The island is a member of EU and Eurozone, providing access to 500 million EU citizens, 40+ EU trade agreements and a large amount of experienced, highly educated and multilingual workforce. It strategic geographical position, high quality of living and extensive list of double tax treaties are just a few of the reasons why Cyprus is becoming more and more popular for company relocation.
Office rental rates are on the lower-end of Europe as well as low general office operation costs. Cyprus has gained a reputation and is now more popular with the fin-tech community and ITC companies. Cyprus is held as a hub for marketing services, software development and system integration.
In October 2021, a new action plan was announced by the Minister of Finance to attract companies to operate and expand their activities in Cyprus. The Council of Ministers approved the “Strategy for Attracting Businesses for activities or/and expansion of activities in Cyprus”. Emphasis is on domains related to high technology, shipping, innovation, research and development, biogenetics and biotechnology. See below measures:
1. Transformation of the existing Fast Track Business Activation Mechanism into a Business Facilitation Unit (BFU) – Eligible companies:
- Any foreign companies that operate in Cyprus or any foreign companies wishing to establish presence in Cyprus. Such companies must have physical presence and shareholders that hold the majority of the company’s shares must be third-country nationals. In the cases where foreign participation in company’s share capital is equal or less than 50% then the foreign participation must match an amount equal or greater to amount of €200,000 as nominal capital;
- Cyprus shipping companies;
- Cyprus tech/innovation companies;
- Cyprus pharmaceutical companies or Cyprus companies that are in the field of biogenetics and biotechnology;
The business facilitation unit will assist in the following:
- Ensuring that company’s name is approved and company is registered to the Department of Registrar of Companies;
- Support company with VAT registration and registration to the Tax Department and Income Tax office;
- Make certain that company applies to Employers’ register, social insurance registry and is informed of all their social insurance obligations.
2. Revised policy for issuance of temporary residence and work permits to third country nations: Permits are issued immediately within 1 month and will last up to 3 years. There are two different scenarios:
- Employment of support staff with gross monthly salary for emoluments of less than €2,500 – It must be noted that employment of third-country national as support staff is permitted assuming that the percentage of third country nationals do not exceed 30% of the total support staff.
- Employment permits in Cyprus for third country nationals with minimum acceptable gross monthly salary of €2,500 assuming certain conditions are met. Conditions include:
- Individual holds a university degree or equivalent qualification or has relevant experience in the position for at least 2 years;
- Employment contract is signed for a period of no less than two years;
- Maximum number of third country nationals should not exceed 70% of total employees in a period of 5 years from the date of joining the business facilitation unit.
3. Family re-unification rights of third-country nationals who are part of the third-country employment policy:
Spouses of third-country nationals with a minimum gross monthly salary of €2,500 have free access to the labour market as paid employees. The Ministry of Interior undertook the responsibility to amend the relevant legislation to simplify the process that the above permits will be granted
4. Digital Nomad Visa:
A new type of residence permit shall be introduced specifically for people who wish to live in Cyprus but work in companies operating abroad. Specifically, the beneficiaries are third country nationals who are self-employed or employees that work remotely using information and communication technologies, with employers and clients that are outside of Cyprus and they wish to live in Cyprus. A maximum limit of 100 beneficiaries will initially exist.
- Right to stay in the country for up to one year, with the right to renew for another two years;
- They can be accompanied by their family members, to whom, upon request, a residence permit that expires at the same time as their dependents is granted. During their stay in Cyprus, the spouse or partner and the minor members of the dependent’s family are not allowed to provide dependent work or to engage in any kind of economic activity in the country;
- If they live in the country for one or more periods that in total exceed 183 days within the same tax year, then they are considered Cyprus tax residents, meaning they are not tax residents in any other country.
- Evidence (supported by salary, employment contracts, bank statements, etc.) that the applicant has sufficient resources, at a fixed income level, to cover his/her living expenses during his/her stay in the country in order not to burden the social welfare system. The acceptable threshold of sufficient resources is set at €3,500 per month (increased by 20% for the spouse or partner and by 15% for any minor);
- Medical insurance;
- Clean criminal record certificate from the country of residence.
Intellectual Property (IP) Tax Regime:
In addition to the measures that are being implemented and are listed above, a company re-locating to Cyprus can also enjoy the very attractive IP tax regime. Cyprus has been recognised as an ideal location for asset development since Cyprus IP companies can achieve an effective tax rate up to 2.5% on qualifying profits earned from exploiting qualifying IP. In addition to this, under the Cyprus regime, 80% of qualifying profits generated from qualifying intangible assets will be deemed to be tax deductible. Qualifying intangible asset is defined as an asset which was acquired, developed or exploited by a person in furtherance of their business which is the result of research and development activities.
Intellectual Property Law of Cyprus has an advantage over the other IP Box regimes since Cyprus allows a wider range of income such as gains on the disposal of IP assets
Examples of ICT companies that are already established in Cyprus are Amdocs, Wargaming, Exness, Bolt, Etoro, Nexters and many others.
Tax Regime update to attract employee talent and businesses:
In May 2022 the cabinet of Ministers approved another scheme that is targeted towards foreign employees relocating to Cyprus that is one of the most competitive ones of its kind in the European Union. See key characteristics of the scheme below:
- The scheme – 50% tax break for employees earning an annual income of above €55,000;
- Time period – Tax break will be extended from the current period of 10 years to 17 years. Time period begins on the 1st year of employment of the employee in Cyprus;
- Grace period – There is a distinction between existing employees and new employees. An individual that is already employed in Cyprus has a grace period of 6 months to meet the prerequisites of the scheme, while new employees have a grace period of 2 years. A prerequisite in this case refers to the minimum annual income of €55,000.
Updates of Research and Development expenses deduction:
Another measure was approved by the Cabinet in May 2022. A 20% tax deduction was granted for research and development expenses in an effort to further promote foreign investments and businesses to relocate their operations to Cyprus. The Minister of Finance stated that the deduction would be valid for a period of 3 years commencing from the tax year 2022.
Other tax incentives for relocating to Cyprus:
- Low corporate tax rate of 12,5% on profit, one of the lowest within the EU with possibility to enjoy a much lower effective tax rate;
- Availability of a Notional Interest Deduction for companies receiving new equity funding. The tax deduction can reach up to 80% if the taxable income produced is employed by the new equity funding;
- No capital gains tax (except for disposal of real estate in Cyprus or shares of company holding real estate in Cyprus to the extent gains is attributable to the real estate holding);
- No inheritance tax;
- Payment of dividends and interest to non-Cyprus tax residents are exempt from withholding tax;
- No taxes on entry, reorganisations and exit;
- Option for overseas pension to be taxed under a special mode of taxation in which pensions are exempt from tax up to €3,420 and any amount above that threshold is taxed at a flat rate of 5%;
- Income from CIF are generally exempt for VAT purposes in Cyprus
- Cyprus tax grants exemptions on income tax for individuals for all of the below:
- Lump sums received by way of retiring gratuity, commutation of pension or compensation for death or injuries;
- Capital sums paid to individuals out life insurance policies, provident fund and pension funds;
- Profit from the sale of securities is exempt from tax in Cyprus. Securities are defined as: Ordinary shares, founder shares, preference shares, options on shares, debentures, bonds, short position on titles to include futures, forwards, swaps and participation in companies. Such income will however be subject to GHCS at a rate of 2.65%;
- Tax credit relief can be offered if a particular income was already taxed abroad. This relief can be obtained only when the original tax payment receipt is presented as confirmation;
Cyprus has all the potential to build a leading environment for IT companies in Europe and the rest of the world and all schemes referred to above are actions that are taken in the correct direction to achieve the goals that Cyprus has set.
For more details in regards to relocating your business to Cyprus and all the schemes that your company can benefit from, please contact our offices at firstname.lastname@example.org.