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HOW CYPRUS TAX CAN BENEFIT IN INTERNATIONAL TAX PLANNING

HOW CYPRUS TAX CAN BENEFIT IN INTERNATIONAL TAX PLANNING

International tax planning is a strategic and legal approach used by businesses and individuals to manage their tax liability in multiple jurisdictions. This involves identifying and utilizing tax-efficient structures, taking advantage of tax incentives and exemptions, and adhering to compliance regulations in order to minimize tax costs and maximize financial gains.

Cyprus has emerged as a popular destination for international tax planning, as it offers a favorable tax regime, a robust legal framework, and a stable political environment. Let us explore some of the key benefits of Cyprus tax, and how they can be leveraged for international tax planning.

1. Low Corporate Tax Rate

One of the most significant advantages of Cyprus tax is its low corporate tax rate, which is currently set at 12.5%. This is one of the lowest corporate tax rates in the European Union (EU) and is significantly lower than many other developed countries, such as the United States or the United Kingdom where the corporate tax rate ranges between 19%-25%.

This low tax rate makes Cyprus an attractive destination for businesses looking to set up their holding or operating companies. It can also be beneficial for businesses to restructure their operations to be based in Cyprus so they can take advantage of the low corporate tax rate and reduce their global tax liability.

2. Tax exemptions for foreign dividends and capital gains

Cyprus tax laws provide for a number of useful exemptions that can be used for international tax planning. One such exemption is the exemption on foreign dividend income. The Cyprus tax law provides that foreign dividends are completely exempt from tax in Cyprus, unlike in many other countries where foreign dividends are taxed upon receipt.

Another beneficial exemption is on capital gains. Capital gains realized from the sale of shares, bonds, or other securities are exempt from tax in Cyprus. This can be particularly useful for businesses looking to divest their assets or restructure their operations.

3. Double Tax Treaties

Cyprus has an extensive network of double tax treaties with more than 65 countries, including all EU member states, Russia, China, India, and the United States. A double tax treaty is an agreement between two countries to avoid double taxation on the same income.

These treaties often provide for reduced rates of withholding taxes on dividends, interest, and royalties, and allow for broader access to tax credits and exemptions. For example, if a Cyprus company has a subsidiary in the United States, the treaty between Cyprus and the United States would mean that the dividend income received by the Cyprus company from its US subsidiary will only face a reduced withholding tax rate of 5% instead of 30%.

4. Participation Exemptions

Cyprus tax laws also provide for participation exemptions which allow for the income from participating in a foreign company to be completely exempt from tax in Cyprus. If a Cyprus company owns at least 10% of the shares of a foreign company, the income from the sale of these shares is not taxable in Cyprus.

In addition, any profits distributed to the Cyprus company by the foreign company are also exempt from taxation in Cyprus. This makes it more attractive for businesses to engage in cross-border mergers and acquisitions, as well as corporate reorganizations.

5. Attractive Holding Company Regime

Cyprus has developed a favorable holding company regime that allows businesses to enjoy several tax benefits. The regime is designed to encourage international investment and promote Cyprus as a hub for international business.

Under the regime, dividends received by a Cyprus holding company from a subsidiary that it owns in another country are exempt from tax. In addition, profits from the sale of shares in a subsidiary are also exempt from tax. This makes Cyprus a popular location for holding companies, particularly those involved in cross-border activities.

Conclusion

International tax planning is a complex and ever-changing field, and it is important for businesses and individuals to be aware of the various options available to them. Cyprus tax laws offer a range of benefits that can be leveraged for international tax planning, such as the low corporate tax rate, tax exemptions for foreign dividends and capital gains, double tax treaties, participation exemptions, and an attractive holding company regime.

Overall, Cyprus has established itself as a leading destination for international tax planning, offering competitive taxation, a business-friendly environment, and a range of incentives to attract foreign investment. As such, businesses and individuals should consider Cyprus as an important option when seeking to manage their global tax liability.

The above article is provided only for information purposes. It should not be consider as a professional advice. We recommend you to ask for a professional advice before acting on any information provided.  Should you require a professional advice please contact us at info@elaaccounting.com or call us at (+357 99 832578).

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