A question frequently raised both among members of the offshore community and the authorities in Cyprus is whether the existing favourable offshore tax regime will be affected in any way by the proposed accession to the EU.
At present Cyprus offers, among others, these incentives to foreign legal entities wishing to establish an offshore on the island:
- income tax at the rate of 4.25%;
- no withholding tax on dividends, interest, royalties and other types of outgoing payments;
- exemption from capital gains tax;
- exemption from estate duty;
- exemption from stamp duty;
- duty free facilities for offshore entities which have administrative offices in Cyprus and for their expatriate personnel;
- eligibility for residence work permits for top executives and, under certain conditions, for non-executives; and
- foreign employees of offshore entities pay income tax equivalent to 50% of the normal rates if working in Cyprus (up to 20%) and 10% (up to 4%) or nil if they are working outside Cyprus.
The Cyprus government in making assurances that the above concessions enjoyed by offshore entities, and the role of Cyprus as an attractive low tax jurisdiction, are bound to continue. Indeed, in early August 1996 the finance minister conveyed to the chairman of the Cyprus Offshore Enterprises Association (COEA) the government's firm intention to maintain, improve and further strengthen the tax regime governing the incorporation and operation of offshore enterprises in Cyprus.
According to the finance minister, any changes to the tax regime which the Cyprus government may be obliged to make to comply with EU membership requirements will leave the Cyprus regime as beneficial, if not more so, than that offered by many other offshore jurisdictions. The government's recent public statements have reassured the offshore community. The COEA in particular has expressed its satisfaction.