Panama vs Cyprus Offshore Jurisdictions Compared: Double Taxation Agreements

Many offshore jurisdictions appear similar in what they have to offer, but in reality the differences are far reaching in terms of use of the structure.  Today we will be comparing Panama and Cyprus.

Corporate Privacy

Cyprus does offer privacy through the use of nominees, but it does not meet the higher privacy standard Panama offers with its bearer share corporations.  The ownership is not only totally private, but can be transferred without any paperwork.  Ownership of a Panama company can be easily transferred by physically handing the share certificates from one person to another.

There are great deal more restrictions on who can own shares in a Cyprus company.  In fact non EU citizens must first get approval by the central bank of Cyprus before they are even allowed to purchase shares.  This is very restrictive if you are considering doing business globally.  Panama on the other hand allows bearer shares, so there is no public registration of ownership period.

Bank Secrecy & Tax Treaties / Information Sharing Agreements

Both countries have bank secrecy laws. The difference is that Cyprus also has double taxation treaties with over 36 countries as of this writing.  Each of those agreements also includes clauses that enable information sharing.  Tax treaties are not in the best interest of anyone wishing to keep their affairs private.  Panama, on the other hand, has no tax treaties or information sharing agreements of any kind, except in criminal matters.  Even then, the crime must be illegal in Panama, and significant evidence needs to be presented.  The Panamanian authorities then, review the evidence and make a determination if they feel the evidence is strong enough to warrant breaching Panama's strong secrecy laws.  Panama tends to only co-operate in serious criminal cases.  Civil matters such as divorce, tax evasion, and foreign lawsuits and judgements do NOT qualify for any kind of information sharing whatsoever.

Tax Rate

The corporate tax rate in Cyprus has skyrocketed from 4.25% in 2006 to 10%.  Panama's tax rate for foreign derived income (income earned outside Panama) is 0%.  So the question becomes, why does anyone bank offshore in Cyprus?  The answer is quite, simple.  It is possible to utilize one of Cyprus' many tax treaties, and pay only 10% tax to bring money onshore.  Of course there are techniques to bring money onshore from Panama such as an offshore loan through a bank.

Annual Filing Requirements

Panama does not require books to be kept.  There is no requirement to file a tax return.  Cyprus on the other hand has many requirements:

Section 141 (1) of the Cyprus Company Law requires companies to keep account books to justifying:

• payments received
• expenses of the company
  
• sales
• purchases of goods
• debts incurred
  
• credit acquired
  

Furthermore, the format of these documents must comply with Annexure 8 of the Company Law.  You must keep receipts and financial transaction records to backup your books.  Two directors are required to sign the balance shee, unless the company only has one director.

You must file your tax return, balance sheet, profit and loss statement, an independent auditors report, your tax computations document, and additional information report by Dec 31st of each year.

Requirements to take Advantage of Double Taxation Avoidance Treaties

If you would like to take advantage of the double taxation treaties, you must follow certain requirements:

• First you must pay the 10% corporate taxes on the funds
• Management and Control must be by Cyprus residents.  We can facilitate this via nominees.  Call for details
  
• The majority of directors must be residents of Cyprus.
• You must give up your right to privacy as your information will be exchanged via provisions in the tax treaty.
  

It is also possible to utilize Cyprus as a 100% tax free jurisdiction as well, but it must deemed "non-resident".  To achieve this status the directors should be non-residents, the shares must be owned by non-residents, etc.  You still must follow all the filing requirements listed above.  Panama is a much better option if you don't wish to use the double taxation avoidance treaties in Cyprus.

Conclusion

Cyprus is a good jurisdiction if you are not interested in privacy and need to bring funds onshore legally with an effective tax rate of 10%.  On the other hand there are many reporting requirements, and information sharing agreements in place.  For a zero tax rate and no reporting requirements Panama is a much better option.  Panama does not have any information sharing agreements with any country.