Offshore Banking, Captive Insurance and Other Types of Offshore Entities in Cyprus
Listed below are some other areas which the reader would like to bear in mind in conjuction with Cyprus as an offshore centre.
These are:
Offshore banking
Captive insurance
Types of offshore companies
Offshore banking
The emergence of Cyprus as an offshore banking centre, is perhaps signified by the country's membership to the Offshore Group of Banking, the reputable club of offshore centres, which includes, inter alias, Hong Kong, Singapore and the Bahamas. So far 19 foreign banks have been granted licences to operate Offshore Banking Units (OBU's), while a number of applications are under consideration.
The term "offshore banking" arises because offshore banks may only transact business with non - residents and in foreign currencies, and in general satisfy the conditions for an offshore business.
The establishment of OBU's, in addition to the Exchange Control and the Companies Laws, is subject to the Central Bank of Cyprus and the Banking Business (Temporary Restrictions) Laws.
The Central Bank of Cyprus has issued the following guide-lines and conditions for the granting of a licence:-
Applications for establishing an OBU must be made in writing to the Governor of the Central Bank of Cyprus.
Applicants are expected to have a good reputation internationally and have an established track record of growth and profitable operations. The Central Bank favours applications by existing foreign incorporated banks for the establishment of branches, as opposed to locally incorporated banking subsidiaries or associated companies.
Before a decision is reached by the Central Bank, it seeks the written consent of the applicant's home licensing and banking supervisory authority which exercises consolidated supervision over its global activities including the operations to be carried out within Cyprus.
The Central Bank requires Letters of Comfort to be provided by the successful applicant's head office, parent bank or its ultimate controlling and beneficial shareholders.
OBU's are required to operate as fully staffed units and not merely as "brass plate or "managed bank" entities.
OBU's have to pay an annual fee of US$15.000 to the Central Bank as re-imbursement of the latter's cost of supervision.
For locally incorporated OBU's the Central Bank would expect a minimum paid up capital of US$5 million.
All OBU's are exempt from most of the monetary policy and credit regulations applicable to onshore banks, such as the minimum reserve requirement, adherence to maximum interest rates, restrictions on the holding of foreign assets or investments in shares and immovable property.
All OBU's have to prepare annual accounts and submit them to the Central Bank. These accounts have to be audited by external auditors appointed by the OBU and approved by the Central Bank.
OBU's are required to maintain their accounting system as well as all official books, records documents and correspondence relating to their banking business in the English language.
Except as otherwise permitted by law or any regulations thereunder, OBU's operate wholly on an offshore basis. OBU's are permitted to grant loans or guarantees in foreign currencies to residents provided that the resident parties involved obtain a relevant Exchange Control permit from the Central Bank.
Captive insurance
The insurance industry is well established in Cyprus with a number of international insurers represented on the island. Of the 17 offshore insurance companies currently registered in Cyprus 14 are captives.
Their incorporation and operation is governed by the Insurance Company Law, which is similar to the English law. The regulatory authority is the Superintendent of Insurance at the Ministry of Finance.
Though there is some relaxation in certain of the provisions of the Insurance Company Law in case of captives, there is reasonable control and supervision for the protection of all interested parties.
The advantages in setting up a captive insurance company are as follows:-
Cost savings - through lower overhead and administrative expenses.
Cash flow improvement - Careful planning as to the timing of premium receipts and re - insurance payments, the captive may provide for greater control over corporate funds which in turn may generate increased cash.
Wider coverage - a captive may be able to underwrite, at an acceptable cost, risks for which it is extremely difficult to obtain coverage at an economical price on the conventional insurance market.
Access to re - insurance - a captive insurance company has the advantage of direct access to re - insurance markets which enjoy a lower acquisition costs than direct insurers and can therefore provide risk coverage at lower cost.
Taxation - the tax is levied on the chargeable annual profits at 4,25%. The taxable profit of insurance companies, other than life insurance, is made up of underwriting results, investment income and any other income of a revenue nature less all expenses including commissions.
Double tax treaties - in addition to low tax rates, captives may be in a position to enjoy additional tax benefits resulting from the various existing double taxation treaties between Cyprus and other countries.
Exchange control - offshore captives, like all other offshore entities, are not subject to exchange control. The absence of exchange control restrictions together with the availability of efficient international banking services and the excellent telecommunication system of Cyprus, make the island advantageously suited to the maintenance, transfer and conversion of funds.
Confidentiality - confidentiality is ensured by the ability of the beneficial shareholders to use nominees, with disclosure of ownership only required to be made to the Superintendent of Insurance and the Central Bank of Cyprus.
Types of offshore companies
The following are some of the types of companies currently operating in Cyprus:-
Headquarter companies - Cyprus with its advantageous geographical position and well developed infrastructure is probably at the most suitable location in the Eastern Mediterranean, and is particularly attractive to multinational companies throughout the Western world with interests in the Middle East and Africa.
Holding and investment companies - a holding company can be the parent of a number of offshore companies registered in Cyprus or companies registered abroad. This is of particular interest where a number of investors are participating in offshore Cyprus companies, or where companies registered abroad wish to control and direct their investments through a holding company. Such companies may often be used advantageously in conjuction with the Cyprus double tax treaties.
Employment companies - an employment company can be established with the main object of providing or recruiting labour for contract or other work carried on outside Cyprus. This is most advantageous to nationals of countries whose tax laws provide that whenever tax is paid in another country, their salary income can be remitted to their home countries with no or little additional tax. Such companies may be particularly attractive to Belgian, Australian, Austrian and French nationals.
Finance companies - a finance company may be established with the main object of providing loans in countries with which Cyprus has double tax treaties or with countries where there is low or no withholding tax on interest.
Trust and management companies - trust and management companies may be set up in Cyprus for the management of investment, pensions and trusts. The recent legislation on International Trust Law, puts Cyprus in the front running as an international trust centre.
Trading and re - invoicing companies - such companies are used for the re - invoicing of materials, goods and services from any country to any destination. Any formal documentation or procedures required, such as certificates of origin or legalisation of invoices, can be obtained from the Cyprus Chamber of Commerce. These companies may be operated by setting up an office in Cyprus and appointing an expatriate or local manager to co -ordinate, negotiate and conclude purchasing contracts. Trading and re - invoicing companies may also be used for depot and transit trade activities through the use of bonded warehouse. There is a wide scope for such companies which are currently used by persons or companies of a number of nationalities.
Construction and engineering companies - the favourable tax treatment attributable to profits emanating from construction and engineering projects carried out outside Cyprus by offshore construction and engineering companies, in conjuction with the Cyprus double tax treaties, makes Cyprus a prime location for setting up such companies.
Service and consultancy companies - Cyprus is becoming a much preferred location for the establishment of service and consultancy companies, mainly by British and European architects, engineers, quantity surveyors and other consultants with activities in the Middle East and Africa.
Printing and publishing companies - Cyprus offers itself for the registration of offshore companies engaged in the printing and type - setting of books and periodicals for sale and distribution outside Cyprus. The quality and low cost of local printing and the highly developed telecommunications system in Cyprus are among the main factors that contributed to the development of Cyprus as a publishing, printing and distribution centre.
Shipping and ship management companies - these companies are dealt with on a separate handout. It is worth noting that a number of offshore ship and crew management companies are currently operating successfully in Cyprus.
Real estate companies - these companies are used extensively and advantageously both for investment and for dealings in land and buildings. In particular, such companies may be used in conjuction with the Cyprus double tax treaties and can be of special interest for investment in real estate in the UK, France Denmark and Sweden.
Royalty companies - these companies may be established in Cyprus either on an offshore or onshore basis. The nil to 5% withholding tax, provided by the Cyprus double tax treaties, renders such companies very attractive 
CYPRUS - The Ideal Offshore Centre
Types of offshore entities
Double Tax Treaties in Cyprus
SHIPPING IN CYPRUS
Offshore Trusts in Cyprus
Offshore Banking, Captive Insurance and Other Types of Offshore Entities in Cyprus
Offshore Company Registration Requirements 
How to Apply for the Formation of an Offshore Company in Cyprus.