2020 Cyprus Country Report

Business Operating Environment
Legal and Regulatory Framework
Cyprus’ legal framework is particularly strong, due in part to mandatory compliance
with European Union regulations. The legislation governing Cyprus’ financial services
sector underpins the island’s ambition to become a leading international financial
centre. As a former British colony, Cyprus law is based on English Common Law
and was amended in recent years to meet European Union requirements. Offering
foreign businesses a familiar and reliable framework within which to operate, the
island’s legal and regulatory system is considered to be one of the most favourable
in Europe, whilst at the same time being fully compliant with the EU, the Financial
Action Task Force on Money Laundering (FATF), the Organization for Economic
Co-operation and Development (OECD) and the Financial Stability Forum.
Regulators
and Authorities
Financial institutions are
regulated and supervised by
three authorities in Cyprus:
the Central Bank of Cyprus
(CBC), which is responsible for
the supervision of commercial
banks and the cooperative
credit institutions; the
Superintendent for Insurance
Control (SI); and the Cyprus
Securities and Exchange
Commission (CySEC).
However, changes introduced
by the EU’s Single Supervisory
Mechanism (SSM) in 2014,
saw the transfer of supervision
of all the eurozone’s largest
banks to the European Central
Bank (ECB). For Cyprus,
this meant that Bank of
Cyprus, Hellenic Bank and
RCB Bank were transferred
from the supervision of
the CBC to the ECB.
Taxation
Cyprus offers one of the
most attractive tax regimes
in Europe. A member of the
European Union since 2004,
Cyprus’ regulatory regime is
in full compliance with the
requirements of the EU and
OECD. Cyprus has one of
the lowest EU corporate tax
rates at 12.5%. The island’s
advantageous tax rate coupled
with an extensive list of double
tax treaties places it high on the
list of preferred jurisdictions
for international tax planners.
Anti-Money Laundering
Cyprus has put in place all necessary
mechanisms for the prevention and suppression
of money laundering and terrorist financing
activities. Cypriot authorities cooperate with
foreign supervisory authorities in compliance
with the Financial Action Task Force (FATF)
recommendations to ensure financial sector
legislation and practices are aligned with
international standards. The national AML
law is fully aligned with the 4th EU Anti-
Money Laundering Directive, and Cyprus is
in full adherence with sanctions issued by the
European Union, the United Nations, and also
the US Treasury OFAC. The transposition
of the 5th EU AML Directive into Law took
place in September 2019, whereas the full
functionality of the Ultimate Beneficial
Owner (UBO) registries will be available
from March 2020. All individuals and legal
entities that perform financial and other
business activities, are obliged to protect
themselves, their companies and the financial
system of Cyprus from money laundering by
setting standard procedures and adhering to
strict protocols for maintaining records.
Corporation Tax
The Corporation Tax Rate: 12.5%.
Basis of taxation
All companies that are tax residents of
Cyprus are taxed on their income accrued
or derived from all sources in Cyprus and
abroad. A non-Cyprus tax resident company
is taxed on income accrued or derived
from a business activity which is carried
out through a permanent establishment
in Cyprus and on certain income arising
from sources in Cyprus. A company is
considered tax resident of Cyprus if it is
managed and controlled from Cyprus.
Special Types of Companies
SHIPPING COMPANIES
The Merchant Shipping Legislation, fully
approved by the EU, provides for an
exemption from all direct taxes and taxation
under tonnage tax regime. The merchant
shipping legislation applies to qualifying
shipowners, charterers and ship managers,
which are involved with the operation of
qualifying community ships (ships under
a CY flag or a flag of an EU member state
or of a country in the European Economic
Area) and foreign (non-community) ships
(under conditions) and provided that they
engage in qualifying activities. The legislation
allows non community vessels to enter
the tonnage tax regime provided the fleet
is composed of at least 60% community
vessels. If this requirement is not met, then
non-community vessels can still qualify
if certain criteria are met. Exemption is
also given in relation to the salaries of
officers and crew aboard a Cyprus ship.
INSURANCE COMPANIES
Profits of insurance companies are liable
to corporation tax similar to all other
companies except in the case where the
corporation tax payable on taxable profit of
life insurance business is less than 1.5% of
the gross premium. In this case the difference
is paid as additional corporation tax.
154 Country Report CYPRUS 2020