Cyprus Tax Advantages

Corporate Tax Rate

Cyprus has one of the lowest corporation tax rates in Europe of 12,5%.

Exemption from Tax on Dividend Income

Companies do not pay any tax on dividends received from other Cyprus tax resident companies.

Also, dividends received by Cyprus tax resident companies from foreign companies are exempt from tax. This exemption does not apply if:

(a) More than 50% of the paying company’s activities result directly or indirectly in investment income and

(b) The foreign tax rate is significantly lower than the Cyprus tax burden. The tax authorities have clarified through a circular that “significantly lower” means a tax burden below 6,25%.

When dividend income is not exempt there is a 17% defense tax contribution. Tax credits for taxes paid abroad are available.

Capital Gains and Income Tax Exemption for Real Estate

Capital Gains that arise from the disposal of immovable property held outside Cyprus are completely exempt from capital gains tax.
No Withholding Taxes

Cyprus does not impose any withholding taxes on dividend, interest and royalty payments to non-Cyprus resident recipients.

In the case of royalties the exemption applies for royalty payments when the asset/right used is outside Cyprus. In case it is in Cyprus then there is a 10% withholding tax unless a tax treaty provides for a lower or nil withholding tax rate.

Wide Double Tax Treaty Network

To benefit from the favorable withholding tax provisions of the Cyprus 45 tax treaties. Most treaties provide for reduced or nil rates of withholding tax on dividends, interest and royalties paid from the treaty country and the avoidance of double taxation in the case where a resident in one country derives income from the other treaty country.

Unilateral Tax Credit Relief

Relief is given for taxes paid abroad, irrespective of the existence of a double tax treaty.

Capital Gains and Income Tax Exemption for Securities

Any income from trading in securities is completely exempt from corporate tax. The term securities includes: ordinary and preference shares, founders’ shares, options on titles, debentures, bonds, swaps on titles, depositary receipts on titles, rights of claims on bonds and debentures, units in open-end or closed-end collective investment schemes such as Mutual Funds, International Collective Investment Schemes (ICIS) and other.

A Cyprus Holding Company is ideal to hold subsidiary companies that have a scope for significant capital appreciation and maybe sold in the future. Such disposals are not taxable in Cyprus.

Loss Carried Forward

Tax losses are carried forward subject to conditions and set off against profits of the next five years.

Group Relief

Group relief is allowed for at least 75% group structures, provided claimant companies are tax resident and members of the same group for the whole tax year.

No Inheritance Tax

Cyprus does not impose inheritance tax.

No Tax on Wealth

Cyprus does not impose tax on wealth.

Exemption of Profits from Permanent Establishments Abroad

Profits from activities of a permanent establishment (PE) situated outside Cyprus are completely exempt. This exemption will not apply if:

• Its foreign permanent establishment directly or indirectly engages in more than 50% of its activities in producing investment income, and
• The foreign tax burden is significantly lower than in Cyprus. The tax authorities have clarified through a circular that “significantly lower” means a tax burden rate below 6,25%.
• If the profits of the PE are not exempt, there is a 12,5% corporation tax. Tax credits for taxes paid abroad are available.

Unilateral Tax Credit Relief

Relief is given for taxes paid abroad, irrespective of the existence of a double tax treaty.

Tax Free Exit Route

The Cyprus company offers an ideal Exit Route through a tax-free sale of participations and own shares or the liquidation of the company and distribution of proceeds completely tax free to the non-resident shareholders.

No Taxes on Liquidation

No capital gains tax, income tax or any taxes arise on the liquidation of a Cyprus company owned by non-resident shareholders, irrespective of the method of liquidation.

Shipping Companies Tax Exemption

The Merchant Shipping Legislation (1.1.2010) places Cyprus in a very competitive position, as it allows Shipping Companies to be taxed under Tonnage Tax, rather than Corporation Tax on profits.