During the last decades, Cyprus established itself as a business hub, offering a unique European base for international business companies. Despite the March 2013 events with the local banks bail-in, Cyprus economy has proved to be resilient. The recent positive reviews from Troika and the rating agencies (Standards and Poor revised the outlook of the Cyprus economy to positive from stable), as well as the continuous expansion of the country’s Double Tax Treaties network will further support the already increasing interest from international investors.
More than 250,000 international entities are currently registered and operating through Cyprus, making use of the country’s strategic geographic location, attractive tax environment, and a robust and transparent regulatory framework.
Supported by a strong network of highly experienced service providers, Cyprus is the ideal jurisdiction for cost – efficient international tax planning, offering invaluable tools to minimize or even extinguish the total tax burden of a company’s structure.
Following its EU Accession back in 2004, Cyprus is successfully competing and continuously gaining ground against traditional tax planning jurisdictions like Netherlands and Luxembourg. Cyprus is increasingly been used in occasions that one jurisdiction cannot suit all investors or investment profiles, in which case tax experts are combining Cyprus with other jurisdictions to maximize results.
International companies and investors can make use of a Cyprus entity to properly structure their international tax plan and benefit amongst others in terms of:
- Reduced tax burden in the country where the income is earned
- Reduced withholding tax imposed on incoming and outgoing dividends, interest and royalties
- Reduced or deferred tax burden for the ultimate shareholder of the tax structure
- Increased returns on investments by reducing the overall tax burden of an international activity
Apart from the tax benefits, Cyprus also offers some non financial advantages like anonymity and low costs. This amalgamation of financial and non financial advantages make Cyprus the preferred destination of many international investors who recognize that Cyprus encompasses all the necessary and indisputable prerequisites needed for companies that wish to expand internationally and also for individuals who wish to protect their assets.
- The lowest corporate tax rate in the European Union
Cyprus has the lowest corporate tax amongst European Member states (12.5%)- Exemption from tax on dividend income
Dividend income received by foreign companies is exempt from tax subject to certain conditions 1
Dividend income received from another Cyprus company is exempt from tax- No withholding taxes
There is no withholding tax on dividend distribution, interest and royalties paid to non—tax
residents- Capital gains and income tax exemption for securities2
Cyprus does not impose any income or capital gains tax on profits and gains resulting from the
disposal of securities, irrespective of whether the profits and gains are considered to be of a
revenue or capital nature.- Capital gains and income tax exemption for real estate
Capital Gains that arise from the disposal of immovable property held outside3 Cyprus are exempt
from capital gains tax- Profits from permanent establishment maintained abroad are exempt from tax with
easily met conditions4- Interest Deduction for borrowing costs
Interest expenses payable by a Cypriot company are generally fully deductible if incurred in respect
of funding the acquisition of assets used in a business which derives taxable income- Loss carried forward
The tax loss incurred during a tax year and which cannot be offset against other income, can be
carried forward and set off against the profits of the next five years (subject to easy met conditions- Group relief
Group relief is allowed provided both claimant companies are tax resident in Cyprus and members
of the same group for the whole tax year. Two companies are deemed to be members of a
group if:
– One company is the 75% subsidiary of the other or
– Both are 75% subsidiaries of a third company- Double Tax Treaties
Cyprus companies benefit from the more than 50 Cyprus tax treaties. The number of treaties is
continuously expanding and most of them provide for reduced or nil rates of withholding tax
on dividends, interest and royalties paid from the treaty country and the avoidance of double
taxation in the case where a resident in one country derives income from the other treaty country- Income from intellectual property
Only 20% of the net profits derived by a Cyprus company from the exploitation of its intellectual
property is subject to tax- No Tax on Liquidation
No capital gains tax, income tax or any other taxes arise on the liquidation of a Cyprus company
owned by non-resident shareholders, irrespective of the method of liquidation- Unilateral Tax Credit relief
Relief in the form of a tax credit is given for taxes paid abroad, irrespective of the existence of a
double tax treaty.- Shipping Companies tax exemption
Ship owning companies with ships flying the Cyprus flag and operating in international waters
are totally tax exempt- Reorganizations
Cyprus has fully adopted the EC Merger Directive; therefore there is no corporate income tax,
capital gains tax, stamp duties and property transfer fee on ―reorganization‖ transactions such
as mergers, divisions/ part-divisions, transfer of assets and exchange of shares- Cross border mergers and re-domiciliation of companies
The legislation of Cyprus provides for the merger of EU member companies and Cypriot companies.
Further, non-Cypriot companies which are allowed by their jurisdiction to deregister in
that jurisdiction and register elsewhere are able to become domiciled in Cyprus. Cypriot companies
are also permitted to deregister from Cyprus and become domiciled in another jurisdiction.
Cross-border and domestic mergers, as well as the re-domiciliation are generally tax neutral
1 Please refer to Annex 1 for more details
2 Please refer to Annex 2 for a complete list of securities titles
3 A 20% capital gain tax is applied on gains accruing from the disposal of immovable property held in Cyprus
4 Please refer to Annex 3 for the exemption to the rule
- Dynamic EU Member State and Member of the European Monetary Union
Cyprus EU membership ensures safety and stability for investors, also offering access to the EU market.- Robust Legal and Regulatory Framework
Based on English Common Law, Cyprus’ legal and regulatory framework is widely recognized as efficient and business friendly.- Geographic location
Cyprus been situated at the crossroads of Europe, Asia and Africa has a privileged geographic
location is an ideal international business center.- Low operating costs
Very low set – up and maintenance costs compared with other international business centers.- Anonymity
Through nominee shareholders/directors clients are ensured anonymity and confidentiality.- Abundant supply of highly professional, educated and multi-lingual human capital
The Dividend income from non – Cyprus tax resident companies is exempt from tax unless:
- the company paying the dividend engages by more than 50% in activities that lead to investment income, and
- the foreign tax burden on the income of the company paying the dividend is substantially lower than that of the Cyprus company (i.e. 6.25%
When the exemption does not apply, the dividend income is subject to special contribution for defense at the rate of 17%
Shares, bonds, debentures, founders’ shares, options and other securities of companies or other legal persons in Cyprus or abroad
The profits from activities of a permanent establishment situated outside Cyprus will not be exempt
from tax if:
- the foreign permanent establishment directly or indirectly engages in more than 50%
in activities that produce investment income, and- the foreign tax burden is significantly lower than in Cyprus. The tax authorities have
clarified through a circular that “significantly lower” means a tax burden rate below
6,25%
If the profits of the PE are not exempt, there is a 12, 5% corporation tax. Tax credits for taxes paid abroad are available