CYPRUS IN BRIEF

Cyprus is an island situated in the Mediterranean at the crossroads of three continents; Europe, Asia and Africa. It has an area of 9251 square km. The island’s time zone is 2 hours ahead of London, 7 hours ahead of New York, 2 hours behind Moscow and 7 hours behind Tokyo. The island's strategic location has contributed to Cyprus's development into an attractive centre through which to conduct international business. The island enjoys an excellent infrastructure, English based legal system, high quality of life, low cost of living and a highly skilled labour force.

Cyprus is now a full member of the European Union. The new economic environment offers an impressive number of additional economic advantages to investors and entrepreneurs who are interested in doing business worldwide utilising Cyprus as their business base.

Economy
The economy is based on a free enterprise system, with the private sector being the backbone of economic activity. The role of government is limited to safeguarding the system, regulation and planning.

Legal system
The administration of Justice is exercised by the separate and independent judiciary. Following 82 years of British rule, the Legal system is based on the same principles as those of the United Kingdom.

Banking
Commercial banking follows the British mode! and is of a very high standard. All commercial banks have very strong correspondent networks throughout the world and are able to carry out any type of international financial transaction.

Telecommunications
Cyprus has one of the most advanced telecommunication systems in the world with automatic telephone connections with almost the entire world and a variety of advanced telecommunication services which include private leased circuits, audiotex, videoconferencing and access to the internet.

Transport
The two airports of Larnaca and Paphos handle almost 1,100 scheduled flights weekly served by 36 international airlines. There are frequent direct connections with Central and Western European countries, Russia, North African and the Middle-Eastern countries.

Seaborne traffic is served by the multi-purpose ports of Limassol and Larnaca and the industrial port of Vassiliko. About 5.000 ships call at Cypriot ports each year.

Human resources
Cyprus has a well-educated, experienced and versatile work force. The island ranks among the leading countries in the world in terms of the proportion of university graduates. Qualified professional, technical and clerical staff with wide experience and fluent in foreign languages are available for employment at reasonable remuneration.

Low operational costs
Cyprus is placed amongst the few international financial centres with low operational costs.


CYPRUS TAX SYSTEM

As part of the accession process to the EU and in compliance with the OECD requirements against harmful tax practices, the Cyprus Tax Legislation has undergone major reforms. These reforms greatly enhance Cyprus' competitiveness and make it an even more attractive jurisdiction through which to conduct international business. The new legislation came into effect on 1 January 2003. Cyprus accession to the EU offering enhanced business opportunities in an enlarged European Common Market and the New Taxation System renders Cyprus one of the most attractive International business centres.


Corporate tax rate
A uniform corporate tax rate of 10% is introduced for all Cyprus tax resident companies. This is the lowest corporate tax rate in Europe.


The Cyprus Holding Company
Dividend income is exempt from tax irrespective of its source, provided that the holding in the non-resident paying company is at least 1%. This exemption does not apply if the non resident company paying the dividend carries on more than 50% investment activities which give rise to investment income and the overseas tax burden on its income is significantly lower than the Cyprus tax burden.

Cyprus holding companies having interest in European subsidiaries will enjoy the benefits emanating from the provisions of the parent/subsidiary directive. Cyprus Holding Companies having subsidiaries in other EU member States will receive dividends without suffering withholding tax at source in accordance with the provisions of the parent/subsidiary directive. Furthermore, Cyprus holding companies benefit from the double taxation treaty network with non-EU member states.


Trading in securities
Any profit from the disposal of securities, regardless of whether this profit forms part of a company's trading activity or is of a capital nature, is exempt from Cyprus tax.


Non-resident companies
Companies managed and controlled outside Cyprus are considered to be non-resident and will be taxable on their Cyprus source income only. As a result a company deriving income from sources outside Cyprus will escape taxation in Cyprus altogether.


No withholding taxes
Dividends paid to non-resident shareholders are not subject to any withholding tax in Cyprus, irrespective of the existence of a double tax treaty with their country of residence. Interest derived from Cyprus is also not subject to withholding taxes.


Exemption of capital gains
No capital gains tax is payable, except on the disposal of immovable property which is situated in Cyprus, or of shares in a company which owns immovable property situated in Cyprus. Therefore, Cyprus companies can be used to hold real estate outside Cyprus with no capital gains tax implications in Cyprus on their disposal.


Financing operations
A Cyprus company acting, as an intermediary between a holding and an operating foreign company, can finance the latter via interest bearing loans using the Cyprus treaty network which provide for no or reduced rates of withholding tax on interest paid out of the treaty country.


Royalty income
A Cyprus company acting as an intermediary between an overseas licensor and an operating foreign company in a treaty location, can greatly reduce the taxable profits in the operating location. Benefits may also arise by using the Cyprus treaty network which generally provide for reduced withholding taxes on royalties paid out of treaty countries.


Treaty network
What distinguishes Cyprus from most other international business centres is its extensive network of double taxation treaties (currently with 40 countries). Cyprus companies may be used as investment vehicles or to provide finance and other financial services to third countries. Accordingly, the Interest and Dividend Articles of these agreements may be exploited to eliminate or reduce the withholding tax on outgoing interest and Dividend payments; that is to say that the Cyprus company may be used to extract dividends and/or interest payments from such countries with none or minimum withholding tax. The wide network of Double Taxation Treaties of Cyprus with the countries of Central and Eastern Europe in conjunction with the Treaties signed with Western European countries render Cyprus as the most appropriate finance and investment vehicle for these countries. (More Information on the different Treaties of Cyprus can be provided on request).