Tax Regime In Cyprus
Non-resident Investors in AIFs: There are no taxes in Cyprus for non-resident investors in AIFs, and dividends and gains on sale/redemption of shares/units are exempted.
Partnerships: In Cyprus, partnerships are not subject to any taxes. They are tax transparent. Resident partners shall be subject to tax in Cyprus on their share of the partnership profits. Non-resident partners shall be subject to tax on Cyprus source income only.
Corporation Tax: Net profit tax on Companies are at 12,5%. Profits earned in Cyprus from a permanent establishment abroad are exempt from corporation tax. There are Low duties or taxes on the establishment of companies and Holding Companies have no obligation for the VAT registration and compliance.
Dividends: No tax is withheld on dividends, interest and royalties earned in Cyprus paid to non-resident individuals or companies. Income from dividends and royalties is wholly exempt from income tax irrespective of the country or residence of the recipient (even tax haven jurisdictions) or the existence of a Double Tax Treaty, but for the limited exceptions below:
- Dividends Received:
- Participation Exemption: The exemption will not apply if the paying company derives more than 50% of its income from investments, and foreign tax on its income is substantially lower than the tax that is payable in Cyprus on the dividends received.
- Defence contribution, another form of taxation, is imposed on dividends as follows:
- 17% on dividends received for tax residents.
- Nil if received from a non-resident company.
- Dividends from foreign companies: Such dividends will not be exempt from income tax if the dividends were allowed as a tax deduction in the country of residence of the paying company, in which case, then “Dividends Received” above will not apply.
Gains on sale / redemption of shares / units: All gains realized on disposal/redemption of titles (securities, shares, units or shares in a Cyprus Investment Fund etc.) are exempt from Cyprus taxation. This applies to all gains including capital gains and gains from trading titles, but please see “Capital Gains” below.
Capital Gains: Capital gains are not taxable in Cyprus except for the 20% tax on gains on immoveable property that is located in Cyprus, and on any gain from shares in companies that own, directly or indirectly, immoveable property. All other gains of a capital nature are not taxable.
Tax Avoidance rules: There are limited or no anti-avoidance provisions. There is absence of strict transfer pricing rules (there is only a provision on Income Tax requiring transactions between related parties to comply with the “arm’s length” principle. There is also a possibility to obtain advance tax rulings. There are no strict controlled foreign corporation (CFC) rules (designed to limit artificial deferral of tax by using offshore low taxed entities).
Defence Contribution: A person who is resident in Cyprus who is deemed to have received dividends from a Cyprus AIF is subject only to a 3% Defence Contribution on the amount of the gross dividend received. Otherwise a Cyprus tax resident individual shall have to pay defence tax at 17 % on the gross dividend earned as explained in “Dividends” above.
Stamp Duty: The set-up, issue, redemption, settlement and the transfer of units of exempt from stamp duty.
Transfer Taxes: There are no transfer taxes on the issue, redemption or transfer of units
Subscription Tax: No subscription tax on the net assets of a fund.
Inheritance Tax: There is no inheritance tax.
Interest: Interest received in Cyprus not arising from ordinary business activities is exempt from corporation tax. Interest paid is deductible from borrowing costs.
Loans: There are no thin capitalization rules for companies that have a high leveraged debt i.e. where their debt is more than their equity.
Tax Loses: Tax losses can be carried forward for up to five years to be offset against future profits.
Liquidation: No capital gains or income tax on the liquidation of participations or the liquidation of a Cypriot company itself.
Group of company benefits: Subject to conditions, losses from one group company can be offset (surrendered as group relief) against the profits of other Cyprus tax resident companies that belong in the same group during the same financial year. Subject to conditions, a Cyprus tax resident company may also claim tax losses of a group company which is tax resident in another EU country.
Group reorganisations: Mergers, takeovers and other re-organizations are possible within groups without any tax implications or consequences.
VAT: It is possible to obtain a European VAT number for trading within the EU.
Withholding Taxes: Tax on dividend, interest and royalties paid for taxes withheld abroad can be credited against Cyprus taxes.
EU Directives on taxation: Cyprus fully adopts and implements all EU directives regarding company taxation e.g. the Parent-Subsidiary Directive 2011/96/EU, the Mergers Directive 90/434/EEC, the Administrative Co-operation and Mutual assistance Directive 2011/16/EU and the Cross Border Interest and Royalty Payments Directive 2003/49/EC.
Double Tax Treaties and Agreements: Over 60 double taxation treaties between Cyprus and other countries around the globe, including many EU countries, Russia, the USA, China and India. Unilateral tax-relief is granted to all Cyprus companies for tax paid in another jurisdiction, regardless of the absence of a double tax treaty. Underlying tax credit is also available for dividends received from EU member states.Click here for Double Tax Treaties and Agreements table
Important Note
The above information is current as of 2017 and is subject to changes from time to time. Persons interested to transact business, provide services or work in the Republic of Cyprus should seek our updated professional advice before committing themselves into any transaction or decision.
Our Services
We can help you incorporate in your international structure a Cyprus company that can benefit from a tax system that facilitates:
- The withdrawal of foreign-sourced dividends at low or zero foreign withholding tax rates (by making use of the EU Parent Subsidiary Directive 2011/96/EU or an applicable Double Tax Treaty).
- The receipt of foreign dividends at zero rates of corporation tax or zero local withholding tax (e.g. special defense contribution or anti avoidance provisions that are easy to satisfy like having an EU Holding Company with no domestic tax leakage on holding activities).
- The distribution of available profits to non-resident shareholders at zero withholding dividend tax rates, irrespective of the non-resident shareholder’s jurisdiction or the absence of a double taxation treaty or whether the profits are sent to a tax haven jurisdictions, and
- The receipt of capital gains from the sale of shares in foreign companies at zero rates of corporation tax and capital gains tax, irrespective of holding period and shareholder percentage irrespective of share-holding period and shareholder percentage
- No withholding tax or capital gains tax on the liquidation of the company itself.