Cyprus Offshore Company or IBC
Cyprus Offshore Companies or IBCs – Misuse of terms and misconceptions about Cyprus companies
An Overview: Cyprus Offshore Company or IBC
Since its accession to the European Union in 2004, Cyprus is not a so-called offshore jurisdiction or tax heaven anymore. All company and entity formations in Cyprus are considered as onshore, meaning that companies’ tax residence is in Cyprus. Therefore, the term Cyprus IBC (Cyprus International Business Company) or Cyprus Offshore Company is not applicable anymore.
The word Offshore Company is commonly associated with ‘tax heavens’ and often negatively misinterpreted and misunderstood as illegal. What does offshore exactly mean? Offshore means that a company is registered in a low-tax or non-tax jurisdiction and it is not tax resident in the country where it is registered. Typical examples are Offshore Companies registered in the Bahamas, Bermuda, Belize, BVI, Panama, the Seychelles and similar countries Offshore Companies in those countries are not allowed to conduct business within the country of registration, they are not considered as being tax resident of those countries, and in return, their profit is not taxed in those countries; the company is located “off the shores” of the country.
Cyprus applied for EU membership in 1990, and joined to the EU 14 years later in 2004. One of the requirements for the accession of Cyprus to the EU was to change the part of its tax system, which at the time was providing for Offshore Companies that were subject to corporation tax at a rate of 4,5%.
Cyprus has successfully reformed its legislation related to taxation and to the financial sector in line with best international practices, and it has implemented a transparent tax system, which is fully compliant with the EU, OECD, FATF and FSF.
The new tax regime from 2003 had introduced a uniform 10% corporate tax rate, which has later been increased to currently 12,5%. The Government of Cyprus also introduced a ‘residence-based’ tax system, which is still in operation since the 1st of January 2003.
Cyprus has also adopted IFRS, the International Financial Reporting Standards, and implemented all current AML Directives for the prevention of money laundering and terrorist financing.
As a result of all the above reforms and new measurements Cyprus was removed from the OECD’s ‘harmful tax heaven’ blacklist and was placed on the ‘white list’ of territories.
However, in many countries Cyprus Companies are still considered as Offshore Companies and many local service providers in Cyprus are still promoting services of ’Cyprus Offshore Company Formation’.
The terms ‘Cyprus Offshore Company’ and ‘Cyprus IBC’ are wrongly used as that type of companies does not exist anymore. The term ‘Cyprus IBC’ or ‘Cyprus International Business Company’ is still often used for Cyprus Companies with shareholders residing outside of Cyprus. However, legally IBCs do not exist in Cyprus. Wherever the shareholders of a Cyprus Company are residing, a Cyprus Company is a Cyprus Company and tax resident of Cyprus if the management of the company is carried out from Cyprus.
The current tax legislation does no longer differentiate between local and international (foreign-owned) companies; a single corporate tax rate is applicable for all tax resident companies.
In accordance with the tax legislation, a Cyprus Company is considered as tax resident, if it is managed and controlled in Cyprus, meaning that the place of effective management is within the Republic of Cyprus. For more information regarding Cyprus tax residency and place of business please visit our respective page.
If a Cyprus Company does not have its management and control in Cyprus, then the company is considered as non-tax resident and thus it is not subject to taxation in Cyprus.
To sum up, Cyprus is a business-friendly jurisdiction within the EU, with one of the lowest corporate tax rates in the EU, and with many other tax advantages. However, Cyprus is not an offshore jurisdiction. Cyprus offers a lot of financial advantages and benefits to individuals and companies, making Cyprus an attractive place for business and investment. For more information regarding the Cyprus Tax Regime please visit our respective page.