Cyprus Taxation

Cyprus is not a tax heaven but an international Business Center. Its low corporation tax rate (12,5%) together with the extensive range of double tax treaties make Cyprus Republic one of the most attractive destinations for doing business. In addition being an equal member of the European Union, allows many corporations situated in other continents to set a permanent base in the European Union at the lowest cost. English widely spoken and the Legal, Judicial and Driving systems of the Republic are based on the UK’s since Cyprus was an English colony for 35 years. The country is geographically located at the crossroads between the Middle East, Africa and Europe and the service industry primarily and the tourism industry on a lesser degree are the main factors of the Cyprus economy.

Cyprus Taxation in a brief

A company is considered to be tax resident in Cyprus if its management and control is exercised in Cyprus. Cyprus tax resident companies are taxed on their worldwide income. Non tax resident companies are taxed only on income generated in Cyprus.

Corporation tax in Cyprus is applicable at the prevailing rate of 12.5%.

  • Dividend income is exempt from tax in Cyprus, except in very rare circumstances where more than 50% of the foreign investment's income is derived from investment activities; and the foreign tax payable by the paying company is less than 5%.
  • Dividend payment by a Cyprus company to a Cyprus tax resident individual suffers 17% withholding tax.
  • Business related interest income is subject to income tax at the rate of 12.5%. Any expenses incurred wholly and exclusively for the production of such income are allowed as tax-deductible.
  • Non business related interest income is subject to special defense contribution (SDC) tax at the rate of 30%. SDC tax may not be reduced by any expenses.
  • Royalty income is subject to income tax at the rate of 12.5%.
  • Under the Cyprus IP regime, the legislation provides for an 80% exemption of royalty income from patent rights and intellectual property rights under certain pre-requirements.
  • Royalty expense incurred wholly and exclusively for the production of taxable income is allowed as tax-deductible.
  • Tax losses can be carried forward and be set-off against taxable income for 5 years.
  • Cyprus resident companies that form a group for tax purposes may interchangeably utilize tax losses between them.
  • The disposal of immovable property situated in Cyprus is subject to capital gains tax at the rate of 20%.
  • Value Added Tax (VAT) is applicable on the supply of goods and services in Cyprus and the import of goods in Cyprus from inside/outside the EU.
  • The standard rate of VAT is 19% whereas the reduced rates of VAT are 9%, 5% and 0%.
  • The registration threshold for VAT purposes in Cyprus is €15,600.
  • Filing of VAT returns and the payment of VAT liability is made every 3 months.