It is no secret that Cyprus is among the top European nations for tax incentives for residents and companies, but establishing a Cyprus Ltd leads to many more advantages for both new and relocating companies.
The Aspen Trust Group goes over the basics for company formation and the ways you can use a Cyprus Ltd. or other structure to do more with your business.
The Business of Doing Business in Cyprus
Cyprus was selected as one of Forbes’s “Best Countries for Business” in 2019. With a thriving business market, companies are finding the jurisdiction a perfect place to conduct business affairs and promote healthy business growth. It is also one of the easiest places to conduct business according to the World Bank Group.
The advantages and ease of setting up a Cyprus Ltd. have also resulted in 12.2% of the population being involved with start-up endeavors, the highest in the EU. Governmental initiatives such as the Fast Track Business Activation Mechanism have also given rise to the popularity of jurisdiction for company formation.
Discover why so many foreign nationals are selecting a Cyprus Ltd. as the right business move for their company.
Types of Company Registration in Cyprus
For entrepreneurs or established business owners looking to form a company in Cyprus, there are three routes they could take in joining the Cyprus market landscape:
- Private limited liability company (Private Cyprus Ltd.) by either shares or guarantee (most popular option)
- Public limited liability company (Public Cyprus Ltd.)
- Sole proprietorship
In more details, these company structures offer a wide range of options:
1. Private Cyprus Ltd.
There is no requirement for the minimum share capital for a private Cyprus Ltd. and only needs one shareholder. They must also have a director and a company secretary but either of the two can coincide with the same individual who is the shareholder.
2. Public Cyprus Ltd.
A public Ltd must have over 25,630 Euros in minimum share capital and also meet the seven shareholders and two directors requirements.
3. Sole Proprietorship
Before the Non-Dom policy change for tax residency, sole proprietorships were a favorite among entrepreneurs and digital nomads as a tax solution. However, the new rules of Non-Dom tax residency status discussed later in the article have often made setting up a Cyprus Ltd. just as easy and financially beneficial. Further, individuals with a sole proprietorship are personally liable whereas under a private and public Ltd. they only have limited liability.
Under a sole proprietorship, individuals are taxed based on income and are allowed to exempt the first 19,500 Euros. After that the rates of income tax rise progressively between 20 and 35%, a range still favorable to tax rates in other European countries. Following certain requirements under the CFC, most business owners can have the freedom to determine their business activities as long as the government and tax office guidelines are met.
Important Conditions for Any Cyprus Company
All Cyprus company owners need to be aware that the company must have a physical and registered office space in Cyprus and must be maintained or rented for the entire year, in order to comply with EU substance regulations. P.O. boxes will not be permitted.
In addition, new 2021 governmental policies, aimed at improving transparency, mandate that newly registered companies have 30 days to provide data on the ultimate beneficial owners of the company to the Cyprus Register. Every December forward, they will need to update and confirm this data.
Tax Residency Factors for Individuals Considering Cyprus Company Formation
Many European residents, especially as a result of Brexit, have already opted to relocate their businesses to Cyprus to further their business ventures. Cyprus provides a high quality of life and an affordable lifestyle compared to many other European jurisdictions. Establishing a limited liability company and setting up the necessary bank accounts can be done swiftly. The registrar of companies makes it stress-free for Europeans to relocate or start new business endeavors in Cyprus.
Non-European residents are also choosing Cyprus as the perfect place for company formation as tax policies for individuals and the EU member status opens the door for increased business growth and expansion. As the nationality of individuals registering a business is irrelevant, Cyprus Ltd companies present equal opportunity in business establishment and incentives. Moreover, industries all across Cyprus are experiencing a major upward trend and the cross-over between sectors is helping create a unique, modern business environment, from the financial service sector to shipping and start-ups.
Tax Resident Status and Non-Dom Incentive
There are two ways to achieve tax resident status in Cyprus for non-domiciled individuals (Non-Dom):
- 183-Day Rule: Spend a minimum of 183 days out of the tax year in the country
- 60-Day Rule: Spend a minimum of 60 days out of the tax year in the country but do not spend more than 183 days in another jurisdiction; do not meet the requirements of tax resident for another jurisdiction; maintain a permanent residence in the country; engage in business in Cyprus
Under these regulations, Non-Dom tax residents receive tax benefits for 17 years before being considered domiciled. All tax residents are granted an exemption of 19,500 Euros from personal income tax and then progressive rates from 20-35%. Beyond this, all individuals are also expected to contribute 2.65% of salaries and income, including dividends and interest, to GeSY while employers pay 2.9% on the salaries of their employees. Similar to corporate tax for companies, there are no taxes imposed on dividend and interest income, disposal of shares, capital gains with the exception of a tax rate of 20% on real estate, estate duty, wealth, inheritance, or gifts.
Incentives of a Cyprus Ltd.
Company formation in Cyprus comes alongside numerous advantages for business owners.
The most commonly sought and possibly one of the biggest selling points of the jurisdiction is its favorable tax climate. The corporate tax rate is only 12.5% which is among the lowest in the EU and comes with an IP tax rate of 2.5% for those that qualify, nearly half of the next lowest rate in Europe. In addition, Non-Dom shareholders and directors are exempt from the Special Defence Contribution tax (SDC) for the 17 years they are deemed non-domiciled and may pay out dividends from the company tax-free. Any registered Cyprus Ltd. is considered a tax resident company and is taxed on dividend income (17%), interest income (30%), and rental income after a 25% deduction (3%, effectively 2.25% after deductions). Under new resident tax company law, all tax residents under a Cyprus Ltd. will also need to pay a contribution fee of 2.65% on dividends, interests, and salaries to GeSY, the national healthcare system.
While at first glance, the tax rates may seem less than ideal, the jurisdiction does not impose a tax on withholdings, dividend income, disposal of securities, capital gains, inheritance, reorganizations, or entry or exits. The 0% withholding tax provides an attractive environment for establishing holding structures within the jurisdiction. A Notional Interest Deduction for new capital may apply and reduce the effective tax rate by 80% alongside the large reduction applied under the IP Box scheme.
An extensive network of double tax treaties provides tax solutions for both resident companies and individuals.
Beyond the financial benefits of a Cyprus Ltd., the geographical location of the country and the member status of the EU boost the outreach of Cyprus companies and expand their reach into critical markets.
As multiple industries continue to expand, Cyprus is becoming a hub for technology, shipping, financial services, and more as well as generating innovative infrastructure to better support the business landscape.
Read more about how restructuring foreign companies in Cyprus have added up to better business and finance solutions.
What to Expect for the Process and Costs
The process to open any type of company structure in Cyprus is not very difficult, however, working with a professional advisor can make the process smoother and more accurate.
The steps for company formation include:
- Decide the company type and register the company name under the reservation system of the Trade Register (name registration subject to a fee of roughly 30 Euros).
- Select a registered address in Cyprus for office location and appoint necessary company officers.
- Appoint a local agent, required for filing company registration.
- Prepare the relevant forms including the company’s Memorandum and Article and get them signed by the Shareholder and/or secretary
- File with the Cyprus Companies Registrar (company registration subject to a fee of 165 Euros OR a fee of 235 Euros without share capital).
- Complete tax registration and obtain a VAT number; social security; insurance; and pensions as the employer (no fee required).
- Apply for required licenses and permits through the local authorities, dependent on business activity.
The entire process takes approximately 2 to 3 weeks, although there may be delays from local authorities when approving pertinent licenses and permits.
Getting the Best Assistance with Set-Up of a Cyprus Ltd.
Cyprus limited liability companies offer a lot of flexibility for business owners without the additional burden of regulations, risks, and high taxation. Further, they are painless to set up and provide excellent expansion opportunities into other key markets around the world. The best part is that the formation of a Cyprus Ltd. means that you never have to go at it alone with the robust financial services industry in Cyprus. Quality financial services, such as those offered by The Aspen Trust Group, are a major component of the business landscape in Cyprus. The Aspen Trust Group offers services related to business set-up, accounting, immigration, and tax optimization, making it convenient to get all your business needs taken care of by one quality service provider.
Achieve the type of business you deserve and start earning the rewards of a Cyprus Ltd. with the professionals at The Aspen Trust Group. Consult with our experts for company formation and management services that will establish your successful business foundation!