Cyprus Tax Regime
Corporation Tax
A company is resident in Cyprus if its management and control is exercised in Cyprus. Resident companies are taxed on their worldwide income, while non-resident companies are taxed on their Cyprus source income. The rate of corporation tax is 12.5%.
The following types of income are exempt for corporation tax purposes:
- Dividend income (provided certain criteria are met).
- Interest not accruing from the carrying on of a business activity, including interest not closely connected to the ordinary activities of the business. However, interest not accruing from the carrying on of a business activity, including interest not closely connected to the ordinary activities of the business, is subject to the special defence contribution in the case of Cyprus tax residents.
- Profits from the sale of securities, including shares in companies and units in mutual funds.
Furthermore there are no Controlled Foreign Company (CFC) rules, no thin capitalization rules and there is no tax on profits from a foreign Permanent Establishment (provided certain criteria are met).
Losses Carried Forward
Any loss is set off against income from other sources for the same year, if a corresponding positive amount would be a taxable profit or gain under the Income Tax Law. Insofar as a loss exceeds the income of that year, the loss is carried forward and set off against the income of subsequent years with a five years restriction limit. No carry-back of losses is available.
In the case of any change of ownership in the shares of a company and a substantial change in the business of the company within any 3-year period, the right to carry forward of losses is lost. The same applies when a company’s activities have diminished and before any substantial reactivation there is a change in the ownership of the Company's shares.
Reorganisations
The types of reorganisations covered by the company reorganisation rules and their corporation tax consequences, follow strictly the provisions of the EU Merger Directive. They cover mergers, divisions, transfers of assets and exchanges of shares and provide for the carry-over of tax values of assets and liabilities, the transfer of losses and tax neutrality at the shareholder level. Reorganisations are exempt from VAT, stamp duty and land transfer tax.
Special Defence Contribution
By virtue of the Special Contribution for the Defence of the Republic Law of 2002, all Cyprus tax residents are subject to the defence contribution. The contribution is not deductible for corporation tax purposes.
Capital Gains Tax
Gains on the disposal of immovable property located in Cyprus, on the disposal of shares in a company which owns such immovable property and on the disposal of shares of a company which directly or indirectly has shares in other companies that own immovable property in Cyprus, are subject to a 20% capital gains tax. Disposals of such property and such shares by reason of a reorganisation are exempt. Capital gains tax is not deductible for corporation tax purposes.
International Trust
Cyprus International Trusts are not subject to tax in Cyprus. This provision means:
- All income of a Cyprus International Trust whether trading or otherwise is not taxable in Cyprus.
- Dividends, interests and other income received by a Cyprus International Trust from a Cyprus company are neither taxable nor subject to withholding tax.
- Gains on the disposal of assets held by a Cyprus International Trust are not subject to capital gains tax in Cyprus.
Shipping Companies
Qualifying shipowners, charterers and shipmanagers operating qualified community ships, enjoy the privilege of exemption from all direct taxes and taxation under the tonnage tax regime, including but not limited to:
- Profits from the use and disposal of a qualifying vessel.
- Dividends paid out of those profits at all distribution levels.
- Interest income in relation to the working capital of the company.
Double Taxation Treaties
Cyprus has an active network of 69 Double Taxation Treaties with countries around the globe. In the case of foreign-source income that is taxable in Cyprus, unilateral relief for foreign tax (paid directly or by deduction) is given by the credit method, on an item-by-item basis with no carry-over of excess credit.
Value Added Tax
Value Added Tax (VAT) is imposed on taxable supplies of goods and services and on importation of goods from a non-EU country. Input VAT suffered by an entrepreneur on business expenditure is set off against output VAT charged on his supplies. Taxable persons carrying on any economic activity and receiving services from abroad have to account for VAT in Cyprus for these services under the reverse charge mechanism. Consequently, such taxable persons must register with the VAT authorities. The standard rate of VAT is 19%.
A company is resident in Cyprus if its management and control is exercised in Cyprus. Resident companies are taxed on their worldwide income, while non-resident companies are taxed on their Cyprus source income. The rate of corporation tax is 12.5%.
The following types of income are exempt for corporation tax purposes:
- Dividend income (provided certain criteria are met).
- Interest not accruing from the carrying on of a business activity, including interest not closely connected to the ordinary activities of the business. However, interest not accruing from the carrying on of a business activity, including interest not closely connected to the ordinary activities of the business, is subject to the special defence contribution in the case of Cyprus tax residents.
- Profits from the sale of securities, including shares in companies and units in mutual funds.
Furthermore there are no Controlled Foreign Company (CFC) rules, no thin capitalization rules and there is no tax on profits from a foreign Permanent Establishment (provided certain criteria are met).
Losses Carried Forward
Any loss is set off against income from other sources for the same year, if a corresponding positive amount would be a taxable profit or gain under the Income Tax Law. Insofar as a loss exceeds the income of that year, the loss is carried forward and set off against the income of subsequent years with a five years restriction limit. No carry-back of losses is available.
In the case of any change of ownership in the shares of a company and a substantial change in the business of the company within any 3-year period, the right to carry forward of losses is lost. The same applies when a company’s activities have diminished and before any substantial reactivation there is a change in the ownership of the Company's shares.
Reorganisations
The types of reorganisations covered by the company reorganisation rules and their corporation tax consequences, follow strictly the provisions of the EU Merger Directive. They cover mergers, divisions, transfers of assets and exchanges of shares and provide for the carry-over of tax values of assets and liabilities, the transfer of losses and tax neutrality at the shareholder level. Reorganisations are exempt from VAT, stamp duty and land transfer tax.
Special Defence Contribution
By virtue of the Special Contribution for the Defence of the Republic Law of 2002, all Cyprus tax residents are subject to the defence contribution. The contribution is not deductible for corporation tax purposes.
Capital Gains Tax
Gains on the disposal of immovable property located in Cyprus, on the disposal of shares in a company which owns such immovable property and on the disposal of shares of a company which directly or indirectly has shares in other companies that own immovable property in Cyprus, are subject to a 20% capital gains tax. Disposals of such property and such shares by reason of a reorganisation are exempt. Capital gains tax is not deductible for corporation tax purposes.
International Trust
Cyprus International Trusts are not subject to tax in Cyprus. This provision means:
- All income of a Cyprus International Trust whether trading or otherwise is not taxable in Cyprus.
- Dividends, interests and other income received by a Cyprus International Trust from a Cyprus company are neither taxable nor subject to withholding tax.
- Gains on the disposal of assets held by a Cyprus International Trust are not subject to capital gains tax in Cyprus.
Shipping Companies
Qualifying shipowners, charterers and shipmanagers operating qualified community ships, enjoy the privilege of exemption from all direct taxes and taxation under the tonnage tax regime, including but not limited to:
- Profits from the use and disposal of a qualifying vessel.
- Dividends paid out of those profits at all distribution levels.
- Interest income in relation to the working capital of the company.
Double Taxation Treaties
Cyprus has an active network of 69 Double Taxation Treaties with countries around the globe. In the case of foreign-source income that is taxable in Cyprus, unilateral relief for foreign tax (paid directly or by deduction) is given by the credit method, on an item-by-item basis with no carry-over of excess credit.
Value Added Tax
Value Added Tax (VAT) is imposed on taxable supplies of goods and services and on importation of goods from a non-EU country. Input VAT suffered by an entrepreneur on business expenditure is set off against output VAT charged on his supplies. Taxable persons carrying on any economic activity and receiving services from abroad have to account for VAT in Cyprus for these services under the reverse charge mechanism. Consequently, such taxable persons must register with the VAT authorities. The standard rate of VAT is 19%.