Thursday, 29 July 2010
The term international business company (IBC) refers to any legal entity whose beneficial ownership and business activities lie outside Cyprus. Since the introduction of the first incentives in 1975, more than 38.000 permits have been issued by the Central Bank for the registration of such entities. Cyprus' entrepreneurial environment and supporting facilities compare favourably with those of the best established centres in the world.
Regulatory Framework
The Central Bank, through its permit to non-resident investors, imposes certain conditions with regard to beneficial ownership, business activities, financial arrangements and reporting procedures.
International business companies (IBCs) may be run from Cyprus but none of their objects may be carried out within the island. Such enterprises can only derive income from activities abroad. They are not allowed to deliver any goods or services in Cyprus, either to residents or non-residents, or to act as middle-men for foreign products or as exporters of Cypriot products. However, IBCs may:
If confidentiality is desired, it is possible to use nominee or trustee shareholders since only their names will appear in the records kept by the Registrar of Companies. Central Bank employees are bound by oath to secrecy thus the names of the non-resident beneficial owners are kept strictly confidential. Information on individual IBCs is available from the Registrar of Companies. The Central Bank publishes aggregate data from time to time in order to enable the government and the public to assess progress in this sector.
Fiscal Incentives
The major fiscal incentives enjoyed by IBCs are as follows:
Those eligible for relief from duty are:
An eligible expatriate may acquire a second duty free car for the use of his family if his salary, as declared to the Department of Inland Revenue, is more than CY£20.000 per annum.
Transactions effected by IBCs are currently outside the scope of value added tax. As a result, IBCs are not required to register for VAT purposes and thus are not entitled to claim a refund of the VAT paid by them on their purchases. However, all duty free importations by IBCs are exempt from VAT. In addition, telecommunications services offered to IBCs which have fully fledged and fully staffed offices in Cyprus may be exempted from VAT with the approval of the Central Bank.
IBCs are exempt from stamp duty on all documents relating to their business activities outside Cyprus. They and their expatriate employees are also exempt from the Special Contribution to the Defence Fund.
Cyprus has concluded an impressive number of treaties for the avoidance of double taxation. There are currently 27 in force. The existence of these treaties, combined with the low tax paid by IBCs, offer significant possibilities for international tax planning through the island. In contrast to tax havens, Cyprus is a tax incentive country which offers benefits aimed at attracting non-residents who wish to conduct their business affairs from the island.
Trade and Services
The most important international business activities, as measured by employment of staff in the island, are: Trade, Marketing and Distribution; Shipmanagement and Maritime Operations; Commercial and Merchant Banking; Business and Professional Consulting; Newsagencies and Other Media; Life, General and Captive Insurance; Third-Party Financial Services; Engineering and Construction Services; and Investment, Holding or Royalty Companies.
Commerce in Cyprus is by far the most important activity carried out. Transit trade via the island's seaports is undertaken by IBCs on a large scale. They may store, maintain, break bulk or repackage their own transit goods in general or privately rented bonded warehouses, provided the handling does not result in any change in the goods' customs tariff classification.
IBCs are allowed to:
Available statistics confirm that ship management and maritime operations is the second most important activity conducted by IBCs from the island.
The rendering of professional services is another important activity. This category includes activities such as accounting, advertising, architecture, software production, marketing surveys, oil exploration, personnel recruitment, water treatment, etc.
Cyprus has become one of the world's primary centres for information gathering and distribution. Most international newsagencies and numerous publishing firms cover the whole of the Middle East and North Africa from the island. Among the factors that have contributed to this development are: the guaranteed freedom of expression; the pluralistic political and social environment; state-of-the art telecommunications; and the extensive network of sea and air connections. In addition to their editorial work, publishing firms may have their newspapers, magazines or books printed in Cyprus for distribution abroad, provided they obtain a permit under the Press Law. Such a permit may be secured quite easily at the time of the application to the Central Bank for the IBC's establishment.
Banking and Financial Services
As a rule, only subsidiaries or branches of banks enjoying a good reputation internationally and established in countries where there is adequate banking supervision as well as lender of last resort facilities, are eligible for an international banking licence. All international banking licences are subject to certain conditions. These conditions may be expanded or modified depending on a number of factors, including the International Banking Unit's (IBU's) legal form (ie subsidiary or branch) and the parent bank's financial standing and international reputation.
IBUs, which must operate as fully fledged and fully staffed units and not merely as 'brass plate' entities, can transact business with non-residents of Cyprus and in currencies other than the Cyprus Pound. IBUs are permitted to grant loans or guarantees in foreign currencies to residents provided that the resident parties involved obtain a relevant exchange control permit from the Central Bank. The net income earned from transactions with residents is subject to the full rate of corporation tax, but the Minister of Finance has the power to exempt an IBU from this tax liability if satisfied that a specific transaction contributes substantially towards the economic development of Cyprus.
IBUs, although exempt from most monetary policy and credit regulatory measures applicable to local banks, are subject to supervision and inspection by the Central Bank. IBUs are expected to satisfy the Central Bank of their ability to meet their obligations as they fall due and of their adherence to sound banking practices. Thirty IBUs are currently operating from Cyprus. Five of these are subsidiaries, while the other 25 are branches of foreign banks.
IBCs may not render financial services to parties other than their shareholders or members of their group of companies without the prior authorisation of the Central Bank.
The term' financial services' means: dealing in investments, managing investments, providing investment advice or establishing and operating collective investment schemes. In this context, the term 'investments' refers to shares, debentures, government and public securities, warrants, certificates representing securities, units in collective investment schemes, options, futures and contracts for differences.
Only branches, subsidiaries or associate companies of overseas financial services companies enjoying a good reputation internationally and established in countries where there is adequate financial supervision, may be considered as eligible for the rendering of international financial services from Cyprus.
Successful applicants for the establishment of international financial services companies, are issued with an Exchange Control Law permit which incorporates a number of special conditions in addition to those applicable to other IBCs.
Regulatory Framework
The Central Bank, through its permit to non-resident investors, imposes certain conditions with regard to beneficial ownership, business activities, financial arrangements and reporting procedures.
International business companies (IBCs) may be run from Cyprus but none of their objects may be carried out within the island. Such enterprises can only derive income from activities abroad. They are not allowed to deliver any goods or services in Cyprus, either to residents or non-residents, or to act as middle-men for foreign products or as exporters of Cypriot products. However, IBCs may:
- contact each other and deal among themselves, provided the object of business is confined outside the island
- pay each other from their foreign currency accounts, provided the goods or services involved are delivered outside the island. Those IBCs with common ownership of 50 percent or more may share a fully fledged office and offer administrative services to each other in Cyprus.
If confidentiality is desired, it is possible to use nominee or trustee shareholders since only their names will appear in the records kept by the Registrar of Companies. Central Bank employees are bound by oath to secrecy thus the names of the non-resident beneficial owners are kept strictly confidential. Information on individual IBCs is available from the Registrar of Companies. The Central Bank publishes aggregate data from time to time in order to enable the government and the public to assess progress in this sector.
Fiscal Incentives
The major fiscal incentives enjoyed by IBCs are as follows:
- IBCs as well as international business branches managed and controlled from Cyprus are taxed at only 4,25 percent of their profits
- International business branches which are managed and controlled from abroad and international business partnerships are totally exempt from corporation or income tax
- The beneficial owners of international business companies, branches and partnerships are not liable to additional tax on dividends or profits over and above the amount paid or payable by the respective legal entities
- The expatriate employees of IBCs living and working in Cyprus are taxed at half the rates applicable to locals from 0 to 20 percent
- The expatriate employees of IBCs living and working outside the island are exempt from income tax if they get paid through any bank in Cyprus or are taxed at one tenth of the rates applicable to locals if they get paid directly abroad
- No capital gains tax is payable on the sale or transfer of IBC shares
- No estate duty is payable on the inheritance of IBC shares
- Under the Customs and Excise Law, IBCs and their expatriate employees may acquire duty free:
- Office equipment such as computers, fax machines, photocopiers, etc.
- Household equipment such as video recorders, hi-fi systems, washing machines, refrigerators, etc.
- Motor cars including sports cars, station wagons, as well as mini-busses with a seating capacity of up to 9 persons.
Those eligible for relief from duty are:
- IBCs operating continuously from their fully fledged and fully staffed offices which must be open during normal working hours and separate from any private residence or another office.
- Full-time expatriate employees of the above enterprises who live and work in Cyprus during most of the year and whose remuneration exceeds CY£12.000 (US$24.000) per annum.
An eligible expatriate may acquire a second duty free car for the use of his family if his salary, as declared to the Department of Inland Revenue, is more than CY£20.000 per annum.
Transactions effected by IBCs are currently outside the scope of value added tax. As a result, IBCs are not required to register for VAT purposes and thus are not entitled to claim a refund of the VAT paid by them on their purchases. However, all duty free importations by IBCs are exempt from VAT. In addition, telecommunications services offered to IBCs which have fully fledged and fully staffed offices in Cyprus may be exempted from VAT with the approval of the Central Bank.
IBCs are exempt from stamp duty on all documents relating to their business activities outside Cyprus. They and their expatriate employees are also exempt from the Special Contribution to the Defence Fund.
Cyprus has concluded an impressive number of treaties for the avoidance of double taxation. There are currently 27 in force. The existence of these treaties, combined with the low tax paid by IBCs, offer significant possibilities for international tax planning through the island. In contrast to tax havens, Cyprus is a tax incentive country which offers benefits aimed at attracting non-residents who wish to conduct their business affairs from the island.
Trade and Services
The most important international business activities, as measured by employment of staff in the island, are: Trade, Marketing and Distribution; Shipmanagement and Maritime Operations; Commercial and Merchant Banking; Business and Professional Consulting; Newsagencies and Other Media; Life, General and Captive Insurance; Third-Party Financial Services; Engineering and Construction Services; and Investment, Holding or Royalty Companies.
Commerce in Cyprus is by far the most important activity carried out. Transit trade via the island's seaports is undertaken by IBCs on a large scale. They may store, maintain, break bulk or repackage their own transit goods in general or privately rented bonded warehouses, provided the handling does not result in any change in the goods' customs tariff classification.
IBCs are allowed to:
- organise training seminars or demonstration courses in Cyprus for their foreign agents or clients
- establish permanent showrooms in Cyprus for exhibiting foreign products, provided all deals are on a wholesale basis and for delivery outside the island.
Available statistics confirm that ship management and maritime operations is the second most important activity conducted by IBCs from the island.
The rendering of professional services is another important activity. This category includes activities such as accounting, advertising, architecture, software production, marketing surveys, oil exploration, personnel recruitment, water treatment, etc.
Cyprus has become one of the world's primary centres for information gathering and distribution. Most international newsagencies and numerous publishing firms cover the whole of the Middle East and North Africa from the island. Among the factors that have contributed to this development are: the guaranteed freedom of expression; the pluralistic political and social environment; state-of-the art telecommunications; and the extensive network of sea and air connections. In addition to their editorial work, publishing firms may have their newspapers, magazines or books printed in Cyprus for distribution abroad, provided they obtain a permit under the Press Law. Such a permit may be secured quite easily at the time of the application to the Central Bank for the IBC's establishment.
Banking and Financial Services
As a rule, only subsidiaries or branches of banks enjoying a good reputation internationally and established in countries where there is adequate banking supervision as well as lender of last resort facilities, are eligible for an international banking licence. All international banking licences are subject to certain conditions. These conditions may be expanded or modified depending on a number of factors, including the International Banking Unit's (IBU's) legal form (ie subsidiary or branch) and the parent bank's financial standing and international reputation.
IBUs, which must operate as fully fledged and fully staffed units and not merely as 'brass plate' entities, can transact business with non-residents of Cyprus and in currencies other than the Cyprus Pound. IBUs are permitted to grant loans or guarantees in foreign currencies to residents provided that the resident parties involved obtain a relevant exchange control permit from the Central Bank. The net income earned from transactions with residents is subject to the full rate of corporation tax, but the Minister of Finance has the power to exempt an IBU from this tax liability if satisfied that a specific transaction contributes substantially towards the economic development of Cyprus.
IBUs, although exempt from most monetary policy and credit regulatory measures applicable to local banks, are subject to supervision and inspection by the Central Bank. IBUs are expected to satisfy the Central Bank of their ability to meet their obligations as they fall due and of their adherence to sound banking practices. Thirty IBUs are currently operating from Cyprus. Five of these are subsidiaries, while the other 25 are branches of foreign banks.
IBCs may not render financial services to parties other than their shareholders or members of their group of companies without the prior authorisation of the Central Bank.
The term' financial services' means: dealing in investments, managing investments, providing investment advice or establishing and operating collective investment schemes. In this context, the term 'investments' refers to shares, debentures, government and public securities, warrants, certificates representing securities, units in collective investment schemes, options, futures and contracts for differences.
Only branches, subsidiaries or associate companies of overseas financial services companies enjoying a good reputation internationally and established in countries where there is adequate financial supervision, may be considered as eligible for the rendering of international financial services from Cyprus.
Successful applicants for the establishment of international financial services companies, are issued with an Exchange Control Law permit which incorporates a number of special conditions in addition to those applicable to other IBCs.