Why should you consider setting up in Cyrpus?
Throughout the past 30 years, Cyprus has developed to become a high-quality centre for international business and investment. The past decade has witnessed a steady stream of companies choosing to set up their headquarters in Cyprus.
Many industries have chosen to invest in Cyprus, with notable upsurges in the pharmaceutical, shipping, fossil fuel, investment, and renewable energy sectors. Many consider Cyprus a vacation island and do not immediately think of the business rewards.
However, there are many benefits to setting up a business in Cyprus. For those wondering what the business attraction is, consider the following:
Cyprus Business Location Highlights
A modern stable democratic state with EU and Eurozone membership and a 'can-do' attitude.
Cyprus is considered to be recently independent, after gaining its independence in 1960. Historically, Cyrus was best known as being an island which was lacking in natural resources and predominantly dominated by agriculture and tourism.
However, the 2022 version of Cyrpus is better recognised as being a member of the European Union (since 2004) and Eurozone (since 2008). It is considered a modern and fully transparent international centre for business and finance, and home to one of the largest merchant shipping fleets in the world.
It also offers investors and companies an oasis of calm in what is known to be an otherwise turbulent region. When excluding the COVID-19 pandemic and Cyrpus's large tourist sector, the country recorded GDP growth of 4.5% in 2021.
A strategic geographical location
The island is ideally located in between three continents and functions as a natural conduit for investment both into and out of the European Union. Cyprus is also placed in a convenient time zone for conducting business worldwide.
It falls into the Eastern European Timezone category, making it a favourable location for companies within the European Union. Cyprus holds historic ties with Eastern Europe. It manages positive relations with North Africa and the Middle East, and Cyprus enjoys good relations with its neighbours.
The island is served by two international airports, and modern seaports and is home to the third-largest merchant fleet in the European Union.
Access to local and EU talent: Dynamic, young, affordable employees
For non-resident companies, accessing local and international talent may seem daunting. However, there are numerous benefits to opening a company in Cyprus and hiring a local or foreign workforce. This includes the availability of relatively low-cost, talented, and multi-lingual skilled workers, who are keen to work and can do so across multiple economies and in many languages.
Numerous major ICT businesses have established headquarters or a Cyprus company to conduct a variety of operations including sales and marketing, software development, and disaster recovery. Cyprus has also recently launched more liberal immigration policies, in a bid to attract more top talent to the island. This has helped to attract foreign direct investment and bring in foreign investors.
This compares to many other European countries, which may be perceived as relatively restrictive with their immigration procedures.
Attractive corporate and income tax regulations: offers over 65 dual taxation agreements
The current Cyprus corporation tax rate for resident companies is 12.5% on worldwide income. This will increase to 15% for MNE in line with OECD rules but any potential negative impacts are offset by government tax policies that favour high quality, sustainable businesses and business sectors such as multinationals, shipping, pharmaceutical, fintech, gaming, and digital marketing corporations.
Cyprus provides an ideal environment for group holding and finance companies, offering a tax-free flow of dividends from Cyprus to non-tax resident entities under certain conditions while there is a full participation exemption and no tax on capital gains apart from gains derived from the direct and indirect sale of real estate in Cyprus.
The network of double taxation agreements provides excellent safeguards vis-à-vis double, or no taxation, and unilateral relief is available for taxes paid overseas if no double taxation agreement applies. The EC Merger Directive has been fully adopted and therefore mergers and approved restructurings can be carried out with full exemption from any form of taxation in Cyprus.
Special income tax incentives are in place for new tax residents of Cyprus with up to 50% tax relief for high earners. Although Cyprus does not have the lowest corporate tax rates, they offer reasonable corporate tax incentives.
Tax incentives for investment and innovation including a highly favourable IP Box regime
The Cyprus government is keen to build a cluster of ICT, high technology, and innovative companies. To this end, it operates a European Union-approved IP Box regime that utilises the ‘Nexus’ fraction approach. The Cyprus IP Box basically provides a tax exemption of up to 80% of profits for expenditure concerning research and development from qualifying intangible assets.
The government has proposed changes to the scheme which if adopted will further enhance its attractiveness. Natural persons can benefit from a 50% tax deduction for investing in certified innovative companies. The government intends to expand this to include corporate investors.
Attractive European Union approved sector-specific tax regimes
Cyprus operates the first EU-approved shipping ‘tonnage tax’ scheme. This approval has recently been extended to 2029. Under the scheme, subject to qualification, shipowners, ship managers and charters in qualifying shipping activities have the option to be taxed based on the tonnage of the vessel rather than on income or profit. This offers the owner the advantage of certainty.
The scheme has played an important part in the development of a shipping cluster in Cyprus which now includes the largest 3rd party ship management centre in Europe and the largest crew management centre in the world. Special schemes also exist for the Insurance and Film sectors.
A legitimate, transparent business eco-system that includes a strong competitively priced professional service sector with English widely spoken as the established business language
Cyprus is primarily a common law jurisdiction with courts bound by the doctrine of precedent. This offers the parties with an intended commercial action the advantages of consistency, predictability, and efficiency.
Intellectual Property rights are well protected, and European Union laws are fully applicable. Most business activities are conducted in English, although some other languages may also be used given Cyprus's strategic location.
English is widely spoken and will be approved as an official language for use in soon-to-be-established Commercial and Admiralty Courts. If you require any assistance with intellectual property rights or more advice, please do not hesitate to get in touch.
Cyprus has a competitive international tax environment, which is fully compliant with international best practices and many foreign companies appreciate the standards of transparency and fairness.
The EU Anti-Tax Avoidance Directives ATAD I and ATAD II are in force, and it is expected that the ATAD 3 provisions will take effect from 1 January 2024. Cyprus is also a signatory to the Multilateral Convention on Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.
New and updated double tax agreements are aligned with the latest OECD standards and, in compliance with the 4th and 5th Anti-Money Laundering Directives, the different UBO registers have been established.
There is a relatively low-cost, large, highly-skilled, and experienced professional services sector which is familiar with complex and multi-jurisdiction transactions. The larger international accounting firms have bases in Cyprus and law firms such as Elias Neocleous & Co LLC frequently work in conjunction with the ‘Magic Circle’ of law firms.
Low set up costs, low office rents, and competitive commercial real estate prices
A surge in interest in locating in Cyprus has spawned a large number of multi-use office and commercial developments in the two main business cities of Limassol and Nicosia. Office accommodation is readily available to suit all needs and budgets – often with a breathtaking view of the Mediterranean.
Outside of this, costs for establishing a business are low and a Business Facilitation Unit has been established to assist with the practicalities of moving a business to or starting up a business on the island.
A government that is consistently pro-business and pro foreign investment
Since 1960, irrespective of political leanings, successive Cypriot governments have been keen to promote a business and tax environment that will encourage foreign investment in the country. For the past decade, this has evolved into a desire to promote Cyprus as a sustainable business and trade centre.
Recent policy has focused on the introduction of new incentives targeted at the areas of high-technology, innovation, pharmaceuticals, shipping, and foreign interest-owned companies. Many of these incentives were put in place at the start of 2022 the remainder are expected to follow in short order.
They include the establishment of a Business Facilitation Unit to assist with the relocation and establishment of businesses in Cyprus, changes to migration rules to facilitate the entry of skilled third-country nationals, and numerous individual and corporate tax incentives to encourage a ‘brain drain’ into the country.
In addition to all of above Cyprus is rated as one of the safest countries in the world to live in with excellent education and health facilities. It offers a more relaxed environment with good cuisine and a welcoming population. Is it any wonder that so many businesses are now choosing to make it their home?
Migration & Substance
2022 Government investment strategy facilitates the employment of third-country nationals (TCN) in targeted sectors and gives them family reunification rights. It is now much easier for foreign interest companies, or foreign investors, to relocate key workers to Cyprus and establish economic substance on the island as required under ATAD3.
Digital Nomad Resident Visa Scheme
From March 2022 the government is allowing, subject to certain conditions, 500 visas to be issued to TCNs able to work remotely through telecommunications technology. The initial visa is for one year. Possibility of renewing for a further two years. They may be accompanied by family members who will not have the right to work in Cyprus. They become Cyprus tax residents after 183 days in any year unless they can prove tax residency elsewhere.
Capital Gains Tax is only imposed on gains made from;
– The sale of immovable property in Cyprus, and
– The sale of shares of unlisted companies directly or indirectly owning immovable property in Cyprus.
Gains are taxed at 20%. An exemption exists for the sale of property originally purchased on an ‘arm’s length’ basis between 16 July 2015 and 31 December 2016.
Withholding Taxes (WHT)
There is no WHT on dividends, interest, and royalties paid to non-residents of Cyprus except in the case of royalties earned on rights used within Cyprus. WHT on royalties for rights used within Cyprus may be reduced or eliminated by double tax treaties entered into by Cyprus or by the EU Interest and Royalty Directive as enacted in the Cyprus tax legislation.
From 31 December 2022, Cyprus will apply WHT on dividend, interest, and royalty payments to EU Blacklisted jurisdictions.
Incentives for expatriate workers
Persons considered to be Cyprus tax residents may benefit from a 50% deduction (expatriate relief) on personal income tax if they:
·Were not a tax resident of Cyprus in the previous tax year;
·Were not a Cyprus tax resident for any three of the past five years prior to commencement of their employment in Cyprus; and
·Have annual gross emoluments ≥€ 100,000.
This relief is currently available for 10 years. The government intends to reduce the qualifying threshold in 2022 to ≥€ 55,000 with a retroactive effect. It is also proposed to extend the period of relief to 17 years for existing beneficiaries. Lower paid expatriates becoming tax-resident in Cyprus can claim an annual exemption equal to the lesser of €8,500 or 20% of their income from employment in Cyprus.
The exemption commences 1 January following the year of employment. The exemption is available for a period of 5 years with the last eligible tax year being 2030.
There are many benefits to setting up a Cyprus company or moving some of your operations to Cyprus. If companies wish to receive advice on legal support, business incorporation support or receive market entry advice, it is best to contact an expert. Experts will be able to advise on country-specific processes including how to do the following:
– Open a bank account
– How to action company registration or establish an entity such as a; limited liability company, private limited company, public limited companies
– Advice on obtaining a physical address, registering your business name, action any relevant document submission, and much more.
– Work with both local companies ( Cypriot company ) as well as provide access to an international network
– Access a wide variety of markets that may have the right consumer base for your product or services
With our intelligence on 170countries, OPEN FOR BUSINESS Guide rounds up the best countries to consider for international expansion including Cyprus with up-to-date tax and immigration systems to guide you through the maze of business practices and make good decisions. Download it below.