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The granting of banking business licences, including ones for offshore banking, is the domain of the Controller of Banks who is the Governor of the Central Bank of Cyprus.

As a rule, offshore banking business licences are granted only to banks licensed in jurisdictions where, in the opinion of the Central Bank of Cyprus, proper licensing and banking supervision are exercised and whose banking supervisory authorities subscribe to the principles embodied in the "Concordat", issued by the Basle Committee of Banking Regulations and Supervisory Practices. In addition, the prospective applicant banks must be institutions enjoying a good reputation internationally and have an established track record of growth and profitable operation.

The Central Bank of Cyprus gives preference to applications received by existing foreign banks, for the establishment of branches as opposed to the local incorporation of new banking subsidiary or associated companies.

All offshore banking licences are subject to certain conditions. The scope and extent of these conditions depend on a number of factors, including the OBU's legal form (i.e. branch of an established overseas bank or subsidiary) as well as the standing and international reputation of the applicant bank concerned.

Offshore Banking Units (OBUs) are expected to operate as fully staffed entities and to transact banking business with non-residents of Cyprus, in currencies other than the Cyprus Pound. They may also engage in banking activities with the Central Bank of Cyprus or with onshore banks which are authorised foreign exchange dealers. OBUs which operate in the form of branches of foreign banks are exempted from any corporate tax liability while Cyprus incorporated OBUs are taxed at the preferential rate of 4,25%.

OBUs may also extend loans or guarantees in foreign currencies to residents of Cyprus, provided that the resident concerned obtains the requisite Exchange Control authority from the Central Bank of Cyprus. The net income earned by OBUs from such onshore activities attracts the corporate rate of income tax applicable to onshore entities (i.e. 20% on chargeable income upto CP100.000 and 25% on chargeable income in excess of CP 100.000) but the Minister of Finance may exempt an OBU from the payment of such tax if satisfied that the activity or transaction is in the best interest of the economy of Cyprus.

OBUs, though exempt from most of the regulatory measures and controls applicable to onshore banks, are subject to supervision and inspection of the Central Bank of Cyprus as well as to the requirement of submitting information to the Central Bank of Cyprus. OBUs are expected to satisfy the Central Bank of their ability to meet their obligations and of their adherence generally to sound banking practices.

At present 21 banks have a banking business licence to operate on an offshore basis from within Cyprus (19 of which are in the form of a branch) and 3 foreign banks maintain a representative office in the Island.


In 1975 the Cypriot Government introduced tax incentives for business entities established in Cyprus but operating overseas.

Offshore entities can take the following forms:-

(a) Limited Company, is a company incorporated in Cyprus but the shares of which belong directly or indirectly to aliens and whose income is derived from activities outside Cyprus. As such an offshore limited company enjoys the following advantages:-
i The net profits of the company are taxed at only 4,25%.
ii There is no tax on dividends.
iii Foreign employees working for the company in Cyprus pay income tax at a rate equal to half the standard Cyprus tax-rates.
iv Freely transferable currency accounts can be kept abroad and in Cyprus.
v There are no exchange control restrictions in dealings with non-residents.
vi Offshore entities which maintain an office in Cyprus and their expatriate personnel are entitled to duty free importation of motor cars, office equipment and household effects excluding furniture.
vii Foreign employees working outside Cyprus but receiving their salaries out of foreign funds remitted through Cyprus are not liable to Cyprus income tax.

(b) Offshore Partnership, can be easily registered in Cyprus, and an exchange control approval of the Central Bank of Cyprus secured, provided that the partners are aliens, and that the activities, other than the administration, should be confined to outside Cyprus. As such an offshore partnership enjoys the following advantages:

i Tax exemption of partnership profits.
ii Foreign employees of partnerships working outside Cyprus but receiving their salaries out of funds remitted through Cyprus are not liable to Cyprus income tax.
iii The salaries of foreign employees can be paid in freely transferable currencies.
iv Expatriate staff employed in Cyprus are liable to Cyprus income tax at a rate equal to half of the normal Cyprus tax rates. Such reduced rates can vary from 0% to a maximum of 20%.

(c) Offshore Branches, are branches of foreign corporations whose shares belong directly or indirectly to aliens and which derive their income from sources outside Cyprus. Their main tax advantages are as follows:
i Companies having their management and control in Cyprus, are taxed on their profits at the rate of 4,25%.
ii Companies not having their management and control in Cyprus do not pay any tax at all.