Cyprus is the third largest island in the Mediterranean Sea and located towards the East, internationally known for its sunny climate, crystal clear waters, and beautiful beaches, but also for its rich history and culture, with influences from various civilizations, including Greek, Roman, Byzantine, and Ottoman.
Moreover, Cyprus features a very diverse economy with key industries including tourism, shipping, financial and legal services, and technology. In the last decade or so, Cyprus has also established itself as an ideal relocation destination for international companies looking to establish their headquarters within a European country. With its favorable tax regime, strategic geographic location, and well-educated workforce, Cyprus offers a range of benefits to businesses looking to expand their operations.
One of the main reasons why Cyprus is an attractive destination for international companies is its highly favorable tax system. The country has one of the lowest corporate tax rates in Europe, currently set at 12.5%. Additionally, Cyprus has signed over 60 double taxation treaties with other countries, which ensures that companies operating in Cyprus are not subject to double taxation on their income. This tax system has made Cyprus an attractive destination for multinational corporations looking to establish their European or Regional headquarters.
Cyprus is also strategically located at the crossroads of Europe, Asia, and Africa, making it an ideal location for companies looking to expand their operations in these regions. The country is well-connected to major international markets, with easy access to the Middle East and North Africa. The country’s location also makes it an ideal hub for shipping and logistics companies looking to connect with markets in the region.
In addition to the aforementioned advantages, Cyprus offers a number of specific incentives to further attract international companies to the island. One such incentive is the Notional Interest Deduction (NID), which provides for a notional interest deduction from the taxable profits of a business financing their operations through new equity. The Notional Interest Deduction (NID) is a tax incentive which was introduced in Cyprus in 2015, to encourage companies to increase their equity capital and enhance their financial position and ability to invest in their business. The NID allows companies to claim a deduction for notional interest on new equity capital invested in their business, effectively reducing their taxable income.
The calculation of the NID is based on the reference interest rate (RIR). The reference rate is calculated by adding a 5% premium to the 10-year government bond yield of the country where the funds are employed, multiplied by the new equity introduced into the company in the form of paid-up share capital and share premium. The deduction granted cannot exceed 80% of the tax adjusted profits.
The NID has been designed to encourage companies to increase their equity capital and reduce their debt financing, which in turn strengthens their financial position and enhances their ability to invest in their business. By reducing their taxable income, the NID effectively reduces the tax burden on companies and provides a strong incentive for companies to invest in their business.
The NID is available to all companies which are tax residents in Cyprus, and there are no restrictions on the size or type of company that can benefit from the deduction. The NID is also available to permanent establishments of foreign companies in Cyprus, provided that they meet the relevant criteria.
The introduction of the NID has been widely welcomed by the business community in Cyprus, as it provides a significant tax incentive for companies to invest in their business and enhance their financial position. The NID has also helped to reinforce Cyprus’ reputation as an attractive destination for international companies looking to establish their European headquarters.
Another incentive is the Intellectual Property (IP) Box regime, which offers a reduced tax rate of up to 2.5% on profits generated from qualifying IP assets such as patents, computer software and non-obvious, useful and novel intangible assets. This regime aims to attract companies with valuable IP assets, such as technology and pharmaceutical companies, to establish their European headquarters in Cyprus and benefit from the favourable tax treatment.
Cyprus also offers a tonnage tax system for shipowners, managers, and charters. This system allows these companies to be taxed based on the net tonnage of their vessels, rather than on their actual profits. This provides a predictable and stable tax regime for the maritime industry, which is an important sector for Cyprus due to its strategic location and large shipping registry.
Overall, the combination of favorable tax policies, strategic location, skilled workforce, modern infrastructure, and stable political environment makes Cyprus an attractive location for international companies looking to establish their European headquarters or expand their operations in the region. The specific incentives, such as the NID, IP Box, and tonnage tax system, provide additional benefits and further demonstrate Cyprus’ commitment to attracting foreign investment and supporting key industries.
Another advantage of Cyprus is its highly skilled and educated workforce. The country has a well-established education system, with a number of universities and technical schools offering a range of programs. Many Cypriots (approximately 76%) are also fluent in English, which is the international business language on the island, making it easier for foreign companies to operate in Cyprus.
Cyprus has also invested heavily in its infrastructure in recent years, with major improvements in transportation, telecommunications, and energy infrastructure. The country has a modern telecommunications network, with high-speed internet and mobile networks available across the country. Additionally, the government has invested in renewable energy, with a goal of producing 45% of its energy from renewable sources by 2030.
In addition to its favorable tax system and strategic location, Cyprus also offers a high quality of life for expatriate employees. The country has a warm climate, beautiful scenery, and a relaxed lifestyle, making it an attractive destination for professionals and their families. The cost of living in Cyprus is also relatively low compared to other European countries, making it easier for companies to attract and retain talented employees.
Finally, Cyprus is a safe and stable country, with a low crime rate and a well-functioning legal system. The country is a member of the European Union and the United Nations, which ensures that it adheres to high standards of governance and human rights. The government has also implemented a number of measures to attract foreign investment, including a fast-track process for obtaining permits and licenses.
In conclusion, Cyprus is an ideal location for international companies looking to establish their European or Regional headquarters. With its favorable tax system, strategic location, well-educated workforce, modern infrastructure, high quality of life, and stable political environment, Cyprus offers a range of benefits to businesses looking to expand their operations in Europe and beyond.
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The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.
