Cyprus
Executive Summary
Cyprus
is an independent democratic republic, and a
member of the Commonwealth. It is prosperous:
GDP US$23,000 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 nearly 50,000 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 33 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 are 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.
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