DJC - Cyprus Certified Public Accountants and Registered Auditors : Chartered Accountants Cyprus - Formation of Cyprus IBC

Formation of Cyprus IBC

Tax Advantages of Cyprus international business companies.

A new legislation has been introduced effected from 1 January 2003.The tax reforms introduce a lot of changes in the operations andregulations of the international business companies to conform withEuropean Union law in the light of the Cyprus accession to the EU andthe EU Code of Conduct and abide by its commitment to the OECD toeliminate harmful tax practices and money laundering.

With this new legislation, Cyprus maintains and enhances itscompetitiveness as a reputable international financial center anddistinguishes itself from the infamous tax heavens. Furthermore, itremains a perfect location for investments to and from Russia andCentral and Eastern Europe and a perfect business base for theinternational businesses who are interested for the markets of theregion. At the same time, having the lowest tax regime in the EU, itbecomes a stepping -stone for investments to and from the EuropeanUnion.

Based on the recent tax reforms, the major fiscal incentives offered to international business companies are as follows:

Low tax rate regime. Taxable profits are taxed atthe rate of 10% for all Cyprus Tax Resident companies, as there is nomore distinction between local companies and IBCs. Still it is thelower tax rate in Europe and the nearby countries. The term TaxResident Company means a company whose management and control isexercised in Cyprus. Companies incorporated in Cyprus but themanagement and control is not exercised in Cyprus then is notconsidered tax Residents in Cyprus and for this reason is not taxed inCyprus.

Double tax treaties have been concluded with morethan forty countries. By using the provisions of these treaties andwith the relatively low taxation in Cyprus, it is possible to achievevery significant tax reduction in both countries.
There is nowithholding tax on payment of dividends, interest and royalties tonon-resident individuals or to non-resident corporate shareholders.

• Capital gains realized on immovable property held outside Cyprus are outside the scope of Cyprus capital gains tax.
•  Currently VAT is lower than the other European countries at 15%.
•  Tax exempt operations. There are three types of legal entities enjoying full tax exemption:
  • Shipping companies owning ships registered under Cyprus flag.
  •  Partnerships, registered in Cyprus, fully composed of aliens and solely engaged in offshore activities.
  • Branches, of foreign companies, fully composed of aliens, and solely engaged in offshore activities.

No taxation on the profits from the disposal ofshares for all the companies and individuals that are tax residents ofCyprus. (An individual is considered tax resident if he lives in Cyprusfor one or more periods that exceed the total of 183 days per fiscalyear).

Dividend income received in Cyprus will not be subject to tax in Cyprus under cetain conditions.