A busy year - a review on the recent developments in Cyprus
I n 2009, Cyprus has continued to fortify its reputation as an international business centre through the signing of a series of double tax treaty (DTT) protocols and worldwide recognition of its tax transparency practices by the Organisation for Economic Co-Operation and Development (OECD).
Since the beginning of the year, Cyprus has been classified by the OECD as a financial centre that has substantially implemented the internationally agreed tax standard and has managed to be removed from the Russian and Italian blacklists, as well as the US Coast Guard’s annual targeted flag list. It has also updated its redomiciliation regulations with regard to companies and trusts and has modernised its work permit, resident and citizenship requirements.
New protocol with Russia and removal from Russian ‘blacklist’
On 16 April 2009, Cyprus and Russia signed a Protocol in relation to the DTT between the two countries. The current DTT between Cyprus and Russia has been in effect since 1998. This new Protocol clearly identifies the changes to be made in a new DTT between the two countries.
The new DTT, expected to be effective as from 1 January 2010, shall retain most of the favourable provisions that currently exist and shall remain one of the best (if not the best) DTTs that Russia has with another country. Consequently, Cyprus shall continue to be the prime springboard for inward and outward investments in Russia.
As a result of this Protocol, Russia has agreed to remove Cyprus from the so-called Russian ‘blacklist’.
New protocol with Italy and removal from Italian ‘blacklist’
More recently, Cyprus and Italy signed an additional Protocol on the avoidance of double taxation, which will remove Cyprus from Italy’s so-called ‘blacklist’, thus solving pending tax issues of the past seven years between the two states.
The development paves the way for Italian investors who can now make their investments in the Russian, Eastern European and other markets through Cyprus.
Cyprus has been classified by the OECD as a financial centre that has substantially implemented the internationally agreed tax standard
The additional Protocol of the Convention on the Avoidance of Double Taxation between the two states provides for the exchange of bank and other information based on the Convention on the Avoidance of Double Taxation of the OECD.
Shipping white flag for Cyprus
Earlier in the year, the Cyprus flag was removed from the US Coast Guard’s annual targeted flag list.
The Cypriot flag has already been removed from both the Paris and Tokyo MOUs’ grey lists and upgraded to white. These Memoranda define the criteria on which ships can be detained by port state control and evaluated on whether they fulfill international maritime conventions.
The development was the result of many years of efforts by the Cyprus government to upgrade its shipping registry. The upgrade means that fewer ships flying the Cyprus flag will be inspected, and less frequently, saving their ship owners time and money.
As from 2003, gain from disposal of securities such as shares is exempt from tax.
The definition of securities for the purposes of this exemption has been limited in the relevant tax legislation to shares, bonds, debentures, founders’ securities, other securities of companies or other legal persons and rights thereon.
In a welcoming and long-awaited Circular issued in December 2008, the Commissioner of Income Tax has clarified and expanded the definition of securities and qualifying titles for the purposes of this exemption. Qualifying titles now also include, amongst others, all types of shares, participations in companies and units in open-end and closed-end collective investment schemes (e.g. Funds). Furthermore, to the extent that they relate to titles, it also includes Short positions, Futures, Forwards, Swaps, Index Participations as well as Depositary Receipts (e.g. GDRs and ADRs).
Redomiciliation of companies in and out of Cyprus
Under Cyprus Companies Act, Cap. 113, it is permissible to redomicile foreign companies into Cyprus and Cyprus companies out of Cyprus. Both private and public companies can redomicile into and out of Cyprus.
A foreign company must apply to the Registrar of Cyprus Companies to continue its existence under the jurisdiction of Cyprus, provided its Memorandum specifically provides for this. A Cyprus company must similarly obtain the consent of the Registrar of Cyprus Companies and then to apply to a foreign country to continue its existence under the jurisdiction of that country provided the laws of that country allow it.
Redomiciliation of trusts in and out of Cyprus
A trust with its situs outside of Cyprus may be redomiciled to Cyprus and become an International Cyprus Trust (CIT), provided the law of the country in which the trust is allows such a redomiciliation. A CIT may be used with expert tax advice in international tax planning structures.
Changes in Cyprus laws regulating work permit, resident and citizenship status of foreigners
Cyprus’ government, in an effort to attract cash in the economy, has adopted a new policy for granting naturalisation to foreign investors and businessmen. Applicants must have the following:
- A deposit at a local bank is required of EUR17 million (minimum) and without the right to withdraw for a period of five years.
- As an alternative to the above deposit, an applicant may undertake to set up a business in Cyprus, whose turnover should be in excess of EUR85 million p.a.
- Applicants must be at least 35 years of age and without a criminal record.
- Those who do not meet these requirements and provided they live as permanent residents in Cyprus for a period of at least seven years (continually) can apply for a Cyprus passport.
- A detailed check is carried out by the government and those who have business in the Turkish occupied areas are not accepted as such under the scheme.
Another new measure to boost the Cyprus economy is the recent decision of the Council of Ministers with regards to the favourable treatment of immigration permit applications to citizens of third countries who acquire a private home for their own residence in Cyprus.
This decision provides that to be eligible for this immigration permit, citizens of third world countries must have acquired by means of purchase, a private home for their own use in Cyprus, with a value not lower than EUR300,000 and to have at their disposal a guaranteed annual income of an appropriate sum, which is not derived from employment or self-employment in Cyprus, but comes from overseas.
Such an immigration permit is equivalent to a permanent residence permit in Cyprus.
What the future holds in real estate investment
It is expected that by 31 December 2009, all restrictions regarding acquisition of immovable property in Cyprus by third country nationals or by companies owned by third country nationals, will be abolished. Such individuals or companies will be able to transfer the ownership of a property on their names without the need to obtain any permits from the District Officers in Cyprus.
All of the above developments have instilled even more confidence into the minds of interested people, especially professionals, and are further strengthening the island’s already robust reputation of being an attractive international business centre.
The island has an important role to play in the EU. Being a stepping stone to three continents, it acts as a bridge between Europe, Africa and the Middle East. At the same time, its extensive network of double taxation treaties makes Cyprus an obvious link between Europe, the Balkans and Eastern European countries.
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