• Cyprus Tax System

  • TAX RESIDENCY

    Tax Residency

    A company is considered to be tax resident in Cyprus if its management and control is exercised in Cyprus.

    Taxable Basis

    Cyprus tax resident companies are taxed on their worldwide income.

    Non-Cyprus tax resident companies are taxed only on income generated in Cyprus.

  • TAX ADMIN

    Taxable Period

    The taxable period for a company in Cyprus is the calendar year i.e. from 01/01 to 31/12.

    Tax Returns

    Every company needs to submit an annual tax return within 15 months from the year-end to which it relates.

    Tax Assessments

    The Tax Authorities may issue a tax assessment within 6 years from the end of the tax year to which the tax return relates.

  • CORPORATION TAX

    Corporation Tax

    Corporation tax in Cyprus is levied at a flat rate of 12.5% (as of 1 January 2013).

    The corporation tax rate was increased from 10% to 12.5% following the the agreement for a bailout plan reached by the Government of Cyprus and the European Commission, the European Central Bank and the International Monetary Fund.

  • DIVIDENDS

    Dividends from Foreign Investments

    Dividend income of a Cyprus company from foreign investments is exempt from tax in Cyprus. No minimum holding period is required.

    The only case whereby dividend income from foreign investments is taxable in Cyprus is if:

    • more than 50% of the foreign investment's income is derived from investment activities; and
    • the foreign tax payable by the paying company is less than 5%.

    In assessing the nature of the income of the foreign investment, one can go down the chain of all sub-holdings, which therefore practically makes it rare for dividend income to be taxed in Cyprus.

    Dividends from Local Investments

    Dividend income of a Cyprus company from another Cyprus company is exempt from tax in Cyprus.

    Withholding Tax on Dividends

    Dividend payment by a Cyprus company to a foreign shareholder (company or individual) does not suffer any withholding tax.

    Dividend payment by a Cyprus company to another Cyprus company does not suffer any withholding tax.

    Dividend payment by a Cyprus company to a Cyprus tax resident individual suffers 17% withholding tax.

  • INTEREST

    Interest Income

    Active interest income (i.e. interest earned in the normal course of business of a company) is subject to income tax at the rate of 12.5%. Any expenses incurred wholly and exclusively for the production of such income are allowed as tax-deductible.

    A Cyprus Financing Company is usually used for undertaking back-to-back financing activities. The Cyprus Tax Authorities have issued guidance on the acceptable spreads for back-to-back loans as follows:

    Loan Amount (€) Spread
    Up to €50m 0.35%
    €50m - €200m 0.25%
    Over €200m 0.125%

    The net taxable income is calculated by multiplying the applicable spread with the loan amount. The net taxable income is taxed under corporation tax at the rate of 12.5%.

    Passive interest income (i.e. interest earned not in the normal course of business of a company) is subject to special defense contribution tax at the rate of 30% as of 26 April 2013 (previously 15%). Any expenses incurred for the production of such income are not allowable as a tax-deductible.

    Interest Expense Deductibility

    Interest expense is tax-deductible only if incurred wholly and exclusively for the production of taxable income.

    Withholding Tax on Interest

    Cyprus does not impose any withholding tax on payments to foreign recipients.

    There is no withholding tax on the payment of interest by one Cyprus Company to another Cyprus company.

  • ROYALTIES

    Royalty Income

    Royalty income is subject to income tax at the rate of 12.5%.

    Under the Cyprus IP regime, the legislation provides for an 80% exemption of royalty income from patent rights and intellectual property rights.

    Royalty Expense Deductibility

    Royalty expense incurred wholly and exclusively for the production of taxable income is allowed as tax-deductible.

    Withholding Tax on Royalties

    Cyprus does not impose any withholding tax on royalty payments to foreign recipients if the right/asset is used outside of Cyprus. If the royalties are connected with the use of the right/asset within Cyprus then there is a 10% withholding tax. Such withholding tax may be reduced by treaty provisions or if applicable by the EU Interest & Royalties Directive.

  • TAX LOSSES

    Ordinary Tax Losses

    Ordinary tax losses can be carried forward and be set-off against taxable income for 5 years. The carry forward period is expected to be restricted to 5 years as of 1 January 2013 (see relevant news).

    The right to carry forward tax losses is lost in the event of an ownership change in a Cyprus company and a substantial change in the business of that company within a 3 year period.

    Similarly the right to carry forward tax losses is lost in the event where the company's activities diminish and before these are revived the ownership of the company changes.

    There is no carry back of ordinary tax losses.

    Group Relief

    The Cyprus tax system allows for Cyprus resident companies to form a group for tax purposes whereby tax losses may be transferred between members of the tax group.

    A tax group is created when:

    • One company is the 75% subsidiary of another company; or
    • Two companies are 75% subsidiary of another company.
  • CAPITAL GAINS

    Disposal of Shares by Foreign Shareholder

    The disposal of shares of a Cyprus company by its foreign shareholder is exempt from taxation in Cyprus.

    The only exemption is when the Cyprus Company owns immovable property situated in Cyprus. In such a case there is 20% capital gains tax.

    Capital Gains

    The disposal of immovable property situated in Cyprus is subject to capital gains tax at the rate of 20%.

    The disposal of financial assets including shares and bonds is exempt from capital gains tax.

    Capital Losses

    Capital losses of a given year cannot be set-off against taxable profit from other sources. However, they may be carried forward indefinitely and be set-off against capital gains in future years.

  • PARTNERSHIPS

    Partnership Profits

    General and Limited partnerships are treated as transparent entities for tax purposes which means that their profits are taxed directly in the hands of each partner.

  • BRANCHES

    Branch Profits

    The profit of a Cyprus Branch generated in Cyprus is taxed under Cyprus income tax at the rate of 12.5%.

    There is no tax in Cyprus on the remittance of the profit of a Cyprus Branch to its foreign head office.

  • STAMP DUTY

    Stamp Duty

    Stamp duty is imposed on documents or agreements if they relate to things and matters done in Cyprus (e.g. disposal of property situated in Cyprus, disposal of shares of Cypriot company by its Cyprus parent).

    Stamp duty is imposed on the value of a contract as follows:

    • 0% on the first €5,000
    • 0.15% on the next €165,000
    • 0.20% above €170,000

    However, stamp duty is capped at the maximum of €20,000.

  • CAPITAL DUTY

    Capital Duty

    Capital duty is imposed on the issuance of share capital as follows:

    Upon incorporation of a company
    Authorized share capital €105 plus 0.6% on the authorized share capital
    Issued share capital No capital duty if the shares are issued at a nominal value.
    €17 flat duty if the shares are issued at a premium
    Upon subsequent increases
    Authorized share capital 0.6% on the authorized share capital
    Issued share capital €17 flat duty whether the shares are issued at a premium or at nominal value
  • VAT

    VAT Taxable Transactions

    VAT is levied on the supply of goods and services in Cyprus and the import of goods in Cyprus from inside/outside the EU.

    VAT Standard Rate

    The standard rate of VAT is 19%.

    VAT Reduced Rate(s)

    The reduced rates of VAT are 9%, 5% and 0%.

    VAT Exempt Transactions

    Leasing or letting of immovable property, the supply of immovable property with the exception of buildings or parts of buildings and the land on which they stand if the application for a building permit was submitted after the 01/05/2004, financial services, lotteries, medical care, social welfare, education, sports, cultural services, insurance transactions are exempt from VAT in Cyprus.

    VAT Registration Threshold

    The registration threshold for VAT purposes in Cyprus is €15,600 (€10,251 for intra-community acquisition of goods).

    VAT Filing & Payment

    Filing of VAT returns and the payment of VAT liability is made every 3 months.