Cyprus

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General Information

Cyprus, as an EU member since 2004, is one of the most attractive jurisdictions for structuring International operations. This is mostly due to its low tax rates its high reputation for the stability of its tax law as well as a high quality service sector.

Apart from the above, Cyprus has been made even more attractive destination for international operations due to its strong and high reputation banking an legal system as well as a high quality of professional services such as accounting.

Advantages of Cyprus
However, there are several other tax and non-tax advantages that make Cyprus as one of the most attractive business centre:

Tax advantages:
  • An extensive network of double tax treaties with 46 countries
  • No withholding tax on dividends paid to non-residents shareholders
  • No tax on profits from a permanent establishment abroad
  • No capital gains tax on disposal of capital assets apart from the disposal of immovable property situated in the Republic of Cyprus
  • Tax free income from dividends in Cyprus & lower withholding tax rates in other countries on remittances of dividends
  • No tax on profits on disposal of securities
  • Tax free distributions by Cyprus Holding companies to their non resident shareholders
  • Availability of Group losses relief without any time restrictions, under certain conditions
  • VAT optional registration allowing them to claim back any VAT imposed on local expenditure and services offered
Non-Tax advantages:
  • Excellent Infrastructure in respect of transport and telecommunications
  • High standard & skilled professionals such as accountants and lawyers
  • Solid and Reliable Banking sector comfort to EU Directives
  • Strategic Geographic Location at the crossroads with Europe, Middle East, Asia and Africa
  • High standard of living.
International Business company

International Business Company, it is usually means a limited liability company, the shares of which are held by non-residents and its activities are usually outside Cyprus. An IBC can either be resident in Cyprus, if its management and control is in Cyprus or non-resident if its management and control is outside Cyprus. Management and control suggests, among other things, that the majority of the members of the Board of Directors are resident in Cyprus and that the important decisions by the Board are taken in the Republic.

Characteristics of IBCs:
  • The registered address of the company must be in Cyprus;
  • The number of shareholders in such a company may be from 1 to 50 and in case there is only one shareholder, it should be specified in the Memorandum and Articles of Association of the company;
  • Shareholders may either be Cypriot or foreign natural or legal persons;
  • There is no minimum authorized share capital but, as a matter of course, such share capital is usually EUR1,000 and the minimum issued share capital is EUR1,00;             
  • There should be at least one Director and one Secretary;
  • Cyprus Companies are taxed at least 10% on their profits, provided that their management and control is exercised within Cyprus. In such case, these companies may be able to take advantage of the Double Tax Treaty Network available in Cyprus. If the management and control is outside Cyprus, then the company would not be subject to taxation in Cyprus;
  • An IBC should submit accounts to the Tax Authorities and the Registrar of Companies;
  • Anonymity, if required, is secured by having the shares held by nominees or trustees.
Advantages that an IBC may have:
  • Gains from buying and selling shares and/or other securities are exempt from tax;
  • No capital gains tax on profits made by the disposal of assets exists, except for immovable property situated in Cyprus;
  • Dividends received from abroad are completely exempt from income tax;
  • Lower withholding tax rates in other countries on remittances of income resulting from dividends, royalties, or interest due to the applicability of Double Taxation Treaties;
  • Dividends (including payments of interest or royalties) paid to non-resident shareholders are not subject to any withholding taxes;
  • Its profits are taxed at the corporation tax rate of 10%, provided its management and control is in Cyprus.

Cyprus Tax

Corporation Tax
  • Corporation tax rate is currently 12.5%
  • In order for a company to consider as a tax resident in Cyprus, then the company must be managed and controlled from Cyprus.
Dividends
 Individuals There is no withholding tax on dividends paid by a Cyprus company to its non residents shareholders (for shareholders that are resident in Cyprus, dividends are subject to special contribution for defence at 20% for the tax years 2012 and 2013 and 17% for 2014 and thereafter (in 2011 the rate was 15% up to 30 August 2011 and 17% thereafter)).

Group Companies There is no withholding tax on Dividends when a company pays dividends to its overseas subsidiaries. This does not apply if:
  • More than 50% of the activities of the subsidiary receiving the dividend are from investments;
  • The foreign tax burden on the subsidiary is substantially lower than that in Cyprus.
Capital Gains Tax
  • CGT applies only in the case of sale of immovable property located in Cyprus.
  • CGT rate is currently 20%.
  • There is exemption from CGT for capital gains up to €17,086 (this increases to €85,430 if the property is the primary residence of the seller).
  • Taxable profit for CGT purposes is the difference between selling price and indexed acquisition cost (or indexed price as at 1 January 1980 if acquisition has taken place earlier).
  • There is no CGT on the sale of shares and securities. CGT applies only in the case where the company whose shares have been sold owns immovable property.
Personal Income Tax
  • An individual is considered Cyprus tax resident if he/she spend more than 183 days in the Republic of Cyprus during a tax (i.e. calendar) year.
  • Cyprus tax residents are taxed on their worldwide income whereas non residents only on their income earned in Cyprus.
  • Current income tax rates are as follows:
€ %
0-19,500 0
19,501-28,000 20
28,001-36,300 25
36,301-60,000 30
Over 60,000 35
  • Expatriates are allowed a discount period of 3 years following the year they become tax residents of Cyprus, during which 20% of their income or €8,543 whichever is the smaller is exempt from income tax.
  • New tax residents earning income from employment in excess of €100,000 per annum are entitled to 50% deduction of their income for tax purposes for the first 5 years of employment. This incentive is given to both Cypriots and not Cypriots on the condition that prior to their employment they were not considered as Cyprus tax residents.
  • Dividends and interest income are exempt for income tax purposes (however Cyprus tax residents pay defence tax on these at 20*% and 30% respectively).
Defense Tax
 Cyprus tax residents are liable to defense tax as follows:
Individuals Companies
Interest income 30 30
Dividends from Cyprus resident  company 20* –
Dividens from overseas company 20* –
75% of rental income 3  3
* for shareholders that are resident in Cyprus, dividends are subject to special contribution for defence at 20% for the tax years 2012 and 2013 and 17% for 2014 and thereafter (in 2011 the rate was 15% up to 30 August 2011 and 17% thereafter)