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Business & investment

Cyprus Corporation Tax

Cyprus' status as a full EU member, combined with a tax reform in its legislation has further enhanced the island's attractiveness to companies.

Cyprus companies benefit from a favourable tax regime and full European status. Cyprus based companies enjoy one of the lowest corporation tax at 12,5 % and numerous other tax advantages, which is one of the key reasons that Cyprus has become the favoured location for investments to and from other European Union countries, Russia, CIS and many other locations.

Cyprus also 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 human capital and of course its stable economy.

Basis of Cyprus 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 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 12.5%

Cyprus companies enjoy the following major fiscal advantages:

  • International business branches which are managed and controlled from abroad and International Business Partnerships are fully exempt from Corporation or Income Tax
  • No withholding tax on dividend distribution and payments of interest and royalties
  • 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
  • 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 labour force
  • Significant tax benefits enjoyed by personnel in executive positions or in positions where similar skills cannot be found amongst the Cyprus labour force relocating to Cyprus for employment by a Cyprus company
  • Receivable interest not arising from the ordinary or closely related to the ordinary business activities of the company is fully exempt from taxation (subject to Special Contribution for Defence)
  • Profits from the sale of shares and other financial instruments that carry a title such as bonds and debentures are exempt from taxation
  • 80% of the net income from royalties (income less direct costs i.e. amortization, royalties payable) from Intellectual Property (IP) rights is fully exempt from taxation and the remaining 20% is taxed at 12,5%
  • 80% of the profits from the sale of patents and trademarks are fully exempt from taxation and the remaining 20% is taxed at 12,5%
  • No tax on profits from the operation or management of a vessel registered under the flag of the Republic of Cyprus
  • Ability to choose between tonnage tax and 4,25% Corporation Tax if the vessel is not registered under the flag of the Republic of Cyprus
  • More than 52 double tax treaties
  • No capital gains tax except on the sale of immovable estate situated in Cyprus
  • Tax losses can be carried forward for up to 5 years
  • Group relief for utilization of tax losses
  • 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

AN EXEMPTION FROM TAXATION NON-DOMICILED INDIVIDUALS

  • In 2015, the Government introduced a division for Cypriot tax residents between Domicile and Non Domiciled residents
  • Prior to this amendment Cyprus tax resident individuals earning Cyprus or foreign sourced income in the form of dividends or passive interest were subject to Cyprus Special Defence Contribution (SDC) at the rate of 17% on dividends and 30% on interest
  • Non-Dom residents are those that:
    - Are not considered as Cypriot as per the Wills and Succession Law
    - Were not tax residents of Cyprus during the 17 out of the last 20 years
  • This new distinction between domicile and non-domicile means that individuals that have non-dom status, even if they are considered as tax residents of Cyprus, are no longer subject to SDC and are exempt from payment of taxes on dividends, interest, rent and the sale of securities

THIS NON-DOM PROVISION AIMS TO FURTHER ENCOURAGE HIGH NET WORTH INDIVIDUAL INVESTORS TO INVEST AND RESIDE IN CYPRUS

Cyprus Personal Tax Rates

The following income tax rates apply to individuals:

Taxable income Normal tax rate
(EUR) (%)
0-19,500 0
19,501-28,000 20
28,001-36,300 25
36,301-60,000 30
Over 60,000 35

Foreign pensions are taxed at the rate of 5%. 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.

CHANGES TO PERSONAL TAXATION

On 9th of July 2015, the House of Representatives voted a number of amendments to the Income Tax Law. Most of the new amendments voted on 9th of July 2015, mainly grant incentives and tax benefits for attracting new businesses, stimulate the economy and encourage employment.

As regards the Income Tax Law

Extension of personal income tax exemptions for non-Cyprus tax resident individuals starting employment in Cyprus:

  1. Exemption of 20% or €8.550 per year (whichever is lower) of the income from employment in Cyprus for the first three years of employment as applicable under the current is now extended to up to the first five years but the exemption will only be able to be claimed until the year 2020.
  2. Exemption of 50% of the income from employment commenced in Cyprus after 1 January 2012 for individuals earning more than €100,000 per year, is extended from five years to ten years. This plan is available to individuals who were not Cyprus tax residents for any three out of the last five years prior to the commencement of their employment in Cyprus and also was not tax resident of Cyprus the previous tax year. For employments commencing as from 1 January 2015 the exemption does not apply in case the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year. In certain cases it is possible to claim the exemption where income falls below €100.000 per annum.

CYPRUS GOVERNMENT INCENTIVES TO ATTRACT FOREIGN DIRECT INVESTMENT

Transfer Fee reduction and exemption scheme

Transfer Fees are abolished if the same transaction to which the transfer is connected bears V.A.T. OR reduced by 50% where the transaction does not bear V.A.T, irrespective of the execution and deposition date of the Sale Agreement.

VAT reduction scheme

5% VAT charged on the first 200sqm of the main permanent residence property of the applicant in Cyprus, which does not exceed 275 sq.m. Other properties, or additional meter charged at the prevailing rate of 19%.

Capital Gains Tax Incentive

The disposal of immovable property constituted by land, land with building or land with buildings, is waived from the obligation to pay tax provided that the property has been acquired from 16/07/2015 until 31/12/2016

Cyprus Capital Gains Tax

Capital gains tax is paid on gains arising from the sale of immovable property located in Cyprus. Tax due is 20% on gains realised, which is calculated as follows:

Proceeds from the sale less value or cost of property, , any costs incurred for the acquisition of the property, interest paid, inflation allowance and investment allowance (€17,086 on disposal of any property or €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.

Cyprus Inheritance Tax

This was abolished for persons who deceased on or after 01/01/2000, as of 1st January 2000.

 

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