1. General Background
Cyprus is situated in the north-eastern region of the Mediterranean Sea and is its largest island. Cyprus population is around 700,000 inhabitants, the capital of Cyprus – Nicosia. The official languages are Greek, Turkish and English. The political system is based on the western-type democratic government with due respect to human rights. Flight connection with other countries is stable and, in addition, the country operates modern communication systems for telephony and mailing. Cyprus is an international business center. The flight time thereto from Israel is only about 40 minutes. The country is a member of the European Union. Cyprus has signed a number of agreements on the prevention of double taxation which fact significantly reduces withholding of tax on dividends, interest and/or royalties that should be paid to Cyprus government. There is no agreement between Israel and Cyprus on the prevention of double taxation, and consequently there are no regulations on the data exchange between the two countries.
2. Cyprus tax system
Some company is considered as located in Cyprus if its management and control is being carried out in Cyprus’ territory. The corporation tax for companies in Cyprus is less than 10%, the dividends obtained by a Cyprus company and/or by the companies whose management is carried out in Cyprus are exempt from the tax on companies.
Salary of employees who are not Cyprus residents is tax-exempt. Capital gains are fully exempt from the tax on companies based in Cyprus, with the exception for taxes on permanent property capital value growth and land plots located in Cyprus.
In light of the above, incorporation of Cyprus as a part of international tax planning system can be extremely efficient (when investing in real estate in Eastern Europe, for example).
3. Establishing the companies in Cyprus
One of the major advantages of Cyprus companies is the fact that Cyprus has signed a large number of agreements on avoidance of double taxation, which can significantly reduce withholding tax on dividends, interest or royalties to be paid out to Cyprus government. These revenues in Cyprus are mostly exempt from taxes. Furthermore, the companies situated in Cyprus are fully exempt from tax on capital gains.
The primary legislation concerning companies is based on the Cyprus “Companies Regulations No. 113”. The main types of companies that can be established in accordance with the Regulations are: public companies, private companies (up to 50 shareholders), offshore companies that are carrying out international business and defined as Cypriot company in all respects. These last are managed by non- Cypriots, whose activities are mainly exercised from outside Cyprus.
The process of a company establishing and registering in Cyprus includes filing of the Memorandum and Articles of association to the Registrar of Companies along with submission of returns and making payment for the registration. In order to comply with the Cyprus “Companies Regulations”, a company must have a Cypriot official postal address and employ a secretary who is a permanent resident of Cyprus.
In order to utilize the tax agreements signed by Cyprus, a company must be situated in Cyprus and the majority of its directors should be Cyprus residents.
4. Trust Funds in Cyprus
In July 1992 Cyprus adopted “THE CYPRUS INTERNATIONAL TRUSTS LAW 1992”) that stipulates tax remissions for trust funds established in Cyprus. Trust funds registered in the Central Bank of Cyprus, i.e. International Trust Funds are fully exempt from tax including that on capital gains or any other income (see “Taxation of International Trusts”, Clause 12.1).
Conditions for obtaining tax relief:
A founder and beneficiary may not be permanent residents of Cyprus, but at least one of the beneficiaries must be.
Cyprus offshore company also has a right to work with the Trust funds. Such a company or its partners may be founders or beneficiaries of International Trust funds in Cyprus.
International trust ownership is irrevocable except in cases where it is governed by special regulations that make such withdrawal possible.
As a rule, the trust ownership is protected against the claims of creditors, except in cases where the creditors can prove that a trust fund was set up by fraud in order to avoid paying debts and that they were already creditors at the time of the trust fund creation. The burden of proof should be borne by the creditors.
An International Trust Fund may be active during more than a hundred years and can be transferred.
Cypriot law allows International Trust Fund to make a profit during the whole period of its existence.
There are no restrictions on currency conversion and transfer.
Conflict of laws: as a rule, in accordance with the local law, the Cypriot court cannot be enforced to recognize an inheritance right of another country that contradicts to Cypriot laws on the International Trust Funds. It means that an International Trust Fund will remain in effect (prevail).
According to the law, a founder of the Trust Fund in Cyprus as well as beneficiaries are under overall legal protection.
International Trust Fund is exempt from all taxes in Cyprus, except on stamp duty in the amount of 250 Euros.
This present circular letter is not intended for delivery and/or distribution to anyone apart from those to whom it is addressed. Copying, photography and /or use of this circular letter for any other purpose without the prior written consent of the representatives of the Company are prohibited.
The circular letter is of general type. The information contained herein cannot in any way replace individual consultation and/or professional legal assistance depending on the particular circumstances.
With best regards,
Lior Pick and Co., Law Firm
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