Cyprus continues to be one of the most preferred jurisdictions for international businesses managing and holding investments. An attractive place to do business, it is also one of the best gateways to invest in the European Union (“EU”).
The sunny island located in the Eastern Mediterranean is constantly winning hearts of individuals and multinational enterprises. The transparent legal system, preferential tax regime, implementation of the EU legislation, high quality professional services as well as a wide range of double tax treaties in force are only some of the most evident benefits of the jurisdiction.
By way of describing the legal landscape of Cyprus, it is worth noting that Cyprus is a white-listed country under the lists of the Organization for Economic Cooperation and Development and the Financial Action Task Force. Cyprus is a member of a number of international organizations, including MONEYVAL – the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and Financing of Terrorism.
Cyprus is also one of the jurisdictions which keep up with recent global initiatives focused on combating money laundering, terrorism financing, tackling base erosion and profit shifting.
As such, Cyprus is one of the early adopters of the OECD`s Standard for Automatic Exchange of Financial Account Information – Common Reporting Standard. This subject has been already discussed in one of our previous articles. Furthermore, Cyprus already has in place some legislation provisions in response to the OECD/G20 BEPS Package. Provisions of the EU Anti-Tax Avoidance Directive and the 4th EU Anti-Money Laundering Directive will soon be implemented in the national legislation of Cyprus as well.
In this article, we are going to provide a quick overview of the top incentives for businesses and individuals who choose Cyprus.
As of the 1st of January 2015, a new instrument called “Notional Interest Deduction” (“NID”) became available. It offers a deduction of a “notional” interest expense from the taxable income in maximum amount up to 80%, subject to some requirements.
Due to the amended legislation, the disposal of immovable property located in Cyprus can potentially result in entirely non-taxable income as the profit realized from such disposal may not be subject to capital gains tax.
Furthermore, the preferential Intellectual Property (“IP”) regime in Cyprus permits the reduction of corporate income tax (“CIT”), levied on royalty income, up to 2.5%, which is 5 times less than the standard CIT rate applicable in Cyprus, and indeed is the lowest effective tax rate within the EU. It is important to note that under the latest changes in the relevant legislation, business names (including brands), trademarks, image rights and other IP rights used to market products and services are excluded from the scope of qualifying intangible assets, thus those assets cannot be used for application of the preferential IP regime described herein.
Moreover, the shipping legislation presents a special tonnage tax regime, making Cyprus favored for international shipping.
Speaking about individuals, those of them who choose Cyprus as a place of residence and/or a country to work in will also enjoy numerous incentives. For instance, once a foreigner has move to Cyprus and commenced employment, he/she can apply for an exemption of anywhere between 20% and 50% exemption of the annual remuneration from Personal Income Tax , subject to some requirements. Furthermore, if such person is not domiciled in Cyprus, he/she can enjoy the benefits allowed by the non-domiciled regime which include the exemption from the obligation to pay Special Defense Contribution tax which is usually paid on rental income, dividends and interest income. Eurofast can assist such clients in determining whether they are domiciled or not domiciled in Cyprus.
The terms of obtaining of residence permit or citizenship in Cyprus have been also changed, making Cyprus even more friendly to people seeking to change their residency. With the amendments, the amount the required investment has been reduced to 2 million euros (initially, a collective investment in the amount of 12 million euros was required). The provisions to the popular permanent residence permit scheme have been changed as well. Permit holders are not obliged to move to Cyprus; rather, they can visit once every two years to maintain their permits.
The list of incentives described above is not exhaustive. At Eurofast, we can provide our clients detailed guidance on any matter directly or indirectly related to the incentives described as well as the other benefits offered in Cyprus. Our company offers comprehensive structuring solutions and tax planning, enabling clients to optimize their taxes in a wide range of circumstances.
Alena Malaya
Tax and Legal Advisor
Direct tel: +380 44 278 12 66
Email: alena.malaya@eurofast.eu