Cyprus historically established itself as a popular tax haven with an exceptionally low flat rate of corporation tax and strict privacy laws for businesses and individuals.
By Alex Fielding, tax adviser at Cassons.
The island has, however, undoubtedly lost its tax haven status in recent years, having met the European Union membership conditions since joining the EU in 2004 – which included an increase in its tax rates.
Today, Cyprus remains an attractive place to set up a company with one of the lowest corporation tax rates in the European Union of 12.5 per cent.
Certain areas of trading and investment are encouraged by the Cypriot government with lower effective rates of tax for specific activities, and a particular focus on those activities that are innovative.
With Cyprus being signatory to several worldwide Intellectual Property (IP) protection treaties it offers an ideal location for IP management and utilisation.
It has a favourable tax system which exempts the first 80 per cent of worldwide royalty income generated from IP.
This can result in an effective rate of corporation tax as low as 2.5 per cent on qualifying IP rights, such as copyrights and patents.
If you are thinking of exporting your company’s IP then a Cypriot holding company may be worth exploring.
Any staff seconded to Cyprus will be taxed on employment income there, so it is important to understand the income tax rules and rates.
Cyprus recognises that new businesses need expertise and therefore employment income for individuals who relocate to the island may be eligible for a tax exemption of up to 50 per cent for the first ten years.
The remaining 50 per cent of the salary will be taxed at progressive rates up to a maximum of 35 per cent. Social security contributions will need to be calculated separately.