Cypriot entities may be incorporated / registered for a variety of purposes, some of which include:
General trading and provision of services: benefiting from Cyprus’ strategic position and access to 3 continents, the excellent shipping industry as well as other logistics conveniences, the favourable taxation on the payment of dividends, interest and royalties as well as the extensive network of Double Tax Treaties (DTT) between the Republic of Cyprus and other States.
Cyprus Holding Companies: having a Cyprus holding company with a portfolio of overseas subsidiaries generating revenue streams and benefiting from the favourable taxation on the payment of dividends, interest and royalties as well as the extensive network of DTT between the Republic of Cyprus and other States.
Cyprus IP Companies: benefiting from the IP Tax Box Regime, based on an amendment to the Income Tax Law in 2016, bringing the provisions of the law in line with the latest international developments on the taxation of IP income and the OECD’s action plan on fighting base erosion and profit shifting (BEPS).
The regime contained “Grandfathering provisions” from the old IP regime to the current IP regime, which is enforceable, which hasphased out by 30th June 2021.
The new IP regime introduces the idea of qualifying profits that are eligible for the 80% tax exemption which are calculated based on a “nexus approach” and relate to intellectual property which is eligible for the new regime (qualifying assets). The “nexus approach” is based on R&D expenditure incurred to develop the qualifying assets. The qualifying assets are described in the new provisions of the legislation and include amongst others patents, copyrighted software programs and other intangible assets that are non-obvious but exclude trademarks and other copyrights.
The new IP regime applies to Cyprus tax residents, non-tax residents with a permanent establishment in Cyprus as well as foreign residents who are subject to tax in Cyprus.
Furthermore, under the new regime there is no income tax imposed on capital gains arising from the disposal of a qualifying asset and the capital gains arising from such disposal are not included in the qualifying profits. Additionally, the newly amended Income Tax Law introduces capital allowances for all intangible assets, excluding goodwill and assets qualifying for the existing IP regime.
Cyprus Finance Companies: benefiting from the favourable taxation on the payment of dividends, interest and royalties as well as the extensive network of Cyprus DTT. Such companies are also eligible for Notional Interest Deduction (NID) on equity introduced (which includes share capital and share premium). Profit is taxable in Cyprus at the rate of 12,5% but can be reduced to as low as 2,5% due to the NID on equity of the Cyprus Finance company. Any applicable transfer pricing policies should be taken into account.
Regional Headquarters: multinational companies wishing to take advantage of the Cyprus strategic position and many advantages may establish their regional offices in the island.
Shipping and ship-management: the strategic position of Cyprus, together with tax and non-tax incentives, contributed to the success of the island as an established international shipping centre.