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Legal Aspects – CYPRUS

- Legal Aspects of Cross-Border Activities -

Section a: Setting up a business in Cyprus


Cyprus has double-tax treaties with 27 other countries, including most major Western 'high-tax'
countries, and most Central and Eastern European states. This is unusual for an international offshore
financial centre and the effect is that Cyprus is a very effective location for holding and investment
companies aimed at emerging markets. Cyprus has a good, European-standard business
infrastructure, and English is widely spoken. However, it is a relatively expensive jurisdiction for
offshore operations, and many documents need to be filed in Greek. The legal system is
predominantly based on English law, and provides for various types of trust. The Central Bank of
Cyprus, within the policy for harmonization with the European Union (EU) acquits communitarian,
announces the introduction of additional liberalization measures with respect to investments by non-
residents in Cyprus and by Cypriots abroad. Specifically the following measures have come into effect
since 7 January 2000:

Investments in Cyprus by citizens (physical or legal persons) of EU member states:

Direct investment. All restrictions concerning the maximum allowable percentage of foreign
participation as well as the minimum level of foreign investment in any enterprise in Cyprus are
abolished, provided the foreign investors are citizens of EU member states. The new Central Bank
policy does not touch upon limitations applicable under other laws or regulations. Such limitations, for
example, apply to the acquisition of immovable property.

Portfolio investment. Henceforth, investors who are citizens of EU member states may acquire up to
100% of the share capital of Cypriot companies listed on the Cyprus Stock Exchange. In the banking
sector, the maximum foreign equity participation remains 50%, in accordance with the policy
announced in July 1999. In case of liquidation of sizable portfolio investments undertaken after the
issue of this announcement, the Central Bank reserves the right to demand the gradual transfer
abroad of the capital gain, in order to mitigate possible negative effects on the balance of payments
and foreign exchange reserves.

Non-residents wishing to acquire any share or participation in Cypriot legal entity should apply through
a lawyer or accountant practising in Cyprus. The professional will submit to the Central Bank an
application containing the requisite information, i.e. share capital, economic activities, etc. Upon
receipt of the necessary permit, the non-residents' shares or participation must be registered in their
names, or in the names of their nominees, at the Department of the Registrar of Companies under
Companies or Partnerships Laws, as the case may be. Legal procedures pertaining to the registration,
re-organisation and liquidation of business entities must be completed through advocates practising
on the island. Business entities with non-resident participation are required to prepare and submit to
the Central Bank and the Department of Inland Revenue annual Financial Statement audited by local
practising accountants.

Cyprus offers the possibility of registering such an offshore entity. The Cyprus government, in order to
attract foreign participation in establishing such companies, offers several incentives and has adopted
a particularly easy procedure of registration. There are, however, many possible benefits for
international businesses in Cyprus. Full compliance with EU law, OECD and FATF requirements, has
enhanced Cyprus' status as a respectable centre for international business and ensured its elimination
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from "black lists". Further, businesses can utilise the wide network of Treaties for the Avoidance of
Double Taxation entered into by Cyprus, for advantageous international taxation planning, without
restrictions on die benefits provided by the Treaties.

Using a Cyprus company as a holding company has extremely significant benefits. Income from
dividends is tax-free; gains on stile of shares of subsidiaries (or any companies) are tax-free and there
are no withholding taxes on payments of dividends or interest from Cyprus. Holding companies in
Cyprus, whose shares are owned by non-Cyprus residents and which receive dividend income from
anywhere in the world, are not subject to any income tax in Cyprus on their dividend income or on their
dividend distributions. Furthermore, a Cyprus holding company can benefit from the many double tax
treaties entered into by Cyprus (especially in die form of zero/reduced withholding taxes on payments
of dividends by subsidiaries). They are subject to the same taxation rules as all Cyprus companies and
there is no "ring fencing". Also there is no legal definition of a holding company and therefore there are
no restrictions as to its activities. If such a company mixes trading with investment income, its trading
income will be taxed at 10% whilst its investment income will be tax-free.

Any income or profits from the sale of securities (shares, bonds, debentures, etc) are not subject to
Cyprus taxation. Profits earned from a permanent establishment abroad are fully exempt from Cypriot
tax. There is no capital gains taxes (except only on immovable property in Cyprus) and payments from
Cyprus to any country in the world, of dividend, royalties or interest are without any Cyprus withholding
taxes, irrespective of any Treaty for Avoidance of Double Taxation. Interest earned from bank deposits
held by non-residents in Cyprus is completely tax-free. Cyprus incorporated companies, which have
their residence (i.e., their place of management and control) outside Cyprus are not subject to Cyprus
income tax.

EU citizens or companies incorporated in the 25 EU countries do not require any government permit in
order to own shares in a Cyprus company and there is a complete absence of exchange controls. The
new VAT law in Cyprus, gives new opportunities to international business companies to re-claim their
VAT expenses in Cyprus whilst in most cases not leading to die requirement to impose VAT on sales
(goods outside Cyprus are outside die scope of Cyprus VAT, but provision or receipt of services
should be looked at more carefully and requires professional advice). It is, therefore, evident that die
introduction of the new rules has actually greatly enhanced the potential of beneficially utilizing Cyprus
in international tax planning.


Private Company Limited by Shares. The relevant legislation is Cyprus Companies Law, Cap. 113,
which is virtually a copy of the English 1948 Companies Act. A private company is one which by its
articles: restricts the right to transfer its shares. Limits the number of its members to 50. Prohibits any
public subscription to shares or debentures. The Companies (Amendment) Law of 2000 (Law
2(I)/2000) introduced single-member companies. The Companies (Amendment) (No. 3) Law of 2000
(151(I)/2000) introduced new provisions as to the validity of transactions of companies and as to the
information which must be included in the official documents of companies. The Companies
(Amendment) Law of 2001, Law 76(I) of 2001 provided for a new system for the certification of
companies’ auditors and for the recognition of Bodies of Auditors and the grant of approval to auditors
with foreign qualifications and also the recognition of accountants' companies by the Council of

When 100% foreign-owned, a private company is referred to as an 'offshore company', although
recently the expression International Business Company has come into favour. However, as from 1st
January 2003, an offshore company (IBC) no longer has a separate taxation status, and is taxed
according to the same principles as a regular company. IBCs are now allowed to trade inside Cyprus.
However, a pre-existing IBC which makes an irrevocable commitment not to trade inside Cyprus until
2006 is able to claim the existing low tax rate for the three years 2003, 2004 and 2005.

In order to form a foreign-owned company, a bank reference and copy of the owner's passport is
required for the registration. The bank reference must be issued by a bank included on the Central
Bank of Cyprus's list of qualifying banks.
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Cyprus Exempt Private Company. A private company limited by shares is exempt if: no body corporate
other than another exempt company holds any of its shares or debentures. The number of debenture
holders is not more than 50. No body corporate is a director of the company. The main advantages of
an exempt private company are: it need not file accounts with its Annual Return. It is not subject to the
statutory restrictions on loans to directors.

Cyprus Public Company Limited by Shares. Any company registered under the Act whose Articles do
not contain the restrictions applicable to private companies is a public company. A public company
may obtain a listing on the Cyprus Stock Exchange.

Cyprus Company Limited by Guarantee As in England, companies limited by guarantee are
normally used only for charitable or non-profit-making purposes. Apart from their share structure, they
are similar to other types of private company and also fall under the Cyprus Companies Law.

Cyprus Branch of Overseas Company Any overseas company may operate in Cyprus as a branch.
Within one month of establishment of such a branch, the following documents must be filed (in Greek)
with the Registrar: a certified copy of the Memorandum and Articles of Association, a list of the
directors and secretary, rhe names and addresses of persons residing in Cyprus authorized to accept
all notices on behalf of the Company. Companies with branches in Cyprus must also file their accounts
annually, together with certified Greek translations. Documents requirements:

Certified copy of the Certificate of Incorporation, a certified copy of the charter, memorandum and
articles of association or any other document confirming the constitution of the company, certificate of
directors and secretary of the company, resolution of open branch office in Cyprus, articles of the
branch Office. The name and address of at least one person resident in the Republic of Cyprus
authorized to accept on behalf of the company any notices required to be served on the company.
General Power of Attorney to the official representative resident in the Republic of Cyprus authorized
to accept on behalf of the company any notices required to be served on the company. All these
documents could be apostilled separately or as one set. The Central Bank of Cyprus requires bank
references for foreign company for the establishment of the branch in Cyprus (these references are
similar to those for the establishment of an International Business Company).

General Partnership. Partnerships fall under the Partnerships and Business Names Law Cap 116,
basically similar to the equivalent English legislation. They must be registered with the Registrar of
Partnerships within one month of formation, giving name, purposes, place of business, full particulars
of the partners etc. Foreigners may belong, but need exchange control consent. A general partnership
may have between 2 and 20 individual members (up to 10 only, if it intends to conduct banking
business). Partnerships do not need to file accounts or to be audited.

Cyprus Limited Partnership These are similar to general partnerships except that they have one or
more general partners with unlimited liability and one or more limited partners (whose liability is limited
to the amount declared in the partnership return filed with the Registrar). Limited partnerships, used in
conjunction with offshore companies offer good tax planning possibilities.

Local Trusts. A 'local trust' is governed by the Cyprus Trustees Law Cap 193, which closely follows the
English Trustee Act 1925. The settlor and beneficiaries are normally residents of Cyprus, and the trust
and its property are subject to exchange controls, although these are vestigial since Cyprus joined the

Offshore Trusts. Offshore Trusts are the same as local trusts, but their beneficiaries must be non-
resident, and all the trust's activities must be outside Cyprus. As with 'offshore' companies, the special
tax status of offshore companies has ceased with Cyprus's accession to the EU.

International Trusts. The International Trusts Law of 1992 brought Cyprus trust law into line with that of
other major international trust jurisdictions. Both settlor and beneficiaries must be non-resident,
although one Trustee must be Cypriot. International trusts may have many tax and legal advantages.
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Cyprus is now developed as an international business centre. Since 1975 non-residents have
established more than 1000 companies for the investment of capital locally, over 28.000 offshore
companies for the management of their overseas affairs and more than 10.000 shipping companies for
the registration of ships under the Cyprus flag. The registration of such companies it is to be noted that
Cyprus Companies Law Chapter 113 is similar to the 1948 British Act.

Requirements for setting up a limited company

Firstly, under the Exchange Control Law, the Central Bank of Cyprus is the competent authority for the
issue of the permission for the establishment of an offshore company in Cyprus. The Central Bank
before granting its permission to set up an offshore company will ensure that desirable and reputable
persons or concerns will be the shareholders of such company. For that purpose, the Central Bank
requires bank or other references as to the trustworthiness of the proposed shareholders. Secondly,
upon obtaining the permission of the Central Bank a company must be registered with the Registrar of
Companies. The procedure is the following:

Name of the Company. The name of the company has to be approved by the Registrar of Companies.
This procedure usually takes 2-4 days. It is advisable to give a choice of three names in order of
preference as each application has to be carefully checked against previously registered names
before approval is granted. Suffixes to Denote Limited Liability: Limited or Ltd. The following are
considered by the Registrar of Companies: Name Restrictions. A name that is similar to or identical to
an existing company. A name that is known to exist elsewhere. A name that implies illegal activities. A
name that implies Royal or Government Patronage. Generally, any word that the Registrar considers
undesirable. Language of Name. Names may be expressed in any language using the Latin alphabet
provided that the Registrar is provided with a Greek or English translation and the name is not
considered undesirable. Names Requiring Consent or a Licence. "Bank", "Trust", "Building Society",
"Insurance", "Assurance", "Re-Insurance", their foreign language equivalents or any name that the
Registrar considers it may be related to the aforementioned.

Memorandum and Articles of Association. All Cyprus Limited Liability Companies must prepare a
Memorandum and Articles of Association. The Memorandum specifies the activities in which the
Company may engage. More specifically, the first three main object clauses must include the main
proposed activities of the Company. The Articles of Association specifies the rules governing the
internal management of the Company. The Memorandum and Articles of Association of the company
must be submitted for filing with the Registrar of Companies, in Greek. If it is desirable, this may be
translated into English.

Authorised and Issued Share Capital. Pursuant to Cyprus Company Law there is no restriction to the
minimum or maximum authorised share capital. However, it is recommended that the company should
have an authorised share capital of at least CYP 5,000 if it wouldn't open offices in Cyprus. If there is a
possibility that the company will open offices in Cyprus then the nominal and paid up capital should be
CYP 10.000. Cyprus Law requires at least two shareholders and at least two shares of CYP 1.00 each
must be issued and paid up. However, for reasons of respectability it is recommended a paid up
capital of at least CYP 1,000.

Shareholders of the Company. In cases where the company belongs really to one shareholder who is
either a parent company or a private individual, then what is recommended to do is to give all but one
share to the main shareholder and the remaining one to a resident or non-resident who will hold it in
trust for the main shareholder. Foreigners who do not wish to appear as registered shareholders may
appoint nominees (we may provide Cyprus nominee shareholders services upon request) to act for
them as registered shareholders, whilst the actual ownership shall always rest with the non-resident
beneficial owners of the shares. It is the practice to appoint the firm which undertakes the formation of
the Company to settle the nominee shareholding through its members or through companies fully
controlled by it.

Specifically, the following information is needed for each shareholder: full name. Residential address,
telephone and facsimile numbers. Nationality. Occupation. Number of shares to be held. Copies of
passport or identity card.
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Directors of the Company. Local management and control of the company is very important. Therefore
it is advisable that at least two local directors are appointed. There is no limit as to the maximum
number of directors unless there is a restriction in the articles. Local directors usually are provided by
the law firm establishing the company, who are acting upon the written instructions of the beneficial
shareholders. It is advisable not to appoint more than one director resident in a particular country. This
is of importance in order to preclude the possibility of the management and control of the company
being deemed to be in a place outside Cyprus. The information required for each director is: full name.
Residential address, telephone and facsimile numbers. Nationality. Occupation. Number of shares to
be held. Copies of passport or identity card.

Appointment and Removal of Directors. Appointment of Directors is determined by the Company's
Articles of Association and is a power usually vested in the general meeting or, in some cases, in
certain classes of shares. Directors may be dismissed by ordinary resolution of the shareholders. The
Articles may also provide for dismissal in certain circumstances and determine the procedure for

Meetings of the Directors. There are no mandatory rules as to the location or frequency of such
meetings. Board meetings can be held at such places and at such times as the Board may determine.
Information published relating to Directors. The information relating to directors disclosed to the
Registrar of Companies is comprises the name, address, nationality and occupation.

Company Secretary. Under the Companies Law, Cap.113, a Company Secretary is required who must
be a natural person, but need not be resident in Cyprus. In this respect, a company secretary from
Coddan can be provided.

Registered Office. All Companies must maintain a registered office in Cyprus. Companies are
welcome to use our address as their registered office.

Limited Partnership

Limited Partnership. These are similar to general partnerships except that they have one or more
general partners with unlimited liability and one or more limited partners (whose liability is limited to the
amount declared in the partnership return filed with the Registrar). Limited partnerships, used in
conjunction with offshore companies offer good tax planning possibilities. The limited partnership is a
Partnership in which at least one of the partners must have unlimited liability for the debts and
obligations of the partnership, whereas the remaining partners may have limited liability. Limited
liability companies may also be partner in a limited partnership, as the partner with unlimited liability.
The minimum number of partners required for partnerships (whether general or limited) is two and the
maximum is twenty.

Limited partnership registration. The procedure for registration of a partnership is as follows: securing
the partnership's name. Preparing the partnership contract. Filing with the Registrar of Companies a
special form in which certain information is given as to the names, addresses, description of the
partners, the unlimited or limited liability of each partners, the duration of the partnership, the person
authorised to sign and bind the company etc. Filing a copy of the exchange control approval for the
non-resident partners. Payment of the registration fees.

Company limited by guarantee

As in England, companies limited by guarantee are normally used only for charitable or non-profit-
making purposes. Apart from their share structure, they are similar to other types of private company
and also fall under the Cyprus Companies Law.

Relevant issues for Manufacture of Food and Beverages.

The objective of the scheme is to assist and motivate companies of the food and beverage industry to
implement the HACCP system. The implementation of the system is mandatory by the Cyprus
legislation, in accordance with the relevant directives of the European Union. It is a systematic
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approach for the risk assessment, as well as the control of microbiological, chemical, and physical
hazards related to any food production procedure.

– Registered with the Medical and Public Health
Services of the Ministry of Health and the Veterinary Services of the Ministry of Agriculture,

Natural Resources and Environment.
– Investing in new equipment required by the implementation of the HACCP system. The scheme is
offered under the rule of “De Minimis” (Appendix 6), and covers up to 30% of the expenditure for
equipment with a maximum subsidy of CY£50.000. The grant covers only investment costs incurred
subsequent to the application’s submission. The scheme operates under the supervision of the
Ministry of Commerce, Industry and Tourism.

Section b: Export of Goods to Cyprus

Since its accession to the European Union on May, 1st of 2004, Cyprus has adopted the EU Common
External Tariff. Consequently, trade with Cyprus is totally free from customs duties, provided that the
country of origin of the goods is one of the other 24 EU Member States. Nevertheless, when
introducing goods into Cyprus, exporters shall fill in an intrastat declaration.
When the country of origin of the goods exported to Cyprus is not part of the European Union,
customs duties are calculated Ad valorem on the CIF value of the goods, in accordance with the
Common Customs Tariff (CCT).

The duties for non-European countries are relatively low, especially for manufactured goods (4.2% on
average for the general rate), however textile, clothing items (high duties and quota system) and food-
processing industry sectors (average duties of a 17.3% and numerous tariff quotas, PAC) still know
protective measures.

In order to get exhaustive regulations and customs tariffs regarding their products, exporters shall refer
to the TARIC code and its database, which includes all applicable customs duties and all customs
trade policy measures for all the goods.

For further information, please consult the information document published by the European
Commission about the impact of EU enlargement on customs policy.

There are some restrictions to export NACE 15 products.

Source: Federation of International Trade Association

Section c: Provision of Cross-Border Services

n general terms, the provision of cross-border services has to take into consideration the following
aspects: 1) the provision of services in a regulated profession on permanent basis 2) the provision of
service in non-regulated profession; 3) provision of services on temporary basis in a regulated
The matter is regulated by the European directive 99/42, which will be in force till the 20 October
2007, when will be replaced by the European directive 2005/36/CE. 1

 Directive 2005/36/EC of the European Parliament and of the Council of 7 September 2005 on the recognition of professional
qualifications (Text with EEA relevance) Official Journal L 255 , 30/09/2005 P. 0022 - 0142
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The provision of services in a regulated profession on permanent basis

Member State allows access to the profession in question and pursuit thereof under the same
conditions as for nationals, provided that the applicant holds a training qualification obtained in another
Member State which attests to a level of training at least equivalent to the level immediately below that
required in the host Member State.

In case these conditions are not meet, the host Member State can make recognition of qualifications
subject to the applicant's completing a compensation measure (aptitude test or adaptation period of a
maximum of three years) and must, in principle, offer the applicant the choice between an adaptation
period and an aptitude test.

The directive has defined a System of automatic recognition of qualifications attested by professional
experience in certain industrial, craft and commercial activities (Chapter II of the Directive)

The elements taken into consideration for the recognition of professional experience are the duration
and form of professional experience (in a self-employed or employed capacity) in the reference sector.
Previous training proved by a certificate recognised by the Member State or by a competent
professional body reduces the amount of professional experience required.

The provision of service in non regulated profession

When, in the Member State of the applicant, access to a profession is not subject to possession of
specific professional qualifications, the applicant should, in order to be able to gain access to the
profession in a host Member State which does regulate that profession, provide proof of two years of
full-time professional experience over the preceding ten years on top of the qualification.

Provision of services on temporary basis in a regulated profession;

Regarding the provision of cross border services on temporary basis in a regulated profession the
Directive states that any provider of services of a Community Member State legally established in a
given Member State may provide services on a temporary and occasional basis in another Member
State under their original professional title without having to apply for recognition of their qualifications.

However, if service providers relocate outside of their Member State of establishment in order to
provide services, they must also provide evidence of two years' professional experience if the
profession in question is not regulated in that Member State.
The host Member State may require the service provider, prior to providing any services on its territory
the following documents as proof of proficiency:

       1) a declaration including the details of any insurance cover or other means of personal or
          collective protection with regard to professional liability

       2) certain documents listed in the Directive, such as proof of the nationality of the service
          provider, of their legal establishment, and of their professional qualifications.

       3)     pro forma registration with the competent professional association. In this case this must
             occur automatically upon the competent authority which received the prior declaration
             forwarding the applicant's file to the professional organisation or body.

For professions which have public health or safety implications and do not benefit from automatic
recognition, the host Member State may carry out a prior check of the service provider's professional
qualifications within the limits of the principle of proportionality.

    Subject to possession of specific professional qualifications,
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For more information regarding the conditions of provision of cross border service in the profession of
Constructions, NACE Food and Wood we provide the web site where are listed the regulated
profession                in             the             EU              member                 States
<> and the addresses of the
competent authority which are responsible to receive the application for the recognition of the
professional qualifications under the Directive 2005/36/EC.

For more information please contact the National Contact Point:

George Siekkeris
Senior Human Resource Officer
Human Resource Development Authority of Cyprus National Coordinator
2 Anavissou Str. Strovolos,
P.O.Box 25431,
Tel.: +357 22 390363, 22 515000
Fax.: +357 22 428522

- Taxation -
The main objectives of the tax reform, applicable as from 1st January 2003, were to conform to the
European Union and OECD requirements, and at the same time to maintain the competitiveness of
Cyprus as an international business centre and enhance its attractiveness as a suitable jurisdiction for
holding companies.

Corporate Tax
A company is tax resident in Cyprus when its management and control is exercised in the Republic.
Their taxable income includes both income earned in Cyprus and abroad. A non-Cyprus tax resident is
taxed only on income earned in Cyprus.

Low corporation tax
All companies are subject to a uniform tax rate of 10% except for semi-government organisations,
which are taxed at 25%. A windfall tax of 5% is introduced for chargeable income in excess of CY£1
million for the year of assessment of 2004. The 10% tax is the lowest corporate tax rate in the
European Union.

Tax on dividends
Cyprus tax-resident companies are exempt in respect of dividends received from other Cyprus
resident companies. The exemption is extended, subject to conditions to dividends from non-resident
companies. Resident companies are obligated to have distributed 70% of their after-tax profits in the
form of dividends at the end of the two-year period since the end of the respective tax year. Thereon,
the dividends account for defence contribution in the case that less than 70% has been distributed. In
this way, tax avoidance, through the accumulation of profits and the creation of companies by
individuals as a means of lowering their tax burden, is prevented. These mandatory distribution
provisions do not apply to profits accruing to non-resident shareholders.

Tax on interest
Interest income is taxed at the corporate tax rate of 10% arising from, or closely connected to, the
ordinary activities of the company. Moreover, 50% of all other interest income is exempt from income
tax and is subject to special defence contribution at 10%.

Tax treatment of losses
Subject to certain conditions, tax losses can be carried forward and set off against future profits
indefinitely; applicable for losses incurred in 1997 and thereafter. In addition, the loss of a Cyprus tax
resident company can be set off against the profit of another Cyprus tax resident company in case
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they belong to the same group of companies. Subject to certain conditions, companies belong to a
group when one company holds at least 75% of the ordinary share capital and the voting rights of
another company. Losses from a permanent establishment abroad can be set off against profits
earned by a company in Cyprus.

Profits of permanent establishments abroad
The profits of permanent establishments abroad are not subject to income tax in Cyprus, given that
less than 50% of their activities result in investment income, and that the foreign tax suffered is not
significantly lower than the tax payable in Cyprus.

Double tax treaties
Cyprus has over 32 double tax treaties, covering 40 countries.

Disposal of securities
Profits gained from the sale of securities are exempt from tax for all companies.

Transitional period rule
The existing international business entities can exercise the option to continue to be taxed at the rate
of 4,25% until the end of the year of assessment 2005; provided that the income, during the tax year
2001, was derived from outside Cyprus-sources. The following tax reform provisions do not apply to
companies electing to be taxed under the transitional period rules:
– Exemption from tax on profit from disposal of securities
– Exemption from tax of dividend income from abroad
– Exemption from tax of profits from permanent establishment abroad
– Group relief of losses
– Exemption from tax on transfers of assets and liabilities in the case of mergers, demergers, transfer
  of activities, exchange of shares
– Tax credit of foreign taxes unless covered by a tax treaty
– 50% exemption from corporation tax of interest income

Foreign tax credit
Tax relief of foreign tax paid is granted in Cyprus even in the absence of a double-taxation treaty,
provided sufficient evidence is submitted that foreign tax was indeed paid. Hence, Cyprus turns into a
lucrative hub for establishing holding companies.

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