The role of Cyprus in the international business world has changed dramatically in recent years, and the country is now considered to be one of the most favoured jurisdictions in Europe from which to conduct business.

The island has recently joined an elite group of countries with enormous quantities of gas and petrol resources. This fact, in combination with the numerous advantages Cyprus has to offer, will secure the island's finances on one hand, and drive the country among the big players in Eurozone on the other.

The attractive tax system of Cyprus, together with its EU accession and the high standard of services has helped Cyprus establish itself as an ideal business centre within the EU. The expansion of international business through Cyprus indicates the existence of clear advantages that attract both business entities and foreign private individuals.

Corporate tax rate

Cyprus has a corporate income tax rate of 12.5%. This is the lowest corporate tax rate in the European Union

Withholding tax on Dividends Received

Dividends received by a Cyprus Holding Company from overseas subsidiaries carry zero or low withholding tax rates due to:

  • - Extensive Double Tax Treaty network
  • - EU Parent-Subsidiary Directive (zero withholding tax on dividends payments from EU subsidiaries to their EU parent Companies

Zero Tax on Dividends Received

Dividends received by a Cyprus Holding Company are tax exempted under Cyprus tax.

This exemption does not apply if:

  • more than 50% of the paying company’s activities result directly or indirectly in investment income and
  • the foreign tax is significantly lower than the tax burden in Cyprus. The tax authorities have clarified through a circular that “significantly lower” means an effective tax rate of less than 6,25% on the profit distributed.

If exemption does not apply, dividend income is subject to 17% tax under Special Defence Contribution.

Tax free distribution of Dividends

Under Cyprus domestic legislation there is no withholding tax on dividends and interest paid to non-residents of Cyprus at all times.
Dividends paid by a Cyprus Company to its Cyprus Holding Company are not subject to any tax.
Dividends paid by a Cyprus Company to its Cyprus resident individual are subject to 17% Special Defence Contribution Tax.

Unilateral tax credit relief

Relief for taxes paid abroad is in the form of a tax credit if the respective income is subject to tax in Cyprus. The relief is given unilaterally irrespective of the existence of a double tax treaty. Where a treaty is in force, the treaty provisions apply if more beneficial. Where dividend income is received from a company resident in the European Union or if a tax treaty provides, an underlying tax credit is also allowed to the Cypriot recipient of the dividend against any tax payable on that income.

Sale of Shares

Any profit arising from the trade of shares in other companies is exempt from tax in Cyprus. Under local legislation "Securities" are defined as "shares, bonds debentures, founders' shares and other securities of companies or other legal person, incorporated under a law in Cyprus or abroad, including options thereon".

An exception only applies, and taxation at 20% will take place, if a profit is realized upon the sales of shares in certain (non-listed) companies owning Cyprus real estate, to the extent such profit reflects the gain from the sale of the underlying Cypriot real estate.

Intellectual Property

An 80% exemption of qualifying net IP income and capital gains upon disposal of the IP is available for Cyprus Companies.

Amortization provisions over a 5 year period (for IP rights acquired of developed post 1st January 2012) were introduced. The above incentives are available for a wide range of qualifying IP rights and the resulting effective tax rate is 2,5% or less.

Tax Losses

Trading losses are carried forward for a period of 5 years, commencing from the end of the year to which the loss relates.

Group relief is allowed for at least 75% group holdings and is applicable only on yearly results assuming claimants are Cyprus Companies and members of the same group for the whole tax year.

Additional advantages

  • No CFC Legislation
  • No thin capitalization rules
  • 46 signed Double tax Treaties
  • Full adoption of EU Directives
  • Competitive fees for company formation and company administration;
  • Advance Tax rulings from Income Tax Office
  • Low capital requirements;
  • Strong legal system based on English common law;
  • Well-developed infrastructure;
  • Pro-business attitude of the authorities;
  • Strategic geographic location

CFA Auditors - Cyprus Audit Tax Advisory © 2017