What are the most common options for foreign companies to establish a business presence in Cyprus, Europe?
Cyprus has become a major financial center in Europe. As a full member of the EU, it has adapted both its legislative and regulatory systems, as well as its professional practices, to better meet the needs of foreign investors. A highly skilled workforce has been created to facilitate the services sector, which is the major industry in Cyprus, followed by tourism.
A foreign company may establish a presence in Cyprus either through a subsidiary a branch or a partnership. Both procedures are cost and time effective.
Foreign companies most commonly establish a presence in Cyprus via subsidiaries, mainly through the registration of Limited Liability Company (LLC). Through a subsidiary, a foreign company can enjoy many Tax benefits, as Cyprus has one of the lowest corporate tax rates in the European Union; 12,5% on the Profits of the company (after deducting all business expenses).
Numerous Tax exemptions, for example in relation to:
• foreign exchange gains or losses (for companies in the forex industry);
• interest income under special conditions;
• profits of permanent establishments maintained outside Cyprus; and
• profits from company reorganizations.
• Tax relief for foreign tax paid.
• 0% of dividend withholding tax for Non-Cypriot citizens.
In addition, in many cases a foreign shareholder will benefit from:
• Favorable taxation treatment of distributed profits at tax residency level.
• The double taxation treaties that Cyprus has signed with over 55 countries.
Subsidiaries that meet certain investment criteria can also employ a number of foreign nationals in Cyprus. Therefore, a foreign company can ensure that the management of a subsidiary is carried out by people who are familiar with the foreign company’s business.
Financial statements and income tax returns must be submitted for both branches and subsidiaries. If the management and control of a branch is exercised in Cyprus, the branch is taxable as a Cyprus tax-resident company and can enjoy the same taxation benefits as a Cyprus company.
What are the main differences between a branch and a subsidiary?
• A branch office must have the same name as that of its parent company and acts as an extension to the head office.
• A branch does not acquire a separate legal personality and therefore the liability for all activities undertaken by it (which must be the same with that of the parent company) fall on the parent company.
Joint ventures (in the form of partnerships or private limited liability companies) and franchises are also used by foreign entities. These are particularly appealing to foreign companies which, apart from seeking to establish a presence in the jurisdiction, seek co-operation or investment in the local market and would benefit from management by people who are more familiar with the local market.