Formation of Cyprus IBC

Tax Advantages of Cyprus international business companies

A new legislation has been introduced effected from 1 January 2013.The tax reforms introduce a lot of changes in the operations and regulations of the Cyprus International Business Companies (IBC) 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 this 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:

Low tax rate regime. Taxable profits are taxed at the rate of 12.5% for all Cyprus Tax Resident companies, as there is no more distinction between local companies and IBCs. Still it is one of the lowest tax rates 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 exercised in Cyprus then is not considered tax Residents in Cyprus and for this reason is not taxed in Cyprus.

Double Tax Treaties (DTTs) have been concluded with more than forty countries. By using the provisions of these treaties and with the relatively low taxation in Cyprus, it is possible to achieve every 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.
•  Currently VAT is 18%, which is one of the lowest rates in Europe.
•  Tax exempt operations. There are three types of legal entities enjoying full tax exemption:
  • Shipping companies owning ships registered under Cyprus flag.
  • 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 certain conditions.

For more information and/or advice, please contact us via email at [email protected]