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Taxes for companies registered in Cyprus
Corporate Income Tax
Dividend tax at source
Royalty tax at source
Tax at source for interest
Tax at source for interest
Local director requirement
Registration of a company in Cyprus
KEY BENEFITS OF USING COMPANIES IN CYPRUS
A fairly low corporate tax rate compared to other European companies - 12.5%.
It is not an offshore jurisdiction, including from the point of view of Russian law.
Member of the European Union since 2004.
The country used by Euro since 2008.
Stable corporate and tax laws.
Favorable regime for holding companies: dividends received by the company are exempt from income tax.
Favorable opportunities for organizing a real business.
Availability of double taxation avoidance agreements with Russia and another 54 states.
Details of conducting international business through a legal entity in Cyprus
Cyprus is the third largest and third most populated island in the Mediterranean. Geographically refers to Asia, politically to Europe. Cyprus is located in the eastern Mediterranean at a distance of 380 km from Egypt, 105 km from Syria and 75 km from Turkey. The island is 240 km long and reaches 100 km in width from north to south. Area 9251 km.
In fact, the island is divided between 3 states: 36% of the territory is controlled by the partially recognized state of the Turkish Republic of Northern Cyprus, 3.7% - by the UN (buffer zone), 2.7% - Great Britain (military bases) and 57.6% - the Republic of Cyprus.
Cyprus signed the 1961 Hague Convention. Cyprus is a member of the European Union and the Euro zone. Government structure - parliamentary republic. The head of the republic is the president. The legal system is based on English common law. The currency is Euro.
Types of companies in Cyprus
The main legislative act regulating the activities of enterprises in Cyprus is the Law on Companies. Registration of companies in Cyprus is possible in the following forms:
Private company limited by shares – closed type limited liability company.
Public company limited by shares – open type limited liability company.
Exempt private company – closed tax exempt company.
Company limited by guarantee – company with liability of participants within the guaranteed amount.
Package of documents at registration of a Cyprus company
If nominee service:
Apostilled power of attorney from the nominee director.
A set of documents signed by the nominee director (minutes of the meeting, registers, certificate of shares, etc.).
Declaration of trust from a nominee shareholder in favor of the beneficial owner.
Nominee Service Agreement.
Corporate income tax
Corporate Income Tax Rate – 12,5%.
The following operations are not subject to corporate tax.:
Dividends received by a company registered in Cyprus from both a local company and a foreign company.
Profit from the sale of shares (shares).
Expenditures for tax purposes can be deducted from income subject to proper documentary evidence.
In Cyprus, an advance tax payment system is in place - companies that expect to receive profit in a calendar year pay a tax on the expected profit. Cypriot companies must calculate and pay tax on the expected taxable profit of the current year (paid in two parts). The declaration of the expected profit and the payment of the first part of the tax are carried out until July 31, and the payment of the second part - until December 31.
If the final amount of tax liability (according to the financial statements confirmed by the auditor) exceeds the previously calculated amount of tax on expected profits by more than 25%, a penalty of 10% of the difference will be charged. To avoid this situation, the company has the right to submit an updated tax calculation on the expected profit (with a more accurate profit forecast) at any time until December 31 of the current year.
A Cyprus company that did not submit expected income tax calculations, however, according to the financial statements, a tax is payable, in addition to the tax amount, a penalty of 10% of the total tax is charged.
For non-payment of the self-determined and declared tax in due time, a penalty of 3.5% is charged and entails a fine of 100 Euro. Failure to submit a tax return upon a written request of the tax authority within the time period indicated in the request entails a fine of 200 Euros for each notification.
The tax at the source of payment is not withheld when paying dividends and interest by a Cypriot company to non-resident individuals or legal entities.
Royalties for the use of intellectual property rights in Cyprus and paid to non-residents of Cyprus are subject to a 10% withholding rate. If intellectual property rights are not used in Cyprus, royalties are not taxed at source. The rate may be reduced in accordance with the applicable Double Taxation Treaty or the EU Interest and Royalty Directive.
Defense Tax (SDC)
A defense tax is payable on certain types of income from sources in Cyprus received by companies and individuals resident in Cyprus.
With interest income received by the company out of touch with its core business, at a rate of 30%.
From rental income (from 75% of the amount of income) - at a rate of 3%.
Dividends received from a non-resident company in Cyprus (in cases where more than 50% of the profit of the company that paid the dividends is received from investment activities, and the tax rate in the country of the company that paid the dividends is “significantly lower” than the tax rate in Cyprus) - at the rate 17% In other cases, SDC is not charged.
With "conditionally distributed" dividends. If a company does not distribute its profit after tax within 2 years after the end of the tax period in which it was received, then 70% of such profit will be considered conditionally distributed and, net of the amount of dividends actually paid, will be taxed by SDC at a rate of 17%. However, this rule does not apply if the shareholders of the company are not tax residents of Cyprus.
The obligation to pay this tax does not apply to non-residents of Cyprus.
Who is recognized as a tax resident of Cyprus for tax purposes?
A Cyprus tax resident is a company that is managed and controlled in Cyprus.
The following factors are generally taken into account:
On the board of directors, most managers must be residents of Cyprus.
Venue for key decisions of the company (venue of the meeting of the board of directors/managers).
The place where the financial statements of the company are prepared and audited.
The board of directors has control over a company’s bank account in Cyprus.
The place where the company seal is used and documents are signed.
Cyprus resident companies and branches of foreign companies pay corporate tax on all global income.
Cyprus non-resident companies only pay tax on income derived from sources in Cyprus.
The fact that a Cyprus company does not have resident status makes it impossible to use the preferential provisions of double taxation agreements.
VAT in Cyprus
The standard VAT rate in Cyprus is 19%.
A company is required to obtain a VAT number if, at the end of any month, the value of taxable VAT operations for the previous 12 months was more than EUR 15,600 (or there are reasonable grounds to believe that the value of taxable VAT operations will exceed EUR 15,600 within the next 30 days).
Voluntary registration for VAT is possible. In this case, the company is obliged to prove to the tax service that it carries out or plans to carry out taxable operations that give the right to deduct the input VAT.
A company with a VAT number must file a VAT return quarterly. VAT is paid no later than the 10th day of the month following the month in which the next tax period has ended.
If a Cypriot company’s operations with a VAT number are carried out with VAT companies from other European countries, then in addition to VAT reports, it is also necessary to submit a monthly VIES report (VAT Information Exchange System) containing data on the company’s supplies within the EU. The VIES report is submitted no later than the 15th day of the month following the reporting one.
Late submission of a VAT or VIES-report shall entail the accrual of penalties and fines.
Special Tax - Defense Tax (SDC)
Charged from certain types of income from sources in Cyprus received by companies and individuals - residents of Cyprus. The requirement to pay this tax does not apply to non-residents.
Residents of Cyprus pay defense tax on the following income:
Cyprus Company Reporting
All Cypriot companies are required to keep records, prepare and file financial statements (annual accounts) with the conclusion of a local certified auditor on an annual basis.
The financial statements of a Cyprus company for the past year must be filed with the Register of Companies no later than December 31 of the following year.
The company is registered before July 1 - the first financial statements are prepared for the period from the date of registration of the company until the end of the current year and are submitted next year.
The company is registered after July 1 - the first financial statements can be prepared for a period of up to 18 months (that is, for the remainder of the current year and the whole of the next year).
The annual report of the Cyprus companies contains the following information: information about the registered office, current members, directors and secretary of the company, share capital and debts of the company and some other data.
In addition, companies submit tax calculations and declarations within the time limits provided for by the tax laws of Cyprus.
Redomicilation to Cyprus
Foreign companies may register as a company continuing operations in Cyprus. Also, Cyprus companies can change Cyprus to another jurisdiction (provided that the legislation of such jurisdiction allows it).
Minimum authorized capital of companies in Cyprus
There are no requirements for a minimum share capital of companies in Cyprus. Issue and payment of at least one share is required. The capital of the company must be nominated in Euros.
Local requirements for companies in Cyprus
Shareholders and directors of the company can be both individuals and legal entities of any nationality.
Requires a secretary, an accompanying company, to comply with local laws.
Information about directors, shareholders is open.
Information on beneficial owners is not open and is subject to disclosure only in cases prescribed by law.
Companies are required to have a registered office in Cyprus.
Cyprus Government Gathering
It is 350 Euros and applies to all registered companies in Cyprus.
The period for paying the government fee in Cyprus is no later than June 30 of each year.
In case of delay of no more than 2 months, the amount of the fee increases to 385 Euro.
In case of delay in payment up to 5 months, the amount of the fee will be 490 Euro.
In case of non-payment of the fee for more than 5 months, the company is subject to deletion from the Register.
As a rule, it is included in the cost of annual servicing of the company.
Double taxation avoidance agreement between Cyprus and the Russian Federation
The agreement implies that in the state of the payer of dividends, the tax withheld at the source of payment should not exceed:
Interest and royalties are taxable only in the state of their recipient (that is, they are exempt from tax at the source of payment).
It is important to take into account the prevailing practice in Russia, taking into account the provisions of Articles 7 and 312 of the Tax Code of the Russian Federation regarding the confirmation of the actual right to income. Confirmation of this right is the basis for applying a reduced rate at the source for the payment of dividends. Tax practice is now being actively developed, and often the courts side with the tax inspectorate and confirm that the application of the reduced tax rate at source when paying dividends was not justified. In this case, the Russian company has to pay not only a significant tax arrears, but also a penalty.