General
General information on companies under the cyprus companies law cap. 113
- Limited by shares: the shareholders are liable to contribute to the company only up to the unpaid amount of the shares they hold in the company. Or
- Limited by guarantee: the shareholders are liable to contribute to the company only up to the sum of the guarantee they have made.
As to the relationship between the shareholders and the company, one may establish the following companies:
- Public company: among other, a Cyprus public company must have at least seven (7) shareholders and at least two (2) directors, a minimum share capital of approximately EURO 26.000,00. In contrast to a private company, a public company may offer shares or debentures to the public and may be registered on any stock exchange. Or
- Private company: amongst other, this form of company must have at least one (1) and not more than fifty (50) shareholders (from which current and past employees are exempt), must have at least one (1) director and its shares may not be transferred to other persons. It cannot offer shares to the public for subscription.
All Cyprus companies are registered at the Cyprus Registrar of Companies, where the files of all companies are publicly available for inspection, upon payment of a specified fee.
Registering a cyprus company
Information Required
In order to register a Cyprus Company, the following information is required:
- the name of the Company This must first be approved by the Registrar of Companies – a special form must be submitted to the Registrar of Companies for this purpose.
- a brief description of the Company’s objects The “Objects” of a Company indicate the activities which a Company may choose to engage in; they are inserted in the Memorandum of Association of the Company.
- the amount of the authorized and issued share capital of the Company and its currency and par value Please note that as of 1st of January 2008, the share capital of Cyprus companies which used to be in Cypriot pounds must be converted into EURO. It is thus advisable to use either EURO or USD as the nominal capital of Cyprus Companies.
- the names, addresses, occupation, passport details, date of birth and nationality of the proposed shareholders and the proposed percentage of shares each will hold
- In case we are asked to act as nominee shareholders holding the shares in the Company on trust for the beneficial owner/s, we require the names, contact details, passport details, date of birth and nationality of the proposed beneficial owners and the proposed percentage of shares which will be held on trust for each of the above
- the names, addresses, occupation, passport details, date of birth and nationality of the proposed directors and secretary of the Company; It is advisable to use Cypriot directors so as to satisfy the ‘management and control’ test of Cypriot tax residency and thus gain benefits under the double tax treaties between Cyprus and various other countries, such as Russia [please see link “Status of Tax Residence”].
- the proposed address of the registered office of the Company We note that it is advisable to use the registered office of our law firm for the purposes of practicality and communication with the Cypriot authorities.
Due Diligence of Clients
In addition, we need to obtain the following information and/or documents from the clients as part of our due diligence policy:
- details of the ultimate beneficial owner/s of the proposed Company
- copy of the passport/s of the beneficial owner/s, certified by a reputable lawyer, accountant or bank
- bank reference relating to the ultimate beneficial owners/individuals. If that is not possible, it will be acceptable to obtain a reference from a reputable accounting or legal firm;
- information as to the nature of the business of the ultimate beneficial owners / individuals and the proposed Cyprus company;
- further, in case:
- the registered shareholder is a legal entity or
- the “first level beneficiary” is a legal entity:We need to be provided with:
- a copy of its certificate of incorporation of the company and
- confirmation of its registered address.
- full details on the chain of ownership behind the Cyprus proposed company and the ultimate beneficial owners / individuals thereof.
Status of tax residency
In order for a Company to be deemed a “Cypriot tax resident”, and hence benefit from a number of double tax treaties entered into between Cyprus and numerous other countries, such as Russia, it must satisfy the following criteria:
- Under our local tax laws, the established test of residency is where the “management and control” of the Company lies.
- Although there is no statutory definition of “management and control” per se, in the case of Companies of which the business is managed by the Board of Directors, it is largely recognized that the test is satisfied if the majority of the Board of Directors are Cypriot tax residents and meetings of the Board of Directors take place in Cyprus.
- However, if the Articles of Association of the Company provide that the business of the Company is managed and controlled by any other body, for instance the shareholders (General Meeting), then the tax residency of the Company will depend on the country in which such body is resident.
- In case that certain matters only are reserved to such other body, it is a question of fact and degree, decided on an ad hoc basis, whether the list, nature and/or importance of such matters determined by such body are such that would link the management and control of the Company to such other body.
- The consequence of a Company being deemed a tax resident of Cyprus is potential payment of taxation in Cyprus, noting nonetheless that the Cyprus tax authorities are not likely to take an aggressive approach on the issue of Cyprus tax residency.
Therefore, the question of what steps should be taken to ensure tax residency in Cyprus is, to a large extent, an issue under the laws of the respective jurisdiction of which tax treaty protection is sought by the Cyprus Company.
International collective investments schemes
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Different Types of Collective Investment Schemes
Pursuant to applicable Cyprus legislation, there are different types of Collective Investment Schemes, which may be classified according to the type of investors they are addressed to or according to their type of operations, as follows:
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Categorisation by Type of Investors:
- Private International Collective Investment Scheme;
- Schemes marketed to experienced investors; and
- Schemes marketed to the general public.
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Private International Collective Investment Schemes (“ICIS”)
In May 1999, Cyprus enacted the International Collective Investment Schemes Law 47 (I)/97, as amended in 2000 (Law 63(I)/2000).
This sets out the necessary legal framework to provide incentives for the establishment of such schemes in Cyprus.
Supervision
Under the relevant law, the Central Bank of Cyprus is responsible for supervising such investment schemes.
To be specific, all kinds of investment schemes must maintain records which may be inspected at any time by the Central Bank of Cyprus and must prepare financial statements which they must file every six months with the said supervisory authority. The Central Bank also has the power to intervene in legal proceedings to ensure that the manager and custodian comply with their duties under the relevant law.
The Central Bank may also issue and implement regulations with respect to the investment restrictions of the various schemes envisaged by the law, set the relevant procedures to establish such schemes, the code of conduct of managers, custodians and directors, as well as the method and frequency of calculation of the Net Asset Value of the schemes.
These schemes are usually marketed to high net worth individuals. They have the following restrictions / characteristics:
- The maximum number of unit-holders is one hundred (100);
- They prohibit an invitation to the public for the purchase of its shares;
- They prohibit the issue of bearer shares; and
- They Restrict the right to transfer shares in the scheme.
These schemes are called ICIS and are regulated by the Central Bank of Cyprus. In other words, these are “Private Funds”.
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Schemes Marketed to Experienced Investors (“ICIS”)
These schemes are usually marketed to insurance companies, investment firms, financial service providers, or persons who frequently enter into investment transactions of a substantial size, taking into account the risks involved.
In Cyprus these are also governed by the International Collective Investment Schemes Law 47(I)/1999, which is a national law.
These schemes are called ICIS and are regulated by the Central Bank of Cyprus.
“Experienced Investor” is defined as a natural or legal person who provides financial services or frequently enters into investment transactions of substantial size, taking into account the risk involved.
Requirements:
- Must contain in its constitutional documents and offering memorandum clearly defined rules and procedures in order to ensure that marketing of the ICIS is restricted to experienced investors;
- Minimum subscription is USD 50,000;
- May not issue bearer units; and
- Not required to make public the sale and redemption or repurchase prices of its units but shall make the sale and redemption or repurchase prices of its units available to experienced investors at their request.
ICIS – Legal Form and Structure
An ICIS can take any of the following legal forms:
- International Fixed Capital Company; or
- International Variable Capital Company – most common; or
- International Unit Trust Scheme; or
- International Investment Limited Partnership.
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Schemes Marketed to the General Public (“UCITS”)
These schemes are governed by the Open-Ended Undertakings for Collective Investment in Transferable Securities (UCITS) and Related Issues Law, which transposed the relevant EU Directive.
These schemes are called UCITS and are regulated by the Cyprus Securities and Exchange Commission (CySEC).
Legal Framework
UCITS are governed by the EU Directive 85/611/EC (Undertakings for Collective Investment in Transferable Securities Directive). The Directive sets out the registration procedure, requirements for UCITS and how they can offer their services in the EU via the Single Passport Mechanism.
Cyprus implemented this Directive into national legislation with was harmonised with this directive and her modifications with Open-Ended Undertakings for Collective Investments in Transferable Securities Law of 2004.
Legal Form which the UCITS may take:
- Common FundThis is a pool of assets, of which the assets belong, jointly and separately, to unit-holders and of which the operation shall be governed by the Common Fund Regulation; and
- Variable Capital Investment Company:The variable capital investment company is a limited liability company with shares, established in accordance with the provisions of this Law and the Cyprus Companies Law, Cap. 113 by which they are governed; The main objective of the variable capital investment company is the collective investment in transferable securities or other liquid financial assets; This company only manages its assets and cannot undertake the management of third-party assets.
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Categorisation by Type of Operation:
Investment schemes can be:
- Close-Ended Schemes; or
- Open-Ended Schemes.
Close – Ended Schemes
A Close-Ended Collective Investment Scheme publishes a specific (fixed) number of units (shares). These shares are traded in a stock exchange or via a management company. These Schemes are not compelled to buy back their own shares. As a result, the price of their share may differ from the net-asset value. If the demand is high, these can negotiate in price higher than their net-asset value. If the demand is lower then they are negotiate in price lower than the net-asset value.
Open – Ended Schemes
An Open-Ended Collective Investment Scheme may publish and repurchase its units at any time. In the USA the organisms Open-Ended Collective Investment Scheme are mutual funds, in England they are unit trusts or Open-Ended Investment Companies and in Europe they are SICAV (these are companies).
These schemes draw capital via the sale shares to the investors (unit-holders) and invest them in various investments, according to the investment policy of each scheme. The investments can be in shares, securities or government bonds. The unit-holders acquire units in the scheme and can sell them back to the scheme whenever they want.
The way the value of the share is calculated is as follows: The scheme calculates daily the value of its portfolio, from which the expenses are deducted, which include management expenses, administration expenses and wages of stockbrokers. The remaining assets are divided in a number of units. The scheme is thus compelled to buy and to sell shares at such price.
An open-ended undertaking for collective investment in transferable securities (UCITS) is an undertaking the sole object of which is the collective investment in transferable securities and/or in other liquid financial assets referred of capital raised from the public, and which operates on the principle of risk-spreading and the units of which are, at the request of holders, redeemed, directly or indirectly, out of this undertaking’s assets.
These are:
- addressed to the general public;
- their investments are only in transferable securities; and
- are certified as UCITS by the competent authority in a Member State of the EU.
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General requirements to establish an international collective investments scheme which applies to all the above types of entities:
Any of the above entities must satisfy a number of minimum requirements:
- The memorandum and articles of association of the companies must contain terms approved by the Central Bank;
- The companies must submit documents as requested by the Central Bank; and
- Their manager and ‘custodian’ must be approved by the Central Bank of Cyprus. A custodian must be a bank or a recognized custodian in a regulated jurisdiction or a subsidiary thereof registered in Cyprus. The requirement of a ‘custodian’ may be waived, however, by the Central Bank in a specified set of circumstances, including when the shares of the relevant scheme are widely traded on a major stock exchange;
Both managers and custodians:
- must be a fit and proper person, organized and having appropriate staff on board; and
- must maintain a place of business in Cyprus (though this requirement may be waived by the Central Bank); and
- finally, are not liable to pay taxation in Cyprus.
In addition to the above, managers must not employ any directors who are also custodians. It is also noteworthy that both managers and custodians may assign their rights to third parties, provided that this does not discharge them from their requisite duties as imposed by the relevant law.
Conditions for obtaining a CIF authorization
The following criteria apply and the following information is required on our part:
- We need to be informed on the exact nature of services to be offered / activities to be performed by this Cyprus Company;
- To be specific, the client must inform us on the category of the following activities he wishes to perform, each having a different set of criteria:
- Dealing with and holding client’s money and/or client’s financial instruments, which includes any of the following:
- reception and transmission of orders in relation to financial instruments;
- execution of orders on behalf of clients;
- portfolio management; and
- provision of investment advice.
Requirement:
For the above services, an initial capital of at least EURO 200.000,00 (two hundred thousand euro) is required.
- For services (a) and/or (d) above (reception and transmission of orders in relation to financial instruments / provision of investment advice) but not dealing with nor holding client’s money and/or client’s financial instruments and which may not at any time place themselves in debt with their clients:
Requirements:
- at least EURO 80.000,00 (eighty thousand euro) as an initial capital; OR
- at least EURO 40.000,00 (fourty thousand euro) as an initial capital and professional indemnity insurance covering all EU member-states or some other comparable guarantee against liability arising from professional negligence entered into with an insurance undertaking, representing an amount of at least EURO 1.000.000,00 (1 million euro) per claim, and in aggregate at least EURO 1.500.000,00 (one million five hundred thousand euro) per annum for all claims;
AND
If the CIF under the above category B to provide insurance intermediary services in the insurance sector, it must also comply with certain additional requirements pursuant to that Law.
- For any of the following services:
- dealing on own account;
- underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;
- placing of financial instruments without a firm commitment basis; and
- operation of Multilateral Trading Facility (MTF).
Requirement:
An initial capital of at least EURO 1.000.000,00 (one million euro).
- Dealing with and holding client’s money and/or client’s financial instruments, which includes any of the following:
Further, the following requirements apply to all the above categories:
- Persons managing / directing the business of the CIF – these must be:
- two (2) executive directors; and
- two (2) independent non-executive directors (not dealing with every day matters of management BUT supervising all corporate matters of the CIF).
Please note that an “Independent Director” means a director who:
- has not been a member of the staff of the CIF or the group of the CIF during the last five (5) years preceding the relevant application;
- has no first degree blood relationship or relationship through marriage or employer-employee relationship with other members of the Board or senior management or shareholder who controls, directly or indirectly, the majority of the share capital or voting rights of the CIF;
- has no relationship (either blood relationship or business relationship or any other relationship) with the external consultants or auditors of the CIF;
- has not been a member of the Board for a period exceeding nine (9) months from the date of his/her first appointment in the CIF;
- does not maintain during the last three (3) years preceding the application any business relationship with the CIF, directly as shareholder, member of the Board or senior manager of another company which had such a relation with the CIF;
- has not been appointed senior manager or executive director, directly or indirectly, of a subsidiary company or an affiliate company, directly or indirectly, during the last twelve (12) months;
- is not a member of the Board of other companies in which members of the Board of the CIF are also directors, or has such business relations with such other directors; and
- has no other connections which may be considered to impede his/her objective and impartial judgment.
The Directors need not be Cypriot nationals (can be any foreign nationals) but the majority of the Directors must be Cypriot residents (ie. reside permanently in Cyprus and be contactable by CYSEC during normal working hours);
In general, all employees of the CIF must be employed on a full-time basis, and be readily available and contactable by CYSEC during working hours;
Further, the Directors must be:
- of sufficiently good reputation; and
- sufficiently experienced to ensure the sound and prudent management of the CIF.
- CIF shareholders (whether direct or indirect / natural or legal persons):
- their identities and shareholdings must be disclosed, provided that they hold at least ten per cent (10%) in the capital or voting rights of the IF or exercise an important influence over the management of the IF; and
- in case of legal persons – the identity of the natural persons managing this company and holding shares in this company must be disclosed, reaching the beneficial owners.
- Persons employed in CIF must:
- be of sufficiently good reputation; and
- have the necessary skills, knowledge and expertise to perform their assigned responsibilities.
The relevant Cyprus Legislation and Directives currently in place do not pose any legislative requirement on the number of employees or specific posts which a CIF must have, except for the following positions:
- The CIF must definitely have a “Compliance Officer” who shall be responsible for the compliance and reporting functions; yhis person must not be involved in the performance of the services of the CIF which it monitors, and the method of determining his/her remuneration should not compromise his/her objective judgment;
- We note that the risk management and compliance functions may be performed by the same person, without necessarily jeopardizing the independent nature of each function
- The CIF must also appoint independent auditors who shall carry out the function of internal audit, independent from all other functions and activities of the CIF, and who shall establish and maintain the audit plan of the CIF, evaluate adequacy and effectiveness of the CIF’s systems, issue recommendations, verify compliance with such recommendations and make reports in relation to internal audit matters;
- Clearly, the CIF must submit annual audited financial statements and implement all necessary accounting policies and procedures;
- The CIF must also establish and maintain a “complaints handling” procedure to handle with all potential claims and/or complaints from retail or other clients, and to keep records of such complaints.
- Head Office: This must be situated in the Republic of Cyprus.
- Operational Requirements:The CIF must have in place / ensure:
- adequate policies and procedures to ensure its compliance with relevant legislative requirements and Directives;
- effective organizational and administrative arrangements (including taking measures to prevent any conflicts of interests with clients);
- ensure continuity and regularity in the performance of investment and ancillary services, by employing appropriate systems, resources and procedures;
- ensure, when relying on third parties, the continuous and satisfactory service to clients and the performance of investment activities on a continuous and satisfactory basis;
- maintain robust governance arrangements which include a clear organizational structure, with well defined, transparent and consistent lines of responsibility;
- have sound administrative and accounting procedures, internal control mechanisms and effective procedures for assessing risks and control mechanisms;
- keep records of all services provided and transactions undertaken;
- apply appropriate “KYC (Know Your Client) procedures” and client identification procedures to avoid money laundering;
- when holding financial instruments belonging to clients – safeguard clients’ ownership rights (especially in case of CIF insolvency); and
- when holding funds belonging to clients – make adequate arrangements to safeguard client’s rights and prevent the use of client’s funds for its own account.
- In case of MTF (Multilateral Trading Facility) – the CIF must establish:
- transparent and non-discretionary rules and procedures for a fair and orderly trading and objective criteria for the efficient execution of orders;
- transparent rules regarding the criteria for determining the financial instruments that can be traded under its systems;
- access to sufficiently publicly available information to enable its users to form an investment judgment;
- transparent rules for the access to its facility; and
- information to users of their respective responsibilities for the settlement of transactions executed in that facility and to ensure efficient settlement of the above.
Finally, a CIF and market operator operating an MTF must comply immediately with any instruction from the Commission to suspend or remove a certain financial instrument from trading.
Double tax treaties to which cyprus is a signatory
As a result, offshore entities incorporated in Cyprus which enjoy a tax exemption in Cyprus will be able to benefit from the same tax exemption in the respective Treaty country.
- Armenia*
- Austria
- Belarus
- Belgium
- Bulgaria
- Canada
- China
- CIS (ex-USSR)
- Czech Republic
- Denmark
- Egypt
- Federal Republic of Germany
- Finland*
- France
- Greece
- Hungary
- India
- Ireland
- Italy
- Japan*
- Kuwait
- Lebanon
- Malta
- Mauritius
- Norway
- Poland
- Quatar ***
- Romania
- Russia
- Seychelles **
- Singapore*
- Slovakia
- South Africa*
- Sweden
- Syria
- Thailand
- Ukraine
- United Kingdom
- United States
- Serbia and Montenegro
- The Treaty between Cyprus and Russia which was signed in December 1998 replaced the USSR (CIS) Treaty regarding Russia but not regarding the rest of the members of the CIS, which are still bound by the old treaty. The two treaties in question, however, are very similar.
- * indicates that the treaty is still to be ratified
- ** In July, 2006, the governments of Cyprus and the Seychelles agreed to a new bilateral pact targeted at preventing the double taxation of income
- *** In November 2008, the Qatari Prime Minister Sheikh Hamad bin Jassim al Thani visited Nicosia to ratify several bilateral agreements and Memoranda of Understanding between Qatar and Cyprus, including an agreement on the avoidance of double taxation.
EXCHANGE OF INFORMATION BETWEEN THE CYPRUS TAX AUTHORITIES AND FOREIGN TAX AUTHORITIES
On July 25, 2008 the Ascertainment and Collection of Taxes Law of 1978 was amended by the Ascertainment and Collection of Taxes Law of 78(I) of 2008 (the “Law”) laying down revised principles governing the exchange of information relating to tax matters between Cyprus and foreign countries with which Cyprus has signed double tax treaties. The crucial provisions of the Law are as follows:
- All confidentiality privileges other than legal privilege can be circumvented provided that the conditions of the Law are fulfilled.
- The relevant foreign authority requesting information should provide the Cyprus Commissioner of Inland Revenue Department (the “Commissioner”) with specific details of the reasons for requesting such information.
- The information is not provided if the requesting State does not have corresponding enabling provisions for the provision of information in its local legislation.
- If the conditions in paragraphs (ii) and (iii) above are satisfied the Commissioner can obtain information from sources in Cyprus for the purpose of forwarding same to the requesting foreign authority.
- Notwithstanding the above, the powers of the Commissioner may only be following the receipt of the written consent of the Attorney-General of the Republic. This is done on an ad hoc basis.
International trusts law
The most crucial provisions of the Law are the following:
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Criteria
First of all, for a trust to be considered international and thus fall under the ambit of the Law, the following criteria must be met:
- the settler and beneficiaries are not permanent residents of Cyprus;
- at least one of the trustees is a permanent resident of Cyprus; and
- the trust property does not relate to any immoveable property situated in Cyprus.
It is also noteworthy that a trust shall not fail to qualify as an international trust simply by reason that either the settler or the trustee or any one or more of the beneficiaries is a Cyprus offshore company. This can have a number of advantages, as explained in the following pages.
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Validity of Trust
According to sections 3(2) and 3(3), no trust shall be void unless and to the extent that it is proven in Court by a creditor that at the time of the transfer to the trust this was done with the intent to defraud. The burden of proof for this lies with the creditor. Further, no action may be brought against the trustee after two years have elapsed from the date of the said transfer.
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Perpetuities and Accumulation
According to section 5 of the Law, the perpetuity period for non charitable trusts is one hundred years, while according to section 6, income may accumulate for any period within the period of the trust.
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Governing Law
Section 9 provides that the law of the Trust may change to and form the law of the Republic of Cyprus, if so authorized by the terms of the Trust. This provision, accompanied by the possibility of having one or more trustees, one of whom is not a Cyprus resident, deals effectively with potential reservation about the political situation in Cyprus.
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Confidentiality
Section 11 of the Law provides that any trustee or any other person including government officials and officers of the Central Bank of Cyprus are prohibited from disclosing any information about the trust. Further, under sections 11 (2) and (3), a Court may by order allow such disclosure of information where this is crucial for the outcome of particular civil or criminal proceedings.
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Taxation
Under section 12 (1):
- the income and gains of a trust derived or deemed to derive outside the Republic of Cyprus shall be exempt of all Cyprus taxes;
- no estate duty is payable in respect to any assets belonging to the trust;
- all income and profits derived from trust property outside the Republic of Cyprus are exempt of all taxation; and
- no estate duty or other inheritance tax are payable in relation to the trust property.
Under this section, the trust is liable to taxation in Cyprus (though its foreign income is taxed at 0%), hence preserving the possibility of arguing that it is a resident, thus acquiring protection under the various tax treaties concluded with Cyprus.
- Stamp DutyFinally, the instrument of the international trust is subject to flat stamp duty of CYP 250.
TRUSTEE
The Trustee could be a:
- Cyprus offshore entity; or
- Local Cypriot resident or company
Where the Trustee is a local Cypriot resident, it is possible to gain protection under the various double tax treaties concluded between Cyprus and many other countries. This is also possible where the intended property is put into a Cyprus offshore company and the trust owns, instead of the property itself, the shares of the offshore company.
Corporate Tax
Benefits of the Cyprus Tax Regime
- 10 % corporate tax rate is imposed on business profits;
- No withholding taxes (corporate or otherwise) are imposed on dividends, interest and royalties for non-residents;
- Income from dividends is exempt from income or corporation tax, subject to certain criteria;
- Exemption from income or corporation tax of gains made by an individual or company resident of Cyprus from the sale of securities;
- Subject to certain conditions, a holding company in Cyprus is fully exempt from local taxation in respect of dividends received by a holding company from its local and foreign subsidiaries;
- International trusts enjoy a very favourable tax regime;
- The double taxation treaties which Cyprus has concluded with more than 40 countries;
- Tax advantages available to non-residents including non – E.U. residents;
- Holding companies in Cyprus may perform operating activities;
- Under Cyprus tax law, losses may be carried forward indefinitely; and
- Tax-neutral group reorganisations
Benefits of the Cyprus Tax Regime
- 10 % corporate tax rate is imposed on business profits;
- No withholding taxes (corporate or otherwise) are imposed on dividends, interest and royalties for non-residents;
- Income from dividends is exempt from income or corporation tax, subject to certain criteria;
- Exemption from income or corporation tax of gains made by an individual or company resident of Cyprus from the sale of securities;
- Subject to certain conditions, a holding company in Cyprus is fully exempt from local taxation in respect of dividends received by a holding company from its local and foreign subsidiaries;
- International trusts enjoy a very favourable tax regime;
- The double taxation treaties which Cyprus has concluded with more than 40 countries;
- Tax advantages available to non-residents including non – E.U. residents;
- Holding companies in Cyprus may perform operating activities;
- Under Cyprus tax law, losses may be carried forward indefinitely; and
- Tax-neutral group reorganisations
Exemptions from Tax
- 50 % of income generated from interest, unless such interest is generated from, or is closely associated with, the ordinary course of business of the company
- 100 % of income generated from dividends
- 100 % of profits from the disposal of titles
- 100 % of profits from a permanent establishment abroad (subject to certain conditions)
Tax and Dividends in Cyprus
- As mentioned above, dividends are exempt from income tax.
- However, dividends received by a resident of Cyprus are subject to a special “special contribution” tax at a rate of 15 %, except in the following cases:
- A company that is a resident of Cyprus is exempt from the special contribution tax on dividends if it receives the dividend from another company, which is a resident of Cyprus.
- A company that is a resident of Cyprus is exempt from the special contribution tax on dividends if it receives the dividend from another company which is not a resident of Cyprus provided that it holds at least 1% in the share capital of the payer. This exemption will not apply if: (a) the payer engages directly or indirectly more than 50% in activities which lead to investment income and (b) the foreign tax burden of the payer is substantially lower than the tax burden of the recipient.
- The law further provides for a deemed distribution as dividend of 70% of the distributable profits of a company which is a resident of Cyprus on which special contribution is levied. It is interesting to note that in case of a deemed distribution the exemption in (b)(i) does not apply.
Tax and Interest in Cyprus
- If the interest is received in the recipient’s ordinary course of business or in close relation to it, it will be taxable as trading income at the corporate tax rate of 10%.
- If the interest received, on the other hand, is not closely related to the recipient’s ordinary course of business, it will be subject to:
- A “special contribution” tax at a rate of 10%; and
- 50% of such interest will be taxed at the 10% corporation tax rate. The effective tax rate in this case will, therefore, be 15%. In view of this, it would appear that if substantial interest income is expected, it is advisable to create a special company for this purpose.
Recent Amendments passed in 2009 in relation to the Income Tax and Special Contribution for the Defence of the Republic of Cyprus
Interest income received by Cyprus tax resident companies, CIS or individuals
Companies and CIS
Interest received by a Cyprus Company or a CIS (whether open-ended or closed-ended) is subject to 10 % tax, following a deduction of relevant expenses.
Individuals
Interest received by individuals in the ordinary course of business is taxed under income tax law depending on each individual’s level of income, following a deduction of relevant expenses.
Exceptions
Interest received by any individual or company not falling under any of the aforementioned categories is subject to 10 % special contribution defence tax, without deduction of relevant expenses therefrom.
Foreign dividend income received by Cyprus tax resident companies
Companies
In the case of a Cyprut tax resident company, the minimum 1 % holding requirement for the exemption of foreign dividends from taxation in Cyprus has now been abolished.
CIS
- Dividend deemed distibutions, including those resulting from liquidation, are now subject to 3 % special defence rate (reduced from previous applicable tax rate of 15 %);
- Redemption of units or other interest in a CIS, whether open-ended or closed-ended, is not subject to special defence rate. It constitutes a disposal of titles and any resulting gain is not subject to tax.
Obtaining Cypriot Citizenship
General
- residence of a duration of a total of seven (7) years in Cyprus and a total of twelve (12) consecutive months during applicant’s last year of stay in Cyprus (for this to be possible, the applicant must have obtained a temporary resident’s permit in Cyprus); OR
- marriage with a Cypriot for at least three (3) years, which must still be in force (applicant must not be divorced at time of application); OR
- application for Cypriot citizenship based on a number of legislative financial exceptions, provided that certain financial criteria are met.
Please note that a different procedure / different criteria and different timeframes apply for each of the above grounds of application for Cypriot citizenship.
Application based on Financial Exemptions
FINANCIAL CRITERIA AND INFORMATION AND DOCUMENTS REQUIRED
A foreign resident may apply for Cypriot citizenship based on certain financial legislative criteria.
The below financial criteria / exceptions are currently being proposed by the Ministry of Finance in Cyprus, noting that at the moment, there is a degree of flexibility as to the principles whereby Cypriot citizenship is granted, each case being judged by its merits and ultimately approved by the Council of Ministers in Cyprus. Building a strong financial profile of the applicant is therefore the key to obtaining Cypriot citizenship based on financial exemptions.
To be specific, the newly proposed financial criteria are as follows:
Direct Investments
The applicant must have direct investments in immoveable property in Cyprus amounting to at least EURO 2 million in value.
AND In addition, any of the below criteria:
Business activities
The applicant must have incorporated in Cyprus a company / companies or group of companies with a total annual turnover of at least EURO 100 million during the year immediately preceding the application.
OR
The applicant must have founded a company in a financial investment or other sector in which he/she has employed at least ten (10) Cypriots or EU nationals as local staff during the year immediately preceding the application.
OR
Introduction of new Technologies – Creation of Research Centres
The applicant must prove that, through his/her activities, he/she introduces new technologies in vital sectors of the Cyprus economy or has founded an important research centre of a high scale to conduct local research in Cyprus.
OR
Bank Deposits
The applicant must maintain personal 5-year fixed deposits in Cyprus banks or deposits of his/her private companies in Cyprus (which must be directly controlled by the applicant) amounting to at least EURO 20 million.
* Irrespective of the above, we note that the Council of Ministers may accept applications on an ad hoc basis, based on the merits of each case, on the basis of the current financial criteria which are provided below, and/or a combination of the newly proposed and existing financial criteria.
Application based on existing financial criteria
At the moment, the current legislative requirement for the applicant to obtain Cypriot citizenship is to satisfy any of the below criteria:
- an annual turnover of business amounting to at least EURO 85,5 million during the last year preceding the application; AND
- holding of immoveable property in Cyprus of any value whatsoever; AND
- investments in any sector of Cyprus (eg. transport, hospitals, hotel business, industry, or even a combination of purchase of real estate and investments in Cyprus) amounting to EURO 25,5 million; OR
- fixed deposits in Cyprus bank/s of at least a 5-year duration amounting to at least EURO 17,86 million (this could also include bonds and other financial instruments).
Long Term Residence Status
Legislative Requirement
To be able to submit this application, the applicant must complete, prior to the date of the application, five (5) years’ legal stay in the Republic of Cyprus (holding relevant pink-slip).
The long-term residence permit is similar to the concept of a “green card” and is renewable every five (5) years. It is a temporary solution / intermediary stage before obtaining Cypriot citizenship.
Information required
Details of applicant:
- name (including middle name) and surname of applicant;
- date and place of birth;
- sex;
- nationality;
- passport no. and date of expiration;
- social insurance no.;
- family status (married, single, divorced, separated or widowed);
- address particulars (including postal code);
- tax address – if different from above; and
- telephone number (both of home and work), fax number (optional) and e-mail address (optional).
Documents required in relation to applicant:
- 2 recent pictures;
- contract of health insurance;
- certificate of blank criminal record;
- passport with at least two (2) years’ valid duration;
- copy of lease agreement or copy of sale and purchase agreement and/or copy of title deeds, as applicable – see below “Details of applicant’s accommodation in Cyprus; and
- in case of employed work – contract of employment – see below “Details of Applicant’s income in the Republic of Cyprus” – “Employed Work”.
Details of spouse of applicant:
- name (including middle name) and surname;
- country of residence;
- date and place of birth;
- sex;
- nationality;
- passport no. and date of expiry of passport;
- alien certificate no.;
- file number; and
- expiry date of residence permit.
Details of children of applicant (including children who are situated outside the Republic of Cyprus):
- name and surname;
- date and place of birth;
- sex;
- nationality;
- country of residence;
- passport no. and date of expiration; and
- family status (married, single, divorced, separated or widowed).
Applicant’s children who are in Cyprus
Please provide a list with your children (if any) who are in Cyprus, containing the following details:
- name and surname;
- status of residence;
- ARC / File no.;
- expiry date of residence permit; and
- dates of last arrival in Cyprus.
Details of applicant’s stay in the Republic of Cyprus:
We will need to be provided with a complete list containing all dates of Arrivals and Departures in and out of the Republic of Cyprus and the total period of stay in Cyprus upon each arrival in Cyprus (years / months / days).
Details of applicant’s accommodation in Cyprus:
Does the applicant own / rent a house or apartment in Cyprus, or does the applicant reside at his/her employer’s residence?
- In case of rented property – we will need to be provided with a copy of relevant lease agreement;
- In case of residence at the employer’s dwelling – we will need to be provided with a description of the employer’s residence; and
- In case of privately owned property – we will need to be provided with a copy of title deeds and/or relevant sale and purchase agreement.
Details of Applicant’s Residence Permit in the Republic of Cyprus or in other member-state
- File no.;
- Alien’s Registration Certificate No. (ARC No.);
- Date of last entry into Cyprus;
- Date of expiry of residence permit in Cyprus; and
- Residence status in Cyprus.
- If the applicant holds a residence permit in another member-state, he / she must submit a copy thereof containing following details:
- Date of issue of residence permit;
- Date of expiry of residence permit;
- Residence status; and
- Country of issue.
Details of Applicant’s Academic / Vocational Qualifications and Vocational Permits
- Education (Primary, Secondary, Higher)Please include name/s of the school/s where the applicant has studied – beginning with the most recent one – the diplomas / titles / certification of studies acquired and the relevant years in which these were acquired;
- Vocational / professional / business qualifications (including computer knowledge certificate)Please include the names of the relevant institutions / associations, the qualifications obtained and the year in which each qualification was obtained.
- Vocational permitsPlease include the names of the relevant institutions / associations, the exact permit obtained and the year in which each permit was obtained.
- LanguagesPlease use characterizations excellent, very good, good, fair) for writing, reading and speaking each language.
Details of Applicant’s working experience gained inside our outside the Republic of Cyprus
- employer’s name;
- position held;
- country;
- duration; and
- salary.
Details of Applicant’s income in the Republic of Cyprus
In case of employed work:
- employer’s name, address and contact details;
- company’s name and address details;
- employer’s register number;
- sector of economic activity;
- job offered / position held by the applicant;
- period of employment; and
- salary (monthly).
In the above case, we will need to be provided with a stamped contract of open duration OR of at least eighteen (18) month’s duration.
In case of self employed work:
- name and address and contact details of company;
- employer’s register number;
- sector of economic activity;
- V.A.T. registration no.; and
- salary (monthly).
Details of Applicant’s income obtained from sources other than employment (eg. bank account, interests, dividends, rents, interest etc.)
- details of Bank / Company / Investment / Building;
- respective country; and
- amount obtained from each respective source of income.
Please note that relevant certificates / written evidence must be submitted in relation to the above.
Duration of Residence Granted
Residence is granted for five (5) years and is renewed thereafter, provided that an application for this is submitted three (3) months prior to the expiry of the Permit;