Cyprus Tax System
The efficient tax system established in Cyprus can be considered as the major reason to call the Cyprus as an ideal business center.
As per the Cypriot tax law, all companies which are tax resident in Cyprus are taxed at 12.5% on taxable income accrued or derived from all sources both in Cyprus and abroad. A company is considered to be tax resident in Cyprus if it is managed and controlled from Cyprus.
“Management and control” means that (non exhaustive list)
- The majority of the board of directors resides in Cyprus
- The board meetings take place in Cyprus
- The general policy of the company is formulated in Cyprus
(Please note that at PICCO we could advise you how your company will be in compliance with the “management and control” requirements)
Income Tax (Individuals)
In respect of Individuals, all Cyprus tax resident individuals are taxed on all taxable income derived or accrued from all sources in Cyprus and abroad. Individuals who are non-tax residents of Cyprus are taxed only on income derived or accrued from sources in Cyprus.
|Taxable income||Taxable Amount||Tax rate (%)||Tax Amount||Cumulative Tax|
“Resident in the Republic” means an individual who stays in the Republic for a period or periods exceeding in aggregate 183 days in the year of assessment (the year of assessment is the period of 12 months starting 1st January and ending 31 December – fiscal year)
In case an individual who does not remain in any other state for one or more periods exceeding in aggregate 183 days within the same tax year and which is not a tax resident in any other state the same tax year, shall be deemed to be a resident of the Republic in question tax year, if it meet all the following conditions:
(i) stays in the Republic for at least 60 days in the tax year,
(ii) carries on any business in the Republic and / or is employed in the Republic and / or holds a position in person a tax resident of the Republic at any time during the tax year and
(iii) he has a permanent home which belongs to him or rented by in the Republic.
Key provisions of the Corporation/Income tax law
- One of the lowest corporate income tax rates in the EU at 12.5%.
- Dividend Income exemption (subject to conditions).
- Profit from the sale of securities (e.g. shares, bonds, debentures, options) exemption.
- Interest Income exemption (e.g. bank deposit) – unless, it arises from the ordinary activities of the company or closely related to the ordinary activities of the company.
- No withholding taxes on dividend, interest and royalty payments abroad.
- No capital gains tax (except for disposal of real estate in Cyprus or shares of company holding real estate in Cyprus to the extent gains are attributable to the real estate holding).
- Attractive IP (Intellectual Property) regime (old regime-2021 2.25% effective tax rate, new regime up to 5%-8% effective tax rate).
- Beneficial tax schemes for shipping companies – Tonnage Tax scheme.
- Notional interest deduction for investments into Cyprus companies through equity –> reduced effective tax rate (up to 2.5%).
- Foreign Exchange gains or losses are tax neutral
- No immovable property taxes
- No succession or inheritance taxes
- Tailor-made provisions for the investment funds industry
- Personal tax exemptions for new residents (up to 50% exemption for ten years) and non-domiciled individuals (SDC-Special Defense Contribution exemption).
- Tax deductions for investment into start-ups
- More than 60 double tax treaties.
- Credit can be claimed in respect of any foreign tax paid.
- One of the lowest value added tax rates in the EU at 19% / 9% / 5%.
- Tax losses incurred during the tax year can be carried forward for relief over the next 5 year period or surrendered to other companies, members of the same group of companies.
- Under reorganization scheme, assets and liabilities can be transferred without any tax implications.
Also, Cyprus has become a popular trust jurisdiction. Some of the Cyprus International Trust benefits:
- Complete tax exemptions (income from non-Cyprus sources are exempt).
- Short limitation period (two years) for challenging a trust.
- No need for any kind of registration.
- Complete confidentiality.
- Low cost of establishment and administration.
- Availability of competent professional trustees.
- Flexibility in adopting foreign law.