Cyprus seems to be the choice of many Forex brokers who have opened their doors for business in the last few years.  Why do they select Cyprus to headquarter their companies?  Maybe its because of the high security and privacy which applies to all registered companies in Cyprus.

Simply put, the operators can hide their identity; their location; and most of all - their money.  So, for example, when you open a trading account with a Forex broker located in Cyprus, you really don't know to whom you're giving your money. I'm not accusing all the Forex brokers in Cyprus of being dishonest or even shady, but why operate behind a veil of secrecy if you run an upstanding, honest business?

Here is one possible explanation: Cyprus joined the European Union in 2004 but it still enjoys the unique advantage of being able to structure tax free offshore companies.  It is very easy to incorporate a company in Cyprus and open a business bank account which includes an internet banking platform (that can be used for both business and personal Forex trading); and a  virtual office with telephone, fax and mail forwarding services. You can actually operate a Cyprus business without ever stepping foot on Cypriot soil.  In fact, not physically operating in Cyprus is the preferred modus operandi.

A company can operate tax free offshore and still enjoy the benefits of being incorporated in the European Union. There is no withholding tax on the payment of dividends, interest or royalties by a Cyprus non-resident company, to non-resident individuals or companies.

To be non-resident, the company must be managed and controlled from outside of Cyprus. This means that the Directors and Shareholders must be non-resident and not do business within Cyprus. The company can continue its non-resident status even if it has an office in Cyprus, but it is then taxable on profits arising only within Cyprus, at the low rate of 10%.

Yes, operating a business in Cyprus can be an extremely lucrative enterprise. Ava Financial, Easy Forex, eToro, Forex Yard, FxPro, GIGFX, Lite Forex, UFXBank, and Windsor Brokers are just some of the Forex brokers I found operating out of Cyprus.  Cyprus Investment Firms (CIFs) register with the Cyprus Securities and Exchange Commission.  I checked their register and only found Easy Forex and Windsor Brokers listed.

If you take into account the similar Forex companies operating in Seychelles, Belize and British Virgin Islands (BVI), you begin to understand why the trading public's perception of Forex brokers leans toward the negative.  

Here's a real world example.  Last July, I was in Antigua for a few days and decided to pay a visit to the FXCast offices at 241A Peninsula Drive in Jolly Harbour. That's the address they publish on their website. I couldn't find Peninsula Drive anywhere in Jolly Harbour but I did find 241A Jolly Harbour Drive. It was an empty villa for rent. Maybe just a coincidence.  When I returned home I sent FXCast an email asking for clarification on their office location and they responded that, "in the summer, the FXCast staff is either in St. Johns or in Europe."  

Maybe I just couldn't find the correct address that day and went to the wrong place.  But if that was the case, why didn't the FXCast staff member who responded to my email tell me that I had the wrong address? You just never know, with offshore companies, who you are dealing with.

It gives me a sense of comfort when I can walk into my local Charles Schwab office to transact business.  If there is an issue with my Schwab account I know exactly how to get in touch with them by phone or (and this is the point) in-person.  

You can't do that if your brokerage company is in Cyprus and you really don't know where the broker is.