The offshore regime of Cyprus was introduced in 1977 for a period of 10 years and it has been renewed several times since then. On 29.8.96, the regime was renewed for a further period of 10 years commencing 1.1.97. (Decision of the Council of Ministers No. 44.736.)

According to this regime, "offshore companies", i.e. companies which are wholly owned by non-residents and are exclusively engaged in carrying on business activities outside Cyprus, are subject to tax on their taxable profits at the reduced rate of 4.25%. Furthermore, they are not subject to any withholding tax on distribution of dividends, capital gains, estate duty and VAT.

In contrast, local companies attract tax at the rate of 20% in respect of net profits up to CYP 40,000 and 25% on profits in excess of this amount.

Does this not constitute discrimination against the Cypriot businessmen who cannot participate in an offshore company? The answer is no. Cypriot businessmen, through local companies, enjoy similar tax concessions in respect of income generated from exporting goods or rendering services outside Cyprus. However, the onus of proof lies on them to prove that the income is emanated from abroad.

The international entrepreneur who uses of Cyprus offshore entities is presumed to generate his income from activities outside Cyprus and is taxed therefore at the lower rate automatically. This legal presumption, which constitutes the cornerstone of the conception of the Cypriot offshore regime, along with other advantages available, has contributed considerably to Cyprus becoming established as a successful international business and financial centre.

CAUTION: The information in this article is subject to change without notice. Application of the information to specific circumstances requires the advice of lawyers who must rely upon their own sources of information before providing advice. The information in this article is intended only as a general guide and is not to be relied upon as the sole basis for any decision without verification from reliable professional sources familiar with the particular circumstances and the applicable laws in force at that time.

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