International Business and Tax Planning

Regional Gateway
Due to its strategic location in the Eastern Mediterranean, the island of Cyprus has always been an attractive location for commerce and business activities. The usefulness of Cyprus as a base for international business is the result of its long history, and a unique blend of influences.

Accession to the European Union has anchored Cyprus to the developed world, and provides an element of political and economic stability to the vibrant business potential of a dynamic region that borders Europe, Russia, Central Asia, the Middle East and even North Africa.

Located in the North-Eastern corner of the Mediterranean, Cyprus has an area of roughly two thirds the size of the state of Connecticut, or half the area of the country of Belgium. Cyprus is the third largest island in the Mediterranean, after Sicily and Sardinia. The total population is about 800,000. The capital, Nicosia, has a population of approximately 300,000. Greek and Turkish are the official languages, however, English is widely spoken, and is used by professional offices and banks.

Cyprus is an independent Presidential Republic. Executive power is exercised by the Council of Ministers, whose members are directly appointed by the President. The highest legislative body is the House of Representatives, consisting of fifty-nine members elected for a five-year term of office.

The Cypriot legal system is based upon British Common Law. British Case Law is closely followed, and all statutes regulating business matters and procedure are based on British law.

Political Stability – EU Membership
Shortly after its founding in 1960, Cyprus went through a period of political unrest as a result of inter-communal conflict between the Greek and Turkish communities, which are the two main ethnic communities on the island. These events reached a climax in 1974 with a Turkish military intervention. However, for over three decades the island has enjoyed uninterrupted peace, which has encouraged exceptional economic development.

Both the Greek and Turkish communities have declared their determination to reach a peaceful resolution of their dispute.

In April 2004, Cyprus signed the EU Treaty of accession, and became a full member of the European Union. As part of its European integration, Cyprus entered into the Euro-zone on January 1, 2008.

Double Taxation Treaties
Cyprus has a large network of double taxation treaties. Constructive use of this network has rendered considerable advantages to businesses and individuals who have either chosen to establish their business in Cyprus, or included Cyprus in international structures. Currently, Cyprus has signed treaties with over 40 countries (for a full country index please click here);

Cyprus offers one of the most efficient telecommunication systems in the world, which comprises the following services:

Fully automatic 24-hour direct dial telephone connection with most countries. All other countries can be reached through the operator;
Telegraph service connection with every part of the world; International automatic telex and facsimile service;
Datel service for the transmission of computer data both nationally and internationally over the public telephone network; ISDN and ADSL connections for Internet service;
Radiotelegraph and radiotelephone services with ships at sea on a 24-hour basis;
Automatic telex for ships through the Marisat service (maritime service through satellite);
TV transmission and reception on a 24-hour basis available to news agencies ,television and radio networks, through the Makarios satellite earth station;
International courier service including Datapost operated by the Cyprus Department of Postal Services, DHL, Skypak, and Tradewinds Express, all delivering parcels to Europe and the US within 48-hours from time of collection.

Civil Aviation
Due to its position between three continents, Cyprus’s role as a transit hub for air travel has increased. The travel time from several major European and international business centers to Cyprus are illustrated as follows:


4h 30 min


4h 00 min


1h 15 min


3h 30 min


4h 00 min


3h 30 min


3h 20 min


3h 00 min


1h 20 min


3h 00 min

The Cypriot tax system was harmonized with that of the EU through a general tax reform that took place in 2002. The features of the Cypriot tax system are especially beneficial to those who want to use Cyprus to locate a holding company, or an international investment fund, as well as to those who would like to use Cyprus as an intermediate for business operations in Central and Eastern Europe, Russia and South East Asia.

Attractive Features for Holding Companies
Cyprus is an especially attractive jurisdiction for holding companies. First, a Cypriot holding company may receive dividends from a foreign operating company free of withholding tax, or at a lower rate of withholding tax, by virtue of the extensive network of double taxation treaties Cyprus has, or in the case of other EU countries, by virtue of the EU Parent-Subsidiary Directive. Second, it permits the Cypriot holding company to enjoy the tax exemption of these dividends; in other words, the Cypriot holding company pays no tax on the dividends. Finally, it allows the Cyprus holding company to pay out dividends, and interest, to non-residents without any withholding tax, or without giving rise to any tax charge. In short, Cyprus law makes it possible in many cases to pass on dividends from a foreign operating company to a Cypriot holding company, or to non-resident shareholders, or a non-resident parent company, without incurring virtually any tax along the way.

International Investment Funds
Some of these same benefits also make Cyprus an ideal location for the establishment of international investment funds, and other collective investment instruments. Profits from the trading of shares and stocks are exempt from income tax. There is no capital gains tax on the disposal of shares listed on any recognized exchange, or on the sale of immovable property held outside Cyprus, nor on the sale of the shares of companies whose property consists of immovable property outside of Cyprus.

Mergers and Acquisitions
Cypriot law creates a very favorable environment for mergers and acquisitions. There are no taxes on the transfer of a business, no taxes on the transfer of assets, no taxes on the exchange of shares, and no stamp duties are payable on documents to effect the merger. Moreover, losses incurred prior to the merger can be carried forward.

Shipping Tax Regime
There is a special tonnage tax regime applicable for ship-owners, charterers and ship managers based in Cyprus. The regime is approved by the European commission and Cyprus is the first EU member state to apply such a regime. The tonnage tax is calculated on the net tonnage of the ship according to a broad range of bands and rates prescribed within the Law. All non-Cyprus shipping operations may, provided certain criteria are met, choose between a corporate tax at 4.25%, or the tonnage tax regime.

Intellectual Property
Cyprus has adopted an Intellectual Property (IP) Regime which provide favorable taxation of a wide range of IP related income. The regime provides for an 80% deduction on income derived from IP rights such as trademarks, patents and copyrights, making the effective tax rate on IP related income 2.5%.

Legal Framework

Trusts formed in Cyprus are governed by the Trustees Law, Cap. 193, which is based on the English law of trusts. The English Common Law and equity rules are also applicable.

International Trusts are regulated by the International Trusts Law 69(I)/92. The legislation is of particular importance to international business companies, and to international business partnerships amongst others, who may wish to take advantage of the benefits made possible by the trust regime.

By definition, a Cypriot, and/or a permanent resident of Cyprus, cannot set-up an international trust, as defined in the Law. However, international investors, or non-permanent residents in Cyprus, who wish to set-up a trust in Cyprus, enjoy substantial tax benefits, and flexibility in the management of their assets.

Conditions for the set-up of an International Trust
  • The settlor cannot be a permanent resident of Cyprus (nb: the settlor may be a partnership or a company
  • At least one of the trustees must be a permanent resident of Cyprus, for the whole duration of the trust’s life
  • No beneficiary, with the sole exception of a charitable institution, may be a permanent resident of Cyprus
  • The property of the trust must not include any immovable property situated in Cyprus.


By way of illustration…

By way of illustration, one can consider a company that is both the trustee and the beneficiary of the trust, and where the settlor is the sole owner of the company’s shares, as well as its sole director. Property held by such a company as trustee would be exempt from estate duty, and would be safe from law suits against the settlor, bankruptcy, expropriation, or settlor’s business risks. Similarly, proceeds from the Trusts activities would be tax exempt

No Exchange Control

Cyprus trusts are not subject to exchange control. Bank deposits with Cyprus banks, either onshore or offshore, are also not subject to exchange control. The absence of exchange control restrictions, and the availability of excellent communication and international banking services, makes Cyprus a convenient base for the remittance and transfer of funds.

Management Services

The existence of a number of reputable international fund management companies in Cyprus, combined with the high standing of the legal and accounting professions, ensure the availability of expert advice, as well as the competent management services required for the operation of a trust.


There are no registrations or reporting requirements for trusts established in Cyprus, nor are the names of the trust or of the persons referred to in the trust deed, disclosed.

Removal from the Jurisdiction

Cyprus Law allows for the removal of a trust from its jurisdiction, hereby providing for the necessary flexibility, in cases where ,a change of circumstances may mean that such transfers would be advantageous, for fiscal, or other reasons.


The income and gains of an international trust derived, or deemed to be derived, from sources outside Cyprus are exempt from tax in Cyprus and no estate duty shall be chargeable in respect of assets belonging to an international trust.

Stamp Duty

The creation of an international trust is liable to stamp duty at a fixed rate of €427.15

Types of Trusts in Cyprus

Discretionary Trust

Under this trust, the trustees have a general discretion over the amount of benefits, and the manner by which the beneficiaries might enjoy such benefits. The beneficiaries may be defined according to name or reference to a class (i.e. the settlor’s children) or simply left to the full discretion of the trustees. Usually, the settlor indicates to the trustees his wishes for the disposal of the trust property by means of a letter of wishes.

Should the settlor wish to give a more positive guidance than relying on a Letter of Wishes, it is possible to include a third party in the trust deed known as the “protector” or “nominator”. The protector’s role is to prevent the trustees from exercising their discretion in certain circumstances. The trustees will usually exercise their discretion with the prior consent of the protector or nominator.

Fixed Trust

Under a fixed trust, the trustees have no discretion in distributing the trust assets to the beneficiaries. For example, under such a trust the trustees are directed to distribute the income to a designated individual for a fixed period of time, and thereafter, distribute the capital of the trust to a specific beneficiary or beneficiaries.

Fixed and Discretionary Trust

This type of trust gives discretion to the trustees over the distribution of income for a period of time. However, they may be required to distribute the income to a specified individual or individuals, in fixed amounts, while maintaining discretion over the distribution of the capital amongst a class of beneficiaries.

Protective Trust

This trust is appropriate when a beneficiary is given a life interest, which may become discretionary on certain defined events, such as the bankruptcy of the beneficiary.

Declaration of Trust

This is a variation of the discretionary trust in which the settlor is not named in the trust deed, and the trustees declare that they hold the assets which were transferred to them on trust. In such a case, the trustees accept a letter of wishes.

Trading Trust

Under this trust, the trustee is usually a limited liability company which has powers to carry on business, and the trust has trading functions and employees to manage its business. Since all documentation used is in the name of the trust company, third parties are not aware of the existence of the trust.

Purpose Trust

A purpose trust, is a trust other than (a) a trust with beneficiaries, certain individual or legal persons, readily ascertainable or not and (b) a trust with beneficiaries, the whole of certain individuals or legal persons, which are ascertainable with reference to some personal relation or affinity. This type of trust can be a useful adjunct to international corporate planning, and can be used to accumulate corporate earnings for general corporate purposes, rather than for a defined group of individuals.