BUSINESS ENVIRONMENT

The Legal System

The judiciary exercises the judicial power and its members are independent of the government. The legal system is structured on the English legal systems and all statutes relating to the regulation of business matters and procedures are based on English law. Most laws are officially translated into English

Accounting System

The Minister of Commerce must approve all accountants and auditors who are providing services to the public. Such an approval (license) is given only to qualified people, members of recognised overseas accounting bodies.
The main accounting body in Cyprus is the Institute of Certified Public Accountants whose members are qualified accountants from the United Kingdom, United States and other English speaking countries.
The accounting profession is obliged to follow the international accounting and auditing standards.

Chamber of Commerce and Industry

The main object of this organisation is to promote, defend and enhance the free enterprise system. The Cyprus Chamber of Commerce and Industry is a member of the International Chamber of Commerce, the association of the Mediterranean Chamber of Commerce and Industry, and the permanent conference of the European Union Chamber of Commerce and Industry.

The Chamber provides the following services:
Information on trade industry and services, information on legislation and government policy of commercial nature.information on other commercial matters and organising trade delegations to visit abroad.

Banking System

The banking system in Cyprus is modelled on the British system. The monetary policy and the policy relating to credit and balance of payments is under the responsibility of the Central Bank of Cyprus. The commercial banks are very aggressive in providing innovating and competitive services and even though the needs of the business community in Cyprus have been increasing at an accelerated rate during the last 25 years the banks were able not only to cope but also to be one step ahead. Today they provide all the advanced electronic and other modern facilities that the banks overseas are providing. There is a strong presence of offshore banks and the development of Cyprus to a regional financial centre should be pointed out. Around 30 offshore banking units are currently present in Cyprus, a fact attributed, among others, to the transparent legal framework for the operation of foreign banks. Offshore banking units must operate as fully-fledged and fully staffed units and not merely as "brass plate entities". They transact business with non-residents of Cyprus and in currencies other than the Cyprus pound. As a rule, only subsidiaries or branches of banks enjoying a good reputation internationally, established in countries where there is adequate banking supervision, are eligible for an offshore banking license in Cyprus.

Transportation

Cyprus has the two international Airports, in Larnaca and Paphos handle a large number of daily flights. There is a wide network of air-routes connecting Cyprus with Europe, Africa and Asia.The geographical position of Cyprus makes it a cross road of air travel, linking Europe with the Arab World and the Far East. The island is rapidly becoming a major international transit station for commercial air transportation with excellent connections within the entire region. Seaborne traffic is served by a fully renewed port system comprising the multi-purpose ports of Limassol and Larnaca, the industrial port of Vassiliko and three specialised oil terminals. One hundred shipping lines include Cyprus in their regular schedules to and from five continents. About 5.000 ships totalling 17 million net registered tons call at Cypriot ports each year.

Telecommunications

Cyprus recognises the importance of telecommunications and has invested heavily in the development of this sector. As a result, the island may claim, in this respect, to be among the most developed countries in the world.
Apart from conventional telecommunications services such as telephony, telex, telefax and telegraphy, the Cyprus Telecommunications Authority (CYTA) offers services such as the packet switched data network, mobile telephony (GSM and NMT900), voicemail, paging, maritime, TV transmission/reception, private leased circuits, audiotex, videoconferencing, access to the Internet and the X400 message handling system. Furthermore, the Integrated Services Digital Network (ISDN) has recently begun operating on a full commercial basis. The national network utilises state-of-the-art technology such as digital switching and transmission systems and fibre optic cables. Services to be introduced soon include videotext, the Paneuropean Paging System, as well as broadband services.

Conference Facilities

A very extensive number of conference rooms are available in Cyprus providing the latest equipment and all modern facilities to make the conference a success. The Cyprus conference centre and all major hotels provide such rooms at reasonable rates.

BUSINESS IN CYPRUS

Clear policies adopted in connection with offshore banking and financial services as well as modern legislation enacted by the Republic of Cyprus on international trusts give Cyprus major advantages and total flexibility as an international business and financial centre.
The offshore banking and financial services sector in Cyprus is a thriving industry, offering considerable advantages to its members in terms of fiscal and other incentives as well as adequate regulation, thereby, contributing to the recognition of Cyprus as a reputable regional and international financial centre.
A careful look at the business environment in Cyprus would reveal certain things that provide an overall picture of the environment. The main characteristic can be summarised as follows:

• Cyprus is not listed by foreign tax authorities as a tax heaven but is considered to be a low tax country.
• A long list of generous tax incentives is provided for the offshore companies and their expatriate employees. Cyprus has a double tax agreement with 26 countries.
• Friendly international relations.
• Excellent infrastructure.
• Excellent professional service.
• Good schools are available that provide high quality education in foreign languages especially in English. These schools provide education of primary to university levels.
• The foreigner in Cyprus will enjoy high standard of living at low cost, in a crime free environment.

CYPRUS DOUBLE TAX TREATIES

Cyprus is probably the only country in the world that is considered a tax incentive country and at the same time offers important international tax planning opportunities and advantages through its wide double tax treaty network. There are treaties with 26 countries now in force and some other are pending for ratification.
Most of the Cyprus tax treaties follow the OECD model. The treaties aim to avoid double taxation of income earned in these counties. This is achieved usually by either exempting the income from tax, by providing a tax credit for the amount of tax paid in the other contracting country or by a reduced withholding tax.

THE NATIONAL ECONOMY

Cyprus has an open free market economy. The role of government is limited to regulation and the provision of public utilities. Per capita GNP is over USD13.500, one of the highest in the Mediterranean. Considering other socio-economic indicators such as the excellent housing conditions, the pollution free environment and the low crime rate, one may conclude that the quality of life is better than that reflected by per capita income alone. Furthermore, the cost of living is substantially lower than in most countries offering a comparable standard and quality of life. Nicosia ranks as seventh least expensive of the leading 53 international business centres surveyed in Prices and Earnings Around the Globe, published by the Union Bank of Switzerland in August 1994.
The economy is driven by thriving tourist and service sectors and a fast growing export-oriented industry. In terms of their contribution to GNP the three most important sectors of the economy are: trade, restaurants and hotels; finance, insurance and business services; and manufacturing. The performance of the economy has been such that it has combined high real growth with low inflation and low unemployment. Moreover, the economy is characterised by a low external debt service to exports ratio and a high international reserves to imports ratio.

ENJOY CYPRUS

Cyprus enjoys a pleasant climate. The coldest month is January with a mean temperature ranging from 6 C to 13 C, while the hottest month is August with a mean temperature ranging from 21 C to 36 C. The island of Aphrodite enjoys 340 sunny days during the year. It combines wide sandy beaches and sea resorts for the summer with snow covered mountains during the winter.
Cyprus history runs as far back as the 6th millennium B.C. In the 2nd millennium B.C. the Achanean-Greeks established city-kingdoms and introduced the Greek language. Because of its strategic position the island was occupied and ruled by many of the great powers of the past. Although the conquerors did not effect the Greek character of the island the many tangible evidence that they left behind make today Cyprus an attractive place to see and live history.
Apart from the archaeological places there are many other attractive and picturesque places to see and many places where you can enjoy all kind of sports.
For the foreigner who is looking for a more permanent establishment in Cyprus there are plenty of properties available at reasonable prices.
During the night Cyprus does not sleep. The large number and variety of restaurants, taverns, pubs, discos, and night clubs cater for a wide range of preferences and offer all kinds of international food, the famous local/traditional food, and a variety of local wine.

CYPRUS AND ITS OFFSHORE BUSINESS

The government began offering incentives in 1975, aiming to encourage the establishment of legal entities by foreigners in order to manage their overseas affairs or to render services abroad from the island. Since then Cyprus has experienced a staggering increase for the demand of those entities, most commonly known as offshore companies. At the moment there are over 29.000 offshore entities registered in Cyprus.

• The entity must be 100% owned by non-residents of Cyprus.
• All business must be carried out abroad.
• All income must be earned from abroad.
• The nature of the offshore entity could take the form of a company limited by shares, a branch, or a partnership (limited or unlimited liability partnership). These entities could either establish their own office in Cyprus or they could operate from the office of professionals, such as accountants' or lawyers'offices.
• From the over 29000 offshore entities incorporated in Cyprus, over 1000 entities have their own offices in Cyprus and employ full-time expatriate and local staff.

During the last few years we have seen an increasing demand for the establishment of entities other than the traditional companies. A relatively large number of offshore banking units (over 30), financial services companies (over 30), and captive insurance companies (over 25) have obtained permit and operate in Cyprus. To ensure that the calibre of those entities is of high standards the Central Bank of Cyprus would only allow the establishment of this type of entities if they form part or associated with a reputable overseas entity.
It is also important to note that none of the offshore entities in Cyprus are "brass plate" companies.

ACTIVITIES OF OFFSHORE ENTITIES

The objects of the company could be drafted to allow any kind of legal activity. However it is evidenced that the most common use of the Cyprus offshore entities is for the following activities:
All kind of trading, act as commission agents, royalty companies that include the traditional royalties from patents but also includes leasing/rental of equipment and other assets, marketing, real estate companies, establish headquarters in Cyprus, employment/recruitment agents, consultancy services, printing, contracting, investments, services in general, engineering, holding companies, insurance, shipmanagement and shipowning, banking, captive insurance.

TAXATION OF OFFSHORE ENTITIES

One of the incentives to attract offshore business in Cyprus is the low income tax rates payable on the net profit. The rate depends on the nature of the entity, as follows:
Offshore company: 4.25% tax on its net profit
Offshore partnership: Nil tax
Offshore Branch: The rate of tax depends on whether the branch is "managed and controlled" in Cyprus or overseas. The tax rates are 4.25% and NIL respectively.
The after tax profit can be distributed to the foreign owners without any withholding tax.
Additionally, the offshore entities are not required to deduct any withholding tax on interest or royalty payments made overseas.

TAXATION OF EXPATRIATE EMPLOYEES

Income tax incentives are also available to the foreign employees of the offshore companies. These are summarised as follows:
a) The tax payable by expatriate employees of offshore entities who work outside Cyprus will depend on whether the employee is paid via a bank account held in Cyprus or overseas. If the account is held in Cyprus no tax is payable and if the account is held overseas the income tax is 10% of the normal tax, therefore it will range from 0-4%.
b) If the expatriate employees work in Cyprus the tax is 50% of the normal tax rates therefore it will range from 0-20%. In addition to the income tax incentives the expatriate employees can import or purchase certain duty free items such as a car and household effects.

SHIPPING

Cyprus has proved to be an ideal centre for the establishment of shipping companies. A distinction however needs to be made between shipowning and shipmanagement companies. The first restricts the objects to the ownership, bareboat chartering and operation of ships in international waters. The second category restricts the activities to the rendering of a wide range of shipping related services outside Cyprus, such as shipbreaking, payroll and bookkeeping services, marine insurance etc. The term shipping refers to shipowning (not shipmanagement).
A large number of shipping companies has been registered in Cyprus and currently the total number of ships registered is over 2600 ships with a gross tonnage over 26m tonnes, making Cyprus the 4th country in the world in ship registrations.

• The advantages of shipping companies registered in Cyprus can be summarised as follows:
• No tax is payable on all profits and dividends arising from shipping operations
• No capital gains tax on the sale or transfer of a ship or shares in a shipping company
• No estate duty on the inheritance of shares is a shipping company
• No stamp duty on bills of sale and mortgages on ships and related documents
• There are low registration fees.

The Cyprus merchant shipping legislation allows for the provisional registration of a vessel in case where the vessel has not been previously registered in Cyprus. The Provisional registration is for a period of 9 months renewable for further 3 months. This is to give time to the shipowners to prepare the application for a permanent registration.
The Cyprus legislation also allows for a parallel (bareboat) registration. This means that a ship can obtain approval for registration under the Cyprus flag for a period of two years without the need to delete the registration in the foreign country (parallel-in registration). Alternatively the ship can have a parallel-out registration which means that the ship can hoist the flag of the foreign country but the things like financing of the ship, mortgaging, transfer of ownership are exclusively governed by the Cyprus legislation and no action in relation to these matters may be made in the foreign registry. Cyprus has signed may maritime conventions.

OFFSHORE BANKING UNITS (OBU'S)

Foreign banks can establish a presence in Cyprus by either establishing an offshore banking unit or simply have a representation office.
The offshore banking units could be in the form of the branch or a subsidiary of the foreign bank. The supervision of the Central Bank on a branch is not as strict as the supervision on a subsidiary. The branch for example is not subject to any liquidity ratio control. Alternatively the foreign bank can establish a representative office which means that no banking license is required because they are not allowed to carry out any banking business. Their purpose is to have an information/liaison centre only.
For both the OBU, and the representative office the Central Bank of Cyprus gives permits only to foreign banks with a very good standing reputation overseas. OBU'S pay annual fees to Central Bank of Cyprus of US$ 15.000 and representative offices only US$ 5.000.
The OBU'S enjoy the same benefits as the offshore companies. They are subject to all confidentiality rules that apply to the local banks. At the moment there are over 29 OBUS operating in Cyprus, and over 10 representative offices.
Some other requirement for the establishment and operations of OBU'S are that they must provide a "letter of comfort" and must establish fully fledged offices.

OFFSHORE CAPTIVE INSURANCE

Offshore captive insurance companies are those which restrict their operations to insuring risk of the parent, holding or associated in the group of companies to which they belong. In addition a non-insurance foreign company must own them.
Application to establish an offshore captive insurance company must be made to the minister of finance and the Central Bank of Cyprus, which can exempt these companies from the application of any of the provision of the Insurance Companies Laws 1984.
The minimum share capital of these companies is CY£ 10.000 and they must have their audited accounts submitted to the Registrar of Companies and the Central Bank of Cyprus each year. Presently in Cyprus there are 16 captive insurance companies, 8 offshore insurance companies.

INTERNATIONAL TRUSTS LAW 1992

The international trust is one with the following characteristics:
1. The settlor must not be a permanent resident of Cyprus.
2. The beneficiary(ies) must not be permanent resident of Cyprus (except charitable institutions).
3. The trust property must not include immovable property in Cyprus. 4. At least one trustee is resident in Cyprus. (A Cyprus offshore company or partnership is considered as a resident trustee). An international trust shall not be void or voidable in the event of the settlors' bankruptcy or liquidation or proceedings against the settlor not withstanding any provision of the law of Cyprus or of any other country.
An international trust may be set aside only if it's proven that the trust is made by the settlor with the intent to defraud creditors. The onus of proof of intent to defraud shall be on the creditors. The law governing the international trust may be changed from the Cyprus law to a foreign law (and visa versa) provided that the foreign law recognises such a change. Confidentiality is of paramount importance. No government or Central Bank official may disclose to anybody any information or documents in connection with the settlor, beneficiary, trustee, accounts or properties of the trust. However a beneficiary is entitled to request from the trustees information about the accounts of the trust.
Other characteristics of the international trust:

1. the duration of the trust may be up to 100 years
2. the trust is not subject to any taxes
3. no exchange control
4. no registration required
5. stamp duty CY£ 250 (about US$ 500)