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China - Cyprus Legal Agreement What To Expect When Investing

By Tendai Musakwa.

China and Cyprus established diplomatic relations on December 12, 1971 and the two countries have developed ever-closer economic ties since then. The volume of trade between China and Cyprus increased from 150 million in 2004 to 1 billion in 2010, with an average annual growth rate of almost 40 percent. In the first half of 2012,the bilateral trade volume amounted to 400 million, rising by 1.4 percent compared with the same period of last year.

Underlying the robust trade relations between the two countries is a set of bilateral agreements that make it worthwhile for investors from each country to invest in the other country. China and Cyprus have signed more than 20 bilateral agreements in areas such as cultural, economic, scientific and technological cooperation, tourism, avoidance of double taxation, mutual promotion of investment and merchant shipping. The legal arrangements between the two countries that are most beneficial to Chinese investors in Cyprus are a double taxation agreement signed between the two countries, a bilateral agreement on maritime transport and Cypriot laws allowing Chinese investors to gain permanent residency or citizenship in Cyprus.

Low Taxes.

The treaty for the avoidance of double taxation that China and Cyprus signed protects Chinese investors from being taxed twice for profits from their business operations in Cyprus. The Cyprus-China double taxation agreement was concluded in October 1990 and took effect in October 1991. Cyprus offers the most beneficial corporate tax rate in the EU, with a 10 percent tax on the net profits of a company and no or low withholding taxes on interest, dividends and royalties. This, coupled with the double taxation agreement China has with Cyprus, offers significant benefits to Chinese investors. For example, by establishing companies in Cyprus, Chinese investors can pay significantly lower taxes than the 25 percent corporate tax rate in China.

Convenient Shipping Arrangements.

The Cyprus-China Agreement on Maritime Transport, signed in Beijing on August 29 1990 and amended by a protocol signed in Nicosia on December 2, 2003, contains further benefits for Chinese investors. Among other things, the agreement means that seamen from the two countries are able to work on each other's ships and there is mutual recognition of ship certificates and seafarers' identity documents between the two countries. This makes conducting shipping business in Cyprus very convenient for Chinese shipping companies.

Ability to gain permanent residency or citizenship.

Cyprus also has a scheme under which Chinese investors can gain permanent residency in the country by buying property there. Prospective Chinese permanent residents in Cyprus need to make a minimum property purchase of 300,000 euros ($393,360), and prove they are of an adequate financial status to stay in the country. Obtaining permanent residency in Cyprus offers Chinese investors the chance to freely travel throughout the EU. Immediate family members also gain permanent residency after an investor buys Cypriot property worth more than 300,000 Euros. After living in Cyprus for 5 years, permanent residents qualify for citizenship. Cyprus citizens can live and work in any EU country, live in any Eurozone country and obtain free education in many EU countries.

Chinese high net worth individuals can also gain Cypriot citizenship through investment. To qualify, investors should own a residence in Cyprus with a value of at least 500,000 euros and meet one of the following conditions:

  • Direct investments in Cyprus amounting to 10 million euros, for example, immovable property, business/companies, shares, or financial assets;
  • Ownership of a company in Cyprus that has a minimum turnover of at least 10 million euros per annum;
  • Introduction of innovative technologies in areas of the Cypriot economy deemed vital to the national interest;
  • Holding at least 15 million euros in Cypriot bank account over a five-year period;
  • Having a combination of direct investment, entrepreneurial activities and deposits in Cypriot banks amounting to 15 million euros.