Cyprus offers one of the most attractive tax regimes in European Union (EU). A member of the EU since 2004 Cyprus regulatory regime is in full compliance with the requirements of the EU and the Organisation for Economic Co-operation and Development (OECD). Cyprus has one of the lowest EU corporate tax rates at 12,5%. The country’s advantageous tax rate coupled with an extensive list of double tax treaties places it high on the list of preferred jurisdictions for international tax planning.
Key features/benefits of the Cyprus tax system
Personal taxation
An individual who spends more than 183 days in Cyprus is a tax resident of Cyprus. As from 1 January 2017 an individual can be a tax resident of Cyprus even if he/she spends less than or equal to 183 days in Cyprus subject to satisfying a number of conditions.
A tax resident individual who is non-domiciled in Cyprus is exempt from tax on dividend and interest income.
A non-Cypriot tax resident individual is subject to income tax on income accruing or arising only from sources within Cyprus and is exempt from tax on dividend and interest income.
Taxable income up to €19,500 is effectively exempt from income tax.
Remuneration from rendering services outside Cyprus to a non-resident employer or to an overseas permanent establishment of a resident employer for more than 90 days in a tax year is exempt from income tax.
No tax on retirement gratuity and special tax regime on foreign pension income.
Exemption from capital gains tax (CGT) on sale of real estate.
No estate duty, wealth tax, gift tax or inheritance tax.
Income tax exemption for overseas employment.
A non-domiciled individual, irrespective of his/her tax residency status is exempt from tax on dividend and interest income.
No tax on gains arising from the disposal of investments.
Nil/reduced withholding tax on income received from abroad.
Special Defence Contribution (SDC) is imposed only on dividend, interest (most types), and rental income earned by individuals who are both Cyprus tax resident and Cyprus domiciled for the purposes of the SDC.
Non-tax residents are exempt from SDC for all their income, whether earned from Cyprus or foreign sources.
Corporate tax
The rate of corporate tax in Cyprus (12,5%) is one of the lowest in the EU.
The following categories of income are not taxable in Cyprus (some certain to conditions):
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- Dividends;
- Interest income;
- Profit arising from the disposal of securities;
- Transfers of assets and liabilities between companies within the framework of a qualified reorganization;
- Profits from a foreign permanent establishment;
- Capital gains;
- Foreign exchange gains.
Outbound dividends/interest/rental payments made by a Cypriot resident company towards non-residents are not subject to withholding tax in Cyprus.
Royalties paid by a Cypriot resident company to a non-resident re exempt from withholding tax provided that the royalties are earned on rights used outside Cyprus.
Company re-domiciliation is not subject to taxation.
Thin-capitalization rules do not apply.
Advantageous intellectual property tax regime.
Cyprus VAT follows and complies with the EU VAT Directive.
Transactions between related parties need to be carried out at arm’s-length basis terms and conditions
Any expenses which have not been incurred wholly and exclusively for the production of taxable income are disallowed for the purposes of calculating company’s taxable profit.
Interest expense incurred for the acquisition of non-business assets (which do not generate taxable income) are restricted for tax purposes – with the exception of acquisition of a 100% subsidiary (certain to conditions).
A notional interest deduction in the form of notional expense is allowed annually in new equity introduced in the business.
Companies which belong to the same group for tax purposes may utilise group loss relief.
Tax losses survive a change of ownership (subject to conditions).
Special Defence Contribution is imposed on passive interest income.
A local branch of a foreign company is taxed in the same manner as if it were a company and may benefit from double tax relief.
Profits from a foreign permanent establishment are exempt from tax in Cyprus.
Cyprus has introduced controlled foreign company (CFC) and General Anti-Abuse rules with effect of 1 January 2019.
Capital gains tax is imposed on profits from the disposal of real estate situated in Cyprus.
Cyprus signed and became part of the multilateral competent authority agreement on country-by-country porting
There are currently more than 65 bilateral double tax agreements in force all of them following the OECD Model Convention. All of them are incorporated into domestic Law before taking effect.
Stamp duty is imposed on documents relating to assets situated in Cyprus.
Note: Detailed Cyprus Tax facts can be found here.