+357 25 81 99 66

Cyprus Developments on Banking Sector – Overcoming the Difficulties

Cyprus is struggling with the worst crisis in its history since the 1974 invasion by Turkish military forces that divided the country in two. The island’s banking sector, holding assets more than eight times the size of the national economy, has been dangerously impaired by exposure to Greek banks, where individual bondholders underwent a 75% ‘haircut’ during 2012. The European Union and International Monetary Fund indicated under a “bail-in” effort that Cyprus should raise €5.8 billion from its banking institutions towards its own financial rescue in return for a €10 billion loan.

On 19 March 2013, the Cypriot parliament rejected a levy on all deposits, insured and uninsured, and entered into a series of negotiations in order to find a solution that would remove the threat of a haircut and safeguard all depositors’ assets. The European Central Bank (ECB) alleged that without an agreement being reached by 25 March, it would block emergency funding to the banking institutions, leading to definite collapse and the exiting of Cyprus from the Euro zone.

The deal came only hours before the deadline to prevent a breakdown of the Cypriot banking system in exhaustive negotiations between the president of the Republic of Cyprus and the EU, ECB and IMF officials. Negotiations unfolded under President Anastasiades’ committed struggle to safeguard the business structure of Cyprus as an offshore financial services hub.

The programme approved by the Euro Group will rescue the country from a disorderly bankruptcy by dissolving the Popular Bank of Cyprus (Laiki) and transferring deposits below €100,000 to the Bank of Cyprus (BoC). In this way a “good bank” is going to be developed. Not-guaranteed deposits above €100,000 in both institutions will be frozen and utilised to settle Laiki’s financial obligations and to recapitalise BoC through a deposit/equity conversion. Moreover, Laiki will move €9 billion from the Emergency Liquidity Assistance (ELA) of the ECB to BoC in order to provide liquidity to the bank according to applicable regulations.

There is no need for the Cypriot parliament to vote on the plan, as they have already passed legislation with regards to drafting procedures for bank resolution. Moreover, in the light of a run when banking institutions restart their operations, parliament has voted in favour of enacting several capital control mechanisms.

Although this is a painful programme for Cyprus, it averts the danger of a chaotic bankruptcy which would have led to an exit from the Euro zone with catastrophic repercussions and restores the viability of the financial sector. The EU pressure may have placed Cyprus in a difficult situation, but it is only a matter of time before the country can once again stand on its own strengths and get back on growth trajectory.

The benefits that Cyprus still has to offer:

Despite the financial turmoil on the island, Cyprus’ status as a prime location for company registration is still highly preserved, as the numerous benefits offered are maintained and safeguarded. The country’s exceptionally advantageous taxation system, combined with its strategic position giving access to the European, Asian and Middle Eastern markets, as well as the EU membership, render Cyprus one of the most robust and effective regions in the world for company formation. Characterised as the region’s “miracle”, Cyprus is a premier finance, investment and commercial centre.

Gaining a sound reputation mainly for its low corporate taxation and favourable corporate structures, large multinational organisations from around the world are relocating to Cyprus to reap the many benefits of the island’s “white-list”, non-offshore status in order to optimise profitability though effective tax planning tools. Resident and non-resident companies enjoy a 10% corporate tax rate (possible increase of 2.5% after Euro Group’s suggestion), a 4.25% maritime management company tax rate and a 0% tax shipping company tax rate. These are the lowest tax rates in developed Europe and are EU, OECD, FATA and FSF directives-compliant. Moreover, Cyprus boasts a broad network of over 40 advantageous double taxation treaties.

The tax incentives offered by the Cyprus government have led to the establishment of the country as a highly regarded international financial hub for investments into or from Europe, Russia and the Middle East. Some of the main tax incentives offered by Cyprus are outlined below: • Profits generated outside the Republic as well as dividends are tax-free • Exemption from withholding taxes and capital gains taxes • Companies formed in Cyprus are exempted from succession taxes from inheritance of shares • Highly favourable provisions with regards to non-trading companies, such as holding, royalty, portfolio trading or real-estate companies and companies trading in securities, as well as Cypriot non-resident companies • Low personal tax rates and low social insurance contributions • Ability to register for EU VAT in the Republic and therefore take advantage of additional fiscal and commercial benefits • Corporate restructurings can take place without any tax effect • Unilateral relief from foreign taxes to all Cypriot companies

Governmental and tax authorities value investors and therefore make it exceptionally easy for businesses to set up operations on the island, by securing high levels of privacy and full anonymity, and providing complete exemption from all exchange control restrictions. Moreover, the island’s first-rate infrastructure enables individuals to add value to their tax-planning strategies by establishing fully-fledged offices with minimal operational costs. Additionally, Cyprus boasts a thriving multilingual corporate, financial, banking and auditing services industry equipped by well-educated professionals, at very low expense levels compared to other European regions. Finally, advanced air and sea transportations, as well as highly-developed telecommunications services facilitate transportation and communication throughout the island.

The Solution: Setting up a Cyprus company with an account overseas.

As extracted from the above, Cyprus’ position as an advantageous company formation jurisdiction is well cemented. Therefore, investors should not be worried with regards to the restructuring imposed on its banking sector, as there are alternatives. Investors can set up a Cyprus company for their business operations with a bank account overseas. They may form a sought-after Cyprus corporate structure, as the numerous tax benefits are being preserved, and open a bank account to carry out their banking transactions in another favourable jurisdiction. Bank accounts in several low-tax jurisdictions can be opened in just a few days, with swift and straightforward procedures. Offshore bank accounts are highly regarded as one of the most efficient tax-friendly tools to attain banking confidentiality and financial stability. Being highly coveted by corporations around the globe, offshore bank accounts enable organisations to enhance their profitability, retain privacy and upgrade their brand image to their international clientele. Through forming an offshore bank account, individuals can take advantage of many benefits; such as tax-free savings, low minimum deposits, high interest rates, and complete secrecy and anonymity, as well as legal protection in order to maximise asset protection and diversify their investment portfolios.

As more individuals choose offshore accounts to manage their funds, it is highly important to determine the most appropriate jurisdiction to match your particular banking and financial objectives. Michael Chambers & Co. LLCoffers incorporation services in the British Virgin Islands (B.V.I.), Seychelles, Belize and Panama, providing unparalleled services to meet the expectations of even the most discerning investor. Discover the B.V.I., Seychelles, Belize and Panama offshore jurisdictions.

The B.V.I., Seychelles, Belize and Panama are advantageous, low-taxation jurisdictions with politically and financially secure business surroundings. They enjoy advantageous corporate tax regimes with low or zero tax rates, thus giving the opportunity for greater gains on annual capital. They require minimal start up and maintenance costs for company formation and enjoy favourable company legislations. They adhere to stringent privacy and confidentiality legislations and have low levels of bureaucracy. They offer great opportunities for asset protection and tax planning. Moreover, they enjoy protection from creditor claims and lawsuits, as well as lower levels of business risk. They are all highly regarded international financial centres, offering flourishing banking services and an attractive investment environment. The vast growth of their financial sector has led to establishing the B.V.I., Seychelles, Belize and Panama as top-rated jurisdictions for offshore company formation, bank account and management services.

Expert advice and guidance can be given with regards to the corporate regulations of each region, the corporate tax legislation, the company confidentiality legislation, the regulations to the directors and shareholders, and the banking system and legislation of these countries. Moreover, investors can be informed on the incorporation time, as well as the documentation required within the particular jurisdiction.

Determining the best jurisdiction to open a bank account for your Cyprus Company.

With the European sovereign debt crisis urging Cyprus to introduce a major restructuring programme for its banking system, investors who wish to set up a company in Cyprus are advised to open a bank account overseas. This is a highly effective asset protection technique to safeguard your favourable Cyprus corporate structure for years to come in order to maximise profitability.

Michael Chambers & Co. LLC’s fiduciary services team is able to advise on international incorporation and tax planning and can provide a variety of solutions to individual business structures according to their specific financial and banking needs.