Doing Business in Cyprus


Cyprus is considered to be a primary international business centre. It offers advantages and privileges to foreign entrepreneurs and investors wishing to establish a base there, from which to conduct their affairs worldwide.

Our firm prepared this guide to explain all those advantages and privileges enjoyed by Cyprus International Business Companies (IBCs) and to describe how such entities may be incorporated and operate in Cyprus. Moreover, we provide other general useful information for those contemplating to do business in Cyprus. Our intention is to give as much as possible useful information on the subject, although it will often be necessary to seek appropriate professional advice on specific problems or questions.

We will be pleased to provide further information and assistance on doing business in Cyprus.

K.P. Masterchart Limited
Certified Public Accountants (CY)
August 2010

Introduction on Cyprus

Cyprus is situated in the southeastern basin of the Mediterranean Sea at the hub of three continents: Europe, Asia and Africa. Cyprus' pleasing climate consists of dry summers and mild winters, enjoying about 320 days of sunshine per year.

The estimated population of the island is 760 000, of which 85% are Greek Cypriots and 10% Turkish Cypriots, while the British, Maronites and Armenians make up the rest. The island's capital, Nicosia (Lefkosia), is a business and administrative center, Limassol (Lemesos), the second largest city, is the island's principal port, industrial and commercial center and an important tourist resort. The official languages are Greek and Turkish, but English is widely used.

Cyprus is an independent and sovereign Republic with presidential system of government.

Cyprus is one of the ten countries that joined the European Union on 1st of May 2004. The Cyprus economy is based on the free enterprises system and it's characterized by robustness and macroeconomic stability. The unit of currency is the Euro.

The banking system in Cyprus is well developed and organized and is able to cope with the ever increasing needs of the business community in a fast growing economy. The commercial banks of Cyprus have strong international connections, that enhances their ability to provide banking services globally.

Cyprus has excellent telecommunication facilities and it may claim to be among the most developed countries in the world in this field. There is a wide network of air routes connecting Cyprus with all five continents.

Cyprus Companies - International Business Companies (IBC)

Establishment procedure
Since Cyprus joined Europe, both EU citizen and non-EU nationals can incorporate a Limited Liability Company with no limitations or restrictions. Such companies may engage in trading activities both in Cyprus and abroad. The number of shareholders may be from 1 to 50 and they can be physical persons or legal entities. At least one director and one secretary must be appointed and the company's registered office must be in Cyprus. Although the law does not require this, from a tax planning point of view it is important that the company is managed and controlled in Cyprus and, accordingly, it is recommended that the majority of the directors appointed are residents of Cyprus. The whole incorporation procedure may be concluded no later that within 15-20 working days.

Annual Financial Statements
In accordance with the Companies Law all companies must maintain such records and is necessary to disclose, with a reasonable accuracy, their financial position, whenever they are requested to do so as to show and explain their transactions and enable the directors to prepare financial statements in compliance with the Companies Law.
A statutory audit is also required for all companies. The shareholders at the first general meeting appoint an auditor and he holds office until the conclusion of the next annual meeting. Cypriot firms of auditors must audit Cypriot companies yearly. The auditors are required by law to report to the shareholders whether, in their opinion, the financial statements have been properly prepared in accordance with the provisions of the Companies Law and give a true fair view of the state of the affairs of the company at the end of the financial year in question.
The audit is conducted is accordance with the International Auditing Guidelines.

Filing Requirements
Directors' report and financial statements
According to the Companies Law all companies must prepare a directors' report and audited financial statements each year which must be presented before the company at a general meeting thereof. The financial statements comprise a profit and loss account, balance sheet and supplementary notes. Directors are legally responsible for the preparation and contents of the report and financial statements. The first such financial statements must be prepared and presented before the meeting no later than 18 months from the incorporation of the company.

Filing of annual return
All companies must file a return with the Registrar of Companies at least once a year, within 42 days after their general meeting. This return (known as the annual return), is signed both by a director and by the secretary of the company and must include information on the registered office of the company, the situation of registers of members and debenture holders, the amounts of shares and debentures, indebtedness, shareholders, directors and secretary. Failure to file the annual return may result in penalties.

Basic Tax Principles

Companies that are tax residents of Cyprus pay tax in Cyprus on their world-wide income. Generally the main tax principles of the Cypriot tax laws are:

  • Corporation tax 12.5%; the lowest Corporation tax rate in EU. This applies only for Companies managed and controlled from Cyprus; i.e. the important decisions about the company are made in Cyprus and the majority of the members of the board of directors are residents of Cyprus for tax purposes (they live in Cyprus for more than 183 days a year).
  • If a Cypriot company does not pay a dividend to its shareholders within two years from the end of the tax year, then 70% of its accounting profits (profits after tax) is deemed distributed. This is attributed only to Cypriot resident shareholders and is subject to 17% defence fund contribution. Finally the deemed dividend can be reduced by the real dividends paid during the above period.
  • International business companies or branches, which are managed and controlled from abroad, are totally exempt from Cyprus tax laws.
  • Taxation of dividends:
    • i. Income from dividends will be taxed under the Special Defence Contribution Law (17%) and will be charged only on resident persons for dividends received from resident or non-resident companies. Non-resident individuals are not liable to such taxation. Any inter-company dividends between resident companies will not be subject to tax.
    • ii. Any dividends received from non-resident companies are exempt from tax, if the holding of the paying company is at least 1%. The exemption does not apply if the payee company engages more than 50% in activities, which lead to investment income, and on the same time the tax burden on the income of that company is substantially lower than the tax burden of the Cypriot company.
  • The whole of interest received derived by a company resident in Cyprus is subject to the provisions of the Special Contributions of Defence Tax 30%.
  • The whole interest received by non-residents individuals is tax free from both Income Tax and Special Contribution Tax Laws.
  • Pensions earned by foreign individuals who retire in Cyprus are liable to 5% tax.
  • The profits of a Cypriot company from trading in shares and other equities are free of any tax in Cyprus.
  • Company losses can be carried forward indefinitely.
  • Cyprus has signed an impressive number of treaties for the avoidance of double taxation. There are currently 32 treaties covering 40 countries. This offers significant possibilities for international tax planning through Cyprus.

Assessment and collection of corporation tax

A company is required to submit audited financial statements, tax computations, an income tax return and a self-assessment form to the Income Tax Office annually. All the above documents must be submitted before the end of the financial year following the year of assessment (i.e. for the year of assessment 2009 the deadline is the 31st December 2010). Three (3) months extension will be given in case the applications submitted online via Taxisnet.

However, the self-assessment form together with the payment of the income tax due must be submitted not later than on the 1st of August of the following year. Payments made after the 1st of August carry interest and/or penalties.

The Cyprus Income Tax Law also provides that companies must estimate their taxable profits well before the end of the year of assessment and submit during that year a provisional assessment on the basis of which the corporation tax is payable in three installments. If the taxable income declared on the provisional assessment is less than 75% of the taxable income as it is finally determined when audited financial statements are prepared, then a surcharge is levied on the difference of the income tax payable. A provisional assessment may be revised at any time before the year-end.

In cases where the tax paid with the provisional assessment exceeds the tax that is payable according to the final tax computation any amounts which are repayable to the company carry interest 8% per annum.

Cyprus Double Tax Treaties

The great majority of the tax treaties of Cyprus follow the model treaty of the Organization in Economic Cooperation and Development (OECD). Provisions are changed to reflect the different tax systems and the economic priorities of the treaty partners.

Cyprus has conducted tax treaties with various countries. Currently 44 treaties are in force. The existence of these treaties combined with the low tax paid by the Cyprus companies offer tremendous opportunities for international tax planning through Cyprus, taking under consideration the following:
  • Any tax paid in the country with which Cyprus has a treaty, is deducted from the Cyprus tax payable on the same income.
  • Cyprus companies are not required to withhold tax on payments made from Cyprus, in respect of dividends, interest and royalties.
  • Cyprus is one of the few countries in the world, which has conducted tax treaties with almost all East European countries.
  • Cyprus is not considered to be a tax heaven by most tax jurisdictions and thus free from suspicion usually associated with tax heaven operations.

Tax sparing credits
A number of other benefits are also available through the use of Cyprus' Double Tax Treaties. A very important benefit that appears in a number of Cyprus Treaties is the availability of tax sparing credits. Tax sparing credits are the tax credits not only in respect of tax actually paid in Cyprus, but also the tax which would have been otherwise payable had it not been for the incentives granted in Cyprus which result on exemption or reduction in tax.

International Tax Planning

Tax planning is the arrangement of the one's financial and business affairs in such a manner as to attract either locally or abroad the minimum tax, without contravening any law or defrauding the revenue by not declaring profits or by other deceitful means. Cyprus, thanks to its favourable tax regime and its wide network of double treaties, holds an important position in international tax planning.

International Trusts

The International Trusts Law of Cyprus governs international trusts. International trusts are not taxed in Cyprus, thus providing significant tax planning opportunities. The following advantages are indicative of possible options of tax minimization:
  • All income, whether trading or otherwise, of an international trust (trust whose property is located and income is derived from outside Cyprus) is not taxable in Cyprus.
  • Dividends, interest or other income received by a trust from a Cypriot IBC are neither taxable nor subject to withholding tax.
  • Gains on the disposal of the assets of an international trust are not subject to Capital Gains in Cyprus.
  • The assets of an international trust are not subject to estate duty in Cyprus.

International Holding Companies

When working on tax planning and trying to include in the scenario an international holding company, the Cypriot holding company regime, may definitely give a really interesting and attractive solution.

A Cypriot holding company is an ordinary company that, besides holding participation in domestic and foreign companies, may be engaged in other activities such as trading, manufacturing or financing.

The main advantages of a Cypriot Holding Company which must be taken into account in the tax planning process are:
  • Dividends received from abroad are wholly exempt from income tax (subject to the rules mentioned at Basic Tax Principles section above).
  • Profit from buying and selling shares and other securities, is exempt from tax.
  • There is no capital gain tax on profits made on the disposal of assets of a capital nature (except for immovable property situated in Cyprus).
  • Dividends paid to non-resident shareholders are not subject to any withholding taxes. The same applies to payments of interest or royalties (provided that the royalties do not relate to use of intellectual property locally in Cyprus).
  • Withholding tax in respect of dividends, interest or royalties paid into Cyprus from other countries, can be minimized due to the wider applicability of treaties for the avoidance of double taxation.