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Cyprus

ABOUT CYPRUS
Location. Cyprus is a beautiful island located in the East Mediterranean Sea and is positioned at the cross point of Europe, Asia and Africa. Due to its geographical position and the distinguished Tax features that the state of Cyprus promoted, Cyprus has become one of the most  important International Financial and Business centers world-wide. The official language of Cyprus is Greek although English is very commonly used. The area of the island is approximately 9.251m2 with a population of 700.000 inhabitants.

Climate, weather and life in Cyprus. The climate of Cyprus is characterized as mild with long periods of sunshine and temperatures ranging from 10 – 35oC. During winter snow covers the top mountains giving the opportunity to enjoy ski. These characteristics make Cyprus as an ideal place for business as well as for pleasure. Rental of houses or office space and living expenses is notably less compared to other countries.

The Strategic Goal of Cyprus. Cyprus for many decades has been investing heavily in areas to promote Cyprus as the Business hub of the region as well as an International Business Center. In this respect, Cyprus has build a modern port (Lemesos), promoted the Shipping Flag of Cyprus (6th world-wide), built 2 International airports, paid considerable attention to telecommunications infrastructure by participating in world programs and developed an efficient banking system offering quality services to specific market niches.

Furthermore, it has invested in educating its labour force (3rd world-wide in university degree holders). Professionals offer Auditing, Accounting, Legal, Medical, Information Technology, etc. services. Furthermore, the government shows a positive attitude for work permits of aliens.

Communications & Transport. Cyprus has two international airports, Larnaka, and Pafos that offer daily flights to most European,USA, Canada, Asian and major African countries. There are two multipurpose ports, Lemesos and Larnaka (right across the Suez channel) from where any kind of cargo can be shipped. Cyprus is considered among the top countries in telecommunication services. Its telephone network has direct connections to more than 190 countries whereas the rest of the countries can be connected through the operator. furthermore, Cyprus will be a landing point for SEA-ME-WE3, a 38.000 kms long 10Gbit/s state-of-the-art submarine fibre optic cable network linking the Pacific Rim, South East Asia, the Middle East and Western Europe. The Cyprus Telecommunications Authority operates a maritime radio, a public X.25 data network, Frame Realy and ATM networks with extensive international access and an ISDN network. Telex, Fax, E-mail and postal services together with many private international courier services (DHL, Federal Express, Datapost, TNT, etc) are also available.

International Relations. Cyprus has been a member of the United Nations since its independence in 1960. It is also a member of the Commonwealth, an associate member of the European Union with a customs agreement since 1987 (there is a pending application for full membership) as well as a member of the Council of Europe, the World Bank and the International Monetary Fund. Cyprus has also signed the General Agreement on Tariffs and Trade (GATT).

The Legal System. The Legal system is based on the British Common Law as it was inherited by the British. The law that applies to the International and local companies, Company Law CAP 113 of the Cyprus Law, is analogous to the British Companies Act of 1948. The legal system of Cyprus is considered as quite efficient.

Financial Data of Cyprus. Cyprus had a Gross National Product (GNP) 4.6 billion in 1998. Inflation was less than 3.4%. The per capita income is €14.000 per year. The economy meets the Maastrict economic conditions set by the EU. The major income of Cyprus is derived from the tourist industry and the other services sectors.

The International Business Community in Cyprus. Currently there are more than 35.000 International Financial and Business Entities registered in Cyprus with about 2.000 having fully fledged offices. They operate in the segments of shipping, general trade, banking, investment, construction, etc. Many of them have set-up extensive offices in Cyprus whereas other are managed from abroad.

There is also an Association of the International Business Community promoting its problems and needs. There is also an abundance of foreign newspapers (mainly European) and local newspapers published in English, Russian and other languages.

Banking in Cyprus. There are currently 6 locally incorporated and 4 foreign banks operating in Cyprus, all privately owned. The banks are characterized by their efficiency, superb IT systems and extensive SWIFT correspondents list, and maintain representative offices in major foreign business centers world-wide. The banks have set-up specialized International Business Units (IBU) to serve exclusively the needs of the International Business Community of Cyprus. Local Banks offer Foreign currency and multi-currency accounts, Foreign currency loans, etc. Banks through their insurance companies provide specialized general insurance products to market segments including the International business community e.g. (cargo, theft, fire, etc). The Central Bank of Cyprus has delegated the authority to the commercial banks to open and maintain foreign currency and external accounts.

 

Double Tax Treaties
C
yprus as a major International Financial and Business Center holds an important position in International Tax planning due its favorable Tax regime and its wide network of Double Tax Treaties. The aim of these treaties is the avoidance of double taxation of income earned in any of the two contracting countries. Under these treaties either a credit is allowed in a contracting country in respect of tax levied by the other state on the same income or such income is exempt from tax. Thus a tax payer  does not pay more than the higher of the two rates or he is not taxed twice on the same income. Cyprus has signed 27 treaties for the avoidance of double taxation. These are with the following countries: 

Countries that ratified a Double Tax Treaty with Cyprus

Austria

Belgium

Bulgaria

Canada

China

Check Republic

C.I.S (Ex-USSR)

Denmark

Egypt

Finland

France

Germany

Hungary

India

Ireland

Italy

Kuwait

Malta

Norway

Poland

Romania

Slovakia

Sweden

Syria

United Kingdom

United States

Former Yugoslavia

Management and control for Treaty purposes
An International Business Company in order to be entitled to take advantage of a Double Taxation Treaty it must be considered resident in Cyprus. Therefore a Cyprus International Business Company may be deemed resident in Cyprus only if the majority of its directors reside in Cyprus, board meetings take place in Cyprus, the preparation of yearly financial reports (bookkeeping, auditing, correspondence, payroll, editing, drafting, designing, estimating, storing, etc) and generally the control and decision making is made in Cyprus. The shareholders of a company are not required to have their place of residence in Cyprus.

Out of 27 treaties now in force only Canada, Denmark, France, Germany, Sweden, the U.K and USA have some anti-avoidance provisions. Even so, these countries, with the exception of Canada and the U.S.A, provide tax sparing credits to their residents on income received from Cypriot entities.

The following table presents the current Withholding Tax Rates of Cyprus as agreed in the Double Tax Treaties with each country.

Summary of Withholding Tax Rates


Country

Paid from Cyprus to residents of the following countries

Paid from the following countries to residents of Cyprus

Dividends

%

Interest

%

Royalties

%

Dividends

%

Interest

%

Royalties

%

Austria

10

0

0

10

0

0

Belarous

10(17)

5

5

10(17)

5

5

Belgium

-

-

-

0

0

0

Bulgaria

0

0

0

0

0

0

Canada

0

15(7)

10(12)

15

15(7)

10(12)

China

10

10

10

10

10

10

C.I.S (Ex-USSR)

0

0

0

0

0

0

Czech Republic

0

10(7)

5(8)

10

10(7)

5(8)

Denmark

10(1)

10(7)

0

10(1)

10(7)

0

Egypt

15

15

10

15

15

10

France

0

10(7)

0(10)

10(2)

10(7)

0(10)

Germany

0

10(7)

0(10)

15(3)

10(7)

0(10)

Greece

25

10

0(9)

25

10

0(9)

Hungary

0

10(7)

0

5(4)

10(7)

0

India

10(2)

10(7)

15

10(2)

10(7)

15

Ireland

0

0

0(9)

0

0

0(9)

Italy

0

10

0

15

10

0

Kuwait

0

10(7)

5(8)

10

10(7)

5(8)

Malta

15

10(7)

10

0

10(7)

10

Norway

0

25(14)

0

5(5)

0(15)

0

Poland

10

10(7)

5

10

10(7)

5

Romania

10

10(7)

5(8)

10

10(7)

5(8)

Slovak Republic

0

10(7)

5(8)

10

10(7)

5(8)

South Africa

0

0

0

0

0

0

Sweden

5(4)

10(7)

0

5(4)

10(7)

0

Syria

15(16)

10(7)

10(17)

15(16)

10(7)

10(17)

United Kingdom

0

10

0(10)

15(6)

10

0(10)

U.S.A

0

10(7)

0

5(13)

10(7)

0

Former Yugoslavia

0

10

10

10

10

10

Other Countries

0-40(14)

0-40(14)

10(11)

(15)

(15)

(15)

*The numbers in brackets refer to explanatory notes:

EXPLANATORY NOTES

  1. 10% if recipient is a company with at least 25% direct share interest (15% in all other cases)
  2. 10% if recipient is a company with at least 10% direct share interest (15% in all other cases)
  3. 10% if recipient is a company with at least 25% direct share interest. If recipient is a company with more than direct or indirect share interest and the German corporation tax on distributed profits is lower than that on undistributed profits while the difference between the two rates is 15% or more, the rate is 27%(15% in all other cases).
  4. 5% if recipient is a company with at least 25% direct share interest (15% in all other cases)
  5. Nil if received by a company, which controls, directly or indirectly, not less than 50% of the voting power.
  6. A resident of Cyprus other than a company which either alone or together with one or more associated companies controls directly or indirectly at least 10% of the voting power, is entitled to a tax credit in respect of the dividend. Where a resident of Cyprus is entitled to a tax credit, tax may also be charged on the aggregate of the cash dividend and the tax credit at a rate not exceeding 15%. In this case any excess tax credit is repayable. Where the recipient is not entitled to a tax credit, the cash dividend is exempt from any tax.
  7. Subject to certain exemptions.
  8. Nil if royalties are on literary, artistic or scientific work including cinematographic films and films or tapes for television or radio broadcasting.
  9. 5% on cinematographic films not including television films.
  10. 5% on cinematographic films including television films and videotapes for television.
  11. 5% on cinematographic films
  12. Nil if royalties are copyright and other literary, dramatic, musical or artistic work not including film or videotape royalties.
  13. 5% if recipient is a company with at least 10% direct share interest; 15% in all other cases
  14. There is a withholding tax of 20% on dividends and 25% on interest. The final tax liability is determined as follows :
    (a) Companies : in respect of dividends, refundable on application. For interest, on application in accordance with corporate tax rates.
    (b) Individuals : on objection, in accordance with personal tax rates. In both cases any excess tax withheld is refunded.
    N.B. The agents or recipients of interest or dividends are liable for the payment of the due amount of tax on such income.
  15. At the rate applicable in accordance with domestic law.
  16. Nil if shareholder is a company that holds directly at least 25% of the capital of the company paying the dividends; 15% in all other cases
  17. 15% for any patent, trade mark, design or model, plan, secret formula or process or any industrial, commercial, or scientific equipment or for information concerning industrial, commercial or scientific experience.

more details about Cyprus in page 2 


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