Cyprus is a well-established international business and financial centre, strategically located at the crossroads of Europe, Africa and Asia. A British colony for much of the twentieth century, Cyprus became independent in 1960. It joined the EU in 2004 and the Eurozone in 2008. It has a transparent, robust and independent legal system based on common law and a modern, business-friendly legal and taxation system. Tax rates are among the lowest in the EU and there is a wide network of double taxation treaties offering attractive planning opportunities.
Cyprus is also a major shipping and ship management centre. The Cyprus fleet is in the world’s top 10 in tonnage terms and Cyprus is home to the largest number of third party ship management companies in the world.
The economic backdrop
Cyprus has made a full recovery after the economic crisis of 2013, with no perceptible damage to the island’s role as an international financial centre. With its modern low-tax environment and business infrastructure and its high-quality professional services, Cyprus continues to attract cross-border investment projects involving an ever-widening range of jurisdictions.
The business and investment environment
Cyprus is an excellent location for holding companies, for a host of reasons, including its familiar and reliable common law legal system, excellent communications and world-class professional and financial services. Since joining the EU, it has consolidated its position as the main portal for investment between the EU and the rest of the world. While Russia and Eastern Europe remain the most important markets, in recent years there has also been a significant increase in business with China, India and other Asian countries.
The tax system is a particular source of competitive advantage. Cyprus' modern, simple tax system is fully compliant with EU and OECD standards and tax rates are among the lowest in the EU. There are double taxation agreements covering more than 60 countries and the network of agreements continues to expand. There is a complete participation exemption and no taxation of capital gains except gains arising from real estate in Cyprus. Reorganisations and cross-border mergers are tax-exempt. Interposing an appropriate Cyprus holding or finance structure between investors in one country and the operating investee company in another can significantly reduce the tax burden, increasing post-tax income by 10% or more, and provide tax-efficient exit options.
Cyprus has the world’s tenth largest fleet and is one of the world’s most important third-party ship management centres. Its tonnage tax system, introduced in 2010, significantly reduces the tax burden on international shipping and ship management companies and makes Cyprus one of the most attractive environments in the world for international shipping.
Cyprus’ intellectual property box regime, which is fully compliant with EU and OECD norms, provides an effective tax rate of less than 2.5% on revenue from intellectual property on qualifying assets, by far the lowest rate available in Europe. Furthermore, gains on disposal of intellectual property assets can effectively be fully sheltered from tax.
Cyprus’ investment programme enables individuals of good character who hold a residence permit for six months or longer to obtain Cypriot citizenship by meeting specified investment criteria. Applicants must have a clean criminal record and own a residence in Cyprus, and must invest €2 million or more in Cyprus, or be the owner or a substantial shareholder of a company doing business in Cyprus. Since Cyprus is an EU member, Cyprus citizenship considerably simplifies international travel and visa requirements and is proving attractive to high net worth individuals.
In 2017 the tax residence requirements for individuals were amended to enable individuals who are not tax resident elsewhere and who have a base and activities in Cyprus to be treated as resident in Cyprus and to qualify for the benefits of the Cyprus tax regime (including exemption from any form of taxation on dividends and interest, and income tax exemptions for new taxpayers) if during the tax year concerned they maintain a permanent residence in Cyprus, undertake business or employment in Cyprus and are present in Cyprus for at least 60 days.
The network of double tax agreements continues to grow: new agreements with Ethiopia, Iran and Jersey are now in force and new agreements have also been signed with Barbados and Luxembourg. A revised double tax agreement with India is now in effect, resolving the difficulties that existed for the previous few years.
Prospects for the future
Cyprus has emerged successfully from its formal programme of economic reform and modernisation, with the targets agreed with international lenders having been met, and in some cases exceeded. The reforms made at the behest of international creditors will improve regulation and enhance Cyprus' reputation for transparency and reliability, and its attractiveness to reputable investors. The government and the business services sector are committed to offering a competitive tax and business environment of the highest standards of probity.
Overseas confidence in Cyprus as an international finance sector was undamaged by the economic crisis, and privatisation and disposal of distressed assets by banks and others are currently providing significant investment activity and opportunities in the domestic market.
The government is continuing with economic reform, in order to secure and consolidate the progress made to date. The international services sector is in a strong position to lead the recovery, with new, competitive offerings enhancing the benefits it provides to international investors. Recent amendments to the law which provide a framework for securitisation of debts, facilitate loan restructurings and improve the effectiveness of insolvency procedures, will add momentum to this.
Looking forward, the discovery of substantial gas deposits offshore Cyprus and the development of the island as a regional energy hub west of the Suez Canal offer substantial opportunities and grounds for optimism regarding the medium term.
While there are undoubtedly challenges ahead, the economy is growing well and businesses are looking forward with confidence. In summary, Cyprus is very much open for business.