Cyprus is an independent sovereign republic in the Eastern Mediterranean, with a population of around 775,927 (June 2006), comprised of both Turkish and Greek Cypriots. As a result, English, Greek, (and Turkish in the northern section of the island) are widely spoken. It is the third largest island in the Mediterranean after Sicily and Sardinia, and has hot dry summers and mild winters. For more detailed information about the climate in Cyprus, please click here. The favourable climate means that a wealth of activities such as sailing (about which more later…), cycling, golf and skiing in the winter are popular with residents and expats alike.

There are some political tensions between the Greek and Turkish populations following what Greek Cypriots see as the Turkish 'invasion' of the northern third of the island, and UN troops have remained in the country since 1974 to uphold the truce between the two sides. Whilst moves are (slowly) afoot towards a political settlement, and restrictions on movement and trade over the demarcation line have recently been lifted following Cyprus' entry into the European Union, it is uncertain when the island will become fully integrated.

In the South, the currency is the Cyprus Pound (CY£), whereas in the self-styled 'Turkish Republic of Northern Cyprus' (recognized by very few of the international powers other than Turkey), the currency is the Turkish Lira. To convert currency into Cyprus Pounds or Turkish Lira, please click here.

The cost of living in Cyprus is reasonable, although there are quite large differences between the north and south due in part to the collapse of the Turkish Lira in early 2001. Compared to the cost of living in Western Europe Southern Cyprus is moderately inexpensive, whereas compared to the Middle East, it is reasonably pricey.

Although the compromise between the two sections of the island is somewhat uneasy, and the eventual goal of the internationally recognized Greek Cypriot government is to reunify Cyprus, there isn't really any cause for concern in terms of the stability of the island, as civil disorder is rare. Just bear in mind that the political situation in Cyprus might not be appropriate dinner party conversation!

In 1994, the European Union announced that Cyprus would be included in the next round of accessions to the Union, and the Greek government made it clear that were Cyprus to be excluded, Greece would veto the EU enlargement proposals, whether or not the Greek-Turkish disagreements had been resolved by then. As a result, and following the failure of UN-brokered attempts to reach a compromise during early 2003, Cyprus became part of the EU in May, 2004, with the northern part of the island temporarily excluded from the Union pending a settlement.

Cyprus As A Location For Your Assets

So is Cyprus an appropriate location for your assets? If you are a globetrotting career expat or have a substantial liquid net worth which you would like to protect from harm, the answer may well be yes. Cyprus is well known for its financial sector, and the particular expertise on the island is in the formation and management of offshore holding, investment, and trading companies, both for expats and corporations. There are a number of reasons why the country is especially suitable for the groups previously mentioned, and here we take a look at just a few of them:

• Favourable Location. Cyprus is often referred to as a 'European country in the Middle East', and many people are under the illusion that the island is actually European. In fact it is located in the north-eastern corner of the Mediterranean, and is effectively at the crossroads of Europe, Africa and Asia. This strategic position has played a large part in its development into a base for expatriates, retirees, and also international business.

• Double Tax Treaties. Unusually for an offshore jurisdiction, Cyprus has a great many double tax treaties, which can make life a great deal easier for both resident and non-resident expats with financial concerns and responsibilities outside the country. There are more than 40 treaties in all in place, with several more in the pipeline. Most follow the OECD model, although the US-Cyprus treaty follows the most recent US agreements. Cyprus has double taxation agreements in place with countries including (deep breath…):
  
  (* Indicates that the treaty is awaiting ratification) Armenia (*), Austria, Belgium (*), Bulgaria, Canada, China, CIS (Former USSR), Czech Republic, Denmark, Egypt, Germany, Finland (*), France, Greece, Hungary, India, Ireland, Italy, Japan (*), Kuwait, Malta, Norway, Poland, Romania, Russia, Singapore (*), Slovakia, South Africa (*), Sweden, Syria, Thailand (*), Ukraine (*), United Kingdom, United States, Former Yugoslavia (Serbia and Montenegro).

• Tax Sparing Provisions. In addition to the vast (by offshore jurisdiction standards, anyway) network of double tax treaties, Cyprus also has a number of tax sparing provisions in place, whereby if the tax is spared in Cyprus, it can still be credited against the expat's tax liability in his home country. These additional arrangements are in place between Cyprus and (not quite such a deep breath…):
  
  Canada, Czech Republic, Denmark, Germany, Greece, India, Ireland, Italy, Malta, Romania, Slovakia, Sweden, Syria, United Kingdom, Former Yugoslavia.

• Efficient Regulation. The financial sector is regulated by the Central Bank, and neither individuals nor approved offshore entities are subject to exchange controls.

• Good Infrastructure. Cyprus has a good, European standard infrastructure, and in the business world, English is widely spoken. However, a word of warning - for offshore jurisdictions, Cyprus is a relatively, although not prohibitively expensive location, and some documents need to be filed in Greek.

• Developed E-Commerce System. The Cypriot government says that the island is the communications hub for the Middle Eastern region (although don't they all?). However, the e-commerce situation in Cyprus can certainly stand up against that of most other offshore jurisdictions, and the Cyprus Telecommunications Authority boasts a virtually all-digital network. Should you decide to locate your assets in Cyprus, you should experience no problems in communicating with your bank or asset manager electronically.

• Established Stock Exchange. The Cyprus Stock Exchange (CSE) began operations in 1996, and is governed by the Stock Exchange Council. The market has had a few problems in the past, but things seem to be on the up now. The market rose strongly in 1999 and early 2000, but fell sharply after that. In order to try and address the problems of the CSE, the Finance Ministry commissioned a report by the stock market expert Demetris Tsimbanoulis. Some of the recommendations made in the report have already been incorporated in new legislation. The Cyprus Stock Exchange launched a fully automated online settlement and clearing system in 2002.

• Types Of Asset Protection Vehicles Available. As previously mentioned, Cyprus is famed for its expertise in the formation of companies for holding, investment and trading purposes. As a result, there are a great many variations on the theme. However, probably the most suitable vehicles for a non-resident expatriate would be the International Business Company and the International Trust:
  
  Cyprus International Business Company: In order to form an IBC (for the purposes of property investment, asset protection, or estate planning), you will need a bank reference (from an entity which is recognized by the Central Bank), and a notarised copy of your passport. Fees and costs vary from provider to provider.
  
  All offshore companies (and an IBC is simply a duly authorised offshore Limited Liability Company) were taxed at 4.25% of profits until 2002, but as from 2003 all companies, offshore or not, are taxed at 10% of profits.
  
  However, in order to avoid inclusion on the OECD blacklist in 2001, Cyprus was forced to make certain changes to its regulatory regime, and the government made a pledge that by 2005, fiscal regulations governing local companies would also apply to foreign owned companies. Cyprus pledged at the time to maintain its trust and company management regime, although from December 2003, the identity of the beneficiaries or recipients of any assets from the trust or company have to be disclosed to the tax authorities.
  
  Cyprus International Trust: Trust law in Cyprus is based on English common law, and the international trust is the most common and advantageous model for the foreign settlor, as broadly speaking the assets and income of International Trusts are not taxable in Cyprus (although they may well be in your home country or country of residence, so seek professional advice before establishing this type of vehicle for tax minimization purposes).In order to establish an international trust in Cyprus, the settlor and beneficiaries must be non-resident, and one of the trustees must be a Cypriot individual or entity. Client confidentiality is recognized and protected in the laws of Cyprus, and unless there is concrete evidence of criminal activity, foreign judgements are not usually recognized. As well as the costs of setting up and managing a trust structure (which, as with company formation and management vary considerably), you should also expect to pay a stamp duty fee. International trust assets may not, however, contain immovable property in Cyprus.

For more detailed information about the types of asset protection and business vehicles available in Cyprus, please visit the Lowtax Jurisdictions Guide.

Cyprus As A Location For Career Expats And Retirees

Cyprus is a perennially popular location for international consultants, and independent contractors, and its burgeoning offshore sector accounts for the greatest percentage of expatriate workers, for reasons which we will examine later. However, it is also a popular destination for active retirees, (who are attracted not just by the lifestyle on offer, but by the fact that the large number of double taxation treaties in place mean that retirement income from abroad will not usually be subject to withholding tax at source) and both of these groups are positively encouraged by the Cypriot government. In this section of the focus on Cyprus, we will be looking at the requirements for entry and residence, working, living, and buying property on the island, and the taxation liabilities for both resident and non-resident expatriates. So without further ado…

Obtaining Permission To Live And Work In Cyprus

The Temporary Residence Employment (TRE) Permit acts as permission to live and work in Cyprus, and these are usually classified as 'Executive' (usually directors or general managers), and 'Non-Executive'. Applicants for an Executive TRE should apply through the Central Bank of Cyprus, and must be over 24 years of age, earning a designated amount, and be registered as a director with the Registrar of Companies. Non-Executive TREs are harder to obtain, as it must be proven that there is no suitably qualified Cypriot that could fill the position, and must be applied for through the Ministry of Labour. Non-executive applicants are advised not to commit themselves to a position in Cyprus before consulting the Ministry of Labour.

However, temporary residence and employment permits are issued fairly freely to employees of, or consultants, to offshore operations, and also to foreign nationals wishing to retire to the island, hence their preponderance there. The first TRE permit is granted by the Migration Department of the Ministry of the Interior, and is usually valid for a two-year period, renewable every three years after that. However permits issued to intending retirees are only valid for a one-year period, and are renewable annually thereafter, subject to a demonstration of adequate financial resources.

Cyprus has recently introduced legislation to make the jurisdiction more 'family friendly' for working expatriates in certain sectors. Before November 2000, an expatriate had to have obtained a (rare) five-year permit, or to have been resident in the country for five years, before they were permitted to bring their spouse and/or children to live with them. However, new legislation introduced at the end of 2001 has meant that for workers in the education, foreign media, offshore, and accounting sectors, and for those that have invested more than CY£100,000 in local enterprise, this rule has been significantly relaxed.

Property Taxation In Cyprus

Whether you are intending spend long periods of your retirement in Cyprus, or just use it as a stop off point as you jet round the world, you may want to purchase property there. In order for a non-resident expatriate to do this, permission must be obtained from the Council of Ministers, although this is usually easily granted provided that the property or land is not intended for commercial development.

If you decide to rent out your Cyprus property when you are not staying in it, be prepared to pay tax on the income of between 20-25% if you purchased it through some form of company, or between 20-45% as an individual. Individual non-resident homeowners cannot claim all of the deductions that are available to companies, but can deduct a notional 20% on the rental income independent of whether any expenses are incurred in deriving the rental income.

Other duties pursuant to the purchase and ownership of Cyprus property for non-resident expats include:

• Capital Gains Tax A gain on the disposal of property held by a non-resident (and acquired with the importation of foreign currency between August 1980-July 1990) is not subject to CGT. In the majority of other cases, CGT at a rate of 20% applies. There are certain lifetime allowances which apply to gains on the sale of Cyprus property, and in any combination, they may not exceed CY£50,000.
• Immovable Property Tax Immovable property tax is calculated on the market value of the house as of January 1980, and is levied at various rates.
• Transfer Fees The purchaser of a property is liable to pay these, at varying rates depending on the market value of the property.
• Stamp Duty and Mortgage Fees The purchaser is also liable to pay the stamp duty arising from the sale of the house.

Shipping Registration In Cyprus

This may seem like an unlikely topic to include in a jurisdictional focus, but sailing is fast becoming a very popular pastime with active expatriate retirees and HNWI, and if this pastime interests you, then Cyprus is the place to be. Of recent years, Cyprus has developed a maritime policy which is highly favourable for ship owners (in Cyprus there is no distinction made between ships and pleasure craft such as yachts, other than the fact that the procedures for the registration of the latter are more simple and straightforward), and there is a fast efficient infrastructure in place to deal with the burgeoning demand. A number of tax incentives combine with this to make Cyprus one of the most attractive locations for ship registration.

The first step for a non-Cypriot ship owner wanting to register a vehicle under the Cyprus flag is to form a shipping company which will acquire the vessel in its name. Broadly speaking there are two different types of ship-owning company, but of these, only the first will probably be of interest to nautically minded expatriates, as the second restrict themselves to activities such as ship management, broking, average adjusting and marine insurance (stop yawning-we're getting to the good bit!), and are subject to income tax.

The most suitable models for expatriates restrict their activities to the ownership, bareboat (self-sail) chartering and operation of ships in international waters, and are totally exempt from income tax, capital gains tax, and stamp duty on documents or mortgage deeds.

Residence And Taxation

Although residence for the purposes of taxation in Cyprus is defined as presence in the country for more than 183 days (which seems simple enough, doesn't it?), calculation of liabilities is complex, because in effect, the country has several different levels of taxation for the various categories of citizens living there. For tax purposes, those living in Cyprus are divided into: Cypriot residents, foreign residents working for Cypriot companies, foreign residents working for foreign companies, foreign residents working for offshore entities, non-working foreign residents, Cypriot non-residents, and foreign non-residents. Luckily the concept of domicile is not one which enters in to the Cypriot legal framework, otherwise it might have got really complicated!

However, as a basic guide, with the exception of foreign nationals working for offshore entities (for whom the rate of income tax is reduced by half), all of the groups mentioned above are liable to pay the following taxes on income arising in Cyprus; Income tax (at a progressive rate of up to 30%), capital gains tax (at a rate of 20%), estate duty (at between 20-45%), and real estate taxes (at the rates detailed previously).

For more detailed information on taxation liability in Cyprus, please visit the Lowtax Jurisdictions Guide.

Conclusion

So in the final analysis, is Cyprus a good location for your assets, yourself, your family, your boat, or (e) all of the above? Depends what you are looking for. Cyprus is not one of the cheapest offshore jurisdictions available, but nor is it one of the most expensive in which to locate an offshore structure, or spend your retirement. There is an efficient and well-maintained infrastructure in place, and the standard of living is high for the most part.

The government usually encourages independent contractors, offshore employees, and those who wish to retire to Cyprus, and although residents are subject to income tax, for the most part this is only levied on income deemed to have arisen in Cyprus. Although it has shied away slightly from the 'offshore' image it once had, and has been forced to implement some changes to its legislation in order to satisfy the OECD, it is still generally regarded as a safe and secure location in which to do business or reside, and as a shipping registration location, it is widely considered to be unparalleled.

For up-to-date news about the offshore and taxation regime, visit the Cyprus section of Tax-news.com

For general Information on Cyprus, visit WindowOnCyprus.com

Other Useful Links

Cyprus Yellow Pages
Lonely Planet- Destination Cyprus