The most popular company incorporation for tax planning in Cyprus is Private Limited Company (LTD).
Private Limited Company (LTD)
The minimum number of directors and shareholders is one director and one shareholder who can be both individual person and legal entity, resident or non-resident of Cyprus. One person can be both director and shareholder of the company. To be advised if a Cypriot company has at least one resident director, it will allow to use the benefits of double taxation avoidance agreement between Cyprus and other countries.
The minimum amount of announced authorized capital of a Cypriot company is € 1 000. Proposed authorized capital is € 1 000 and is divided into 1 000 shares with par value of € 1.
Corporate income is subject to corporation tax. Certain types of income derived by companies are also subject to a special defense contribution. Only capital gains from the disposal of immovable property located in Cyprus are subject to separate capital gains tax. Real estate tax has been abolished as of 1 January 2017. Employers are liable to social security contributions and payroll tax. A VAT system in concurrence with the EU directives is applied.
Although new features have been introduced by tax reforms, the tax system still has its roots in the British system. The principal tax legislation applicable to companies is the Income Tax Law of 2002 (ITL) and the Assessment and Collection of Taxes Law of 1978, as amended.
For tax purposes, the Republic of Cyprus consists of the island of Cyprus and includes the sovereign British bases.
Resident companies are taxed on their worldwide income. A classical system of taxation applies, under which the profits of a company are first subject to corporation tax at the company level at a rate of 12.5% and, subsequently, upon distribution (including deemed distributions) to individual shareholder’s resident and domiciled in Cyprus, to a final withholding tax of 17% (the special defense contribution). Generally, no taxes are levied on distributions from a resident company to a corporate shareholder. Furthermore, no taxes are levied on distributions from a resident company to an individual shareholder, either non-resident or non-domiciled resident.
Companies are subject to corporation tax. The term “company” is defined under Company Law and includes anybody of persons with or without legal personality and any comparable entity incorporated or registered abroad. A list of companies of EU Member States qualifying under this term is contained in the Annex to the ITL ("Income Tax Law" - "O Peri Forologias tou Eisodimatos Nomos").
Companies incorporated under the Company Law may be “public” or “private” companies limited by shares and companies limited by guarantee with or without a share capital.
Income derived through a permanent establishment of a non-resident company is generally taxable in Cyprus.
Partnerships are not taxable entities. They are fiscally transparent. Partnership income is attributed to the partners and subject to income tax or corporation tax, as the case may be. The partnership does not file a return on the partnership income, but the partners must file together with their tax returns the financial statements of the partnership.
Trusts, as such, are not taxable entities, but their beneficiaries are taxable through the trustees.
A company is resident if its management and control is exercised in Cyprus. Registration in Cyprus is not decisive. Resident companies are taxed on their worldwide income, while non-resident companies are taxed on their Cyprus-source income only. A company which is not resident in Cyprus but has a permanent establishment there may opt to be treated as a resident company (and benefit from a worldwide set-off of losses).
Accounting and audit.
Every registered company of Cyprus must submit annually financial statements to the Companies House and tax returns to the Tax office.
Financial statements includes:
Profit and loss statement;
Explanatory note to the balance sheet and statement of profit and loss;
Auditor's report (in case if obligatory or voluntary audit was performed);
Consolidated statements (in case if Cypriot company has subsidiary companies and isn’t released from submitting of consolidated statements);
Statement of cash flows and other statements, explanatory information which is included at the discretion of auditors of the company and directors.
Tax returns of Cypriot company is divided into:
Main which should be submitted at the end of the year;
Intermediate which should be submitted before the 31st of July of the current year.
Financial statements and tax returns (for corporate tax) is submitted for one year after the end of the financial year of the company.
All Cypriot registered companies must pay an annual fee in an amount of € 350. The annual fee shall be paid beginning from year of state registration. The fee shall be paid to the Registrar of companies no later than the 30th of June of each year.
Information about the directors and shareholders is publicly available in the register of companies.
Cyprus is a member of the EU;
Good taxation conditions;
Private Limited Company can be a holding company and can be used for international trade, assets protection, as investment company etc.
It’s necessary to prepare and submit annually an auditor’s financial report of the company.