Establishing a Free Zone Company in Northern Cyprus

The Turkish Republic of Northern Cyprus (TRNC) has become an investment hotspot preferred by investors due to many advantages offered. Recently, TRNC Free Zone companies (FZC) take the lead as the most preferred form of incorporation by both domestic and foreign investors. One of the main reasons why setting up a FZC in TRNC is the logistical appeal of TRNC with respect to its proximity and ease of access to the Republic of Turkey, Europe and middle eastern countries. Another very appealing quality of setting up a FZC in the TRNC is the tax advantages it offers.

Free zone companies are companies that have been established in the free trade zone like their counterparts in the world and carry out their commercial activities abroad. Although they are subject to the TRNC Companies Law, they operate with a special company status under the 26/1983 Free Port and Zone Law.

The Free Trade Zone in the TRNC is located at the port of Famagusta city. In addition to being the center for transit trade, import-export, warehousing and production companies, this region has now begun to attract the attention of companies providing remote services such as IT, tourism and consultancy, and the number of companies established in this region is increasing day by day.

The biggest advantage of FZC is that since they are accepted to be outside of the customs line, they are completely exempt from all taxes such as customs tax, income tax, corporate tax, VAT etc. on income from all activities carried out with any country other than the TRNC.

In addition, dividend (share of profit) distribution is also tax-exempt and the earnings can be freely transferred abroad. Transferring the generated income abroad is completely problem-free. Since FZC are completely legal entities, the revenue obtained from a FZC can be transferred to any other country the same way as any foreign company. As long as the transfer of income is not carried out illegally, one should not expect to encounter any problems in the process.

FZC can be established both in offices and/or warehouses/factories located in the Free Port Area, as well as through mailboxes. Setting up a company over the mailbox without keeping an office will not cause any problems. FZC that operate in fields such as consultancy, software development, advertising etc. usually establish their companies through a mailbox. Especially companies that will provide service in a virtual medium can easily provide service through a mailbox address without the need for a physical office. Many online service providers recognized in the Republic of Turkey and around the world have established a FZC and are active in the TRNC Free Trade Zone due to its tax benefits.

In accordance with a recent decision, the minimum initial capital required for the establishment of a FZC has been determined as 25,000 Euros. It is possible to use the initial capital for the purposes of company activities shortly after receipt of the Council of Ministers’ approval for the establishment of the company. Apart from the administrative fees and taxes payable during the establishment phase, FZC are also obligated to pay 500 USD annual fixed fee.

It should be noted that FZC can use the banks registered in the Turkish Republic of Northern Cyprus as well as the registered TRNC branches of the banks established in the Republic of Turkey. Banks registered both in the TRNC as well as the registered TRNC branches of the banks established in the Republic of Turkey conduct a careful search to determine that the shareholders of the FZC wishing to set up an account are trustworthy and have clean history of business activities. It should be noted that due to the autonomous structure and decision-making mechanisms of the banks, allowing to set-up an account is entirely at the discretion of the bank. In this sense, companies with past and/or ongoing relations and/or business activities with the relevant banks will be in an advantageous position.