Cyprus offers one of the most attractive tax regimes in Europe. A member of the European Union Since 2004. Cyprus’ regulatory regime is in full compliance with the requirements of the EU and OECD. Cyprus has on 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.
Key Features of the Cyprus Tax System
- Simple, transparent and EU harmonised tax system following recommended OECD practices
- Enjoys the tax benefits of EU Directives (Parent –Subsidiary Directive and Interest and Royalties Directive)
- Extensive Tax Treaty network with 65 countries
- A corporate income tax rate of 12.5%, one of the lowest within the EU with possibility to enjoy a much lower effective tax rate
- Availability of a Notional Interest Deduction for companies receiving new equity funding. The tax deduction can reach up to 80% of the taxable income produced by employing the new equity funding.
- IP Box regime based on the nexus approach which allows 80% deemed deduction on qualifying profits from the business use of IP
- Attractive Tonnage Tax (TT) regime to ship owners, managers and charters
- Capital gains exempt from tax (except for capital gains arising from disposing real estate situated in Cyprus)
- Profits of a foreign Permanent Establishment exempt from tax
- Gains from trading in securities (shares, bonds and a broad list of other financial instruments) exempt from tax
- Unilateral credit relief for foreign taxes
- No withholding tax on dividend, interest or royalty payments (for use of royalties outside of Cyprus) made to non-Cyprus tax residents or Cyprus tax residents non-domiciled individuals
- No taxes on entry, reorganisations and exit
- Most international transactions free of VAT
- Carry forward of tax losses for five years
- Tax incentives for expatriate employees taking up employment in Cyprus (up to 50% of employment income for individuals earning more than €100k per annum)
- Dividend income and interest income exempt from tax for nondomiciled individuals taking up tax residency in Cyprus
- Possibility to obtain Cyprus tax residency by spending only 60-days in Cyprus (subject to conditions)
- No inheritance tax
- No immovable property tax
- Corporation Tax
- Corporation Tax Rate: 12.5%
Basis of Taxation
All companies that are tax residents of 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 of Cyprus if it is managed and controlled in Cyprus.
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Special Types of 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.
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 as additional corporation tax.
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.
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.
Personal Income Tax
Basis of taxation
All Cyprus tax residents are taxed on all income accrued or derived from all sources in Cyprus and abroad. Individuals who are not tax residents of Cyprus are taxed on income accrued or derived from sources in Cyprus. An individual is tax resident in Cyprus if he spends more than 183 days in any one calendar year in Cyprus.
|Personal tax rates The following income tax rates apply to individuals:|
|Taxable Income (€)||Tax Rate (%)||Tax (€)||Cumulative Tax (€)|
|60,001 and over||35|
*Foreign pension is taxed at the rate of 5%. An annual exemption of €3,417 is granted.
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. Cyprus constitutes an attractive EU VAT jurisdiction applying several options permissible by the EU Directive among others a flexible VAT Grouping. As long as the pre-requisite links are satisfied, and governmental revenues are not put into jeopardy, related entities can form a VAT group disregarding intra-group transactions and having a representative member submitting a single VAT return. Even such entities not incorporated in Cyprus can form a VAT Group in case they are tax resident or possessing an establishment in Cyprus.
Special contribution for defence
Special contribution for defence is imposed on income earned by Cyprus-domiciled tax residents. Non-tax Non Cypriot-domiciled residents are exempt from special contribution for defence.
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 – these deadlines are extended by three months in case of electronic submission. Sole proprietors with an annual turnover more than €70,000 are obliged to prepare audited financial statements.
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 three years – for employment which commenced during 2012 or after 2012 this exemption applies for five years with the last year for which the exemption will be available being 2020)
Cyprus has concluded double taxation treaties with over 60 countries which provide important tax advantages.
|Cyprus Double Tax Treaties:|
|Kazakhstan||Kingdom of Bahrain|
|San Marino||Saudi Arabia|
|Thailand||The States of Guernsey|
|Ukraine||United Arab Emirates|
Updated: December 2019