One of the main reasons why Cyprus has become a very popular jurisdiction for establishing a base for international business is the availability of a large number of double tax treaties. Many of the well known offshore tax jurisdictions impose low or nil income tax on the company profits, however, the problem with those jurisdictions is that they do not have double tax treaties. Cyprus offers a basket of incentives including the low tax on the net profits and the double tax treaties.
The following tables show the rates of withholding tax deducted from income, with countries that have signed a double taxation treaty with Cyprus:
Notes:
* Payments of dividends and interest to non residents are exempt from withholding tax in Cyprus. Royalties granted for use outside of Cyprus are also free of withholding tax in Cyprus.
** 10% in the case of royalties granted for use within the Republic. 5% on film and TV rights.
(1) 15% if received by a company controlling less than 25% of the voting power.
(2) 15% if received by a company controlling less than 10% of the voting power.
(3) Nil if paid to a company controlling at least 50% of the voting power.
(4) This rate applies if the amount invested by the beneficial owner is over EURO 200.000 irrespective of the % of voting power acquired. 10% is imposed if received by a holder of at least 25% of the share capital of the paying company, otherwise, the rate is 15%.
(5) 5% if received by a company controlling at least 10% of the voting power.
(6) 10% if received by a company which the beneficial owner has invested less than US$100.000.
(7) Nil if paid to the Government or for export guarantee.
(8) Nil if paid to the Government, bank or to a financial institution of the other State.
(9) Nil if paid to the Government of the other State or in connection with the sale on credit of any industrial, commercial or scientific equipment or any merchandise by one enterprise to another or in relation to any form of loan granted by a bank or is guaranteed from government or other governmental organization.
(10) Nil if paid to the Government of the other State, to a bank or a financial institution or
in respect to debt obligations arising in connection with sale of property or the
provision of services.
(11) Nil on literary, dramatic, musical or artistic work with the exception of films used for television programs.
(12) 5% on film royalties (except films shown on TV).
(13) 10% on literary, dramatic, musical, artistic work, films and TV royalties.
(14) Nil on literary, artistic or scientific work including films.
(15) 10% on payment of technical fees, management fees and consultancy fees.
(16) Nil if paid to the Government of the other State, a political subdivision or a local authority, the National Bank or any institution the capital of which is wholly owned by the State or a political subdivision or a local authority or in the form of interest income from bank deposits.
(17) 10% on interest received from financial institutions, on interest paid in connection with industrial, commercial, scientific equipment or the sale or merchandise between two companies.
(18)10% on right to use industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience and 15% for patents, trademarks, designs, models, plans, secret formulas or processes.
(19) 10% if received by a company, which owns less than 25% of the capital.
(20) This rate does not apply, where 25% or more of the capital of the Cypriot resident is owned directly or indirectly by the Bulgarian resident paying the royalties and the Cyprus company pays less than the normal rate of tax.
(21) The treaty provides for 25%, but the domestic rate of Nil applies since it is lower than the treaty rate.
(22) The treaty provides that the tax on the gross amount of the dividends shall not exceed that chargeable on the profits out of which the dividends are paid.
(23)7% if paid to a bank or similar financial institution. Nil if paid to the Government.
(24) The treaty provides for 15% withholding tax but the local taxation provides for 0% withholding tax.
(25) Nil if paid to or is guaranteed by the Government, statutory body or the Central Bank.
(26) 5% on film royalties, including films used for television programs.
(27) The treaty between the Republic of Cyprus and the United Soviet Socialist Republic still applies.
(28) The treaty between the Republic of Cyprus and the Socialist Federal Republic of Yugoslavia still applies.
(29) The treaty between the Republic of Cyprus and the Czechoslovak Socialist Republic
still applies.
Where an individual is a resident in the Republic, tax is imposed on income accruing or arising from sources both within and outside the Republic.
Where an individual is not a resident in the Republic, tax is imposed on income accruing or arising only from sources within the Republic.
An individual is considered to be resident if he is present in the Republic for a period exceeding 183 days in a tax year.
| Taxable Income € | Tax Rate % |
| € | % |
| under 19.500 | 0 |
| 19.501 – 28.000 | 20 |
| 28.001 – 36.300 | 25 |
| 36.301 and over | 30 |
Tax is assessed on net income on a current year basis. The income tax year in Cyprus is the calendar year. An estimate of the tax due must be made by 1 August in the year of assessment and the estimated tax must be paid in three equal installments on the 1 August, 30 September and 31 December.
Under the new tax regime that came into force on the 1 January 2003 all companies will be considered resident in Cyprus and taxed in Cyprus if their management and control is exercised from Cyprus. The taxation on companies is now based on tax residency unlike before when International Business Companies were considered residents of the Republic and taxed in Cyprus irrespective of the place of their management and control.
Companies 10%
Public corporate bodies 25%
No tax is payable on the profits from the operation of a vessel registered in Cyprus or on the dividends received from a ship owning company flying the Cyprus flag and operating in international waters.
No tax is payable on the emoluments of the captain, the officer and the crew of a Cyprus ship.
Local companies/individuals or International Business Companies that carry out ship management and crew management from an office in Cyprus have the choice for the financial year ended 31 December 2000 onwards to be taxed at the rate of 4.25% or rates equal to 25% of the rates applicable to the tonnage tax for foreign vessels under their management that are registered outside Cyprus. This special tax regime for ship owning and ship management companies applies until the year 2020.
The transfer of assets and liabilities between companies can be effected without any tax consequences within the framework of a re-organization which includes:
Mergers / Demergers / Transfer of activities / Exchange of shares
Losses of the life business can be offset against profits of the general business
Losses of the life business can be offset against profits from other sources
Losses of the life business can be carried forward indefinitely
The pension income of any individual resident in the Republic, which arises from services rendered abroad, is taxed at:
and once the election is made is irrevocable.
The gross income arising from intellectual property rights, other exploitation rights, compensations or other similar income arising from sources within the Republic, of a person who is not resident in the Republic, is subject to withholding tax at a rate of 10%.
Rights granted for use outside the Republic are not subject to any withholding tax.
The gross income derived by a non-resident person in respect of royalties arising from film projection in the Republic is subject to withholding tax at a rate of 5%.
Royalties received by a connected company registered in a European Union Member State are exempt from tax (subject to conditions).
Τhe gross income derived by a non resident individual from the exercise in the Republic of any profession, vocation or public entertainment services including football teams and other athletic missions, is subject to a 10% wihholding tax.
Special contribution for defence is imposed on certain types of income.
Non residents are exempt from special contribution for defence.
Exemptions:
Dividends received from non resident companies are exempt from this tax if the holding in the paying company is at least 1%.
This exemption does not apply if the company paying the dividend engages:
Dividends received from resident or non resident companies are subject to special defence contribution at 15% but only on resident persons. Non resident persons are not liable to special defence contribution.
Any foreign tax paid on income which is subject to special contribution for defence will be given as an allowance against the Cyprus tax irrespective of whether there is a double tax agreement with the foreign country.
Deemed dividend distribution
If a Cyprus tax resident company does not distribute by way of a dividend at least 70% of its accounting profits within two years from the end of the tax year then the company is deemed to have distributed such profits and is liable to pay 15% special contribution for defence on the deemed dividend distribution applicable to its shareholders who are Cyprus tax residents.
A non Cyprus tax resident receiving a dividend from profits subject to a deemed distribution, is eligible to a tax refund
Capital Gains Tax is imposed on gains from disposal of immovable property situated in Cyprus, including shares of companies not listed on a recognized Stock Exchange which own immovable property situated in Cyprus at the rate of 20%.
Certain exemptions apply.
Immovable property tax is payable on 30 September each year and is imposed on the market value of immovable property as at 1 January 1980 and is calculated on the immovable property owned by the taxpayer on 1 January of each year. Both physical and legal persons are liable to this tax.
| Value of property € | Rate % |
| 0 – 170,860 | 0 |
| 170,861 – 427,150 | 2.5 |
| 427,151 – 854,301 | 3.5 |
| 854,302 and over | 4.0 |
The purchaser of land is liable to the payment of transfer fees based on the value of the property as assessed by the District Land valuers. As from 19 March 1999 the transfer fees are as follows:
| Value of property € | Transfer fees rate % |
| 1.71 – 85,430 | 3 |
| 85,431 – 170,860 | 5 |
| 170,861 and over | 8 |
Certain exemptions apply.
Value Added Tax was introduced in Cyprus on 1 July 1992 and is imposed on the provision of goods and services as well as on the importation of goods into Cyprus.
Standard rate - 15% from 1 January 2003
Reduced rate - 8% from 1 January 2006
Reduced rate - 5% from 1 July 2000
Zero rate - 0% from 1 July 1992
VAT Registration:
Registration is compulsory for business:
* If the value of the taxable supplies is in excess of €15,600 during the 12 preceding months
* At any time, if the expected turnover is in excess of €15,600 in a period of 30 days.
Businesses with turnover less than €15,600 have the option to register voluntarily.