Cyprus - an ideal place for startups

The island has been attracting foreign companies for a number of years.

This is due to the fact that the island is one of the most convenient points of access to the international market (primarily European). Favorable legislation, active business community and state policy in relation to technological business influences it: both startups and large companies are attracted by preferential tax rate and various state support programs.

According to a recent study by the international consulting firm PwC, there are currently 55 startups in Cyprus. Of these: 31 are located in Nicosia, 13 in Limassol and 3 in Larnaca.

• 91% of startups have their headquarters in Cyprus. Many have been operating on the island for an average of 3.5 years. It’s interesting to note: startups founded or co-founded by women account for only 17%. This shows that there is still a long way to go to increase the role of women in this area of economic activity in Cyprus.
• 64% of startups in Cyprus employ between 2 and 5 people, 25% employ between 5 and 10 people, 9% employ between 10 and 50 people, and only 2% employ more than 100 people. Notably, 60% of startup owners, according to PwC, believe that Cyprus has favorable conditions and good infrastructure for launching new projects, and 40% believe that development conditions in this area could be improved.

The most important disadvantages here are difficult access and funding for investors, lack of access and support for finding qualified personnel, also the marriage of quality training and support in the initial stages of the project launch.

The difficult and problematic period for the development of a startup in Cyprus, according to the findings of the study, is the launch of the project.

It is worth noting that Cyprus has excellent conditions for the development of startups.

Thus, new companies have the opportunity to obtain the so-called startup visa – it allows them to live and work in Cyprus for at least two years. The program was launched in 2017 and since then has been repeatedly extended, and its conditions have been revised.

Startup visas are designed for those companies that have one owner and a team of five people, at least – all third-country nationals with a specialized education and a good command of English or Greek. The company must also have access to initial funding of at least 20 thousand euros, the sources of which can include venture capital, crowdfunding and so on.

The company must also be “innovative”, that is, it must have spent at least 10% of its operating expenses on research and development in at least one of the previous three years.

If the company has not yet conducted economic activities, the assessment is made on the basis of its business plan. To obtain this status is a prerequisite for the placement of headquarters in Cyprus and the presence of Cypriot tax residency.

The Ministry of Research, Innovation and Digital Policy reviews the application. If approved, a certificate is issued, which is valid for three years.

Two years are given to promote startups, during which the owners, employees and their family members have the right to reside and work in Cyprus. If the project is launched successfully, the term can be extended indefinitely.

The stages of obtaining a startup visa:

1. Submitting a startup application via email with an attached business plan and documents confirming funding of at least 20,000 euros. It takes up to five weeks to review the application. If approved, the applicant receives a preliminary work permit for two years.
2. Submission of visa application (it is considered within three weeks, visa with the right to work is issued for one year with the right to extend for another year).

Cyprus has a very attractive IP protection and taxation regime (IP Box) for IT companies – tax residents of the republic.

Cyprus has signed major international agreements and protocols in the field of intellectual property, including the Madrid Agreement Concerning the International Registration of Marks and its Protocol, the TRIPS Agreement, the European Patent Convention, etc.

The effective income tax rate (which is already one of the lowest in Europe, 12.5%), under IPBox, can be reduced to 2.5%. This is possible by deducting royalty income from the tax base (provided that the research and development of the IP object was carried out in Cyprus).

This option is available only in Cyprus and in the Netherlands (within the European Union).

All profits from the sale of shares in a company are tax-free. In some cases there is no withholding tax on the payment or receipt of royalties and dividends.