Cyprus Tax Advantages
With its wisely shaped, EU- and OECD-compliant tax system, Cyprus is the most advantageous business jurisdiction in the EU
Cyprus Tax Advantages
The Cyprus Tax Regime is set to provide a business-friendly environment
In Cyprus, taxation of business profits is 12.5%. Furthermore, the Cyprus Tax Regime provides for several income classes that are not taxable.
Cyprus is probably the best place to do business in the EU, not only because business-friendly Cyprus Tax Regime. Currently (end of 2016) around thousand companies are registered every month in Cyprus – a clear proof of the many advantages of Cyprus’ legislation.
In the course of harmonisation, focusing on the then future EU-membership, Cyprus dismissed its “offshore” legislation in 2002 and 2003 step by step. Simultaneously, a new system of EU-conform tax advantages has been set up, and the refinement is still continued day by day. Today, Cyprus is even more attractive as a place of doing business, providing not only tax advantages but many other advantages as well.
The importance of substance
In order to fully benefit from the tax advantages of Cyprus, Companies in Cyprus are required to maintain operative substance in Cyprus. For more information:
Companies Need Sufficient Substance to Avoid Cross-Border Tax Issues;
Cyprus Tax Residency: Where will my Cyprus Company get taxed?.
The Cyprus Tax Regime: Some of the many tax advantages that Cyprus Companies benefit from:
- differentiation between ‘tax residents’ and ‘non tax residents’
- corporate tax is only 12,5 %, very low tonnage tax for ship-owning and shipping companies, 2,5 % on income from Intellectual Property (conditions apply, please read our specific page)
- no corporate tax for ‘non tax resident’ companies (with management residing abroad; special conditions apply)
- no Cyprus tax on disposal or trading of securities
- no Cyprus tax on income from dividends on company level (for a period of four years)
- no Cyprus withholding tax on dividends paid to shareholders outside of Cyprus
- no Cyprus tax on dividend income for non-domiciled but tax-resident individuals, please read our specific page
- no Cyprus tax on interest income on account of non-residents with banks in Cyprus
- no Cyprus tax for International Trusts
- full adoption of the EU-Parent-Subsidiary-Directive (dividend payments of the subsidiary to its parent are tax-exempted)
- full tax group relief (profits of one group company are offset against losses of another group company)
- offshore entities from other countries are allowed as shareholders
- rigid appliance of all relevant EU directives
The Cyprus Tax Regime: Cyprus Tax Classes in Brief:
Corporate Tax in Cyprus
Non tax-resident Cyprus Companies are not liable for corporate tax in Cyprus, provided that
- the directors do not reside in Cyprus, and
- that the companies do not conduct any business with natural or legal persons residing in Cyprus.
In the case where a non-tax resident Cyprus Company conducts business in Cyprus, the profit from this business will be taxed in Cyprus. Non-tax-resident companies cannot benefit from Double Taxation Avoidance Treaties.
Tax-resident Cyprus Companies pay 12,5 % corporate tax on their taxable income. However:
- income from dividends, appreciation of shares and bonds and from the purchase and sale of the aforementioned or from the sales of participations is not taxable; certain conditions apply.
Double Taxation Avoidance Agreements fully apply.
The profit that accrues from the exploitation of Intellectual Property is taxable at a favoured rate of only 2,5 %. As per the new EU regulations from 2016, a number of condition applies. Please read the related information.
Cyprus Special Contribution for Defence
The so-called Cyprus Defence Tax as per the Cyprus Special Contribution for Defence Tax Law is payable, under certain circumstances, on income from dividends and interest. The EU Parent-Subsidiary Directive fully applies.
The Cyprus Defence Tax on dividend income is 17 % (for tax-resident individuals). If a tax-resident person benefits from the non-dom tax status, Cyprus Defence Tax is not applied for a number of years.
The Cyprus Defence Tax on income from interest that is not related to the business of the company is 30 %.
Note: Interest income from loan agreements between group companies (companies that belong to or are under the control of the same beneficial owner) is generally considered as related to the business of the company. The rate of interest must be at arm-length, please read our specific news.
Personal Income Tax in Cyprus
Annual earnings of an individual up to EUR 19.500 are not taxable in Cyprus. Earnings over EUR 19.500 are taxed as per the Cyprus Income Tax Law, at a rate of 20 – 35 %, where the highest tax rate of 35 % is applied for the portion of annual earnings over EUR 65.000.
Cyprus tax-resident but non-domiciled individuals enjoy substantial tax benefits through the Cyprus Non-Domiciled Tax Regime. Please read our specific page for “non-doms”.