Cyprus Taxation Environment
Cyprus offers specialized services and tax advantages – to companies, individuals and international trusts that transfer their headquarters to Cyprus. The company is considered a tax resident of Cyprus when the control and management of the company are exercised in Cyprus.
The Cyprus tax regime offers perhaps the most attractive tax system in Europe, because of its benefits and simplicity. The country offers an efficient, transparent tax system and consistently its interpretation and practice. Its status is fully compatible with EU legislation and regulations. In addition, the Organization for Economic Cooperation and Development (OECD) includes Cyprus on its “white list” as one of the 45 countries that have established and implemented the highest international standard agreed harmful tax practices.
Favourable Tax System
- Below are the main tax advantages of Cyprus in international companies which are Cyprus tax residents: Uniform corporate tax rate of 12.5% (which is probably the lower tax rate in Europes.
- Wide network of double tax treaties with more than 48 countries including Austria, China, Denmark, Germany, Hungary, India, Russia, Poland, UK, USA, Ukraine, Greece.
- Dividend income is exempt from tax irrespective of its source provided at least 1% holding in the company paying the dividend is maintained.
- Dividends paid to non-resident shareholders are exempt from withholding tax.
- Capital gains and income tax exempt on the profits and gains derived from the disposal of securities.
- Relief for Losses: Companies can carry forward corporate tax losses, for five years.
- Capital gains and income tax exemption applies for real estate or other assets situated outside Cyprus. Capital gains tax applies only to gains on the disposal of immovable property situated in Cyprus or unlisted shares in a company which owns immovable property situated in Cyprus.
- The corporate taxation rate is zero and there is no annual government fee if the entity is a non-resident.
- Interest incurred by a Cypriot company is generally deductible.
- Based on the EU merger directive, where a transaction is for “reorganization” it is exempt from corporate income tax, capital gains tax and transfer fees.
- There is no capital gains or income tax on the liquidation of participations or of a Cyprus company.
- Cross border merger of two or more companies is possible, of two Cypriot or one Cypriot and another non-Cypriot company.
- VAT registration is possible.
- Major tax benefits for intellectual property companies -IPs (copyright, patterns, trademarks, etc). Tax exemption of 80% of profits, under conditions.
- Major tax benefits to ship-owing, ship management and ship chartering companies.
- There is no withholding tax at any time on: • Dividends paid to non-resident shareholders
• The interest and major part of royalties paid from Cyprus • Profits and revenue from the disposal of either the equity shares of subsidiary or the share of the Cyprus company capital participations.
- Offsetting losses for corporate groups.
Further Incentives for Investments
As part of the Government’s efforts to reinforce local investments, a series of additional tax incentives are offered:
- The provision of discount of 25% on taxable income paid by employers for each additional
- Immovable Property Tax (IPT) is abolished in 2017.
- Accelerated depreciation, notional interest deduction (NET) fresh funds.
- Property transfer fees are reduced: (a) If VAT was paid on the purchase price of the property, no property transfer fees are payable (b) If VAT was not paid on the purchase price of the property, the property transfer fees are reduced by 50%.
Cyprus offers to individuals, one of the lowest tax regimes in Europe. The following tax rules apply to individuals:
- An individual tax resident of Cyprus is one who resides in the Republic for more than 183 days in a calendar year. Under certain conditions, 60 Days tax residency status can be secured.
- Individuals are taxed on a scale ranging from zero for income up to € 19,500 per year and a maximum of 35%.
- The Cyprus tax residents are taxed on worldwide income, while non-tax residents are taxed
only on income from sources in Cyprus.
- Dividends paid to non-resident shareholders, are exempt from withholding tax.
- Allowance of 50% of remuneration of employees from first time employment in Cyprus in the first five years if annual earnings exceed € 100,000. Excemption applies for a period of 10 years for employment commencing as from 1/1/2012.
- Allowance 20% of remuneration (maximum €8.550 annually) of employees for first employment in Cyprus provided that the individual was not resident in Cyprus before commencement of employment .
- Tax exemption on profits of a permanent establishment abroad and salary gained abroad (90-day rule).
- No tax on profits gained from the sale of securities such as shares, bonds, debentures etc. or
lump sums received as a retirement gratuity, compensation for death or injury. The provident
funds, pension funds or other approved funds are exempt from tax.
- There is no inheritance tax.
- There is no obligation by non-permanent residents to pay defense tax (non – domicile). Residents