Member of the European Union since 2004, Cyprus is a great prestigious jurisdiction to form an Offshore Company in. Some of its benefits are that it has a relatively low income tax rate of 12.5% which can be brought down to 2.5%; 2) Capital Gains are tax exempt, hence not taken into consideration when calculating the taxable income; 3) a great jurisdiction for forming a tax-exempt Investment Holding Company; 4) receiving withholding tax free dividends from its UE subsidiaries, and taking them out of the UE through the Cypriot company withholding tax free.
Taxation
Tax Residency
Tax residency of companies formed in Cyprus is based on where the “Control and Management” is exercised, not on “place of incorporation”.
If a company is not Controlled and Managed in Cyprus, it would be a tax resident where the Director resides, this could be a tax issue for the owner and company taxation if the Director resides in a tax a high tax country.
If the entity is a tax resident in Cyprus, it would be able to benefit from the UE tax related directives, Cyprus Double Taxation Avoidance Treaties, tax exemptions given to resident entities, and more.
Income tax rate
Income tax rate: 12.5%.
No progressive income tax rate.
Cyprus exempts capital gains and also gives other types of exemptions like the Notional Interest Deduction, being able bring the 12.5% down to 2.5%.
Income tax is exempt if the company is managed outside of Cyprus.
Capital Gains
Capital gains are tax-exempt, this includes Dividends, disposal of shares, stocks, bonds, cryptocurrency, immovable property - Real Estate (except immovable property located in cyprus), and gains from the disposal of any other tax type of property.
Investment Holding Company
A Cypriot Holding Company can be one of the main attractives of why form a company in Cyprus instead of other jurisdictions, and one of the main reason of recomming forming an offshore company in Cyprus.
A Cyprus Holding Company can be used as a vehicle to hold assets or investments in Europe, and also as a worldwide Holding Company to receive dividends from subsidiaries outside of the EU.
Receive withholding tax free dividends from Subsidiaries located in the UE.
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The Parent-subsidiary directive (Council Directive 2011/96/EU of 30 November 2011), hereainfter referred to as the Directive, exempts from withholding tax dividend payments by a EU company to another EU company.
The above allows a Cyprus holding company to receive dividends withholding tax free under EU law, and to also transfer those dividends withholding tax free to the Cyprus company shareholders under Cypriot law, which exempts dividends payments to non-residents from withholding and capital gains tax.
Under the directive, the Cyprus company must be a tax resident in Cyprus in order to benefit from the withholding tax exemption from on income dividen payments from its EU subsidiaries.
Link to directive: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32011L0096
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Why forming a Holding Company in Cyprus might be better than a Holding Company in the Caribbean.
Most offshore jurisdictions, not all, have implemented Economic Substance requirements for companies engaged in relevant activities. Activities of Holding Companies are, in general, subject to these Economic Substance requirement. These require a tax resident company in that jurisdiction to be managed and directed there, to have employees, office expenses, yearly minimum expeditures in that country, which brings extra costs to owners of Holding Companies.
It is true that Cypriot entities need a director in Cyprus need to have a resident director for it to be a tax resident, but complying with the “Controlled and Managed” rules is less expensive than complying with the “Economic Substance Requirements” in the Caribbean.
The above does not mean that the caribbeans is not a great jurisdiction to form an offshore company in, but when it comes specifically to a Holding company, you might be better off in Cyprus. Not everything is black and white though, as for example a Belize LLC is not subject to Economic Substance requirement, and can be a great option to form a Holding Company in.
Tax Treaties
Tax resident companies in Cyprus can benefit from its Double Taxation Avoidance Treaties, which can allow the company to pool in income with the less tax liability as possible.
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Cyprus has signed over 60 tax treaties. These countries include, but are not limited to, EU countries, Barbados, Canada, China, Egypt, Ethiopia, India, Jordan, Kuwait, Qatar, Russia, Saudia Arabia, Seychelles, Singapore, South Africa, Syria, Thailand, USA
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For a full list of countries, and their official text, you check the following link:
https://mof.gov.cy/en/taxation-investment-policy/double-taxation-agreements/double-taxation-treeties
Offshore Company in Cyprus
Company type
Cyprus Private Limited Company (LTD)
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Director
Can be of any nationality and residence, but if the company needs to be tax resident of Cyprus, it has to have a Director which resides in Cyprus in order for the company to be Controlled and Managed in Cyprus, an essential requirement for it to be considered a tax resident in Cyprus.
Director(s) name can be found on public records.
https://www.companies.gov.cy/en/21-eservices/esearch-in-business-entity-s-registry
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Shareholders
Minimum one shareholder required, can be of any nationality. Shareholder(s) name is not on public records.
A private limited company can have up to 50 shareholders. If it has more than 50 shareholders, it would be considered a Public Limited Company.
Documents required to open a Cyprus Company
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To open a company in Cyprus, Notarized Copy of Passport and Utility Bill as Proof of Address of the Shareholder(s) and Director(s) is needed.
Is Bank account in Cyprus required to complete the Cyprus LTD company formation?
No, company formation approval is not subject to having a bank account in Cyprus.
Bank Account
A Cyprus company has several options when it comes to banking, and also having it easier to open accounts in most jurisdictions as it is regarded as an EU entity.
A Cypriot company can open an account in Cyprus, and also offshore bank accounts in the UE, UK, USA, Singapore, Hong Kong, the Caribbean, etc.
The banking opening requirements and approval would depend on the specific bank policy.
Cyprus entities can also open multicurrency accounts at fintech banks or Electronic Money Instutions, which can give the Company the same level of protection as a traditional bank, but with less paperwork and hassle.