With the full impact of Brexit still unclear for many businesses, British businesses exporting into the European Union are being encouraged to set up a separate entity in an EU Member State to help avoid the extra charges, paperwork, and taxes resulting from Brexit, as revealed by the Guardian newspaper.
Trade advisers at the British Department for International Trade (DIT) have advised businesses, that the best way to avoid border issues and VAT problems, is for them to register new companies in jurisdictions within the EU single market, such as Cyprus, which would allow them to operate more freely and with less bureaucratic hassle.
So, now that the Transitional period is over, what happens to companies?
The UK is no longer in the EU-wide VAT system, which means UK retailers that want to import the goods into the EU and sell them to customers will have to register in the EU member state of the consumer, pay import VAT, and charge local VAT.
- UK businesses will have to consider VAT registering in Europe immediately. Any UK business with a foreign VAT registration in the EU may now face the obligation to appoint a special VAT fiscal representative. These agents will hold direct liability for any unpaid VAT, and therefore require cash deposits or bank guarantees in exchange.
- End of zero-rated B2B intra- community supplies, all movements are now considered imports or exports, which are subject to U.K. or E.U. import VAT. Businesses that move goods are now required to have two EORI numbers to move goods between the UK and EU.
Example: UK importers will have to pay the import VAT at the point of importing goods from Cyprus, while importers may also have to make import declarations, paperwork, and all necessary customs procedures should be properly applied as well.
- UK has already introduced a Postponed VAT Accounting import VAT deferral scheme, meaning no cash VAT payment has to be made by business importers to UK customs.
- Many EU countries do not offer the same referral scheme for UK businesses importing their goods, thus impacting their cash flow.
UK sellers of digital services to EU consumers
- UK is no longer a member of the EU Mini One-Stop-Shop (MOSS) single VAT return scheme.
- UK sellers of electronic, broadcast or telecoms services to EU consumers will need to register in any other EU state, as a non-Union business, to continue to file their VAT declarations for EU e-service sales.
EU sellers of digital services to UK consumers
- Have to register with the UK’s HMRC to file their VAT declaration.
Third-Country sellers of digital services to consumers
- Any non-EU business which used the UK MOSS registration now has to re-register for MOSS in the EU and separately in the UK under a regular VAT return.
- Any non-EU business will no longer be able to report their UK sales on their Non-Union MOSS return. They will have to register for UK VAT and report UK sales on a UK VAT return.
Since 1 January 2021, if you are a UK, EU or US seller of digital services to, then you will need new VAT registrations to avoid being fined by the tax authorities.
This includes cross-border sales to UK and EU consumers of downloadable or streaming media, apps, online software, e-learning; e-books, online journals, and dating or similar membership websites.
As of 1 January 2021, a UK business should register with a new EU VAT MOSS in the non-union scheme, by choosing which of the 27 member states they would like to serve as their ‘’base’’ in the European Union.
If a UK business only sells digital products in B2B transactions, then they do not need to register for EU VAT as Reverse Charge applies.
When the Reverse Charge applies, the responsibility for the recording of a VAT transaction from the seller to the buyer for that good or service.
CYPRUS UNIQUE SELLING POINTS
Cyprus has strategically established itself as an attractive jurisdiction, both within the EU and globally.
The competitive, modern, and transparent legal (based on the English Common law system), financial and regulatory framework along with the highly skilled and multilingual workforce that Cyprus possesses has established Cyprus as a credible and highly reputable jurisdiction for companies to set up a trading or holding company.
The country’s stable and advantageous tax policy has made Cyprus attractive for all types of businesses and individuals. As Cyprus is a European Union member, companies can enjoy all the advantages of operating in an E.U. country.
- Corporation tax only 12.5%
- Profits generated from transactions in shares, bonds and other qualifying securities are exempt
- Exemption from dividends paid by a foreign subsidiary to a Cyprus Holding Company
- No withholding taxes on dividend distribution to foreign non- resident shareholders whether corporate or individual
- No withholding taxes on royalties and interests paid to non-resident shareholders, whether corporate or individuals.
- No Capital gains tax on sales of shares
- Extensive Tax Treaty network with more than 60 countries
- Tax losses are carried forward for 5 years.
Cyprus & UK Connection
Cyprus has a competitive advantage of having an effective legal system based on English Common Law principles.
Government departments, financial institutions and local authorities accept documents in English. This provides bureaucratic transparency and clear regulations for UK businesses wishing to set up shop in Cyprus.
With English being a predominant language spoken between businesses, when setting up your business you can benefit from the island’s high percentage of English-speaking citizens:
- 73% of Cypriots speak English – official language due to British colonization
- English widely accepted for business transactions, government services, contracts, banking and other day-to-day operations
- Cyprus trade relations existed before the EU and will continue strongly after Brexit as Cyprus belongs to the Commonwealth and has sovereign British Bases on the island
- Key legislations such the Companies law, Contract law and Tort law are modelled on the British law. The Cyprus courts follow the precedents of the English courts and in general Cyprus can be characterized as UK-friendly country, this results in more clarity and certainty in the legal system and a preferred jurisdiction for U.K. companies
European Union Member
At the core of the EU is the single market – the programme of freeing up the trade of goods and services and the movement of people between EU countries. Cyprus has access to 40 + EU trade agreements with countries outside the E.U along
Cyprus IP box regime provides a tax benefit of up to 80% for the IP profit that qualify. As corporation tax is Cyprus is 12.5%, this will result to a tax rate of up to 2.5%. The IP box regime has been reviewed by the EU Code of Conduct and is fully compatible with EU standards.
Qualifying assets under IP BOX regime:
- Software programs with a copyright
- Other intangible assets that is not obvious but are useful and novel.
The new IP regime is compliant with the provisions of the revised ‘Nexus approach.’
The European Union has a well-developed and regulated banking sector, thus opening a bank account with a Cyprus bank will allow companies a swift process when opening bank accounts in other EU nations.
Bank transfers or payments from any EU bank account can be transferred to any other country in the world without any restrictions or limitations. A Cyprus company will be able to trade and open a bank account in various currencies as there are no exchange control limitations.
Foreign Interest Company
Cyprus companies with non-EU shareholders that provide a paid-up capital of the company of minimum EUR 171.000 can employ up to 15 non-EU persons in management positions, and many more in specific specialists positions, with residence and work permits issued by the Cyprus authorities. Family members can join by way of family reunification.
Setting Up Costs
Launching and running your business in Cyprus reduces your overall set–up costs compared to other EU countries resulting in more budget being allocated other segments of your business.
- Lower labour costs – costs for technical and professional talents lower than other EU countries
- Lower office rental costs – office rental rates among lowest in Europe, range of serviced offices and co-working spaces make initial office setup easy
- Lower business support costs – services like I.T., accounting, legal are greatly affordable
Choosing Cyprus ensures you and your teamwork in a Mediterranean island that provides you with a very high standard of living that includes:
- One of the EU’s best all-year climates and one of the best worldwide
- Over 65 Blue Flag status beaches for all tastes (highest % per capita) – sports, entertainment etc,
- High level public & private healthcare services
- Short distances – can travel from one side of the island to another in 2 1⁄2 hours
- Considered one of the world’s safest countries with one of the lowest crime rates in the EU
- Reasonable cost of living with great choice fresh products always available – both local and international
- Quick access to three continents –Europe, Asia and the Middle East.