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How to Setup an Offshore Company in Cyprus

Offshore companies are entities that are incorporated outside of the owner’s country of residence. They provide a range of benefits, including tax and legal advantages for business owners who want to reduce their costs and increase their financial privacy. Cyprus is an attractive jurisdiction for offshore company setup due to its low corporate tax rate, favorable double taxation treaties with other countries, and status as a member of the European Union.  

Why incorporate an offshore company in Cyprus?

The eastern Mediterranean island of Cyprus has become an increasingly popular jurisdiction for offshore incorporation. Offshore businesses in Cyprus can benefit from the nation’s advantageous tax system (it has a corporate tax rate of 12.5%, one of the lowest in the EU). Cypriot tax laws also provide additional incentives and exemptions to companies who earn majority of their income outside of the country. 

Some of Cyprus’ tax incentives include 0% taxation on: revenues from trading in securities, profits from the sale of real estate abroad, dividends (both paid out and received by the company), stamp duty (in most instances), income from the sale of shares. Tax on IP rights is also set at a meager 2.5%. 

The country is part of the EU which makes it an ideal location for those looking for the benefits of an offshore tax haven along with the reputability of incorporating in a European nation. It can also be the first step towards Cyrpus residency and tax residency. 

Incorporating in offshore jurisdiction also provides access to various double-taxation treaties with other nations around the world. Cyprus has over 65 double-taxation avoidance agreements worldwide. 

Cyprus gives organizations greater control over their finances and assets compared to domestic entities. Companies are much more flexible than traditional structures due to the relaxed regulatory environment they operate under. There are no restrictions on capital flows either, meaning firms based outside of Cyprus don't need special permission if they want to move funds into or out of the country at will.

To summarize and expand on some of the main benefits of incorporating an offshore company in Cyprus, it offers the following major advantages:

  • Low corporate tax rate of 12.5% along with additional tax incentives for IBCs,
  • Ideal location as an EU nation with a stable political climate,
  • Over 65 double-taxation avoidance agreements,
  • Flexible banking regulations and access to top-tier financial services providers,
  • Cypriot law is largely based on English common law which makes doing business easier for companies who are familiar with this legal system or have offices abroad that do so already,
  • A foreign company in Cyprus provides excellent asset protection and financial privacy. 

crpyus offshore.jpgLegal Structure of a Company

Choosing the right corporate structure for your offshore corporation is an important step in setting up a business abroad. Depending on your goals and needs, different types of legal entities offer varying benefits and drawbacks. 

When setting up a company in Cyprus, there are generally two types of legal structures which are recommended: a Cyprus Limited Liability Company (LLC) or a Cyprus International Business Company (IBC)

A Cyprus LLC is the more traditional business structureand can be incorporated as a domestic or foriegn company. An LLC provides members of the organization with limited personal liability, meaning that they are only responsible for debts and obligations up to the amount of money they have invested into the business. LLCs offer flexibility when it comes to profits and losses distributions among shareholders. A LLC is subject to normal tax laws in Cyprus and is allowed to conduct business within the country. 

Those looking for greater tax advantages may opt for creating a Cyprus international business company (IBC). IBCs are a classic example of an overseas company. While they are restricted in that they are not allowed to conduct business within the country, they also offer greater tax advantages and financial privacy. IBCs do not pay any tax in the country on their foreign-earned income. 

Guide to Setting Up an Offshore Company in Cyprus

Setting up an offshore company in Cyprus is relatively straightforward and involves the following steps:

  1. Choose a name: The first step to setting up a business in Cyprus is to choose a company name and register it with the Department of Labour. The name should be unique and must contain the word “Limited” or “Ltd”. In some cases, the word “IBC” may be sufficient. 
  2. Appoint shareholders, directors, and a company secretary: You will need to appoint shareholders and directors before proceeding to submit your application, as the names of these parties need to be submitted along with your Articles of Association. 
  3. Prepare and submit the relevant documents: next, you will have to draft the articles of association that outline the rules governing how your corporation operates internally. The memorandum, AoA, and other necessary documents should be submitted to the Register of Companies to initiate your application. During this stage, you will also need to provide the names and identities of the shareholders and directors of the company. 
  4. Pay the registration fees: Along with your application, you will need to pay the registration fees. There will also be ongoing annual maintenance and registration fees.
  5. Receive the certificate of incorporation: Once the application has been approved, you will be issued with a Certificate of Incorporation which includes your company's details and legal status as an foreign company.
  6. Open a corporate bank account: while it is not necessary to have a separate corporate bank account in Cyprus, it is highly recommended so as to keep your business finances clearly demarcated and also gain access to the benefits that Cyprus offers as an offshore banking center.
  7. Register for tax and VAT: The next step is to obtain a tax identification number (TIN) from the Tax Office of Cyprus. This will give the company access to the tax and VAT benefits than an offshore corporation in Cyprus offers. 
  8. Obtain any additional licenses or permits: Depending on what type of business activities you intend on undertaking through your new offshore firm in Cyprus, there may be additional requirements such as obtaining licenses or permits from government bodies and industry regulators.

 

  
 
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Document Requirements

The following documents must be submitted to the Register of Companies in Cyprus when filing your application form:

  • Details of directors, shareholders, and secretary, including identification proof, copies of utility bills, etc.
  • Form outlining the registered office address of the company.
  • Declaration form (HE1)
  • Memorandum and Articles of Association, which includes information on the planned activities of the company, registered address, directors’ and shareholders’ duties, etc.

In addition, to open a corporate bank account, the company will have to submit the above documents (excluding the Memorandum, AoA, and declaration form) along with:

  • An outline of the company’s planned operations
  • Copies of CVs of shareholders, beneficial owners, directors, and secretaries,
  • The names of all signatories for the bank account. 

Conditions for Operating an Foreign Owned Company in Cyprus

There are several conditions that must legally be met to own and operate an offshore company. Some of these include:

  • The company should be registered with the Department of Registrar of Companies and Official Receiver. This is done by submitting the necessary documents along with the appropriate fees.
  • All companies must have a registered office address and a local secretary who is a resident of Cyprus.
  • A registered agent to act as the company’s representative who will manage any official business matters on their behalf.
  • The necessary annual tax returns and financial statements must be filed with the tax authorities.
  • The company should have a minimum of one shareholder and one director who can be resident or non-resident natural or legal entities. They may also be the same entity. 

Anonymity and Privacy 

A Cyprus company offers a high level of anonymity and privacy. The banking sector operates under strict rules which protect the privacy of customers. The Central Bank of Cyprus requires banks to keep personal client records private and not share them with any third parties without explicit consent from the customer or court order. 

The identities of shareholders are submitted to the registrar but are not made publicly available. In addition, many companies can operate anonymously by using nominee shareholders who act as proxies for the beneficial owners but don't have any control over company operations or assets. These anonymous shareholders allow business owners to maintain full control over their businesses without revealing personal data such as names and addresses. With these measures in place, individuals can rest assured that their financial transactions remain completely private, no matter where they conduct them from.

   

 
 
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Tax Implications of Operating an Offshore Corporation in Cyprus

Setting up a company in Cyprus can be a beneficial endeavor for many businesses, especially those looking to expand internationally. However, it is important to consider the tax implications of operating an offshore company in this jurisdiction before taking any steps forward.

The Cypriot government offers some attractive tax incentives to companies. Corporate profits are subject to a flat rate of 12.5%, which is one of the lowest rates available among EU countries and significantly lower than most other nations worldwide. This makes Cyprus a very competitive option for businesses that have international operations or sales across multiple jurisdictions. Dividends paid out by the company are exempt from corporate income tax and capital gains realized from investments held outside of the country also remain untaxed under local law.

Furthermore, it is possible to enjoy complete tax neutrality if you opt to incorporate a International Business Company (IBC) (that is, an offshore company in Cyprus which does not have any business activities or operations in the jurisdiction). An IBC is typically considered a non-tax resident of Cyprus and is therefore not subject to the 12.5% corporate tax rate.

However, it is important to note that the tax residency status of an IBC is determined based on several factors, including the location of the company's management and control, the place of incorporation, and the place where the company's business is conducted. If an IBC is deemed to be a tax resident, it will be subject to the 12.5% corporate tax rate on its worldwide income.

Offshore companies registered in Cyprus can register for VAT exemptions if their annual turnover does not exceed €15,600 and they do not engage in any economic activity within the country itself. This means that no VAT will be due on goods or services sold abroad or imported into Cyprus by such entities. Those trading with EU member states must submit periodic returns showing their sales data but may not need to pay any VAT depending on their particular circumstances and whether they meet certain criteria set out by Cypriot VAT law.

Conclusion

To conclude, Cyprus has become a preferred jurisdiction for setting up offshore companies due to its low corporate tax rate, favorable double taxation treaties with other countries, and status as a member of the European Union. While the process of setting up an company may seem daunting at first, with the right expert guidance and support, it can be extremely smooth and straightforward. If you are considering setting up a company but are unsure whether it is the right step for you, don’t hesitate to contact us and set up a consultation to see if going offshore is right for you.

   

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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. 

 

 

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