The British Virgin Islands are one of the most famous tax heavens in the world, but often BVI companies have business dealings in the famous tax haven Cyprus, as well. BVI benefits include freedom from capital gains and corporate taxes, as well as inheritance and sales taxes, and incorporation can be complete in as little as two days. Furthermore, BVI offers maximum asset security with the ability to transfer domicile. Directors can protect an International Business Company’s (IBC) assets by transferring them to another company, merge or consolidate them with a foreign company or corporation in another jurisdiction.

BVI businesses with merchant accounts might face higher bank fees on the islands, and owners are sometimes turned away from banking institutions, unable to open an account. But BVI companies can easily open business bank accounts and merchant accounts in Cyprus, which is attractive to companies, as Cyprus is a part of the European Union. To set up a Cyprus bank account, register your BVI as a holding company and international business company, and have your incorporation documents available.

BVI companies with Cyprus bank accounts enjoy secrecy, privacy and assets protection. Authorities do not have access to bank account information, and a court order is required to gain access. Dividends on profits can be moved tax free to your company in BVI. Additionally, Cyprus has double tax treaties with 45 countries including Canada, the United Kingdom, the United States and most European Union countries. And finally, you can manage your Cyprus accounts easily through phone calls and fax.

In another matter of business, BVI companies sometimes step in for Cyprus companies as shareholders. This is done to disguise the real owner of a Cyprus company, even when the Cyprus company is run by nominees. Shares are only held on behalf of the beneficial owner. The beneficial owner is the only one who has the right to dispose of those shares, and is entitled to all benefits and profits deriving from those shares.

Cyprus Offshore Company, the term recently substituted by Cyprus International Business Company, is a separate legal entity.  The most commonly used form is private Limited Liability Company.  Under this framework, there are many sub structures in which you might establish your company. Read on to learn which Cyprus  company structure best fits your needs.

Cyprus Holding Company
A Cyprus Holding Company is a company or firm that owns other companies’ outstanding stock. Typically, a holding company doesn’t produce its own goods or services, but rather owns shares of other companies. Some benefits of a holding company include asset protection, receiving dividends from operating companies, distribution of profits to shareholders and reinvestment of capital into new projects, among other advantages.

Cyprus Financing Company
Using Cyprus’s extensive double tax treaty network, a Cyprus Financing Company provides subsidiaries interest bearing loans. The interest is tax deductible in the operating location and tax free in the recipient jurisdiction. Remaining margins are subject to a 10 percent tax. A Cyprus Financing Company can be a lowly taxed onshore company, or an offshore company, not liable to any taxation over its income.

Cyprus Trading Company
A Cyprus Trading Company can be used for the invoicing and re-invoicing of goods and services, as well as for the receipt of trading commissions, from any country to any destination. It is also used for transit trade from bonded warehouses, bonded factories and the free trade zones.

Cyprus Royalty Company
Those who receive property rights royalties might favor a Cyprus Royalty Company, as income from royalties, or royalty routing, is taxed at the low rate of 10 percent. The Cyprus treaty network and/or EU Interest and Royalties Directive provides that royalty payments are received in Cyprus with either reduced or no withholding tax. Tax withheld from the royalties received is available as a tax credit against the Cyprus corporation tax on the royalty income.

Amanda Sosnovsky lives in Hungary. She has relatives in Italy, who can buy Italian clothes directly from factories at a significant discount.  Amanda wants to set up a business where she buys those clothes and sells them to stores in Hungary.

Ms. Sosnovsky would like to structure her business in the most tax-effective manner by using an offshore company.

Solution:

Ms. Sosnovsky establishes an offshore Company. She chooses to use a Cyprus Trading Company and opens a corporate bank account.

The Cyprus Trading Company becomes the “front player” of Amanda’s business.  It’s the Cyprus Trading company that buys from Italy and afterwards sells to Hungary Italian clothes.

NOTE: An arm’s length profit margin needs to be generated by the Cypriot company.

Since there are double-taxation treaties Cyprus-Italy and Cyprus-Hungary, the Cypriot company will pay only 10% on the profit margin after deducting all the expenses resulted in the production of this income.

As a business owner in Hungary, Ms. Sosnovsky is taxed only on the income that she receives as dividends from the Cyprus Trading Company’s profits.

There is no withholding tax in Cyprus on dividends paid form a Cypriot company to non-residents.

NOTE: Although the goods will not pass through Cyprus, the Cyprus company will still need to register for VAT and VIES.

Disclaimer: This scenario is intended only as a general guide and is not to be relied upon as the basis for any decision or outcome on the subject matter.

This is purely an indicative scenario.   Professional advice and consultation by tax advisors in all countries involved should be sought before taking action.

Peter Scott lives in Belgium.  He is a furniture manufacturer and supplies the furniture to Belgian, Austrian and German retailers. 

Mr. Scott would like to structure his business in the most tax-effective manner by using an offshore company.

Solution:

Mr. Scott establishes an offshore Company. He chooses to use a Cyprus Trading Company and opens a corporate bank account.

Cyprus Trading Company becomes the hub of the furnishing business’ financial activities.  The money from European countries flow to and from Cyprus.

Since there are double-taxation treaties Cyprus-Austria, Cyprus-Belgium and Cyprus-Germany, the Cypriot company will pay only 10% on the profit margin after deducting all the expenses resulted in the production of this income.

Profits may be reinvested by the Cyprus company or distributed as a dividend.

There is no withholding tax in Cyprus on dividends paid form a Cypriot company to non-residents.

In Belgium Mr. Scott pays tax only on the amount that he declares as profit of his furnishing business.

NOTE: Although the goods will be transferred from Belgium to Austria or Germany without passing through Cyprus, the Cyprus company will still need to register for VAT and VIES.

Disclaimer: This scenario is intended only as a general guide and is not to be relied upon as the basis for any decision or outcome on the subject matter.

This is purely an indicative scenario.   Professional advice and consultation by tax advisors in all countries involved should be sought before taking action.

Sergey Prohorov lives in Russia. He wants to raise funds for his typography and has found an investor in Austria.

Mr. Prohorov would like to structure his business in the most tax-effective manner by using an offshore company.

Solution:

Mr. Prohorov establishes an offshore Company. He chooses to use a Cyprus Finance Company.

Cyprus Finance Company takes a loan from the Austrian investor company taking advantage of the double-taxation treaty between Cyprus and Austria.

Being a member of the EU, Cyprus benefits from EU Directives such as Parent/Subsidiary Directive and Interest/Royalties directive whereas withholding taxes on dividend/interest/royalty payments may be reduced to Nil provided that some minor conditions are satisfied.

There are no withholding taxes in Cyprus on the interest paid to the Austrian company.

Cyprus Finance Company lends the money to Mr. Prohorov’s typography in Russia.

As per the Cyprus/Russia DTT, there is no withholding tax on interest payments in Russia.

Once Mr. Prohorov’s typography returns the loan to the Cyprus Finance Company, the interest can declared as expense in the typography’s books.  This lowers typography’s profit base and, as a result, pay less in taxes.

The spread of interest to be earned by Mr. Prohorov’s Cypriot company ranges between 0,125% to 0,35% as a result of the back-to-back financing situation.

Loan Amount Minimum Interest Margin
Up to €50,000,000 0.35%
From €50,000,000 – 200,000,000 0.25%
Over €200,000,000 0.125%

Cyprus Finance Company returns the loan to the Austrian investor. The rate of interest has to be so much so that the spread to be earned by the Cypriot entity will range between 0,125% and 0,35% depending on the amount of the loan.

NOTE: It will have to be ensured at all times that the transactions are carried out on an arm’s length basis i.e. in the case where the Cypriot company is in a back-to-back situation, an arm’s length profit margin should be earned.

Disclaimer: This scenario is intended only as a general guide and is not to be relied upon as the basis for any decision or outcome on the subject matter.

This is purely an indicative scenario.   Professional advice and consultation by tax advisors in all countries involved should be sought before taking action.

Nominees are people or legal entities that act as directors or shareholders of a company to protect the identity of a real shareholder or director.

During company registration in Cyprus, the name, address, occupation and nationality of the person or legal entity who is to be the shareholder or the beneficial owner is required. In cases where anonymity is preferred, nominees are used.

Furthermore, a nominee can facilitate the company registration process, doing things such as opening bank accounts and other necessary tasks on an owner’s behalf.

Often, nominees are used to facilitate the clearance and settlement of publicly traded shares. As such, beneficial owners are given a trust deed and an instrument of transfer authorizing the nominees to hold shares in trust.

Besides providing anonymity, shares trading and registration assistance, company owners may also use nominee directors to take advantage of the Cyprus tax system, which has an extensive double tax treaty network and offers the low corporate tax rate of 10 percent.

However, according to Cyprus tax law, a company can only benefit from the local tax system if it is a tax resident in Cyprus, which is why international clients often appoint Cyprus nominee directors. A company is considered a Cyprus tax resident if it is managed and controlled from Cyprus.

To enjoy the full advantages of Cyprus’s tax system, companies have the majority of the Board of Directors – at least one shareholder, one director, a secretary – live and work on the island. International Business Companies are also required to have a registered office.

It is important to note, however, that in some cases, disclosure of a beneficial owner’s name might be required. Where nominee directors are used, some jurisdictions can lawfully request an owner’s identity from the nominee.

If the nominee refuses, a company within the proper jurisdiction can apply sanctions, including suspension of voting rights, withholding dividends or refusing to register any subsequent transfer of shares.

In relation to the changes in the Seychelles IBC Act the following changes should be noted.

AMENDED IBC ACT

The Seychelles IBC ACT has been amended late December 2011 and after clarifications made with the Regulatory body as follows:

ACCOUNTING RECORDS

All IBCs registered in the Seychelles must by 1st January 2013 indicate the location where they keep the documents related to its business transactions. The place can be in Seychelles or anywhere in the world. The new changes in the Law do not require an IBC to prepare financial statements, to have audited accounts or to file any financial records with any Regulatory bodies in the Seychelles.

The client will have two choices: either to maintain such records in the Seychelles i.e. at the Registered Address or keep them outside the Seychelles. In the case where such documents are to be kept at the Registered Office, we will require copies of accounting records (invoices, receipts, bank statements or any other documents affecting the financial activity) to be sent to us on monthly basis.

On the other hand,  if records are being kept outside Seychelles, we will require a signed undertaking by the director(s) confirming location where these records are being kept. In the case where nominee service has been provided, we will require a signed undertaking by the beneficial owner confirming address where such records are being kept.

The records produced however are not publicly available and outsiders can only view them with the permission of the director(s). The Seychelles International Business Authority (SIBA) which is the regulatory body has the right to request the verification of the account records.

The IBC will be fined USD 25 per day and the director(s) also would be fined USD 25 per day in the case no such records are kept.

The transparency of transactions and company operations have long been a requirement of the OECD and this is probably the reason behind the changes in the Seychelles.

REGISTERS

The amendments in the ACT require a copy of the share register, register of directors and officers be kept at the Registered Address.

RESERVATION PERIOD OF A COMPANY NAME

Upon approval of a proposed company name by the Registrar, the proposed name will be reserved for a period of 30 days as the date of approval. There is no charge for the initial 30 day reservation period. After 30 days have been elapsed, the name would be available to any other Corporate Service Provider on a ‘first come first served’ basis.

Should a Corporate Service Provider request to extend the reservation period of a proposed name prior to the relevant expiry date of the reservation period, a fee of USD 25 per name will have to be incurred.

On Dec. 28, Texan company Noble Energy, Inc. announced the discovery of 3 trillion to 8 trillion cubic feet of natural gas in Block 12 of the Exclusive Economic Zone (EEZ) of Cyprus. To put the magnitude of this discovery into perspective, the gas could power all of Cyprus’s electricity needs for 210 years. Now, in its second round of awarding gas prospecting licenses, Cyprus has 70 international  companies interested in placing bids. Many of these companies want to purchase seismological data to make a bid on one of the 12 remaining concessions in the EEZ. Bidding is open for a six month period from September to October.

Israeli company, Delek, has already opted for a 30 percent stake in the first offshore block, currently under exploration by Noble, which reportedly also has plans to bid. Delek and Noble Energy are already partners in another joint-venture, the Israeli Leviathan field, thought to hold the largest gas reserves in that portion of the eastern Mediterranean. Additionally, Canada’s Triple Five has signaled that it plans to bid on one of the lots, and Iranian-Jewish magnate Nadir Ghermezian has visited Cyprus. Russia and China might also get in the game. China’s National Offshore Oil Corporation has shown an interest in purchasing a license, while the Russian company Gazprom reportedly has plans to bid. Gazprom has also proposed to participate in the construction of a gas liquefaction and storage facility in Cyprus. Meanwhile, the 2.5 billion euro loan that was granted a few months ago to Cyprus by the Russian BTB bank could signify that Moscow has ambitions in the region.

With all of this forward momentum, one of the greatest interests to the government now is awarding licenses to the highest bidder. The money could be used to balance the public deficit, as the February 2013 presidential elections and the beginning of the Cypriot European Council presidency loom on the horizon.

After much debate the House of Representatives finally voted into law the new Cyprus International Trust Law. The bill that was enacted on the 9th of March 2012 aims to modernize the framework of international trusts and have positive impact on investment.

The Cyprus International Trust Law replaces the 1992 law and introduces new innovating provisions taking into account the shortcomings of previous legislation.

Key changes are:

Residency

Under the new Cyprus International Trust Law a settlor may not be a Cyprus resident in the year preceding the year of creation of the trust which means that now settlors can be Cyprus residents.

The same principle applies for Beneficiaries.

Settlor Powers

Another new provision is the power given to a settlor to revoke and modify the terms of the trust or deal with the trust property in any matter he sees fit. The settlor has also the power to appoint or remove a trustee, a beneficiary or a director of any of the companies that belong to the trust.

Duration

Following section 5 of the law, a trust may have  perpetual succession.

Charitable Institutions

Following section 7 of the new law International trusts are considered as charitable institutions where the trust has the main objective of achieving one or more of the following purposes:

a.   Prevent or alleviate poverty;
b.   Promote education;
c.   The promotion of religion;
d.   Promoting health or salvation of life;
e.   Promote the development of citizens and of the community;
f.    Promoting art, culture, heritage or science;
g.   The promotion of amateur sports;
h.   Promoting human rights, dispute settlement or reconciliation or the promotion of religious or national harmony or equality and individuality;
i.    Promote the protection or development of the environment;
j.    Relief needs arising from young or advanced age, ill health, disability, economic hardship or other disadvantage;
k.   Promote the welfare and protection of animals; and
l.    For any other reason for the benefit of the general public or which is consistent with paragraphs (a) – (k) above.

Powers of Trustees

The powers of trustees are defined and clarified by virtue of section 8 of the law.

The trustee may now hold, maintain or invest in movable property in Cyprus and abroad, including shares in companies formed in Cyprus and in real estate located in Cyprus or abroad.

Conclusion

The new International Trust Law offers a robust and highly attractive trust law framework that rectifies the shortcomings of the previous legislation. It is expected that it will channel new investment in Cyprus and further enhance its position as a international business center.

Christophoros Christophi
Christophi & Associates LLC
26/03/2012

Structuring a company in Cyprus is a breeze, and luckily for offshore business owners, an LLC can be registered from outside of the country, making the process even more manageable. Plus, Cyprus banks make it easy for international clients to set up accounts. With a ready-made shelf company, it takes only one day before you can start doing business. Otherwise, it typically takes anywhere from seven to 14 days to be registered.

Cyprus companies are structured as follows:

Director — At least one director is required. Directors serve as officers of a company. They decide a company’s structural and organizational changes, and manage daily operations. Nominee directors are also allowed, and can be of any nationality. However, to take advantage of Cyprus’s tax treaties, and its 10 percent corporate tax rate, a company must appoint a Cypriot nominee director.

Shareholder — Like a director, only one shareholder — who can be of any nationality —  is necessary. The shareholder can be a corporation, and nominee shareholders are allowed. Shareholders needn’t be Cyprus residents.

Secretary — Appointed by and responsible to company directors, a secretary is recognized by law as an “officer” of a company. The secretary’s duties often differ from one company to the next, but the general role is to maintain the statutory and minute books. A company’s secretary does not need to be a resident of Cyprus; however, if you want to establish tax residency for your company, appoint a Cypriot secretary.

Registered Office — A Cypriot company must have a registered office. Either it needs a physical business address in Cyprus, or a lawyer will incorporate the company with registered office under its own address. Cyprus companies registered by Christophi & Associates LLC are given the physical address of its Nicosia office.

In closing, note that company directors, shareholders and secretaries may be either persons or legal entities.