Investments in and out of Ukraine have traditionally been structured efficiently through Cyprus. Specifically, the island has served as a very efficient platform for inbound investments in Ukraine as well as for Ukrainian outbound investments to the rest of the world.
Quick facts/benefits of a Cyprus based company:
- It has the lowest tax rate in EU at 12.5% and no withholding tax provisions on dividends and on interest
- Tax-free dividends and interest income for non-domiciled individuals
- It offers tax exemption on dividend income in most cases
- It provides tax exemption on profits from disposal of securities
- Maximum 2.5% tax on royalties
- Notional Interest Deduction (NID) available for new capital introduced
- Attractive and constantly expanding Double Tax Treaty network (over 50 double tax treaties with EU and non-EU countries) for the avoidance of double taxation
- It has the stamp of respectability being an EU member state
Why Cyprus?
For decades, Cyprus has successfully served foreign investors as a stable go-to destination for investments and transactions in Ukraine, Russia and other CIS countries. Furthermore, Cyprus has an exceptionally attractive tax regime, especially for holding companies, and provides access to benefits of its excellent double tax treaty network and relevant EU Directives.
Ukrainian statistics show that Cyprus is positioned as the single major direct investor in the Ukrainian economy as well as attracting almost 90% of Ukrainian outbound investments.
The advantage of Cyprus
- Democratic country with a stable political and business environment, based on the free market philosophy
- Macroeconomic stability, as indicated by stable prices and Euro currency
- Favorable tax policy, including a wide network of agreements for the avoidance of double taxation
- Cyprus Corporate tax rate is only 12.5% (Ukraine Corporate Income Tax is 18%)
- Highly skilled, educated and flexible workforce well acquainted with the use of modern technology. Cyprus also has a competitive low level of wages and other costs, compared with other countries
- Compliance with the European Union Code of Conduct for Business Taxation and with the commitment for the elimination of harmful tax practices according to OECD regulations
- Simple and easy to understand administrative procedures
- Well-developed commercial infrastructure
- Easy access to international markets
- One of the lowest crime rates in Europe
- Well-developed market of professional services such as accounting, audit and law firms
Cyprus Tax resident – A company is resident in Cyprus if its management and control are exercised in Cyprus. Our office may assist with the provision of hosting services such as local Directors, Secretary, nominee Shareholders, and Registered Office which will ensure and support the Company’s management and control.
The local Directors act on behalf of the Company and the beneficial shareholders.
Basis of taxation – Tax resident companies are taxed in Cyprus on their worldwide income. Non-resident companies are taxed only on income derived from sources within Cyprus. Foreign taxes paid can be credited against the Cyprus tax liability of the same source of income.
Some examples
1. CYPRUS HOLDING COMPANY
Investment in Ukraine or Cyprus Holding Company – Investment from Ukraine
Procedure:
- an EU or Non-EU parent company establishes a Cyprus Holding Company. The Cyprus Holding Company holds the shares of the Ukrainian subsidiary or
- The Ukrainian parent company establishes a Cyprus Holding Company. The Cyprus Holding Company holds the shares of an EU or non – EU subsidiary.
Benefits
- No Tax on Dividends received in Cyprus – 0% Tax
- Profit from the disposal of shares is exempt from taxes in Cyprus – 0% Tax
- No Capital Gains Tax in Cyprus on disposal of property situated outside Cyprus
- No Withholding Tax on Dividends remitted from Cyprus to EU/ non-EU shareholders
- 5% Withholding Tax on dividends paid to Cyprus Company which holds at least 20% of the shares in the Ukrainian Company and has invested in the acquisition of shares of the Ukrainian Company at least €100,000 (Double Tax Treaty). 15% Withholding Tax on Dividends in all other cases
- No Withholding Tax on Dividends remitted from Cyprus to Ukraine – no minimum holding percentage or period (Cyprus Local Law)
- No Withholding Tax on Dividends paid to Cyprus from EU country (EU parent-subsidiary Directive)
2. CYPRUS INTELLECTUAL PROPERTY (IP) COMPANY
Procedure: an EU or other country company establishes a Cyprus IP company. The Cyprus IP company holds shares in a Ukrainian subsidiary company.
Benefits
- 80% of royalty income after direct expenses is exempt from tax
- IP is amortized over a period of 5 years
- Maximum effective tax 2.5% provided the IP was developed in Cyprus
- Royalties paid may be considered a tax-deductible expense. Other expenses incurred wholly, exclusively and necessarily for the production of income can be deducted for tax purposes
- 5% Withholding Tax on royalties paid from Ukrainian Company in respect to copyrights of scientific work, patents, trademarks, secret formulae. 10% Withholding Tax on Royalties in all other cases
- No Withholding Tax on royalties paid from Cyprus – 0%
- No VAT cost implications in Cyprus (Business to Business)
- 80% exemption on profit from the future sale of IP rights
- Profit from the disposal of shares is exempted from taxes in Cyprus
3. FINANCING COMPANY
Procedure: an EU or other country company establishes a Cyprus financing company. The Cyprus financing company holds shares in a Ukrainian subsidiary company.
Benefits:
- 12.5% Corporation Tax on net taxable profit i.e. after deducting tax allowable expenses
- Interest deductibility in borrowing company
- 5% Withholding Tax on interest paid from the Ukrainian Company (Double Tax Treaty). No Withholding Tax on interest paid from Cyprus
- No Withholding Tax on dividends paid from Cyprus
Double Tax Treaty – Main Provisions
Dividends – The withholding tax rate on dividends is 5% if the beneficial owner holds at least 20% of the share capital of the Company paying the dividend and has invested at least €100.000 in the acquisition of shares. In all other cases, the withholding tax rate on dividend is 10%.
Interest – The withholding tax rate on interest is 5%.
Capital Gains Tax- Capital Gains from the disposal of immovable property are taxed in the state where the property is situated. In the case of the disposal of shares, where at least 50% of their value is derived from immovable property, these are taxed in the state where the property is situated (subject to exemptions i.e. for entities listed on an approved stock exchange, where the immovable property is used in the company’s business of public companies, Real Estate Funds, etc.)
Royalties – The withholding tax rate on royalties is 5% on copyrights of scientific work, patents, trademarks, secret formulae. In all other cases, the withholding tax rate is 10%.
View a list of the double tax treaties between Cyprus and other countries
Value Added Tax – VAT
- The EU rules for place of supply of services are applicable
- According to the basic rule of VAT for Business to Business transactions, the place of supply of services is the place where the client is situated
- No VAT within Companies registered in other EU countries. The reverse charge mechanism is applicable within Companies registered in EU
Non-domiciled Cyprus tax residents
To be considered a tax resident of Cyprus, an individual must be 183 days or over in Cyprus during the calendar year (without any conditions), or 60 days during the calendar year according to the below conditions:
- Do not reside in any other single state for a period exceeding 183 days in aggregate, and
- Is not tax resident in any other state, and
- Resides in Cyprus for at least 60 days, and
- Fulfills the following conditions –
- Carry out any business in Cyprus and/or is employed in Cyprus and/or is a director of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year.
- Maintain in the tax year a permanent residential property in Cyprus that is either owned or rented.
Advantages of being a non-domiciled Cyprus tax resident
Where an individual is non-domiciled in Cyprus but is a Cyprus tax resident, the following consequences arise:
- no Cyprus tax is payable on receipt of dividend income from any company anywhere in the world (although on foreign dividends, the source country may withhold taxes)
- no Cyprus tax is payable on receipt of interest income from anywhere in the world (although on foreign interest, the source country may withhold taxes)
- no Defence tax is payable on rental income, however it taxable under personal tax (see below rates)
For example:
Type of income –
- dividend income €100.000 – no defense tax, no personal tax
- interest income from fixed deposits €30.000 – no defense tax, no personal tax
- interest income from bonds €20.000 – no defense tax, taxed under personal tax at the following rates
- salaries taxed under personal tax at the following rates:
0 – 19.500 – no tax
19.500 – 28.000 @ 20%
28.000 – 36.300 @ 25%
36.300 – 60.000 @ 30%
Over 60.000 @ 35%
Cyprus Investment Program
Cyprus also offers a very attractive investment program for foreigners that want to obtain a Cypriot passport by investing in real estate, shares or other assets. By obtaining a Cypriot passport, Ukraine citizens and their families can work and live in Cyprus or in any other EU country.
Investments in and out of Ukraine have traditionally been structured efficiently through Cyprus. Specifically, the island has served as a very efficient platform for inbound investments in Ukraine as well as for Ukrainian outbound investments to the rest of the world.
Quick facts/benefits of a Cyprus based company:
- It has the lowest tax rate in EU at 12.5% and no withholding tax provisions on dividends and on interest
- Tax-free dividends and interest income for non-domiciled individuals
- It offers tax exemption on dividend income in most cases
- It provides tax exemption on profits from disposal of securities
- Maximum 2.5% tax on royalties
- Notional Interest Deduction (NID) available for new capital introduced
- Attractive and constantly expanding Double Tax Treaty network (over 50 double tax treaties with EU and non-EU countries) for the avoidance of double taxation
- It has the stamp of respectability being an EU member state
Why Cyprus?
For decades, Cyprus has successfully served foreign investors as a stable go-to destination for investments and transactions in Ukraine, Russia and other CIS countries. Furthermore, Cyprus has an exceptionally attractive tax regime, especially for holding companies, and provides access to benefits of its excellent double tax treaty network and relevant EU Directives.
Ukrainian statistics show that Cyprus is positioned as the single major direct investor in the Ukrainian economy as well as attracting almost 90% of Ukrainian outbound investments.
The advantage of Cyprus
- Democratic country with a stable political and business environment, based on the free market philosophy
- Macroeconomic stability, as indicated by stable prices and Euro currency
- Favorable tax policy, including a wide network of agreements for the avoidance of double taxation
- Cyprus Corporate tax rate is only 12.5% (Ukraine Corporate Income Tax is 18%)
- Highly skilled, educated and flexible workforce well acquainted with the use of modern technology. Cyprus also has a competitive low level of wages and other costs, compared with other countries
- Compliance with the European Union Code of Conduct for Business Taxation and with the commitment for the elimination of harmful tax practices according to OECD regulations
- Simple and easy to understand administrative procedures
- Well-developed commercial infrastructure
- Easy access to international markets
- One of the lowest crime rates in Europe
- Well-developed market of professional services such as accounting, audit and law firms
Cyprus Tax resident – A company is resident in Cyprus if its management and control are exercised in Cyprus. Our office may assist with the provision of hosting services such as local Directors, Secretary, nominee Shareholders, and Registered Office which will ensure and support the Company’s management and control.
The local Directors act on behalf of the Company and the beneficial shareholders.
Basis of taxation – Tax resident companies are taxed in Cyprus on their worldwide income. Non-resident companies are taxed only on income derived from sources within Cyprus. Foreign taxes paid can be credited against the Cyprus tax liability of the same source of income.
Some examples
1. CYPRUS HOLDING COMPANY
Investment in Ukraine or Cyprus Holding Company – Investment from Ukraine
Procedure:
- an EU or Non-EU parent company establishes a Cyprus Holding Company. The Cyprus Holding Company holds the shares of the Ukrainian subsidiary or
- The Ukrainian parent company establishes a Cyprus Holding Company. The Cyprus Holding Company holds the shares of an EU or non – EU subsidiary.
Benefits
- No Tax on Dividends received in Cyprus – 0% Tax
- Profit from the disposal of shares is exempt from taxes in Cyprus – 0% Tax
- No Capital Gains Tax in Cyprus on disposal of property situated outside Cyprus
- No Withholding Tax on Dividends remitted from Cyprus to EU/ non-EU shareholders
- 5% Withholding Tax on dividends paid to Cyprus Company which holds at least 20% of the shares in the Ukrainian Company and has invested in the acquisition of shares of the Ukrainian Company at least €100,000 (Double Tax Treaty). 15% Withholding Tax on Dividends in all other cases
- No Withholding Tax on Dividends remitted from Cyprus to Ukraine – no minimum holding percentage or period (Cyprus Local Law)
- No Withholding Tax on Dividends paid to Cyprus from EU country (EU parent-subsidiary Directive)
2. CYPRUS INTELLECTUAL PROPERTY (IP) COMPANY
Procedure: an EU or other country company establishes a Cyprus IP company. The Cyprus IP company holds shares in a Ukrainian subsidiary company.
Benefits
- 80% of royalty income after direct expenses is exempt from tax
- IP is amortized over a period of 5 years
- Maximum effective tax 2.5% provided the IP was developed in Cyprus
- Royalties paid may be considered a tax-deductible expense. Other expenses incurred wholly, exclusively and necessarily for the production of income can be deducted for tax purposes
- 5% Withholding Tax on royalties paid from Ukrainian Company in respect to copyrights of scientific work, patents, trademarks, secret formulae. 10% Withholding Tax on Royalties in all other cases
- No Withholding Tax on royalties paid from Cyprus – 0%
- No VAT cost implications in Cyprus (Business to Business)
- 80% exemption on profit from the future sale of IP rights
- Profit from the disposal of shares is exempted from taxes in Cyprus
3. FINANCING COMPANY
Procedure: an EU or other country company establishes a Cyprus financing company. The Cyprus financing company holds shares in a Ukrainian subsidiary company.
Benefits:
- 12.5% Corporation Tax on net taxable profit i.e. after deducting tax allowable expenses
- Interest deductibility in borrowing company
- 5% Withholding Tax on interest paid from the Ukrainian Company (Double Tax Treaty). No Withholding Tax on interest paid from Cyprus
- No Withholding Tax on dividends paid from Cyprus
Double Tax Treaty – Main Provisions
Dividends – The withholding tax rate on dividends is 5% if the beneficial owner holds at least 20% of the share capital of the Company paying the dividend and has invested at least €100.000 in the acquisition of shares. In all other cases, the withholding tax rate on dividend is 10%.
Interest – The withholding tax rate on interest is 5%.
Capital Gains Tax- Capital Gains from the disposal of immovable property are taxed in the state where the property is situated. In the case of the disposal of shares, where at least 50% of their value is derived from immovable property, these are taxed in the state where the property is situated (subject to exemptions i.e. for entities listed on an approved stock exchange, where the immovable property is used in the company’s business of public companies, Real Estate Funds, etc.)
Royalties – The withholding tax rate on royalties is 5% on copyrights of scientific work, patents, trademarks, secret formulae. In all other cases, the withholding tax rate is 10%.
View a list of the double tax treaties between Cyprus and other countries
Value Added Tax – VAT
- The EU rules for place of supply of services are applicable
- According to the basic rule of VAT for Business to Business transactions, the place of supply of services is the place where the client is situated
- No VAT within Companies registered in other EU countries. The reverse charge mechanism is applicable within Companies registered in EU
Non-domiciled Cyprus tax residents
To be considered a tax resident of Cyprus, an individual must be 183 days or over in Cyprus during the calendar year (without any conditions), or 60 days during the calendar year according to the below conditions:
- Do not reside in any other single state for a period exceeding 183 days in aggregate, and
- Is not tax resident in any other state, and
- Resides in Cyprus for at least 60 days, and
- Fulfills the following conditions –
- Carry out any business in Cyprus and/or is employed in Cyprus and/or is a director of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year.
- Maintain in the tax year a permanent residential property in Cyprus that is either owned or rented.
Advantages of being a non-domiciled Cyprus tax resident
Where an individual is non-domiciled in Cyprus but is a Cyprus tax resident, the following consequences arise:
- no Cyprus tax is payable on receipt of dividend income from any company anywhere in the world (although on foreign dividends, the source country may withhold taxes)
- no Cyprus tax is payable on receipt of interest income from anywhere in the world (although on foreign interest, the source country may withhold taxes)
- no Defence tax is payable on rental income, however it taxable under personal tax (see below rates)
For example:
Type of income –
- dividend income €100.000 – no defense tax, no personal tax
- interest income from fixed deposits €30.000 – no defense tax, no personal tax
- interest income from bonds €20.000 – no defense tax, taxed under personal tax at the following rates
- salaries taxed under personal tax at the following rates:
0 – 19.500 – no tax
19.500 – 28.000 @ 20%
28.000 – 36.300 @ 25%
36.300 – 60.000 @ 30%
Over 60.000 @ 35%
Cyprus Investment Program
Cyprus also offers a very attractive investment program for foreigners that want to obtain a Cypriot passport by investing in real estate, shares or other assets. By obtaining a Cypriot passport, Ukraine citizens and their families can work and live in Cyprus or in any other EU country.
