Offshore companies


 

 

Registration of Offshore Legal Entities

 

   Offshore entities may be registered in Cyprus in the following legal forms:

  • Limited Company.
  • Partnership.
  • Branch.

   The Cyprus Laws, governing the aforementioned legal forms are identical to the Laws of the United Kingdom. Limited Companies make up the vast majority of offshore entities registered in Cyprus. Branches and Partnerships constitute only a small percentage, mainly because their legal status and financial liabilities are ultimately the same as those of their beneficial owners.

   Under the Exchange Control Laws, the establishment of any offshore entity in Cyprus requires the prior permission of the Central Bank.

   The Government of Cyprus, through the Central Bank, exercises a supervisory function in order to ensure that permission to set up an offshore company is given only to desirable and reputable persons or concerns. To this end, the Central Bank requires bank or other references as to the trustworthiness of the proposed shareholders. There are different requirements which must be met and additional references to be provided by offshore enterprises intending to engage in publishing or rendering insurance, banking or financial services to the public at large.

   However, for non-extraordinary cases the permission of the Central Bank, which is usually readily obtained, stipulates the following conditions:

  • The business must be confined to activities outside Cyprus.
  • The ownership must at all times be held beneficially by non-residents.
  • No finance must be obtained from local organisations other than from an Offshore Bank Unit (OBU).
  • All local expenses must be covered from funds to be imported from external sources.
  • Annual audited accounts and other required information must be submitted to the Central Bank regularly .
  • Foreign funds imported and converted to local currency must be reported to the Central Bank regularly.

   Permits for the establishment of Offshore Financial Services Companies, known as “OFCS”, incorporate a number of special conditions additional to those listed above. There are usually references connected to the status and experience of the applicant company or person including reliable letters of comfort from a business associate involved in the same business.

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Offshore Limited Companies

 

   The liability of a private company’s members is limited either by shares or by guarantee. If a company is limited by shares, the liability of its members is limited to the nominal value of the shares subscribed to by them and if the shares are fully paid up, then the shareholders are not liable to contributing further. On the other hand, if a company is limited by guarantee, the liability of its members is limited to the amount to which they have agreed to subscribe in the case of liquidation. Companies limited by guarantee are usually formed by non-profit-making organisations. Offshore entities are always registered as private companies because this legal form enjoys comparatively inexpensive formation procedures, consensus of a few shareholders, control over the membership and uncomplicated reporting requirements.

A Private Limited Company is a company which by its Articles of Association:

  • Restricts the right to transfer its shares and prohibits the issue of bearer shares.
  • Prohibits any invitation to the public to subscribe for its shares or debentures.
  • Limits the number of its members to a maximum of fifty with a minimum of two.

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Requirements for setting up an Offshore Limited Companies

 

   1. Name of the Company

   The name of the company has to be approved by the Registrar of Companies. This procedure usually takes 2-4 days. It is advisable to give a choice of three names in order of preference as each application has to be carefully checked against previously registered names before approval is granted. The following are considered by the Registrar of Companies:

    1.1 Name Restrictions

    A name that is similar to or identical to an existing company. A name that is known to exist elsewhere. A name that implies illegal activities. A name that implies Royal or Government Patronage. Generally, any word that the Registrar considers undesirable.

   1.2 Language of Name

   Names may be expressed in any language using the Latin alphabet provided that the Registrar is provided with a Greek or English translation and the name is not considered undesirable.

   1.3 Names Requiring Consent or a Licence

   “Bank”, “Trust”, “Building Society”, “Insurance”, “Assurance”, “Re-Insurance”, their foreign language equivalents or any name that the Registrar considers it may be related to the aforementioned. Recently, the Central Bank of Cyprus, listed the following names as ones requiring special licence.

Asset Management/Manager Custodian(s)/Custody

Fund(s)

Portfolio(s)

Assurance

Dealer(s)/Dealing

Future(s)

Reserve(s)

Bank/Banking

Deposit(s)

Insurance

Savings

Broker(s)/Brokerage

Derivative(s)

Lending/Loan(s) Security(ies)

Capital

Exchange

Lender(s)

Stock

Credit

Fiduciary(ies)

Option(s)

Trust

Currency(ies)

Finance/Financial

Pension(s)

Trustee(s)

    1.4 Suffixes to Denote Limited Liability

            Limited or Ltd.

  2.  Memorandum and Articles of Association

    All Limited Liability Companies must prepare a Memorandum and Articles of Association.

    The Memorandum specifies the activities in which the Company may engage. More specifically, the first three main object clauses must include the main proposed activities of the Company.

    The Articles of Association specifies the rules governing the internal management of the Company.

  3.  Authorised and Issued Share Capital

   The Share Capital must be expressed in Cyprus Pounds. There is no legal requirement as to the minimum or maximum Share Capital of the Company. However, the Central Bank of Cyprus recommends that the minimum authorised, issued and paid up Share Capital of a Cyprus Offshore Company not be less than CYP 1.000,00. For Companies wishing to establish a physical presence in Cyprus the minimum is CYP 10.000,00. Such Companies may also enjoy and take advantage of Duty Free Concessions. (further information about duty-free concessions is given on page 16)

   4.  Shareholders of the Company

    The minimum number of Shareholders is two (2). There are no legal shareholding requirements. However, the participation of non-residents must be first approved by the Central Bank of Cyprus. If anonymity is required, the shares may be held by one of the trustee companies provided by Cyworld  Business Centre. Each beneficial shareholder must provide the Central Bank of Cyprus with bank references from a foreign bank. Experience has shown that an appropriate telex or facsimile sent directly to the Central Bank or to our offices by the bankers of the intended beneficial owners of the shares in the Cyprus Company will in most cases suffice. An adequate sample of a bank reference is given in Appendix III.

    Specifically, the following information is needed for each shareholder:

  • Full name.
  • Residential address, telephone and facsimile numbers.
  • Nationality.
  • Occupation.
  • Number of shares to be held.
  • Copies of passport or identity card.

  5. Directors of the Company

   The minimum number of Directors is one. They may be natural persons or corporate bodies, of any nationality and need not be resident in Cyprus. The powers of the directors are determined by the provisions of the Articles of Association. It is usual to make provision for general and wide powers to conduct the business affairs of the Company, with perhaps some limitation on borrowing powers.

   It may be important, from a tax point of view, that the management and control are exercised from Cyprus. Local Directors can be appointed from our office to carry out their functions based on instructions received from the beneficial shareholders. This arrangement, facilitates the smooth and timely execution of the operations of the Company.

  The information required for each director is:

  • Full Name.
  • Residential address, telephone and facsimile numbers.
  • Nationality.
  • Occupation.

     5.1 Appointment and Removal of Directors

      Appointment of Directors is determined by the Company’s Articles of Association and is a power usually vested in the general meeting or, in some cases, in certain classes of shares. Directors may be dismissed by ordinary resolution of the shareholders. The Articles may lso provide for dismissal in certain circumstances and determine the procedure for dismissal.

     5.2 Meetings of the Directors

       There are no mandatory rules as to the location or frequency of such meetings. Board meetings can be held at such places and at such times as the Board may determine.

     5.3 Information published relating to Directors

      The information relating to directors disclosed to the Registrar of Companies is comprises the name, address, nationality and occupation.

6. Company Secretary

   Under the Companies Law, Cap.113, a Company Secretary is required who must be a natural person, but need not be resident in Cyprus. In this respect, a company secretary from Cyworld can be provided.

  7. Registered Office

   All Companies must maintain a registered office in Cyprus. Companies are welcome to use our address as their registered office.

  8. Time Scale to Incorporate

   It usually takes about one (1) week, subject to name approval. However, “off-the-shelf” companies are always available. If it is considered necessary, the name of the Company can be changed at a later date. In such cases, the time scale to incorporate a Company will not be more than three (3) days.

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Administrative Offices in Cyprus

 

     An offshore company registered in Cyprus is allowed to maintain its administrative office in Cyprus.

     If the company maintains an office and has at least one non-resident director then it is entitled to a duty free certificate, which enables the company and the director to buy duty free goods.

     Non-resident directors and employees of offshore companies which maintain administrative office in Cyprus are permitted to live in Cyprus. Permission is granted by the Central Bank of Cyprus. Families accompanying the directors and employees can also obtain permission to reside in Cyprus.

         VISAS

     All travellers to Cyprus must hold a valid passport. Visas are required except for citizens of European Union and Commonwealth member countries, and for citizens of the following countries: Antigua and Barbuda, Australia, Bahamas, Bahrain, Barbados, Belize, Bermuda, Botswana, Canada, Dominica, Fiji, Gambia, Ghana, Grenada, Hungary, Iceland, India, Jamaica, Japan, Kenya, Kiribati, Kuwait, Lesotho, Liechtenstein, Malawi, Malaysia, Malta, Mauritius, Nauru, New Zealand, Nigeria, Norway, Oman, Papua New Guinea, Qatar, Romania, Samoa, San Marion, Saudi Arabia, Seychelles, Sierra Leone, Singapore, Solomon Islands, Sri Lanka, St Christopher and Nevis, St Vincent and the Grenadines, Swaziland, Sweden, Switzerland, Tanzania, Tonga, Trinidad and Tobago, Tuvalu, Vanuatu, Uganda, United Arab Emirates, the United States, Yugoslavia, Zambia and Zimbabwe.

    Transit visas are not required for travellers staying for less than five days, provided they hold entry visas for their final destination.

         WORK PERMITS

    Any person wishing to work in Cyprus must apply to the Immigration Department of the Ministry of the Interior in Nicosia for a temporary residence (employment) permit prior to arriving in Cyprus. Applications may be made on behalf of the person by the prospective employer in Cyprus or our offices. Approval of such applications depends largely on the contribution the person can make to the economy and the extent to which the job can be filled by qualified local staff. Permits take about one month to process and can be valid for up to four years.

Note: For further information on the above mentioned points, please do not hesitate to contact Cyworld  Business Centre.

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Accounting and Auditing Requirements

 

   The accounting profession in Cyprus, which is of high standard, is represented by the Institute of Certified Public Accountants of Cyprus. Its members are either Chartered or Certified Accountants of the respective United Kingdom Institutes (the Institute of Chartered Accountants and the Chartered Association of Certified Accountants). The majority of the big international accounting firms are well represented on the island with members or correspondent firms.

   Offshore enterprises are subject to the same reporting requirements as all other Cypriot business entities.

   Financial Statements

   The directors of every company have the obligation under the Law to prepare audited financial statements, not later than eighteen months after the incorporation of the company and subsequently once a year, to lay before the company in a general meeting a set of financial statements consisting of the directors’ report, the auditors’ report, a profit and loss account and a balance sheet. These financial statements must be also submitted to the Tax Authorities and the Central Bank, not later than 12 months after the year end.

    Filing Requirements

    Offshore enterprises are subject to the same reporting requirements as all other local business entities.

   1. Commissioner of Income Tax

   1 August

  • Filing of provisional income tax declaration for current year of assessment. The year of assessment corresponds to the calendar year. The provisional income tax liability is payable in three installments.
  • The provisional income tax declaration may be revised by 31 December of the current year. The revised taxable income may only be reduced to an amount for which provisional income tax was already paid (i.e. the revision can not result in a refund). Alternatively the provisional taxable income may be revised upwardly without any limitations.
  • Payment of first installment of provisional income tax.
  • Filing of self-assessment declaration of final income tax liability for the previous year of assessment as determined by the audited financial statements.
  • Payment of final income tax liability for the previous year of assessment.

   30 September

  • Payment of second instalment of the provisional income tax liability

   31 December

  • Deadline for submission of audited financial statements together with the tax return for previous year of assessment.
  • Deadline for revision of the provisional income tax declaration.
  • Payment of third installment of provisional income tax liability.

  1.1 Interest and Penalties

  • Interest on overdue tax is payable at 5% p.a. if the tax is settled within six months from the due date or 9% p.a. if settled any later.
  • 5% penalty is imposed on tax due if:

             a)   the provisional income tax declaration was not submitted in time and the                     Commissioner of Income Tax has to issue an assessment himself. In practice the                      Commissioner issues provisional income tax assessments around October.

             b)   The audited financial statements are not submitted by 31 December of the                      following year.

  • 10% penalty is imposed on the final net tax payable if the provisional taxable income is less than 75% of the final assessed.
  • Tax overpaid is refunded with interest at 9% per annum.

  2. Registrar of Companies

     An Annual General Meeting (AGM) of the company’s shareholders is held 23 days after the date of issue of the financial statements. Audited financial statements for the year are submitted with the Company’s Annual Return to the Registrar of Companies. The Company’s Annual Return, dated 14 days after the AGM, must be filed within 28 days of that date.

     Notice for the following, must be given to the Registrar of Companies within one month after the passing of the relevant resolution:

  • Redemption of preference shares.
  • Increase in authorised share capital.
  • Issue of new shares.

     Notice for the following changes, must be given to the Registrar of Companies within 14 days of the relevant change:

  • Board of Directors.
  • Secretary.
  • Registered address.
  • Shareholders.

  3.  Central Bank of Cyprus

    Within six months from the end of the financial year, financial statements must be filed with the Central Bank of Cyprus, together with a confirmation from the auditors stating that the company has not carried out any transactions with residents other than local payments for administrative purposes.

   Requirements to keep books of account

    Under the Companies Law, Cap.113, every company should keep proper books of account with respect to all amounts of money received and expended by the company, and the matters in respect of which the receipt or expenditure takes place, all sales and purchases of goods by the company, and all assets and liabilities of the company.

    Partnerships, although not required by law to prepare audited accounts, are required by the relevant legislation to keep proper books of account which are open to inspection by the partners.

    Requirements to keep other records

    Certain other statutory, non-accounting records, set out below, are also required to be kept by companies:

  • Articles of Incorporation.
  • Minutes of Meetings of both Directors and Shareholders.
  • Register of Members.
  • Register of Debenture Holders.
  • Register of Charges.
  • Register of Directors and Secretaries.
  • Register of Directors’ shareholdings.

    Requirement for Auditing

    The requirement for audit applies to all kinds of enterprises. There are special provisions in the Companies Law, Cap.113, which deal with the appointment, removal and resignation of the company’s auditor and also with disqualification regarding their appointment. Qualified persons for auditing purposes according to the law are either members of a body of accountants established in the United Kingdom and recognised by the Ministry of Finance (i.e. one of the U.K.’s Institute of Chartered Accountants or the Chartered Association of Certified Accountants) or persons authorised by the Ministry of Finance to be appointed as auditors either as having similar qualifications obtained outside the United Kingdom, or as having obtained adequate knowledge and experience. A non- qualified person may, however, be appointed by an exempt1   private company.

    The law specifically disqualifies the following persons from acting as auditors:

  • An officer or servant of the company.
  • A partner or employee of an officer or servant of the company (except for exempt private companies).
  • A corporate body.

    The appointed auditors are required to report to the members on the financial statements examined by them and their report must include statements regarding the true and fair view of the financial statements, whether they have obtained all the information and explanations necessary for the purpose of their audit, whether proper books of account have been kept and whether the financial statements comply with the relevant legislation. The audit is carried out in accordance with the Approved International Auditing Guidelines and the U.K. Auditing Standards and Guidelines.

1A private company may be considered exempt if the number of persons holding the company’s shares does not exceed fifty, if no corporate body is a director of the company, if no corporate body holds any of its shares or debentures, unless it is itself an exempt private company and finally if no person other than the holder has any interest in the shares or debentures.

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Tax Incentives offered to Offshore Entities and their Expatriate Employees

 

    

    A.   Reduced Income Tax Rates for Offshore Companies

       1. The net profits of offshore companies are subject to taxation at the rate of 4.25%.
       2. The profits of offshore partnerships are fully exempt.
       3. The profits of offshore branches whose management and control are outside Cyprus              are fully exempt. Where management and control are in Cyprus the tax rate is 10%.

  B.   Personal Income Tax Rates For Expatriate Employees of Offshore Companies

     Expatriate employees enjoy a favourable tax regime, which makes Cyprus an attractive        place to work in.

     The main provisions are the following:

  • Expatriate employees of offshore activities working in Cyprus are subject to taxation at half the normal rates, as shown in the table below:

Income in CYP

Tax  %

0 — 6,000.00 

0

6,001.00 — 9,000.00 10
9,001.00 — 12,000.00 15
12,001.00 and Over 20
  • Expatriate employees of offshore entities working outside Cyprus are not subject to taxation even if paid through Cyprus. If they are not paid through Cyprus, tax is levied at one tenth of the normal rates.
     
  • Expatriate employees working partly in Cyprus and partly abroad, pay taxes at the rates of the above table based on the income they have for the time they spent in Cyprus. For the time they were outside Cyprus they do not pay any tax on their relevant income.

   C.  Import and Excise Duty Exemption for Offshore Companies and their Expatriate             Personnel.

       Imported and locally purchased goods, new or second hand, other than furniture and air           conditioning equipment, for the use of offshore entities and their foreign employees,          are  free of import and excise duties.

  D. Exemption from Social Insurance Contributions for Expatriate Employees of Offshore            Companies

     Full exemption is granted from local social insurance schemes in respect of foreign               employees of offshore entities.

   E.  Refundable Tax on Dividends

     Any withholding tax paid on dividends by resident companies to companies abroad is       refundable on application to the Ministry of Finance. Individuals have the option not to        be assessed on dividends, in which case the tax withheld is final tax on dividends.

  F.  Dividends out of Profits of Offshore Companies

     Dividends out of profits of offshore companies bear no tax in the hands of the recipient       in Cyprus.

  Duty Free Concessions.

   Under the Customs and Excise Law, offshore enterprises and their expatriate employees may acquire the following, free of tax:

     (1)  Office equipment, including supplies of a durable nature such as photocopying              machines, computers, facsimile machines, etc, but excluding goods of a consumable              nature as well as air-conditioners.

     (2) Household effects including all durable goods used in a household such as carpets,             curtains, television sets, video sets, washing machines, refrigerators, etc,
          but excluding air-conditioners.

    Furniture including items such as chairs, tables, desks, bookcases, filing cabinets and wardrobes, does not qualify for exemption from duty.

   (3)  Motor vehicles, including sports cars, station wagons, saloon cars, Jeep, and                    Land Rover type as well as mini-buses with a seating capacity of up to nine                    persons.

   Those eligible for relief from duty are:

    (1)  Offshore enterprises operating continuously from their fully fledged and fully staffed              offices which are open during normal working hours and are separate from private              residences.

   (2)  Full-time expatriate employees of the above enterprises who live and work in Cyprus              during most of the year and whose remuneration exceeds CYP 12.000,00 (approx. US
            $ 24,000.00) per annum.

    An eligible expatriate may acquire a second duty free car, to be used by his family, if his salary, as declared to the Department of Inland Revenue, exceeds CYP 20,000.00 (approx. US $ 40,000.00) per annum.

   Value Added Tax (V.A.T.)

    Value Added Tax (V.A.T.) was introduced in Cyprus on 1 July 1992. V.A.T. is imposed on the provision of goods and services in Cyprus, as well as on the goods imported into Cyprus. Transactions effected by offshore enterprises are outside the scope of V.A.T. Hence, offshore enterprises do not need to register for V.A.T. purposes and thus are not entitled to claim a refund of the V.A.T. paid by them on their purchases. However, all duty free imports by offshore enterprises are exempt from V.A.T. In addition, telecommunication services offered to offshore enterprises which have fully fledged and fully staffed offices in Cyprus may be exempted from V.A.T. with the approval of the Central Bank.

  Stamp Duty

   Offshore enterprises are exempt from stamp duty on all documents relating to their business activities outside Cyprus. Furthermore, offshore enterprises and their expatriate employees are exempt from the Special Contribution to the Defence Fund.

Note:In July 2002, Cyprus passed new legislation raising the tax rates currently enjoyed by international business companies (IBCs) and their expatriate staff

For further information on the above mentioned points, please do not hesitate to contact Cyworld  Business Centre.

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Cyprus Double Taxation Treaties

 

    Cyprus has an impressive network of double taxation agreements. There are currently 26 treaties in force while 4 negotiations are in process and another 3 are awaiting ratification. The treaties signed and ratified by the Republic of Cyprus are based on the OECD (Organisation for Economic Co-operation and Development) model. Cyprus is one of the offshore centres in the world offering the advantage of so many double taxation agreements.

   The purpose of double taxation treaties is the protection of income derived in one country and remitted to another, from being subjected to taxation in both jurisdictions. The treaties usually provide for a tax credit to the recipient of the income for the amount of tax which has already been paid in the country where the income has originated. The maximum income tax suffered is normally that of the higher of the two rates applicable in the two countries.

   The typical forms of income which fall within the scope of the treaties are dividends, interest and royalties. Tax is normally deducted from the gross income by the remitting party in the form of “withholding tax” so that a net amount is transferred to the recipient. The latter will then claim a tax credit for the amount of withholding tax paid in the originating country.

   The treaty with Russia applies to individuals and companies who are resident for taxation purposes in either of the two countries, by reason of residence, domicile or place of management. Income is taxed only in one of the two states and never in both states. The treaty with Russia states that there is no withholding tax on dividends, royalties or interest paid between the two countries. For example, income derived from dividends, interest or royalties earned in Russia and remitted to Cyprus, bears no tax in Russia and is only taxed at 10% in Cyprus.

    Cyprus has ratified Tax Treaties with the following countries:

Austria
Bulgaria
Canada
C.I.S.
Czech Republic
Denmark
Egypt
Federal Republic of Yugoslavia
France
Germany
Greece
Hungary
India
Ireland
Italy
Kuwait
Malta
Norway
China
Poland
Romania
Slovakia
Sweden
Syria
U.K.
U.S.A.

  The tax treaties with the following countries are:

       Awaiting Ratification: Belgium, Finland, Singapore.

       Under Negotiation: Ukraine, Thailand, Armenia, South Africa.

   In the Cyprus treaties, except those with Canada and the U.S.A., Cyprus offshore companies are allowed, under the provisions of the treaties, to benefit with respect to business profits. Investors in these treaty countries may extract business profits from an eastern European country free of tax, through the use of a Cyprus offshore entity, provided that a permanent establishment does not exist in the eastern European country

DOUBLE TAX TREATIES

TAX TREATMENT OF DIVIDENDS, INTEREST AND ROYALTIES

Paid from countries shown                                                              Paid from Cyprus to residents
below to residents of Cyprus                                                          of the countries shown below

COUNTRY Dividends Interest Royalties Dividends Interest Royalties
Austria 10% Nil Nil 10% Nil Nil
Bulgaria Nil Nil Nil Nil Nil Nil
Canada 15% 15% (7) 10% (12) Nil 15% (7) 10% (12)
C.I.S.* Nil Nil Nil Nil Nil Nil
Czech Republic 10% 10% (7) 5% (8) Nil 10% (7) 5% (8)
Denmark 10% (1) 10% (7) Nil 10% (1) 10% (7) Nil
Egypt 15% 15% 10% 15% 15% 10%
Federal Republic of Yugoslavia 10% 10% 10% Nil 10% 10%
France 10% (2) 10% (7) Nil (10) Nil 10% (7) Nil (10)
Germany 15% (3) 10% (7) Nil (10) Nil 10% (7) Nil (10)
Greece 25% 10% Nil (9) 25% 10% Nil (9)
Hungary 5% (4) 10% (7) Nil Nil 10% (7) Nil
India 10% (2) 10% (7) 15% 10% (2) 10% (7) 15%
Ireland Nil Nil Nil (9) Nil Nil Nil (9)
Italy 15% 10% Nil Nil 10% Nil
Kuwait 10% 10% (7) 5% (8) Nil 10% (7) 5% (8)
Malta Nil 10% (7) 10% 15% 10% (7) 10%
Norway 5% (5) Nil (15) Nil Nil 25% (14) Nil
People’s Republic of China 10% 10% 10% 10% 10% 10%
Poland 10% 10% (7) 5% 10% 10% (7) 5%
Romania 10% 10% (7) 5% (8) 10% 10% (7) 5% (8)
Slovak Republic 10% 10% (7) 5% (8) Nil 10% (7) 5% (8)
Sweden 5% (4) 10% (7) Nil 5% (4) 10% (7) Nil
Syria 15% (16) 10% (7) 10% (17) 15% (16) 10% (7) 10% (17)
United Kingdom 15% (6) 10% Nil (10) Nil 10% Nil (10)
United States 5% (13) 10% (7) Nil Nil 10% (7) Nil
South Africa Nil Nil Nil Nil Nil Nil
Russia 10% (18) Nil Nil 10% (18) Nil Nil
All other countries (15) (15) (15) 0-40% (14) 0-40% (14) 10% (11)

         Does not apply for Kazakhstan

        The numbers in brackets refer to the explanatory notes on the next page.

  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; 27% if recipient is a  company with more than 25% direct or indirect share interest as long as the German             corporate tax on distributed profits is lower than that on undistributed profits and the         difference between the two rates is 15% or more; 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 recipient is a company which controls, directly or indirectly, at least 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 he  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.

(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 withholding tax of 20% on dividends and 25% on interest. The final tax liability is determined as follows:

  1. Companies: in respect of dividends, refundable on application. For interest, on application in accordance with corporate tax rates.
  2. Individuals: on objection, in accordance with personal tax rates. In both cases any excess tax withheld is refundable.

  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.

(18) 5% of the gross amount of the dividends if the beneficial owner has directly invested in the capital of the company not less than the equivalent of 100.000 US dollars; 10% of the dividends in all other cases.

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AGREEMENT BETWEEN THE REPUBLIC OF CYPRUS AND THE RUSSIAN FEDERATION FOR THE AVOIDANCE OF DOUBLE TAXATION

 

     On 5th February 1998 the Government of the Republic of Cyprus and the Government of the Russian Federation, concluded a new Agreement for the avoidance of taxation with respect to taxes on income and on capital. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of

     Movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.

  The main points of the Agreement are given below:

   Income from immovable property ( Article 6 )

  Income derived by a resident of a Contracting State from immovable property ( including income from agriculture or forest ) situated in the other Contracting State may be taxed in that other State. This provision shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

    Dividends ( Article 10 )

   Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. However, such dividends may also be taxed in the State of which the company paying the dividends

   Is a resident and according to the laws if that State, but if the beneficial owner of the dividends is a resident of the other State, the tax so changed shall not exceed:

  1. 5% of the gross amount of the dividends if the beneficial owner has directly invested in the capital of the company not less than the equivalent of 100.000 US dollars;
  2. 10% of the gross amount of the dividends in all other cases.

    Interest ( Article 11)

    Interest arising in a Contracting State and paid to a resident of the other Contracting State shall be Taxable only in that other State.

    Royalties ( Article 12 )

    Royalties arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State.

    Gains from alienation of property ( Article 13 )

    Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

   Other Articles of the Treaty are:

  • Business Profits ( Article 7 )
  • Income from International Traffic (Article 8 )
  • Associated Enterprises ( Article 9 )
  • Income from Independent Personal Services ( Article 14 )
  • Income from Employment ( Article 15 )
  • Directors` Fees ( Article 16 )
  • Income of Artistes and Sportsmen (Article 17 )
  • Income from Government Service ( Article 18 )
  • Pensions ( Article 19 )
  • Payments to Students, Apprentices, Researchers, Professors
    and Teachers ( Article 20 )

   followed by some other Articles as:

   Elimination of Double Taxation ( Article 23 )

   In the case of Russia double taxation is eliminated as follows:

   Where a resident of Russia derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in Cyprus, the amount of tax on that income or capital payable in Cyprus may be credited against the tax levied in Russia. The amount of credit, however, shall not exceed the amount of tax of Russia on that income or capital computed in accordance with its taxation laws and regulations.

   In the case of Cyprus double taxation is eliminated as follows:

   Subject to the provisions of Cyprus Tax Law regarding credit for foreign tax, there shall be allowed as a credit against Cyprus tax payable in respect of any item of income derived from Russia or capital owned in Russia the Russian tax paid under the laws of Russia and in accordance with this Agreement. The credit shall not, however, exceed that part of the Cyprus tax, as computed before the credit is given, which is appropriate to such items of income or capital.

   For any further information concerning this agreement please contact Cyworld Business Centre.

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The Cyprus Stock Exchange

 

       The Stock Market has been the focus of intense research in finance, the amount of which has surpassed any other area of finance. The stock market could be defined as an organised market that provides facilities for dealing in stocks and shares and through which new capital should be raised by the offer of securities to the public.

      In Cyprus, the capital market and its sub-systems has been in existence for more than thirty years in an under-developed form. During that time, stocks and bonds of the very few public companies were traded in two ways. Firstly, directly by the company concerned and secondly, by the use of middlemen, who were far from being what we today call “stockbrokers”. Nevertheless, the capital market gradually started growing mainly because of the growth of public companies and the increase in the country’s per capita income. This growth of the capital markets and the increased interest of the public created a gap that had to be bridged. Hence, 19 years ago, in 1979, the Cyprus Chamber of Commerce and Industry saw the need and stepped in to deal with it. Co-operating with the few (3) stockbroking offices at that time, a draft of regulations for holding the stock exchange meetings was prepared. This draft was discussed extensively with the public companies and when agreement was reached, the first stock exchange meeting took place on June 13, 1979. In addition to the provision of the much needed rules and regulations the Chamber also provided the floor (the place where trading took place).

     In 1986, the Chamber’s initiative gained new momentum. After a series of meetings with all parties concerned, especially public companies and stockbrokers, a new set of regulations was introduced to cover related issues. The continues improvement of the system produced the desirable effects and nowadays the Cyprus Stock Exchange operates in the framework of complete and strict set of rules and regulations. The number of companies increased to 38 in 1994 and today 50 companies in total are trading on the stock exchange. Companies which have securities listed on the exchange are classified into seven sectors:

  • Banking.
  • Approved Investments.
  • Insurance.
  • Manufacturing.
  • Tourism.
  • Trading.
  • Other.

      Since November 1990, stock exchange meetings were taking place on a weekly basis. From January 1994, however, meetings are held on a daily basis. As of March 29, 1996 the Cyprus Stock Market has acquired official status. The Exchange is open for trading between 11:00 a.m. and 12:30 a.m. (Cyprus time), daily except weekends and holidays. It is becoming more and more sophisticated and it is expected that its growth will continue and its contribution towards economic development will be further enhanced.

     Foreign Investment.

Foreign investors wishing to acquire shares in public companies may do so within the limits shown below:

LISTED COMPANIES CYPRIOT (non-residents) FOREIGN (non-residents)
Banks

9%

6%

All Other Listed Companies No Limitation*

49%

*for natural persons only

    For listed companies in the banking sector, the maximum allowable individual shareholding by a non-resident individual or corporation is restricted to 0,5% of a company’s issued capital.

    It should be stressed that all the aforementioned percentages may be exceeded in worthy cases.

    Payment for any transaction carried out by foreigners and Cypriot non-residents alike is made through foreign funds.

    The Cyprus Stock Exchange offers offshore entities the advantage to enjoying tax free dividends that have been received from investments of the companies listed on the Stock exchange . This advantage encourages foreign investors not only to invest in the Cyprus Stock Market but also encourages foreign companies to go public and be listed on the Cyprus Stock Exchange. Each company that seeking a listing must satisfy certain requirements that are based on the Cyprus Stock Exchange Laws and Regulations, which had been passed by the House of Representatives in 1993 and 1995 respectively.

   Settlement of Transactions

     According to current settlement procedure, the buyer is able to obtain his certificate within nine working days from the day the transaction takes place. Should the investor wish to sell before the nine day period has elapsed, he can do so provided he obtains a certificate from the member, certifying that the investor is the legal proprietor of the securities being sold.

      Fines are imposed on the party responsible for the breach of the timetable. According to the Cyprus Stock Exchange regulations, members must complete every transaction within three working days. Within a day following the completion of the transaction, the Cyprus Stock Exchange issues a certificate of transfer. The company is then obliged to issue a new certificate for the buyer and deliver it to the Cyprus Stock Exchange within five working days and the member has the obligation to collect the certificate from the Cyprus Stock Exchange and deliver it immediately to the buyer.

      As of January 1998, commission rates has been liberalised. In particular, fixed commissions for dealers has been abolished and rates are subject to negotiation between dealers and their clients.

     Should you wish to discuss any investment opportunities offered through the Cyprus Stock Exchange, we would be more than happy to offer the benefit of our personal experience. Please feel free to contact Cyworld offices, for any further information and/or advice.

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Acquiring Immovable Property in Cyprus

 

    Cyprus is becoming an attractive place to buy property because of its tax incentives, good climate and comparatively low cost of living. Immovable property in Cyprus may be acquired by aliens, either for residential purposes, or to accommodate their business activities.

   Although prices of immovable property in Cyprus have risen at a relatively fast rate over the past few years, their level is still well below those of most developed countries. Good opportunities exist in the property market to make profitable investments.

    Cypriots, or persons of Cypriot extraction, are allowed to purchase real estate property without any restrictions. However, aliens are only allowed to acquire one of the following:

  • Apartment.
  • House.
  • Building plot or land up to 2,675 square metres.

     Offshore entities may also acquire premises for their business or for purposes of residence of their foreign employees.

     Immovable property may be acquired in any of the ways below:

  • Freehold.
  • Leasehold (long lease).
  • Through a trust.
  • Combination of any of the above.

    In certain cases, permission is given for the acquisition of a larger area of land if this is:

  • A house for occupancy by the owner.
  • A building for commercial or other occupational use.
  • For industrial use in sectors of the economy engaged in the production of goods that are deemed to be in the interest of the Cyprus economy.

  Acquisition of Property and Fees Payable

    An application must be made to the Council of Ministers and the whole procedure can take up to nine months. However, there is no restriction as regards to taking possession of the property in the meantime. An application must also be made to the Central Bank of Cyprus for the purpose of obtaining confirmation that the purchase is being made with imported foreign exchange. Finally, an application must be made to the District Land Registry Office, which will value the property. The purchaser is liable to pay various fees:

  • Transfer Fees – the amount is determined by the value of the property.
  • Immovable Property Tax – the amount of this annual tax is calculated on the market value of the property.
  • Stamp Duty – this is at the rate of 1.5 per thousand of the value up to CYP 100,000 and 2.0 per thousand thereafter.

    Notes:

   The purchaser should take the following into consideration:

  • The seller must have a valid title to the property for sale, and there should be no encumbrances to prevent the transfer of ownership.
  • If the property to be acquired is land, advice should be obtained from qualified and trustworthy property consultants. Cyworld  Business Centre is pleased to provide expert assistance regarding such matters and has considerable experience in this field. Information should be sought as to the suitability of the land for building purposes, applicability of zoning restrictions, road access, and availability of water, electricity and telephone lines.
  • It must be ensured that the apartment or house can be delivered with vacant possession and the seller must have obtained building and other permits.

      Provision should be made in the contract of sale that, should the Council of Ministers reject the application, then the money already paid will be refunded immediately. Professional advice is preferable before making a commitment to purchase and Cyworld Business Centre is in a position to advise on this aspect, as well.

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Question and Answers relating to Offshore Companies

 

  1. Are details of the beneficial owners required to be disclosed prior to incorporation?

   Yes. Details of beneficial owners are only disclosed, and then in the strictest confidence, given to the Central Bank of Cyprus when application is filed for approval by the Central Bank under the Exchange Control Law, Cap.199, the establishment of the Company and subscription for shares by non-residents of Cyprus.

  2. Can contracts be concluded on behalf of the Company?

   Contracts can be executed by the directors or by any person to whom such authority has been delegated. If power of attorney is given to the delegate (which is usual), the power of attorney must be under the seal of the company. The seal of the Company must be affixed to such contracts which under English Law require to be executed as deeds. A Company may, if its articles permit so, have a seal for use abroad.

  3.  Can the Company provide secured loans?

   Yes, secured loans can be provided.

  4.  Can the Company provide unsecured loans?

   Yes, the company can provide unsecured loans.

  5. What are the limits placed on the Company’s borrowing powers?

   The limitation placed on borrowing powers is that the borrowing must be done within the capacity of the Company. In addition, the Articles may limit the power of the directors in the exercise of the Company’s borrowing powers.

6.  Is a Company seal permitted?

  Use of a seal is permitted. A Company may, where its business is conducted abroad and if its Articles so permit, also have a seal located abroad.

  7. What is the procedure for authentication of documents and contracts?

  A document or instrument requiring authentication may be signed by a director, secretary or other authorised officers of the company and need not have the seal affixed.

  8. What is the Third Party protection?

  Any contract made with a Company beyond its contractual capacity is ultra vires to the company and is void. There is no third party protection even if the third party has acted in good faith.

  9. Service of writs.

  Effective if left at or sent by post to the Company’s registered office.

  10. Is the transfer of domicile allowed?

  There is no legislation allowing the transfer of domicile for Cyprus Offshore Companies.

  11. Are there any strike off and liquidation provisions?

   The Registrar of Companies has the power to strike a defunct company off the Register. A defunct company is one to which the Registrar has reasonable cause to believe that is not carrying out business. A company may be compulsorily wound up by petition to the Court or voluntarily by the members or creditors.

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Other Offshore Entities available within the jurisdiction

 

    Trusts

    A trust is an obligation established by an individual (settlor), binding a person (trustee) to manage property (trust property) for the benefit of persons (beneficiaries). International trusts in Cyprus are regulated by the 1992 International Trusts Law 69. An offshore trust is one where the settlor and beneficiaries (other than charitable institutions) are non-residents and the trust property does not include any immovable property situated in Cyprus.

    Partnerships and Limited Partnerships

    In a partnership every partner is liable jointly with all the other partners for an unlimited amount for the debts and obligations of the partnership. The limited partnership is a partnership whereby at least one of the partners must have unlimited liability for the debts and obligations of the partnership, whereas the remaining partners may have limited liability. Partnerships are governed by the Partnership and Business Names Law, Chapter 116, which is similar to the equivalent English Law.

    Branches of Overseas Companies

   An offshore branch of a foreign company is a branch carrying out business with aliens either within or outside Cyprus. This section falls under S.347 of the Companies Law, Chapter 113.

   Trading Companies

    Such companies represent the majority of all offshore entities incorporated in Cyprus. May also be used for transit trade activities particularly in East/West business relations.

    Headquarters Companies

    Cyprus offers ideal conditions for the location of regional management and administrative centres of multinational companies throughout the World with interests in the Middle East, North Africa and Eastern Europe.

   Holding and Investment Companies

    An offshore holding company can be the parent of companies registered abroad as well as Cyprus registered offshore companies. Such companies are mostly used to hold participation in joint ventures, particularly in East and Middle East countries, North Africa, China and India in order to avoid or reduce withholding taxes.

    Service Companies

    These companies provide services such as sales promotion, accounting functions, provision of labour etc.

    Construction and Engineering Companies

    They are used extensively for construction operations in the Arab and CIS countries. Cyprus is an ideal location for offshore construction and engineering companies due to the favourable tax treatment afforded to them and the existence of the Cyprus double taxation treaties.

    Finance Companies

    These companies are active in financing joint ventures or providing loans in treaty countries or other countries where withholding tax or interest is low or nil.

    Royalty Companies

    Establishing a royalty company in Cyprus can be a very attractive proposition due to the low withholding tax rates for royalties provided in most double taxation treaties.

    Printing and Publishing Companies

    Many printing and publishing offshore companies have been established in Cyprus due to the low cost of local design and printing and the excellent telecommunication system.

     Real Estate Companies

     Such companies can be effectively used for dealing in property and for investment purposes.

     Employment Companies

     An offshore employment company can be used to recruit labour for contract or other work carried out outside Cyprus.

    Shipping and Ship Management Companies

     The Island has proved to be an ideal centre for the establishment by foreign ship owners and other professionals of legal entities for the conduct of Maritime activities and for the rendering of shipping services worldwide.

    Offshore Banking Units (OBUs)

     International banks can establish an offshore banking unit (OBU) either as a locally incorporated company or as a branch.

      Captive and General Insurance Companies

      A Captive Insurance Company is a wholly owned or controlled subsidiary company formed by a non-insurance parent (or association of companies or individuals) for the purpose of participating in the risks of the parent enterprise or its group (subsidiary or associate). Captive Insurance Companies are regulated by the provisions of the Insurance Companies Law, and may be registered in Cyprus as offshore companies under certain provisions and requirements imposed by the Central Bank.

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