Since the entrance of Cyprus into the European Union, combined with a tax reform in its legislation has further enhanced the islands attractiveness to (offshore) International Business Companies (IBCs). This reform has removed distinctions between local companies and IBC’s, enabling both to benefit from uniformed taxation rates and a European status. Cyprus based companies enjoy the lowest tax rates in Europe, which is one of the key factors that made Cyprus- the location of choice for investors from other EU countries, Russia, China, CIS and many other countries. Cyprus offers numerous additional advantages to businesses, such as its strategic location between three continents, excellent infrastructure and telecommunication network, efficient legal, banking and accounting services, highly skilled workforce and of course its stable economy.
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 that is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus. A company that is managed and controlled in Cyprus is considered resident.
The corporation tax rate for all companies is 10%. Cyprus IBC’s enjoy the other fiscal advantages:
From 01.01.2003, there is no distinction between local companies and IBC’s. Net profits of IBCs, and international branches managed and controlled from Cyprus are taxed at 10%
Business branches and international business partnerships, which are managed and controlled from abroad, are exempt from corporation and income tax
No withholding tax on dividend distribution and payments of interest and royalties
Profits earned from a permanent establishment abroad are fully exempt from corporation tax
Dividend income is exempt from corporation tax provided the direct holding is at least 1% of the share capital of the overseas company.
This exemption will not apply if the company paying the dividend engages in more than 50% of its activities introducing investment income and the foreign tax burden on the income of the company paying the dividends is substantially lower than that in Cyprus
Income derived by a way of interest on foreign capital imported and deposited to banks in Cyprus is tax exempt. Other interest received is subject to defence fund contribution at 15%. Interest earned from trading activities or closely related trading activities is liable to 10% tax
Capital allowances and expenses for the purpose of business are allowable for tax purposes
No stamp duties on normal trading activities
Exemption from estate duty on shares in foreign companies inherited in Cyprus
No exchange control restrictions (bank accounts in any currency, anywhere in the world)
Confidentiality and anonymity of the beneficial owners is assured by disclosing their details only to the Central Bank of Cyprus
Employees of foreign entities can get a work permit visa in Cyprus, provided they work in executive positions or in positions where similar skills cannot be found amongst the Cyprus labor force
Foreign employees resident in Cyprus will be taxed the same way as the local employees. If staff employed outside Cyprus, the salaries are tax exempt provided they are remitted through Cyprus
No tax from the sale of shares
Forty+ double tax treaties
No capital gains tax except on the sale of immovable estate situated in Cyprus
No time restrictions on carrying forward tax losses
Group relief for utilization of tax losses
VAT system not applicable to offshore activities
An individual assumed as tax resident in Cyprus if he spends more than 183 days in Cyprus in any one calendar year. Days in and out of Cyprus are calculated as follows:
The day of departure from Cyprus counts as a day of residence outside Cyprus
The day of arrival in Cyprus counts as a day of residence in Cyprus
Arrival and departure from Cyprus on the same day counts as one day of residence in Cyprus
Departure and arrival in Cyprus on the same day counts as one day of residence outside Cyprus
Personal tax allowances
The following income tax rates apply to individuals:
Taxable income (EUR) Normal tax rate (%)
0 – 19,500 0
19,501 – 28,000 20
28,001 – 36,300 25
Over 36,000 30
Foreign pensions are taxed at the flat 5% rate. An annual exemption of €3.420 is granted.
Pensions receivable from abroad by a resident in respect of services rendered outside Cyprus are taxed at a flat rate of 5%, after deduction of the first €3,417, if the individual elects to do so.
In the case of an individual taking up employment in the Republic, who was non-resident prior to his employment, an allowance of 20% of his remuneration to a maximum of €8,543 is given for a period of three years. Salaried services rendered abroad for a total period of more than 90 days to a non-resident employer or at a permanent establishment (PE) abroad of a resident employer are exempt from income tax.
Capital gains tax
Capital gains tax is paid on gains arising from the sale of immovable property. Tax due is 20% on gains realized, which is calculated as follows:
Proceeds from the sale less cost of property, professional and legal fees, commission, interest paid, inflation allowance and investment allowance (€17,086 on disposal of any property and €85,430 on disposal of residence provided that it has been used as the main residence for at least 5 years prior to the sale).
The investment allowance is granted only once unless it has not been exhausted at the first sale, in which case any balance would be carried forward. The investment allowance is granted to each owner of the property. For example, if a husband and wife own the property, then the total investment allowance is €34,172.
This was abolished as of 1st January 2000.