Why We Hate Forming Companies In Cyprus
Especially if you travel to eastern Europe (places such as Latvia) you’ll hear a lot within the offshore company formation circles about Cyprus companies, they are fairly shared there. (As you travel the world you’ll find there are popular spots or favored tax havens in many of the countries of the world Barbados for Canada (though this is an outdated view), Puerto Rico for the US, etc.) Frankly, I have no idea why it’s become popular for anyone as I loathe Cyprus when compared with the alternatives.
Let’s start with what’s presumably good about Cyprus:
- It’s part of Europe
- comparatively low taxes – 12.5% sticker rate is one of the lowest in Europe
- A reasonable network of tax treaties
- Non-resident companies are obtainable – opening up the possibility of 0% tax companies
- No dividend withholding taxes
So you might ask with all those advantages what’s not to love?
The reality is Cyprus is an option, it’s just a worse option than some of the obtainable alternatives, most specifically Gibraltar. Let’s compare:
- Both are part of Europe so neither scores any points over the other
- Company formation in Cyprus is around 2250 EUR, while Gibraltar is around 850 GBP making Gibraltar cheaper
- Both can have non-resident companies but Cyprus non-resident companies are nevertheless unprotected to annual audited financial statement requirements when already resident Gibraltar companies aren’t up to an annual income of 5 million GBP and non-resident companies don’t have to file a return at all making Gibraltar companies much less expensive to continue
- Cyprus definitely has an advantage when it comes to its network of tax treaties and I’ve heard it argued that “you should have your Cyprus company tax resident in Cyprus in order to tax advantage of the treaties” but in practice I rarely find there is any advantage in doing so, if you’re doing offshore tax structuring that would consequence in a Cyprus company you typically aren’t looking for the benefits of tax treaties anyway
- Cyprus laws etc. are all in Greek making it much more of a hassle for those more familiar with English to acquire information and do business there
- Cyprus isn’t a particularly secret jurisdiction
- While there is very easy to reach local banking obtainable in Cyprus and not in Gibraltar, a Gibraltar company could easily open a Cyprus bank account but who would want to given their history of financial instability?
- Gibraltar has a 10% tax rate on corporations while Cyprus has a 12.5% tax rate making Gibraltar more popular in raw tax rate on resident companies
- Cyprus taxes on worldwide income while Gibraltar has a quasi-territorial tax system making Gibraltar already more tax competitive for resident companies
If you’re going to have a resident local company then yes, Cyprus does have one of the lowest tax rates in Europe combined with a average network of tax treaties. Whether there is any reason to go there instead of say Latvia or Estonia or Malta is a question of the individual circumstances of your business but as a general rule it is a scarce day that forming a company in Cyprus makes sense for a non-resident.
Bottom line I almost never use nor recommend Cyprus as a jurisdiction to form an offshore company.