How does Cyprus fair?
What type of jurisdiction is Cyprus?
Before we can start to compare Cyprus to other jurisdictions we should first understand which type of jurisdiction Cyprus falls into. Without over complicating it there are 3 general types of jurisdiction: high tax, low tax and no tax (often called Tax havens). We should say this is a very grey area as there are no set guide lines or brackets. Zero tax jurisdictions are pretty clear; the difficulty comes from the line between low and high tax jurisdictions. We tend to think that a corporate tax rate of 20% and below is a low tax jurisdiction whilst anything above that mark could be considered as a high tax jurisdiction. The corporate tax rate of Cyprus is 12.5% so we could call Cyprus a low tax jurisdiction.
Comparing Cyprus to High tax jurisdictions.
Firstly you may well ask “who would want to use a high tax jurisdiction?” let us give you some examples of High tax jurisdictions and things may seem a little clearer. Australia at 30%, Austria at 25%, Canada at 26.5%, France at 33.33%, Germany at 29.58%, Italy at 31.4%, Japan 35.64%, UK at 21% and the USA at 40%. (Source: KPMG)
As you can see the vast majority of high tax jurisdictions are in well developed countries. If we were to ask the question again “who would want to use a high tax jurisdiction?” we could now give some logical reasons; firstly, there is a certain amount of prestige to owning a company in let’s say New York, London or Berlin. Secondly, the infrastructure and/or market may be needed for the business to be sustained. Thirdly, if you wish to trade/work with a certain country, they may require that you have operations at least in the region. As you can see many of the high tax jurisdictions are in Europe and if not these are countries that are happy to deal with European business. Cyprus has been a member of the EU since 2004. The infrastructure as far as banking, legal, transportation, storage etc, in Cyprus is easily on par with that of any other city in Europe. Whilst it is not quite as prestigious as some cities, Cyprus and its cities are rapidly catching up, and with the natural resources that have been discovered Cyprus is set for a makeover.
Comparing Cyprus to tax havens
To give some examples of 0% tax jurisdiction (tax havens): BVI, Belize, Seychelles, Marshall Islands and Panama. The advantage of a 0% tax jurisdiction is pretty clear, you pay 0% tax. But this is actually taking advantage of loop holes in legislation, as we all know these loop holes are continually being closed. Not only are tax havens coming under ever intensifying scrutiny from governments, but financial governing bodies are constantly publishing their “black lists”. Should your jurisdiction be on a black list it is much harder to operate with other bodies such as financial ones, which banks are happy to work with a tax haven on a black list? Not too many. Substance is a word that is becoming more common in the taxation industry. Substance means something real, tangible things that you can see and feel such as an office, staff, or at least phone lines. If your geography is any good you will see a trend in the usual tax havens, that is they all tend to be countries with very little infrastructure and nothing in the way of high rise office buildings, this all leads to a very obvious short fall on the subject of substance. Cyprus is not on any black lists and has many Double Taxation Treaties, and as mentioned before it has great infrastructure meaning it’s possible to find substance for any budget.
Compare Cyprus to low tax jurisdictions
Some examples of low tax jurisdictions and their corporate tax rate are: Bulgaria 10%, Czech Republic 19%, Gibraltar 10%, and Latvia 15%. We have deliberately given European countries as examples but there are other low tax jurisdictions outside of the EU, we did not use them as they are at a clear disadvantage immediately. To compare these jurisdictions you must look at many aspects of each particular jurisdiction, as in one you may have an advantage here and in another an advantage there, but in a general comparison to these other jurisdictions we will give you some of the main benefits to using Cyprus. There are very few places that have as lower corporate tax rate as Cyprus, but Cyprus’ other taxes are also somewhat appealing, a great example of this is its inheritance tax, which is currently 0%. Cyprus has well over 50 Double Taxation Agreements. English is commonly used and legal documents are accepted in both Greek and English, this also applies to the banks and their customer services, websites, e-banking etc. The currency used is the Euro. The law is based on UK common law which was inherited when the British handed over the island to the people of Cyprus in the early 60’s. Cyprus has 4 major cities the two largest being Limassol and Nicosia (the capital) both of which have thriving business centers with superb infrastructure. The island has two international airports with flights globally making travel exceptionally easy. The geographical location puts Cyprus in a perfect position in between Europe, Africa, the Middle East and Asia meaning you have good opportunities to work with all of them. If you decide to emigrate to Cyprus in the future it has a straight forward system of immigration. If all this was not enough, Cyprus boosts the best weather in Europe with 340 days of sunshine a year!