Cyprus: Offshore Business Sectors
In 1975 the Cyprus Government began to create a welcoming regime for offshore companies. Due to Cyprus's particularly favourable tax treaties with Russia, the CIS and the countries of eastern Europe, the island is chosen by a high proportion of firms needing to set up an offshore base as a holding or investment company, or trading subsidiary, for those regions. Among emerging markets there are also favourable tax treaties with China, India, South Africa and a number of Middle Eastern countries.
In July, 2002, as part of the Income Tax Act No. 118(I) of 2002, Parliament approved a uniform 10% corporate tax rate, to apply to both onshore and offshore companies, plus a 2% levy on wage bills (meant to subsidise pensioners), and a 'Special Contribution' related to defence which in effect applies the 10% corporate tax rate to inter-company dividend and interest payments. However, the rules are complex.
The 10% corporate tax gives Cyprus one of the lowest rates in the EU, alongside Ireland (12.5%), with the exception of the Isle of Man, Jersey and Guernsey, which have all a nil rate for non-financial services companies (although the future of these regimes remains unclear in the face of EU attack) - but these islands are not in the EU anyway for most purposes.
The new regime introduced a 'residence'-based system of taxation, and was in operation from 1st January 2003.
The remainder of this section describes the most important types of international business activity carried out from the island. As far as the taxation of offshore companies is concerned, it is now of mainly historical interest, although existing companies were allowed to opt to continue the 4.5% 'offshore' taxation level through 2006. In other respects the sectors described are ongoing.
For further information about the taxation of companies in Cyprus under the new regime, see Domestic Corporate Taxation.