Cyprus

GENERAL

 

At a Glance…

GDP per capita: €20,400

GDP composition:
agriculture 2.4%,
industry 15.9%,
services 81.7%

Currency: EURO

Population
(as from January 2015):  847k

Area: 9251 sq. km

Time: CET (GMT + 02:00)

Political System:
Presidential Republic, with President as Head of State leading an elected government

Languages:
Greek, Turkish (both official)

Memberships:
EU since 2004
Eurozone since 2008
Commonwealth

Financial Institutions:
Banks: 56

Investment Funds: 130

Registered Companies
(as of July 2016):
205.864

Sovereign rating:
BB- (Fitch – 10/2016)
BB+ (S&P – 03/2017)
B1 (Moody’s – 11/2015)

Public Debt for 2014: 
108.9% of GDP

Public Deficit for 2014:
0.5
% of GDP

Weather:
Mediterranean climate, 340
warm and dry days in a year
and mild winters

Crime:
6.44 crimes per annum

per 1,000 habitant

Pollution:
L
ow


Public Holidays 

New Year’s Day:
1 January 

Epiphany:
6 January

Clean Monday:
date variable 

Greek Independence Day:
25 March

Cyprus National Day:
1 April

Good Friday:
date variable

Easter Monday:
date variable     

Labour Day:
1 May 

Whit Monday:
date variable

Assumption Day:
15 August

Cyprus Independence Day:
1 October

Greek National Day:
28 October

Christmas Eve:
24 December

Christmas Day:
25 December

Boxing Day:
6 December

With an area of 9251 sq. km, Cyprus is the third largest island in the Mediterranean Sea, situated in its north-eastern basis at the crossroads of Europe, Asia and Africa. The official languages are Greek and Turkish but English is widely spoken and is the language mostly used in business.

The island is home to a large expatriate community, having the second highest percentage of foreign citizen residents in the EU. British nationals comprise the largest expat community whilst Russians and other Eastern European nationals also constitute big expatriate groups. Cyprus is considered as a safe and pleasant place to live, with low crime and pollution rates. Furthermore, the top quality of facilities and services on offer, such as marinas, golf courses, professional services, private schools and universities, are expected to significantly increase the number of foreign people investing in and relocating to Cyprus over the coming years.

Cyprus has been a member of the EU since the 1st of May 2004. The strategic location, the strong pro-business attitude, the multi-lingual and highly skilled human capital (more university graduates per capita than anywhere else in Europe), the state-of-art telecommunications infrastructure and the 2003 tax reform have made the island one of the most progressive and efficient business locations in Europe.

DID YOU KNOW THAT CYPRUS…

* comes 34th in the Global Innovation Index out of 141 countries?

* Investment Promotion Agency (CIPA) was ranked 5th among 189 Organizations Worldwide for the provision of excellent information to investors by the World Bank’s “Global Investment Promotion Best Practices 2012 Report”?

* positions 2nd in VAT collection ratio in EU?

* is the biggest ship management centre in the EU?

* ranks 17th in most visitors per capita per year globally?

* has more University graduates than anywhere else in the EU?

* has the 3rd biggest Ship Register in Europe and 10th in the world?

* ranks 5th safest country in the world?

* ranks 47th out of 189 countries on ‘Ease of Doing Business’ according to the World Bank’s Doing Business report of 2016?

 

LEGAL SYSTEM BACKGROUND

Cyprus Law is a mixture of legislative statutes and case law. Its structure is largely based on English Law and English case law is often cited.

The Companies Law Cap 113, went through a major reform in 2003 and in the years that followed, as part of the harmonisation of Cyprus Law with EU Law, and various provisions were introduced enabling the use of the Cyprus Company as a vehicle in a number of structures among other things.

Apart from these changes related to EU harmonisation, in general there is stability in the Law with no frequent radical changes and hence with minimum uncertainty. Despite that, where deficiencies are detected or modernization is required in the Law, the necessary amendments are implemented speedily and effectively.

 

TYPES OF BUSINESS VEHICLES

Cyprus Types of Business Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

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PRIVATE LIMITED COMPANY

  • Share Capital
    No minimum or maximum and no minimum paid up
    Can be used at a premium
  • Shareholders
    At least one
    Nominee shareholders permitted but nominees must be licensed
  • Directors
    At least one
    In certain cases director may also act as company secretary
    Can be either a physical or a legal person
    Local not required but strongly recommended
  • Meetings
    At least one General Meeting of the Shareholders each year, in addition to any other company meetings
    General Meetings of the Shareholders, except for the Annual General Meeting can be held via resolution in writing
  • Company Secretary
    Any nationality – resident highly recommended
    Can be either a physical or a legal person
  • Registered Office
    Required to be in Cyprus

 

TAX

As part of its accession to the EU, Cyprus endeavoured to transform itself from an off-shore tax heaven featuring a 4.25% corporate tax rate for ring-fenced businesses to an EU preferential jurisdiction with a uniform tax rate which currently stands at 12.5% and is among the lowest in the European Community.

Furthermore, Cyprus has not only fully adopted all EU Directives; it has even gone beyond that by not imposing minimum holding period, percentage holding and any other restrictions used by most Member States.

1. Tax Facts

Corporation Tax Rate 12.5%
Tax residency Based on the management and control concept
Companies tax resident of Cyprus: subject to tax on worldwide income
Companies non-tax resident of Cyprus: subject to tax only on income arising in Cyprus
Withholding tax on dividends, interest and royalties None to non-residents of Cyprus (for royalties only for rights used outside Cyprus)
Tax Rulings Only on interpretation of Law
Double tax relief
  • Double Tax Treaties – over 50; or
  • Unilateral Tax Relief;
Gains on sale of shares and other securities Exempt from any tax (except when the shares belong to a non-listed company owning immovable property in Cyprus)
Tax Losses
  • Can be carried forward for five years / Cannot be carried backwards
  • Group Relief is available
Special Tax Schemes* Shipping Industry
Intellectual Property
Trusts
Investment Funds
Expats

* Please refer to relevant Practical Notes issued by Fiducenter

 

2. Tax Advantages

 

Tax advantages - CY

 

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3. Table of Taxes

Corporation Tax

Special Contribution for Defense (SCD)

Capital Gains Tax

Trading Income

12.5%

N/A

N/A

Active Interest

12.5%

Exempt

N/A

Passive Interest*

Exempt

30%

N/A

Dividends – SCD exemption conditions met

Exempt

Exempt

N/A

Dividends – SCD exemption conditions failed

Exempt

17%

N/A

Gains on sale of securities

Exempt

N/A

Exempt

Rental Income

12.5%

3% on 75%

N/A

Income from Intellectual Property

80%

Exempt

N/A

N/A

*passive interest deriving from loans to individual directors or shareholders, or to their spouse, or up to second degree relatives is exempt from SCD as from 1st January 2012.

** individuals who are tax residents of Cyprus but are not considered to be ”domiciled” (refer to ‘Incentives to Relocate to Cyprus’ section) in Cyprus are exempt from payment of SCD

 

ACCOUNTING FACTS

All Cyprus registered companies are required to prepare financial statements in accordance with the relevant provisions of the Cyprus Companies Law, Cap. 113 and the International Financial Reporting Standards and file these with the Registrar of Companies. The main characteristics of the accounting regime of Cyprus can be viewed in the below table:

 Global Competitiveness Report

 29th position on the strength of auditing and reporting standards, out of 142 countries

 Accounting standards

 IFRS

 Submission of accounts

 Required

 Audit

 Yes – exemption for private companies qualifying as small but still needed for tax purposes

 Updating of Accounting Records

 Within four months from the occurrence of a transaction (tax requirement)

 Maintenance of Accounting Records

 To be kept for 6 years

 Consolidation

 Yes – exemptions for parent companies of larger groups and small size groups

VAT FACTS

Cyprus has a VAT system based on the EU VAT Directive 77/1388/EEC. The main characteristics of the Cyprus VAT regime can be viewed in the below table:

Standard VAT rate

 19%

Reduced VAT rate

 5% – Food, drinks (excluding alcoholic and soft drinks), entry fees to theatres, cinemas, sport events and other cultural events, books and newspapers, repair and maintenance of private households, confectionery products, medicines, live animal and animal foodstuff, hair salon services 9% – Transportation services, restaurant services, hotel services

Zero rating and exemptions

 Zero rating – exports and intra – community supplies, supply, hiring and repairs of aircrafts and sea going vessels Exempt – Financial services, rents, lotteries, medical services, insurance services, education, sports, cultural services

Registration threshold

  • Annual turnover of €15,600
  • No threshold if a business offers taxable supplies to a VAT – registered person in another EU Member State
  • Acquisitions from other EU Member States of €10,251.61

VAT return

 Submitted on a quarterly basis

VAT Information Exchange System (VIES)/INTRASTAT

 On a monthly basis

Special VAT schemes

 The Yacht Leasing Scheme – Can reduce the effective VAT rate up to 1.9%

 

EMPLOYMENT ISSUES

1. Work Permits

a. EU Citizens

EU Members have the right to enter Cyprus by simply showing a valid EU passport or ID card without having to register upon arrival.

EU citizens have also the freedom to work and open their own business on the island.

In order to commence employment the following steps must be taken:

● apply within eight days of their arrival for an Alien Registration Certificate at the local Immigration Branch of the Police and pay the relevant fee;

● apply for a social insurance number securing employment in Cyprus;

● apply for a residence permit.

b. Non – EU Citizens

Applications for the issue of entry and work permits are submitted to the Civil Registry and Migration Department by the intended employer, on condition that the candidates are abroad. It must be proven that regarding the specific position applied for, there are no available and dequately qualified Cypriots or other EU citizens.

Work permits for non – EU citizens are granted for employment only by the applicant employer and are normally issued for one year, although they can be renewed.

2. Social Security

There is a mandatory earnings-related social security scheme in Cyprus which applies to both employed and self-employed individuals, whether resident or not, and whether Cypriot or not. Self-employed persons are assessed on notional income levels depending on their occupation.

Contributions to the various funds are tax-deductible, and the employer’s contribution is not taxable for the employee. The following are the contributions an employer is required to make on the gross emoluments of his employees:

 Social Insurance Fund 7.8%
 Redundancy Fund 1.2%
 Industrial Training Fund 0.5%
 Social Cohesion Fund 2%
 Holiday Fund (if not exempt *) 8%

* An employer can be granted an exemption when paid annual holidays are offered and upon certain conditions being met.

Besides the Social Cohesion Fund for which contributions are uncapped, for the rest of the funds the contributions are capped at a certain amount of gross emoluments, which for 2016 is €54,396 per annum.

The employee only contributes to the Social Insurance Fund at the same rate as the employer and subject to the same gross emoluments cap.

3. Personal Income Tax

Individuals who are resident in Cyprus are taxed in the country on their worldwide income.

For individuals who are not residents of Cyprus, tax is charged only on income and gains generated in or derived from Cyprus. Tax is charged progressively, with the maximum rate being 35%. There are some special regimes for attracting foreign pensioners or highly qualified personnel, which are covered in detail below.

Tax is withheld at source by the employer through the PAYE system.

 Personal Tax   
 Taxable Income   Tax Rate Cumulative Tax
 €    %   €
 0 – 19,500 0 0
 19,500 – 28,000 20 1,700
 28,000 – 36,300 25 3,775
 36,300 – 60,000 30 10,885
 60,001 and over 35

For expatriates relocating to Cyprus, it will be important to establish their country of tax residency, their sources of income and to what extent they may qualify for benefits under bilateral or EU agreements for relief from taxation and social insurance contributions.

The following are, among other, exempted from Income Tax:

  • interest income
  • dividend income
  • gains from disposal of securities (shares, bonds, options, forwards, etc.)

The most important expenses deductible for Income Tax purposes are as follows:

  • Contributions to approved provident funds
  • Subscriptions to trade unions or professional bodies
  • Donations to approved charitable organisations
  • Expenses for the letting of buildings up to the 20% of the rental income.

INCENTIVES TO RELOCATE TO CYPRUS

With regards to incentives to relocate to Cyprus, Cyprus offers schemes for different purposes, from promoting the physical establishment/relocation of foreign companies and groups to motivating Cypriots studying abroad to return to Cyprus upon graduating, to giving yet one more motive for non-residents to retire in Cyprus.

1a. Tax Exemption on Income of a Non-Resident Moving to Cyprus for Employment

This measure was implemented recently to attract foreign companies or groups to establish themselves or, as is usually the case, transfer their base and substance of operations in Cyprus by offering 50% exemption on personal income. The exemption applies to employment income of a non-resident person taking up residence in Cyprus to work for an employer in Cyprus, effective from 1 January 2012. This exemption applies for a period of five years staring from the first year of employment provided that the employment income of the employee exceeds €100,000 per annum.

For more information about establishing or relocating commercial companies in Cyprus, including the need to adopt the necessary substance in the structure, please refer to our Practical Note CY9 – “Commercial Companies in Cyprus”.

1b. Tax Exemption on Income of a Non-Resident Moving to Cyprus for Employment

This exemption has been in effect for many years and it has been mainly targeting to attracting Cypriots studying abroad to return to Cyprus for employment. The exemption relates to the lower of 20% of employment income or €8,550 and applies for three years starting from the 1st of January of the year following the year of employment. The exemption can only be claimed until 2020.

2. Special Tax Rate for Pension Income for Expats

Foreign pension have a very favourable status in Cyprus, involving a flat annual income tax charge of 5% for amounts exceeding €3,420 per annum. What is more, the tax payer has the right to choose to be taxed either under the special mode of taxation as stated above or at normal rates.

The latter option might be more beneficial, depending on the circumstances, considering that the first €19,500 of personal income per annum is tax free. The tax liability calculated under either option is reduced by any available foreign tax credit related to any tax deducted at source on pension payments.

It should be stressed that as pension income is generally treated as earned income in the country of origin, it is only by concession that a lower rate can be paid by living abroad as an expat. Such concessions are usually determined by Double Tax Treaties (DTTs) and Cyprus has many such treaties, which include the specific provisions. For example the DTT between Cyprus and UK, allows UK expatriates living in Cyprus to have their UK-source pension income taxed in Cyprus and not in the UK.

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Other Incentives

1. Residency/Citizenship Schemes

Cyprus offers two schemes for attracting investment by third-country nationals which, since their implementation, have created increased interest, especially from Asian investors, who see Cyprus as the gateway (being the far eastern border of the EU) to the great freedoms granted by the EU to its Member States and their citizens, especially the freedom to conduct business in the Union. These are the following:

– Permanent Residence Permit Scheme
– Passport/Citizenship Scheme

More information about these schemes can be found on our Practical Note 6 – ”Incentives for investing/relocating in Cyprus”.

2. Reduced VAT and Transfer Fees

The VAT provisions related to the application of the reduced rate of 5% (as compared with the standard VAT rate of 19%) on the construction or acquisition of residential property in Cyprus which is to be used as the primary and permanent residence were extended some time ago so as to include acquisitions by individuals from all over the world, who do not ordinarily reside in Cyprus but acquire property to be used as their residence while they are in Cyprus.

The Land Registry (Duties and Fees) Law provides for full exemption from transfer fees for all transfers of real estate property for which VAT was payable on the transaction and 50% exemption from transfer fees for all other transfers for which properties are sold for the first time upon the issue of a title. This exemption is valid for all contracts signed after 2 December 2011. Furthermore, one of various new bills that have been passed into new laws by the House of Representatives on 9 July 2015, provides for 50% reduction on transfer fees for all transfers of immovable properties that will take place until 31 December 2016, irrespective of the date of signature of the purchase contract and whether are sold for the first time.

 

RESTRUCTURING OPTIONS TO/FROM CYPRUS

Cyprus - Malta Restructuring options

 

 

 

 

 

 

 

 

 

CONCLUSION 

CONCLUSION - Cyprus

 

Useful Links

Embassies in Cyprus

Embassies of Cyprus abroad

 

Last updated: September 2016