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Information for Cyprus Expats on the advantages of moving your company to Cyprus
Limassol - The Business Centre of Cyprus
Moving Your Company To Cyprus - A Step In The Right Direction
There are many reasons that may motivate you to move your company that is resident in the UK or in any other jurisdiction to Cyprus. The reduction of effective tax burden, lack of controlled foreign companies, thin capitalization or transfer pricing could urge you to re-domicile your business. Cyprus has even more to offer – wide network of treaties for avoidance of double taxation, applicability of various EU Directives resulting in tax savings (e.g. the Parent – Subsidiary Directive, the Merger Directive etc.), high quality of business services and so on.
The simplest method to change the company domicile is by winding up the company in the jurisdiction where it has been originally incorporated and to re-register it in Cyprus. From tax point of view, however, this would be the most tax inefficient way as it would result in the instant taxation of all accumulated profits, including increased tax burden on shareholders for deemed dividend distribution. Some jurisdictions also impose “exit tax” effectively preventing the free movement of business. Apart from tax effects, the cost of winding-up the company at the place of its incorporation and re-registering it in Cyprus could be significant.
For UK and Cyprus, as well as for any other jurisdictions that apply the “real seat” approach, the most frequently used method is the transfer of the place of effective management (POEM) of the company. Such transfer entails moving the company’s management and control from one jurisdiction to another. This type of migration is rather easy to perform. The company wishing to migrate should de-register from the country of incorporation and acquire a Certificate of Continuation in Cyprus, given that laws of the country of incorporation allow such a transfer.
In the case of UK company moving to Cyprus, the UK incorporation rule is overridden by Article 4, paragraph 3 of the double tax treaty (DTT) between the two countries stipulating that if a company is considered to be a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its POEM is situated. This type of transfer does not result in any real estate transfer tax and does not affect the company’s loss carry forward as there is no interruption of the company’s legal form and establishes a legal continuation. The re-domiciliation would not normally trigger any exit charge for the company and any tax implications for the shareholders, but the whole exercise requires careful legal and tax planning as it may be viewed as tax avoidance technique and be subjected to rigid substance requirements.
If your company qualifies as a ‘Societa Europea’ (standardised public limited company), you can easily move it to Cyprus without the need of winding up and re-registering it. In addition, the transfer will not trigger a taxable event either for the company, neither for the shareholders. Another option you could benefit from is the EU Merger Directive giving the opportunity to EU companies to form a merger with another EU company while reducing administrative, legislative and fiscal obstacles. No winding up and formation of a new company is needed. However, since a merger involves the transfer of assets of the dissolved company to the surviving one, this could trigger capital gains tax and in some cases real estate transfer tax. To avoid such a result, the national law of the jurisdiction where your company is registered at present should be carefully examined.
Once your company moves its seat to Cyprus, it will be considered as resident there and will no longer remain active in the jurisdiction where it was originally incorporated. The company will be subject to tax in Cyprus and it will be allowed to take advantage of all the tax benefits available under the national law.
What would your business gain in regards to tax? Your redomiciled company will be subject to 10% corporate tax rate - the lowest in the EU. Neither your company, nor you as an individual will be subject to capital gains tax unless you dispose of a real estate and/or shares owning real estate in Cyprus. If your company has tax losses, they can be carried forward indefinitely and can also be surrendered as a group relief. If your company receives dividends from abroad, they will be tax-exempt. Unilateral tax-relief for foreign tax suffered is given to all Cypriot companies.
Moving an individual’s residency in Cyprus is not necessary. If you move your company to Cyprus, your business will be able to benefit from all the beneficial tax regulations irrespective of the tax residency of the shareholders. If you are shareholder in a Cyprus company and you are not a Cypriot resident, there will be no withholding tax on the dividends distributed to you.
Last, but not least, it is simple and cost-effective to maintain a company in Cyprus. The annual administration cost, as well as accounting and audit fees vary according to the volume of transactions the company has. The annual administration and management will cost you roughly 1,000 EUR and the accounting and auditing fees will vary from €1,200 to €3,000 for a fairly small company. In Cyprus, there are number of firms providing a high-level corporate administration, as well as auditing and accounting services.
Anna Zafirova
Eurofast Taxand, Cyprus
Tel. +357 22 699 222
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