is 12.5%
• Enjoying all the benefits of a European company that trades with other companies registered in the European Union (European VAT)
• Dividends received in Cyprus and abroad are exempt from income tax
• No income tax on transactions with securities and shares
• A simple and fast procedure for the registration of companies
• Easy procedure for obtaining the tax certificate
• Non-critical requirements to the duration of residence in Cyprus – 60 days (if you want to get tax residency for the business owner)
• No restrictions on the share capital of the company
• You can get a residence permit for all company directors and their families

But there are also disadvantages, although they are few. They are mainly related to the banking sector: opening a bank account can be delayed, and there is no way to make urgent money transfers due to procedures against money laundering. In addition, the data on the company founders is publicly available. This is also necessary to combat money laundering.

Types of companies in Cyprus

So, it is obvious that Cyprus entirely justifies its title of paradise on all fronts, and it makes sense to register a business there. What types of companies can foreigners open in Cyprus?

• Limited Liability Company. The most popular form of doing business in Cyprus for foreigners. Its advantage is that LLC is a legal entity separate from the owners, so obligations imposed on the company are not imposed on its owners as legal or natural persons. In addition, you do not need a share capital. To register an LLC in Cyprus, you need an agent in the territory of the Republic, a secretary, an office, and at least one director and a shareholder. The latter two may not be residents of Cyprus. 
• Branch of a foreign company in Cyprus. A branch is a no less popular type of company to open in the island Republic. Its advantages are that the parent company already has a reputation outside of Cyprus, is easier to manage, and its registration costs much less than opening a new company, but of course inferior to the LLC in terms of liability protection. To open a branch, you need to have a representative resident of Cyprus who will interact with the tax authorities. An important point: branches whose parent companies are located outside the European Union must file statement copies every financial year. If the parent company is registered in the EU, this does not need to be done, provided the company files its financial statements in the country of registration. 
• Partnership (limited or full). For this type of company, 2 to 20 partners are allowed. In addition, there are no share capital requirements for a full partnership. In the case of the limited version, the liability of the general partners is limited to the amount of each partner’s contribution, while the liability of general partners is unlimited. 
• Individual entrepreneurship. This is the easiest form of doing business if you are going to work alone. The pluses include the absence of share capital, but there is a disadvantage – you are fully responsible for your business and its debts. 

Read more about company registration in Cyprus.

The concept of “non-domicile”

All other tax residents have non-domicile status. However, according to the law, an individual may be a tax resident but be granted a non-domicile status, i.e., not have a “close relationship” with Cyprus. 

Taxation in Cyprus

We will try to sweeten the pill right away: as we mentioned above, taxation in Cyprus is one of the most democratic in Europe. The standard income tax rate for operating and trading companies is 12.5%. Thus, the income tax for companies that receive dividends is only 12.5% if the subsidiaries receive only passive investment income. If the company receives dividends from active subsidiaries, it is 0%, mainly in Cyprus, works the IPBox regime.

For companies that pay dividends to a Cypriot tax resident individual, the tax will also be 0%. In addition, if you have a non-domicile certificate, you may not pay personal income tax on your income for the first 17 years of your tax residency. In addition, as mentioned above, you are exempt from defense tax. 

The standard VAT rate is 19%, and reduced rates of 5% and 9% may also apply.

There is also a very nice bonus (and even more than one) – the transfer of goods outside the European Union is not subject to the Cyprus VAT. In addition, the Republic applies various tax incentives – for example, a reduction of tax on income from the sale of intellectual property rights.

Important: Since July 4, 2017, there has been an amendment to the tax law, the so-called “60-day rule” – that is how many days a person must spend in Cyprus to be automatically considered a tax resident.

In addition to the “60 days rule” itself, this rule includes persons who, in the relevant tax year:

1. Have not resided in a country other than Cyprus during the last 183 days
2. Are not tax residents in another country
3. Have additional ties with Cyprus (e.g., employment contract, own business in Cyprus, or operate a local tax resident company)

So, everything is clear with this. But what obligations will you have if you become a tax resident of the Republic of Cyprus?

• You must declare dividend income in and out of Cyprus annually through a tax return. The tax will be 0%
• The conditions of the “60” day rule must also be met yearly
• These requirements must be met by December 31 of each year for which you, as the beneficiary, wish to be certified

It seems simple, but there is one important nuance: if you spend more than 183 days in another country, you can not get a tax certificate of Cyprus. In addition, in this case, there is already a problem of tax residency in the country where you spent those days 🙂 

Getting a Permanent Residence Permit in Cyprus

So, all of the above is more than enough to want to open a company in Cyprus. And we should mention another essential advantage of Cyprus for doing business – investing in the economy of the Republic allows you to get citizenship. To do this, you need to invest in one of these categories:

• Real Estate
• Deposits in Cypriot Banks
• Government bonds

The minimum investment is 5 million euros if you are a private investor. If you take part in the collective option of investing – EUR 2.5 million, and the entire group of investors must invest a minimum of EUR 12.5 million. If you have invested less than 2.5 million euros in your company, the remainder of the amount can be invested in any of the above options. 

It is worth saying that with Cypriot citizenship, you not only simplify the use of all public services and benefits of the Republic but also get the possibility of visa-free entry and residence in 133 countries and provide all these possibilities to your family members.

Stages of company registration in Cyprus

1. Selection and preliminary verification of the company name.
2. Approval of the chosen name by the Registrar of Companies.
3. Completion and signing by the beneficiary of the KYC (Know Your Customer) form.
4. Submission of Due Diligence documents on the beneficiary and signatory (passport, passport registration or utility bill, etc.).
5. Approval of the structure of your company (composition of directors, shareholders, secretary, registration address).
6. Registration of the company at the Registry of Companies.
7. Signing by the beneficiary of the Indemnity Letter.
8. Apostille of documents received from the Registry of Companies (4 certificates and memorandum).
9. Registration of other necessary documents (declaration of trust, power of attorney under Apostille, etc.).

Well, as you can see, Cyprus is definitely worth considering when choosing a jurisdiction to open a company. And we are always happy to help you solve all your headaches in this process and help make it much easier 🙂 

Our team is ready to provide consultation on these issues. Our business hours: Monday to Friday, 9:00 AM — 7:00 PM. Contact us via WhatsApp, Telegram, or Viber, or submit an inquiry through our online form.