Apart from Cyprus enacting legislation which enables Cyprus companies to act as very effective Holding Companies, Cyprus can also act as an advantageous first point of entry for companies importing goods to Cyprus from non-European companies in particular those companies importing goods on which European Tax must be paid (e.g. Goods from non EU countries).
Both Cyprus registered companies and overseas companies can register for VAT in Cyprus. The overseas company, which registers for VAT in Cyprus, may be exempted from Cyprus Corporation Tax under certain circumstances. Most companies however would choose to be taxed in Cyprus where the corporation tax rate is 10%.
Let us consider a company importing cigars from Cuba for distribution to Europe. If the first port of entry to Europe is Cyprus European Tax and VAT at 17% will be paid in Cyprus, which compares favourably with other European Countries. After this the goods are considered as being of European “character” and may be despatched freely to any other European destination with 0% VAT.
The VAT paid by the importer will be refunded via the normal procedure.
There are importers who do not wish to pay the VAT for cash flow purposes and prefer that their European Customers pay this at the second port of destination, while at the same time wanting to pay the European tax in Cyprus on the import price from Cuba/China rather than on the resale price to the European Customer which will logically be higher.
It is possible to separate the payment of European Tax and VAT into two parts. The payment of European Tax can be made in Cyprus on the original prices from abroad and the VAT can be paid at the second port of destination in Europe so as not to draw on the importers cash flow.
Another advantage exists in registering for VAT for those companies that receive services from EU countries. If the recipient has a valid VAT number the service provider is providing services for business purposes then the invoice issued by the service provider is exempt from VAT which in Europe is 20% or more..
There are also possibilities of registering for VAT purposes the Cyprus Company in Cyprus as well as in another European country while paying corporation tax only in Cyprus.
The above notes are general in nature and their intention is to provide readers with an outline of the regulations. Readers are advised to contact us should they wish to take any action.