02/06/2013 08:59:00 AM EST
A Practical Approach to Security in Cross Border Transactions with Cypriot Companies
By Chrysthia Papacleovoulou
Cyprus offers tax benefits, tax
efficiency, and administrative ease for companies doing business in and with
the country. These attributes make Cyprus an attractive and favorable
jurisdiction for cross border transactions. This analysis highlights and
clarifies a related and key issue that troubles practitioners and counsels: the
issue of providing meaningful security in cross-border transactions involving
The fundamental advantages that
the jurisdiction of Cyprus offers to investors, businesses, and corporations
involved in cross border transactions cannot be overstated. These advantages
are encapsulated in the security and stability of the legal system and the
administrative ease of cross border transactions. Most importantly, companies
benefit from Cyprus' tax efficiency: tax and corporate planning, combined with
tax and foreign direct investment incentives, and particularly the 10 per cent
corporation tax, which is one of the lowest corporate tax rates in the European
Union (EU), make Cyprus a very logical choice. Additionally, Cyprus's double
taxation treaty network allows international transactions to be structured in a
number of tax-efficient ways, especially when combined with a Cypriot holding
A Cypriot corporate structure may beneficially be used:
as an intermediary
for joint venture or other participatory ventures to avoid or reduce
to finance joint
ventures or other acquisitions in order to reduce or eliminate withholding tax
and extract profits that would otherwise be subject to foreign tax;
as a holding
company with exempt income, subject to the passive dividend rules;
as an operating
company claiming treaty protection to avoid the creation of a permanent
establishment in a foreign country;
as a Cypriot
international trust enjoying the benefit of treaty protection; and to operate
shipping companies from Cyprus with treaty protection.
Considering these advantages,
it is no surprise that Cypriot corporate vehicles are often used in corporate
planning and tax planning structures. A common practice is that a corporate
group is owned by, and/or the transaction will be guaranteed by, a Cypriot
holding company. This is particularly true in cross border transactions
involving groups of companies that have business or roots in Eastern Europe.
Practitioners are frequently asked how secure are the contractual arrangements
with counterparties in cross border transactions, and to offer guidance on the
structures and risks for ensuring their security. These concerns should,
indeed, be the same as for any other jurisdictions. Cyprus has a secure and
stable legal system, based in many respects on the English common law system.
Moreover, as an EU member state since 1 May 2004, the Cypriot legal system
guarantees the EU law freedom of movement and establishment for persons,
capital, and services.
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Dr. Chrysthia Papacleovoulou is
the senior partner in the litigation department of LCNP Law Chambers Nicos
Papacleovoulou. She practices corporate and commercial, intellectual property,
and contract law, and specializes in the conveyancing and acquisition of
immovable property in Cyprus, as well as in wills and probate. Ms.
Papacleovoulou serves on boards of directors for Cypriot limited liability companies,
and heads committees for corporate governance and reporting. She is a Fellow of
the Centre of Comparative Legal Studies, and has lectured on British
constitutional law and company law, Cypriot legal systems, and international
business law at the University of London and at Cypriot Universities. She has
written extensively on business and consumer law, and real estate matters.