Cyprus Taxation The following information intends just to present the basic provisions of the Cyprus tax policy. This information should only be seen as a source of general information and cannot substitute professional advice. Corporate Tax Cyprus offers a range of alternative tax advantages to overseas companies conducting business on the island. Such advantages derive from the country's favourable legislation as well as from the wide network of double taxation treaties. In short, the key provisions of corporate taxation are: - Uniform corporate tax rate of 10%
- No tax on dividends
- Favourable tax treatment of losses
- No tax on profits from permanent establishment outside Cyprus, subject to conditions
- Double taxation treaties with over 40 countries
- No tax on capital gains from disposal of securities listed on a recognised Stock Exchange
- No tax on profits from reorganisations
- Tax free repatriation of profits and capital
Personal Income Tax An individual is tax resident in Cyprus if he spends in Cyprus more than 183 days in the year of assessment. All Cyprus tax residents are taxed on all income earned both in Cyprus and abroad. In contrast, non-tax residents are taxed on income earned only from sources in Cyprus. The following income tax provisions relate to individuals: - Low income tax
- No tax on dividends and interest, subject to certain conditions
- No tax on profits of a permanent establishment abroad and on salary earned abroad, under certain conditions
- Profits gained from the sale of securities are exempt from tax
- Loss of current year and previous years are deducted from the taxable income, subject to certain conditions
- Income received in the form of retiring gratuity, compensation for death or injuries, provident fund, pension fund, or other approved funds, is exempt from tax
Special Tax Treatments - International Trusts: Cyprus international trusts enjoy important tax advantages, providing significant tax planning possibilities:
- Income and gains of a Cyprus international trust, derived from sources outside Cyprus are exempt from any tax imposed in Cyprus
- Dividends, interest or other income received by a trust from a Cyprus international business company are not subject to tax nor are they subject to withholding tax
- No capital gains tax is charged on the disposal of assets of an international trust
- Exemption from taxation in the case of an alien who creates an international trust in Cyprus and retires in the country, on condition that all the property settled and the income earned is abroad, even if the individual is a beneficiary
- Taxation of Shipping Companies: Profits from the operation of Cypriot registered vessels or on dividends received from a shipowning company are subject to zero corporation tax. Ship and crew management businesses have the option of being taxed either at the rate of 4,25% on their profits or at a rate equal to 25% of tonnage tax rates of vessels under management. The tonnage tax is not levied in respect of ships under the Cypriot flag for which a tonnage tax has already been paid.
Value Added Tax The standard rate of VAT is set to 15%; the lowest rate permitted in the EU. Reduced VAT rates of 8% and 5% also apply, as well as the zero-rate of VAT on specific goods and services. Visitors from non-EU countries can claim a refund of VAT paid on their purchases of goods in Cyprus upon their departure from the country, provided that the purchased goods are transported outside Cyprus (and the EU) in their personal luggage. Registration is compulsory for businesses with (a)turnover in excess of €15.600 during the 12 preceding months or (b)an expected turnover in excess of €15.600 within the next 30 days.
Businesses with turnover less than €15.600 and companies which make supplies for which the right to claim the amount of the related input VAT is granted have the option to register if they wish to do so. Holding Companies A Cyprus holding company can be successfully utilised for international tax planning purposes, and at the same time enjoy the status of being located at a trustworthy business centre. In summary, a Cyprus holding company offers the following advantages in relation to the major tax considerations: - No withholding tax on dividend income received from subsidiary companies abroad
- Double tax treaties with over 40 countries, enabling lower withholding tax rates on dividend or other income received from subsidiaries abroad
- Being an EU member state, holding companies registered in Cyprus may also enjoy no withholding tax on dividends received from EU subsidiaries
- No withholding tax on capital gains and income on the disposal of neither the shares of the subsidiary's share capital nor the shares of the Cyprus holding company
- No tax on capital gains or income on the liquidation of the Cyprus holding company
- No withholding tax on distribution of profits, subject to conditions
- Outward dividends by the Cyprus holding company to its non-resident shareholders are exempt from any withholding taxes
- Profits earned from a permanent establishment abroad are fully exempt from Cypriot tax, subject to certain conditions
- A diversified group of Cyprus companies belonging to a Cyprus holding company can set off Group relief for the utilisation of tax losses
- No minimum holding period
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