Cyprus

Cyprus (officially the Republic of Cyprus) is an island country in the Eastern Mediterranean. Cyprus is a member state of the Ueropean Union (became member of the EU on 1st of May 2004). Since 2008 the Cyprus is a member of the Eurozone. In connection with a very favorable tax regime, Cyprus can be considered as European tax haven.

Cyprus is a prestigious and well-known jurisdiction suitable for a wide range of purposes. Cyprus’s favorable tax system allows local companies to use effectively double taxation treaties, exemption from dividend and royalties, and from foreign-income taxes.

Last but not least, the deadline for submitting a tax return in Cyprus is not on March 31 following the end of the taxable period, as we are used to in the Czech Republic, but on March 31 a year later, which will provide another 12 months for the preparation of documents for the tax return.

Cyprus is an attractive jurisdiction for the establishment of a holding company, as there is no dividend tax applicable. Unlike other European countries, only a minimum of 1 % of the capital of a foreign subsidiary must be hold by a local holding company to obtain this tax advantage.

Incorporation of a company in Cyprus

In practice, this means that if a Cypriot company holds a foreign shares, the incomes from such foreign company and dividends are taxed at a 0 % dividend tax rate, and the Cypriot company can transfer such income without any further risk of withholding taxes to its shareholders.

For this reason, many big European and multinational companies are located in Cyprus. Due to favorable taxation, Cypriot companies can trade without the risk of withholding taxes, carry out significant acquisition processes, and also benefit from tax exemptions for certain types of income (such as exemptions from royalties tax).

In Cyprus there is also tax exemption on profits from the purchase and sale of shares, there are no taxes on capital gains, except 20 % capital gains tax applicable on profits from the sale of real estate in Cyprus and shares of non-listed companies which own real estate property in Cyprus.

The standard corporate income tax is 12.5 %, but income from abroad where income is generated by activities outside the Cyprus is not taxed at all. Incomes of a permanent establishment outside the Cyprus are also exempt from Cyprus profit tax.

Cyprus is also a suitable jurisdiction for the establishment of a brokerage company due to the combination of tax treaties and low taxes on the island. Dividends can flow through a fully tax-exempt Cyprus company, and the company can benefits from wide network of double taxation treaties.

Double Tax treaties are currently agreed with more than seventy countries, except for the EU members, for example, with Russia, Ukraine, Singapore, Seychelles and other tax havens.

Given that the double tax treaty with Seychelles, the corporate structure of Cyprus and Seychelles is very advantageous in order to reduce the tax burden on Cypriot companies.

With regard to the above mentioned advantages, it is possible to engage a Cypriot company into the existing structure or to create a new structure with a holding company registered in Cyprus.

The administrative burden on Cypriot companies is not high (only accounts and audited financial statements are required). The benefits of the Cypriot company undoubtedly outweigh the mandatory requirements such accounting. In conclusion, the Cyprus, as one of few European jurisdictions, does not have a Tax Information Exchange Agreement (TIEA).

Banking sector in Cyprus

Cyprus was around 2013, because of the crisis in the Eurozone, mostly famous because of problems in its banking sector. This have been affected by the deep crisis of the economy in the context of state debt. Local banks, respectively. the banking system is important not only for the state.

Cyprus’s position within the European banking system is more important than it may seems. Cypriot banks have been in the past a harbor for a number of clients from other countries. It was not always just for clients from the countries of today’s European Union. In the Cypriot banks, residents of the countries from the former Soviet Union, especially from the Russian Federation, had considerable funds. The openness and loyalty of local banks were the main reasons for the use of Cypriot banks by clients from the above countries.

Although Cyprus is relatively small in size, the banking sector is overwhelming the island. The amount of funds deposited in the Cypriot banks is, as compared to similarly large states, very high. Iherefore it is logical that not only Eurozone members were interested in the local banking system.

Cyprus banks in the future

As already mentioned and as is well known, the banking system of Cyprus has been severely damaged by the economic crisis. There was discussion about the bankruptcy of many local banks. Most of those banks have survived, although many had problems with cash payments or losing part of the deposit. Some savers actually lost their funds above a certain protected limit. It is necessary to conclude that, despite the very serious crisis of the banking sector, banks in Cyprus are now operational again. They provide their services in the same extent as before the crisis. On the part of the European Union, there has been considerable support for the economy. Banking position in Cyprus throughout the Eurozone was also the motivation. Today, banks in Cyprus are stable and with a view to helping other states, a similar position can be expected even in the case of less serious problems in the future.