CYPRUS – A FINANCIAL CENTER AT THE CROSSROADS OF THREE CONTINENTS Cyprus is a European blossom, conveniently situated in the Mediterranean sea at the crossroads of Europe, Africa and Asia. For decades now, reputable businessmen and large groups of companies have been using Cyprus as a base for their international business activities. Cyprus provides the nectar and is used as a hive through which the businessmen produce their refined honey with the very sweet aftertaste of low taxation. The advantages of using Cyprus as a base for financial activities and tax planning have been acknowledged by many reputable, worldwide renowned specialised professionals, to whom Cyprus owes its popularity. Although other European countries are trying to compete with Cyprus by lowering their tax and by signing favourable double tax treaties, they still have a long way to go before they are in a position to match the recipe of the very well-tested cocktail of benefits that Cyprus has to offer. Cyprus, with its beautiful weather and crystal clear waters, is a place that businessmen from countries such as Russia, Poland, the UK and other countries around the world cannot resist falling in love with. For them, it becomes a place of leisure as well as a place for them to do business. It becomes their second home. Cyprus has a solid infrastructure with its legal system based on English law and now harmonised with the European law. Most professionals, such as lawyers, accountants and bankers, are UK qualified and regulated by their professional bodies. It is clear that Cyprus, after joining the EU, and especially recently, has become an increasingly popular jurisdiction for registering international business companies (IBC). In an article written about Cyprus in the OFC Report 2007, it was described as a ‘rising international star’. Apart from Russian and Ukrainian clients, there are many other large companies from Europe which prefer Cyprus as a base for their enterprises. Cyprus has one of the lowest corporate tax rates in Europe (10%) and its tax system, like all its other laws, has been amended so that it complies with the EU Acquis Communautaire. Cyprus is considered by international tax planning experts as a very good choice, both for establishing a holding company and a trading company. Nowadays Cyprus, with its double tax agreements with about 43 countries, including the USA, by being a full member of the European Union, and by implementing various anti-money laundering laws, is considered to be a ‘clean’ jurisdiction with a very good reputation.
Cyprus – A Financial Center at the Crossroads of Three Continents Georgiades & Mylonas – Advocates & Legal Consultants
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The clean and reputable status of Cyprus was boosted even further last year by the signing of the protocol for the Double Tax Treaty between Russia and Cyprus. The immediate effect of the signing of the protocol was the removal of Cyprus from the so-called "black list" in Russia. As a consequence of this development, Cyprus became even more popular among investors from Russia and other CIS countries. One of the main benefits of such a removal is that the participation exemption rule will be applicable and in this case, any dividends received by Russian shareholders from their Cyprus subsidiaries will be tax free. A lot of professionals around the world advise their clients to establish a Cyprus holding company. With regard to Holding Companies, generally speaking, there is full exemption from local taxation in respect of any dividends received by the company from its local and foreign subsidiaries. There is no tax on the sale of the shares of a Cyprus company in foreign subsidiaries. There is no withholding tax on outgoing dividends remitted by a Cypriot company to the ultimate parent company. Due to the existence of double tax treaties, the incoming dividends are either exempt from or are subject to low withholding taxes in the subsidiary’s jurisdiction. There is also exemption at source of interest where the beneficial owner is a non-resident. Interest expenses payable by a Cypriot company are fully deductible. A Cypriot holding company may also be capitalized with loans and the interest paid at arm’s length to the parent company will be deductible since in Cyprus, there are no specific rules on thin capitalization. Another advantage is that our Controlled Foreign Companies Legislation is relaxed and mainly targets certain types of income that does not derive from genuine business, i.e. passive income. Cyprus is also attractive to trading, intellectual property and investment companies for tax planning purposes. If the management and control of the company is situated in Cyprus, then the company is taxed 10% on its worldwide income in Cyprus. Profits from sale of securities are tax exempt. In addition, over the last few years, there has been a growing interest from foreign investors in the establishment of regulated collective investment funds in Cyprus and the registration of licensed investment companies. Many online gaming companies have also been registered in Cyprus. International investors may also invest globally in various investments such as equity, bond trading and real estate by registering a public company and listing it in the Cyprus Stock Cyprus – A Financial Center at the Crossroads of Three Continents Georgiades & Mylonas – Advocates & Legal Consultants
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Exchange’s Emerging Companies Market ECM. The procedure is simpler and less costing than the normal listing in the Stock Market. This is the equivalent of listing in AIM in UK. AIM is the London Stock Exchange’s international market for smaller growing companies. The procedure for registering an International Business Company (IBC) or a local company in Cyprus as a private limited company is fairly simple. Initially, an application is filed with the Companies Registrar for the approval of a name. The application can also be submitted online. Once approval is received, the memorandum and articles of association are prepared, indicating inter alia the company’s activities, the names of the shareholders, the authorised share capital and the number of issued and paid-up shares that each shareholder holds. Cyprus company law is based on the English Company Law of 1948 and it has been amended accordingly in order to comply with the European Law. The memorandum and articles of association, together with the relevant forms which specify the names and details of the shareholders, directors, secretary and the registered office, are filed with the Registrar, together with a request for a certificate to be issued in Greek or in English regarding the shareholders, the directors, secretary and registered office and a certified copy of the company’s memorandum and articles of association. Many clients prefer to use nominee services for the shareholders and directors as well as for the registered office and secretary. In the case of nominee shareholders, trust deeds are created by a lawyer, according to which a member of the firm or a company is appointed as a trustee to hold the shares on trust for the beneficial shareholder(s). The incorporation process takes between 7-10 working days. A private limited company can always be converted to a public company provided that there will be inter alia at least 7 shareholders and the memorandum and articles of association is amended according the relevant provisions of the Cyprus Company law. There is no doubt that Cyprus through the years has established itself as one of the most favourable tax planning jurisdictions and it is a place through which a lot of large international enterprises pursue their investment plans. The recent prospects of Cyprus being one of the best discoveries of natural gas has added to Cyprus' popularity all over the world and huge companies such as the US oil company Noble Energy, the Russian company Gasprom, the biggest company in the world in this field, as well as other European companies have shown an interest in investing in Cyprus. Noble is currently in the process of drilling in one of the plots in the designated exclusive economic zone for the discovery of natural gas. This discovery will give the Cyprus economy a tremendous boost and it will safeguard its political stability, even further reinforcing its status as one of the best financial centers in the world.
Cyprus – A Financial Center at the Crossroads of Three Continents Georgiades & Mylonas – Advocates & Legal Consultants
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