Cyprus Offshore Companies and their Tax Liability

One of the key benefits of using a Cyprus offshore company is that Cyprus has double-tax treaties with well over 45 other countries, including most major Western’high-tax’ countries and most Central and Eastern European states.This is unusual for a tax haven and means that Cyprus is a very good choice for holding and investment companies. It’s also on the OECD ‘white list’ and has implemented numerous tax information exchange agreements.

Income tax rates vary from 20% to 30%, although there is a special 5% rate for pensioners and there is a generous 19,500 Euros exemption for each individual. However, the beauty of Cyprus for an offshore company formation is in the exemptions. All of the following are free of income tax:

• Interest received by individuals
• 50% of interest income of companies
• Dividends
• Profits of permanent establishments carrying on a trade abroad
• Profits from the sale of shares
• Income from employment services provided abroad to a non resident

employer

Cyprus has gained increased prominence due to its treaties with Eastern European countries. These enable a Cyprus legal entity to extract profits from Eastern European countries at a reduced tax rate or with no tax payable at all. This is thanks to the nil (or low) rates of withholding taxes on dividends, interest and royalties laid out in the treaties.

Given that many Eastern European countries are seeing increased inward investment, the interest in Cyprus companies (in order to take advantage of these low withholding taxes) is likely to continue growing.

The treaty with Russia, for example, allows a Cyprus holding company to incur withholding tax at 5% on dividends and royalties from a Russian subsidiary, rather than the standard 15%.In addition, the Cyprus company will be exempt from income tax on the dividend income and may be able to claim an exemption from the 15% defence fund contribution.

For companies, Cyprus imposes corporation tax on companies that carry on business or have an office or place of business (permanent establishment) in Cyprus. Cyprus now has a 10% corporate tax rate, which applies to all companies. This gives Cyprus one of the lowest corporation tax rates in Europe. Unlike the UK and the US the shareholders are not liable to income tax on dividends when profits are extracted from a company, although any resident shareholders must pay the 15% special contribution to defence (if you’re non-resident you’re exempt from this).

It’s also worth noting that a number of the treaties have tax sparing provisions. A tax-sparing provision means that, even if income is tax free in Cyprus, it can still be given as a tax credit in the other country as if it had already been paid (in other words, you get a tax credit without incurring the tax charge).These tax-sparing provisions are usually given by developed countries to developing countries to encourage investment and economic development. The types of situations where this will be given is where tax is paid in the UK or Canada on interest on a loan that is used for economic development in Cyprus.

Cyprus Offshore Company Banking

Offshore Formations 247 can incorporate Cyprus companies with a choice of offshore bank accounts at the time of formation. We work closely with a number of banks, including FBME bank in Cyprus. Combining the two saves time and couldn’t be simpler.

Cyprus Offshore Company Formation / Registration

Offshore Formations 247 are able to offer every type of offshore company except those that are operating in banking and banking services which must be licensed. Company formation normally takes 5 days, though Off The Shelf companies are available should your requirements be more immediate.

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