| FORMATION OF CYPRUS IBC (OFFSHORE)
Tax Advantages of Offshore Cyprus international business companies.
A new legislation has been passed which will be effective
from 1 January 2003.The tax reforms introduce a lot of changes in
the operations and regulations of the international business companies
to conform with European Union law in the light of the Cyprus accession
to the EU and the EU Code of Conduct and abide by its commitment
to the OECD to eliminate harmful tax practices and money laundering.
With the new legislation, Cyprus maintains and enhances its competitiveness
as a reputable international financial center and distinguishes
itself from the infamous tax heavens. Furthermore, it remains a
perfect location for investments to and from Russia and Central
and Eastern Europe and a perfect business base for the international
businesses who are interested for the markets of the region. At
the same time, having the lowest tax regime in the EU, it becomes
a stepping -stone for investments to and from the European Union.
Based on the recent tax reforms, the major fiscal incentives offered
to international business companies are as follows:
Zero to Low tax rate regime. Taxable profits
are taxed at the rate of 10% for all Cyprus Tax Resident companies,
as there is no more distinction between local companies and IBCs.
Still it is the lower tax rate in Europe and the nearby countries.
The term Tax Resident Company means a company whose management and
control is exercised in Cyprus. Companies incorporated in Cyprus
but the management and control is not exercising in Cyprus then
are not considered tax Residents in Cyprus and for this reason is
not taxed in Cyprus. An existing IBCs (offshore) who had income
from activities as at 31 December 2001, may choose to be taxed at
the rate of 4.25% until 2005.
Double tax treaties have been concluded with
more than 41 countries. By using the provisions of these treaties
and with the relatively low taxation in Cyprus, it is possible to
achieve very significant tax reduction in both countries.
There is no withholding tax on payment of dividends, interest
and royalties to non-resident individuals or to non-resident corporate
shareholders.
- Capital gains realized on immovable property held outside Cyprus
are outside the scope of Cyprus capital gains tax.
- VAT is lower than the other European countries at 15%
but gradually it is expected to increase to harmonize with the
EU.
Tax heaven operations: There are three types
of legal entities enjoying full tax exemption:
- Shipping companies owning ships registered under Cyprus flag
(see below relative section entitled "Shipping companies").
- Partnerships, registered in Cyprus, fully composed of aliens
and solely engaged in offshore activities.
- Branches, of foreign companies, fully composed of aliens, and
solely engaged in offshore activities.
No taxation on the profits from the disposal
of shares for all the companies and individuals that are tax residents
of Cyprus. (An individual is considered tax resident if he lives
in Cyprus for one or more periods that exceed the total of 183 days
per fiscal year).
Dividend income received in Cyprus will not be subject to tax
in Cyprus under minor conditions.
More advantages of Cyprus international business
companies (offshores)
- Anonymity is therefore assured as shares
can be held by nominee shareholders.
- Excellent location of the island: Cyprus is strategically located
at the cross-roads of three continents Asia, Africa and Europe
and also forms a gateway to the oil-rich Arab countries in the
Middle East and the Gulf; thus being a convenient springboard
for business activities in any of the trade centers in those areas.
It is internationally accessible by a wide network of sea and
air connections
- Convenient time zone, being 7 hours ahead of New York and 7
hours behind Tokyo.
- There are no exchange control restrictions for the international
business companies (offshore) and their expatriate employees;
bank accounts can be maintain in any currency anywhere in the
world as well as in the Cyprus local and foreign banks.
- It has a well developed infrastructure with excellent telecommunications,
banking facilities and high standard professional services
- Government structure is similar to western democracies, with
a free enterprise economy
- Respectable European jurisdiction. Cyprus is a
member of the European Union since May 2004.
- Excellent relationships are maintained with Eastern European,
African, Asian Arabic and many other countries.
- European standard living conditions but at a lower cost, with
the best type of Mediterranean climate with about 270 days of
sunshine. Housing and office accommodation is easily available
at very reasonable prices.
- Work permits for
non European employees
of the IBCs and their
families are easily obtained.
- IBCs (offshore)
and their expatriate employees are allowed
to purchase immovable property in Cyprus for their own office
premises or their residence (subject to obtaining the relevant
approval which is easily obtained provided the criteria are met).
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