From a political point of view, Cyprus is an independent state, the Republic of Cyprus, except of two areas of land for military bases, that the United Kingdom are left in his possession. For a long time, Cyprus was a low-tax jurisdiction, providing the possibility of International Business Companies for the purposes of tax planning. Legislation that formed the legal basis for tax reform came into effect on January 1, 2003. A key innovation is the changed approach to taxation of income of the Cyprus companies, which was based on the principle of tax residency. Now, all resident companies are taxable on their world income, and the set income tax rate is 10%. Applicably to legal persons, Cyprus tax resident is a company, management and control of which is carried out in Cyprus. Most of the Cyprus companies are used as the companies of joint business, finance companies of groups. It is important to note that between the Russian Federation and the Republic of Cyprus in 1998 the agreement for avoidance of double taxation was signed.

The main advantage of the Republic of Cyprus in connection with its entering into the European Union from May, 1 2004 and making of tax reform – this is the attractiveness of Cyprus for foreign investors, as well as:
• The existence of agreements for avoidance of double taxation with more than 34 countries, including CIS, UK, Germany, Italy, China, Norway, USA, France;
• Good conditions for the organization of holding companies and business organizations in other countries of the European Union;
• Favourable opportunities for the organization of real business.

A few words about the taxation of companies:
At the end of the calendar year, the company shall submit a report about the income, which must be accompanied by audited conclusion. Net income is taxed in the rate of 10%. Companies are exempt from the obligation to pay VAT, the stamp duty on all documents related to their activities outside Cyprus, and also exempt from special assessments to the Defense Fund. Tax on defense applies only in rare cases, payment of dividends, profits from the lease, some commission payments. Cyprus companies are exempt from paying of income tax at source on interest, dividends and royalties paid abroad. If the need exists, then the company can be put on VAT registration. This service may be interest for clients, working with Cyprus companies in the EU and with counterparties – payers of VAT. VAT registration procedure takes up to 1 month. After receiving the numbers once a quarter auditor shall prepare and submit a report on VAT. The cost of the accounting and payment services of the auditor, depending on the number of transactions with VAT. The tax regime of Cyprus was recognized as the most favorable for doing business in Europe. In this case the attractiveness of taxation was assessed not only on the basis of the criterion value of the tax burden on business, but also such factors as the clarity and stability of tax legislation. The economy of Cyprus is characterized by stability, as evidenced by positive feedback from the European Commission and the International Monetary Fund.