As the technology sector continues to evolve, intellectual property (IP) sits at the core of value creation for software developers, tech companies and innovation-driven businesses. Whether in the form of proprietary software, algorithms, platforms or other digital assets, IP often represents the most significant and scalable component of a business.

The challenge for developers and IP specialists is not only to create and commercialise these assets, but to structure their ownership in a way that is both efficient and aligned with international compliance standards. Cyprus offers a solution through its OECD-compliant Intellectual Property (IP) Box regime, which when combined with the Cyprus benefits of being centrally located (a cross road point for three continents: Europe Africa & Asia), easy travel connections, EU member (goods & services traded freely across the 27 EU member states), developed infrastructure, Common Law legal system, English speaking, politically & economically stable to name but a few – it’s compelling!

Designed to encourage research and development, the Cyprus IP Box provides a significant tax advantage on qualifying IP income. An 80% deduction is available on qualifying profits, meaning that only 20% of such income is subject to corporation tax. With Cyprus’ corporate tax rate at 15% this results in an effective tax rate of up to approximately 3% on qualifying IP income, subject to the application of the ‘modified nexus approach’.

The ‘modified nexus approach’ is central to the IP Box regime. It ensures that the IP regime benefits apply only upon demonstration of real expenditures such as research and development activity undertaken by the business, that gives rise to the IP income. In practical terms, the level of tax relief is proportionate to qualifying research and development expenditure incurred in creating the IP, reinforcing substance and compliance with OECD principles.

For software developers and technology companies, this is particularly relevant. Copyrighted software is explicitly included as qualifying intellectual property, alongside patents and certain other innovative assets, provided they meet prescribed criteria relating to novelty and economic ownership. By contrast, brand-related assets such as trademarks and logos do not qualify under the regime.

The breadth of qualifying income further enhances the regime’s attractiveness. It covers:

• Licensing and royalty income from software and platforms
• Income embedded within products or services that rely on proprietary technology
• Compensation related to IP
• Gains on disposal of qualifying IP (with capital gains generally remaining exempt)

This flexibility allows developers and technology businesses to centralise their IP ownership and monetisation strategies within a single EU jurisdiction, while maintaining operational activities globally.

In addition to the IP Box, Cyprus offers further tax efficiencies that are highly relevant to innovation-led businesses. The Notional Interest Deduction (NID) provides a tax deduction on new equity used to fund income-generating activities, which could be used for structuring of non-IP qualifying activities, or combined with the IP Box, to create an effective framework for scaling operations.

For software developers, IP founders and innovation-led businesses, the strategic structuring of intellectual property is no longer just a tax consideration—it is a core element of value optimisation. Leveraging regimes such as the Cyprus IP Box allows businesses to enhance returns on innovation, reinvest efficiently in development and scale globally from a fiscally efficient base.

The surrounding structure should also be considered when setting up the Cyprus IP Box, to ensure asset protection, good governance and succession planning. It’s crucial to ensure that the right setup and structuring is given to both the IP company (ensuring substance, management and control), but also in the ownership structuring. An example of this could be to consider a Cyprus International Trust holding the shares of the Cyprus IP Company that is benefiting from the IP regime. The Trust would receive the dividends of the IP company, and when possible, issue distributions on to the beneficiaries of the Trust, allowing then of course all of the benefits a Trust has to offer for long term planning.

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The Cyprus House of Representatives approved legislation, on 10 April, introducing defensive measures against payments made to entities resident in low-tax jurisdictions in addition to existing measures against countries included on the EU blacklist of non-cooperative jurisdictions (Annex I).

Low-tax jurisdictions are defined as having a corporate tax rate that is lower than 50% of the Cyprus corporate tax rate, currently 12.5%. Blacklist jurisdictions are those included on the EU blacklist at the time of the relevant transaction and in the previous calendar year.

The defensive measures will be as follows:

• The 17% dividend withholding tax currently applicable to blacklist jurisdictions will also be applicable to entities resident in low-tax jurisdictions.
• Interest and royalty payments made to associated companies in low-tax jurisdictions will not be deductible for corporate tax purposes.
  • A general anti-avoidance rule (GAAR) will operate to disregard transactions that lack a valid commercial purpose.

The new measures will generally apply as from 16 April 2025, but the measures applicable to low-tax jurisdictions will apply as from 1 January 2026.

Cyprus said it will renegotiate double tax treaties with countries that are low-tax jurisdictions or included on the EU blacklist that do not grant taxing rights allowing the imposition of withholding tax in Cyprus as stipulated in the amendments.

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Cyprus and Malta are both island states occupying strategic positions in the Mediterranean region. Cyprus is situated in the Eastern Mediterranean close to the Middle East, Turkey and the important maritime gateways of the Bosporus and the Suez Canal. Malta is in the middle of the Mediterranean Sea between Europe and North Africa and serves as a key stopover point on routes traversing the Mediterranean.

This legacy has ingrained a tradition of trade and commerce within the culture of both islands. Both have very open, entrepreneurial economies and offer highly attractive and flexible tax environments for businesses and individuals. Both are also former colonies of the UK, and both have mixed legal systems of civil law and English common law, subject to EU law. English is the second language of Malta and is widely spoken in Cyprus.

Cyprus and Malta joined the European Union at the same time in 2004 and are now counted amongst the smallest EU member states. Cyprus is 30 times the size of Malta. The Cypriot population now stands at above 1.27 million, almost three times the population of Malta’s at 560,000.

Given the small size of their domestic economies, both island states are heavily dependent on trade and have moved toward more service-oriented activities. In addition to thriving tourism sectors, both have developed financial services industries based on highly skilled workforces, technical infrastructure, and robust legal and regulatory frameworks, including tax efficiency.

Tax Efficiency

As full EU member states, Malta and Cyprus offer highly competitive tax systems that are fully compliant with EU and international standards. They have implemented all the relevant EU directives in respect of corporate taxation, including the EU Parent-Subsidiary Directive and the Interest and Royalties Directive.

Companies in Malta are taxed at a flat rate of 35% but its full imputation and refund system ensures relief for double taxation on the distribution of taxed profits. This leads to effective tax rates of 5% in respect of trading income and 10% in respect of passive interest and royalties. The refund is reduced to 2/3rds where the distributing company claims double taxation relief.

Malta’s participation exemption allows dividends from overseas investments to be exempt from Maltese tax if certain criteria are met, or they can be taxed at the standard rate of 35% with a 100% refund available upon distribution.

Any gains or profits derived by non-residents on a disposal of shares in a Malta-resident company are exempt from tax in Malta if the beneficial owner is not resident in Malta and the company does not, directly or indirectly, control immovable property situated in Malta. Malta does not levy any withholding taxes on outbound dividends, interest and royalties.

Malta’s extensive double taxation treaty network now extends to over 70 countries and its flat rate foreign tax credit (FRFTC) allows for a reduced tax rate of 6.25% on foreign passive income without necessitating proof of foreign tax paid. Businesses can also seek advance revenue rulings from the Inland Revenue Department for clarity on their tax obligations, which are typically valid for five years and renewable for another five.

Malta’s ‘fiscal unity’ regime allows related companies within a group to elect to be treated as a single taxpayer for income tax purposes. A parent company holding at least 95% shareholding in its subsidiaries can initiate this process, treating subsidiaries as transparent entities for tax purposes and benefitting from streamlined tax calculations and reporting.

Cyprus also offers a highly favourable tax environment, featuring a standard corporate tax rate of 12.5% together with a network of over 60 double tax treaties. It has established a strong reputation as an attractive destination for corporate relocation and headquartering.

The tax regime includes several exemptions, such as a 100% exemption on interest income not related to ordinary business activities, profits from the sale of securities, capital gains from intellectual property (IP) assets, and profits from permanent establishments abroad under specific conditions. Dividends are exempt from taxation provided they are not tax-deductible by the paying company.

Cypus’s ‘Intellectual Property Box’ offers favourable tax treatment for income derived from IP rights, patents and trademarks, allowing an 80% income tax exemption on worldwide royalty income generated by Cypriot resident companies, with only the remaining 20% being subject to the standard tax rate.

This effectively reduces the tax rate to 2.5% or lower. The 80% exemption further applies to capital gains on the disposal of IP, providing a tax-efficient exit strategy. With its extensive network of double tax treaties, Cyprus facilitates excellent profit repatriation opportunities, making it an attractive jurisdiction for IP holding and management.

Cyprus imposes no withholding taxes on dividends and interest paid to non-residents of Cyprus. There is also no withholding tax on royalties paid to non-residents of Cyprus for rights that are not used within Cyprus.

Cyprus is a modern, cosmopolitan, transparent business centre offering opportunities for investment across a wide range of sectors. Invest Cyprus maintains a dynamic portfolio of all available projects in sectors of strategic importance for the government such as hospitality and tourism, healthcare, education, renewable energy, while the country also provides incentives and policies that attract businesses and investors to choose Cyprus as their preferred place to do business.

Effective Regulation

Membership of the EU ensures that the legal and regulatory framework of both Malta and Cyprus must align with EU standards covering trade, finance and corporate governance. This alignment not only increases investor confidence but facilitates smoother access for businesses to the broader European market.

The Malta Financial Services Authority (MFSA) is the single regulator for all financial service activities in Malta and is also responsible for the companies registry. The MFSA ensures that companies adhere to best practices in governance, providing a reliable environment for investors.

In Cyprus, these roles are shared between the Central Bank of Cyprus, the Cyprus Securities and Exchange Commission (CySEC), the Cyprus Stock Exchange (CSE) and Registrar of Companies.

Innovation and Technology

Malta has recently introduced a Virtual Financial Assets (VFA) Framework to support innovation and new technologies for financial services around crypto assets, while ensuring effective investor protection, financial market integrity and financial stability.

The VFA Framework establishes three types of authorisations for: the registration of VFA Agents, the registration of ‘white papers’ and applications for VFA Services Providers. This has positioned Malta as a key hub for online gaming, blockchain, fintech and other new technologies. Malta’s communication and transport links are excellent.

Innovative research, a rapidly growing start-up ecosystem, a highly educated and experienced strong local talent pool and access to the EU and global workforce, and a range of incentives and development programs and grants render Cyprus a perfect choice to start up and scale companies.

Cyprus has been growing as a technology hub over the recent years, with an increasing number of ICT companies setting up their regional headquarters in the country or treating Cyprus as their hub for software development, systems integration, testing services, research and development and back offices.

The strong IP Box Regime and the Cyprus Startup Visa Scheme which allows talented entrepreneurs from countries outside the EU and the European Economic Area (EEA) to be granted working permission to establish start-ups in the country, attract world-class innovation-based ideas.

Good Connectivity

As islands, connectivity with other countries is very important for matters of commerce, tourism and living. Both Cyprus and Malta are easily physically accessible because they are linked via numerous direct and connecting flights with all the main European cities, Middle East, Africa and Asian countries.

The availability of modern, robust and secure connectivity infrastructure is also driving force for the digital economy and a necessary condition for a functional and innovative digital ecosystem. Cyprus and Malta have made significant investment in recent years in their digital infrastructures, which has been a decisive factor in establishing them as regional data gateways in the Mediterranean region and in attracting high-tech companies.

Taking advantage of its strategic geographical position, Cyprus has developed an extensive undersea fibre optic cable network, which connects it to the neighbouring countries of Greece, Italy, Israel, Syria, Lebanon and Egypt and with the rest of the world. More are planned.

There are now four submarine cables connecting Malta and Sicily – GO-1 Mediterranean cable system, Italy-Malta cable system, Epic Malta-Sicily Cable System (EMSCS) and Melita 1.

Trusts

As former British colonies many Common Law principles are embedded into Maltese and Cypriot law and the adoption of Common Law statutes continued after independence. Malta introduced the concept of trusts into its legal regime in 1988 and permits not merely the establishment of Malta trusts, but also accepts and recognises foreign trusts.

Malta is now a respected European hub for global trusts and the Malta trust is used extensively by HNW individuals and families for the protection and management of their global assets. Professional trustees, such as Sovereign, must be licensed by the Malta Financial Services Authority under the terms of the Trust & Trustees Act.

Cyprus International Trusts (CITs) are extremely popular with HNW individuals and professionals. Forced heirship or other laws applicable in foreign jurisdictions do not affect the validity of a CIT or the transfer of property to the trustee of a CIT. The settlor and beneficiaries must not be tax resident in Cyprus, but at least one of the trustees must be a permanent resident in Cyprus for the duration of the trust. Sovereign Trust (Cyprus) is authorised by CySEC as an Administrative Service Provider (ASP).

Investment Funds

Malta has long been an established jurisdiction for alternative investment funds and the sector has gained momentum due to increased asset management and fund servicing activity, with Malta’s flexible and pro-business attitude helping to consolidate the island’s claim for prominence as a fund jurisdiction. As well as globally recognised UCITS schemes and alternative investment funds (AIFs) under the Alternative Investment Fund Managers Directive (AIFMD), fund managers are also allowed to run funds under the island’s Professional Investor Fund (PIF) regime, which is outside the scope of the AIFMD. Alternative Investment Funds (AIFs) under the AIFMD, as well as EU-compliant and globally recognised UCITS schemes.

Cyprus was one of the first EU member states to transpose the AIFMD into national legislation and has grown into fast a leading investment fund centre in Europe for investment funds and asset management companies, offering direct access to key markets.

Cyprus funds investment funds enjoy all the tax advantages offered by the Cypriot tax legislation and AIFs have been extensively used for investment in non-traditional asset classes, such as private equity and real estate, as well as family offices.

Citizenship by Investment

Although Cyprus suspended its citizenship by investment programme in 2020, the Maltese Exceptional Investor Naturalisation (MEIN) scheme grants citizenship for ‘exceptional services’ to individuals and their families who make a direct investment in Malta that contributes to its social and economic development.

As citizens of Malta, successful non-EU national applicants gain the right to live, work or study in Malta – or any other EU/EEA member state or and Switzerland by extension. An applicant and all adult dependants must have held Maltese residency status for a minimum of 36 months (or 12 months under an ‘expedited procedure’ option).

The main applicant must make a non-refundable exceptional direct investment of €600,000, plus €50,000 for each dependant, or €750,000 under the 12-month expedited procedure. In both cases they must also buy a property in Malta with a minimum value of €700,000 or lease a property for a minimum annual rent of €16,000 and make a €10,000 donation to a qualifying NGO.

Subject to a comprehensive four-tier due diligence review, successful applicants enjoy Maltese citizenship for life, which can be passed on to future generations by descent, the option to maintain dual citizenship and the right to reside, settle and stay indefinitely in Malta. Maltese passport holders enjoy visa-free or visa-on-arrival access to 183 countries, including the US, Canada and Australia, and access to the Schengen Area.

Residency Programmes

Malta and Cyprus offer a range of residency programmes for non-EU nationals that cater for most personal requirements and budgets. Benefits include visa-free travel within the Schengen Area and tax advantages. Malta imposes no municipal tax, no estate duty, no inheritance tax and no wealth tax.

The Malta Global Residence Programme (GRP) is aimed at non-EU nationals seeking special tax status while residing in Malta. Applicants must be economically self-sufficient and make a property investment (either through purchase or long-term lease). They must establish tax residency in Malta, pay a combined minimum annual tax contribution of €15,000 and must not spend more than 183 days per year in any other country.

The Malta Start-Up Residence Programme is tailored for innovative entrepreneurs. It facilitates the establishment of start-ups in Malta in qualifying activities, while supporting the immigration process of their founders, core employees and respective immediate family members. Founders and co-founders must demonstrate a tangible business investment and are required to reside in and pay taxes in Malta.

Cyprus’s diverse residency options, combined with its favourable living conditions and attractive tax incentives, position it as an appealing destination for both expatriates and investors.

The Permanent Residency Programme (PRP), known as the Cyprus Golden Visa, offers non-EU residents both ‘Fast Track’ and ‘Slow Track’ options. The ‘Fast Track’ route allows applicants to obtain permanent residency status within approximately two months by making a minimum investment of €300,000 in qualifying assets such as real estate or local businesses. This status is valid for life and can be passed on to dependants.

The ‘Slow Track’ option is available for individuals with a secure annual income sufficient to support a good standard of living in Cyprus, allowing them to reside in the country while their application is processed over 12 to 18 months. Applicants must provide documentation showing a guaranteed annual income of at least €50,000 from abroad (an additional €15,000 for each dependent spouse and €10,000 for each minor child).

The Self-Sufficient Temporary Residence Permit is an annually renewable option that permits individuals and their qualifying dependants to live in Cyprus as visitors without employment rights. Applicants must demonstrate a minimum annual income and possess a residential property in Cyprus.

The Cyprus Tax Residency Programme offers preferential tax incentives for both EU and non-EU nationals. For an individual to be considered as a tax resident in Cyprus, they must spend more than 183 days in a year in Cyprus. Cyprus further offers a ’60-day Rule’ regime, which enables foreign nationals to enjoy Non-Domiciled Tax Residency status by spending only 60 days in Cyprus within a calendar year, instead of 183.

The tax benefits include no tax on worldwide dividend and interest income for non-domiciled individuals for 17 years, no tax on gains arising from the disposal of investments (shares, bonds, etc), no estate duty, wealth or gift taxes, and no tax on retirement gratuities and access to a special tax regime on foreign pension income.

Good Places for Retirement

Cyprus has long been regarded as a premier retirement destination, renowned for its excellent climate, appealing lifestyle, safety and low taxes on pension income. Tax residency in Cyprus has many benefits and exemptions for non-nationals, especially retirees.

One of the advantages of obtaining a Category 5 Permanent Residency Permit (PRP or Fast Track PRP) is the low tax rates on pension income that apply to individuals retiring in Cyprus.

A foreign pension received in Cyprus can be taxed either at the standard personal income tax rates in Cyprus, of which the first €19,500 of earned annual income is tax-free, or at a special 5% flat rate for any amounts exceeding €3,420 per year.

There is no withholding tax in Cyprus and non-domiciled tax residents are exempt from the Special Defence Contribution Tax. Cyprus also has double tax treaties with more than 60 countries, allowing for less taxation on types of income streams such as dividends, interest, assets and royalties for residents of Cyprus.

Finally, Cyprus imposes no inheritance tax, making it easy for those retiring in Cyprus to leave wealth for their families free of tax.

Malta also offers a special tax status for retirees under the Malta Retirement Programme (MRP). This is open to citizens of the EU, the EEA and Switzerland who are no longer employed and are in receipt of a pension as their regular source of income.

The chargeable tax rate under the MRP is a flat rate of 15% on income arising outside of Malta, subject to a minimum tax charge of €7,500 per annum, which increases by €500 per dependant. For married couples the minimum charge is therefore €8,000. Participants can hold non-executive positions on the board of a Maltese company but are not permitted to be employed by the company in any capacity.

Relocation Destinations

Cyprus and Malta are attractive destinations for expats and their families. They both offer a captivating climate and lifestyle, with year-round sunshine, unique natural landscapes, and a rich and diverse culture and history, while the cost of living remains relatively moderate compared to other Western European countries.

As of the first quarter of 2024, the average gross annual wage in Malta was around €23,000. Sectors such as financial services, technology and gaming tend to offer higher salaries, whereas hospitality and retail positions typically pay less.

In Cyprus, the average gross annual wage is around €28,000. Salaries vary significantly across industries, with finance, tourism, and IT often offering the most competitive compensation. The cost of living is generally moderate, although some popular tourist areas may be pricier.

Malta is a sought-after tourist destination renowned for its rich historical legacy, stunning architecture, and picturesque Mediterranean beaches. Key attractions include the ancient, fortified city of Mdina, the historic sites of Valletta, and the Megalithic Temples, which are among the oldest freestanding structures in the world.

Cyprus draws a significant number of tourists attracted by its diverse landscapes, archaeological sites, and beautiful beaches. Notable destinations include the coastal cities of Paphos and Limassol, the Troodos Mountains for hiking, and the historical ruins of Kourion and Salamis.

Both Malta and Cyprus enjoy a Mediterranean climate with hot, dry summers and mild, wet winters. The favourable weather, boasting around 300 sunny days per year, contributes significantly to their status as year-round tourist destinations.

High quality healthcare is provided through the respective national healthcare systems, which are highly regarded for quality and accessibility. This covers both inpatient and outpatient care and is available to all citizens and permanent residents. Private healthcare options complement public services, particularly for non-EU residents who must provide private health insurance.

Both islands also offer world-class educational and research institutions, offering a large variety of fully accredited study programmes in English. Primary and secondary schooling is mandatory in Malta and Cyprus and permanent residents and citizens can send children to free public sector schools. There are numerous private schools, and many follow the British curriculum or international baccalaureate.

Sovereign in Cyprus and Malta

Our dedicated teams in both Cyprus and Malta stand ready to support businesses and investors during the location selection process while providing facilitation and after care services when it comes to setting up your business, relocating staff or expanding your operations.

When it comes to choosing the right location to start up a business, relocate a company or expand operations in Europe, Cyprus and Malta should be prime contenders in the minds of entrepreneurs or decision makers for the following reasons:

• Positive economic outlooks
• Access to global talent
• Access to the EU market
• Excellent regulatory structures
• Strong Business support services
• Low cost of doing business
• Attractive and transparent tax regimes

The post Entrepreneurial Isles: a guide to Malta and Cyprus business frameworks appeared first on The Sovereign Group.

The third-largest island in the Mediterranean, Cyprus is uniquely positioned at the crossroads of Europe, the Middle East, Africa and Asia. Known for its stunning landscapes and rich cultural heritage, Cyprus offers a compelling mix of modern amenities and historic charm.

The island enjoys over 340 days of sunshine annually, making it the sunniest country in Europe and the ideal destination for those seeking to combine business opportunities and a high quality of life. The island’s skilled, English-speaking workforce adds to its appeal.

Why Cyprus?

Strategic Location and Infrastructure

Cyprus’s location makes it a gateway to three continents, providing strategic access to diverse business markets. A full member state there European Union, Cyprus boasts highly developed infrastructure, including modern telecommunications, reliable utilities and advanced transportation networks.

Additionally, Cyprus offers high-quality educational institutions and healthcare centres, contributing to its appeal as a prime destination for foreign investors and their families.

Multicultural and Skilled Workforce

Cyprus is a multicultural environment. The labour force is well-educated, versatile and fluent in English, ensuring effective communication and business operations. Cyprus’s safety record is exemplary, having been ranked the safest country among those with fewer than five million citizens.

Quality of Life

Cyprus has been ranked as the 5th best place for lifestyle among major European cities and other competitive destinations. Cyprus has a Mediterranean climate along the coast, while the higher mountain areas offer a cooler and moister environment. Coupled with a balanced, healthy way of life, it attracts expatriates who seek to enjoy a high standard of living while pursuing their business interests.

Sovereign Cyprus Services

Corporate Services

Sovereign Cyprus aims to be your ‘one-stop shop’ for Cyprus company registration. Our services include Cyprus company formation, provision of registered office address, and ongoing administration and management. Our comprehensive package covers bookkeeping, accounting, VAT, human resources and payroll services, corporate bank account opening and legal services. We can assist with company redomiciliations, helping clients transfer a foreign company to Cyprus.

Intellectual Property Services

Cyprus’s IP Box regime offers significant tax advantages, with royalties taxed at an effective rate of 2.5% or lower, one of the lowest rates in the European Union. This regime applies to patents and software, making Cyprus an attractive option for companies involved in technological development and innovation to manage their intellectual property rights.

Residency and Immigration Services

Sovereign Cyprus offers various residency options to suit different needs. The Golden Visa programme provides a permanent residence permit for non-EU citizens who invest €300,000 in real estate, business or investment funds. We can also assist with permanent and temporary residence permits for both EU and non-EU citizens, tailored to different financial capabilities and time frames.

Why choose a Cyprus Company?

Tax Benefits

Cyprus has some of the lowest tax rates in the EU. Holding companies benefit from zero tax on dividends and no withholding tax on dividends paid to foreign shareholders. Investment companies enjoy zero tax on capital gains from the disposal of shares, bonds and other securities. Operational companies are subject to a fixed corporate income tax rate of 12.5%, one of the lowest in the EU. IP holding companies benefit from a low effective tax rate on royalties.

Flexible Business Structures

Cyprus offers various corporate structures to suit different business needs including limited liability companies and partnerships. Whether you need a holding company, investment company, operational company or an IP holding company, Cyprus provides a flexible and favourable environment for a wide range of business entities and business activities. Cyprus Companies Law is largely based on the UK and, importantly, Cyprus is a common law jurisdiction.

Intellectual Property and Tax Planning

Cyprus’s IP Box regime offers one of the most favourable tax environments for intellectual property. The regime applies to patents and software, with royalties taxed at an effective rate of 2.5%. This makes Cyprus an ideal location for companies involved in technological development and innovation. Additionally, Cyprus’s extensive network of double tax treaties ensures that royalties received in Cyprus are subject to minimal or no withholding tax.

National Interest Deduction (NID)

For assets that do not qualify for the IP Box regime, Cyprus offers the NID, which allows businesses to deduct a notional interest expense from their taxable income. This can reduce the effective tax rate to as low as 2.5%, providing significant tax savings for companies with substantial new equity.

The ‘60-day’ Non-Dom Tax Residency Scheme

Cyprus offers a highly beneficial tax residency scheme known as the ‘60-day Rule’. This is available to qualifying, non-domiciled individuals – both non-EU and EU nationals – who reside in Cyprus for at least 60 days a year and are not tax resident in any other country. The benefits include:

• No income tax on dividends and interest: For 17 years, individuals do not pay income tax on dividends or interest earned.
• No tax on profits from securities: There is no capital gains tax on the disposal of shares, bonds, and other securities.
• Low personal income tax rates: The first €19,500 of annual income is tax-exempt, with a progressive tax rate applied thereafter.
• 50% tax exemption: On income earned from employment in Cyprus for 17 years, provided the annual income exceeds €55,000.
• Favourable pension taxation: Overseas pension income exceeding €3,420 is taxed at only 5%.

Additional Residency and Immigration Options

Golden Visa

The Golden Visa programme is ideal for non-EU citizens who can invest €300,000 in real estate, a new Cyprus company, or a licensed Cyprus fund. This visa offers a fast-track option, with processing times as short as two to three months.

Permanent Residence Permit

For those who do not wish to make a significant investment, Cyprus offers a permanent residence permit suitable for EU citizens. This permit requires proof of residence and provides the right to live and work in Cyprus, with same-day issuance for eligible applicants.

Temporary Residence Permit

Non-EU citizens can apply for a temporary residence permit, valid for one year and renewable annually. This permit includes the main applicant’s spouse and children under 18 and requires proof of a secure and steady annual income from abroad.

Cyprus stands out as a premier destination for business and residency, offering a strategic location, favourable tax regime, and high quality of life. Sovereign Cyprus is dedicated to providing comprehensive services to meet all your corporate and personal needs. Contact our professional team at info@sovereigngroup.com to explore how we can assist you in making the most of what Cyprus has to offer.

The post Discover the advantages of Cyprus for business and residency appeared first on The Sovereign Group.

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Anna Pigasiou was named as the winner of the inaugural Cyprus Students Prize, organised by the Sovereign Art Foundation (SAF), at an award’s ceremony at the Municipal University Library in Limassol on 4 April.

Her work, ‘Freedom of Expression’, was selected by an expert panel of judges following a week-long Finalists’ Exhibition at the library. Anna, aged 16, received a prize of €500, while a further €1,500 was awarded to her school, Lyceum Kykkos B’.

The Public Vote Prize, which was chosen by visitors to the Exhibition as well as online voters, was awarded to Sofia Mircheva, aged 18, for her artwork entitled ‘My Path to Balance’. She received a prize of €300, while a further €800 was awarded to The International School of Paphos.

The Cyprus Students Prize, which was open to all enrolled secondary school students in Cyprus, attracted over 100 entries and some 3,500 people voted in the Public Vote Prize.

The panel of judges was made up of Howard Bilton, Founder and Chairman of SAF, Efi Pilava, art teacher and Museum Educator at the State Gallery of Contemporary Art – Majestic, Dr. Evripides Zantides, Dean of the School of Fine & Applied Arts and Professor in Graphic & Visual Communication in the Department of Multimedia & Graphic Arts of the Cyprus University of Technology, and Vassilis Vassiliades, art teacher and curator of the Cyprus Art Biennale.

Speaking at the awards’ ceremony, Managing Director of Sovereign Trust (Cyprus) George Ayiomamitis said: “The Student Prize celebrates the importance of art. I would like to thank the young artists and their schools who enthusiastically accepted our proposal to take part in the competition. Congratulations are due to each and every one of them.”

The objectives of the Student Prize are to recognise the work of talented art students and exhibit their works to the public, to highlight the importance of art in the educational system, and to collaborate with local organisations that share SAF’s goal of promoting the arts in the community and encouraging cultural development.

The Sovereign Group, which is a leading independent global provider of corporate, private client and retirement planning services, this year celebrates 25 years of operations in Cyprus. The SAF was established as a registered charity in Hong Kong in 2003 with a vision of celebrating contemporary art talent while also raising funds to bring the therapeutic benefits of art to children in need.

Its uniquely innovative model is to stage regional art prizes that promote the work of contemporary artists. The works featured in these exhibitions are then sold, raising a significant amount for the artists and for SAF’s expressive arts programmes to support vulnerable children.

SAF currently as operates three annual regional art prizes – The Sovereign Asian Art Prize, The Norval Sovereign African Art Prize and The Sovereign Portuguese Art Prize – and has also built up a stable of 13 annual Students Prizes around the Sovereign Group’s global office footprint.

In addition to the Limassol Municipality and Cyprus University of Technology, for placing the event under their auspices, Sovereign Trust (Cyprus) is also indebted to IMH Media Group Cyprus for its excellent organisation and coordination, and all the event sponsors – Imperio Group, Sunset Gardens, Ernst & Young Cyprus, Bank of Cyprus, GMA Auditors and Fingers & More caterers – who embraced this initiative and helped make it possible.

The post Sovereign celebrates the inaugural Cyprus Students Prize appeared first on The Sovereign Group.

The Cyprus Ministry of Interior announced, on 22 March, that it has begun accepting applications for Cyprus citizenship based on the new provisions of Law 149(1)/2023, gazetted on 19 December, which amended Article 111 of Civil Registry Law of 2002 to introduce additional criteria and requirements for applicants seeking to apply for Cypriot citizenship.

Previously, applicants for Cypriot citizenship were required to have completed at least five years of residence in Cyprus, with an uninterrupted stay of 12 months immediately preceding the date of application. During the period under consideration, applicants must not be absent from the Republic of Cyprus for more than 90 days in a year (the ‘90-day rule’).

The other stipulated statutory requirements for citizenship included being a person of good character and having an intention to live in the Republic of Cyprus.

Under the Amending Law, applicants for Cypriot citizenship are now required to have completed at least seven years of residence in Cyprus, out of the previous 10, plus an uninterrupted stay of 12 months immediately preceding the date of application. However – contrary to the old regime – periods of absence from the country not exceeding a total of 90 days in the previous year are not considered interruptions in the legal residence.

Applicants are also required to show that they are a person of good character, have Greek language proficiency, have knowledge of contemporary political and social reality, have suitable accommodation and financial stability, and have a genuine intention to live in the Republic of Cyprus.

Applicants need to meet all the above conditions and, if one of conditions is not met, it will lead to rejection of the application.

The Amending Law also has retrospective effect such that any applications that were submitted based on previous legislation and were still pending on 19 December, will now be reviewed in accordance with the Amending Law.

Exception has been made in the provisions of the Amending Law to provide a shorter period of time for the naturalisation of highly skilled professionals employed by a Foreign Interest Companies designated by the Council of Ministers and who have knowledge of the Greek language. This supports Cyprus’s policy of attracting companies to operate or expand their activities in Cyprus.

The cumulative periods of time that highly skilled professionals are required to reside in Cyprus within the previous ten years of the 12-month period prior to application are reduced respectively to at least four years if they hold an A2 level certificate in the Greek language, or at least three years if they possess a level B1 certificate.

The other key requirements are:

• 12 months of legal and continuous physical stay in the country preceding the naturalisation application, with permitted absences abroad not exceeding a total of 90 days.
• Good character and a clean criminal record.
• Suitable residence in the country.
• Proven academic and professional qualifications.
• Financially self-sufficient, earning a stable monthly salary of at least €2,500.
• Basic understanding of Cyprus’s modern political and social landscape.
• The intention to reside in the country.

It is understood that periods of absence from Cyprus not exceeding a total of 90 days per year will not be counted as absence for the purposes of calculating the duration of residence and will be included in the above periods.

The new amendment also provides for the naturalisation of the applicant’s family members. A family member of a person who meets the above criteria can apply for naturalisation on the basis of years of residency after residing for eight years in Cyprus within the 11-year period preceding their application.

A family member is also subject to the requirement of legal and continuous residence in Cyprus for a period of 12 months preceding the date of submission of the application. Periods of absence must not exceed a total of 90 days within this period.

Family members include spouses, civil partners and adult children.

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European digital bank Revolut was granted authorisation by the Cyprus Securities & Exchange Commission (CYSEC) on 12 August to offer crypto services and digital asset services in Cyprus and across the European Economic Area (EEA) – the 27 European Union member states, plus Iceland, Liechtenstein and Norway

Revolut is the first entity to be licensed by CySEC as a crypto-asset service provider. The UK-headquartered firm, which is valued at USD33 billion, currently offers exposure to over 80 crypto assets. It stated that it will allow users to buy, hold and sell crypto assets through its app in “a responsible manner” and help them understand the risks involved. It will also provide users with a regulated platform for digital asset-based derivatives.

Crypto firms are attempting to establish regulated entities in EU countries to ensure that they will be able to offer services across the economic bloc, ahead of the EU’s proposed Markets in Crypto-Assets (MiCA) regulation.

The European Council and the European Parliament reached a provisional agreement on the MiCA regulatory framework, which covers issuers of unbacked crypto-assets and ‘stablecoins’, as well as the trading venues and the wallets where crypto-assets are held, on 30 June.

With 17 million customers already across the EEA, Revolut is looking to ensure it will be able to offer them crypto services when MiCA becomes law. It will continue to serve UK customers from its UK-based entity. While its registration application with the UK Financial Conduct Authority (FCA) remains unresolved, the firm can offer crypto services in the UK via the FCA’s Temporary Registration Regime.

“We welcome the EU-wide regulation and wholeheartedly embrace the European Parliament’s clear intention to support innovation whilst requiring strong customer protection measures to prevent any type of market abuse. In establishing a hub for our crypto operations in the EU, we recognise that CYSEC has in-depth knowledge of crypto and its efforts to be a leader in crypto regulation,” a spokesperson for Revolut said.

The Cyprus licence requires the firm to adhere to strict financial standards under the EU’s Markets in Financial Instruments Directive II (MiFID II) framework, which includes the segregation and protection of client funds, full transparency of business operations and capital adequacy controls.

Revolut said that it had chosen Cyprus due to its “sophisticated and robust regulatory regime, as well as the strength of the existing crypto industry in Cyprus” after undertaking an in-depth survey of all EU countries.

Founded in London in 2015, Revolut has more than 20 million retail customers worldwide, and is now processing over 250 million transactions a month. Revolut recently surpassed 5,000 employees globally as it continues to hire to service its expanding markets.

According to Bloomberg, cryptocurrencies account for 5% to10% of Revolut’s revenue globally and the firm has tripled its crypto headcount since July 2021. Revolut is also currently advertising for 13 crypto-focused roles, including in compliance and financial crime prevention.

“We are closely monitoring the updates in respect of the regulation of crypto assets in Cyprus, as well the application of anti-money laundering rules to the provision of services by Crypto Assets Service Providers (CASPs) in Cyprus,” said Sovereign Trust (Cyprus) Managing Director George Ayiomamitis. “We are in position to advise and assist with any application for licensing in this fast-developing sector.”

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Under general principles, individuals are only taxed on the income that they receive or earn. For example, a shareholder is taxed when he/she receives a dividend but is not taxed on any profit that a company decides to retain. To prevent such profits going untaxed when the beneficial owners of a foreign legal entity are Swedish residents, Sweden has enacted ‘Controlled Foreign Companies’ (CFC) anti-avoidance legislation that will attribute the income and gains of the foreign legal entity to the Swedish shareholder (taxpayer), whether that is an individual or a Swedish company.

As a ‘rule of thumb’, a foreign legal entity that is resident in a ‘no tax’ or ‘low tax’ jurisdiction and that is owned by a Swedish taxpayer will likely be treated as a CFC. The current CFC rules in Sweden are also underpinned by EU law following the transposition of the Anti-Tax Avoidance Directive 2016 (ATAD) into Swedish law as of 1 January 2019.

Accordingly, a Swedish shareholder will hold an interest in a CFC if the following two conditions are met:

1. At the end of the income tax year (the calendar year for individuals) they hold, directly or indirectly, 25% or more of the capital or voting rights in a foreign legal entity (e.g., a company); and
2. The income of the foreign legal entity is deemed to be subject to low taxation.

The 25% test is quite complicated but, to take a simple example, if a Swedish shareholder holds 24% of the ordinary shares in a foreign legal entity, then this condition would not be met (assuming there are no other ‘associated’ people or enterprises that hold shares in that company). If the 25% test is not met, the foreign legal entity will not be classed as a CFC even if it is not taxed at all.

Turning to the second condition, the income of a foreign legal entity is deemed to be subject to low taxation if either the income is not taxed at all or it is subject to a rate of tax that is 55% lower than the Swedish corporate tax rate, which is currently 20.6%. This means if it is subject to tax at a rate of 11.33% or higher, it will not meet this condition even if a Swedish taxpayer owns all the shares.

Even when both these conditions are met, Sweden has a ‘whitelist’ (found as an appendix to chapter 39a of the Income Tax Act) that provides an exemption from the CFC rules for income (or certain types of income) from listed countries. Malta, for instance, was removed from its whitelist, which means that all types of income from Malta could fall within the scope of the Swedish CFC rules.

A further exemption from the CFC rules also applies to income of a foreign legal entity that is resident within the European Economic Area (EEA) if the Swedish shareholder can demonstrate that the foreign legal entity is established and engaged in real economic activities in the other country. This second exemption remains available for Malta companies.

Unlike many countries, Sweden does not exempt active income (e.g., trading income) accruing to a foreign legal entity from its CFC rules. Therefore, if the two conditions are met and neither of the two exemptions apply, the CFC rules will attribute all income and gains to the Swedish shareholder. Sweden does however provide a tax credit against Swedish tax to account for any foreign tax paid by a CFC.

If CFC rules apply, any income and capital gains accruing to a foreign legal entity or trust will need to be reported by the beneficial owner on his/her Swedish tax return for the year in question. And, with the OECD Common Reporting Standard (CRS) now in place worldwide, the Swedish Tax Agency can expect to receive information on an annual basis from foreign revenue authorities on any Swedish taxpayers with non-compliant foreign structures.

However, a Cyprus company can offer a highly effective tax mitigation proposition for Swedish taxpayers, both companies and individuals.

A Cyprus company is taxed at a rate of 12.5% (shortly to rise to 15% in line with the global minimum tax rate) and the Cyprus government offers generous tax reliefs and exemptions for companies, which means the effective rate of tax may be considerably lower. Cyprus generally does not tax capital gains. By way of contrast, Sweden taxes individual taxpayers at a flat rate of 30% on their domestic and worldwide gains, while their income (domestic and worldwide) is taxed at rates up to 52.9%. Swedish companies are subject to tax of 20.6% on income and 30% on gains.

If a Swedish taxpayer, whether an individual or a company, holds all the shares in a Cyprus company, its profits should not be taxed in Sweden unless distributed to the Swedish shareholder. The Cyprus company will not be classed as an CFC because it is subject to a 12.5% rate of corporation tax, which is above the 11.32% tax rate threshold of Sweden’s CFC regime.

Cyprus is also on Sweden’s CFC ‘whitelist’. This means that even if the effective rate of tax in Cyprus is lower than 11.33% because, for example, some or all the income is tax exempt in Cyprus, then Sweden’s CFC rules will still not apply.

In many ‘onshore’ jurisdictions, a transfer of assets that are pregnant with gains to a foreign legal entity would crystallise those gains for tax purposes, even if the foreign legal entity does not actually pay for the assets. This is because anti-avoidance legislation generally deems the company to have made a payment that is equal to the market value of the assets at the date of transfer.

Sweden does not have such a rule. This means that Swedish residents who hold non-cash assets, such as shares, can transfer them to a Cyprus company without triggering a gains tax charge in Sweden, while Swedish income tax can be deferred until such time as a distribution is made. If the assets are later sold by the Cyprus company, there will be no capital gains tax (CGT) in Cyprus and potentially no CGT in the country where the asset is situated.

If the Swedish shareholder chooses to re-locate to a lower tax country, such as Portugal, then any distribution can be deferred until he/she is no longer tax resident in Sweden. Further, if the shareholder successfully applies for Non-Habitual Resident (NHR) status in Portugal, then he/she can enjoy a tax exemption (with progression) for foreign-source income, including capital gains, interest, dividends, as well as other investment income, providing certain conditions are met.

NHR status can be requested by anyone who meets three requirements. You must live abroad, not have been a resident in Portugal within the last five years and want to move to Portugal. To be considered a resident, you must remain in Portugal for 183 days a year or have your primary home there. In other words, Swedish residents migrating to Portugal can not only defer tax in Sweden but avoid it completely.

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Presenting the 2022 Budget to the House of Representatives, Petrides referenced the global tax reform agreement for the imposition of a minimum global corporate tax rate of 15% reached by 137 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in October.

The objective of the Budget was to have a fairer and fiscally neutral tax reform that would be completed within 2022. He stated that the increase of the corporate tax in Cyprus from 12.5% to 15% would not substantially affect the foreign investments in Cyprus because the country had other comparative advantages as an investment destination that would balance this small increase in the corporate tax rate.

Apart from the increase in corporate taxation, the Cyprus government would consider the reduction or abolition of the special defence contribution on deemed or real distribution of dividends, the reduction of the rate of special defence contribution on interest income, and the reduction or abolition of the €350 annual company levy.

The reform, he added, would also include the introduction of carbon taxation, the gradual increase of taxation on fossil fuels and the introduction of environmental levies.

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The aim is to facilitate the application of DLT (including blockchain), apply the principle of technological neutrality, and promote innovation and growth, while at the same time meeting international compliance standards and providing adequate protections for investors and consumers.

The Cypriot Council of Ministers approved a National Strategy for DLT & Blockchain in June 2019, which set out that the Ministry of Finance, in cooperation with the Tax Department and Registrar of Companies, should coordinate the drafting of a regulatory framework based on principles set out in the strategy.

The draft DLT Law 2021 is based on the provisions of this National Strategy and seeks to provide for:

• Definitions for DLT and crypto assets
• Legal certainty in respect of smart contracts and cryptocurrencies as an asset
• Authorising the Cyprus Securities & Exchange Commission (CySEC) as the competent authority to issue secondary legislation within the framework of its responsibilities for the supervision of cryptocurrency service providers.

As part of the consultation the Ministry of Finance, in seeking feedback from stakeholders and market participants on the shape and scope of effective regulations and procedures.

On 13 September, CySEC issued a Policy Statement on the Registration and Operations of Crypto Asset Services Providers (CASPs) to outline its finalised rules for CASPs under the Prevention & Suppression of Money Laundering & Terrorist Financing Law of 2007 and related CySEC Directives, elaborating on the next steps and on CySEC’s expectations.

The CASP is a concept that was introduced in Cyprus with the transposition of the EU’s 5th Anti-Money Laundering Directive into national law in June, which extended anti-money laundering controls to:

• Providers of exchange services between virtual currencies and fiat currencies (Exchange Providers); and
• Providers of custody services for virtual currencies (Custody Providers).

EU Member States are required to ensure that Exchange Providers and Custody Providers are registered and that persons who hold management functions or are beneficial owners of providers are fit and proper.

Accordingly, CASPs that provide or exercise services or activities on a professional basis in Cyprus, regardless of their registration to another EU Member State, will need to be registered on the CySEC Register and will need to always comply with any registration, organisational and functional requirements and with any other obligations established by CySEC.

Depending on the structure of a business, the crypto assets will either qualify as financial instruments under the Investment Services & Activities & Regulated Markets Law or as Electronic Money under the Electronic Money Law. Additionally, crypto assets can be a digital representation of value that is neither issued nor guaranteed by a central bank or a public authority.

This latest policy framework will require CASPs to align their businesses with anti-money laundering rules, which will impose obligations on:

• The fitness and probity of the CASP beneficial owners and persons holding a management position
• Conditions in relation to CASPs registration Organisational and operational requirements
• Preforming Know Your Client and other client due diligence measures
• Drawing the economic profile of clients
• Identifying the source of funds of clients
• Monitoring clients’ transactions
• Identifying and reporting suspicious transactions
• Undertaking a comprehensive risk assessment in relation to their clients and activities and take proportionate measures per client, activity and crypto asset in question.

CySEC expects this initiative to alleviate some, but not all, of the risks involved in crypto asset investments, which are expected to be further addressed at EU level under the proposed Regulation on Markets in Crypto Assets. CySEC will now begin to evaluate applications from existing or prospective CASPs.

CySEC chair Demetra Kalogerou said: “Our proactive engagement with crypto businesses under the CySEC Innovation Hub, aiming to support innovative businesses and to engage with providers of emerging financial technologies, ensured that our expectations were clearly communicated to market participants well in advance and that the Cypriot framework has captured the industry’s pace, alleviating thus the risks involved. Our work on financial innovation at national and EU level is ongoing and we are determined to encourage responsible innovation, whilst ensuring the orderly functioning of the markets.”

The introduction of regulatory provisions in Cyprus regarding crypto assets and their service providers is a positive step towards the creation of a comprehensive legal framework and is an essential part of process in providing status to crypto businesses in Cyprus.

Sovereign Trust (Cyprus) Limited is closely monitoring developments regarding the introduction of DLT technology and crypto assets in Cyprus. For further information or assistance, please contact Managing Director George Ayiomamitis by phone at +357 2573 3440 or by email to gayiomamitis@sovereigngroup.com

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