Tax havens are otherwise known as offshore financial centers. Many of them are island nations. The island of Cyprus, conveniently located at the center of three continents – Europe, Asia, and Africa – is one of the most promising business hubs in the European Union because of its attractive tax regime.
In the early 1990s, the government of Cyprus established its country as a tax haven. According to Investopedia, low flat corporate tax rate, strict privacy laws and geographic desirability due to its proximity to Europe and Russia helped to increase the popularity of the tax haven over the following three decades.
Lost status and gained attractiveness
However, Cyprus doesn’t have a tax haven status anymore. OECD (Organisation for Economic Co-operation and Development) declared the country was largely compliant with standards set forth by the Global Forum on Transparency and Exchange of Information for Tax Purposes and gave Cyprus the same rating as the U.S., Germany, and the U.K, therefore, the country no longer has tax haven status.
One of the reasons was an increase in corporate tax rates to 12.5%. Nevertheless, even after the increase, it is one of the lowest corporate tax within the EU and has the lowest non-offshore jurisdiction corporate tax rate in the world (alongside Ireland) so this doesn’t materially affect Cyprus’s attractiveness as holding company jurisdiction.
Unique EU jurisdiction
Cyprus has transformed itself from being considered an off-shore tax haven with a 4.25% corporate tax rate for grey-area businesses to a unique EU jurisdiction that offers a host of financial advantages and benefits to companies and individuals. Reformation of Cyprus financial sector legislation was based on the best international practice. The country has a clear, transparent, and constructive tax system. According to the investment-gateway, it is fully compliant with the European Union, OECD, FATF (Financial Action Task Force), and FSF (Financial Stability Forum).
Benefits of Cyprus tax regime
As investcyprus.org notes, the low corporate income tax rate of 12.5%, EU& OECD Compliance, access to EU directives, extensive double tax treaty network with over 60 countries, no withholding taxes on interest and dividends, no succession taxes, foreign tax relief on income subject to both Cypriot and overseas tax, attractive intellectual property regime, no exit tax rules, no tax on dividends, interest and rental income of non-domiciled individuals, no controlled foreign company (CFC) rules are among main characteristics which make Cyprus tax system simple and transparent.