Cyprus Offshore Companies Tax Laws

Sept. 1, 2009 - PRLog -- Cyprus is the third largest island on the Mediterranean Sea and is actually at the crossroad between Asia, Africa and Europe. It is a purely independent state with its own legal and constitutional systems which makes offshore company formation easier and thus promoting foreign investment in the country. An offshore company can actually be incorporated in Cyprus after a period of three weeks after registration.

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During offshore company formation, there are certain factors that should be considered before settling on the best place to put up the business. The most important is the taxation laws that are applicable in a country. The level of taxation will determine the amounts that will be available for reinvestment. Therefore there’s need to go for a tax system with lowest rates of corporation tax.

Corporate tax on income is the main tax on offshore companies and it currently stands at 10% of the declared profits. Other companies such as maritime management companies are taxed at 4.25% while shipping companies are subject to no taxation at all. But the scenario has not always been like this as prior to the year 2003, all offshore companies and the foreign companies with their subsidiaries in Cyprus were taxed at 4.25% of the total profits. For a foreign company or its branches to be liable for this tax, the management and control should be in Cyprus. However, offshore companies that were formed before 2002 had the option of submitting taxes subject to a 4.5% rate but this benefit was scrapped off in the year 2006.

Dividend income received from foreign investment and royalties received from assets abroad are exempt from withholding tax. Actually no taxes are paid for any profits made from sale of securities. Cyprus has also signed many double tax treaties that ensure that no company will be taxed more than once on its income.

Other provisions in the offshore company tax laws in Cyprus are that various offshore companies can merge without any tax consequences. This is regardless of the reason for the merger whether as a take-over bid or for purposes of reorganization. This provision encourages better performance by the smaller companies that may not have been able to operate at full potential due to some constraints. Merging encourages the offshore companies to take full advantage of the economies of scale.

A unilateral tax relief is accorded to all Cypriot companies including the offshore companies due to any foreign tax suffered even if the double tax treaty is not applicable. Similarly/ when a Cyprus offshore company incurs tax losses, they will be indefinitely carried forward or be surrendered as group relief.

Currently Cyprus has over 120,000 companies of which many are offshore companies. The reason for this is not only the convenient and hassle free offshore company formation process but also the fact that Cyprus offshore tax rates are so far the lowest in the European Union. This means that the Cyprus is probably the best place to invest in when venturing into the offshore business.

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CCLogic.com is operating as a consultancy firm in the fields of credit card processing, payment gateway, anti fraud systems and the formation of Cyprus companies.