Corporate Tax Rate: One of the lowest in the European Union at 12.5%.
Strategic Location: Gateway to the European common market and a portal for investments from the West into Russia, the Middle East, Asia, and South America.
Shipping Hub: Home to the fourth largest ship registry in the world.
Tax Benefits: Dividends received by Cyprus companies are generally exempt from all taxes, making it an attractive option for holding companies.
Legal Framework
Country Code: CY
Legal Basis: Mixed (Civil and Common Law)
Legal Framework: The Companies Law
Company Form: Limited Liability Company (LLC)
Liability: Limited to the unpaid amount of the shareholders' shareholdings.
Share Capital Requirements
Minimum Capital: No minimum authorized and issued share capital required other than authorizing at least one share and having at least one share issued and allotted. Shares can be unpaid and denominated in EUR or any other currency. Bearer shares are not allowed.
Shareholders, Directors, and Secretary
Shareholders: Minimum of one shareholder, who can be a natural or legal person, resident or non-resident. Shareholder details are not publicly accessible.
Directors: At least one director required, who can be a natural person or a legal entity, resident or non-resident. Director details are publicly accessible.
Secretary: A secretary is required, who can be an individual, resident, or non-resident, ensuring compliance with statutory and regulatory requirements.
Registered Address
Requirement: Must have a registered physical office address in Cyprus where statutory records and other documents are kept for review.
General Meeting
Annual General Meeting (AGM): Required each year, with no more than 15 months between AGMs. The first AGM can be held within 18 months of incorporation.
Compliance and Reporting
Annual Return: Must prepare and submit the Annual Return (HE.32) annually every June.
Annual Charge: All registered Cyprus companies must pay an annual charge of €350 to remain in good standing.
Provisional Tax Payments: Two payments per year (July and December) with a final tax return and payment required.
Audited Financial Accounts: Must submit annually, with due dates based on the method of filing (electronic or paper).
Taxation
Tax Residency: A company is tax resident in Cyprus if it is controlled and managed from Cyprus.
Basis of Taxation: Cyprus tax residents are taxed on worldwide income, while non-residents are taxed only on income accrued in Cyprus.
Corporate Tax Rate: Standard rate of 12.5%.
Capital Gains: Generally exempt, except for gains from the disposal of immovable property in Cyprus.
Dividends: Exempt from corporate tax with exceptions for certain foreign-source dividends.
Interest Income: Active interest taxed at 12.5%, passive interest taxed at 30% Special Defence Contribution (SDC).
Royalties: Subject to income tax.
Foreign-Source Income: Generally taxed, with exemptions for certain conditions.
Withholding Taxes: No withholding taxes on dividends, interest, and royalties paid to non-residents, except for 10% on royalties earned on rights used within Cyprus.
Losses: Can be carried forward for 5 years.
Anti-Avoidance Rules
Transfer Pricing: Transactions between related parties must comply with the arm’s-length principle, and documentation may be required.
Interest Limitation Rule: Limits deductibility of related party interest payments.
Controlled Foreign Company (CFC) Rule: Attributes income from low-taxed foreign subsidiaries to Cyprus resident companies.
General Anti-abuse Rule (GAAR): Disregards arrangements made primarily for obtaining tax advantages.
Labor Taxes and Incentives
Employer Contributions: Required for Social Insurance Fund (7.8%), Redundancy Fund (1.2%), Training Development Fund (0.5%), Social Cohesion Fund (2%), and Holiday Fund (8%).
Employee Contributions: Same rate as the employer for Social Insurance Fund, withheld by the employer.
Tax Credits and Incentives: Includes a new IP box allowing an 80% deduction on qualifying IP profits.
Conclusion
Establishing a private company limited by shares in Cyprus offers significant advantages, including low corporate tax rates, strategic location, and robust legal and compliance frameworks. Cyprus is an excellent choice for businesses looking to expand into the European market and beyond.
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