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Company and Jurisdictions

Cyprus

International Business Company (IBC)

Legislation: Standard capital:
Companies Law, Cap 113 which resembles the English Companies Act, 1948. USD 50,000 being the maximum capital for the minimum duty payable annually.
Annual government fees: Corporate Taxation:
Euros 15. 10% uniform corporate tax rate but many forms of income are exempt.
Time to incorporate: Ready-made companies:
7 days after receipt of bank references on beneficial owners. Yes.
Minimum members: Registered office required:
One, individual or corporate. Yes, must be maintained in Cyprus at the address of a licensed management company or law firm.
Local registered agent: Minimum number directors:
Yes. One, individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection.
Officer to be locally resident: AGM required:
No, but a majority of Cyprus resident directors is required if the company wishes to utilise tax treaties. No.
Annual return required: Financial statements to be prepared and/or audited:
Yes, to the Registrar of Companies. Yes for submission to the tax authorities.
Balance sheets to be filed: Share register required:
No. Yes, at registered office
To be filed with Registrar: Open to public inspection:
Yes. Yes.
Exchange controls: Redomiciliation permitted:
Yes, foreign individuals and corporations need exchange control permission to hold shares in a Cyprus company. Yes, in and out.
Language of incorporation: Confidentiality:
English. Although details of the shareholders and directors appear on the public file, statutory confidentiality provisions protect the details of the beneficial owners supplied to the Central Bank.
Bearer shares permitted:  
No

 

Advantages

Disadvantages


  • Full member of the EU so can utilise directive 90/435 ideal as holding company.
  • Tainted by allegations of Russian money laundering.

International Agreements

OECD Harmful Tax Practices

Cyprus was one of six jurisdictions that gave an advance commitment to the OECD, on 24 May 2000, to exchange information with overseas authorities in criminal tax matters by 31 December 2003 and in civil tax matters by 31 December 2005.

Tax Information Exchange Agreement (TIEA)

In 1997, Cyprus entered into a bilateral agreement with Belgium for the exchange of information on money laundering.

EU Savings Tax Directive

Having recently become a Member State of the EU, Cyprus is required to collect and exchange information about savings income derived by taxpayers of other Member States, as of 1 July 2005.

Financial Action Task Force (FATF)

In its official report published in June 2000, the FATF recognised that the anti-money laundering system of Cyprus was in line with international standards and excluded Cyprus from the published list of “non-cooperative jurisdictions”.

Cyprus is a member of the Council of Europe’s MONEYVAL, and the Offshore Group of Banking Supervisors.

MOKAS, the Cypriot FIU, was established in 1997. MOKAS is a member of the Egmont Group and has signed memoranda of understanding (MOUs) with the FIUs of Belgium, France, the Czech Republic, Slovenia, Malta, Ireland, Australia, Ukraine, Poland, Canada, Russia, and Israel. Although Cypriot law specifically allows MOKAS to share information with other FIUs without benefit of an MOU, Cyprus is negotiating MOUs with the US, Venezuela, Bulgaria, Italy, and Romania.

Mutual Legal Assistance Treaties (MLATs)

A Mutual Legal Assistance Treaty between Cyprus and the US entered into force on 18 September 2002.

Tax Treaties

Revisions to Cyprus's corporate tax regime consequent upon its accession to the EU, and the abolition of the “offshore” sector as such, have made Cyprus more rather than less attractive as a tax treaty partner, and the island will need to revise many of its treaties as a result, as well as entering new treaties with additional countries.

The following countries have double-tax treaties with Cyprus:

  • Armenia
  • Austria
  • Belgium
  • Bulgaria
  • Canada
  • China
  • CIS (ex-USSR)
  • Czech Republic
  • Denmark
  • Egypt
  • Federal Rep. of Germany
  • Finland
  • France
  • Greece
  • Hungary
  • India
  • Ireland
  • Italy
  • Japan
  • Kuwait
  • Malta
  • Mauritius
  • Norway
  • Poland
  • Romania
  • Russia
  • Singapore
  • Slovakia
  • South Africa
  • Sweden
  • Syria
  • Thailand
  • Ukraine
  • UK
  • US
  • Yugoslavia (Serbia and Montenegro

General Info

Full Country Name: The Republic of Cyprus - The northern part of the island refers to itself as the “Turkish Republic of Northern Cyprus” ('TRNC'), but is only recognised by Turkey.
Area: 9,250 sq km (3,572 sq mi). 3,355 sq km are controlled by the 'TRNC'
Population: 754,064
Capital City: Nicosia (population: 195,000)
Nationality: Cypriot
People: Greek Cypriot (78%), Turkish Cypriot (18%), others (4%)
Languages: Greek, Turkish and English
Currency: Cypriot pound (CYP); CYP 0.4706 per US dollar (2004)
Government: Presidential Republic.
Legal system: based on common law, with civil law modifications
Head of State: President Tassos Papadopoulos

Geography

Cyprus is the third largest island in the Mediterranean, situated 60 km south of Turkey and 300 km north of Egypt. It has two mountain ranges the Pentadaktylos range (max height 1,042 m) along the north coast and the Troodos massif (Mt Olympus 1,953 m) in the central and south-western parts of the island. Between the two ranges lies the plain of Messaoria. Climate is Mediterranean hot, dry summers and changeable winters.


History

Under the 1878 Convention of Defensive Alliance between Britain and Turkey, Britain took over the administration of Cyprus from Turkey, although Turkey retained formal sovereignty. In 1914, when Turkey entered the First World War on the side of the Central Powers, Britain annexed Cyprus. British sovereignty was recognised by Turkey under the terms of the 1923 Treaty of Lausanne and Cyprus became a Crown Colony in 1925.

Following independence in 1960, tension between the Greek and Turkish Cypriots increased and culminated in serious intercommunal fighting in December 1963. From then until 1974 there were occasional outbreaks of further violence and the Turkish Cypriot minority retreated into small enclaves. A UN force was established in 1964. In 1974 Turkish troops landed in northern Cyprus following a coup on the island by extremists against the elected President, which was backed by the military junta then in power in Greece. The island has been effectively partitioned ever since and approximately 36% of the territory of the Republic is not under the control of the Government.

A "Green Line" buffer zone dividing the two parts from the coast north west of Morphou through Nicosia to Famagusta - is patrolled by United Nations troops. Successive UN Secretaries-General have made efforts to secure a settlement to the Cyprus dispute through intercommunal talks.

In 1983 the Turkish Cypriots announced the establishment of the “Turkish Republic of Northern Cyprus” ('TRNC'). The international community, apart from Turkey, does not recognise any state in Cyprus other than the Republic of Cyprus.

Government and Politics

Executive branch
Head of State: President Tassos Papadopoulos (since 1 March 2003); note - the President is both the head of state and head of government; post of Vice President is currently vacant; under the 1960 constitution, the post is reserved for a Turkish Cypriot
Cabinet:

Council of Ministers appointed jointly by the President and Vice President

Elections: President elected by popular vote for a five-year term; election last held 16 February 2003 (next to be held February 2008)
Election results: Tassos Papadopoulos elected president; percent of vote - Tassos Papadopoulos 51.5%, Glafkos Kliridis 38.8%, Alekos Markidis 6.6%
Legislative branch

Unicameral House of Representatives or Vouli Antiprosopon (80 seats; 56 assigned to the Greek Cypriots, 24 to Turkish Cypriots; note - only those assigned to Greek Cypriots are filled; members are elected by popular vote to serve five-year terms).

Elections: Republic of Cyprus: last held 27 May 2001 (next to be held May 2006); north Cyprus: last held 14 December 2003 (next to be held early 2005 because the government resigned)

Election results: House of Representatives - percent of vote by party - AKEL 34.71%, DISY 34%, DIKO 14.84%, KISOS 6.51%, others 9.94%; seats by party - AKEL (Communist) 20, DISY 19, DIKO 9, KISOS 4, others 4.

Judicial branch

Supreme Court (judges are appointed jointly by the president and vice president)

Political parties and leaders

Republic of Cyprus: Democratic Party or DIKO (Tassos Papadopoulos); Democratic Rally or DISY (Nikos Anastasiadhis); Fighting Democratic Movement or ADIK (Dinos Mikhailidis); Green Party of Cyprus (George Perdikis); New Horizons (Nikolaus Koutsou); Restorative Party of the Working People or AKEL (Communist Party) (Dimitrios Christofias); Social Democrats Movement or KISOS (formerly United Democratic Union of Cyprus or EDEK) (Yiannakis Omirou); United Democrats Movement or EDE (George Vassiliou).

The continued division of Cyprus dominates politics on both sides of the island. There have been several initiatives since 1974 to try to achieve a settlement of the Cyprus problem. All of these for one reason or another have failed. The latest UN-led effort to solve the Cyprus Problem came to an end on 24 April 2004 when the UN Secretary General’s Comprehensive Settlement Proposals (the “Annan Plan”) were put to separate and simultaneous referenda on both sides of the island. 65% of the Turkish Cypriots voted yes, the Greek Cypriots rejected the settlement by a three to one majority (76%). As a result, a divided island entered the EU on 1 May 2004. The whole island is a de jure Member State, but the acquis (the EU's body of laws) is suspended in the north.

Economy

Basic economic facts

GDP (2004 est.): US$15.71 billion

Growth rate (2004 est.): 3.2%

Per capita GDP (2004 est.): US$20,300

Main Industries: tourism, financial services, food, beverages, textiles, chemicals, metal products, wood products

Cyprus has an open, free-market, serviced-based economy with some light manufacturing. Cyprus's accession as a full member to the European Union as of 1 May 2004 has been an important milestone in the course of its economic development. The Cypriots are among the most prosperous people in the Mediterranean region. Internationally, Cyprus promotes its geographical location as a "bridge" between West and East, along with its educated English-speaking population, moderate local costs, good airline connections, and telecommunications.

In the past 20 years, the economy has shifted from agriculture to light manufacturing and services. The service sector, including tourism, contributes 75.7% to the GDP and employs 70.7% of the labour force.

The Republic of Cyprus is a major regional financial centre with a robust financial services industry, both domestic and offshore, which contributes about 6.1% of the country’s gross domestic product. The development of the offshore financial sector in Cyprus has been facilitated by the island’s central location, a preferential tax regime, double tax treaties with 33 countries (including Eastern European and former Soviet Union nations), a labour force particularly well trained in legal and accounting skills, a sophisticated telecommunications infrastructure, and relatively liberal immigration and visa requirements.

In July 2002, Cyprus introduced a major amendment to its tax laws resulting in a uniform tax rate of 10% for all enterprises in Cyprus, irrespective of the permanent residence of their owners. As of 1 January 2003, the so-called "ring fencing" of business enterprises and banks, owned by non-residents has been abolished. As a result, there is reportedly no longer any distinction between local companies and offshore international business companies (IBCs). Both the prohibition from doing business locally and the preferential tax treatment that distinguished IBCs from local companies have been abolished. The tax revision includes a grandfather clause, allowing existing IBCs to opt to maintain their former tax status of 4.25% for a transitional period until the end of 2005. The Cypriots state the distinction between domestic companies and IBCs will cease entirely on 1 January 2006, when the transition period expires, effectively ending the offshore IBC sector in Cyprus.

Similar provisions were introduced for offshore International Banking Units (IBUs), branches or subsidiary companies of established foreign banks, which had cumulative assets of US$9.8 billion at the end of 2004. According to the government, as with IBCs the distinction between domestic banks and IBUs will cease on 1 January 2006 once the transition period expires. The only exception is that IBUs will still be prohibited from offering any banking services whatsoever in Cyprus Pounds to either residents or non-residents. As with IBCs, IBUs established before 2002 have the option of maintaining their preferential tax rate of 4.25% until the end of 2005. IBUs are also prohibited from providing other foreign currency services and accepting deposits from residents of Cyprus until 1 January 2006, unless they agree to be immediately subject to the standard 10% tax rate. In the meantime, IBUs are required to adhere to the same legal, administrative, and reporting requirements as domestic banks. The Central Bank requires prospective IBUs to face a detailed vetting procedure to ensure that only banks from jurisdictions with proper supervision are allowed to operate in Cyprus. IBUs must have a physical presence in Cyprus and cannot be shell banks. Once an IBU has registered in Cyprus, it is subject to a yearly on-site inspection by the Central Bank. The Republic of Cyprus hosts 12 domestic banks, and 26 IBUs.

Since May 2004, when Cyprus joined the European Union (EU), banks licensed by competent authorities in EU countries may establish branches in Cyprus or provide banking services on a cross-border basis without obtaining a licence from the Central Bank of Cyprus, under the EU’s "single passport" principle. By the end of 2004, three EU banks that had already been operating as IBUs had elected to continue their presence in Cyprus under the "single passport" arrangement.

Over the past nine years, Cyprus has put in place a comprehensive anti-money laundering legal framework that comports with international standards. In 1996, the Prevention and Suppression of Money Laundering Activities Law criminalised both drug and non-drug-related money laundering, provided for the confiscation of proceeds from serious crimes, codified actions that banks and non-bank financial institutions must take (including customer identification), and mandated the establishment of a Financial Intelligence Unit (FIU). It also authorised criminal (but not civil) seizure and forfeiture of assets. Subsequent amendments broadened its scope by eliminating the separate list of predicate offences (now defined as any criminal offence punishable by a prison term exceeding one year), addressing government corruption, and facilitating the exchange of financial information with other FIUs, as well as the sharing of assets with other governments.

Amendments passed in 2003 and 2004 implemented the EU’s Second Money Laundering Directive. These amendments authorised the FIU to instruct banks to delay or prevent execution of customers’ payment orders; extend due diligence and reporting requirement to auditors, tax advisors, accountants, and, in certain cases, attorneys, real estate agents, and dealers in precious stones and gems; permit administrative fines of up to US$6,390; and increase bank due diligence obligations concerning suspicious transactions and customer identification requirements, subject to supervisory exceptions for specified financial institutions in countries with equivalent requirements.

Also in 2003, the government enacted legislation to regulate capital and bullion movements and foreign currency transactions. It required all persons entering or leaving Cyprus to declare currency (whether local or foreign) or gold bullion worth US$15,500 or more. This law replaced exchange control restrictions under the Exchange Control Law, which expired on 1 May 2004.

The supervisory authorities for the financial sector are the Central Bank of Cyprus, the Securities Commission of the Stock Exchange, the Superintendent of Insurance, the Superintendent of Cooperative Banks, the Councils of the Bar Association and the Institute of Certified Public Accountants.

In 2001, the Central Bank issued rules requiring banks to ascertain the identities of the natural persons who are the "principal/ultimate" beneficial owners of new corporate or trust accounts. This rule was extended to existing accounts in 2002. In 2003, the Central Bank issued new rules that requiring all banks to obtain as quickly as possible identification data on the natural persons who are the "principal/ultimate" beneficial owners when certain events occur, including an unusual or significant transaction or change in account activity; a material change in the business name, officers, directors and trustees, or business activities of commercial account holders; or a material change in the customer relationship, such as establishment of new accounts or services or a change in the authorized signatories. Banks must also adhere to the Basel Committee on Banking Supervision’s October 2001 paper titled "Customer Due Diligence for Banks."

As of 1 October 2004, the Government of Cyprus (GOC) lifted restrictions on foreign direct investment from non-EU countries in order to attract more foreign direct investment and promote Cyprus as an international business centre.

The government’s earlier decision to lift incoming direct investment restrictions for EU residents as of January 2000 boosted foreign investment from the EU, which jumped from $225.2 million in 1999 to $374.7 million in 2000. The inflow of foreign direct investment from all countries reached $1.0 billion in 2003, 58.1% of which came from the EU.

Cyprus has entered into bilateral double tax treaties with 40 countries, including one with the US. The main purpose of these treaties is the avoidance of double taxation of income earned in any of these countries. Under these agreements, a credit is usually provided for tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country. The effect of these arrangements is normally that the taxpayer pays no more than the higher of the two rates.

Greece and Turkey, along with the UK, became joint Guarantor Powers of the Republic of Cyprus through the Treaty of Guarantee (1960). Both Greece and Turkey play an important role in Cyprus and relations with these two countries dominate Cypriot politics. The continued division of Cyprus means that relations can be tense, although they are improving.

At the December 2002 Copenhagen European Council, Cyprus was formally invited to join the EU. Cyprus signed the Treaty of Accession on 16 April 2004, and became a full member of the EU on 1 May 2004 (although the acquis is suspended in the north of the island).




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