A decision six years ago by the Cypriot government to abolish inheritance tax in the run-up to EU accession has attracted Norway's richest man to take up citizenship on the eastern Mediterranean island.
The move by oil, shipping and aquaculture tycoon John Fredriksen relieves his daughters from paying any taxes in Oslo on the family wealth.
Fredriksen, 61, ranked 10th in the recent Sunday Times Rich List with an estimated fortune of US$5 billion for an empire that includes a fleet of Cyprus-flag ships he has maintained since 1996.
Cyprus' transformation from a farming society into an offshore "tax haven" started after the Turkish invasion in 1974, when President Mikhail Makarios urged the island's business community to rebuild the economy, attracting German and Greek shipowners, Russian oil companies, British insurance companies, as well as European and Middle Eastern banks.
Cyprus has since signed a host of double-taxation avoidance agreements allowing a foreign-owned company to choose where to pay state taxes, while charging an "offshore" tax of 4.25 percent only on profits booked in Cyprus.
Up until EU accession on May 1, 2004, income tax ranged from 10 percent to 40 percent, corporation tax from 20 percent to 30 percent and shipping companies had a choice of any of these or a scale-based "tonnage tax."
Under pressure from other European tax havens, Brussels told Cyprus that it could no longer discriminate on taxes between locals and foreign individuals or firms.
A new tax policy was introduced by the previous government that leveled off the taxes and introduced equality, abolishing the "offshore" status that carried benefits such as a tax-free car and exemption from value-added tax (VAT).
At present, Cyprus has a flat 10 percent corporate tax for all local or foreign-owned companies, while shipping companies can still choose between this levy and tonnage tax.
There is up to 20 percent personal income tax and a 5 percent tax on pensions that attracted thousands of British expatriates to retire to the sunny southwestern coast of Paphos.
On Jan. 1, 2000, the 30 percent inheritance tax was abolished, which is why Fredriksen decided to hand in his Norwegian passport last week and take up a Cypriot one.
Most of his businesses are still run from London, where he is subject to certain limitations under the Cyprus-Britain double taxation avoidance agreements. He will be taxed in Britain only on his operations there.
Cypriot wealth management consultant Nicos Severis said that Cyprus is not too keen on promoting the zero percent inheritance tax to lure the rich into transferring their fortunes to this island.
"Had we done so, the Cyprus economy could have benefited enormously from the billions if not trillions that would be transferred here," he added.
"There is no major influx [of the wealthy] to Cyprus because of these agreements," argued Nicos Himarides, tax partner at Price-waterhouseCoopers, the island's largest audit firm.
"Apart from VAT that was the only taxation that was harmonized across the EU, each country has its own provisions," Himarides said.
"In the case of the retirees, the UK will not tax their pensions, which will be subject to a flat 5 percent in Cyprus, while Cyprus will also not challenge the source of the wealth transferred to Cyprus, as long as this is used to buy the retirement home on the island," he said.
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