The relevant law dealing with Cyprus’s corporate law is the Cyprus Companies Law, cap. 113. This code is actually an almost identical adoption of the English Companies Act of 1948. As a matter of fact, the English Act has been identically adopted at first, and only later has been modified to a certain extent. The main modifications are attempting to homogenize the Cyprus law and the European Union law. Therefore, the Cyprus corporate code has both European-Continental and English-Common Law characteristics.
After the 2001 major modification, foreign control companies, i.e. companies that are on full control of foreign bodies, are regulated as offshore companies. As wise, beginning from 2003, offshore companies must pay tax as any company, and does not benefit from unique privileges. And yet, this rule of thumb isn’t complete and has exceptions when the company is trading merely out of Cyprus’s borders.
The Cyprus corporate taxation system is complex and intricate, and cannot be simply laid forth here. However, in abstract it can be pointed out the companies’ revenue owe a 10% tax, whether local or offshore companies. This tax is the lowest tax rate amongst all nations in the European Union. In addition, the Cyprus codes determine a 2% employers’ income tax.
Moreover, one of the main reasons that foundations of Cyprus’ companies is so attractive to foreign investors is that the Cyprus tax law exempts Cyprus’ companies investments in foreign companies, under considerably convenient term. Therefore, as long as the foreign company’s activities are permanent and don’t exceed 50% of the Cyprus company’s revenue, and as long as the tax on that activity in the foreign country aren’t substantially smaller than the corporate tax in Cyprus, then the activity is exempt from local tax in Cyprus. However, it should be noted and clarified, that although these conditions seem very appealing to the foreign investor, they are not as simple as noted above, and are more complex and intricate than can be explained here. The Cyprus law system is characterized by having a European Union law contributory to its local codes on the one hand, and a unique local code on the other, and therefore is an intertwined system that requires high professionalism.
In addition to the noted above, the Cyprus tax law exempts corporate dividend distribution to foreign citizens. But, even this privilege is subordinate restrictions, in accordance to harmonization of the Cyprus code and the European Union laws.
Consequently, it is very plausible to take advantage of the Cyprus tax law and corporate law in order to maximize efficiency and revenue management. However, it should be clarified that the goal of the local Cyprus’ codes are not to enable use of foreign companies for foreign investment, but rather to promote the local economy. For this reason, it should be well insured that the Cyprus’ company shall be managed from inside Cyprus, and that the heart of investment shall not be foreign either.