A shelf company, also known as a dormant or aged company, is a pre-registered company that has been incorporated but has not conducted any business activities. Shelf companies are often purchased by entrepreneurs who wish to start a business immediately without going through the hassle of creating a new company from scratch. Cyprus is an attractive destination for entrepreneurs and investors due to its favorable tax system, which offers a range of benefits for foreign investors, including those who purchase a Cyprus shelf company.
In this article, we will explore the tax advantages of a Cyprus shelf company and what you need to know about the tax system in Cyprus.
Corporate Tax Rates in Cyprus
One of the primary tax advantages of a cyprus shelf company is the favorable corporate tax rates. Cyprus has one of the lowest corporate tax rates in the European Union, which currently stands at 12.5%. This low tax rate applies to all companies, including shelf companies, making it an attractive destination for entrepreneurs and investors looking to start a new business or expand their existing operations.
Furthermore, Cyprus has a tax system that is based on the principle of territoriality. This means that companies are only taxed on their profits generated within Cyprus. If a Cyprus shelf company operates outside of Cyprus, it will not be subject to corporate tax on the profits generated outside of Cyprus. This system is particularly advantageous for companies that operate globally, as they can benefit from the low tax rates in Cyprus while conducting business in other countries.
Dividend Income
Another tax advantage of a Cyprus shelf company is the favorable treatment of dividend income. Dividend income received by a Cyprus company from a foreign company is exempt from corporate tax, provided that the foreign company is not engaged in activities that generate passive income. This means that if a Cyprus shelf company owns shares in a foreign company and receives dividend income, it will not be subject to corporate tax on that income.
Furthermore, if a Cyprus shelf company owns more than 1% of the share capital of a foreign company, it may be eligible for a participation exemption. This means that any profits made from the sale of shares in that foreign company will be exempt from corporate tax in Cyprus. This is a significant advantage for companies that invest in foreign companies, as it allows them to benefit from the profits generated by those companies without being subject to corporate tax in Cyprus.
Capital Gains
Another tax advantage of a Cyprus shelf company is the favorable treatment of capital gains. Capital gains made by a Cyprus company from the sale of shares in another company are exempt from corporate tax, provided that the company being sold is not engaged in activities that generate passive income. This means that if a Cyprus shelf company sells shares in a foreign company and realizes a capital gain, it will not be subject to corporate tax on that gain.
Furthermore, if a Cyprus shelf company owns more than 50% of the share capital of a foreign company, any profits made from the sale of those shares will be exempt from capital gains tax in Cyprus. This is a significant advantage for companies that invest in foreign companies, as it allows them to benefit from the profits generated by those companies without being subject to capital gains tax in Cyprus.
Value Added Tax (VAT)
Value-added tax (VAT) is a consumption tax that is levied on goods and services in most countries around the world. In Cyprus, the standard VAT rate is 19%, which is lower than the average VAT rate in the European Union. This makes Cyprus an attractive destination for businesses that sell goods and services in the European Union, as they can benefit from the low VAT rate in Cyprus while conducting business in other EU countries.
Furthermore, Cyprus has a favorable VAT system for companies that import goods into the country. If a Cyprus shelf company imports goods from outside of the European Union, it may be eligible for a VAT deferment scheme. This scheme allows the company to defer the payment of VAT on the imported goods until the goods are sold within Cyprus or to another EU country. This can provide a significant cash flow advantage for companies, as they do not have to pay VAT upfront when importing goods.
In addition to the VAT deferment scheme, Cyprus also offers a range of VAT exemptions and reduced rates on certain goods and services. For example, the sale of certain medical products and equipment, as well as books and newspapers, is exempt from VAT in Cyprus. This can provide cost savings for businesses that deal with these types of products.
Personal Income Tax
In addition to the corporate tax advantages of a Cyprus shelf company, there are also favorable personal income tax rates for individuals who live and work in Cyprus. The personal income tax rates in Cyprus are progressive, ranging from 0% to 35%, with a maximum rate of 35% applying to income over €60,000 per year.
Furthermore, Cyprus offers a range of tax incentives for individuals who relocate to Cyprus for work or investment purposes. For example, individuals who relocate to Cyprus for employment can benefit from a 50% exemption on their income tax for the first 10 years of their employment in Cyprus. This can provide a significant tax saving for individuals who move to Cyprus for work.
Conclusion
In summary, a Cyprus shelf company offers a range of tax advantages for entrepreneurs and investors looking to start a business or expand their existing operations. The favorable corporate tax rates, the territorial tax system, and the favorable treatment of dividend income and capital gains can provide significant tax savings for companies that operate globally.
Furthermore, the favorable VAT system, personal income tax rates, and tax incentives for individuals who relocate to Cyprus can provide additional benefits for businesses and individuals. Overall, Cyprus is an attractive destination for entrepreneurs and investors who are looking for a favorable tax system that can provide significant cost savings and a competitive advantage in the global market.