When you hear the name Cyprus, most people think of a sunny island situated in the north eastern Mediterranean Sea, known for its rich culture, long history and natural beauty. But Cyprus offers much more than simply a holiday destination.
This small but dynamic country has long established a strong reputation as an international business hub, combining a modern, free-market, service-based economy with a robust and transparent regulatory framework offering international investors and domestic businesses confidence to invest and grow. It also offers an advanced infrastructure and a high quality of life.
Cyprus’s competitive advantages are significantly enhanced by an effective legal system and an attractive tax regime, which offers a wide range of incentives and advantages both for companies and individuals.
What is the advantage of EU membership?
Cyprus has a lot to benefit from EU membership and despite its small size, a lot to offer as well. Being Europe’s Eastern outpost at the intersection of important transport and communications routes and at the crossroad of three continents, Cyprus provides a secure gateway for European enterprises into the Middle East, North Africa and Asia, while offering non-European businesses and entrepreneurs possibilities for investment into Europe.
Can I obtain EU citizenship?
Yes. Attracting foreign direct investment is at the heart of Cyprus’ development strategy, as it represents a key driver for economic growth, amidst today’s constantly changing international environment. In line with this policy, the Cyprus government has introduced two schemes for granting foreign investors Cypriot Citizenship and Immigration Permit to Cyprus. As a national of Cyprus, you are automatically also an EU citizen. As such, you can benefit from many important rights under EU law, in particula r the right to move freely around Europe to live, work, study or even retire.
How does the Cyprus legal system work?
As a former British colony, Cyprus’ legal system is based on English Common Law principles and is widely recognised as a business-friendly and effective system that ensures transparency and reliability in business practices. Case law deriving from the courts of the UK or other Commonwealth jurisdictions remain an important source of inspiration for courts in Cyprus, but the courts of Cyprus have also developed a rich body of case law of their own. Cyprus business legislation is also similar to that of the UK but, as Cyprus is an EU member state, a company registered in Cyprus enjoys all the advantages of operating in an EU country.
What advantages does the Cyprus tax system offer?
The key benefit of a Cyprus company is the uniform 12.5% corporate tax rate which is one of lowest in Europe but complies completely with EU standards and is also ‘white-listed’ by the OECD. Cyrpus offers an attractive and transparent tax regime, that is fully compliant with EU and international standards and provides access to an extensive network of more than 60 double tax treaties worldwide, including South Africa, Luxembourg, Mauritius, Singapore, the UK and the US.
A company is considered to be taxed resident in Cyprus if its business is managed and controlled in Cyprus. It does not have to limit its operations to Cyprus. There is also no restriction in relation to the residence and the nationality of the owner, which means that the owner of the company does not have to be a resident of Cyprus.
Apart from the low corporate tax rate, Cypriot tax law provides multiple tax benefits compared to other European countries. There is 0% tax on interest income, dividend income and profits from disposal of shares, bonds, debentures or other securities. No tax is paid for corporate re-organisations, such as divisions, transfer of assets and exchanges of shares, with the exception of capital gains related to immovable property in Cyprus. The same applies for profits earned from subsidiaries abroad, subject to certain restrictions.
There are more tax incentives of the Cypriot legislation. For example, royalties paid from Cyprus to non-resident companies are not taxed (with minor exceptions about intellectual property used in Cyprus). The same applies for capital gains and income from the liquidation of a Cypriot holding company. Furthermore, as for all EU members, imports from and exports to other EU countries are completed without VAT.
What benefits does the Cyprus Intellectual Property (IP) regime offer?
Cyprus offers a highly attractive intellectual property (IP) regime. If you register IP in Cyprus, subject to meeting South African and Cyprus requirements, a company can license IP rights on a global basis. South Africa withholding tax can be reduced significantly or even eliminated if structured correctly through the 2015 double tax treaty. The maximum rate of tax for dividends will be 5% in the case where the beneficial owner of the dividend holds at least 10% of the capital in the dividend paying company and 10% in other cases. However as Cyprus does not impose withholding taxes on dividends paid to overseas shareholders, this applies only to dividends paid by companies resident in South Africa.
What are the banking options in Cyprus?
The Cypriot banking sector has emerged strong, fully recapitalised and well-regulated out of the financial crisis. All core banks have passed successive and rigorous European Central Bank (ECB) stress tests and found solid foundations to move toward sustainable development.
There are currently over 40 Cypriot and international banks operating in Cyprus and commercial banking arrangements and practices follow the British model while the banking system is also fully harmonised with EU legislation and directives. There is no requirement for a Cypriot company to have a bank account with a bank in Cyprus although this may be regarded as an important factor in demonstrating economic substance in Cyprus.
How should I best approach set-up in Cyprus?
South african businesses and individuals considering investment into Cyprus should have a partner on the ground at all stages of the investment cycle. Sovereign Trust (Cyprus) is a specialist at facilitating investments and market entry into Cyprus and, in conjunction with Sovereign Trust (SA), we can structure a variety of IP solutions that are tailored to the type of IP and the tax residency of a company’s directors and shareholders. If you would like more information, please contact Rone Silke at Sovereign Trust (SA) on +27 21 418 2170.