Cyprus: Executive Summary

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- Cyprus Executive Summary

Cyprus Executive Summary

Cyprus is an independent democratic republic, and a member of the Commonwealth. It is prosperous: GDP US$21,00 (2010) per head. The economy is dominated by services, with tourism particularly important. Unemployment is low.

The Cyprus Government worked hard to create a favourable offshore tax regime while at the same time maintaining a normal-looking domestic economy, albeit with rates of taxation that are low by international standards. The success of this programme is attested by the tens of thousands of offshore companies registered in Cyprus since 1975. However, the island's entry to the EU in 2004 meant a restructuring of the tax regime, which took place on 1st January 2003. Domestic and offshore companies alike now pay 10% tax.

Cyprus has double-tax treaties with more than 40 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 division of the island into Greek Cypriot and Turkish Cypriot zones separated by a UN buffer zone following the Turkish invasion of 1974 does not seem to impede normal commercial or offshore operations, which take place in the Greek zone.

In November, 2002, the United Nations presented a plan for a 2-state federation under a common government intended to resolve the problem before Cyprus's admission to the EU. Even after the Copenhagen summit in December which confirmed the island's admission to the EU in 2004, negotiations between north and south continued; but they broke down in early 2003 and the island signed its EU accession treaty in April. The European Commission and the US strenuously supported the United Nations' Annan Plan for reunification, but it was rejected by a Greek Cypriot referendum in April, 2004. Reunification, it if takes place, may form part of Turkey's negotiation to join the EU.

The island's listing by the FATF in June, 2000, as one of 15 offshore jurisdictions said to have inadequate defences against money-laundering hastened a process of adjustment to international standards of banking supervision and information exchange.

After the EU finally agreed its Tax Directive in June, 2003, Cyprus announced that it would implement the 'information sharing' provision of the Directive on entry to the Union in 2004. This means that information about savings returns received in Cyprus by nationals of other EU countries is now being passed to the tax authorities in the individuals' home countries.

In late 2003 the government also announced plans to weaken previously tight banking confidentiality, although these were strongly resisted by the banks.

In April 2009, Cyprus was placed on the OECD's 'white list' of jurisdictions which have 'substantially implemented' the internationally-agreed standards for tax cooperation.

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