The place where an international group should base its head office or a regional office is becoming ever more critical, considering geopolitical, economic, regulatory and other developments and uncertainties...
Concepts such as substance, transparency and compliance are having a prominent role in the new era of international investments and business operations.
Cyprus has developed in to a very attractive lo cat ion from which to conduct business internationally, to invest in and to relocate and live on a permanent basis. The country has chosen not only to fully adjust but also to lead the way to the modern international business world. To do that it is taking advantage of the plethora of its general features and advantages, such as…
· its business-friendly legal and tax regimes
· its EU Membership
· the well-educated and experienced workforce
· the top rated infrastructure and support services
· its strategic geographical position and convenient time zone
· the very high standard of living
Particular emphasis is placed on EU membership, especially from a Brexit perspective but also for what concerns the ever rising importance of Middle and Far Eastern countries in international trade. Cyprus, through its EU membership, offers certainty over access to the EU single market. It can form a secure solution to the most pressing concerns of third countries, including access to the EU freedoms, the euro, unrestricted access to the EU Directives, etc.
These advantages are combined with some very beneficial incentives introduced over the last few years, which create a very attractive and unique proposition. Let us take a closer look at the overall business environment in relation to setting up or relocating a business to Cyprus, as well as at the most important incentives and measures available.
Setting Up and Operating a Business in Cyprus
Setting Up and Operating a Business in Cyprus
It thus make no wonder that Cyprus evolved in to one of the most attractive places to invest, set up or transfer a business, relocate to work and live in.
The legal system of Cyprus, based on UK common law, is fully harmonised with EU legislation and offers great flexibility, including what concerns establishing a business in the country. A business can set up presence in Cyprus in many ways, including the following:
· incorporation from scratch
· cross-border merger
· transfer of management and control
· branch of a foreign company
Cyprus offers great choice for housing a business, from ultra-modern high tech office buildings to old city center houses, which can be converted in to cosy working nests. In addition, there is a growing number of providers offering serviced office space with a variety of support facilities. In general business properties, utilities, networking and communication connections and other support services (such as cleaning, courier, etc.) can be found in Cyprus at much lower rates compared to European and other countries, and certainly compared renowned international business locations.
For what concerns human resource requirements, companies established in Cyprus might employ local staff, taking advantage of the abundance of highly educated and qualified personnel in the country. Alternatively, they may relocate staff from abroad, who can benefit from provisions enacted over the last few years in the local legislation and from Double Tax Treaty provisions. As a result personal tax and social insurance contributions can be borne at much lower than normal rates in Cyprus and, as is usually the case, the home country of the people relocated.
Businesses established in Cyprus can enjoy high quality professional services, such as accounting, audit, legal, marketing and other, thus enabling them to outsource some services, at least during their initial steps in the country. The major international accountancy and law firms have presence in the country and there are also plenty of smaller and boutique practices, all staffed with people holding academic and professional qualifications from esteemed international organisations and possessing wide experience on their area of practice.
Commercial profits made by a Cyprus company are taxed under Corporation Tax at the standard rate of 12.5%, and not at higher rates than for other (i.e. passive) activities, as it is the case in many other countries. Cyprus has fully and unconditionally adopted all EU Directives related to taxation and is party to Double Tax Treaties with more than 60 countries. Indeed its treaties with some countries are considered among the best, if not the top, in existence. Trading from an EU Member State with a competitive tax regime is a far superior strategy in today’s heavily regulated international business landscape than operating through locations or structures which were popular in the past.
Depending on its
activities a Cyprus company might need or wish (where there is an entitlement
but not an obligation) to register for VAT. Indeed VAT can be an advantage on
its own for a Cyprus company, since the standard rate which stands at 19% is
among the lowest in the EU.
to Set Up Business Presence
Tax Deductible Charge on Equity
This involves a tax rebate on the basis of a notional interest calculated on fresh capital invested in a Cyprus company irrespective of the nature of its activities. The notional interest is deducted from the taxable income of the company. The measure aims to provide a tax-attractive alternative to debt financing, with the latter being subject to increased scrutiny and regulation from a transfer pricing perspective and beyond.
Abolition of Capital Duty
As of 18 December 2018, the fee of 0,6% paid upon the registration of a company has been abolished resulting to a reduction in the overall cost for the formation of a Cyprus company. As a result, no capital duty shall arise on:
· the initial authorized capital at incorporation of a new company; and
· any subsequent increase of the authorized share capital.
There are various schemes involving subsidies, grants or other kind of financial and other assistance offered frequently by the State. They usually concern start-up businesses, instalment or replacement of IT equipment, hiring and/or training personnel, etc.
With regards to incentives to relocate to the country, Cyprus offers schemes for different purposes, from promoting the physical relocation of businessmen and personnel working in other countries, to motivating Cypriots studying abroad to return to Cyprus upon graduating, to giving yet one more motive for non-residents to retire in Cyprus. We present below the highlights of the most important incentives.
1. “Domicile” concept for Special Contribution for Defense purposes
The concept of ”domiciled” persons for what concerns Special Contribution for Defense was introduced as from July 2015. Individuals who are tax residents of Cyprus but are not considered to be “domiciled” in Cyprus are exempt from payment of Special Contribution for Defense on dividends, interest and rental income.
2. 60-days tax residency rule
This provision, which was introduced in July 2017, provides an incentive to individuals who are not tax residents in any other country for any tax year to transfer their tax residence to Cyprus, as long as they satisfy certain criteria.
3a. Tax Exemption on Income of a Non-Resident Moving to Cyprus for Employment
This measure involves a 50% exemption on employment income of a non-resident person taking up residence in Cyprus to work for an employer in the country. It applies for a period of ten years staring from the first year of employment provided that the employment income of the employee exceeds €100,000 per annum.
3b. 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 recently been extended until 2025. The exemption relates to the lower of 20% of employment income or €8,550 and applies for five years starting from the 1st of January of the year following the year of employment.
4. Special Tax Rate for Pension Income for Expats
Foreign pensions 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.
Permanent Residence Permit Scheme
This special class of permit relieves its holders from time consuming procedures associated with other types of permits, such as consular inspections, renewals, etc. The main criterion in order to qualify for the scheme is the acquisition of up to two properties in Cyprus with a total value of not less than €300,000.
2. Reduced VAT and Transfer Fees
The construction or acquisition of immovable property to be used as the primary and permanent residence is subject to the reduced VAT rate of 5% on the first 200 square meters of the property. For the remaining square meters the standard VAT rate of 19% is imposed. The reduced VAT rate is applicable to individuals from all over the world, who do not necessarily reside in Cyprus ordinarily 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 is payable on the transaction and 50% exemption from transfer fees for all other transfers.
3. Immovable Property Tax
As from 2017 Immovable Property Tax has been abolished.
More information about these schemes can be found in our Practical Note CY3 - “ Cyprus: Incentives for Investing/Relocating ”.
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If you are interested in having a head office or regional office established in or relocated to Cyprus or if any of the above schemes and incentives are of interest, we would be more than glad to discuss with you with no commitments!
At Seamark we have been providing our clients with international business solutions and professional services since 2004. We provide a comprehensive range of international business services related to Cyprus, mainly focused on setting up presence in Cyprus, relocating to and/or investing in the country, hiring local personnel, applying for citizenship, permanent residency and working permits, family office services and much more.