Cyprus is still the TOP CHOICE for Corporate

The main points of the Troika bail –out/ bail-in plan for Cyprus have been finalized, putting an end to the continuous  speculations of commentators. The bail-out/ bail-in plan focuses on minimizing the expenses of the public domain by, among other provisions, reducing salaries, freezing hiring and terminating the provision for thirteenth salary.  Another main section of the bail-out plan has been the increase of public income by an increase of the taxes of luxury products such as alcoholic drinks and smoke products, an increase which again will affect only locals.

An increase of the corporate tax by 2,5% is anticipated within the next month although this is not expected to seriously affect foreign investment as the Republic of Cyprus will continue to have the lowest corporation tax of the European Union.  Foreign businessmen and investors will continue to enjoy the many benefits of the Cypriot advantageous tax system.

An increase of the Special Defence Contribution on dividends and interest is also expected (rates have not yet been confirmed) although once again only tax residents of the Republic of Cyprus will be subject to such contribution.

In the meantime, the President of the Republic and his advisors have prepared a 12-point plan for boosting growth and attracting investment which includes lifting of the prohibition of operating casinos in the Republic and tax exemption for corporate profits returning to the island. The plan will be submitted for approval by the Ministers approximately within a week. 

Moreover, the Government has announced  at the «Global Russia Business Meeting 2013» in Limassol-Cyprus a few days ago, the grant of the Citizenship to Russian investors of at least 3mEURO lost deposits in Cyprus.

Certainly two major banks in Cyprus have created a problematic situation in banking. However, the rest of the banks in Cyprus are in a solvent position , and let us not forget that as regards other jurisdictions for banking, in Europe or abroad, EU - IMF announced that Cypriot bail-in model will apply to all insolvent banks starting from 2015.

In light of the above, we would like to remind the many advantages of investing in the Republic of Cyprus and of the many opportunities this small island has to offer. Cyprus is considered to be one of the most promising business fora of the European Union and this is mainly because of its beneficial tax regime.

• Cyprus has a standard corporate tax rate, the lowest in the European Union.
•  No Capital Gains Tax (with the exception of real estate located in Cyprus).
• Tax losses can be carried forward indefinitely and can also be surrendered as group relief.  Mergers, takeovers and other re-organizations can take place within groups with no tax consequences. 
•  Added commercial value and monetary benefits due to the ability to register for EU VAT in Cyprus.
• Unilateral tax-relief for foreign tax suffered is given to all Cypriot companies.
•  Interest deduction is provided for borrowing costs.
•  A wide Double Tax Treaty Network with much more favorable provisions when compared to Tax Treaties that competitive jurisdictions have concluded as well as full application of  the EU Directives for advantageous tax planning
• Cyprus has been removed from the Russian Black List as from 1^st of January 2013. The signing of the Protocol with the Russian Federation is a solid foundation for serious tax planning as opposed to other competitive countries which are still in the process of amending their already existing Double Taxation Treaties.
• A Treaty for the Avoidance of Double Taxation with Ukraine has already been signed on the 8th of November 2012 which will come into force on the 1^st for January 2014 and will replace the Treaty now in place between the Republic of Cyprus and USSR.
• No withholding taxes.
• No thin capitalization rules.
• Absence of strict Controlled Foreign Company Legislation.
• Friendly Tax Authorities and possibility to obtain Advance Tax Rulings thus providing companies with certainty when it comes to their tax treatment.
• Trading in securities is essentially a tax-exempt activity as any profit from the disposal of any type of security.
• There is no withholding tax on dividend distribution to shareholders that are not Cyprus residents.
• Foreign dividends are tax exempt. ( subject to conditions)
• Exemption from tax of profits from foreign permanent establishments (subject to conditions).
• No minimum share capital required.
•   Capital allowances and exemptions for investing in intellectual property.

-The definition of Intellectual Property has now been amended in order to correspond to the definitions found under the Patent Rights Law of 1998 and the Intellectual Property Law of 1976. The definition now refers to all intangible assets such as copyrights, franchise,  patents and trademarks.  The new definition guarantees a wide interpretation of IP which coincides with existing legislation, further removing any ambiguities.

-What is more, the recent amendments now provide that 80% of the net income deriving from the exploitation of IP will be exempted from income tax.  An exemption will also apply to 80% of the net profit produced by the disposal of such IP by a Cyprus tax resident company.

 -Another welcomed amendment was the introduction of capital allowances at the rate of 20% of the cost of acquisition. It is worth mentioning that capital allowances were not provided for IP prior to the revised law.

The island’s exceptional geographical location and the recent breakthrough in the energy sector, if handled with diligence can result in significant positive consequences. The discovery of huge reserves of natural gas in the EEZ of Cyprus will most certainly attract major investments from around the world and this was evident by the huge media interest and immediate reaction of license applicants.  Cyprus has committed to advance in the sector of energy always in line with international and EU law and with respect to its neighboring countries. This recent discovery will almost certainly mark the island’s course in history and restructure its strategic significance.

The Memorandum signed with Troika has guaranteed the full control of the energy revenues by the Republic of Cyprus.

Cyprus has a long history in the financial and corporate services sector. Cyprus has always been regarded as an exceptional setting for incorporating companies not just because of its advantageous tax system and its straightforward legal structure but also because of the island’s outstanding location at the crossroads of three continents, the low operating costs and its excellent professional services.  The strong ties we have with our clients, our long standing cooperation and alliance with our Russian friends will not so easily be broken. We have built our foundations on solid grounds and we are confident that with hard work, professionalism and our valuable experience we will be back and stronger than ever.

Authors:

Georgia Constantinou Panayiotou, GCP LAW OFFICE

Licensed member of the Cyprus Bar Association

Law Degree (Athens), Cert. (Harvard), ACIArb., LL.M.(Leicester)   

Georgia Papa, G.S.L. LAW & CONSULTING LTD

  LL.B (Leicester), LL.M (King’s)