International Trade – Case studies
Using Cyprus for International Trade
There is no legal definition of ‘management and control’ but it is generally taken to mean where the board meetings take place or the majority of board members reside.
Resident companies are now taxed at 12,5% on their worldwide income and non-resident companies are only taxed on profits arising out of a permanent establishment in Cyprus. ‘Permanent establishment’ includes an office, a branch, a factory, and a construction site for a project exceeding three months. Companies, whose management and control are outside of Cyprus and having activities outside Cyprus, only, will not, therefore, pay any tax in Cyprus.
Dividends paid to non-resident shareholders of Cyprus companies will not be subject to withholding taxes. In addition, dividends received by Cyprus companies are exempt from corporation tax. Cyprus resident companies receiving dividends from a foreign company are not liable to withholding tax provided the company receiving the dividend holds more than 1% of the share capital of the foreign company paying the dividend. (Other conditions are that not more than 50% of the paying company’s activities result in investment income and the tax paid in the jurisdiction in which the foreign company is registered is not significantly lower than the tax paid in Cyprus).
Non-resident companies may be best used where there is no intention to make use of the double-tax treaty network or to repatriate profits, e.g. where monies are transferred to a foreign bank account or left in a foreign currency account in Cyprus.
International Trade Cyprus case study
Mr. Tudor decides to register a resident company in Cyprus which will buy the goods from China and sell them within the EU.
The goods are shipped from China to the order of the Cyprus Company to a port of the client’s choice for example the Netherlands. On arrival, the goods are trans-shipped without being imported and the documentation from China is replaced with new documents reflecting the Cyprus Company and if needs be the origin can be changed on the shipping documents from China to The Netherlands, even though the goods have not been imported.
The profits accrued within the Cypriot entity are subject to 12,5% taxation within Cyprus. However, there are ways to mitigate and reduce this amount. Should this be of interest please do not hesitate to contact one of our consultants.
Should you require additional information, have a quotation or might need to clarify any related matter, please contact one of our consultants who will be happy to assist with your enquiries.
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