As a result of the numerous tax advantages that are offered, Cyprus companies are widely used by foreign investors in their tax planning. The most popular uses of such companies are as follows:
1. Holding companies
The main advantage of such a company is that on the disposal of shares they do not attract any tax in Cyprus. Therefore where gains arise as a result of disposal of shares in subsidiaries no tax is payable on the gain arising in the Cyprus company.
Overseas dividend income is exempt from tax in Cyprus irrespective of its source, provided certain conditions are satisfied. Where the exemption does not apply, 20% defence tax is payable for the year 2013 and 17% defence tax is payable as from 1.1.2014,
but credit for foreign tax suffered is given irrespective of the existence of a treaty.
2. Intellectual Property Rights companies
As from 1 January 2012 the cost for the acquisition or development of the intangible assets (being of a capital nature) is amortized over a five year period commencing from the year of the expense.
This provision is applicable for expenditure incurred by a person carrying on a business for the acquisition or development of intangible assets, as defined in the Patent Law, the Intellectual Property Right Law and the Trademark Law. These laws cover the following types and categories of intangible assets:
- Trade marks
- Intellectual property rights covering scientific work, literary work, musical work, artistic work, movies, database, recording, broadcast, publication.
In accordance with the changes, eighty percent (80%) of the profit arising from the use of the intangible assets (including compensation for improper use of such assets) as well as out of the profit of their sale is deemed as an expense in arriving at the taxable income. The 80% deduction applies on the profit after
deducting all direct expenses, such as amortization of the assets, interest expenses to finance the acquisition or the development of the assets, as well as any other direct expenses.
3. Trading companies
There are various reasons for setting up foreign trading companies. These can be summarized as follows:
- The possibility to qualify for a low corporate income tax rate for profits derived from the trading activities.
- The possibility to obtain a European Union VAT number.
- The opening of local bank accounts and obtaining local banking credit facilities.
4. Shipping companies
Cyprus being a low tax jurisdiction is ideal for the incorporation of shipping companies. It offers a very advantageous tax regime for ship owning and ship-management companies. Such companies conducting this kind of operations may qualify for full tax exemption over their income and may have to pay a relatively mild tonnage
tax in relation to their activities.
Through our associates on the island who are the leaders in ship registration services our firm assists the client with all the required procedures for a successful ship registration.