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Expert view: Finding favour in the eastern Med

Cyprus historically established itself as a popular tax haven, with an exceptionally low flat rate of corporation tax and strict privacy laws for businesses and individuals. The island has, however, undoubtedly lost its tax haven status in recent years, having met the European Union membership conditions which included an increase in its tax rates.

Today, Cyprus is an attractive place to set up a company with one of the lowest corporation tax rates in the EU of 12.5%.  Certain areas of trading and investment are encouraged by the Cypriot government with lower effective rates of tax for specific activities,  and a particular focus on those activities that are innovative.

With Cyprus being signatory to several worldwide Intellectual Property (IP) protection treaties it offers an ideal location for IP management and utilisation.  It has a favourable tax system which exempts the first 80% of worldwide royalty income generated from IP.  This can result in an effective rate of corporation tax as low as 2.5% on qualifying IP rights, such as copyrights and patents.  If you are thinking of exporting your company‚Äôs IP then a Cypriot holding company may be worth exploring.

Any staff seconded to Cyprus will be taxed on employment income there, so it is important to understand the income tax rules and rates. Cyprus recognises that new businesses need expertise and therefore employment income for individuals who relocate to the island may be eligible for a tax exemption of up to 50% for the first ten years.  The remaining 50% of the salary will be taxed at progressive rates up to a maximum of 35%.  Social security contributions will need to be calculated separately.

There are many factors to consider before setting up a business and of course you should always seek professional advice before doing so.

For more information on trading with Cyprus or how Cassons can help with international trade, please do not hestiate to get in touch.

24 Jul 17
Alex Fielding, Tax adviser, Cassons