The impulse for this post is that there is still a considerable group of clients from Poland using Cypriot companies in their activities, and new inquiries about setting up such a company still appear in my practice. And rightly so, because Cyprus is a great place to live and do business. But I see a lot of indecision and sometimes misunderstanding regarding the purpose of establishing such a company and how to then safely and sensibly use it.
My first piece of advice is to write down on a piece of paper 3 reasons why you have or plan to establish such a company. After reading this post, look at that piece of paper again and assess whether those reasons are still valid.
How it used to be…
For 12 years, I have been dealing with establishing and servicing companies abroad, predominantly those based in Cyprus. During this time, I could observe the changing legal environment and the change in expectations and goals of clients regarding the legal structure of their business.
Then, i.e., about 10 years ago and earlier, it was a time of unrestrained activity, tax optimization, legal freedom, where a company in Cyprus was opened in a week and a bank account was opened at a branch around the corner, possessing only scans of the company’s registry extract (!). A few years passed and establishing a company anywhere, and above all a bank account, became a tedious process of gathering KYC documents.
Three reasons why a Cypriot company still makes sense
1. Genuine business substance – if you actually run a business from Cyprus, with employees, office, clients, and real operations, a Cypriot company is a perfectly legitimate and efficient structure with a favorable 12.5% corporate tax rate.
2. Holding structure – Cyprus offers one of the most favorable holding regimes in the EU, with exemptions on dividends received and capital gains from the sale of shares. This makes it an attractive location for holding companies owning subsidiaries in other countries.
3. International contracts and IP – for companies dealing with international clients and intellectual property, Cyprus offers a favorable IP Box regime and a wide network of double taxation treaties.
When a Cypriot company does NOT make sense
If the sole purpose is tax optimization without genuine business substance in Cyprus, such a structure is increasingly risky and difficult to maintain. CFC rules, MDR reporting, substance requirements, and automatic information exchange (CRS) have made purely artificial structures essentially pointless and potentially illegal.
My conclusion: a company in Cyprus still makes sense, but only when it has a genuine business purpose beyond mere tax savings. The era of “envelope companies” is definitively over.
Paweł Osiński
Attorney, expert in international corporate law