Cyprus has one of the most attractive tax regimes in Europe with taxation highlights of 12.5% corporate tax or 2.5% for QUALIFIED Intellectual Property profits and for non-tax domiciled persons 0% tax on dividends, 0% tax on sale of shares and securities and 0% capital gains tax (with exception of real estate in Cyprus). This guide provides general information on the personal and corporate taxation in Cyprus.
Personal income tax
1. Tax Residence
There are significant tax advantages for persons who opt to become tax residents in Cyprus. Such persons will be considered as non-domiciled tax residents for the next 17 years of residence in Cyprus.
Non-domiciled tax residents are exempt from paying “Special Contribution for Defence” tax, which gives them the following benefits:
2. Requirements for tax residence
In order for a person to be a Cyprus tax resident the following conditions must be met:
3. Personal Tax Rates
|wdt_ID||Chargeable Annual Income (€)||Tax Rate||Accumulated Tax (€)|
4. Other Tax Exemptions
5. Scope of taxation
Cypriot tax residents are taxed on their worldwide income but, as aforementioned, with significant exceptions. Non-Cyprus tax residents are only taxed on income accrued through their business activities and sources in Cyprus.
Companies are taxed in Cyprus where the effective management and control of a company is in Cyprus. In addition, authorities worldwide are starting to consider the actual presence of a company as a decisive factor for the place of its taxation. Despite the lack of a generally accepted definition of a what constitutes actual presence, the existence of an actual office of a company, having employees (for whom social insurances are paid) and an economic reason for being in a country are some of the strong indicators of actual presence.
2. Tax Rates
Corporate tax in Cyprus is 12.5%. In addition, the following apply:
3. Tax Deductions
The following tax deductions apply as an expense reducing profit:
By way of an example: if €100.000 are introduced as new equity capital in the company, the company will be able to add on its existing expenses a minimum €6.489 for notional interest.
4. Losses carried forward
Capital gains, VAT & other taxation
The only activity at which capital gains tax applies is at the sale of immovable property situated in Cyprus or the sale of shares in companies owning immovable property (with the exception of shares listed on a recognized stock exchange). The taxation rate is 20%. Gains from the sale of immovable property situated outside Cyprus are tax exempt. The normal VAT rate is 19%, however it is reduced in some cases. VAT for the construction or purchase of a property to be used as the primary residence is 5%. The 5% rate applies for the first 200 square meters of a property (excluding basements) and the full rate of 19% applies for the rest square meters of the property. A reduced VAT application must be submitted to benefit from the 5% VAT rate on the residential property. The immovable property tax has been abolished from January 2017. Estate Duty (Inheritance Tax) has also been abolished, since January 2000. Withholding taxes do not apply for dividends, interests, or royalties paid to non-residents of Cyprus.
Cyprus International Trusts
There is no separate taxation for Cyprus International Trusts. Taxation applies according to the Beneficiary’s tax residence as mentioned above.
Note. This guide contains information for general guidance and does not substitute professional advice which must be sought prior to taking any actions.