An offshore company may have a fully-operational office in the country, but must conduct its activities outside Cyprus although it may establish and operate a fully fledged office in Cyprus to manage its out of Cyprus activities. Exceptionally, ship-management companies may conduct activities in Cyprus, in the course of managing ships belonging to Cyprus companies. A similar rule applies to an OBU which is allowed to do business with other offshore companies in Cyprus.
Offshore companies employ about 4,300, of whom nearly half are expatriates. Expatriates enjoy a special tax regime, paying 50% of the tax payable by other residents and no tax on the remuneration referable to services rendered abroad.
An offshore company may use a bonded warehouse and engage in simple transshipment operations and may make certain imports duty-free. Offshore companies are outside the scope of V.A.T.
Offshore companies are used to provide in the Middle East the services of personnel based in Cyprus. There are tax treaties with Kuwait, Syria and Egypt.
A branch of a French company taxable outside France which has its own management, clientele and operations is not taxable in France; if the branch is in Cyprus and has its management – but not its control – in Cyprus, the branch profits are not taxable in Cyprus. The Netherlands has a similar rule, but in that case the branch needs to have its control in Cyprus and pay Cyprus tax at 4.25%.
The treaties Cyprus made with the former Eastern Bloc countries have proved in present circumstances very useful. An offshore company is liable to tax in Cyprus by virtue of its place of incorporation and is therefore a “resident of Cyprus” for treaty purposes wherever its management and control may be. In particular, a wide range of royalty payments may be made by residents of Russia and of other members of the Commonwealth States to an offshore company without withholding tax. Some treaties allow tax credit and thus the foreign tax may be set off against the 4.25%.
Cyprus has also been used by Russians as a base for doing their business abroad and for registering their ships.
Author:Christos Mavrellis (updated 1998)
