Most favourable tax system in the EU
Advantages & opportunities to investing offshore via Cyprus (EU):
Cyprus has the European Union's most favourable tax system for corporate & individuals
Now at 12.5% corporate tax, Cyprus has the lowest rates in the EU, together with Ireland (12.5%) and excluding the Isle of Man, Jersey and Guernsey, which although have a nil rate for non-financial services firms (and 10% for financial services firms) are not in the EU.
It is important to highlight that Cyprus is not an offshore tax haven. The Cypriot tax regime and tax legislation is in full conformity with both European Union Laws and Directives and with the Organisation for Economic Cooperation and Development (OECD). In fact, Cyprus has not only fully adopted all EU Directives, it has even gone further by not imposing minimum holding period, percentage holding and any other restrictions used by most Member States. This then also becomes one of the main tax benefits to investment activities via Cyprus; that is, the sector's global recognition, conformity and credibility. Testament to this is also the extensive network of Cyprus double taxation treaties,
Cyprus has concluded double taxation treaties with over 50 countries, including the China, Canada, India, Ireland, EU countries, Japan, Russia and CIS, Singapore, South Africa, the UAE, USA, and the UK, among others, whilst negotiations are underway with a further 40 countries. Indeed, this extensive list of double tax treaties (and still more to come) is the one of the key tax advantages to registering a company in Cyprus.
Below is a list of Cyprus Double Taxation Treaties and each treaties date of application:
Country |
Date of signature tax treaty/protocol |
Date of when tax treaty came into force |
Date of when the tax treaty was published in the official
Republic of Cyprus Gazette (Number and date) |
Austria |
20 Mar 1990 |
10 Nov 1990 |
2500 27 Apr 1990 |
Bulgaria |
30 Oct 2000 |
3 Jan 2001 |
3461 30 Dec 2000 |
Belarus |
29 May 1998 |
12 Feb 1999 |
3273 9 Oct 1998 |
Belgium |
14 May 1996 |
8 Dec1999 |
3365 19 Nov 1999 |
Canada |
2 May 1984 |
3 Sep1985 |
2053 31 May 1985 |
China |
25 Oct1990 |
5 Oct 1991 |
2578 22 Feb 1991 |
Denmark
Treaty
Notes
New Agreement |
26 May 1981
11 Oct 2010 |
10 Aug 1981
10 Apr 1982 |
1704 17 Jul 1981
2034 24 Sep 1982 |
Egypt |
18 Dec1993 |
14 Mar1995 |
2865 11 Mar 1994 |
France |
18 Dec1981 |
1 April 1983 |
1468 9 Jul 1982 |
Germany
(new Agreement) |
9 May 1974
18 Feb 2011 |
11 Oct 1977
2011 |
1199 27 Jun 1975 2011 |
Greece |
30 Mar1968 |
16 Jan 1969 |
651 10 May 1968 |
Hungary |
30 Nov1981 |
24 Nov 1982 |
862 7 May 1982 |
India |
13 Jun 1994 |
21 Dec 1994 |
2921 4 Nov 1994 |
Ireland |
24 Sep1968 |
12 Jul1970 |
726 19 May 1969 |
Italy
Treaty
Protocol
(Additional Protocol) |
24 April 1974
7 Oct 1980
4 Jun 2009 |
9 June 1983 |
1586 5 Sep 1980
4 Jun 1982
4125 4 Jun 2010 |
Kuwait
(New Agreement) |
15 Dec 1984
5 Oct 2010 |
25 Sep 1986 |
2026 18 Jan 1985 |
Lebanon |
18 Feb 2003 |
14 Apr 2005 |
3976 8 Apr 2005 |
Malta |
22 Oct 1993 |
11 Aug 1994 |
2860 25 Feb 1994 |
Mauritius |
21 Jan 2000 |
12 Jun 2000 |
3410 2 Jun 2000 |
Norway |
2 May 1951 |
1 Jan 1955 |
11 Jun 1956 |
Poland |
4 Jun 1992 |
9 Jul 1993 |
2735 4 Sep1992 |
Romania |
16 Nov 1981 |
8 Nov 1982 |
1757 26 Feb 1982 |
Russia
(Amendment Protocol) |
5 Dec1998
7 Nov 2010 |
17 Aug 1999 |
3306 26 Feb 1999 |
South Africa |
26 Nov 1997 |
8 Dec1998 |
3214 16 Jan 1998 |
Sweden |
22 Oct 1988 |
14 Nov1989 |
2377 20 Jan 1989 |
Syria |
15 Mar 1992 |
22 Feb 1995 |
2863 4 Mar 1994 |
Singapore |
24 Nov 2000 |
8 Feb 2001 |
3641 30 Dec 2000 |
Thailand |
27 Oct 1998 |
4 April 2000 |
3394 17 Mar 2000 |
United Kingdom
Treaty
Protocol |
20 Jun1974
2 Apr 1980 |
1 Nov1974 |
1107 5 Jul 1974 |
USA |
19 Mar 1984 |
31 Dec 1985 |
1944 4 April 1984 |
Serbia* |
29 Jun1985 |
8 Sep1986 |
2073 23 Aug1985 |
Montenegro* |
29 Jun1985 |
5 Nov 2008 |
2073 23 Aug1985 |
Slovenia*
(New Agreement) |
29 Jun1985
12 Oct 2010 |
8 Sep 1986 |
2073 23 Aug1985 |
Slovakia** |
15 April 1980 |
30 Dec 1980 |
1599 3 May1980 |
Czech Republic**
(new
agreement) |
15 April1980
28 April 2009 |
30 Dec 1980
26 Nov 2009 |
1599 3 May1980
4114 13 Nov 2009 |
Azerbaijan*** |
29 Oct 1982 |
26 Aug 1983 |
26 Nov 1982 |
Armenia |
17 Jan 2011 |
Pending |
Pending |
Kyrgyzstan*** |
29 Oct 1982 |
26 Aug 1983 |
26 Nov 1982 |
Moldavia |
28 Jan 2008 |
03 Sept 2008 |
4098 29 Aug 2008 |
Tanzikistan*** |
29 Oct 1982 |
26 Aug 1983 |
26 Nov 1982 |
Uzbekistan*** |
29 Oct 1982 |
26 Aug 1983 |
26 Nov 1982 |
Ukraine*** |
29 Oct 1982 |
26 Aug 1983 |
26 Nov 1982 |
Seychelles |
28 Jun 2006 |
27 Oct 2006 |
25 Oct 2006 |
San Marino |
27 April 2007 |
18 July 2007 |
4088 13 July 2007 |
Qatar |
11 Nov 2008 |
20 Mar 2009 |
4099 14 Nov 2008 |
United Arab Emirates |
27 Feb 2011 |
Pending |
Pending |
Notes:
* The treaty between Cyprus and the Socialist Federal Republic of Yugoslavia is still in force.
** The treaty between Cyprus and the Czechoslovak Socialist Republic is still in force. The said treaty has ceased to apply between Cyprus and Chech Republic as from 1.1.2010, date of application of the provision of the new agreement.
***The treaty between Cyprus and the Union of Soviet Socialist Republics is still in force.
Full explanations for Double tax treaties with Cyprus can be found at the Cyprus Ministry of Finance,
click here
Indeed, tax planning advantages in Cyprus reach far beyond saving tax (money). It is a complete business strategy for investment (especially to Europe, Middle East and Africa), as well as a global solution for financial efficiency. These benefits are for large corporate companies, small and medium size enterprises (SME), as well as individuals.
Cyprus tax rates – a closer look
In 2002, as part of the Income Tax Act No. 118(I) of 2002, the Cypriot Parliament approved a uniform 10% corporate tax rate, to apply to both onshore and offshore companies, plus a 2% levy on wage bills (meant to subsidise pensioners), and a special contribution related to defence which in effect applies the 10% corporate tax rate to inter-company dividend and interest payments.
As from 2003, Cyprus applied a residence-based taxation regime: Resident in the Republic, when applied to a company, means a company whose management and control is exercised in the Republic; and "non-resident or resident outside the Republic" will be construed accordingly. However, profits from activities of a permanent establishment situated outside Cyprus are completely exempt. This exemption will not apply to a Cyprus company if: (i) its foreign permanent establishment directly or indirectly engages in more than fifty per cent (50%) of its activities in producing offshore income, and (ii) the foreign tax burden is substantially lower than that in Cyprus. Dividends are exempted from tax; however, provisions have been introduced under the Special Contribution for the Defence of the Republic Law, 2002 (Special Contribution). Furthermore, in order to encourage new businesses to Cyprus, as of 1 January 2012 tax incentives are offered for employment of persons who are not tax residents of Cyprus. In other words, if income from employment exceeds €100.000 per annum, a 50% deduction is allowed for the first 5 years of employment. The incentive is granted both to Cypriots and non Cypriots, on the condition that prior to employment this individual was resident outside Cyprus and was not considered a tax resident of Cyprus.
As from 2011 an annual levy of €350 is introduced for all companies incorporated in Cyprus payable to the Registrar of Companies. For groups of companies the maximum levy is fixed at €20.000,00. The levy for 2011 must be paid by 31 December 2011, whereas the levy for 2012 onwards must be paid by 30 June of each year. Dormant companies, companies which do not own any assets, as well as companies owning property located in the non Government controlled areas of Cyprus are exempted from the payment of the levy. Penalties (10% at 2 months and 30% at 5 months) may and will apply for very late payments. The Cyprus Registrar of Companies will also remove the company from the registry for very late payments.
The tax year in Cyprus is the calendar year. Annual tax returns must be filed by 31 December following the tax year. Company tax returns must be filed together with balance sheet and profit and loss account, auditor's report, income tax and Defence Tax computation and additional information report.
Tax Alert Changes in Cyprus; 12.5% Corporate Tax Rate
Pursuant to the implementation of the decision of the Eurogroup and Troika lending trio, Cyprus' House of Representatives has voted a number of bills regarding the increase of existing tax rates and the reduction in public spending. These efforts are also in an effort to stabilise the economic situation for the long term. The most influential change comes in the increase in the direct corporate tax rate from 10% to 12.5% as of January 1, 2013. Although this still makes Cyprus the lowest corporate tax rate in the European Union, at the same level as Ireland.
Various tax rates in Cyprus and information
- Personal Income Tax in Cyprus
Cyprus has unique tax rates for individuals – resident to the island. Indeed, many benefits for saving tax. Additionally, Cyprus has Double Taxation treaties with many countries around the world, including the majority of European and non-European countries. This ensures that residents will avoid paying tax in both countries, therefore able to take advantage of the very low rates in Cyprus.
Earnings in euro |
Cyprus Tax rate |
Tax amount |
Cumulative tax |
Up to 19,500 |
0% - tax free threshold |
Nil |
Nil |
19,501 – 28,000 |
20% |
1,700 |
1,700 |
28,001 – 36,300 |
25% |
2,075 |
3,775 |
36,301 – 60,000 |
30% |
|
|
Over 60,000 |
35% |
|
|
*These figures are current as of 2011 and rarely change. For more information on Personal Income Tax visit the
Cyprus Inland Revenue Department, Tax Rates for Income Tax
- Cyprus Social Insurance Contributions
Social insurance contributions in Cyprus are payable by employer and employees on earnings. The current contribution rates are:
- Employer's contributions are at 6.8%
- Employees contributions are at 6.8%
- Self-employment contributions are at 12.6%
In addition, Cypriot employers must contribute to the following:
- Social Cohesion Fund – 2%
- Redundancy Fund – 1.2%
- Industrial Training Fund – 0.5%
- Annual Leave Fund – 8%
- Defence Tax Contribution in Cyprus
Some incomes are subject to a special defence tax contribution in Cyprus. However this defence contribution applies only to income earned by Cyprus Tax residents. Non Tax residents are exempt from this tax contribution. A resident company in Cyprus is exempt from the special defence contribution regardless of dividends received from a company that is also resident in Cyprus. A company resident in Cyprus which receives dividends from a company which is not resident in Cyprus, is also exempt from special defence contribution.
The special defence contribution rate on interest has increased from 15% to 30%, as of the date of the publication of the law in the official Gazette of the Republic. The special defence contribution on interest is payable only by official Cyprus tax residents and applies to physical persons, as well as legal persons (companies/entities) which receive interest which is not associated with the ordinary activities of the company.
Income |
Tax rate (%) |
Interest income earned by a company resident in Cyprus from sources within and outside Cyprus. Non-residents (outside the country for more than half the year) are exempt from the defence contribution tax
note 1 |
30 |
Foreign dividend income (under certain conditions) – any worldwide dividends
note 2 |
17 |
Income/interest accrued from the following:
- Housing development corporations
- Savings certificates and development stocks issued by the Cyprus Government
- Provident funds
- Rental income (75% of gross receipts)
- Profits of semi-government organisations
note 3
|
3 |
Note 1: This applies to both individuals and corporations. In the case of corporations, if the interest results from the ordinary carrying on of any business, including any interest closely connected with the ordinary carrying on of the business, it is not subject to defence tax, but instead is subject to corporate income tax. Therefore, financing companies, including companies involved in intra-group financing activities, are not expected to be affected from the change in the rate. It should be noted that no defence tax is payable on interest payments to non residents. It should also be noted that this provision applies to interest received by resident individuals or corporations, both from sources within Cyprus and outside of Cyprus.
Note 2: This applies only to individuals, since under the provisions of the legislation companies are generally exempt from the payment of defence tax on dividends. The increase in the rate also applies when the deemed distribution rules are applied in cases where a tax resident company does not distribute within two years at least 70% of its after tax profits.
Note 3: For provident funds defence tax on interest received remains at 3%, as well as in the case of an individual whose total income for the year does not exceed €12,000 (including interest income). The same rate applies to interest received by an individual from Government savings certificates and development stocks.
General note: No defence tax is levied on dividends paid to non resident individuals or corporations. It is also noted that the deemed distribution rules are not applicable in the case where shareholders of a resident company are non tax residents of Cyprus. However, the deemed distribution rules are applicable in the case of a Cypriot tax resident company owned by another Cypriot tax resident company, which in turn is owned by non residents. It is expected that shortly such companies will be excluded from the provisions of the deemed distribution rules, therefore there would be a significant benefit for such companies in case of inability to distribute an actual dividend.
- Foreign Pension Income
All pension income arising from an overseas source is taxable on a worldwide basis. Retirees (pensioners) who become residents in Cyprus are taxed on their pensions from abroad at the rate of 5% per annum, with an annual threshold exception for the first €3,420.
These attractive tax rates and benefits for pensioners together with ideal living conditions make Cyprus one of the most popular destinations for retirement.
- Cyprus Value Added Tax (VAT)
Value added tax is imposed on the provision of goods and services in Cyprus, on the acquisition of goods from the European Union and on the importation of goods into Cyprus. Taxable persons charge VAT on their taxable supplies and are charged VAT on goods or services received. This applies to any person involved in taxable activities including, individuals, limited liability companies, partnerships, clubs, foundations, unions, international business entities, groups of companies, provided the registration threshold of €15.600 is exceeded.
VAT due on any sale is a percentage of the sale price but from this the taxable person is entitled to deduct all the tax already paid at the preceding stage. Therefore, double taxation is avoided and tax is paid only on the value added at each stage of production and distribution. In this way, as the final price of the product is equal to the sum of the values added at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each stage.
At this point is worth mentioning the VAT benefits companies can have from being based in an EU country such as Cyprus, and access to the wider European community. For example, there are certain exemptions whereby the supplier is allowed to deduct input VAT. These exemptions are used for instance for the exports of goods from the Community to third countries and also for intra-Community supplies of goods dispatched from one Member State to a taxable person (or identified trader) in another. Sometimes these exemptions are called zero-rate supplies as the result is that there is no residual VAT in the final price. In addition, some Member States are still allowed to apply zero-rates of VAT to certain groups of goods.
Furthermore, supplies falling under a category exempt from VAT are sold to the buyer, normally a final consumer, without any VAT being applied to that sale. Exemptions from tax include for example, certain activities in the public interest (medical care, school education etc.) or certain insurance and financial services.
VAT Rates in Cyprus
Cyprus VAT |
VAT Rate |
Standard rate |
19% |
Reduced VAT rate (transportation with rural & tourist buses, transportation with city and rural taxis, restaurant services, etc) |
9% |
Reduced VAT rate (pharmaceutical products, foodstuffs, books, gas, entrance fee to concerts, museums, etc) |
5% |
Zero VAT rate (export of goods, leasing of aircraft-under certain conditions, passenger transport services from and to the Republic, etc) |
0% |
Cyprus introduced VAT in 1992, which was originally based on British VAT Legislation (1983), adjusted to the characteristics of the Cypriot economy, and then more recently in line with the EU VAT Directive, thus in harmonising the Cypriot VAT system with that of the EU. For more detail about Cyprus VAT and Vat in the European Union (EU),
click here.
Cyprus VAT registration procedure for companies and individuals
Download EU VAT directive
Download VAT rates applicable in the EU Member States
- Corporate Tax in Cyprus
Cyprus imposes corporation tax on companies, including all companies incorporated or registered under any Cyprus law, and any foreign company which carries on business or has an office or permanent business establishment in Cyprus. Permanent establishment has the same meaning as defined in the OECD Model Tax Convention on Income and on Capital with the exemption of a building site or construction or installation project, which constitutes a permanent establishment only if it lasts more than three months.
A
permanent establishment (PE) is a fixed place of business which generally gives rise to income or value added tax liability in a particular jurisdiction. The term is defined in many income tax treaties and most European Union Value Added Tax systems. The tax systems in some civil law countries impose income and value added taxes only where an enterprise maintains a PE in the country. Definitions of PE under tax law or tax treaty may contain specific inclusions or exclusions.
Companies that are Tax Residents in Cyprus are liable to tax on their worldwide income, which is received both in Cyprus and abroad. Companies, which are non tax residents, but carry out business activities through a permanent establishment in Cyprus, are liable to tax only on the income derived in Cyprus. Companies are considered as Cyprus Tax Residents provided that they are managed and controlled in Cyprus.
Note: Cyprus has the lowest corporate tax rate in the European Union that is not investment and the lowest non-investment jurisdiction corporate tax rate in the world. Cyprus also has double tax treaties with over 50 countries, including the USA, UK, Canada, India, Ireland, EU countries, Russia, CIS, Singapore, Japan, China, South Africa and the UAE, among other. Meanwhile, a further 40 treaties are currently being negotiated.
Cypriot Entity |
Cyprus Tax rate |
Companies |
12.5% |
Shipping companies |
0% |
Maritime management companies |
4.25% |
Semi Government Organisations |
12.5% |
- Cyprus Branch or Subsidiary
Corporation tax rates are the same, but the calculation of the taxable base is different:
- Head-office expenses are allowable in both cases
- Transfer-pricing rules may be applied differently in the two cases
- Branch profits may be remitted to head office free of withholding tax; corporate dividends are also now exempt from withholding tax
- Interest on intercompany loans is generally deductible for a company, but not for a branch.
- Capital Gains Tax in Cyprus
Taxable gain or amount is the profits earned, i.e. the difference between the takings when immovable property is sold and the original cost together with any expenses on improvements, adjusted for inflation from the date of acquisition.
As determined by the Cyprus Capital Gains Tax Law, Capital gains tax in Cyprus arising from the sale or disposition of immovable property in Cyprus or the disposal of shares of companies which own immovable property in Cyprus and not listed in a recognised stock exchange. These gains are not added to other income but are taxed separately. Gains from the sale of shares listed on the stock exchange are excluded from capital gains tax, as specified in the Capital Gains Tax (Amendment) Law, No. N119(I) of 2002. Payment of immovable property tax is paid by both individuals and companies on property owned in Cyprus. The following rates are effective as of January 1, 2012:
- Up to €120,000 0%
- From €120,000 to €170,000 4%
- From €170,001 to €300,000 5%
- From €300,001 to €500,000 6%
- From €500,001 to €800,000 7%, and
- Over €800,000 8%
Tax remains levied on the assessed value of the property as at 1 January 1980.
Capital gains tax does not apply to profits from the sale of overseas real estate by non-residents, investment entities, or residents who were not resident when they purchased the asset. Gains accruing from disposal of immovable property held outside Cyprus and shares in companies, the property whereof consists of immovable property held outside Cyprus, will be exempted from capital gains tax.
Individuals may, subject to certain conditions, claim the following deductions from the applicable taxable gain:
- If the disposal relates to a private residence – up to €85,500
- If the disposal is made by a farmer and it relates to agricultural land - up to €25,650
- any other disposal - up to €17,100
These deductions are granted once in the lifetime of the individual, until fully exhausted and if an individual claims a combination of them, the maximum deduction granted cannot exceed €85,430 (when living at least 5 years before sale). Some disposals are exempt from taxation, including transfer by reason of death and gifts between relatives. There are also some circumstances in which rollover relief is available if a gain is used for the purchase of a further property.
- Cyprus Tax Deductions
The following expenses and costs are 100% Tax deductable:
- Expenditure wholly and exclusive for the production of income
- Subscriptions and donations to approved charities (with receipts)
- Employer's contributions on salaries, and
- Business entertainment and related expenses are also tax deductable at 1% of gross income with a maximum amount of €17.086
Company losses that arise during or after the financial year 1997 can be brought forward and claimed against income of other subsequent years. There are no time constraints. The current financial year loss of one Cypriot entity can be claimed against the profits of another within the same group. However, there are some restrictions on the use of losses from one trade to offset profits from another.
The Group Relief rule also provides for group relief of tax losses among companies of the same group, i.e. at least 75% subsidiary of the other, or both companies are at least 75% subsidiaries of a third company. Both companies must be Cypriot tax residents and members of the same group during the entire financial year, whilst losses can not be brought forward to another year.
Allowable expenditure needs to be incurred wholly and exclusively for the business; however, mixed private/company expenses can often be apportioned. Allowable expenses include repairs, donations to an approved fund, bad debts, non-capital scientific research, donations to charities, interest on loans, other than for those used to acquire shares, rent, salaries and other employee related costs, as well as wear and tear (depreciation), among other.
- Cyprus Tax Exemptions
In addition to its favourable tax rate, Cyprus offers a number of other incentives in tax exemptions:
Cypriot Entity |
Tax Exemptions |
Interest income |
100% |
Income from dividends |
100% |
Profits from sale of securities |
100% |
Profits of a permanent establishment abroad |
100% |
Please note, although the Cyprus tax system is one of the most modern and efficient in the EU, conditions can apply to each situation. Contact Investment Gateway and get in touch with an expert for a full and customised explanation of the Cyprus tax system and for global tax planning.
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Advantages & opportunities to investing offshore via Cyprus (EU):
Cyprus: EU, Eurozone & Commonwealth | Ideal Geographical location for investment services | Geopolitical stability & business friendly Government | Macroeconomic resilience & growth | Well developed infrastructure for investment services | Restructured Cypriot banking sector | Most favourable tax planning system in the EU | Cyprus International Business Company (IBC)
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