Few international business centres
can offer tax advantages similar to those available from the Cyprus taxation regime, making Cyprus one of the most
attractive onshore tax jurisdictions in the world. With its accession to the European Union (EU)
in 2004, Cyprus has evolved from an offshore tax haven, to one of the world’s
foremost financial centres. With it’s
privileged geographic location, and with the combination of favourable business taxation incentives
and an extensive network
of double tax treaties, Cyprus has become the World’s
bridge between East and West, North and South.
In a recent KPMG survey of more than 400 tax professionals from companies
across Europe, Cyprus was rated as the most attractive tax regime (with a net attractiveness score of 90 percent), followed by Ireland, Switzerland
and Malta. The net attractiveness score for Estonia was 71 percent and for
Finland, rated number six, the net score was 66 percent. "As can be seen
from the final ranking, smaller countries tend to have more attractive tax
environments. In those countries, the state is more motivated to create a
simple and efficiently managed tax system to attract investors", commented
Joel Zernask, Tax Manager at KPMG Baltics AS.
Cyprus, being a full member of the EU, participates in the EU’s internal market
where there is free movement of goods, services and capital, and citizens are
able to conduct business, travel to, and live in Cyprus with no legal
restrictions. The offshore tax haven regime which
existed until 2005 is no longer in place, and was replaced by a new
EU-compliant tax regime offering the lowest rate of business taxation in the
EU, being 10%.
Cyprus is also a full member of the Eurozone since 1 January 2008, further confirming the country’s macro-economic stability and its commitment to low inflation, low interest rates and high growth.
Due to its attractive personal and business taxation regimes, Cyprus is a highly favourable tax planning jurisdiction. Cyprus companies are commonly used as follows:
- Cyprus Holding company: Commonly stated as being the easiest exit route out of Europe, and also used extensively in combination with emerging markets such as Russia and India. Dividends from subsidiaries can be received in most cases free of withholding tax and in most cases exempt from tax in Cyprus. Disposal of such shares can be made without any tax consequences, and dividends can be paid by the company without withholding tax.
- Cyprus Royalty company: Many licence holders choose to use Cyprus for royalty routing structures because it offers no withholding taxes on payment of royalties (provided that the rights are exercised outside of Cyprus), tax is only paid on the licence fee retained by the Cyprus company, a vast worldwide network of Double Tax Treaties (DTTs), applicability of the EU Directive on Interest and Royalties providing for nil withholding taxes between EU countries, and a corporate tax rate of 10% which is the lowest within the EU.
- Cyprus Investment company: Gains on sale of securities are exempt from tax in Cyprus and dividend income is also exempt in most cases (subject to certain provisions). Dividends can be paid by the company without withholding tax.
Cyprus Finance company: Main activities can
include, but not limited to, group financing, whereby interest income can be
received with suffering no or little withholding tax in accordance with the
provision of the EC Interest and Royalties Directive or under Cyprus’ extensive
network of DTTs.
Interest payments are made free of withholding tax and the net profits from
financing activities are subject to 10% corporate tax.
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