TAX BENEFITS AND DOUBLE TAX TREATIES

The major fiscal incentives offered to international business companies (IBCs) are as follows:

  • IBCs as well as international 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
  • Expatriate employees of IBCs living and working in Cyprus are taxed at one half the rates applicable to locals ie from 0 to 20 percent
  • 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 shares in an IBC
  • No estate duty is payable on the inheritance of shares in an IBC
  • 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.

VAT AND DUTY FREE PRIVILEGES

IBCs and their expatriate employees may acquire duty free:

  • office equipment such as computers, fax machines, photocopiers, etc.
  • household equipment such as television sets, video recorders, washing machines, etc.
  • motor cars, including saloon and sports cars, station wagons, etc.

Those eligible for relief from duty are:

  • IBCs operating continuously from their fully fledged and fully staffed offices which are open during normal working hours and separate from private residences
  • Full-time expatriate employees of the above enterprises who live and work in Cyprus during most of the year and whose remuneration exceeds CYP12.000 (USD 24.000 approx.) 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 CYP20.000 per annum.

Transactions effected by IBCs are outside the scope of value added tax. As a result, IBCs do not need to register for VAT purposes. All duty free importations by IBCs are exempt from VAT. 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances from a local lawyer or accountant.