Cyprus company formation fees will vary according to the complexity of the structure of the firm you wish to create, and of course, the firm that you choose to hire to set-up the company. While this information is widely available on the internet, there are several other expenses that the owner of a Cyprus company will be required to pay, but which are very rarely mentioned when discussing the formation of a company.
1. Costs of gaining the “Cyprus tax resident” status
Unless the activities of your Cyprus company have a “de facto” business substance in Cyprus, e.g. ownership of real estate in Cyprus, a Cyprus company needs to demonstrate that the management and control of the Company is in Cyprus. Failure to demonstrate this, may give the right to the tax authorities of other countries to claim that the Ultimate Beneficial Owner is attempting the evasion of taxes and hence demand that any profits of the Cyprus company be taxed by them. Cyprus has agreed the types of income that may be taxed in each Country by signing quite favorable double tax treaties with numerous countries around the globe. However, it is a responsibility of the Cyprus Company to demonstrate that it is a tax resident in Cyprus and hence benefit from the provisions of the double tax treaties. This may be achieved by renting some office space in Cyprus and making sure that the majority of the members of the Board of Directors of the company in Cyprus are tax resident in Cyprus. The cost of renting some office space and the fees of a director in Cyprus start from €500 each, per month. Accordingly, the Cyprus Company will incur a fixed cost of at least €12.000 on top of other administrative expenses per year in order to qualify for Cyprus taxation.
2. Taxation Levels
Cyprus’ corporate income tax rate is now 12.5%. Previous to Cyprus joining the European Union the tax rate was 4.25%. The tax rate has increased by almost three times since Cyprus became a member of the European Union. While a tax rate of 12.5% is among the lowest in the European Union, it should also be compared to the zero rate that exists in some other jurisdictions. That all said, several exceptions to this tax rate exist, namely:
- Foreign-sourced dividends
- Disposals of shares and other qualifying titles (such as corporate bonds) provided the disposed company does not hold any immovable property in Cyprus.
- No withholding taxes on payments made abroad at all times.
- Profits of foreign branches (but an option to tax is available for the taxpayer).
- The Cyprus IP tax regime can be utilized to achieve an effective tax rate of as low as 2.5%
- Shipping activities are taxed under the tonnage tax regime
- Foreign exchange gains, unless they are earned by Forex traders/ dealers
3. Cyprus company formation fees - Conclusion
Due to the administrative expenses that are described above, and the fact that the tax rate is not close to zero any more, Cyprus may not be an ideal place for companies that make profits in and around the level of the average salary of a European Citizen. In my opinion, a Cyprus company may be used for the establishment of an efficient tax structure where the profits of the company will be above a certain amount only. It is highly recommended that anyone thinking of forming a company in Cyprus seek advice from a local accountant to ensure the tax benefits are worth the costs, before they proceed with the formation of a Cyprus Company.
