When Is An Offshore Tax Haven Not A Tax Haven?
Tax havens have a low reputation amongst respectable, first-world, EU and OECD member states. A tax haven is a country or territory where certain taxes are deliberately levied at a low rate or not at all, in order to attract wealth to that country.
Most cynical people would probably regard a typical tax haven as a Caribbean island with one bank profiting from money laundering, drug-trafficking and a laissez-faire legal system.
Whilst Cyprus has a low taxation regime, it is NOT a tax haven, rather an offshore financial centre, and the differences between these two conceptual definitions is very important.
At the G20 summit in April 2009, the OECD drew up a blacklist of un-cooperative tax havens, on which Cyprus was NOT named. The island wasn't on the list because tax havens tend to set up regimes which are blatantly formed to attract private wealth for tax avoidance purposes.
Cyprus has concentrated on aligning its taxation regime so that corporate headquarters are relocated to the island, which has become a European business hub, with a strong legal and fiscal infrastructure.
Cyprus - An Offshore Centre Of Excellent Financial Practices:
To answer the first question at the head of this page, why is Cyprus not regarded as a tax haven?
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Tax havens have nil or nominal taxes; Cyprus has 10% corporate
profit taxation and other advantageous rates, but they are far
from nominal! |
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Tax havens demonstrate a lack of effective exchange of tax
information with foreign tax authorities; this is clearly not
the case with Cyprus, which has transparent treaties with over
40 countries and counting. |
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Tax havens demonstrate a lack of transparency and enforcement
in the operation of a legal framework; Cyprus has a legal system
steeped in the history of English law which is rigorously enforced
by the authorities. |
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Tax havens ask for little or no requirement for a substantive
local presence or residency status. Cyprus demands that all company
secretaries be Cypriot residents (for at least 183 days per year) |
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Tax havens allow internet based, low-labour or location independent businesses free reign to trade in whatever way they wish. In certain tax havens, corporate groups were fond of the practice of 're-invoicing', where companies simply made a profit without performing any economic function, but as the profit arose in a tax free jurisdiction, it allowed the organisation to skim profit illegally. In Cyprus, those wishing to trade in financial services, insurance and similar sectors are very strictly regulated. |