ABOUT CYPRUS

Cyprus offers one of the lowest and stable corporate tax rate in the EU. A member of the European Union since 2004 and a member of the Eurozone since 2008. Cyprus’ regulatory regime is in full compliance with the requirements of the EU and OECD. Cyprus offers one of the most attractive tax regimes in Europe with one of the lowest EU corporate tax rates at 12.5%. The island’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 planners.

All the above combined with the high-skilled professionals, business infrastructure and the geographical position, makes Cyprus an ideal business hub.

Basis of Taxation

All companies that are tax residents in Cyprus are taxed on their income accrued or derived from all sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on income accrued or derived from a business activity which is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus. A company is resident in Cyprus if it is managed and controlled in Cyprus.

Special Type of Companies and Important Details

Shipping Companies

The Merchant Shipping Legislation, fully approved by the EU, provides for exemption from all direct taxes and taxation under tonnage tax regime of qualifying shipowners, charterers and shipmanagers, from the operation of qualifying community ships (ships flying a flag of an EU member state or of a country in the European Economic Area) and foreign (non-community) ships (under conditions), in qualifying activities. The legislation allows non community vessels to enter the tonnage tax regime provided the fleet is composed by at least 60% community vessels. If this requirement is not met, then non community vessels can still qualify if certain criteria are met. The legislation includes an “all or nothing” rule, meaning that if a shipowner/ charterer/ shipmanager of a group elects to be taxed under the tonnage tax regime, all shipowners/ charterers/ shipmanagers of the group should elect the same. Exemption is also given in relation to the salaries of officers and crew aboard a Cyprus ship.

Insurance Companies

Profits of insurance companies are liable to corporation tax similar to all other companies except in the case where the corporation tax payable on taxable profit of life insurance business is less than 1.5% of the gross premium. In this case the difference is paid.

 

Special Contribution for Defence

Special contribution for defence is imposed on income earned by Cyprus tax residents. Non-tax residents are exempt from special contribution for defence. Individual tax residents who have gained the non-domiciled status are excempt from special contribution for defence.

Tax Year

The tax year is the calendar year. The accounts of a company may be closed on a date different from 31st of December, in which case taxable profits are apportioned on a time basis relevant to the tax years.

Value Added Tax

Imposition of Value Added Tax (VAT) is imposed on the supply of all goods and services in Cyprus, on the acquisition of goods from other Member States and on the importation of goods from third countries. The standard rate of 19% applies to the supplies of all goods and services in Cyprus which are not subject to the zero rate, the reduced rates (5% and 9%) or are not exempt.

Consolidated Returns

Taxation on a consolidated basis is not permitted and each company is required to submit a separate return. A setoff of group losses is possible provided there is a 75% parent subsidiary relationship, including subsidiaries under 75% control of a common parent company. Group loss relief is available only between resident companies. Filing Requirements: Tax returns must be filed by 31st December following the accounting year end. Companies are required to pay provisional tax in 3 equal instalments on 1st August, 30th September and 31st December. Any underpayment payable is due by 1st August of the following year. If the income declared for the payment of the provisional tax is lower than 75% of the income as finally determined, an additional amount equal to 10% of the difference between the final and provisional tax is payable.

Submission of Tax Returns

The tax year is the calendar year. Tax on employment income is withheld by the employer under the PAYE system and remitted to the tax authorities. Self-employed individuals pay tax through the provisional and self-assessment systems. Tax returns must be filed by 30th of April following the tax year for employees, 30th June for self-employed persons who are not required to file audited accounts and 31st of December for self-employed persons whose returns are accompanied by audited accounts. Sole proprietors with an annual turnover of more than €68,344 are obliged to prepare audited financial statements.

Key Features of the Cyprus Tax System

  • OECD approved / EU compliant tax system
  • One of the lowest tax rates in the European Union at 12.5%. The effective tax rate can be reduced further due to specific exemptions provided by the tax legislation
  • Wide network of favorable tax treaties with almost 60 countries
  • Reasonable tax administration
  • Tonnage Tax (TT) regime attractive to ship owners, managers and charters.
  • Possibility to obtain tax rulings in advance by the tax authorities provides flexibility and minimization of tax risk
  • IP Box regime: effective tax rate of 2.5% on profits from the use and sale of qualifying intangible assets (restrictions may apply)
  • No taxes on entry, reorganizations and exits. Company reorganization rules ensuring tax neutrality for group restructuring transactions
  • Low transaction taxes
  • No thin-capitalization rules or Debt/Equity ratios
  • No withholding taxes on payments to non-residents (apart from royalties paid for IP economically utilized in Cyprus)
  • No wealth taxes and only minimal stamp and local taxes
  • No exchange controls
  • No detailed transfer pricing rules (arm’s length principle only)
  • Most international transactions free of VAT
  • Foreign source income generally tax-exempt
  • Profits on transactions in shares tax exempt
  • Unilateral credit relief for foreign taxes
  • No CFC legislation
  • ‘Non-dom’ rules for Cyprus tax resident not domiciled in Cyprus. Any interest, rents or dividends (whether actual or deemed) regardless of whether such income is derived from sources within Cyprus and regardless of whether such income is remitted to a bank account or economically used in Cyprus, is exempt from special defence contribution.
  • Capital Gains Tax only on gains from sale of real estate situated in Cyprus or sale of shares owning real estate situated in Cyprus
  • -Exemption applies if shares are listed on recognized stock exchange -Exemption from Capital Gains Tax on Immovable Property acquired between 16th July 2015 and 31st December 2016
  • Tax incentives for expatriate employees taking up employment in Cyprus
  • -50% exception of remuneration from any office or employment exercised in Cyprus that exceeds €100,000 per annum by an individual who was not tax resident of Cyprus prior to the commencement of employment (applicable for 10 years) -20% exception with a maximum of €8,550 of remuneration from any office or employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his employment (applicable for 3 years – for employment which commenced during 2012 or after 2012 this exemption applies for 5 years with the last year for which the exemption will be available being 2020)

Cyprus Double Tax Treaties

The following table is a summary of the applicable withholding tax rates for the income between countries having a double taxation treaty with Cyprus. The tax rates below are valid under certain conditions which are determined by the provisions of each agreement.

 

  Received in Cyprus Paid from Cyprus
Dividends Interest Royalties Dividends Interest Royalties
% % % % % %
Non-treaty countries 0 0 0 0 0 5/10(12)
1 Andorra(31) 0 0 0 0 0 0
2 Armenia 0/5(32) 5(33) 5 0(32) 0 5(49)
3 Austria 10(46) 0 0 0 0 0
4 Azerbaijan(27) 0 0 0 0 0 0
5 Bahrain 0 0 0 0 0 0
6 Barbados 0 0 0 0 0 0
7 Belarus 5/10/15(4) 5 5 0 0 5
8 Belgium 10/15(1)(46) 0/10(16)(46) 0 10(1)(46) 10(16)(46) 0
9 Bosnia(28) 10 10 10 0 0 5/10(12)
10 Bulgaria 5/10(19)(46) 0/7(25)(46) 10(20)(46) 0 0 5/10(12)
11 Canada 15 0/15(8) 0/10(11) 15 15(8) 0/5/10(11)
12 China 10 10 10 0 0 5/10(12)
13 Czech Republic 0/5(30)(46) 0 10 0 0 0/10(18)
14 Denmark 0/15(34) 0 0 0 0 0
15 Egypt 5 10 10 5 10 10
16 Estonia 0 0 0 0 0 0
17 Ethiopia 5 5(8) 5 0 0 5
18 Finland 5/15(37)(46) 0 0 0 0 0
19 France 10/15(7)(46) 0/10(9)(46) 0/5(26) 0 0 0/5(26)
20 Georgia 0 0 0 0 0 0
21 Germany 5/15(2)(46) 0 0 0 0 0
22 Greece 25(46) 10(46) 0/5(12) 0 0 0/5(12)
23 Guernsey 0 0 0 0 0 0
24 Hungary 5/15(1)(46) 0/10(8)(46) 0 0 0 0
25 Iceland 5/10(39) 0 5 0 0 5
26 India 10 0/10(8) 10(49) 0 0 5/10(12)
27 Iran 5/10(19) 5 6 0 0 5/6(12)
28 Ireland 0 0 0/5(12) 0 0 0/5(12)
29 Italy 15(46) 10(46) 0 0 0 0
30 Jersey 0 0 0 0 0 0
31 Kuwait 0 0 5(14) 0 0 5(14)
32 Kyrgyzstan(27) 0 0 0 0 0 0
33 Latvia 0/10(42) 0/10(42) 0/5(43) 0 0 0/5(43)
34 Lebanon 5 5(16) 0 0 0 0
35 Lithuania 0/5(40) 0 5(46) 0 0 5(46)
36 Luxembourg(31) 0/5(35) 0 0 0 0 0
37 Malta 0(22) 10(8) 10 0 10 5/10(12)
38 Mauritius 0 0 0 0 0 0
39 Moldova 5/10(19) 5 5 0 0 5
40 Montenegro(28) 10 10 10 0 0 5/10(12)
41 Norway 0/15(3) 0 0 0 0 0
42 Poland 0/5(36) 0/5(8)(46) 5(46) 0 0 5(46)
43 Portugal 10(46) 10(46) 10(46) 0 0 5/10(12)
44 Qatar 0 0 5 0 0 5
45 Romania 10(46) 0/10(8)(46) 0/5(14)(46) 0 0 0/5(14)(46)
46 Russia 15/5(52) 15/0(53)(54) 0 0 0 0
47 San Marino 0 0 0 0 0 0
48 Saudi Arabia(31) 0(44) 0 5/8(45) 0 0 0
49 Serbia(28) 10 10 10 0 0 5/10(12)
50 Seychelles 0 0 5 0 0 5
51 Singapore 0 0/7/10(23) 10 0 0 5/10(12)
52 Slovakia(29) 10(46) 10(8)(46) 5(14)(46) 10(46) 10(8)(46) 0/5(14)(46)
53 Slovenia 5(46) 5(33)(46) 5(46) 0 0 5
54 South Africa 5/10(41) 0 0 0 0 0
55 Spain 0/5(35) 0 0 0 0 0
56 Sweden 5/15(1)(46) 0/10(8) 0 0 0 0
57 Switzerland 0/15(38) 0 0 0 0 0
58 Syria 0/15(1) 0/10(8) 10/15(13) 0 0 5/10(12)
59 Thailand 10 10/15(17) 5/10/15(18) 0 0 5/10(50)
60 Ukraine 5/15(21) 5 5/10(15) 0 0 5/10(51)
61 United Arab Emirates 0 0 0 0 0 0
62 United Kingdom(31) 0/15(24) 0 0 0(24) 0 0
63 United States of America 5/15(5) 0/10(10) 0 0 0 0
64 Uzbekistan(27) 0 0 0 0 0 0

 

 

Cyprus double tax treaties notes:

  1. 15% if received by a company controlling less than 25% of the voting power.
  2. 5% if received by a company controlling more than or equal to 10% of the capital. 15% in all other cases.
  3. NIL if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividend. 15% in ail other cases.
  4. 5% if the amount invested by the beneficial owner is over 200.000 irrespective of the % of voting power acquired. 10% is imposed if received by a holder of at least 25% of the share capital of the paying company. Otherwise the rate is 15%.
  5. 5% if received by a company controlling at least 10% of the voting power. 15% in all other cases.
  6. 10% if received by company, which has invested less than 100.000.
  7. 10% if received by a company controlling more than or equal to 10% of the capital. 15% in all other cases.
  8. NIL if paid to the Government of the other State.
  9. NIL if paid to the Government of the other State or in connection with the sale on credit of any industrial, commercial or scientific equipment or any merchandise by one enterprise to another or in relation to any form of loan granted by a bank or is guaranteed from government or other governmental organisation.
  10. NIL if paid to the Government of the other State, to a bank or a financial institution or in respect to debt obligations arising in connection with sale of property or the provision of services.
  11. NIL on literary, dramatic, musical or artistic work apart from films used for television programs. The withholding tax rate of 5% is applicable on cinematographic film royalties.
  12. 5% on film royalties (except films shown on TV).
  13. 10% on literary, musical, artistic work, films and TV royalties.
  14. NIL on literary, artistic or scientific work including films.
  15. 5% on royally payments in respect oi any copyright of scientific work any patent, trademark, secret formula, process or information concerning industrial, commercial or scientific experience. 10% in all other cases.
  16. NIL if paid to the Government of the other State, a political subdivision or a local authority, the National Bank or any institution the capital of which is wholly owned by the State or a political subdivision or a local authority or in the form of interest income from bank deposits.
  17. 10% on interest received by financial institutions, on interest paid in connection with industrial, commercial scientific equipment or the sale or merchandise between two companies.
  18. 10% on right to use industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience and 15% for patents, trademarks, designs, models, plans, secret formulas or processes.
  19. 5% if the dividend is received by a company owning directly at least 25% of the capital of the company paying divided. 10% in all other cases.
  20. This rate does not apply, where 25% or more of the capital of the Cypriot resident is owned directly or indirectly by the Bulgarian resident paying the royalties and the Cyprus company pays less than the normal rate of tax.
  21. 5% is applicable if the dividend is received by a company owning at least 20% of the capital of the dividend paying company or has invested in the acquisition of shares or other rights of the dividend paying company or at least 100.000. 15% in all other cases.
  22. The treaty provides that the tax on the gross amount of the dividends shall not exceed that chargeable on the profits out of which the dividends are paid.
  23. 7% if paid to a bank or similar financial institution. NIL if paid to the government.
  24. The treaty provides for 15% withholding tax for dividends paid by certain investment vehicles out of income derived, directly or indirectly, from tax exempt immovable property income.
  25. NIL if paid to or is guaranteed by the Government, statutory body, the Central Bank.
  26. 5% on film royalties, including films used for television programs.
  27. The treaty between the Republic of Cyprus and the United Soviet Socialist Republic still applies.
  28. The treaty between me Republic of Cyprus and the Socialist Federal Republic of Yugoslavia still applies
  29. The treaty between the Republic of Cyprus and the Czechoslovak Socialist Republic still applies.
  30. NIL if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends where such holding is being possessed for an uninterrupted period of not less than one year. 5% in all other cases.
  31. The treaty is effective from 1st March 2019 and applied on taxes from 1st January 2020 onwards.
  32. 5% if the beneficial owner has invested in the capital of the company less than the equivalent of 150.000 at the time of the investment.
  33. NIL if paid to the Government or to a local authority, or to the Central Bank.
  34. Nil if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends, where such holding is being possessed for an uninterrupted period of no less than 12 months.
  35. NIL if the beneficial owner is the other Contracting State or the Central Bank of that other State, or any national agency or any other agency (including a financial institution) owned or controlled by the Government of that other State.
  36. NIL if the beneficial owner is a pension fund or other similar institution providing pension schemes in which individuals may participate in order to secure retirement benefits, where such pension fund or other similar institution is established, recognised for tax purposes and controlled in accordance with the laws of that other State, 15% in all other cases.
  37. NIL if the dividend is received by a company (other than a partnership) holding at least 10% of the capital of the dividend paying company. 5% in all other cases.
  38. NIL if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends, where such holding Is being possessed for on uninterrupted period of no less than 24 months. 5% in all other cases.
  39. 5% if the dividend is received by a company (other than a partnership) which controls directly at least 10% of the voting power in the company paying the dividends. 15% in all other cases.
  40. NIL if the beneficial owner is:
    1. a company (other than a partnership) the capital of which is wholly or partly divided into shares and which holds directly at least 10% of the capital of the company paying the dividend for an uninterrupted period of at least or e year.
    2. a pension fund or other similar institution recognised as such for tax purposes, or
    3. the Government, a political subdivision, local authority or central bank of one of the two contracting states. 15% in all other cases.
  41. 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends. 10% in all other cases.
  42. NIL if the beneficial owner is a company (other than a partnership) which holds directly of least 10% on the capital of the company paying the dividends. 5% in all other cases.
  43. 5% if the dividend is received by a company which holds at least 10% of the capital of the company paying the dividend. 10% in all other cases.
  44. NIL if the beneficial owner is a company (other than a partnership). 10% in all other cases.
  45. NIL if the beneficial owner is a company (other than a partnership). 5% in ail other cases.
  46. NIL if the beneficial owner is a company which holds directly or indirectly at least 25% of the capital of the company paying the dividends. 5% in all other cases.
  47. 5% on royalties for the use of, or the right to use. industrial, commercial or scientific equipment. 8% in all other cases.
  48. An exemption from withholding tax on dividends may be available if the conditions for the application of the EU parent subsidiary directive are satisfied. An exemption from withholding tax on interest may also be available if the conditions for the application of the EU interest and royalties elective are satisfied.
  49. A withholding tax of 10% is also applicable for payments of a technical managerial, or consulting nature. Prior to 1st April 2017, a rate of 15% applies on royalties.
  50. 5% withholding tax applies for any copyright of literary, dramatic, musical, artistic, or scientific work.
  51. A 5% withholding tax will be levied on payment of royalties in respect of any copyright of scientific work, any patent, trademark, secret formula, process, or information concerning industrial, commercial, or scientific experience and cinematographic films.
  52. 5% withholding tax should apply, where the recipient/beneficial owner of a dividend is a regulated entity such as a pension fund or insurance undertaking, a company the shares of which are listed on a registered stock exchange (subject to conditions), the Government or a political subdivision or a local authority, and the Central Bank.
  53. NIL if the beneficial owner is an insurance undertaking or a pension fund, the Government or a political subdivision or a local authority, the Central Bank, a banking institution,
  54. NIL if the interest earned is on corporate bonds, government bonds and Eurobonds.