Cyprus Companies

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General Introductory and Offshore Tax Information

In 1975, the introduction of a new regime for offshore companies made Cyprus a popular location for forming offshore companies, legal entities and holding companies. Tax measures implemented by Cyprus are evidence of the country’s efforts to build not necessarily a ‘tax haven’ but a country that is investment enabling by making tax incentives available. As such, Cyprus fiscal regime has been mended over time to uphold standards established under the EU Acquis Communautaire (set of EU laws acquired by all EU member states).

With respect to its offshore business sector, Cyprus makes no distinction between onshore and offshore business entities where taxation is concerned. In 2002, onshore and offshore companies were made subject to a flat 10% corporate tax rate, considered the lowest in the EU. Under the Income Tax (2000) a levy was placed on wage bills at 2% as a means of subsidizing pensioners, while offshore business entities incorporated before 2002 were given a grace period of up to 2006 to be taxed at 4.5%. Cypriot companies stand to benefit from corporate tax exemptions with regard to special tax treatment and exemptions for losses incurred, capital gains acquired from disposing securities, monies spent for foreign tax, dividends obtained from other companies, profits generated from overseas organisations subject to specific conditions and profits generated from company reorganizations.

Vessels registered in Cyprus are not liable to tax on dividends obtained from a company owning a ship and on profits received from operations as a Cypriot shipping company. Ship management companies can opt to pay tax equivalent to 25% of tonnage tax rates for managed vessels or income tax at the rate of 4.25%.

Given the broad scope of investment interests in Cyprus, offshore trusts continue to be a vital element in asset management and tax planning. Offshore trusts in Cyprus enjoy tax exemption on offshore income and capital gains (subject to special conditions), as well as on withholding and other taxes on interest and dividends. Subject to special conditions, special tax treatment is also meted out to the legal non-resident owner of a Cyprus offshore trust who retires in Cyprus.

The range of offshore or international business operations that can be undertaken makes Cyprus a welcoming and favorable location for international business and minimizing taxes. Cyprus offshore business companies are used for diverse functions which include royalty, holding and investment, finance, invoicing, manufacturing, headquarters, trust, employment, insurance and real estate.

Company formation in Cyprus is not very demanding and restrictive, to the extent that companies are no longer tied to a limited investment amount and participation percentage. All international and offshore business companies basically go through the same incorporation and registration procedure, re presenting a company name and name approval, filing the Memorandum and Articles of Association with the Registry. International businessmen seeking to do business in Cyprus can also count on individual attention by the relevant personnel in Cyprus, usually a lawyer or representative, for company licensing and start up assistance. Cyprus has anti-double tax agreements with several countries in the Middle East, China, South Africa and India, including Eastern Europe, the CIS (Commonwealth Independent States) and Russia. Value Added Tax in Cyprus is set at the lowest possible rate of 15%, while reduced rates of 8, 5 and 0% are levied on certain products

Cyprus Offshore Business Entities:

  • Cyprus Exempt Private Company
  • Cyprus Private or Public Company Limited by Shares
  • Cyprus Company Limited by Guarantee
  • Cyprus Sole Proprietorship
  • Cyprus Limited Partnership
  • Cyprus General Partnership
  • Cyprus Trust
  • Branch
  • European Company

Cyprus Offshore Banking Units (OBU)

Features:

  • An offshore banking corporation can register a branch or subsidiary as an offshore banking unit in Cyprus
  • Only non-Cypriot banks are given the status of offshore banking units
  • Cypriot offshore banking units may not do business with local residents
  • Business is done only in foreign currencies and with non-resident corporations
  • Licenses for OBUs are issued by the Central Bank of Cyprus
  • OBUs which do not operate in Cyprus are not liable to any tax on profits
  • Currently there are about 28 offshore banking units, 2 representative offices and 2 administered banking units licenced to operate in Cyprus

An offshore banking unit can function as a/an:

  • Branch of a foreign bank with no reserve, liquidity or risk requirements
  • Administrative banking unit with the functions of a branch or subsidiary but conducting its banking operations through local banks in Cyprus
  • Representative office which offers its services only to customer of the parent bank and instituted under the Companies Law
  • Subsidiary of a foreign bank which is heavily supervised by the Central Bank of Cyprus and required to meet the set liquidity and risk ratios

Cyprus Offshore Company

Features:

  • For taxation purposes, an offshore company in Cyprus is not considered for the jurisdiction where it is incorporated but the country in which management and control take place. This means that Cyprus companies are not taxed on their international income but on income derived from within Cyprus.
  • Offshore companies have at least one director and one shareholder
  • The directors may be natural or juridical persons
  • The minimum authorized, paid-up and issued share capital is 1,000 Cyprus pounds (CYP)
  • Offshore companies operating in locally must have a share capital of at least CYP 1,000
  • All offshore companies are required to have a registered office and appoint a company secretary
  • There is a 10% tax on the profits of offshore companies operating in Cyprus
  • There is no capital gains tax and no withholding tax on royalties or dividends on interest
  • Cypriot offshore companies are all required to have a tax number which must be indicated on invoices
  • Both the Central Bank and Tax Authority require audited financial statements be filed on a yearly basis

Captive Insurance Company

Features:

  • Captive insurance companies in Cyprus are governed by the Insurance Companies Law
  • A captive insurance company can obtain registration in Cyprus as an international business company according to provisions set by the Central Bank
  • The minimum paid-up share capital is CYP 10,000
  • All expenses incurred locally must be paid for with cash generated outside Cyprus
  • The necessary documents and accounts must be filed with the relevant authorities
  • Captive insurance companies must show proof of not having received any financing within Cyprus
  • The reserves kept for third party claims must be approved by the Superintendant of Insurances

Cyprus International Trust

Cyprus trusts can be used for local or offshore trust activities based on the residence of the person(s) setting up the trust and the location of the trust property. Offshore income and gains are exempt from Cypriot taxation while dividends and interest are not liable to withholding tax. Assets of a Cyprus offshore trust which have been disposed are not subject to capital gains tax. Offshore trusts established in Cyprus are efficient estate and tax planning vehicles, help to protect wealth and secure financial wealth in the short term or distant future.

Shipping Management Company Offshore Business Entities

As an offshore jurisdiction, Cyprus has attracted many companies engaged in shipping and maritime activities. Cyprus’ legal framework for shipping operations was introduced in 1962, making the country a long standing center for international ship registration. According to statistics, Cyprus’ shipping sector ranks 6th internationally given the number of ships registered to operate using the country’s flag, which accounts for over 2600. Cyprus facilitates the registration of ships of numerous nationalities by recognizing Competence certificates issued by several countries. Fiscal incentives implemented for ships registered Cyprus include the exemption from stamp duty for foreign crew, exemption from capital gains, estate duty and income tax, the possibility of appointing trustee or nominee shareholders and easy removal of ship names from the ship registry.

Construction and Engineering Companies Offshore Business Entities

More and more engineering and construction offshore companies are being used by large engineering firms for international operations and projects. Cyprus’ has offered an ideal location for many of these corporations to register offshore construction companies for the expansion of their operations into Europe and other parts of the world. The jurisdiction’s economic stability, growth and low tax rates provide favorable conditions for offshore company formation in the construction industry.

Licensing, Royalties and Franchising Offshore Business Entities

The transfer of technology and intellectual property for royalty payments, franchise and licence has become a major aspect in international trade and business as people become more conscious of the importance of protecting their work through copyright. The advanced network of double tax treaties developed by Cyprus over time makes it a suitable location for setting up intermediary companies for conducting licensing, franchising and royalty offshore businesses through which payments for such services are managed and channeled, thereby reducing the chances of paying high taxes.

Cyprus Public Company

Main Features:

  • Regulation — Companies Law (Chapter 113)
  • Able to make public share offerings
  • Incorporated with 7 members minimum
  • Limited by shares
  • Memorandum can be specially worded by special resolution to make the liability of directors and managers unlimited
  • Can take the form of a ‘Company limited by guarantee’ if liability of members is limited to the amount that each member intends to contribute to the company’s assets if the company is liquidated
  • Subscribers unable to take less than one share
  • Must have no less than 2 directors
  • Secretary required and unable to be director as well
  • Must keep share register and register of directors and secretaries at registered office
  • Memorandum can be specially worded by special resolution to make the liability of directors and managers unlimited
  • Must submit annual returns

Cyprus Private Company

Main Features:

  • Regulation — Companies Law (Chapter 113)
  • Has at least one director and one shareholder; Incorporated with at least 2 persons
  • Maximum of 50 shareholders
  • The directors may be natural or juridical persons
  • Usually referred to as ‘Company limited by shares’; liability of member limited to the amount of unpaid shares held by each member as stated in the Memorandum
  • Memorandum can be specially worded by special resolution to make the liability of directors and managers unlimited
  • Can take the form of a ‘Company limited by guarantee’ if liability of members is limited to the amount that each member intends to contribute to the company’s assets if the company is liquidated
  • Subscribers unable to take less than one share
  • Every subscriber must sign the Memorandum
  • Company amendment to be made pursuant to the Companies Law
  • Cyprus private companies are all required to have a tax number which must be indicated on invoices
  • Must keep share register and register of directors and secretaries at registered office
  • Unable to transfer shares or make public share offerings
  • Must submit annual returns

Branch

Main Features:

  1. Not an entity separate from parent company
  2. May be incorporated as a Branch owned by a local Cyprus company or as a Branch owned by a foreign Cyprus company Companies established in Cyprus can be used as any of the following for activities offshore:

Shipping Management Company Offshore Business Entities

  • As an offshore jurisdiction, Cyprus has attracted many companies engaged in shipping and maritime activities. Cyprus’ legal framework for shipping operations was introduced in 1962, making the country a long standing center for international ship registration. According to statistics, Cyprus’ shipping sector ranks 6th internationally given the number of ships registered to operate using the country’s flag, which accounts for over 2600. Cyprus facilitates the registration of ships of numerous nationalities by recognizing Competence certificates issued by several countries. Fiscal incentives implemented for ships registered Cyprus include the exemption from stamp duty for foreign crew, exemption from capital gains, estate duty and income tax, the possibility of appointing trustee or nominee shareholders and easy removal of ship names from the ship registry.

Construction and Engineering Companies Offshore Business Entities

  • More and more engineering and construction offshore companies are being used by large engineering firms for international operations and projects. Cyprus’ has offered an ideal location for many of these corporations to register offshore construction companies for the expansion of their operations into Europe and other parts of the world. The jurisdiction’s economic stability, growth and low tax rates provide favorable conditions for offshore company formation in the construction industry.

Licensing, Royalties and Franchising International Business Companies

  • The transfer of technology and intellectual property for royalty payments, franchise and licence has become a major aspect in international trade and business as people become more conscious of the importance of protecting their work through copyright. The advanced network of double tax treaties developed by Cyprus over time makes it a suitable location for setting up intermediary companies for conducting licensing, franchising and royalty offshore businesses through which payments for such services are managed and channeled, thereby reducing the chances of paying high taxes.

European Company (Societas Europeae)

  • Regulation — Council Regulation EC 2157/2001
  • The Regulation provides a comprehensive legislation for all EU companies wishing to incorporate in EU member countries
  • Can be established by a single company, by merger, as a subsidiary, a holding company, or as a company converted into an SE
  • Registration with authorities possible solely upon agreement on arrangement permitting employees to be involved in company
  • Employees involved either in managing the company or by giving information and advice
  • Able to have a monistic type of administration whereby the company is managed by a supervisory board
  • Able to have a dualistic type of administration whereby both a supervisory and management board/team exist
  • Offshore Banking Units (OBU) Features
  • An offshore banking corporation can register a branch or subsidiary as an offshore banking unit in Cyprus
  • Only non-Cypriot banks are given the status of offshore banking units
  • Cypriot offshore banking units may not do business with local residents
  • Business is done only in foreign currencies and with non-resident corporations
  • Licenses for OBUs are issued by the Central Bank of Cyprus
  • OBUs which do not operate in Cyprus are not liable to any tax on profits
  • Currently there are about 28 offshore banking units, 2 representative offices and 2 administered banking units licenced to operate in Cyprus

An offshore banking unit can function as a/an:

  • Branch of a foreign bank with no reserve, liquidity or risk requirements
  • Administrative banking unit with the functions of a branch or subsidiary but conducting its banking operations through local banks in Cyprus
  • Representative office which offers its services only to customer of the parent bank and instituted under the Companies Law
  • Subsidiary of a foreign bank which is heavily supervised by the Central Bank of Cyprus and required to meet the set liquidity and risk ratios

Cyprus Captive Insurance Companies

Main Features o Captive insurance companies in Cyprus are governed by the Insurance Companies Law o A captive insurance company can obtain registration in Cyprus as an international business company according to provisions set by the Central Bank o The minimum paid-up share capital is CYP 10,000 o All expenses incurred locally must be paid for with cash generated outside Cyprus o The necessary documents and accounts must be filed with the relevant authorities o Captive insurance companies must show proof of not having received any financing within Cyprus o The reserves kept for third party claims must be approved by the Superintendant of Insurances.

Cyprus International Offshore Trust

Cyprus trusts can be used for local or offshore trust activities based on the residence of the person(s) setting up the trust and the location of the trust property. Offshore income and gains are exempt from Cypriot taxation while dividends and interest are not liable to withholding tax. Assets of a Cyprus offshore trust which have been disposed are not subject to capital gains tax. Offshore trusts established in Cyprus are efficient estate and tax planning vehicles, help to protect wealth and secure financial wealth in the short term or distant future.

Cyprus Partnership

Main Features:

  • Regulation – Partnerships and Business Names Law
  • Joint venture by partners to undertake any legal activity
  • Operated in accordance with a Partnership Agreement
  • General Partnership
  • Each partner assumes unlimited liability; is jointly and severally responsible for liabilities accumulated during time as partner
  • Limited Partnership
  • Partners are divided into general and limited partners; general partners assume unlimited liability and involved in management; limited partners assume limited liability and have restricted powers in management
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