Taxation

Cyprus companies are taxed at the rate of 10% on their taxable income. All expenses incurred in earning the income are tax deductible.

Capital gains are tax free in Cyprus (except on immovable property located in Cyprus) or on shares representing immovable property located in Cyprus.

The provision of services and the sales of goods by the Cyprus company are outside the scope of Cyprus Value Added Tax.

There is no withholding tax on the payment of dividends, interest, royalties and management fees from a Cyprus company to non-residents.

Expatriate employees of a Cyprus company are taxed as follows:-

•  Working in Cyprus – taxed at rates between 0%-30%.
•  Working outside Cyprus – exempt.
•  There is no estate duty, annual capital taxes or wealth taxes.

The Treaty With Russia

The old treaty between Cyprus and the USSR was applicable until 31st December 1999. A new treaty is now applicable as from 1st January 2000.

Under the treaty are no withholding taxes on the payment of:

•  Interest       
•  Management fees
•  Royalties
•  Leasing of equipment

In relation to dividends the treaty provides for 5% withholding tax if the investment is greater than US$100.000 otherwise 10% is applicable.

Income from movable property, including capital gains, is not subject to tax in Russia. Income from immovable property, including capital gains, is taxed in Russia.

The treaty applies to persons (individuals or corporations) which are taxed in Cyprus by reason of domicile, incorporation or place of management.

A tax exemption certificate is required to be obtained from the Russian tax authorities, which is given on the basis of tax certificate obtained from the Cyprus tax authorities.

Structuring The Investment Activity

The investor sets up a Cyprus company, either by himself or together with other interested parties.

The Cyprus subsidiary becomes the partner in a Russian joint stock company.

The Russian Joint Stock company becomes the operating company in Russia, which generates all income.

The Russian Joint Stock company pays Russian taxes on its profits and distributes the dividend to its shareholders at reduced withholding taxes. Russian taxation may be reduced by charging management fees, interest, royalties etc.

The Cyprus company will pay Cyprus income tax on the dividend received but it will claim a tax credit for the 5% tax paid in Russia. It can then distribute the after tax profits to its shareholder without any withholding tax.

The investor can sometimes treat the dividend as exempt surplus and not pay any tax in his country (e.g. Canadian investor).

Many different structures can be set up. These are to be designed taking into consideration the merits of each case

Matters To Be Considered

Avoidance of permanent establishment in Russia by making sure that no services are provided in Russia by employees of the Cyprus company.

Avoidance of having mind and management in the investors country.

Maintenance of an office in Cyprus where administrative services are provided.

Employment of personnel in Cyprus either expatriate or local.

The majority of the Board of Directors are residents of Cyprus.

Bank accounts are maintained and operated from Cyprus.

Keeping of accounting records is carried out in Cyprus and all documents are kept in Cyprus.

Advantages Offered By Cyprus To Companies Establishing Offices In Cyprus

Availability of office and housing accommodation at very competitive rates and of high standard.

Telecommunication facilities rank amongst the best in the world.

Air connections with Europe, Russia and the Middle East.

Qualified personnel at very competitive rates. Salaries are about 60% of rates in Europe.

Excellent climate and very high standard of living and education facilities.

Working permits are easily granted to expatriate employees.

NOTE:  The above is intended to provide a brief guide only. It is essential that appropriate professional advice is obtained. Our company will be glad to assist you in this respect. Please do not hesitate to contact us.

Company Name

The name of a company must be approved by the Registrar of Companies before the whole registration procedure commences. Names of companies similar to existing company names are not approved. Likewise, names of a “general meaning” are not approved. Finally, names including words like “Royal”, “Queen”, “King”, “Saint”, “Common-wealth”, International”, “Bank”, etc, are not approved either.

Company names are approved in one week’s time unless an “accelerated application” is made to the Registrar of Companies in which case, a reply is given within 24 hours. Company names must end with the word “Limited”.

It is advisable that a range of names is given to the Registrar of Companies to avoid unnecessary delay.

Our company maintains a list of already approved names by the Registrar of Companies. The registration of the company may therefore commence immediately if one of these names is chosen. The list of already approved names is available on request.

 Main Objects/Purpose of the Company

The main objects/purpose of the company must be stated in the first paragraphs of the proposed company’s Memorandum and Articles of Association.

 Share Capital

The Cyprus Companies Law provides for a minimum of one share and at least one registered shareholder. The minimum required share capital for a  company is Euro 100 whether the company will have an office in Cyprus or not.

The share capital may be subdivided into denominations. “Ordinary”, or “Preference” shares may be issued. “Preference shares” are very rarely used.

Bank Reference

A bank reference is required by our company for the beneficial shareholder of the company.

A sample of the Bank reference is available upon request. Bank references obtained from the banks based in Cyprus are not acceptable. Bank references should ideally originate from the country in which the beneficial shareholder resides or carries out his business.

Our company also requires copy of the passport of the beneficial shareholder and proof of his/her address. In the event that the beneficial shareholder is a local body our company requires a certificate of its incorporation and a bank reference. We also require a detailed description of the indented objects of the company to be registered.

Shareholders

The minimum number of “registered shareholders” should be one. The minimum “beneficial shareholders” could also be one. Shareholders can either be individuals or legal corporate entities. Trusts may also be shareholders in a Cyprus company.

Shares may be held by trustee companies for the benefit of beneficial shareholders to preserve their anonymity. Trust Deeds are signed by the trustee in order to completely safeguard the interests of the beneficial shareholders.

We can procure trustee entities for this purpose.

The identity of the beneficial shareholder is kept absolutely confidential if a nominee trustee is used.

Directors

At least one director is necessary. The directors may be local Cypriot individuals or foreigners. It is generally advisable to appoint local directors if one wishes to have effective management and control in Cyprus rendering the company resident in Cyprus for tax purposes. A corporate entity may act as director.

Nominee directors may be provided by our company. The name, address, nationality, passport number and occupation of each director is required.

Secretary

An individual or a secretarial company must be appointed. We can procure the appointment of a secretary if required.

Registered Office

The registered office of the company must  be  in  Cyprus.  The   registered office address is the official address of the company where the statutory books, registers, and the seal of the company should be kept. Summons and writs are also served at the registered office address.

We can procure registered office services in Cyprus.

Confidentiality

With the use of trustee shareholders together with the appointment of a nominee director one can ensure complete confidentiality and anonymity of the beneficial shareholders. 

Timing

The time needed to register a company in Cyprus is around 10-15 working days. However, an accelerated service is available at the Registrar of Companies office whereby a company may be registered very quickly, provided of course the name of the proposed company has already been approved.

Shelf companies

A number of already registered companies are available at Alterego. Transfer of shares may be effected by application to Registrar of Cyprus Companies.

The list of the already registered companies (shelf companies) is available on request.   

NOTE:  The above is intended to provide a brief guide only. It is essential that appropriate professional advice is obtained. Our company will be glad to assist you in this respect. Please do not hesitate to contact us.

Welcome to the Alterego Articles blog. Here we will be posting essential information on incorporation in various jurisdictions, trust formation internationally, tax articles and numerous other entries to keep our readers at the forefront of the offshore world. Some articles will be written directly by our expert staff and we will also research professional literature from around the world and bring it all to you here.