International Business Activities
Below are the main business activities which are best suited to be operated through an international entity:
- Holding companies
- Financing companies
- International trading
- International services companies
- International construction companies
- Royalty companies
- Real estate companies
- Commission agents
Cyprus Tax Residence
- A company is taxed if it is a resident of Cyprus.
- A company is resident if its management and control is in Cyprus. The incorporation of a company in Cyprus is not sufficient to establish residence.
- Although the term “management and control” is not defined in the legislation, it is generally understood to mean the place where the board meetings take place or where the majority of the board members reside.
- A company which is resident:
– is taxed in Cyprus on its worldwide income.
– Such income includes profit from business activities such as trading, manufacturing, industrial, mining, agricultural, profession or vocation, interest, rentals from immoveable property, royalties and profit from sale of goodwill. Foreign taxes paid are credited against Cyprus tax paid on the same income.
- A company which is non-resident, will only be taxed on its profits arising from a permanent establishment in Cyprus. The term “permanent establishment” basically includes an office, a branch, a factory or laboratory, a mine, an oilfield, or a construction site for a project exceeding three months.
Tax Advantages of Cyprus Companies
The main advantages of the Cyprus tax legislation are as follows:
- Cyprus current tax system is in full compliance with the EU and OECD.
- Taxable profits of all Cypriot companies are taxed at the rate of 12.5%.
- Gains from the disposal of securities are tax exempt.
- Dividend income received in Cyprus from a foreign corporation is wholly exempt from taxes in Cyprus (under certain conditions).
- Interest income earned from trading activities, including interest which is closely related with trading activities, is subject to income tax at 12.5%.
- No withholding tax on dividends and interest paid to non-residents of Cyprus. Also no withholding tax on royalties arising from sources outside Cyprus.
- Group relief provisions for companies resident in Cyprus.
- Capital gains are not subject to tax, except on sale of immovable property situated in Cyprus.
- If Cyprus Company gives contributions to its subsidiaries this can be shown in the cost of the investment which will not be subject to deemed interest-under some circumstances.
- Cyprus combines a low-tax regime with a network of double tax treaties. It has concluded the highest number of double tax treaties compared to any other offshore jurisdiction, particularly with Central and Eastern European Countries and a number of Middle Eastern countries.
- Holding International Business Companies operating from Cyprus are now in a much more beneficial position because they can enjoy the benefits deriving from the tax exceptions as well as the corporate tax benefits by virtue of the new tax legislation.
- Since 2012, interest expense incurred by a Cyprus tax resident company to finance an equity investment into a 100% (direct or indirect), will be treated as deductible provided that the subsidiary is engaged only in taxable business activities (eg trading activities).
- There is no property tax on inheritance of shares in a Cyprus company;