Cyprus Companies are in wide use as major vehicles in international tax structuring mainly due to the broad range of legal and tax related benefits they can offer because of the flexible tax system and the extended network of double tax treaties between Cyprus and other Countries. In this respect, there are certain advantages that have made Cyprus also a favorable financing company jurisdiction.

Thus, the use of Cyprus to “locate” the Financing Company of an international tax structure reduces the tax implications which are further reinforced by the clarifications of the Director of the Inland Revenue Department of June 2011 on the definition of minimum / maximum interest margin.

Under the Cypriot tax law, an exemption is given from the 10% defense contribution fund arising from interest received provided that this interest derives from or is closely connected to the ordinary course of business of the company.

The Director of the Cyprus Inland Revenue Department has determined the minimum acceptable profit margins on the so-called “back-to back” intra group loans. The Director has set the minimum interest between 0,125% - 0,35%, applicable as from the year 2008 and onwards, and furthermore it is based on the following scales:

Loan Amount       Minimum Interest Margin 
Up to €50,000,000      0.35% 
From €50,000,000 – 200,000,000    0.25% 
Over €200,000,000      0.125%

The Director has also determined that interest free loan agreements would in turn be subject to a deemed interest margin of 0.35% irrespective from the amount of the loan. It should be noted that intra – group interest free loans are always subject to the arm’s length principle.  

For further information on this topic please contact Mr. Soteris Flourentzos at SOTERIS PITTAS & CO LLC, by telephone (+357 25 028460) or by fax (+357 25 028461) or by e-mail (

The content of this article is intended to provide a general guide to the subject matter. Specialist advise should be sought about your specific circumstances.