Popular Tax Structures

Cyprus is most commonly used as an intermediate holding company jurisdiction especially:

• By groups of companies aiming at dividend income streams which, in most cases, are tax exempt
• To hold subsidiaries for significant capital appreciation that may be sold in the future as profits arising from disposals are tax exempt
• For repatriation of profits as dividends, interest and royalties without payment of withholding tax
• By funds or investment vehicles, as there is no tax on transactions in securities

Cyprus is fast becoming one of the top emerging investment fund centers

in Europe which is backed up by its strong network of financial and professional services providers. If current growth rates are sustained, assets under management are expected to rise to an incredible €20 billion in the next five years.

Alternative Investment Funds (AIFs) are governed by the Alternative Investment Funds Law of 2014 and are authorised and regulated by the Cyprus Securities and Exchange Commission.

Why Cyprus for Investment Funds

• EU member state compliant with EU laws and regulations
• Eurozone member
• Strategic geographical location between Europe, Middle East and Africa
• Mature business center with highly qualified professionals and sophisticated infrastructure
• Extensive range of excellent legal and accounting services
• Cost-effective setting-up and ongoing operational services
• Favourable EU and OECD-approved tax regime
• Access to an extensive network of double tax treaties allowing for tax efficient structuring of investments
• Efficient and up-to-date regulation, fully harmonised with related EU Directives
• Collective investments can be listed on the Cyprus Stock Exchange and other recognised EU stock exchanges
• Cyprus-based funds and asset managers benefit from low tax burdens levied on Cyprus-based corporations
• Incentives and tax benefits for high-earning managers and high-net-worth individuals

A “qualifying intangible asset” is an asset which was acquired, developed or exploited by a person in furtherance of his business, (excluding intellectual property associated with marketing) and which is the result of research and development activities and includes intangible assets for which only economic ownership exists.

These assets are:

• patents as defined in the Patents Law
• computer software
• other IP assets which are legally protected and they fall under one of the following:
  • utility models, intellectual property assets which provide protection to plants and genetic material, orphan drug designations and extensions of protections for patents
  • non-obvious, useful, and novel, where the person which utilizes them in furtherance of a business does not generate annual gross revenues exceeding €7.500.000 (in case of a group of companies not exceeding €50.000.000), which are certified as such by an Appropriate Authority in Cyprus or abroad
  • Business names (including brands), trademarks, image rights and other intellectual property rights used to market products and services are not considered as qualifying intangible assets

In calculating the taxable profit, 80% of the overall profit derived from the qualifying intan­gible asset is treated as deductible expense.

Group Finance Companies perform the following functions:

• Sourcing external debt finance
• Accumulation of interest income and tax optimization of high tax country group operating companies
• Redistribution of funds within the group

The use of Cyprus entities for group finance are extremely attractive. Cyprus finance companies can fulfill intra-company and inter-company financial management functions, such as granting of loans for project financing or working capital requirements. Interest payments to the Cyprus financing company is tax deductible in the country of the borrower reducing the overall corporation tax liability. Choosing the right international jurisdiction for the use of double tax treaties can reduce or eliminate withholding taxes on interest payments.

These structures are particularly attractive for investment into high-tax countries where, local rules permitting, high debt structures are widely used.

Cyprus Companies may provide services such as sales promotion, accounting function, provision of labour / executive staff, consulting, market research, commission agency, intermediation, client introduction and many others. They may employ expatriate staff, who benefit from double tax treaty provisions, by paying tax and social insurance in Cyprus at low rates, thus avoiding the high tax rates in their home country.

In this way, profits made by the Cyprus Company are taxed at 12,50%, instead of higher corporate tax rates.

The accession of Cyprus to the European Union in 2004 boosted further the registration of vessels in the Cyprus Registry as Cyprus is one of only two countries in the European Union with an “Open Registry”.

In 2010 a new tonnage tax system was introduced with the approval of the European Commission. It provides incentives and benefits to all three main sectors of the shipping industry, being ship owners, charterers and ship managers.

In summary, advantages of the Cyprus tonnage tax system include:

• No income tax on shipping profits including profits from the sale of ships
• No tax on dividends paid from shipping profits
• No estate duty or capital gains tax
• No income tax in Cyprus for foreign crew
• No stamp duty on documents or mortgage deeds

The Cyprus registry, reputed for its quality and safety, is the third largest merchant fleet in Europe and the 11^th largest in the world. Cyprus is also the EU’s largest ship management center, with one in five vessels under third party management controlled from Cyprus, and is one of the three largest centers globally controlling a fleet of 2,500 vessels. Most of the 200 ship-owning, management and other shipping-related companies in Cyprus are influential names internationally.

In addition to tax incentives and the country’s excellent geographical position, this achievement is due to the cost competitiveness of the Cypriot Ship Registry, the Island’s well-developed maritime infrastructure, its excellent international relations as well as the high standard of services offered to international shipping.

Committed to boosting this highly promising sector, the government of the Republic of Cyprus introduced a package of incentives encouraging international producers to choose Cyprus as their next film destination. In specific, production companies that opt to film in Cyprus will be able to choose between cash rebate or tax credit and can also benefit from tax discounts on investments made on equipment and infrastructure, and VAT returns on expenditure in scope.

Qualifying production categories include, amongst others, feature films (including animation), television series or mini-series, documentaries for theatrical or television release, animation (digital or analogue), television research programs and natural history.