Especially if you travel to Eastern Europe (places like Latvia) you will hear a lot in offshore company formation circles about Cyprus companies, they are quite common there. (As you travel the world, you’ll discover that there are popular spots or favorite tax havens in many of the world’s countries: Barbados for Canada (although this is an outdated view), Puerto Rico for the US, etc.) Frankly , I have no idea why it has become popular for anyone as I loathe Cyprus compared to the alternatives.
Let’s start with what is supposedly good about Cyprus:
- it is part of europe
- Relatively low taxes: the 12.5% sticker rate is one of the lowest in Europe
- A reasonable network of tax treaties
- Non-resident companies are available, which opens the possibility of companies with 0% taxes
- No dividends with withholding tax
So you might ask yourself, with all these advantages, what is it not to love?
The reality is that Cyprus is an option, it is just a worse option than some of the alternatives available, more specifically Gibraltar. Let’s compare:
- Both are part of Europe, so neither wins points over the other.
- Company formation in Cyprus costs around 2,250 EUR, while Gibraltar costs around 850 GBP, making Gibraltar cheaper.
- Both can have non-resident companies, but non-resident Cyprus companies are still subject to annual audited financial statement requirements when even Gibraltar resident companies do not have an annual income of £5 million and non-resident companies do not have to file a return that makes Gibraltar businesses much less expensive to run
- Cyprus definitely has an advantage when it comes to its tax treaty network and I’ve heard you argue that “you need to have your Cyprus company tax resident in Cyprus in order to benefit from the tax treaties”, but in practice I rarely find that there is any advantage in doing so, if you’re doing offshore tax structuring that would result in a Cyprus company, you’re not typically looking for the benefits of tax treaties anyway
- Laws of Cyprus, etc. they are all in Greek, which makes it much more complicated for those who are more familiar with English to get information and do business there.
- Cyprus is not a particularly sensitive jurisdiction
- While there is very affordable local banking available in Cyprus and not in Gibraltar, a Gibraltar company could easily open a bank account in Cyprus, but who would want to do so given their history of financial instability?
- Gibraltar has a 10% tax rate on corporations, while Cyprus has a 12.5% tax rate, making Gibraltar more favorable on the gross tax rate on resident companies.
- Cyprus taxes worldwide income, while Gibraltar has a quasi-territorial tax system which makes Gibraltar even more tax competitive for resident companies.
If you are going to have a local resident company then yes, Cyprus has one of the lowest tax rates in Europe combined with a lackluster network of tax treaties. Whether there is any reason to go there instead of Latvia, Estonia or Malta is a matter of your individual business circumstances, but as a general rule there is rarely a day when forming a company in Cyprus makes sense for a non-resident.
In a nutshell, I hardly ever use or recommend Cyprus as a jurisdiction to form an offshore company.
