The UAE-Cyprus-EU Route

While many UAE free zone and mainland companies serve the wider regional markets or markets in Asia and Africa, a large number of UAE companies are focusing on EU markets, selling goods and services to European clients.

Many of those UAE-based businesses use Cyprus subsidiaries as their EU “gateway” – taking the UAE-Cyprus-EU Route – instead of selling to their EU markets directly.

The UAE-Cyprus-EU Route: Better Access to EU Markets

Taking the UAE-Cyprus-EU Route: A Cyprus company is an EU entity, which makes trading with EU clients smoother, as there is less red tape compared to dealing directly from the UAE.

Many European clients prefer contracting with an EU company, as it offers legal familiarity, consumer protection, and easier dispute resolution within the EU, among other advantages.

Most EU government contracts or B2B tenders require the supplier to be an EU-registered company.

Better Tax Efficiency when Doing Business Through Cyprus

The corporate tax rate of Cyprus is 12.5%, one of the lowest corporate tax rates in the EU. There is no withholding tax (WHT) on a Cypriot entity’s dividend payments to its parent company in the UAE, provided that a UAE company holds at least 5% of the Cyprus company.

EU customers are used to dealing with VAT in a very EU-specific way, reflecting the single-market principle of the EU. In B2B trade, intra-EU supplies of goods and services are mostly zero-rated VAT if both parties are registered for VAT in EU member states.

Dealing with EU clients through a subsidiary in Cyprus will avoid VAT issues for EU clients.

In most cases, the UAE company’s subsidiary in Cyprus will have to pay VAT during import procedures. However, the advantage for the vendor is offering their EU clients smooth VAT procedures as the buyers are used to when buying from EU suppliers. That is a clear competitive advantage.

Logistics and Operations along the UAE-Cyprus-EU Route
Customs simplification

European companies prefer to import goods and services from other EU member states, referred to as intra-EU imports, in contrast to extra-EU imports, which are imports of EU companies from suppliers outside the EU. Intra‑EU imports made up approximately ~60% of the EU’s total imports of goods in 2024.

From the perspective of customs, all EU member states are regulated as one single market. Goods imported into Cyprus can move freely within the EU (single customs territory), avoiding repeated import duties. By selling through its subsidiary in Cyprus, a UAE company is able to offer its EU clients the convenience of intra-EU purchases.

The UAE company’s subsidiary in Cyprus is allowed to register for an EORI number. EORI (Economic Operators Registration and Identification) is a unique identification number issued by EU customs authorities to economic operators involved in import, export, or transit of goods to/from the EU customs territory. This unique identifier facilitates customs clearance and the exchange of information between businesses and customs authorities, promoting efficiency for both parties.

Banking
With ever increasing rules and restrictions aiming to prevent money laundering, banking has become a critical factor for companies engaged in cross-border business transactions. Bank transfers within the EU are generally easier than transfers to recipients outside of the EU, where often increased compliance rules apply.

Unlike the Financial Action Task Force (FATF) which removed the United Arab Emirates from its “grey list” in February 2024, the European Union kept the UAE on its “list of high risk third countries with strategic deficiencies” in their anti-money-laundering (AML) and counter terrorism-financing (CTF) frameworks until 10 June 2025.

The Delegated Regulation (EU) 2025/1184 of 10 June 2025, which delisted the UAE from the EU “list of high risk third countries with strategic deficiencies”, was published on 16 July 2025 in the L-series of the Official Journal and thereby acquired legal force and became effective on 5 August 2025.

It yet remains to be seen how banks in the European Union will treat transactions to recipients in the UAE.

Through their Cyprus-based subsidiaries, which maintain bank accounts in Cyprus or other EU countries, UAE businesses can offer European clients convenient payment options within the Union.
Cyprus as a Bridge Between the UAE and Europe

Cyprus is close to the Middle East, both geographically and culturally, making it a good bridge between the UAE and Europe for both goods and management.

For more than 3000 years, Cyprus has been an economic hub between the Middle East and North Africa on the one side, and Europe on the other side.

We recommend you to read our article from 2018 about the trade history of Cyprus, examples of well-known international companies, which benefit from Cyprus as a regional hub, and about what Cyprus has to offer as a business hub for the MENA region.

Legal and Regulatory Advantages
Taking the UAE-Cyprus-EU route instead of dealing with their European clients directly from the UAE might provide UAE businesses with specific legal and regulatory advantages, as for example:

EU legal framework: Cyprus companies operate under EU corporate law and dispute resolution systems, which European clients are comfortable with and which they generally would prefer if they are provided with this option.

IP holding & licensing: Cyprus has favourable rules for intellectual property, making it attractive for licensing services (e.g., software, digital services) into the EU.

Easier compliance: EU data protection (GDPR) compliance is smoother when contracts are signed with an EU-based entity.

Strategic and Commercial Benefits for UAE Companies When Dealing Through Cyprus

Reputation boost: Having a “European presence” reassures clients about stability and transparency. While many European companies may see a UAE supplier as being far from themselves, the same UAE supplier’s Cyprus subsidiary will be perceived as “one of us”.

Dual identity: The group can present itself as both Middle East–based (via UAE HQ) and Europe–based (via Cyprus subsidiary), thus being rooted in both worlds.

Easier facilitation of partnerships: It is definitely easier to attract EU distributors, investors, and joint ventures if part of the structure is inside the EU.

To summarise the advantages of the UAE-Cyprus-EU Route:
A Cyprus subsidiary helps UAE companies reduce tax frictions, avoid VAT/import barriers for clients, enhance credibility with EU clients, and simplify logistics and banking, while still benefiting from UAE’s overall tax-friendly environment at the group level.

Opting for the UAE-Cyprus-EU Route provides UAE companies with a clear advantage over their competitors from the UAE and other non-EU countries.

For further information contact us on www.shandaconsult.com