Legal Law

Why we hate business start-ups in Cyprus

Especially if you are traveling to Eastern Europe (places like Latvia), you will hear a lot in offshore company formation circles about Cyprus companies, they are quite common there. (As you travel the world, you will find that there are popular places or favored tax havens in many of the countries of the world, Barbados for Canada (although this is an outdated view), Puerto Rico for the US, etc.) Frankly, I have no idea why it has become popular for anyone, as I loathe Cyprus compared to the alternatives.

Let’s start with what is supposedly good about Cyprus:

  1. It is part of europe

  2. Relatively low taxes: the decal rate of 12.5% ​​is one of the lowest in Europe

  3. A reasonable network of tax treaties

  4. Non-resident companies are available, which opens up the possibility for companies to impose a 0% tax.

  5. No dividend withholding taxes

So, you could ask yourself with all these advantages, what is it that is not loved?

The reality is that Cyprus is an option, it is just a worse option than some of the alternatives available, more specifically Gibraltar. Let’s compare:

  • They are both part of Europe, so neither scores points over the other.

  • Company formation in Cyprus is around EUR 2,250, while Gibraltar is around GBP 850, making Gibraltar cheaper.

  • Both can have non-resident companies, but non-resident companies of Cyprus are still subject to annual audited financial statement requirements when even Gibraltar-resident companies do not achieve an annual income of £ 5 million and non-resident companies do not have to submit the application. a return at all which makes Gibraltar businesses much less expensive to maintain

  • Cyprus definitely has an advantage when it comes to its tax treaty network and I have heard the argument that “you should have your Cyprus company tax resident in Cyprus to be able to benefit from the tax treaties”, but in practice I rarely find that any Advantage in doing so, if you are conducting tax structuring abroad that would result in a Cyprus company, you are not normally seeking the benefits of tax treaties anyway

  • Laws of Cyprus, etc. They are all in Greek, which makes it much more difficult for those more familiar with English to get information and do business there

  • Cyprus is not a particularly confidential jurisdiction

  • While there is very accessible local banking available in Cyprus and not in Gibraltar, a Gibraltar business could easily open a bank account in Cyprus, but who would want to do so given their history of financial instability?

  • Gibraltar has a tax rate of 10% on companies, while Cyprus has a tax rate of 12.5%, which makes Gibraltar more favorable in gross tax rate for resident companies.

  • Cyprus taxes worldwide income, while Gibraltar has a quasi-territorial tax system that makes Gibraltar even more competitive for resident companies.

If you are going to have a resident local company, then yes, Cyprus has one of the lowest tax rates in Europe combined with a mediocre network of tax treaties. Whether there is any reason to go there instead of saying Latvia or Estonia or Malta is a matter of the individual circumstances of your business, but as a general rule, it is a rare day that forming a company in Cyprus makes sense to a non-resident.

Simply put, I hardly ever use or recommend Cyprus as a jurisdiction to form an offshore company.

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