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 one of the lowest EU corporate tax rates at 12.5%. The island’s advantageous tax rate coupled with an extensive
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 one 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
- OECD approved / EU compliant tax system
- One of the lowest tax rates in the European Union at 12.5%. The effective tax rate can be reduced further due to specific exemptions provided by the tax legislation
- Wide network of favourable tax treaties with almost 60 countries
- Reasonable tax administration
- Tonnage Tax (TT) regime attractive to ship owners, managers and charters.
- Possibility to obtain tax rulings in advance by the tax authorities provides flexibility and minimisation of tax risk
- IP Box regime: effective tax rate of 2.5% on profits from the use and sale of qualifying intangible assets (restrictions may apply)
- No taxes on entry, reorganisations and exits. Company reorganisation rules ensuring tax neutrality for group restructuring transactions u Low transaction taxes
- No thin-capitalisation rules or Debt/Equity ratios
- No withholding taxes on payments to non-residents (apart from royalties paid for IP economically utilised in Cyprus)
- No wealth taxes and only minimal stamp and local taxes
- No exchange controls u No detailed transfer pricing rules (arm’s length principle only)
- Most international transactions free of VAT
- Foreign source income generally tax exempt u Profits on transactions in shares tax exempt
- Unilateral credit relief for foreign taxes u No CFC legislation
- ‘Non-dom’ rules for Cyprus tax resident not domiciled in Cyprus. Any interest, rents or dividends (whether actual or deemed) regardless of whether such income is derived from sources within Cyprus and regardless of whether such income is remitted to a bank account or economically used in Cyprus, is exempt from special defence contribution.
- Capital Gains Tax only on gains from sale of real estate situated in Cyprus or sale of shares owning real estate situated in Cyprus
-Exemption applies if shares are listed on recognized stock exchange
-Exemption from Capital Gains Tax on Immovable Property acquired between 16th July 2015 and 31st December 2016
- 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 3 years – for employment which commenced during 2012 or after 2012 this exemption applies for 5 years with the last year for which the exemption will be available being 2020)
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.
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.
Special contribution for defence
Special contribution for defence is imposed on income earned by Cyprus tax residents. Non-tax 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 selfemployed persons who are not required to file audited accounts and 31st of December for selfemployed persons whose returns are accompanied by audited accounts. Sole proprietors with an annual turnover more than €68,344 are obliged to prepare audited financial statements
Cyprus has concluded double taxation treaties with over 60 countries which provide important tax advantages.
|Cyprus Double Tax Treaties:|
|Jersey||Kingdom of Bahrain|
|San Marino||Saudi Arabia|
|Thailand||The States of Guernsey|
|Ukraine||United Arab Emirates|
Updated: July 2018