Cyprus: A reliable solution to international developments
Contributed by Fiducenter
16 November, 2016
There is a huge wave of worldwide developments affecting international business all over the globe - BEPS, FATCA, CRS, Deoffshorisation, Automatic Exchange of Information, exchange of information on tax rulings, state aid examinations, the introduction of the fourth EU AML Directive with its requirement for registries of beneficial owners, changes to the EU Parent -Subsidiary Directive and more recently the BREXIT the decision of the UK to leave the EU. Concepts such as substance, transparency and compliance are having a prominent role in the new era of international investments and business operations and they are expected to change the whole landscape in the business world.
The Brexit decision came as a huge shock not only to the EU but all over the world. It led to a change of Prime Minister in the UK, pressure from EU leaders to have the decision executed the soonest possible, fear of a domino effect in other EU-skeptic countries, a huge fall in the value of sterling against other currencies but above all it lead to escalating uncertainty as to what the new status quo will be once the UK government decides to "pull the trigger" and put the leave decision in to practice.
Cyprus General Information
Cyprus is home to a large expatriate community, having the third highest percentage of foreign citizen residents in the EU. British nationals comprise the largest expat community whilst Russians and other Eastern European nationals also constitute big expatriate groups.
The top quality of facilities and services on offer, such as marinas, golf courses, medical and rehabilitation centers, private schools and universities, are expected to significantly increase the number of foreign people investing and/or relocating in Cyprus over the coming years.
Cyprus has been widely-reported and recognised as an example of recovery after a major financial setback, such as the one that happened to Cyprus in March 2013.
Cyprus has developed in to a very attractive location from which to conduct business internationally, to invest in and to relocate and live on a permanent basis. One of the contributors to this development, for what concerns British nationals/companies, is the fact that English language is widely spoken and Cyprus Law is a mixture of legislative statutes and case law and its structure is largely based on English Law.
The Corporation Tax rate is 12.5%, is uniform for all kinds of activities and is standard irrespective of the level of income. It is also among the lowest in the European Community.
The most important tax advantages of Cyprus, in addition to the low corporation tax rate, are:
- The extensive network of DTTs;
- exemption of dividend income from Tax;
- exemption from tax of profit on disposal of securities;
- no WHT on interest, royalties and dividends paid to non-residents of Cyprus;
- 80% exemption from Corporation Tax on any profit generated from the exploitation or disposal of owned Intellectual Property;
- Unrestricted access to all EU directives;
- no Controlled Foreign Corporation legislation;
- no Thin Capitalization requirements;
- no Inheritance and Net Wealth Tax;
Incentives to Invest/Relocate
As part of its effort to attract foreign high net worth individuals as well as to attract qualified individuals to invest in the country, Cyprus offers some very attractive incentives, which are summarised below.
Cyprus Citizenship Scheme
There are several reasons why some people might obtain a second citizenship such as safeguarding assets from litigation or other risk, tax advantages, widening of the freedom to work and leave abroad, entering into transactions that are restricted in their home country, escaping strict currency controls, political instability in their home country and many more. The Cyprus citizenship scheme can certainly be the right answer to the vast majority of these reasons. Of special importance is of course the EU membership of Cyprus, which secures to its citizens unconstrained access to the great freedoms of the Union.
This scheme involves the provision of citizenship to individuals upon meeting certain criteria, either personally, or through participation as a shareholder or senior executive in a company. The criteria have recently been made more attractive by reducing the relevant thresholds.
In the case of senior manager of a company, s/he may submit an application provided that his/her remuneration generates tax revenue for the Republic of Cyprus of at least 100,000 over a period of three years and provided that this tax has already been paid or prepaid.
An interested party can choose among a range of investment options, including the following:
i) Direct investments
The applicant must have made a direct investment of at least 2.0 million in Cyprus. Direct investments may fall under one of the following categories:
- Investment in real estate, land development and infrastructure projects (residential buildings, offices, stores, hotels etc. or developments of a similar nature, with the exception of unused land).
- Investment in financial assets of Cypriot companies or Cypriot organizations.
- Investment in Alternative Investment Funds or financial assets of Cypriot companies or Cypriot organizations that are licensed by the Cyprus Securities and Exchange Commission (CySec).
ii) Combination of the Investment Options above
The applicant must have a combination of above 2.0 million. Within this criterion the applicant may purchase special government bonds of the Republic of Cyprus, up to 500,000, which will be issued by the Public Debt Management Office of the Ministry of Finance, on condition that the investor will retain these bonds for a three year period.
Besides satisfying one of the investment options above, in order to qualify for the scheme the applicant must own a permanent privately-owned residence in the Republic of Cyprus, of a minimum market value of 500,000 (excluding VAT).
Permanent Residency Scheme
This special class of permit relieves its holders from time consuming procedures associated with other types of permits, such as consular inspections, renewal etc. The Ministry of Interior implements a "fast-track" procedure in order to issue the relevant permit, assuming the requirements set by the scheme are satisfied. These requirements have been streamlined in order to match the needs and expectations of the modern investor while bringing some real benefits to the country and also to make the whole procedure much more straightforward.
The main criterion in order to qualify for the scheme is the acquisition of up to two properties in Cyprus with a total value of not less than 300,000 (excluding VAT and transfer fees). Furthermore, the applicant must submit evidence of an insured annual income of at least 30,000 per annum (increased by 5,000 for each dependant), certificate from a Cyprus bank that s/he has deposited an amount not less than 30,000 and confirmation that s/he does not intend to be employed or self-employed in Cyprus.
Other incentives for investing and/or establishing a business or working in Cyprus and relocating to the island comprise Tax, VAT and Land Registry measures which are summarised below:
- A reduced VAT rate of 5% (as compared with the standard VAT rate of 19%) applies on the construction or acquisition of residential property in Cyprus which is to be used as the primary and permanent residence.
- The Land Registry Law provides for full exemption from transfer fees for all transfers of real estate property for which VAT was payable on the transaction and 50% exemption from transfer fees for all other cases.
- Tax deduction on new capital. A tax rebate is provided on the basis of a notional interest rate on fresh capital invested in a company irrespective of the nature of its activities. The notional interest is deducted from the taxable income of the company.
- Capital gains tax on sale of immovable property. Any properties which are purchased until 31/12/2016, will be fully exempt from Capital Gains Tax on any gain on their sale, irrespective of when this occurs.
- A 50% exemption on personal income from tax. The exemption applies to employment income of a non-resident person taking up residence in Cyprus to work for an employer in Cyprus. This exemption applies for a period of ten years starting from the first year of employment provided that the employment income of the employee exceeds 100.000 per annum.
- An exemption from tax of the lower of 20% of employment income or EUR8,550. Itapplies for five years starting from the 1st of January of the year following the year of employment. The exemption applies for non-residents moving to Cyprus for employment. It will stop applying after 2020.
- Foreign pensioners have a very favourable status in Cyprus, involving a flat annual income tax charge of 5% for amounts exceeding EUR3,420 per annum. What is more, the taxpayer has the right to choose to be taxed either under the special mode of taxation as stated above or at normal rates. This is a choice which may be made year-on-year. The latter option might be more beneficial, depending on the circumstances, considering that the first EUR19,500 of personal income per annum is tax free.
- Introduction of "Domicile" concept. The measure introduced in July 2015, aims in attracting and encouraging foreign high net worth individuals and entrepreneurs to relocate their business activities and to set-up the necessary infrastructure in Cyprus. Individuals who are tax residents of Cyprus but are not considered to be "domiciled" in Cyprus are exempt from payment of Special Contribution for Defense on dividends, interest and rental income. It is important to note that the exemption also applies to income earned in Cyprus.
Cyprus UK: Strong Ties
Cyprus has a strong relationship with the UK, reflecting their long historical ties, which date back to the late 19th century when Cyprus came under British administration until 1960. Today, the two countries maintain close links in the political, economic and cultural fields. These are enhanced further through their common membership of the Commonwealth.
As per the High Commission of Cyprus there are around 270,000 Cypriots living in the UK and approximately 12,000 Cypriot students are currently enrolled in British universities. At the same time, there are between 60,000 and 70,000 Britons living in Cyprus. As a matter of fact, Cyprus has an abundance of UK qualified professionals, including accountants, lawyers, arbitrators, investment advisors, surveyors, etc.
Finally, the UK has always been the top source of tourism in Cyprus with more than 1 million British people visiting the island in 2015, which accounts for almost 40% of all tourists.
Following the Brexit decision, there is increased interest by British residents for the Citizenship Scheme offered by Cyprus. This is perceived as a precautionary measure in order to secure unobstructed access to the EU in terms of trade, travelling, living, etc.
Through all of the above Cyprus is expected to be in an advantageous position for what concerns its future relationship with the UK compared to other countries.
About Us How we can help
Fiducenter (Cyprus) Ltd was established officially on the 3rd of January 2005 and, taking advantage of the flourishing international business sector in Cyprus, it has since grown impressively. As the human capital is the most important asset for every firm engaged in the professional services industry, our team consists of highly qualified and experienced members, including UK qualified chartered accountants and lawyers.
We provide a comprehensive range of international business services related to Cyprus, including professional consultation, advisory services on specific transactions, formation of investment funds, companies, trusts and other investment and business vehicles, bespoke services related to specific sectors and structures and much more. We are one of the very first companies licensed for the provision of Administrative Services by the Cyprus Securities and Exchange Commission (L/N: 8/196) and we were among the founding members and the First President of the Cyprus Fiduciary Association.
As an office, we have extensive experience in restructuring assignments, including corporate and individual relocations. Our team is ready to advice on and implement the most suitable solution with promptness and skill.
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