Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) project, titled ‘Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance’, focuses on addressing arrangements that could erode the tax base of other jurisdictions and is one of the four minimum BEPS standards.
The standard aims to prevent business activities from being relocated to jurisdictions with ‘no or only nominal tax’ to avoid the substantial activities requirement. The standard requires that the ‘core income generating activities’ (CIGA) for certain highly geographically mobile sectors of business activity must be conducted with qualified employees and operating expenditure in the ‘no or only nominal tax’ jurisdiction.
These economic substance rules are now in operation and an assessment is required of their impact on any existing entities in affected jurisdictions. If substance requirements are not able to be met, options such as the changing of tax residency or redomiciliation to another jurisdiction, such as Cyprus, should be considered.
Cyprus Corporate Taxation
Cyprus is one of the most favourable jurisdictions in the EU and offers great opportunities for international companies, investors and traders. These are some of the tax benefits that make foreign businesses choose Cyprus:
- A uniform corporate tax rate of 12.5% is applied to all companies
- Access to EU directives
- Extensive double tax treaty network with over 60 countries
- Dividend participation exemption (subject to conditions)
- Exemption from tax on gains from the disposal of securities
- Notional Interest Deduction (NID) on equity applies to all taxpayers and all business activities
- No withholding taxes on interest and dividends
- No taxation of capital gains (except for disposal of real estate in Cyprus)
- No succession taxes
- No Controlled Foreign Company (CFC) rules
- Tax neutrality on foreign exchange differences unless they arise from trading in currencies
- Foreign tax relief on income subject to both Cypriot and overseas tax
- Exemption on profits of foreign permanent establishments (subject to conditions)
- Company re-organization rules based on the EU Mergers Directive allow for tax-neutral group
- Attractive Intellectual Property regime in line with ‘modified nexus approach’ – effective 2.5%
No exit tax rules
- 50% exemption on employment income exceeding €100,000 per annum for non-residents taking up employment in Cyprus
- No tax on dividends, interest and rental income of non-domiciled individuals.
Sovereign Trust (Cyprus) has the broad knowledge and hands-on experience to assist fully with the redomiciliation of a company to Cyprus. Our service will ensure the proper completion of the relevant forms, collection of required documentation and official submission to the Cyprus Registrar of Companies, through to completion and the obtaining of the Certificate of continuity of the foreign company to Cyprus.