Cyprus (Mediterranean Tax Haven)

 

Cyprus is situated in the strategic northeastern corner of the Mediterranean Sea. Greeks represent the majority of the Mediterranean Sea. Greeks represent the majority of the population with Turkish Cypriots accounting for the 18 percent. After obtaining independence from the UK in 1960, the country established a presidential system of government.

 

The Cypriot legal system is based on English common law, and most lawyers are graduates of British Universities or members of the UK Inns of Court. The majority of auditors in Cyprus are members of the UK’s accountancy regulatory bodies.

 

Offshore Exempted Companies

 

Cyprus taxes domestic companies at the regular corporate tax rate of 42.5%. In the case of offshore companies that derive their income from outside Cyprus the applicable tax rate is 4.25%. A company that is registered overseas, and whose management and control are outside Cyprus, is exempt from tax. This includes the profits from any profession carried on outside Cyprus. If the management and control are in Cyprus, such overseas company will be taxed at the 4.5% rate. The above provisions are in force until 1996, but may be extended beyond that date.

 

Since 1975, when the Republic of Cyprus introduced the first incentives, more than 4,500 offshore companies have been registered by non-residents. The island has exchange control regulations for its domestic companies, but offshore companies are exempted. Bank accounts may be kept anywhere in the world, and after tax profits may be transferred anywhere in the world.

 

Foreign employees of Cyprus’ offshore companies pay tax from 0 to 6% on their salaries if working out of Cyprus, and 0 to 30% for work in Cyprus. Personal allowances are deductible from income and there is earned income relief of 14% on salaries and pensions. Business consulting and services is the second biggest activity of Cyprus offshore businesses, after trade.

 

The latest figures estimate that 50% of the total registered offshore companies originated from Western Europe, North America and Australia. The Middle East accounts for 25% more. Offshore companies employ more than 1,200 expatriates with 2,400 dependents and 1,100 locals.

 

Formation Costs

 

Offshore company formation is done through the central bank of Cyprus with the aid of a professional advisers, accountant or lawyer. Processing is swift and easy. Including the professional adviser’s fees, the cost is roughly US$1,5000. It is estimated that gross revenues from offshore companies amounted to over $80 million in 1987. The Cyprus government openly supports the development of these offshore companies on their island.

 

Income Tax Treaties

 

Cyprus has tax treaties with 19 nations, including the U.S. UK, Canada, Germany, France, Sweden and Norway.

 

Shipping Companies

 

Shipping companies whose ships fly the Cyprus flag enjoy a full income tax exemption. This exemption is available until 1993. Cyprus has signed an income tax treaty with the United States, which exempts Cyprus shippers from U.S. federal income tax. More than 2,000 foreign shipping companies were registered in Cyprus as of 1981.

 

Other Incentives

 

Ninety percent of the profits or dividends imported into Cyprus is exempt from income tax. This is applicable to any business carried on outside Cyprus by a Cypriot residing in Cyprus or by a company controlled by a Company controlled by Cypriots having not less than 15% interest. When the 90% exemption applies, the foreign tax credit is not available.