Exciting Tax Planning Potential in Cyprus
The island of Aphrodite is the new EU paradise for High Net Worth Individuals (HNWI) and multinationals. The country has adopted measures favorable to HNWI and multinational companies in search of a low taxation regime, a EU residence or a EU passport. We shall analyze here after the New Cyprus package, starting with the tax incentives (1), following with the non-tax incentives (2), the acquisition of a permanent residence permit (3) and, finally, the acquisition of Cypriot nationality through the process of naturalization by exception (4).
1. Tax incentives
The amendments aim to attract high net wealth individuals and international Groups that could locate their regional headquarters in Cyprus by modernizing the framework of the Cyprus tax system and improving Cyprus’ competitiveness as an international business center.
Main relocation incentives are as follows :
1) No Taxation of dividends or interests for resident HNWI : Individuals who are resident but not domiciled in Cyprus are now exempt from Social Defense Contribution Law in dividends and passive interest. Before 16 july 2015 special defense contribution was payable by Cyprus tax resident individuals and payable on rental income, dividends and interest earned by the tax resident individual both from sources within Cyprus and outside Cyprus. Henceforth, only taxpayers who are both resident and domiciled in Cyprus are subject to Special Defense Contribution. Physical persons are considered domiciled if they have been a tax resident for 17 or more of the 20 tax years immediately preceding the year of assessment.
2) Interest deduction for new equity capital : Cyprus companies and Cyprus permanent establishments of foreign companies can since 1st January 2015 take advantage of a deemed interest deduction from their taxable income on new equity (paid-up share capital and share premium) injected to the Company after 1st January 2015 as long as such capital injection is used for financing the Company’s business. The deemed interest is calculated through the yield of the 10 year government bond of the State in which the new equity is invested plus a 3% premium. This measure copies the belgian system of notional interest deduction which has contributed to make Belgium a first-class destination for multinational companies.
3) Extended tax exemption for senior staff relocated to Cyprus : 50% of the income from employment for a physical person relocating to Cyprus is now tax exempted for a period of ten years if the income exceeds €100.000 per annum while the exemption was previously for five years.
4) Extended annual capital allowances for fixed asset expenditure : companies benefit from wear and tear allowances that have been settled for tax years 2012-2014 and now extended to years 2015 and 2016. Are deducted from the taxable income : Plant & Machinery, Buildings, Ships, Tools and other specialized fixed assets (armored cars, photovoltaic systems).
2. Non-tax incentives
Those new tax incentives enhance corporate substance and improve the tax efficiency of their international operations. Besides, the country has convenient legislation in place to protect the privacy of Business Companies, owners of Cyprus trusts and offshore bank account holders. Secrecy is required and disclosure of information in Cyprus offshore bank accounts is prohibited and punishable by the law, which is based upon English Common Law. Furthermore, excellent infrastructure in Cyprus allow clients to create substance to their tax planning in the form of setting up fully-flexed offices and operations. Compared to other EU jurisdictions, expenses for financial and professional service and all associated costs are not high and Government services as well as Tax authorities are efficient and reliable.
Cyprus tax planning | Hance Law Firm
3. Acquisition of Cyprus permanent Residence Permit
A non EU national has the possibility to obtain a permanent residence permit in Cyprus (category F). The decision of the Minister of Interior of the Republic of Cyprus, dated on 7/05/2009 reports that a non EU national buying a residence for himself and his family of €300.000 and more will be approved permanent residence. Applicants must have a secured annual income which provides them and their family with a decent living in Cyprus. The income must come from legal sources and outside Cyprus. However, applicants do not need to engage in any business or exercise a profession to apply for permanent residence.
4. Process of naturalization « by exception »
They may also apply for Cypriot citizenship through « naturalization by exception ». The qualification may either be done personally or through a company/companies in which s/he acts as a shareholder or even as a high-ranking senior manager. The alternative operations for the acquisition of the Cyprus citizenship by exception are : Investments to the State Fund, Directs investments, Deposits in banks, Mixed investments, Business activities, Impairment in deposits due to the Eurogroup measures or through special collective investment schemes. The five first operations must amount to EUR 5 million. Concerning the sixth operation, the impairment loss must amount to EUR 3 million. As for the last type of operations, the minimum investment amount is reduced from EUR 5 million to EUR 2.5 million when several applicants jointly apply for citizenship with a total minimum investment of EUR 12.5 million as provided for by the Major Collective Investment (MCI) route enacted in April 2013.
Starting Business in Cyprus
Hance Law shall be delighted to assist you with tax optimization services. Our team together with our associate law firm in Cyprus shall assist you from the structuring and launch of your company :
• Drafting of the incorporation documents (articles of incorporation, constituting general meeting of shareholders and attached documents) of the company
• Interacting with the Financial Authorities
• Registering the company with all tax authorities and notables VAT
• Accounting services
• Nominee shareholders and nominee director services
• Domiciliation services
• Staffing and Recruitment services
Contact us for more information
Hance Law Avocats, 3A Sentier de l’Esperance – L-1474 Luxembourg
www.hance-law.com – Tel: +352 274 404 – email@example.com