Why Cyprus?

Cyprus is a modern, cosmopolitan, transparent business centre offering opportunities for investment across a wide range of sectors.

Cyprus is committed to offering a high quality, duly regulated service and unique value proposition that ensures the best possible experience for investors and businesspeople worldwide. In a business-friendly environment, with a highly skilled and multilingual workforce, where doing business is simple, fast and efficient and life is of the highest quality, international businesses find the ideal environment to invest, prosper and grow.

As a full EU member state, Cyprus offers a flexible legal system and companies enjoy full access to European markets and EU trade agreements.

When it comes to doing business in Cyprus, entrepreneurs have a number of options. The most popular way of doing business in Cyprus is by establishing a Cyprus company. The process of setting up a Cyprus company is simple and usually takes less than a working week.

Finally, Cyprus attracts thousands of expatriates to live and work, due to its favourable personal tax regime.

Cyprus corporate taxation

Cyprus offers one of the most attractive tax regimes in Europe, fully compliant with EU and OECD regulations. Its favourable provisions, render Cyprus an ideal location for doing business.

A Cyprus tax resident company can enjoy a number of tax benefits. Generally, a company is considered to be Cyprus tax resident, if it is managed and controlled from Cyprus. Normally, the (worldwide) business profits of a Cyprus tax resident company are subject to corporation tax at the rate of 12.5%. However, a number of income streams are exempt from tax, such as:

• Dividend income (subject to easily met conditions)
• Profit from disposal of shares, bonds and other financial instruments
• Foreign exchange gains, unless arising from trading in currencies
• Profits from overseas permanent establishments

In addition, Cyprus tax system offers significant tax deductions:

• Intellectual Property (‘’IP’’) Box regime

The new IP box regime incorporates the OECD recommended “nexus approach”, according to which qualifying companies can claim a tax deduction of up to 80% of their net profit resulting from the exploitation or disposal of certain intellectual property.

• Notional Interest Deduction (‘’NID’’)

Cyprus companies are allowed to deduct a NID from the taxable income, upon the introduction of new equity in the of form of share capital or premium which can potentially reduce the effective tax rate to as low as 2.5%.

• Interest Deduction

Cyprus companies are allowed to deduct interest expense incurred for acquiring assets used in the business, as well as shares in wholly owned subsidiaries.

Other corporate tax incentives

Access to Double Tax Treaties

Cyprus has an extensive network of more than 65 bilateral tax treaties for the avoidance of double taxation, including most countries in Europe, the UK, the US, China, South Africa, India and Russia.

Unilateral tax credit relief

Relief for taxes paid abroad is in the form of a tax credit if the respective income is subject to tax in Cyprus. The relief is granted unilaterally irrespective of the existence of a double tax treaty.

Withholding tax

Currently, Cyprus does not impose any withholding tax on payments of dividends and interest to foreign investors and on royalties for use outside of Cyprus.

Capital Gains

Capital gains tax only applies on profits arising from the disposal of immovable property located in Cyprus or shares in companies holding directly or indirectly an immovable property in Cyprus.

Cyprus personal taxation

Cyprus is one of the most favourable jurisdictions within the EU with regards to personal taxation, attracting a number of individuals to work and live in Cyprus. The income (including employment income) of individuals is subject to income tax. Even though dividends, interest and rental income are subject to defence tax, this tax applies only to Cyprus residents who are also domiciled individuals. Finally, capital gains tax is only applicable on profits from the disposal of immovable property located in Cyprus or shares in companies holding directly or indirectly an immovable property in Cyprus.

The tax treatment of an individual arriving in Cyprus depends on the residency status, domicile status, sources of income and eligibility for tax exemptions.

Tax residency

An individual who spends more than 183 days in Cyprus is a tax resident of Cyprus. An individual can also become Cyprus tax resident by spending 60 days in Cyprus provided he/she satisfies a number of other criteria, such as maintaining a home in Cyprus and carrying on a business or being employed in Cyprus. A Cyprus tax resident individual is subject to income tax on his/her worldwide income whereas a non-Cyprus tax resident individual is subject to income tax only on Cyprus sourced income.

Tax exemptions and incentives

The following tax exemptions and incentives are granted by the Cyprus tax system:

• 50% exemption of the remuneration from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus. The exemption applies for a period of ten years starting from the first year of employment provided that the employment income exceeds €100,000 per annum.

• 20% exemption of the remuneration or €8,550 (whichever is the lower) from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus. The exemption is available to qualifying individuals commencing employment in Cyprus between 2012 and 2025 and is provided for the five years that follow the tax year of commencing employment.

• 100% exemption of the remuneration from the rendering of salaried services to a non-resident employer based outside of Cyprus or to an overseas branch of a resident employer for more than 90 days within a year.

• 100% exemption on gains arising from the disposal of securities such as shares and bonds.

• Pension received in respect of past employment exercised outside Cyprus is taxed in Cyprus at the rate of 5% on amounts in excess of €3.420.

• There is no gift tax, estate duty, wealth tax or inheritance tax in Cyprus

Domicile

Generally, a Cyprus tax resident individual is not domiciled in Cyprus if he/she was not born to Cypriot parents. However, one would be deemed to be domiciled in Cyprus if he/she has been a Cyprus tax resident for at least 17 out of the last 20 years prior to the relevant tax year.

A tax resident individual who is non-domiciled in Cyprus is exempt from tax on dividend and interest income not generated in the ordinary course of business.

How can Taxcom help you

Taxcom has the appropriate expertise and resources to assist you with determining whether you are entitled to use any of the Cyprus tax incentives either at corporate or personal level.

We are ready to assist you with undertaking the relevant steps to enjoy the benefits that Cyprus tax system offers.

Contact us at info@taxcom.cy