Business & Investment Cyprus offers a favourable tax regime

Cyprus Corporation Tax

Cyprus’ entry into the European Union, combined with a tax reform in its legislation has further enhanced the islands attractiveness to (offshore) International Business Companies (IBCs). This reform has removed distinctions between local companies and IBC’s, enabling both to benefit from uniform taxation rates and a European status. Cyprus based companies enjoy the lowest tax rates in Europe, which is one of the key reasons that it has become the favoured location for investments to and from other European Union Countries, Russia, CIS and many other locations.

Cyprus also offers numerous additional advantages to businesses such as its strategic location between three continents, excellent infrastructure and telecommunication network, efficient legal, banking and accounting services, highly skilled human capital and of course its stable economy.

 

Basis Of Cyprus Taxation

All companies that are tax residents of Cyprus are taxed on their income accrued or derived from all sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on income accrued or derived from a business activity that is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus. A company that is managed and controlled in Cyprus is considered resident.

 

Cyprus Corporation Taxes

The corporation tax rate for all companies is 10% Cyprus IBC’s enjoy the following major advantages:

  • From 01.01.2003, there is no distinction between local Companies and IBC’s. Net profits on IBCs, and international branches managed and controlled from Cyprus, are taxed at 10%
  • International business branches and international business partnerships, which are managed and controlled from abroad, are exempt from corporation and income tax
  • No withholding tax on dividend distribution and payments of interest and royalties
  • Profits earned from a permanent establishment abroad are fully exempt from corporation tax
  • Dividend income is exempt from corporation tax provided the direct holding is at least 1% of the share capital of the overseas company. This exemption will not apply if the company paying the dividend engages in more than 50% of its activities introducing investment income and the foreign tax burden on the income of the company paying the dividends is substantially lower than that in Cyprus.
  • Employees of foreign entities can get a work permit visa in Cyprus provided they work in executive positions or in positions where similar skills cannot be found amongst the Cyprus labour force.
  • Foreign employees resident in Cyprus will be taxed the same way as the local employees. If employed outside Cyprus, the salaries are tax exempt provided they are remitted through Cyprus.
  • Income derived by a way of interest on foreign capital imported and deposited to banks in Cyprus is tax exempt. Other interest received is subject to defence fund contribution at 15%. Interest earned from trading activities or closely related trading activities is liable to 10% tax
  • No tax from the sale of shares
  • Forty + double tax treaties
  • No capital gains tax except on the sale of immovable estate situated in Cyprus
  • No time restrictions on carrying forward tax losses
  • Group relief for utilization of tax losses
  • VAT system not applicable on offshore activities
  • Capital allowances and expenses for the purpose of business are allowable for tax purposes
  • No stamp duties on normal trading activities
  • Exemption from estate duty on shares in foreign companies inherited in Cyprus
  • No exchange control restrictions
  • Confidentiality and anonymity of the beneficial owners is assured by disclosing their details only to the Central Bank of Cyprus

 

Cyprus Capital Gains Tax

Capital gains tax is paid on gains arising from the sale of immovable property. Tax due is 20% on gains realised, which is calculated as follows:

Proceeds from the sale less cost of property, professional and legal fees, commission, interest paid, inflation allowance and investment allowance (€17,086 on disposal of any property and €85,430 on disposal of residence for at least 5 years prior to the sale)

The investment allowance is granted only once, unless it has not been exhausted at the first sale, in which case any balance would be carried forward. The investment allowance is granted to each owner, then the total investment allowance is €34,172.

The content of this article intends to provide a general guide to the subject matter. Specialist advice and tax planning should be sought on each particular case. For any further information, please contact Mr Panikos Onoufriou at onopan@cytanet.com.cy