After the last tax reform in Israel, many articles were written, describing the opportunities that were lost and about the new business opportunities that were created in the new business arena.

In the past months the author of this article encountered in several different cases and questions dealing with the tax implications that were influencing my clients.

The issue of taxation is not the only issue to consider prior to the company making its decision as how to conduct its business.

The overall decisions facing companies in the new business environment will certainly have an effect on the company prospect in the long term.

Cyprus and the EU.

Before Cyprus will join the EU in 2004 and prior to organizational changes as a result of this, many opportunities await companies and especially Israeli companies.


On the one hand Cyprus will cease to be a tax shelter, but on the other hand it will have attractive tax levels, in comparison to other EU countries.

Companies established in the beginning of 2002 will enjoy tax level of 4.25% until 31.12.2005 and from 1.1.2006 those companies will benefit from only 10% Corporate tax.

Companies established as of 1.1.2003 would benefit from only 10% corporate tax .

Companies established within 2002 will benefit from tax level of 4.25% for income related to 2002 and as of 1.1.2003 those companies will benefit from 10% corporate tax.

Tax on royalties or dividend or interest will be 0%.


Due to negative response from other EU countries, Cyprus can act as a bridge for Israeli companies, or for Israeli companies that are interested to export their produces to countries that do not have commercial or official ties with Israel, as a result find it difficult to export to those countries.

Companies interested in exporting to the EU, might at times find it difficult for "outsiders" to penetrate this market, as it has restrictions.

EU members will be given preference as to non member companies in tenders.

This is where an emphasis on the importance of the EU to which Israel was exposed to in 2002, approx 7300 mil$ gross, out of a total of $mil 29,5513 in export. Compared to 3406 mil$ gross in the months of 1-5 2003 .

Cyprus acts as a gate to eastern Europe, for two reasons, double taxation law with more than 40 countries (Russia, Slovakia, Czech republic, Bulgaria, Romania, Poland, Hungary & more.) with which they have very attractive clauses for tax planning, for multinationals using the mother company in Cyprus enabling to extract profits from East Europe countries, due to Cyprus low tax rates.

It should be clearly stated that the companies and individuals can take advantage of those treaties to avoid double taxation signed between USA, Canada and Cyprus.

As the central bank of Cyprus said "The existence of these treaties, combined with the low tax paid by international business enterprises, as well as their beneficial owners and expatriate employees, offer significant possibilities for international tax planning through Cyprus."

The Cypriot banking system provides high quality service for many foreign companies and has adapted unique services especially suitable for professional business, being very discrete and accurate.

Many Israeli companies in software sector have set themselves up in Cyprus

(Ex. Amdocs)

The relocation of hi-tech employees has always been a very substantial cost factor, taking into consideration the distance factor from close family.

Cyprus is only 40 min from Israel, this makes it very easy to maintain family connections.

Controlling and managing a company that is 40 min from management becomes a substantial when considering the opening of a branch or logistical center, which its main purpose is to ease the access to the center of countries, which would otherwise be closed to Israeli companies.

The legal system is based on the English law, familiar to Israeli lawyers; the financial and accounting practices in the country make it simple for Israeli companies.

English is commonly spoken, simplifying the daily running of the company.


The main planning tool, is Trust. Trust is registered in the central bank of Cyprus benefit from full tax exemption, including profit from income or financial profit.

There is no limit on transactions or exchange of foreign currency; it can exist for 100 years with the option of transferring it any ware.

From official publication



"The Law contains provisions for confidentiality. Such duty is imposed by the Law on trustees, who may not disclose information about the trust to outside parties. No registration of the trust with any authority is necessary."

In contrary to common knowledge, the cost of Trust is low, its in the region of $2,500.00 and annual running fees are about $ 2,600.00

In summary:

The decision which legal entity to establish, if at all in Europe is strictly a business one. Cyprus, being close and part of Europe should be inspected or compared to an alternative country in Europe. From the above it’s obvious that the geographical advantages and tax laws, international treaties, banking and governmental system make Cyprus a very lucrative and attractive opportunity for Israeli companies & individuals.

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