A winning location

Over the years, a combination of several favourable factors has made Cyprus one of the most attractive business regimes for foreign investors. The island’s infrastructure, the coherent legal system, the high standard of professional and other support services, the low cost of living, the security of investment, and the tax incentives and concessions create an ideal business environment for international expansion and growth of Indian companies.

This article provides a brief overview of Cyprus domestic companies and tax laws and highlights the benefits available to Indian and other foreign companies that invest in the country.

Legal structures

Cyprus companies are legally secured within the framework of a well-defined regulatory system governing their operation. Ownership and possession, as well as freedom of contract, rights to practice professions and carry on any trade or business, etc., are safeguarded by the constitution and international treaties ratified by Cyprus that form part of its laws.

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These fundamental rights are guaranteed without any discrimination between Cypriot citizens and foreigners. The legal security of a Cyprus company also comprises entitlement to state protection and government support.

A company may be created in Cyprus as a legal entity by being registered under the provisions of the Companies Law. The Companies Law (as well as Cyprus law generally and particularly in the field of commercial and private transactions) is based on English law. Cyprus company and contract law will be familiar to Indian investors as they are based on common law and are in many respects similar to Indian law.

A suitable vehicle

The type of company that is adopted almost exclusively by foreign investors who are interested in creating a Cyprus registered company is the private company limited by shares.

The most obvious advantages of this corporate form of limited liability are vesting of the business assets in the company, suing and being sued in the company’s name, perpetual succession and transferable shares. Other advantages include the ability to increase at any time both the authorized and paid-up capital, no minimum paid-up capital requirement and the ability to create a floating charge over the company’s assets.

The registration of a company in Cyprus is a simple and speedy process. A private company limited by shares can be registered within about 10 days, although the process can be expedited if necessary.

Tax laws and treaty with India

The tax laws of Cyprus conform to European Union (EU) law and the EU code of conduct and abide by Cyprus’ commitment to the Organisation for Economic Cooperation and Development to eliminate harmful tax practices.

At the same time, having the lowest tax regime in the EU makes Cyprus a stepping stone for investments to and from the EU.

The tax benefits offered by Cyprus include:

• Low corporate income tax rate of 10%;
• No withholding taxes, in most cases;
• Low personal tax rates and low social insurance contribution;
• The ability to pull profits from foreign subsidiaries with nil or very low withholding tax;
• No capital gains tax or net worth tax is levied on the disposal of property situated outside Cyprus; and
• Foreign dividend income exception, in most cases.

A company resident in Cyprus is considered a Cypriot company for tax purposes if its management and control is carried out in Cyprus. Although no definition of management and control is provided in the law, it is generally accepted as being the place at which board decisions are taken and where the directors reside. The use, by companies at least in part, of local directors achieves this end.

Moreover, Cyprus has a favourable treaty with India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. The treaty regulates, among other things, the withholding tax on dividends, interest and royalties as well as capital gains from sale of shares.

The following withholding taxes rates are provided by the treaty:

Dividends: 10% of the gross amount of dividends if the beneficial owner is a company which owns at least 10% of the shares of the company paying the dividends, or 15% of the gross amount of the dividends in all other cases.

Interest: 10% of the gross amount of interest.

Royalties: 15% of the gross amount of the royalties received in Cyprus for “included services” (as defined in the treaty), or 10% of the gross amount of royalties paid from Cyprus.

The above withholding tax rates are only applicable for distributions from India to Cyprus. Cyprus does not impose any withholding tax on distributions to non-resident individuals or companies. For the purposes of the treaty, the term “resident” means any person who, under the laws of India or Cyprus, is liable to tax in India or Cyprus by reason of their domicile, residence, place of management or any other criteria of a similar nature.

These factors undoubtedly contribute to making Cyprus attractive as an intermediate holding company regime for Indian companies, particularly for expanding business activities into Europe or the Middle East.

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Marios Eliades is a Nicosia-based partner at Tassos Papadopoulos & Associates LLC. He can be contacted at meliades@tplaw.com.cy.