On 21 December 2021, two amending laws (available in Greek only) were published in Cyprus' official gazette that aim to strengthen the country's tax framework for the prevention of tax abuse. The new provisions amend the Special Defence contribution and the Income Tax Law and are effective as from 31 December 2022.
Globalserve Consultants Ltd is a licensed accountants and administrative services company regulated by ICPAC under license number E495/F/2013.
Our headquarters are in the business center of Limassol, a modern office building which houses all departments rendering the full range of accounting/ VAT/ tax as well as corporate services.
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For the completion of the bookkeeping and accounting the following records are needed, once the accounting is completed the company can proceed with the audited financial statements, Globalserve Consultants Ltd in cooperation with an affiliated audit firm can assist you with the audited financial accounts.
**If the share portfolio was handled by an investment broker, a statement of a/c to be provided for all transactions done in the year and a confirmation of the closing position of the share portfolio.
G. If the company has invested in any other companies please send us:
a) Agreement for acquisition of the investment
b) Incorporation certificate
c) Certificate of ownership of the shares
d) Financial statements of the investment companies
e) Details of any dividends received during the period and original withholding tax certificates, if any.
H. All contracts/agreements signed during the year. You should prepare a small summary in English for each contract. The most important details would be:
a) the parties involved
b) reasons for the agreement
c) contract price
I. Copies of all minutes/resolutions for the directors and the shareholders
J. Other information relevant to the company
Cyprus is a part of the European Union since 2004 and is the third largest island of the Mediterranean. It is situated at the crossroads of three continents Europe, Asia and Africa.
The law under which business takes place is based on the same principals applicable to the UK legal system.
Cyprus is well known as one of the lower tax jurisdiction, with only 12.5% corporate tax on net profits, and other generous tax exemptions on dividends and profits from the sale of shares and shipping.
The above combined with the extensive network of double tax treaties and the excellent and highly efficient business environment, banking and legal system make Cyprus a very attractive vehicle for investment in Europe and the CIS countries. Furthermore, Cyprus is on the white list of the OECD.
The setting up of holding companies within the most appropriate structures becomes nowadays an important consideration for all investors who wish to maximize their after tax return on investments. The global markets are becoming more demanding and the need for choosing the best structures that provide to investors the most tax effective means of consolidating their ownership in different enterprises becomes more imperative. Consequently, the location of holding companies represents an important consideration in any international structure and the investors should consider a number of factors before they finally decide on each holding company jurisdiction in order to achieve optimization of their profits.
The Cyprus holding company regime represents one of the most attractive regimes in the European Union as it provides a number of features to investors for achieving their goals.
The most important features of the Cyprus holding company regime are summarized as follows:
Foreign dividends received by a Cyprus company are tax-exempted provided that no more than 50% of the paying company’s activities result directly or indirectly in investment income and the foreign tax burden is not significantly lower than the Cyprus tax burden.
Profits arising from the disposal of securities are tax exempted from any tax in Cyprus provided that securities refer to the list of titles as these are included in the Inland Revenue’s relevant tax circular. Such titles include shares, bonds, debentures, options on titles, swaps on titles etc.
Dividends paid by a Cyprus company to its non – resident shareholders are not subject to any withholding tax irrespective of their country of residence.
Tax credit is granted for any income received by a Cyprus company for which tax was suffered abroad provided that such an income is taxable under the Cyprus Tax Law. The tax credit is also provided irrespective of the absence of a Double Tax Treaty. It is noted that credit in respect of tax paid abroad cannot exceed the amount of tax payable in Cyprus in respect of the same source of income.
Tax losses can be carried forward for setting off with future profits for a maximum period of five years whereas they can also be used for group relief provided that there is at least 75% holding either directly or indirectly.
However, there are certain indirect rules regarding the tax allowance relating to interest expenses associates with the acquisition of certain assets.
The same applies for any disposal of shares in companies holding immovable property abroad.
Cyprus has a comprehensive network of double tax treaties with more than forty countries whereas a significant number of such treaties are currently under negotiation with other countries thus providing to Cyprus companies an advantageous tax system for avoidance of double taxation.
No capital gains tax or income tax is payable upon liquidation of the Cyprus holding company itself.
It is obvious from the above, that Cyprus holding companies provide an effective tax vehicle for investors as they provide a favorable package for maximization of return as well as for providing an effective solution for the exit route of repatriation of profits. Setting up a holding jurisdiction is not always tax driven, but also is affected by other factors such as the stability of the business environment, the strategic location and facilities offered by the business system, the excellence and efficiency of the professional services offered as well as the compliance with the European Law and Directives. The Cyprus holding regime comprises all of the above factors thus making Cyprus an attractive jurisdiction for existing and potential investors.
Cyprus has a presidential system of government which is modeled on western democratic systems where human rights, political and private property are safeguarded. The legal system is based on the same principles applicable in the United Kingdom. Cyprus legislation is considering a complete system to preven money laundering as well as other illegal activities related to financial or drug crimes.
Cyprus has an open economy, with the major business activities being on tourism and services. Cyprus accounting profession follows the international accounting and auditing standards, that of the accounting members of the local institute of CPAs, ACCA and ACA.
The island's banking system is highly developed and consists of many local and foreign commercial banks as well as a large number of offshore banking units. The Island has excellent transportation and telecommunication infrastructure. There are modern ports, 2 international airports and the road network
consists of motorways and large carriage-ways linking all the cities.
Cyprus is established as a leading international maritime centre, constituting today the biggest third party ship management centre in the European Union with the Cypriot maritime registry being one of the largest in the European Union and the 10th largest worldwide.
The success of Cyprus Shipping is the result of its merchant shipping legislation, the tax benefits, its well founded shipping infrastructure and services as well as its efficient maritime registry.
Shipping Tax System
The Merchant Shipping Law of 2010 extended the scope of Tonnage Tax System and provides:
- Full exemption to shipowners, charterers and shipmanagers from all taxes and imposes tax on the net tonnage of the vessels.
- The tax exemption also covers:
- Distribution tax at all levels
- Interest income relating to shipping activity
- Capital gains from sale of vessel or shipping company
- Wages and other benefits of officers and crews of Cyprus registered vessels
- Withholding tax on dividends/ interest/ royalty on repatriation of income
- Profits from Permanent Establishment (PE)
- No stamp duty on ship mortgages deeds or other security documents
- No inheritance tax
- Additionally it allows:
- Mixed activities within a company/ group. Those falling under shipping activities are taxed at tonnage tax and the non shipping income is taxed at corporate tax at 12,5% on net profit (separate books must be kept)
- Supports an open registry
- Allows split ship management activities
- Applies to ships of third country flags
- Covers also crew management services
The main provisions of the new tonnage tax system are:
- (1) Beneficiaries
The tonnage tax system is available to any owner, charterer or Ship Manager who owns, charters or manages a qualifying Ship in a qualifying shipping activity. The tonnage tax is calculated on the net tonnage of the Ship according to a broad range of bands and rates prescribed in the legislation. The rates applicable to Ship Managers are 25% of those applied for Ship Owners and Charterers.
- (2) Qualifying Ship
A qualifying Ship is any seagoing vessel certified under applicable international or national rules and regulations and registered in the Ship register of any member of the International Maritime Organization and/or the International Labour Organization that is recognized by Cyprus.
- The regime specifically excludes certain types of ships, such as fishing vessels, ships used primarily for sports or recreation, river vessels, non-self propelled floating cranes and tug boats, among others.
Qualifying Shipping Activity
Means any Commercial Business or Activity that constitutes “Maritime Transport” or “Crew or Technical Management”.
Includes (for the first time) Towage and Dredging Activities (with some conditions), Cable-Laying Activities and Ancillary Activities, such as Passenger Ship related Hotel, Catering, Entertaining and Retailing Activities, Cargo Loading and Unloading within ports and others.
The legislations applies to three types of operations
There are three categories of ship owners eligible to be taxed under the TTS as follows:
1. Cyprus flag vessel which automatically fall within the scope of TTS
2. EU flag vessel
- provided that the ship owner is tax resident of Cyprus and
- has opted to be taxed under the TTS
3. Mixed fleet
- ship owners of EU and non-EU flag vessels
- provided that the ship owners are tax resident of Cyprus
- has opted to be taxed under TTS
- at least 60% of the fleet in terms of tonnage must comprise of EU flag vessels. If less than 60% then a share of the fleet must comprise of EU vessels and that share must not be reduced in the three year period (flag share requirement) following the exercise of the option and
- the commercial and strategic management of the fleet is carried out from the EU
Any charterer who charters:
— a ship under bareboat
— demise charter
— time or voyage charter
Is eligible to opt for TTS provided:
— that the ship charterer is a tax resident of Cyprus and
— the tonnage of the ships under time and/or voyage charters do not exceed 75% of the total tonnage of ships chartered and owned for more than 3 consecutive years. The eligibility percentage increases to 90% if the ships chartered are EU ships or their crew and technical management are carried out from the EU. The charterers of 3rd country flag ships must comply with the additional requirements that apply for 3rd country flag ship owners (i.e. flag share requirement).
A ship manager who provides:
- crew management services and/or
- technical management services
Can opt to be taxed under the TTS provided it satisfies the following criteria:
- is a tax resident of Cyprus
- maintains a fully fledged office
- employment of a sufficient number of qualified personnel (51% of whom should be EU citizens)
- at least 2/3 of the management is carried out from the territory of the EU
- at least 60% of the fleet in terms of tonnage must comprise of EU flag vessels
- all vessels and crew under management must comply with international standards and EU law, requirements relating to - maritime security, safety, training and certification of seafarers, the environment, on-board working conditions and so on.
for crew managers there is an obligation for full implementation of the 2006 Maritime Labour Convention and
for technical managers, they must have the ISM Code certification
Any ship owner, charterer or manager opting for the TTS must remain in the system for 10 years. Early withdrawal will result in penalties, calculated as the difference between the amount paid during the period under the TTS and the amount that would have paid had it been subject to corporation tax in the same period. In addition, the right to opt for tonnage taxation until expiration of the 10-year period from the date the option was first exercised is lost.
No tax on income derived from the operation of a Cyprus registered vessel
No tax on dividends paid to shareholders of a Cyprus registered vessel out of profits made from the operation or from the sale of a ship
No tax on interest earned on working capital of a Cyprus registered vessel
No tax on the income or profit made from the sale of a Cyprus registered vessel
No tax on the wages or other benefits of officers and crew members of a Cyprus registered vessel
No estate duty on the inheritance of shares in a ship owning company
No stamp duty on ship mortgage deeds or other security documents
Tonnage tax rates
The following table summarizes the applicable rates for the tonnage tax calculation:
|€36.50 per 100 NT||€31.03 per 100 NT||€20.80 per 100 NT||€12.78 per 100 NT||€7.3 per 100 NT|
Calculation of the annual tonnage tax for a 19.538 net tonnage vessel:
1.000 NT: 1.000/100 = 10 x €36,50 = € 365,00
9.000 NT: 9.000/100 = 90 x €31,03 = €2.792,70
9.500 NT: 9.500/100 = 95 x €20,08 = €1.907,60
38 NT: 38/100 = 0,38 x €20,08 = € 7,63
Annual tonnage tax due = €5.072,93
Note: If the above conditions are not fulfilled to be taxed under tonnage system then the company is taxed under income tax at 10% on net profit.
The tonnage tax system is available to any owner, charterer or Ship Manager who owns, charterers or manages