CEO of the asset management company Generation Partners LTD Sergey Kartashov (Sergejs Kartasovs) told why Cyprus today is one of the most attractive countries for relocation business, especially for companies in the information technology field.
Generation Partners works with asset management, expertise of IT companies and promising business projects. The company’s office is located in Cyprus, so Generation Partners knows almost everything about the features of work under the local jurisdiction.
Cyprus, the island of freedom
According to financial experts, Cyprus is the best jurisdiction in Europe for doing business. The island is considered the most comfortable place to receive dividends and manage companies for a number of reasons. Firstly, these are transparent and accessible registration rules. Secondly, there is a simplified reporting system. And thirdly, Cyprus offers a fairly flexible taxation system.
Cyprus has one of the lowest corporate tax rates in the European Union, 12.5% on net income. Apart from that, Cyprus has agreements to avoid double taxation with many countries, including Ukraine. There is VAT 19% in Cyprus, but companies are not required to pay it if they sell their goods or services to non-EU residents. In addition, the dividends transfer from a Cypriot company to other legal entities or to foreign accounts is also tax-free.
The IT sector benefits the most from the tax freedom in Cyprus. Cyprus is one of the countries that has an IP-Box (Intellectual Property Box) regime. IP-Box allows reducing the company taxation and pay taxes only for a part of the income, in particular for creation or improvement of intellectual property. In practice, the tax on earnings in this area can be as low as 2.5% or even zero.
In the past few years, there have been a large number of companies that decided to relocate to Cyprus. Business moves to the island not only in the legal sense, but also relocates the company personnel. Such relocation requires significant initial costs, but over time, it leads to significant savings.
‘Startups can also move to Cyprus. The minimum share capital requirement for a company is only 1000 euros. But the truth is, it is better to move to the island only when the business is already well-formed, or it has significant start-up capital. So, for example, the business registration services will cost 2000-3000 euros for companies in Cyprus. To be able to hire foreign workers for your company, you need to have at least 171,000 euros on the company’s account,’ says Sergey Kartashov (Sergejs Kartasovs).
The island’s new reputation
Today, Cyprus has almost completely got rid of the reputation of a country for offshore companies, where they launder money, hide profits from taxes or try to hide the ultimate beneficiary. The Central Bank of Cyprus has seriously tightened the procedure for checking customers and making payments to Cypriot accounts from abroad. After the island joined the EU, there were gradually implemented Anti-money laundering procedures designed to counter money laundering and conceal corruption.
‘This is a huge step that has made Cyprus attractive to large international companies and investors. Today, the island receives serious investments in its economy and infrastructure, and every year, it strengthens its reputation as a major business hub,’ explains Sergey Kartashov.
Officials also strictly monitor business checking whether they comply the criteria required for IP-Box by. An intellectual property product ought to be either created or significantly improved in Cyprus. Apart from that, it is required to open a physical office on the island, hire people, sign contracts with them, and they actually have to fulfill all the contract conditions.
‘If local officials expose that the presence of the company in Cyprus is fictitious or a there is a nominee director, the company may face serious problems. And this is another reason why Cyprus changed its image in a short time, turning it from an “offshore country” into an IT business mecca,’ said Sergey Kartashov.
At the same time, there are some pitfalls for business in Cyprus as well. For example, the process of naming the company. Many countries easily allow you to open a company with a name that differs by just one letter or symbol from another company, yet in Cyprus, a new name should never sound similar to any other registered name.
Also, a company may face some difficulties with opening a bank account. As mentioned above, Cyprus provides active deoffshorization and fights against money laundering. That is why checking the income sources and the reputation of potential customers here is a rather lengthy and scrupulous process.
‘This issue can be called a problem only partially. In fact, this approach helps to attract large net capital to the country. Such capital allows the entire economy to develop, attract new business to the country and transform Cyprus,’ says Sergey Kartashov.
Not Cyprus alone
Cyprus is not the only high attractive country in the world for doing business with its comfortable jurisdiction and low taxes. The relocation of companies in the European region is also popular in Ireland with 12.5% income tax, to Estonia, where you can open a company remotely and the income tax is deferred, to Britain, due to the stable and prestigious banking system, to Malta, where the income tax is high (35%) but a significant part of the money can be returned by fulfilling certain conditions.
Someone is attracted by the IP-Box, someone is attracted by flexible taxes in other areas, someone is attracted by simplified bureaucratic procedures. In the Far East region, Singapore is the most attractive place as the real income tax here starts at 7%. However, at the moment, one of the biggest world leaders among best jurisdictions for businesses is Cyprus with its, as they say, is all inclusive service