The Republic of Cyprus taxation provisions:
A company is deemed tax resident of The Republic of Cyprus if management and control of its business is exercised in Cyprus. Cyprus corporate tax residents pay tax on income derived or received from sources situated in or outside The Republic of Cyprus. Non-resident companies pay tax on income derived or received within The Republic of Cyprus only.
Corporate profit tax:
The fixed rate is 12.5% (net of qualified expenses incurred to generate profit).
The following is exempt from corporate tax:
- interest and dividend income;
- capital gains from the sale of securities and property outside of The Republic of Cyprus. Capital gains on the sale of property in The Republic of Cyprus, including shares of companies with property in The Republic of Cyprus is taxed at the rate of 20%;
- profit of permanent establishments abroad;
- 80% of the profit from the use and/or sale of royalties.
Tax losses may be deducted from taxable income for 5 years from the end of the financial year. If the companies are members of the same group throughout the entire financial year they can transfer losses to another company in the same group.
Income tax paid in another country is deductible from relevant income derived in The Republic of Cyprus irrespective of any application of Double Tax Treaties. If the Double Tax Treaty is available the taxpayer is allowed to apply the most favourable terms.
Taxation at source:
Dividends, interest and royalties (only on the use of rights outside The Republic of Cyprus) paid by a company of The Republic of Cyprus to a non-resident are exempt from tax at source. This is irrespective of the residency of the receiving party, its status and the availability of the Double Tax Treaty between The Republic of Cyprus and the jurisdiction of the non-resident.
Royalties arising from sources in The Republic of Cyprus and paid by a company of The Republic of Cyprus to a non-resident are taxed at the following rates:
- 5% on income from the demonstration of films;
- 10% on any other rights or similar income.
The above rates are adjusted subject to Double Tax Treaties or terminated according to the EU Interest and Royalties Directive.
Special defence contribution:
Residents of The Republic of Cyprus must pay Special Defence Contributions that are charged on the following income:
- dividends – 17%;
- interest income – 30%;
- rental income – 3%.
Non-residents do not pay the Special Defence Contribution.
Value added tax:
The standard rate is 19% but reduced rates of between 5 and 9% or even total exemption may be applied.
Companies incorporated in The Republic of Cyprus must pay a €350 levy every year from the date of incorporation and this levy is payable by 30th June of each year.
Late payment of the levy incurs penalties as follows:
- late payment of up to 2 months – 10% penalty;
- late payment of 2 to 5 months – 30% penalty;
- failure to pay the levy will result in the deletion of the company from the Registry and reinstatement of the company in the Register will incur the following fees:
- within 2 years – a fixed penalty of €500 plus the outstanding levy;
- after 2 years – a fixed penalty of €750 plus the outstanding levy.
At the request of the company the Inland Revenue Department of The Republic of Cyprus may issue provisional opinion on the Law or its application in specific situations.
- personal income tax is charged progressively at the rate of 0% to 35% (subject to taxable income);
- Social Insurance Fund (employer – 7.8%, employee – 7.8%);
- Redundancy Fund – 1.2%;
- Industrial Training – 0.5%;
- Special Government Budget Enhancement Contribution – at the rate of 0% to 1.75% (for any person with a monthly income above €1,500) on the total sum of the monthly income;
- Social Cohesion Fund – 2% (of the total emoluments).
Double Tax Treaties:
Cyprus maintains a network of over 50 Double Tax Treaties, most of which are signed with countries in Central, Eastern and Western Europe, including such countries as Austria, Belarus, Bulgaria, the UK, Greece, Georgia, Lithuania, Malta, Poland, the Russian Federation, Ukraine, Estonia, etc.
The provisions of these Treaties may be utilised by interested parties for tax planning of companies or by private individuals (additional information is available upon request).
For more information on the incorporation and administration of companies in The Republic of Cyprus or companies registered in other jurisdictions please contact us.