Why to Start a Business in Cyprus: Key Advantages

Cyprus has emerged as one of the most attractive destinations for business incorporation in Europe. The island nation offers a unique combination of favorable tax policies, strategic location, and a robust legal framework, making it an ideal hub for businesses looking to establish a presence in Europe, the Middle East, and beyond. Here’s why you should consider starting a business in Cyprus.

1. Favorable Tax Regime

Cyprus is renowned for its business-friendly tax environment. The corporate tax rate is one of the lowest in Europe at 12.5%, providing significant savings for companies. In addition to this low rate, Cyprus offers a variety of tax incentives, such as exemptions on dividend income, interest income, and profits from the sale of securities. Companies involved in intellectual property can benefit from the IP Box regime, which allows up to 80% of qualifying income to be exempt from tax, effectively reducing the tax rate to as low as 2.5%.

Detailed Tax Advantages

One of the most compelling reasons to start a business in Cyprus is its highly favorable tax regime. The country provides a wide range of tax benefits that make it an attractive jurisdiction for business incorporation globally. Here’s a closer look at the tax advantages available:

• Corporate Income Tax: With a corporate tax rate of 12.5%, Cyprus is among the most competitive in the European Union. This rate applies to the worldwide income of companies that are tax residents in Cyprus, making it an attractive option for businesses looking to optimize their tax liabilities.
• Tax Exemptions on Dividends: Dividends received by a Cyprus tax-resident company from other Cyprus-resident companies are generally exempt from corporate income tax. Dividends received from foreign subsidiaries are also exempt, provided the subsidiary’s income primarily comes from trading activities or the foreign tax burden is not significantly lower than Cyprus’s effective tax rate.
• No Withholding Tax: Cyprus imposes no withholding tax on dividends, interest, or royalties paid to non-resident shareholders. This makes Cyprus an ideal location for holding companies and businesses involved in international operations.
• Capital Gains Tax: Capital gains tax is only applicable to gains from the disposal of immovable property located in Cyprus or shares of companies owning such property. All other gains, including those from the sale of shares in companies not holding immovable property in Cyprus, are exempt.
• Intellectual Property (IP) Box Regime: The IP Box regime in Cyprus provides significant tax benefits, with 80% of qualifying profits derived from the exploitation of intellectual property assets being exempt from corporate income tax. This effectively reduces the tax rate on such profits to just 2.5%.
• Notional Interest Deduction (NID): The NID allows companies to deduct a notional interest expense on new equity injected into the company for financing operations. This can reduce taxable income by up to 80%, potentially lowering the effective tax rate to as low as 2.5%.
• Shipping Tax Benefits: Cyprus operates an EU-approved tonnage tax system, offering substantial tax benefits to qualifying shipping companies. This system provides tax certainty and can significantly reduce the tax burden for shipping businesses.
• Double Taxation Treaties: Cyprus has an extensive network of double taxation treaties with over 65 countries, including major economies like the United States, the United Kingdom, and China. These treaties help businesses avoid being taxed twice on the same income.
• Value Added Tax (VAT): Cyprus’s standard VAT rate is 19%, with reduced rates of 9% and 5% for certain goods and services. Intra-community transactions within the EU are generally VAT-exempt, making Cyprus an attractive location for trading businesses.
• Personal Income Tax Benefits: Cyprus offers significant personal income tax benefits, especially for expatriates and high-income earners. Individuals taking up employment in Cyprus with an annual income exceeding €100,000 can benefit from a 50% tax exemption for up to 10 years. There are also incentives for those earning between €55,000 and €100,000, with a 50% exemption extending for up to 17 years.
• Special Defence Contribution (SDC): The SDC is levied on passive income, such as dividends, interest, and rental income, but does not apply to non-residents or income derived from non-resident sources, making Cyprus appealing for international investors.
• Expatriate Tax Incentives: Cyprus offers special tax incentives for expatriates relocating to the island. New residents not previously tax residents for at least 15 years can benefit from a 50% tax exemption on their personal income if their annual salary exceeds €100,000. This exemption can extend up to 17 years for certain salary ranges, encouraging skilled labor to Cyprus.

2. Strategic Geographical Location

Situated at the crossroads of Europe, Asia, and Africa, Cyprus serves as a strategic hub for international business. Its location provides easy access to key markets across three continents. The island’s time zone also overlaps with major global business centers, allowing for seamless communication and operations with Europe, the Middle East, and beyond.

3. EU and Eurozone Membership

Cyprus has been a member of the European Union since 2004 and the Eurozone since 2008. This membership offers businesses access to the vast EU market of over 500 million consumers. It also ensures that businesses in Cyprus operate under the EU’s stringent regulatory framework, providing an additional layer of credibility and security for your operations.

4. Robust Legal System

Cyprus’s legal system is based on English Common Law, which is widely recognized and respected globally. This legal framework provides a stable and predictable environment for business operations, with strong protection for property rights and contract enforcement. The country’s adherence to EU regulations further enhances its legal reliability.

5. Highly Skilled Workforce

Cyprus boasts a well-educated and multilingual workforce, with a high percentage of university graduates. The availability of skilled labor in fields such as finance, law, and technology makes it easier for businesses to find the talent they need. The widespread use of English as the business language further simplifies communication and operations.

6. Ease of Doing Business

The process of setting up a company in Cyprus is straightforward and efficient. The country ranks highly in global ease of doing business indices, thanks to its simplified registration procedures, minimal bureaucracy, and supportive governmental policies. The entire process, from name approval to incorporation, can be completed within a few days.

7. High Quality of Life

Cyprus is not only a great place to do business, but it’s also a fantastic place to live. The island offers a Mediterranean lifestyle with a mild climate, beautiful beaches, and a rich cultural heritage. The high standard of living, combined with a safe environment and excellent healthcare and education systems, makes Cyprus an ideal location for business owners and their families.

8. Advanced Infrastructure

Cyprus offers modern and efficient infrastructure, including two international airports, well-developed road networks, and advanced telecommunications systems. These facilities support seamless business operations and make it easy to connect with global markets.

9. Government Support for Businesses

The Cypriot government is consistently pro-business, offering various incentives and support for foreign investors. This includes favorable tax policies, grants, and the establishment of a Business Facilitation Unit to assist with the practicalities of starting and operating a business on the island.

Starting a business in Cyprus offers numerous advantages, from a low corporate tax rate and strategic location to a robust legal system and skilled workforce. The country’s favorable tax regime includes significant benefits such as no withholding taxes on dividends, interest, and royalties paid to non-residents, and tax-efficient treatment of capital gains. With its extensive network of double taxation treaties, Cyprus ensures that businesses can operate globally without the burden of double taxation. Additionally, the combination of advanced infrastructure, a supportive government, and a high quality of life makes Cyprus an ideal location for businesses looking to thrive in the European and international markets. Whether you’re looking to optimize your tax liabilities, expand your operations, or enjoy a vibrant business environment, Cyprus provides all the essential ingredients for success.