CYPRUS TAX SYSTEM

Overview of the Corporate Tax System in Cyprus

Cyprus has a very competitive tax system that is fully aligned with EU and international regulations. Cyprus tax resident companies benefit from Cyprus’ extensive double taxation treaty network with over 55 countries worldwide as well as access to EU directives. Cyprus’ tax system is in full compliance with EU requirements and also within the OECD requirement against harmful tax practices. The OECD includes Cyprus on the White List of jurisdictions that have substantially implemented the internationally agreed tax standard.

Business activities which are ideally suited to the Cyprus tax environment include:

• Holding companies
• Finance companies
• IP companies
• Investment Funds
• Trading/Value-Chain-Transformation companies

Cyprus Corporate income tax, at the competitive flat rate of 12,5%, is the main tax applicable on the income of a Cyprus tax resident company.

Tax competences for international business investors:

• Foreign sourced dividends are exempt from tax under easily met conditions.
• Disposals of shares and other qualifying titles (such as corporate bonds) are exempt from tax provided the disposed company does not hold any immovable property in Cyprus.
• Profits of a foreign Permanent Establishments (PE) are exempt from taxation in Cyprus, under easily met conditions.
• The Cyprus IP tax regime can be utilized to achieve an effective tax rate of low 2,5% or even lower.
• The lowest corporate tax rate in the EU.
• A network of favourable double tax treaties.
• Access to EU Directives.
• No withholding tax on dividends and interest paid (non tax residents of Cyprus.
• No withholding tax on almost all royalties.
• No capital gains on profits from the sale of shares, securities, bonds and units.
• No tax on foreign dividends and interest received.
• No tax on foreign Permanent Establishments (PE).
• No thin capitalization rules.
• Absence of Controlled Foreign Company.

The taxation of companies is based on residence. All companies that are tax resident in Cyprus are taxed on their worldwide income accrued or arising from sources both within and outside Cyprus. Non-resident companies are taxed in Cyprus only on income derived from a permanent establishment or immovable property in Cyprus. A company is resident of Cyprus if it is managed and controlled in Cyprus. Registration or incorporation in Cyprus is not sufficient to render a company liable to tax in Cyprus.