For Citizens and Residents in Cyprus
Cyprus has many tax advantages for companies doing business on the island. Cypriot tax system is very favourable and compliant with EU laws. A great number of tax treaties makes Cypriot legislation the best for business activities in the EU.
The main tax rules may be summarized as follows:
Corporate Tax. Advantages
- the lowest tax rate in the EU -12.5%,;
- no withholding tax on royalties from the exercise of rights outside Cyprus;
- no tax on interest or dividends (for non-residents);
- favourable tax treatment of losses;
- tax free repatriation of profits and capital
- no tax on profits from permanent establishment outside Cyprus (subject to conditions);
- signed tax treaties with 40 countries;
- no tax on profits from re-organisation;
- no tax on capital gains from securities;
Personal Income Tax
A tax resident of Cyprus is a person who stays on the island for 183 days within a calendar year. Residents are taxed on income earned in Cyprus and abroad. Non-tax residents are taxed on income earned in Cyprus.
Tax free income is 19,500 a year, the highest tax rate is 35%.
Main tax provisions:
- low income tax;
- no tax on dividends and interest, subject to conditions;
- no tax on profits of a permanent establishment abroad or on salary earned abroad, subject to certain conditions;
- no tax on gains from sale of securities;
- loss could be deducted from taxable income (current and previous years), subject to conditions;
- pension, compensation for death, provident and pension funds, or other approved funds are exempt from tax.
Value Added Tax
The standard rate of VAT is 19%. Reduced rates – 9%, 5% and 0% apply to specific goods and services. Citizens of non-EU countries may claim a VAT refund on departure from Cyprus.
Special Tax privileges. International Trusts
Due to many tax advantages, Cypriot international trusts may be used for very profitable tax planning:
- exemption from any tax on income or gains derived from sources outside Cyprus;
- income received from a Cypriot company is also not taxable;
- gains from disposal of assets are not taxed.
A holding company can be effectively utilized for international tax planning. In summary, a holding company offers the following advantages in comparison with major tax systems:
- no withholding tax on dividends from subsidiaries outside Cyprus;
- no tax on capital gains or income from liquidation of a holding company;
- no withholding tax on profit distributions, subject to conditions;
- exemptions from withholding tax on holding company’s outward dividends for non-resident shareholders;
- exemptions from tax on profits from a permanent establishment outside Cyprus (subject to conditions);
- tax treaties with 40 countries,
Taxation of Shipping Companies
Profits from the operation of vessels registered in Cyprus or on dividends received from a ship-owning company are taxed at a zero corporate tax rate.