International Business Company Formation Guide << Prev Contents Next >> Tax Planning Opportunities In Cyprus The double tax treaty network that Cyprus has built over the years is a major reason why the island has expanded; in particular its treaties with eastern European and former Soviet Union states, which are second to none, make it a very attractive place for investing into these now liberated economies. Cyprus has concluded double tax treaties with the following countries : Austria, Bulgaria, Canada, China, Czech Republic and Slovakia, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Norway, Poland, Romania, Russia, Sweden, Syria, United Kingdom, United States, Yugoslavia, Singapore The main purpose of these treaties is the avoidance of double taxation of income earned in any of these countries and to eliminate or minimize the withholding taxes on dividends, interest and royalties paid from a treaty country to Cyprus. A Cyprus offshore company is subject to tax at the rate of 10% on its profits regardless of where the management of the company is exercised. For companies registered before 2002 the tax rate is 4.25% until 2006. The major fiscal incentives offered to international business companies (IBCs) are as follows: IBCs as well as international branches managed and controlled from Cyprus are taxed at only 10% of their profits International business branches which are managed and controlled from abroad and international business partnerships are totally exempt from corporation or income tax The beneficial owners of international business companies, branches and partnerships are not liable to additional tax on dividends or profits over and above the amount paid or payable by the respective legal entities No capital gains tax is payable on the sale or transfer of shares in an IBC No estate duty is payable on the inheritance of shares in an IBC Cyprus has concluded an impressive number of treaties for the avoidance of double taxation. There are currently 27 in force. The existence of these treaties, combined with the low tax paid by IBCs, offer significant possibilities for international tax planning through the island. Ship owning companies with ships flying the Cyprus flag and operating in international waters are totally tax exempt. In addition to the tax rate of 10%, the Cyprus offshore company is popular because of the incentives offered by the Cypriot system. Furthermore under current Customs and Excise laws, offshore companies and their employees may purchase duty free office equipment, household hardware and motor vehicles. The Cyprus offshore entity qualifies for treaty protection under all treaties except for the treaty with Canada, France, UK and USA. Even under these four treaties, the limitations are such that they affect only flows of income from these countries to Cyprus and not income flows from Cyprus to the other countries. << Prev Contents Next >>

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