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Cyprus General Information

Location

Cyprus, officially the Republic of Cyprus is situated in the eastern Mediterranean at the cross-roads of three continents - Europe, Asia and Africa. It covers an area of 9,250 sq km. It is the third largest island in the Mediterranean Sea. Cyprus has a nearly ideal Mediterranean climate, with more than 300 warm, sunny days a year, and a brief, mild winter with occasional rain.

Population

The population of Cyprus is about 800.000 with Greek - Cypriots representing approximately 78%, Turkish - Cypriots 18% and the remaining 4% representing other minorities.

Language

The official languages on the island are Greek and Turkish. English can be called the unofficial third language of the island in business as well as in private life. It is spoken by most of the population and is widely used in commercial and government sectors.

Political Structure

Cyprus is an independent sovereign republic from. The country is a member of the UN, the Council of Europe and the Commonwealth. The political system is modelled on Western democracies in which individual rights are respected and private enterprise is given every opportunity to develop. Under its Constitution, Cyprus has a presidential system of Government. The President is the Head of State and is elected for a five-year term of office. Executive power is in the hands of the Council of Ministers, the members of which are appointed by the President. The House of Representatives is the Island's legislative body and it consists of 56 elected members who serve for a five-year term. The legal system is based on that of the United Kingdom and all statutes regulating business matters and procedure are based on English Law. Most laws are officially translated in to English.

Economy and Infrastructure

The Cyprus economy is based on the free enterprise system. The private sector is the backbone of economic activity, with the Government’s role being limited to monitoring the economy and the provision of public utilities. The economy is reasonably stable, with a high proportion of GNP (around 40%) based on tourism. Around 3m visitors come to the island annually, 65% of them from the EU. The Government's successful encouragement of the offshore sector has led to the development of a European-standard commercial and financial infrastructure, although there is now no distinction between domestic and offshore companies. International links are particularly strong in the shipping and banking sectors. The island has excellent telecommunications, air and port connections. There are two international airports in Larnaca and Paphos whereas the major port facilities are those of Limassol and Larnaca. Excellent banking facilities are also available with a number of onshore banks, offshore banking units (OBU's) and specialised financial institutions operating on the island. International correspondent networks are maintained by onshore and offshore banks.

Currency

Euro

Accession to the European Union

The Republic of Cyprus is a member of the European Union as from 1 May 2004. The accession of Cyprus in the EU and the adoption of the acquis communittaire have given rise to new challenges and opportunities in the business world in Cyprus. Moreover a number of new funding opportunities became available from the EU funds aiming mainly to support the development of business activities in the area of manufacturing, agriculture and agrotourism as well as the promotion of human resource development, and the development of the rural areas of the island.

Business Environment

The Cyprus’ strategic location for clients operating within Europe and the Middle East, its excellent climate, the well developed infrastructure and the plentiful supply of highly qualified and skilled human capital are some of the advantages that places Cyprus on the map as a successful business centre. In addition its public administration system and defined legal framework have contributed in developing high standard professional services in all areas of the business activity – the accounting, the banking, the legal, the tourism sectors. Cyprus has an excellent business infrastructure with good telecommunications; this coupled with the widespread use of the English language and a legal system largely based on English law makes the island a very convenient and effective business base. Nicosia, the administrative capital, is also the chief business centre, although Limassol, with its port, and Larnaca, with the main airport, are also significant in business terms. There are a number of local banks, but many international banks have formed Offshore Banking Units on the island and provide services to foreign or offshore companies. Business legislation created special offshore regimes for a variety of types of business, including shipping companies , insurance companies , and 'Offshore Financial Service' companies, although as from 2003 most distinctions between 'offshore' and 'onshore' were abolished. There is also legislation for Trusts modelled on English trust law. Cyprus is the jurisdiction of choice for a prestigious, non-offshore, but low-tax presence. During the past thirty years Cyprus has established itself as the main business and financial centre for inward and outward investment in Russia, Central and Eastern Europe, and the Middle East.

Entry & Residence

For most nationalities, including the EU, the Council of Europe, the USA and the Commonwealth, no visa is required for entry into Cyprus. In a few cases a visa is required but can be bought at the airport or port on arrival. Immigration as distinct from occasional or periodic visiting requires a residence permit from the Immigration Department, which is given fairly freely to a foreigner retiring to Cyprus, and to the senior employees of an offshore company, for whom it is called a Temporary Residence Employment (TRE) permit. Other work permits are issued to foreigners only if there are no suitably qualified local staff available. Non-EU foreigners, whether or not resident, require permits to acquire real estate in Cyprus, which should normally be for temporary or permanent residence.

Taxation

Income Tax

Resident individuals are taxed on worldwide income; non-residents are taxed only on Cypriot-source income. An individual is resident of Cyprus if he lives in Cyprus for one or more periods which exceed the total of 183 days per fiscal year. Individuals are taxed at progressive rates to 30%, with the first CYP 11,350 tax-free. Residents are subject to a final withholding tax of 15% on dividends received and 10% on interest (special contribution for defence). Various deductions are permitted, including some in respect of share ownership; and there are personal allowances. Married persons are taxed separately.

Corporate Tax

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Cypriot-source income. An entity is resident in Cyprus if its management and control are exercised in Cyprus. There is no longer a distinction between local companies and International business companies (IBC’s). The taxable profits of all Cypriot companies will be taxed at the rate of 10%.

Exemptions from corporation tax:

• Dividend income received in Cyprus by Cyprus resident companies
• Profits earned from a permanent establishment abroad are fully exempt from corporation tax except if:
  • More than 50% of the income of the permanent establishment abroad derives from trading activities and
  • The foreign tax rate is not significantly lower than the tax rate payable in Cyprus.
• Profits from the disposal of securities are not taxable for all Cyprus tax residents (individuals and companies).
• 50% of interest earned - other than interest earned in the ordinary course of business (although other interest is subject to defence tax as explained below).
• Tax losses can be carried forward indefinitely to be set - off against future profits.
• There are provisions for group relief whereby companies can transfer losses to be set off against taxable profits of other companies in the same group. Two companies will be considered as part of the same group if one is a 75% subsidiary of the other or both are 75% subsidiaries of a third company. Also, group companies must be Cyprus residents.
• Reorganisations/amalgamations

The tax legislation adopts the relevant EU directive whereby reorganisations, amalgamations, mergers and acquisitions can be effected without any tax implications.

Withholding Tax

• On dividends payable
• There is a 15% withholding tax on dividends distributed to individual shareholders who are residents of Cyprus, but there is no tax on dividends paid to non-resident individual shareholders.
• There is a deemed distribution of dividends for an amount equal to 70% of accounting profits if not actually, distributed within two years after the end of the tax year in which the profits arose and payment of 15% withholding tax is levied on deemed distribution. Profits allocated to non-resident shareholders are not subject to this tax.
• On dividends receivable
• Dividends received from a foreign company are not subject to withholding tax of 15% provided that:
• The company receiving the dividend owns at least 1% of the company paying the dividend;
• Not more than 50% of the paying company's activities result in investment income; and
• The foreign tax is not significantly lower than the tax rate payable in Cyprus;
• There is no tax on dividends paid by a Cyprus resident company to another Cyprus resident company.
• On interest earned
• There is a 10% tax on any interest earned by any individual or company resident in Cyprus.
• On interest and royalties payable
• There is no withholding tax on payment of interest and royalties to non-resident individuals or companies (in case of interest) and as long as the right is used outside Cyprus.
• On rents
• There is a 3% withholding tax on rents earned by a Cyprus resident (after deduction of 25%).

Capital Gains Tax

Generally, there is no tax on gains of companies or individuals in Cyprus. Capital gains arising from the sale of immoveable property outside Cyprus are not within the scope of capital gains tax. Capital gains tax is only applicable for immoveable property situated in Cyprus.

Indirect Tax

Value-added tax (VAT) applies to most transactions. The standard rate is 15% and a lower 8% rate applies to hotel accommodation services, taxi services, catering, 5% rate applies to liquid gas, books and newspapers. Zero-rating applies to exports, food, medicine and international air and sea transport. Exemptions include rental of immovable property, financial services, insurance and medical services. Businesses with an annual turnover above CYP 9,000 must register.

Real Estate Taxes

There is an annual real estate tax based on the market value of property as at 1 January 1980 (it can be divided between multiple owners).

Customs Duties

Customs Duties are imposed under the Customs and Excise Duties Law Cap 34, 1975. There are quite high duties on many consumer items, including motor vehicles, furniture, confectionery and cosmetics; however, as a result of the accession of Cyprus to the EU, import duty has been abolished on most goods coming from the EU. There are excise duties on alcohol, tobacco, motor vehicles, petrol and soft drinks.

Double Tax Treaties

Cyprus has concluded 34 double tax treaties which apply to 40 countries: Austria, Bulgaria, Belarus, Belgium, Canada, China, the Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Mauritius, Norway, Poland, Romania, Russia, (including most of the CIS countries, i.e. Azerbaijan, Armenia, Kyrgyzstan, Moldova, Uzbekistan and Ukraine), Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Thailand, United Kingdom, USA and the former Yugoslavia. The main purpose of these treaties is the avoidance of double taxation on income earned in any of these countries. Under these agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country and as a result the tax payer pays no more than the higher of the two rates.