E-commerce and dropshipping has changed the world, entrepreneurs are looking for jurisdictions that offer tax efficiency, ease of incorporation and operational flexibility. Cyprus is one of the best places to set up a company for e-commerce and dropshipping, offering solutions for various ecommerce business models that cater to different target audiences and transaction types.

E-commerce and dropshipping has changed the world, entrepreneurs are looking for jurisdictions that offer tax efficiency, ease of incorporation and operational flexibility.

Definition and Importance of Electronic Commerce

Electronic commerce, commonly referred to as e-commerce, is the buying and selling of goods and services over the internet. It involves the use of digital platforms, such as online stores, websites, and mobile apps, to facilitate transactions between businesses and consumers. E-commerce has become an essential part of modern business, enabling companies to reach a global audience, increase sales, and improve customer engagement. By leveraging electronic commerce, businesses can operate beyond the limitations of traditional brick and mortar stores, offering their products and services online to a wider market.

Understanding Electronic Commerce

Electronic commerce encompasses a wide range of activities, including online shopping, digital payments, and electronic data interchange. It involves the use of various technologies, such as the internet, mobile devices, and digital payment systems, to facilitate transactions and exchange information. E-commerce has transformed the way businesses operate, enabling them to reach new customers, reduce costs, and improve efficiency. Whether it’s a business to consumer (B2C) model, business to business (B2B) transactions, or consumer to consumer (C2C) interactions, electronic commerce provides a versatile platform for all types of online business activities.

The Role of E-commerce in Modern Business

E-commerce plays a vital role in modern business, enabling companies to compete in a global market and reach a wider audience. It provides businesses with a platform to showcase their products and services, interact with customers, and build brand awareness. E-commerce also enables businesses to collect data and insights on customer behavior, preferences, and purchasing habits, which can be used to improve marketing strategies and customer engagement. With the rise of mobile commerce and digital commerce, businesses can now offer seamless online shopping experiences, driving ecommerce sales and enhancing customer satisfaction.

Corporate Tax Benefits: A Key Driver for Corporate Tax Benefits

Cyprus has one of the lowest corporate tax rates in the European Union, 12.5% (flat), which is applied to the net profits of the Cyprus Company (income after eligible expenses). For an e-commerce business and dropshipping businesses, this means big tax savings.

At the same time Cyprus has a very good tax regime regarding the taxation of dividends received by shareholders from their Cyprus Company. More specifically:

• If the shareholder is a Cyprus tax resident (and has the status of non-dom) then the dividends received from his/her Cyprus Company are taxable in Cyprus. Under Cypriot law, such dividends are only subject to a contribution of 2.65% for the General Health System (GESY), capped at €4,770 per annum. No further taxation applies.
• If the shareholder is not a Cyprus tax resident, then the dividends received from his Cyprus Company will be taxed in the country where he is a tax resident, while in Cyprus there are no withholding taxes on the dividends.

Last but not least Cyprus has signed over 65 double tax treaties, reducing or eliminating the risk of double taxation for foreign income.

If you want to find out more about the corporate tax advantages that Cyprus offers, click here

Strategic Location and Business Environment

The location and business environment of an e-commerce company can significantly impact its success. A strategic location can provide access to a large customer base, skilled workforce, and favorable business regulations. For e-commerce businesses, being situated in a region with robust digital infrastructure and supportive policies can make a substantial difference in operational efficiency and market reach.

Cyprus as an E-commerce Hub

Cyprus has emerged as a popular e-commerce hub in recent years, attracting businesses from around the world. The island nation offers a favorable business environment, with a highly skilled workforce, modern infrastructure, and a strategic location at the crossroads of Europe, Asia, and Africa. Cyprus also offers a range of incentives and tax benefits to e-commerce companies, making it an attractive destination for businesses looking to establish a presence in the region. With its strategic location, Cyprus provides e-commerce businesses with easy access to multiple markets, enhancing their ability to serve a diverse customer base and capitalize on global retail ecommerce sales.

How to Set up an Ecommerce Business in Cyprus

1. Choose a Company Name: Submit the name for approval by the Registrar of Companies.
2. Prepare Documentation: Draft and submit the Memorandum & Articles of Association, shareholders, directors and secretary details.
3. Nominee Services (if needed): Tax residency and compliance with Cypriot law through nominee director, secretary and registered office services.
4. Tax and VAT Registration: Register for corporate tax and VAT to start operating.
5. Open a Corporate Bank Account: Choose between Cypriot banks or international online banking platforms for ease of use.

An efficient ecommerce website is crucial for processing orders, payments, and providing customer service, ensuring smooth operations and customer satisfaction.

If you want to learn more about the process of setting up a Cyprus Company, click here

Time and Process of Incorporation

Cyprus has a streamlined process for company registration to accommodate the fast pace of e-commerce and dropshipping businesses. An efficient online store, built on eCommerce platforms like Shopify or BigCommerce, enables brands to manage operations and leverage marketing strategies effectively.

• Time: 5-15 business days depending on the setup.
• Remote Incorporation: The whole process can be done remotely, no need for the shareholder or director to be physically present.

Flexibility Without Relocation

One of the best things about Cyprus is that shareholders don’t have to move to Cyprus to operate their companies. The company’s tax residency and compliance with Cypriot laws can be maintained through nominee services.

• Nominee Director Services: Manages the company from Cyprus, satisfies the tax residency requirement for Cypriot companies.
• Nominee Secretary Services: Provides administrative support and compliance with the laws.
• Registered Office Services: Provides the company’s registered address in Cyprus, a requirement for all Cypriot companies.

This flexibility also supports various business models, including consumer to business (C2B), where individual consumers provide products or services to businesses.

At the same time if the shareholder wants to keep his/her identity confidential he/she can use the nominee shareholder services.

These services offer entrepreneurs flexibility to operate without the need to be physically present in Cyprus.

If you want to find out more about nominee shareholder, nominee director, nominee secretary and registered office services, click here

VAT Compliance: Seamless Digital Commerce Within and Beyond the EU

Cyprus companies enjoy a VAT framework that facilitates smooth operations for e-commerce and dropshipping businesses. The standard VAT rate in Cyprus is 19%, with reduced rates for specific goods and services.

More specifically when sales are made to natural persons, wherever they are located, the VAT rate is 19% (or reduced rate). With the rapid growth of online purchases, especially during major shopping events like Black Friday and Cyber Monday, ensuring VAT compliance is crucial for e-commerce businesses.

When sales are made to legal entities (companies) then the VAT charged depends on where the buyer is located:

• Cypriot Company: If sale is made to another Cypriot Company then 19% VAT (or reduced rate).
• EU VAT-Registered Company: If sale is made to an EU company which is VAT registered then reverse charge applies and the Cyprus company’s invoice will show 0% VAT.
• EU Non-VAT Registered Company: If sale is made to an EU company which is not VAT registered then 19% VAT (or reduced rate).
• Non-EU Company: If sale is made to a non-EU company then 0% VAT.

This VAT framework makes Cyprus based e-commerce and dropshipping companies more competitive globally, reducing administrative and financial burdens on international transactions.panies more competitive globally, reducing administrative and financial burdens on international transactions.

Scenario	VAT Rate Applied by Cyprus Company
Sales to Individuals	19%
Sales to EU VAT-Registered Company	0% (Reverse Charge Mechanism)
Sales to EU Non-VAT Registered Company	19%
Sales to Non-EU Company	0%
Sales to Cypriot Company	19%

Comprehensive Support for Business to Consumer and Dropshipping Businesses

E-Commerce and Droppshipping businesses, with their dependence on global suppliers and customers, benefit greatly from Cyprus’ strategic location and business-friendly policies. More specifically:

Retail sales have seen significant growth due to the impact of e-commerce on overall retail markets, especially during the COVID-19 pandemic, with projections indicating continued trends as businesses transition online.

• Access to Markets:

Cyprus is located at the crossroads of Europe, Asia and Africa making it an ideal location for e-commerce businesses serving multiple regions.

• Free access to the EU market:

As Cyprus is an EU member state, a Cypriot company has free and unrestricted access to the EU market, which is not the case for companies established in non-EU countries.

• International Banking Options:

While Cypriot banks support e-commerce businesses, companies can also open accounts with online platforms like Revolut which offer fast and cost effective solutions.

• Scalable Structures:

Cyprus companies allow for easy expansion, multiple shareholders and diversified income streams.

Comparison: Cyprus vs Other Jurisdictions in Global Retail Ecommerce Sales

To illustrate the advantages of setting up an ecommerce business in Cyprus, here is a comparison with two popular jurisdictions for e-commerce businesses:

Feature	Cyprus	Estonia	Malta
Corporate Tax Rate	12.5%	20%	35% (Refund System)
Dividend Withholding Tax	None	20%	None
VAT Compliance	Yes	Yes	Yes
Setup Timeline	5–15 Days	10–20 Days	15–25 Days

Conclusion

For e-commerce and dropshipping entrepreneurs, Cyprus offers the best of all worlds, tax efficiency, easy incorporation, and flexibility in management. The various ecommerce business models can benefit from Cyprus’ advantages. By using Cyprus nominee services, shareholders can operate globally without relocating, and enjoy the country’s low corporate tax rate and zero withholding taxes on dividends.

If you’re considering setting up an e-commerce or dropshipping business in Cyprus, our team at Polycarpos Philippou & Associates LLC is here to guide you through the process, ensuring compliance, efficiency, and long-term success.