Setting up and running a business in Cyprus
Contributed by Oxford Tax Solutions
27 February, 2019
Traditionally, the Republic of Cyprus (Cyprus) has been an open economy for many years. Cyprus's leading industries have always been tourism, shipping, and professional services. While the country has continually improving and modernising these industries, it is trying to develop an ecosystem that creates innovation, research, and development and welcomes startup businesses. Cyprus is known as a well-regulated funds jurisdiction and is focusing on becoming an Eastern Mediterranean Oil and Gas hub.
The financial and public sectors have greatly improved by showing an increase in efficiency and therefore Cyprus economy has become quite robust. While Foreign Direct Investment is on the rise, there are new investment opportunities being created in the traditional and emerging sectors as well.
A common law legal system
The Republic of Cyprus is a member of the European Union and the Eurozone. Cyprus is an independent, sovereign republic with a presidential government and a constitution that protects the rule of law, political balance, human rights, and the ownership of property. It is a member of the British Commonwealth, International Monetary Fund, Council of Europe, World Bank, United Nations, and the World Trade Organization. Therefore, Cyprus is also a notary to many international conventions and treaties.
Until its independence in 1960, Cyprus was a part of the British Empire as a British Crown Colony and still has close ties to Britain. The legal and judicial system is very similar to the United Kingdom. Cyprus's primary corporate statutes are based on and derived from English common law. Cyprus's legislation is totally compliant with the European Union legislation and therefore the European Union directives are transferred into local legislation which means the EU regulations have a direct effect and have full application in Cyprus.
Starting a business in Cyprus To begin with, you must register your company with the proper authorities in Cyprus which can actually be completed within 5 to 10 business days after submitting the necessary documents to the registrar. For those companies that are referred to as ready-made shelf companies, the amount of time could be reduced even more.
Cyprus's transparent, modern tax system
Cyprus has a very modern, transparent, and very efficient tax system that is in direct line with the EU and international regulations. Tax resident companies benefit from Cyprus's extensive, growing double taxation treaty network that has more than 60 countries, worldwide, along with many EU directives. The OECD has Cyprus on the White List of jurisdictions that have implemented the internationally agreed tax standards on transparency and exchange of information.
The corporate income tax rate is 12.5% which is applicable to the profits/net income of tax resident companies. However, there are a number of exceptions including:
- Foreign-sourced dividends.
- Dispose of shares and other qualifying titles including corporate bonds, as long as the disposed company does not have any immovable property in Cyprus.
- At all times, no withholding taxes on payments made abroad.
- Profits of foreign branches although there is an option to tax that is available for the taxpayer.
- To achieve a tax rate that could be as low as 2.5% can be utilized through the Cyprus IP tax regime.
- Foreign exchange gains unless they are earned by Forex traders or dealers.
Reporting structure for Cyprus entities
International Financial Reporting Standards as adopted by the European Union (EU IFRS) comprising of the local Generally Acceptable Accounting Principles (GAAP) in Cyprus which also forms the basis for the computation of taxable income.
Therefore, registered entities in Cyprus only have to maintain one set of financial statements for both financial reporting and for tax purposes. This is based on a reporting structure widely accepted by investors, analysts, and financiers around the world.
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