Cyprus has emerged as a prime destination for international companies seeking a conducive environment for investment and expansion over the past three decades. In recent years, a growing number of companies have opted to establish their headquarters in Cyprus. This trend is particularly noticeable in industries like pharmaceuticals, shipping, fossil fuels, investments, and renewable energy, despite the island’s more commonly known reputation as a vacation spot.
The decision to set up a business in Cyprus is underpinned by several compelling advantages, such as:
Strategic Geographical Location
Located at the intersection of Europe, Asia, and Africa, Cyprus acts as a natural conduit for investments entering and exiting the European Union. Its convenient time zone, falling within the Eastern European Time zone, makes it an attractive choice for companies operating within the EU.
The island’s strong diplomatic ties with Eastern Europe, North Africa, and the Middle East facilitate international trade, while its modern transportation infrastructure, including two international airports and advanced seaports, further enhances its strategic appeal.
Cyprus Business Environment
Cyprus is a modern, stable, and democratic state that has been a member of the European Union since 2004 and adopted the Euro currency in 2008.
Its business environment is characterized by transparency and a proactive approach, offering a supportive ecosystem for international business activities. Notably, Cyprus boasts one of the world’s largest merchant shipping fleets.
Despite being historically reliant on agriculture and tourism, Cyprus has transformed into a thriving international hub for business and finance, enjoying robust economic growth, with a 4.5% GDP increase in 2021, excluding the pandemic’s impact.
Access to a Diverse Talent Pool
Cyprus offers non-resident companies access to a dynamic and affordable workforce. The local and international labor market features a pool of skilled, multilingual professionals who are eager to work across various industries and languages. Many ICT companies, for instance, have chosen Cyprus for their headquarters or subsidiary operations, benefiting from talented employees proficient in sales, marketing, software development, and disaster recovery.
Moreover, Cyprus has recently implemented more open immigration policies to attract top talent, fostering foreign direct investment and investor interest for international companies. This stands in contrast to some other European countries with comparatively restrictive immigration procedures.
In conclusion, Cyprus has positioned itself as an appealing destination for international businesses, leveraging its strategic location, stable business environment, and access to a diverse talent pool to attract companies from various sectors.
Attractive Tax Exemptions and Regulations
Cyprus offers a favorable corporate and income tax environment, featuring more than 65 dual taxation agreements. Resident companies benefit from a current corporate tax rate of 12.5% on their worldwide income.
Although there will be an increase to 15% for Multinational Enterprises (MNEs) in alignment with OECD rules, the government’s tax policies are designed to support high-quality, sustainable businesses. This includes sectors such as multinationals, shipping, pharmaceuticals, fintech, gaming, and digital marketing corporations.
Cyprus also provides an ideal setting for group holding and finance companies, offering tax-free dividend flows to non-tax resident entities under specific conditions. A complete participation exemption is in place, and capital gains are typically exempt from tax, barring gains from the direct or indirect disposal of property in Cyprus.
The network of double taxation agreements ensures safeguards against double taxation, and unilateral relief is available for taxes paid overseas in the absence of such agreements. Cyprus has fully adopted the EC Merger Directive, enabling tax-free mergers and approved restructurings.
Tax Incentives for International companies and Innovation
Cyprus encourages the growth of ICT, high technology, and innovative companies through a European Union-approved Intellectual Property (IP) Box regime. This regime provides up to an 80% tax exemption on profits related to research and development from qualifying intangible assets. Proposed changes to the scheme aim to further enhance its attractiveness, including extending benefits to corporate investors.
Additionally, natural persons can enjoy a 50% tax deduction for investments in certified innovative companies, with plans to extend this incentive to corporate investors.
EU-Approved Sector-Specific Tax Regimes
Cyprus operates the EU-approved shipping “tonnage tax” scheme, which has recently been extended until 2029. In this plan, those who own ships, manage ships, or are involved in eligible shipping activities can choose to be taxed according to the ship’s tonnage instead of their income or earnings. This provides certainty and has contributed to the development of a thriving shipping cluster in Cyprus.
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Transparent Business Ecosystem
Cyprus boasts a legitimate, transparent business ecosystem, primarily following common law principles with courts bound by the doctrine of precedent. This offers consistency, predictability, and efficiency in commercial actions.
Rights related to intellectual property are thoroughly safeguarded, and laws of the European Union are completely enforceable. English is a commonly used language and is on the verge of being sanctioned as an official language in Commercial and Admiralty Courts. Cyprus upholds high standards of transparency and fairness in line with international best practices, including adherence to EU Anti-Tax Avoidance Directives and the Multilateral Convention on Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS).
Competitive Professional Services Sector
Cyprus boasts a competitive, cost-effective, and highly skilled professional services sector and is also well-versed in handling complex, multi-jurisdiction transactions for international companies. Major international accounting firms have a presence in Cyprus, and law firms collaborate with leading global law firms, providing comprehensive legal support.
Cyprus’s commitment to international tax standards, transparent practices, and a skilled professional workforce further solidifies its position as an attractive destination for businesses seeking a conducive and advantageous environment for growth and expansion.
Low Set-Up Costs and Competitive Real Estate Prices
Cyprus offers an attractive cost proposition for businesses and international companies alike, featuring low start-up expenses, affordable office rentals, and competitive commercial real estate prices. The surge in interest has led to a proliferation of versatile office and commercial developments in key business hubs like Limassol and Nicosia.
A wide range of office accommodations is readily available, accommodating various needs and budgets, often accompanied by stunning Mediterranean views. Additionally, a dedicated Business Facilitation Unit has been established to assist with the practical aspects of relocating or starting a business on the island.
Pro-Business Government and Investment Environment
Since its independence in 1960, Cyprus has consistently promoted a pro-business and pro-foreign investment environment for international companies, irrespective of political affiliations. Over the past decade, the focus has shifted towards positioning Cyprus as a sustainable business and trade hub. Recent policy initiatives target key sectors, including high-technology, innovation, pharmaceuticals, shipping, and foreign-owned companies.
Incentives introduced at the start of 2022 include the establishment of the Business Facilitation Unit, changes to migration rules to facilitate entry for skilled third-country nationals, and a range of individual and corporate tax incentives aimed at attracting talent and investment.
Migration and Substance
The 2022 Government’s investment plan encourages the hiring of non-native individuals in specific industries, providing them with the right to bring their families together. Foreign interest companies and investors find it easier to relocate key personnel to Cyprus, ensuring compliance with economic substance requirements under ATAD3.
Digital Nomad Resident Visa Scheme
As of March 2022, the government has introduced a Digital Nomad Resident Visa Scheme. This scheme permits the issuance of 500 visas to third-country nationals who can work remotely via telecommunications technology. The initial visa is valid for one year and can be renewed for an additional two years.
Accompanying family members can join but are not authorized to work in Cyprus. Visa holders who stay in Cyprus for 183 days consecutively in a year are considered tax residents of Cyprus, unless they can demonstrate tax residency in another location.
Capital Gains and Withholding Taxes (WHT)
Capital Gains Tax in Cyprus applies primarily to gains from the sale of immovable property or shares of unlisted companies owning immovable property in Cyprus. The rate is 20%, with exemptions for certain property sales.
Cyprus generally does not impose WHT on dividends, interest, and royalties paid to non-residents, except for royalties earned on rights used within Cyprus. Since December 31, 2022, WHT has been applicable to payments of dividends, interest, and royalties to jurisdictions blacklisted by the EU.
In conclusion, Cyprus presents numerous benefits for international companies considering establishment or expansion, including cost-effective operations, a welcoming environment, and government support. For detailed guidance on legal support, business incorporation, market entry strategies, and other country-specific processes, it is advisable to consult experts who can navigate the intricacies of setting up and running a business in Cyprus.