Why Cyprus & tax facts at a glance

Operating through a company registered in Cyprus can significantly reduce the tax liability of the business and the ultimate shareholders, thus increasing the net return on the investment. Cyprus has been a full member of the European Union since 2004 and adopted the Euro as its official currency since the beginning of 2008. The strategic position and time-zone of Cyprus, enables comfortable connections between Europe, Middle East, Africa and Asia and makes the island a natural hub for business and trade. Cyprus is an established and reputable business and financial center supported by an advanced legal, accounting and banking system, highly skilled and multilingual workforce, excellent telecommunication systems and convenient year round ight connections. In addition, due to the great numbers of international businesses already situated in Cyprus, there are outstanding networking possibilities for all of new entrants along with the fact that it is an onshore jurisdiction governed under the EU Directives. The local governments have traditionally been promoting Cyprus as an international business center, through the enactment of favorable tax laws, which are in full compliance with EU directives and the reduced paperwork and costs necessary to register a Cyprus company. There are active and promising business bonds and ties between China and Cyprus along with Asia and Europe in general. 

1. Corporate Tax Rate 

Trading profits of a Cyprus tax resident company are taxed at the rate of ten percent (10%), one of the lowest corporate income tax rates in Europe. A company is considered to be tax resident in Cyprus, if its management and control is exercised in Cyprus. 

2. Interest Income 

There are two types of taxes that may apply to interest income earned by a Cypriot company: income tax at 10% levied on interest derived, less any allowable expenses or Special Defence Contribution (SDC) at 15% applied to gross interest income. Interest earned by a Cypriot tax resident company derived in the ordinary course of business or closely connected thereto is only subject to income tax. Interest income by all other companies is subject to SDC. 

3. Dividends 

• Inter-company dividends 

Dividends paid from one Cyprus tax resident company to another are exempt from any tax in Cyprus. 

• Dividends Received from Abroad and Income from Foreign Permanent Establishments (PE)

Dividends received from abroad and income from Foreign PE are tax exempt unless both of the following conditions are not satisfied, in which case they are taxed to Special Contribution for Defence (SCD) at 20% for the tax years 2012 and 2013 and 17% for 2014 and thereafter: 

1. The company paying the dividend must not engage directly or indirectly more than 50% in activities which lead to passive income (non-trading income), and 
2. The foreign tax burden on the income of the company paying the dividend is not substantially lower than the tax burden in Cyprus (an effective tax rate higher than 5% in the country paying the dividend satisfies this condition. 

4. Intellectual property rights and Royalties 

There is an 80% exemption on the net profit (dened as income from intellectual property minus all expenses attributable with the specific income) from the utilization of patent, trademark or any other intellectual property rights. The same exemption applies in cases of any gain arising from the disposal of such intellectual property. In addition, the rate of capital allowances on such intangibles has been set at 20% of the cost of acquisition. 

It is worth noting that the definition of patent right and intellectual property rights has been amended to correspond to the meaning of the local Patent Rights Law of 1998, the Intellectual Property Law of 1976 and the Law regarding Trademarks. This development ensures that uncertainty is lifted in regards to which types of intellectual rights are covered. 

5. The Shipping Industry 

Cyprus is the largest EU ship management centre and among the top 5 internationally (3rd eet in EU and 10th in the world – 1857 vessels with gross tonnage in excess of 21 million). Cyprus is also a member of Paris MOU – Cyprus Flag on White List. More than 130 ship owning and ship management companies with oces in Cyprus, conducting international activities. There are in place deep-sea ports with easy access to Suez Canal and other major freight routes. The Geographical position of the Island played a significant role for being among the largest ship management centres as it is in the crossroads of 3 major continents (Europe, Asia, Africa) and Middle East. 

Cyprus Tonnage Tax: 

Full tax exemption of: 

• Profits of the ship-owners or charterer of EU/EEA ag ships and foreign ships (foreign ships are subject to conditions) 
• Capital gains on sale or transfer of such vessels or the shares of the ship-owning company 
• Profit from crewing or technical management of ships are carried out from a fully-edged oce in Cyprus 
• Dividend distribution at all level of the above profits 
• Income on the emoluments of ocers or crew on board of vessels 
• Tonnage tax is payable instead based on age and tonnage capacity of vessel 

6. Trading In Titles 

Gains from trading and disposal of securities such as shares and bonds are tax free. 

Other Taxes 

7. Withholding Taxes 

There are no withholding taxes on payments to non-tax resident persons (companies or individuals) in respect of dividends and interest. 

8. Capital Gains Tax (CGT) 

Capital gains from the sale of immovable property situated in Cyprus as well as from the sale of shares in companies (other than quoted shares) in which the underlying asset is immovable property situated in Cyprus, are taxed at a at rate of 20% after allowing for indexation. Capital gains that arise from the disposal of immovable property held outside Cyprus or shares in companies in which the underlying asset is immovable property held outside Cyprus, are completely exempted from capital gains tax. 

9. Other Taxes 

There are no inheritance, estate or wealth taxes on shares held in a Cyprus company. 

Double Tax Agreements (DTA)

Cyprus has currently concluded DTAs with more than 45 countries including the majority of the European countries, the United States of America, Canada, India, China, Russia and the C.I.S countries.