In recent years, as a result of its good all year round climate and pristine beaches and seas, Cyprus has evolved as a very popular tourist destination.
The location of Cyprus makes it the most natural and obvious connection between the three continents, which coupled with the attractive legal, fiscal (tax) and regulatory regime have helped Cyprus to become a major financial hub between Asia, Europe and Africa. In addition, Cyprus has established itself as the prime and most efficient route into and out of the European Union and the Commonwealth of Independent States (CIS).
Since its accession to the European Union in 2004, and adopting the Euro as its currency in 2008, Cyprus has one of the lowest corporate tax rates (10%) in the EU. This, coupled with (a) its extensive & Preferential Double Tax Treaty regime (e.g. Russia-Cyprus: reduction of W/T on dividend to 5%), (b) the EU Parent-Subsidiary Directive, and (c) the fact that pursuant to Cyprus tax legislation exempting dividend income and gains from the sale of securities (e.g. shares) while not imposing any withholding taxes on dividend distributed outside Cyprus (or EU entities), make Cyprus the ideal holding company regime.
Hence, it is generally more tax and cost efficient to structure an outward investment from China into Europe the CIS via Cyprus instead of (a) a direct investment from China into one of these countries or (b) via other EU holding company jurisdictions such as Luxembourg / Netherlands. A direct outward investment from China into Russia, for instance, is subject to a withholding tax on dividend (from Russia to China) of 10% whereas via Cyprus one may expect to reduce the withholding tax to 5%.
In addition, Cyprus is a sophisticated and stable (common law based) legal system and political environment, is on the OECD White List, has no controlled foreign corporation (CFC) or thin capitalisation rules and has a long tradition of confidentiality and reliability (such as allowing company formation to be undertaken only by practicing lawyers).
Finally, Cyprus is also a popular destination for the formation of Cyprus International Trusts (CIT's). Among the various benefits of CIT's are that Income and gains of a Trust, derived from sources outside Cyprus, are not subject to any taxation in Cyprus (assuming the Beneficiary is not a permanent resident in Cyprus) and enjoy enhanced confidentiality protection and protection from inheritance laws. CITs are flexible tools, suitable for asset protection and tax and estate planning of high net worth individuals.
For Chinese organisations seeking to set up a regional headquarters or a European / regional trading arm, Cyprus offers the following benefits:
- expatriate (Chinese or other non-Cypriot) directors or employees of Cyprus companies (and their families) qualify for work-residence permits;
- Cyprus is one of the most popular tourist destinations in Europe;
- Modern infrastructure and latest communication technology readily at hand;
- Easy access (all within a few hours) to the whole of the EU and Eastern Europe/Russia, with none or one hour time difference with the vast majority of those countries. Close proximity to the Middle East and Africa.
Other advantages of using Cyprus:
- Availability of resident permits to company owners, individual investors &home owners;
- Up to date IP regime with an effective tax rate of 2% for any IP based income;
- High net worth individuals may apply to obtain Cyprus citizenship (i.e. an EU passport) based on primarily financial criteria.
Kyriacos Scordis qualified as a barrister with Lincoln's Inn in 1994 and as an advocate in Cyprus in 2005. Since qualification he has been practicing as a member of Scordis, Papapetrou & Co LLC and is currently one of the partners.
Mr Scordis has extensive experience and expertise both in international litigation/arbitration as well as on corporate and commercial matters. He is also one of the Firm's experts on Tax Law & Tax Planning.
Lastly, Mr. Scordis is, inter alia, a member of the International Bar Association, International Tax Planning Association, AIJA (International Association of Young Lawyers), Cyprus-Russian Business Association.
