Posts

What to consider if you plan to invest in Cyprus

In Cyprus there is a strong business-friendly environment with one of the lowest corporate tax rates in Europe (12.5%, the lowest in Europe together with Ireland). Cyprus is member in the European Union and the eurozone.

Advantages

The geographical position of Cyprus is at the crossroads of three continents, offering access to markets in Europe, the Middle East and the Maghreb. The workforce of Cyprus is multilingual, experienced and inexpensive.

Cyprus has created a high-quality transport and telecommunications infrastructure, particularly in the ports sector and the sectors of tourism, international business and financial services, maritime transport, real estate and intellectual property are particularly developed.

People in Cyprus enjoy an attractive lifestyle in a secure, neat and healthy environment, with a high standard of living.

There is a friendly business environment with solid regulation and legal system aligned with British common law.

Disadvantages

However, the internal market of Cyprus is small with a population of around 1.2 million inhabitants. Cyprus has a high public debt (118.4% of GDP in 2020, IMF) and significant external debt linked to bank deposits of many non-residents. The banking sector is still weakened by the 2009 crisis, despite numerous reforms imposed by the EU, the IMF, and the ECB.

In addition, the Cyprus economy is heavily dependent on Russia and the United Kingdom as export markets and sources of funding with excessive dependence on the service sector (84% of total output), especially tourism, finance, and housing.

FDI in Cyprus

Government has taken measures to motivate FDI. The Cypriot government has created a positive environment for business as proven by its 54th place in the 2020 Doing Business ranking of countries where it is easy to do business. The government’s liberal policies have promoted investment development. Some key points of the country’s appeal are the possibility of 100% foreign shareholding in almost all sectors of the economy, the low corporate tax rate (12.5%), its attractive tax environment (Cyprus has signed double-taxation treaties with over 69 countries) and the low cost of establishing and developing a company.

The country manages to create an attractive environment for investors by strengthening weaknesses in its economy. For example, since 2013, the government has been restructuring the country’s banking sector. This, combined with the recapitalisation, enabled it to avoid bankruptcies and improve stability. Likewise, progress has been made to modernise and make its legal, accounting and banking services more efficient.

Bilateral Investment Conventions Signed by Cyprus has signed bilateral conventions with about 69 countries. Double Tax Treaties define the protection framework of FDIs in Cyprus for each signatory country.

Freedom of business establishment in Cyprus is guaranteed. Acquisition of holdings by foreign investors based in the European Union are free, they can acquire stakes in Cypriot companies, without any limit on the percentage of stake acquired or on minimum capital invested. Moreover, investors from the European Union can acquire up to 100% in the capital of companies listed on Cyprus Stock market except for the banking sector where such a percentage is limited to 50% only. Obligation to Declare Licenses are required when operating in some sectors of the economy, like construction.

Tax incentives

The tax system of Cyprus provides numerous tax incentives to foreign investors, some of them are listed below:

IP Box Tax Regime

Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘new’ Cyprus intellectual property (IP) box (provision applies with effect from 1 July 2016). 80% of the net profit as calculated using the modified nexus fraction.

  • Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘old’ Cyprus IP box. 80% of the net profit.
  • Tax amortisation on any expenditure of a capital nature for the development of IP (provision applies with effect from 1 July 2016), Allocated over the lifetime of the IP (maximum period 20 years)

Headquartering

The Holding Company will be holding the general structure and will need a head office in order to cover and perform its activities and its subsidiaries. A combination of the tax benefits of a Cyprus Holding Company along with the stable regulatory framework, low operational costs relating to office rental, office equipment and well-educated English-speaking labour force and exceptional climate and exquisite lifestyle, provide the ideal location for setting up of Headquarters allowing businesses to grow and thrive.

A holding company can set up its headquarters in Cyprus providing an umbrella for all the companies of the Group.

There are incentives offered by the government in order to set up in Cyprus such as the registration of the company as Foreign Interest Company allowing it to employee third country nationals by providing them with work permits.

Eligible Cyprus companies are the ones that:

  • The majority of the company’s shares to be owned by Third-country nationals.
  • Foreign direct investment of capital amounting to at least € 200.000, legally admitted to Cyprus from abroad. This should be proved by an appropriate bank and other documents.
  • To operate in independent offices in Cyprus

The eligible Cyprus holding companies can employ third country national as Directors with minimum acceptable gross monthly salary for Directors is €3872 and the Maximum number of 5 persons for this category.

Middle Management Executives and other key personnel can have a minimum acceptable gross monthly salary for this category is between €1936 – €3871 and the Maximum number of Ten (10) persons for this category.

For employing a greater number of third-country personnel under the above categories, duly justified and documented requests by the company can be submitted.

With regards to the Support staff, please note that there is no maximum number of third-country nationals employed under this category, provided that the necessary approvals from the Department of Labour have been obtained.

Using the above scheme will also give the opportunity and right to the Founder / owner of the company to be relocated in Cyprus and manage the structure through the permanent establishment of the Holding company from Cyprus.

The above relocation can also include Family members that would like to relocate along with the third country national employee.

Shipping

Shipping companies:

The Merchant Shipping Legislation fully approved by the EU (approval extended up to 31 December 2029) provides for exemption from all direct taxes and taxation under tonnage tax regime of qualifying shipowners, charterers and ship-managers, from the operation of qualifying community ships (ships flying a flag of an EU member state or of a country in the European Economic Area) and foreign (non-community) ships (under conditions), in qualifying activities. The legislation allows non community vessels to enter the tonnage tax regime provided the fleet is composed by at least 60% community vessels. If this requirement is not met, then non community vessels can still qualify if certain criteria are met. The legislation includes an “all or nothing” rule, meaning that if a shipowner/ charterer/ ship-manager of a group elects to be taxed under the Tonnage Tax regime, all shipowners/ charterers/ ship-managers of the group should elect the same.

Exemption is also given in relation to the salaries of officers and crew aboard a community qualifying Cyprus ship.

Shipowners

The exemption applies to:

  • profits derived from the use/chartering out of the ships
  • interest income relating to the working capital of the company
  • profits from the disposal of qualifying ships
  • dividends received from the above profits at all distribution levels
  • profit from the disposal of ship-owning companies and its distribution

The exemption also applies to the bareboat charterer of a vessel flying the Cyprus flag under parallel registration Bareboat charter out agreements remain eligible for tonnage tax, with restrictions introduced for bareboat charter agreements to third parties. The legislation provides a definition, as well as a specific list, of what are ancillary services. Moreover, it clarifies that the revenue from the ancillary services may fall under the tonnage tax regime, provided that the income therefrom does not exceed 50% of the total income generated from Maritime Transport Activities (‘Core Activities’).

Charterers

Exemption is given to:

  • profits derived from the operation of chartered in ships
  • interest income relating to the working capital of the company
  • dividends received from the above profits at all distribution levels

The law grants the exemption provided that the option to register for Tonnage Tax is exercised for all vessels and provided a composition requirement is met: at least 25% (reduced to 10% under conditions) of the net tonnage of the vessels owned or bare boat chartered in.

Ship-managers

The exemption covers:

  • Profits from technical and/or crew management
  • Dividends paid out of these profits at all levels of distribution
  • Interest income relating to the working capital of the company

In order to qualify ship-managers must satisfy the following additional

Requirements:

  • Maintain a fully-fledged office in Cyprus with personnel sufficient in number and qualification
  • At least 51% of all onshore personnel must be community citizens
  • At least 2/3 of total tonnage under management must be managed within the community (any excess of 1/3 taxed under corporation tax). The application of the tonnage tax system is compulsory for owners of Cyprus flag ships and optional for owners of non-Cyprus flag ships, charterers and ship-managers. Those who choose to enter the Tonnage Tax regime must remain in the system for at least 10 years unless they had a valid reason to exit such as disposal of their vessels and cessation their of activities.

Non-Domiciled Tax Status

Foreigners who decide to move their personal tax residency in Cyprus, will automatically be considered as non-domiciled in Cyprus for a maximum of 17 years. For tax purposes, non-domicile persons who become Cyprus tax residents will now be completely exempt from Special Defence Contribution tax (“SDC”).

Income Tax Incentives to New Cyprus Tax Residents

Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, exemption applies to 50% of the remuneration for a period of 10 years for employments commencing as from 1 January 2012 provided that the annual remuneration exceeds €100.000.

For employments commencing as from 1 January 2015 the exemption does not apply in case the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year. In certain cases, it is possible to claim the exemption where income falls below €100.000 per annum.

Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. The exemption is available for a period of 5 years for employments commencing during or after 2012 and it applies from the tax year following the year of commencement of the employment, with the last eligible tax year being 2030. This exemption may not be claimed in addition to the immediately above mentioned 50% exemption for employment income. Exemption is granted on 20% of the remuneration with a maximum amount of €8.550 annually.

Notional Interest Deduction

Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium may be eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as the new equity multiplied by the NID interest rate. The relevant interest rate is the yield on 10 year government bonds (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company plus a 5% premium. A taxpayer may elect not to claim all or part of the available NID for a particular tax year. Certain anti-avoidance provisions apply.

Other exemptions

Type of income Exemption limit:

  • Profit from the sale of securities, the whole amount
  • Dividends (excluding, as from 1 January 2016, dividends which are tax deductible for the paying company), the whole amount.
  • Interest not arising from the ordinary activities or closely related to the ordinary activities of the company, the whole amount.
  • Gains relating to foreign exchange differences (forex) with the exception of forex arising from trading in foreign currencies and related derivatives, the whole amount.
  • Profits from the production of films, series and other related audio-visual programs. The lower of 35% of the eligible expenditure and 50% of the taxable income. Any restriction may be carried forward for 5 years.

Dentons advises on GEM Capital Holdings’ all cash offer for Volga Gas

Dentons has advised GEM Capital Holdings on its all cash offer for the entire issued and to be issued ordinary share capital of Volga Gas plc, an AIM listed independent oil and gas exploration and production group operating in the Volga Region of Russia, which has now been declared wholly unconditional.

GEM is a private limited liability company incorporated in Cyprus wholly owned by Anatoly Paliy which makes investments directly and through its subsidiaries in, inter alia, specialised chemicals, nanomaterials and technology companies. In addition, Anatoly Paliy holds interests in several oil and gas assets. The takeover was noteworthy in that it was not recommended by Volga Gas’ Board but was structured such that the offer was not opposed by the Volga Gas Board either.

Thomas Keane, Director of GEM, said: “We are grateful to Dentons for their very helpful and pragmatic advice and hard work on the transaction”.

Neil Nicholson, partner in Dentons’ UK Corporate team who led on the deal, said, “We were pleased to support the GEM Capital Holdings team to help deliver a successful transaction in less than straightforward circumstances.”

Alongside Neil Nicholson, the Dentons team in London included Corporate senior associate Simon Mitchell, Corporate associates Joe Collingwood and Charlotte Uden and Corporate trainee Andrew Gallagher.

Why Register a Cyprus Company

An article by Mr. Michalis Economides, CEO | Advocate & Legal Consultant of the International Law Firm Chambersfield Economides Kranos

Business nowadays operates in an interconnected world, without any boundaries or limitations toprotect brands and companies from the merciless competition.

In our era, due totechnological breakthroughs, competition is thriving and multi-attacking companiesand brands from various channels of communication; therefore entrepreneurs findthemselves in the difficult position of searching and finding the mostfavorable path to follow, for the achievement of economies of scales.

Currently, manyentrepreneurs are in the process of searching various ways on how they can maximise their productivity and enhance their profitability by minimising theiroperational costs. One of the main scenarios they examine, due to its endless possibilities, is the reincorporation or re domiciliation of theirbusiness activities in favorable markets. Even though this practice is verycommon, entrepreneurs should cautiously consider their options, since this pathcan be very costly, multifaceted and time consuming.

Consequently, when entrepreneurs decide to pursue this course of action not only do they have toprepare their business plan but they also have to include the nature of activities and purposes of their company and simultaneously proceed with thepolitical, economical, social and technological environment analysis of the target market.

Additionally, they should examine important economical parameters of the targeted country such asthe taxation regime scheme, processing time of company formation or redomiciliation and the terms and conditions of the exchange regulations, as well as, the transaction flexibility, assets, personal information protection andrequirements for opening corporate bank accounts etc.

In summary, entrepreneurs should thoroughly assess the business law frame work under which their company will operate.

Even though various countries are renowned for their favorable tax regime scheme, Cyprus is considered to be one of the most reputable and strongest jurisdictions for many types of company formation, incorporation, trusts and investment offering oneof the lowest corporate tax rates in Europe.

Cyprus is a country island situated in the Eastern Mediterranean area, at the heart of three continents; Europe, Africa and Asia thus rendering it a favourable choice.

It is a full member ofthe European Community and completely aligned with the EU regulations. Itscurrency is Euro and the official language is Greek while English is spoken by almost everyone and Russian by a significant percentage of the population.

In addition, Cyprus hasone of the lowest crime rates in the world. It has an excellent transportation structure and infrastructure that support the entire spectrum of business activities which take place on the island. It has a trustworthy and advanced private banking and medical system. Cypriot people are well mannered and are famous for their hospitality.

The Legal System of Cyprus is based on Common Law. Its economy operates based upon an open,market driven principle, with favorable tax regimes for the incorporation ofcompanies and investments. Moreover, Cyprus is characterised by a high percapita income and renowned as a European Union centre for foreign investments,offshore businesses and activities.

Also, it is important tonote that the Government authorities of Cyprus are promoting heavily theincorporation and foreign investments, as well as, allowing the purchase/ownership of property under favorable conditions.

Consequently, Cyprus Government authorities engage in non – stop negotiations for forming double taxation treaties with non European countries, in order for the Cypriot active companies to enjoy an important competitive advantage. Currently, Cyprus is an affiliate to more than 50 double taxation treaties based on the OECD including the EU, China, India, Kuwait, Russia, Singapore, Thailand, USA, Azerbaijan,Lebanon, UAE, Georgia and other important hub countries.

Furthermore, otherimportant advantages of Cyprus are the low corporation tax rate, the very shorttime frame for company registration, as well as, the low annual maintenancefees of corporations. Cyprus offers one of the lowest corporation tax rates inthe EU, which is 12.5%. The time frame for the registration of a new company is very short, approximately 7-9 days.

Hence, Cyprus allows theuse of nominee Directors, Secretary and Shareholders therefore there is noobligation of exposure of the Ultimate Beneficial Owner (UBO) in the publicCompany Registrar Record. Anonymity rights are fully safeguarded and there isno need for the owner to be present during the process of the incorporation oropening of a corporate bank account. Bank accounts can open between 2 – 5 working days with full online electronic banking and digital pass as well as adebit card.

Cyprus is considered tobe the most well-known EU country for offshore company formation and Trusts.The Cyprus International Trusts are exempted from income tax, capital gainstax, special contribution or any other taxes. Additionally, there is no estateduty or inheritance tax in Cyprus, there is flexibility for relocation, thereis no exchange control regulation and trusts can operate internationally withno disposal tax of securities. Thus, there are no withholding taxes ondividend payments, interest or royalties to non residents (subject toconditions).

In addition, the profits from the sale of shares in the stock exchange are tax free, whereas, the lossesof a company can be carried forward opposed to future profits for an indefinite period. Besides those very important advantages, Cyprus is also offering the Group relief option, whereby the loss of one company can be covered by theprofits of another since both of them are under the Cyprus residential taxscheme.

Moreover, CyprusPermanent Residence and Citizenship Schemes are considered to be one of the strongest in the world since they provide several significant benefits to theinvestors, as well as, an advantageous flexibility towards the investors thatare reside in non EU member states, which includes, their family members under18 years old as well.

To sum up, Cyprus tax law is characterised by its simplicity,straight forward approach and effectiveness. Subsequently, entrepreneurs should consider Cyprus as a favorable market for incorporation or re -domiciliation of their business activities, since their companies will enjoyinstantly, among other important advantages, low corporate taxation rates andannual maintenance corporation costs.

In addition,entrepreneurs will have the option of forming an offshore company or a trust soas to protect their assets, companies’ strategies and personal information byenjoying a very beneficial taxation regime with no exchange control regulationthat would limit international operation.

Justifiably, Cyprus isconsidered to be an EU Tax Heaven island country. Cyprus companies enjoy safety, stability and flexibility, as well as, overall low tax rates whilehaving the opportunity to trade not only in the EU but in other countries byenjoying the advantages of over 50 double taxation treaties.

Cyprus is globally an ideal investment and incorporation gateway, offering to theinvestors a market right of entry to more than 500 million EU citizens, the Middle East and China.

Michalis Economides continues partnership with global network

We are honored to have Chambersfield Economides Kranos’ CEO, Michalis Economides, on board as our exclusively recommended Full Service Law expert in Cyprus.

Michalis Economides said: “As a law firm we feel very proud and excited for the recognition of our law firm’s accomplishments. Our law firm will continue to focus on providing individuals and corporate entities with tailor made solutions and strategies, with the aim of identifying potential risks.”

Chambersfield Economides Kranos deals with all practice areas regarding all multi-jurisdictional issues, with the aim of consistently exceeding customers’ expectations. The law firm is present in more than 9 countries and provides fiduciary and corporate services in more than 21 countries globally.

Furthermore, Chambersfield Economides Kranos via its subsidiary firm GFA TRUST provides a full spectrum of Corporate and Commercial Services such as Company Formation, Administration, Nominee – Fiduciary, Re – Domiciliation, Mergers & Acquisitions, Escrow, Opening of Bank Accounts, Incorporation of Foundations, Formation of Funds, Dealing with Contracts, Commercial Dispute Resolution, Commercial Negotiations, Settlement Agreements, and many other complex Legal and Business issues.

If you would like to find out more information, please visit https://eklawyers.com/