“Cyprus offers an advantageous tax system for international
business. The uniform corporate tax rate of 10% is the lowest in
The main objectives of the tax reform, applicable as from 1st
January 2003, were to conform to European Union and OECD requirements
and as the same time to maintain the competitiveness of Cyprus as
an international business centre and enhance its attractiveness
as a suitable jurisdiction for holding companies.
Corporate Tax A company is tax resident in Cyprus when its management and
control is exercised in the Republic. Their taxable income includes
both income earned in Cyprus and abroad. A non-Cyprus tax resident
is taxed only on income earned in Cyprus.
Low Corporation Tax
All Companies are subject to a uniform tax rate of 10%
except for semi-government organizations, which are taxed
at 25%. A windfall tax of 5% is introduces for chargeable
income in excess of CY£1 million for the year of assessment
of 2004. The 10% tax is the lowest corporate tax rate in the
Tax On Dividends
Cyprus tax-residents companies are exempt in respect of dividends
received from other Cyprus residents companies. The exemption
is extended, subject to conditions to dividends from non-residents
companies. Residents companies are obligated to have distributed
70% of their after-tax profits in the form of dividends at the
ends of the two-year period since the end of the respective
tax year. Thereon, the dividends account for defence contribution
in the case that less than 70% has been distributed. In this
way, tax avoidance, through the accumulation of profits and
the creation of companies by individuals as a means of lowering
their tax burden, is prevented. These mandatory distribution
provisions do not apply to profits accruing to non-residents
Tax On Interest
Interest income is taxed at the corporate tax rate of 10%
arising from, or closely connected to, the ordinary activities
of the company. Moreover, 50% of all other interest income is
exempt from income tax and is subject to special defence contribution
Tax Treatment of Losses
Subject to certain conditions, tax losses can be carried
forward and set off against future profits indefinitely; applicable
for losses incurred in 1997 and thereafter.
In addition, the loss of Cyprus tax resident company can
be set off against the profit of another Cyprus tax resident
company in case they belong to the same group of companies.
Subject to certain conditions, companies belong to a group
when one company holds shares at least 75% of the ordinary
share capital and voting rights of another company. Losses
from a permanent establishment abroad can be set off against
profits earned by a company in Cyprus.
Profits of Permanent Establishments Abroad
The profits of permanent establishments abroad are not subject
to income tax in Cyprus, given that less than 50% of their activities
result in investment income, and that the foreign tax suffered
is not significantly lower than the tax payable in Cyprus.
Double Tax Treaties
Cyprus has over 32 double tax treaties, covering 40 countries.
Disposal of Securities
Profits gained from the sale of securities are exempt from
tax for all companies.
Transitional Period Rule
The existing international business entities can exercise
the option to continue to be taxed at the rate of 4.25% until
the end of the year of assessment 2005; provided that the
income, during the tax year 2001, was derived from outside
The following tax reform provisions do not apply to companies
electing to be taxed under the transitional period rules:
Exemption from tax on profit from disposal of securities
Exemption from tax of dividend income from abroad
Exemption from tax of profits from permanent establishment
Group relief of losses
Exemption from tax on transfers of assets and liabilities
in the case of mergers, demergers, transfer of activities,
exchange of shares
Tax credit of foreign taxes unless covered by a tax treaty
50% exemption from corporation tax of interest income
Transfers of asset and liabilities between companies in the
course of reorganizations, such as mergers, demergers, transfer
of activities or exchange of shares, are not subject tax.
Foreign Tax Credit
Tax relief of foreign tax paid is granted in Cyprus even in
the absence of a double-taxation treaty, provided sufficient
evidence is submitted that foreign tax was indeed paid. Hence,
Cyprus turns into a lucrative hub for establishing holding companies.
Personal Income Tax
Individual tax residents of Cyprus is an individual who stays in
the Republic for 183 days in the year of assessment. Cyprus tax
residents are taxed on income earned both in Cyprus and abroad.
On the contrary, non-tax residents are taxed on income earned only
from Cyprus sources.
Low Income Ttax
All individuals, who are non-tax residents, will be taxed
only on income earned in Cyprus. 20% exemption of emoluments
or CY£5.000, whichever is the lowest, is granted in
the case of non-residents starting employment in the Republic,
for a period of 3 years after the 1st of January following
the year of commencement of the employment.
Taxable Income (CY£)
Tax Rate (%)
Up to 10.000
10.001 – 15.000
15.001 – 20.000
Tax on Dividends
Dividends are exempt from income tax. Dividends are subject
to special contribution for the defence at the rate of 15%,
applicable only to residents.
Tax on Interest
The total interest income derived by individuals is not subject
to income tax in Cyprus. Interest income from saving bonds,
development bonds, deposits with housing finance corporation,
and provident fund is subject to special contribution for the
Tax Treatment of Losses
The losses of current year, as well as that of previous years,
are deducted from the taxable income, subject to certain conditions.
Profits of Permanent Establishment Abroad
The profits of permanent establishments abroad are exempt
from tax under certain conditions.
Disposal of Securities
Profits gained from the sale of securities are exempt from
tax for all companies. Securities include shares, bonds, debentures,
founders/shares and other securities of companies or other legal
persons, incorporated in Cyprus or abroad and options thereon.
Remuneration by Services Rendered Abroad
Salary earned abroad, by rendered services to a non-Cyprus
resident employer or foreign permanent establishment of a Cyprus
resident employer, for a period of more than 90 days in a tax
year, is not subject to tax.
Income received in the form of retiring gratuity, compensation
for death or injuries, provident fund, pension fund, or other
approved funds, is exempt from tax.
Deposit to Housing Finance Corporations
40% of the amount deposited to the Housing Finance Corporations
is exempt from tax; given that the deposit amount does not exceed
the 25% of the individual’s total income.
Value Added Tax VAT is imposed on the domestic goods and services, as well
as on imports to Cyprus. Since 1st January 2003, VAT has been set
to 15%; the lowest rate permitted in the EU. Cyprus also applies a
reduced VAT rate of 5% and the zero-rate of VAT on specific supplies
of goods and services.
Zero-rated goods and services include exports, intra community
sale of goods to VAT registered businesses in other EU member states,
foodstuffs, medicines, commissions received for arranging exports
of goods, international air and sea transport, supplies and repairs
of sea going vessels and aircraft, services for the direct need
of sea going vessels and aircraft, supplies of goods effected while
the goods are within a Customs regime.
The reduced rate of 5% is imposed on hotel accommodation, newspapers
and magazine, books, funeral services, recycling, services and rights
of authors, composers, artists and critics of work of art, catering
/ restaurant services (except alcoholic drinks), water supplies
(except bottled water), supplies of fertilizers, animal feeding
stuffs, seeds and live animals used for the production of food for
Special Tax Treatments
Taxation of Shipping Companies
Although Cyprus has much to offer in terms of infrastructure
and maritime administration, it is also considered to be among
the most competitive shipping centres in the world in terms
of registration fees and taxes. These fees are comparatively
lower than those of Cyprus’ main competitors.
Profits from the operation of Cypriot registered vessels,
or on dividends received from a ship-owning company, are subject
to zero corporation tax. The term “ship management services”
includes crew recruitment, plus services in relation to technical
and financial management of the ship, under certain conditions.
Ship and crew management businesses have the option to be
either at the rate of 4,25% on their profits
at a rate equal to 25% of tonnage tax rates of vessels
under management. The tonnage tax is not levied in respect
of ships under Cypriot flag, for which a tonnage tax has
already been paid.
It must be noted that the special tax regime of ship managers
operating in the Republic of Cyprus, offers now the possibility
for the ship managers to be exempted from the relevant tax
in respect also of any Community ship to which the provision
of shipmanagement services in relation to its crewing and
technical management is entirely contracted to a Cyprus or
a Community shipmanagement company, which has an office in
Cyprus staffed with a sufficient in number and qualifications
personnel, for technical, administration and accounting matters
relating to ships.
The use of Cyprus International Trusts is constantly becoming
popular as a vehicle for international tax planning and business
structuring. Income and gains of a Cyprus International Trust,
derived from sources outside Cyprus are exempt from any tax
imposed in Cyprus. Under the International Trusts Law of 1992,
a trust qualifies for a Cyprus International Trust on condition
The settlor is not a permanent resident in Cyprus.
At least one trustee is a permanent resident in Cyprus,
for the whole duration of the trust’s life.
No beneficiaries, with the sole exception of a charitable
institution, are permanent residents in Cyprus.
The trust property does not include any immovable property
Cyprus International Trusts provide a variety of significant
tax planning opportunities. The following advantages are indicative
of the possible opportunities for tax minimization:
All income, whether trading or otherwise, of an International
Trust (i.e. Trust whose property is located and income is
derived from outside Cyprus) is not taxable in Cyprus.
Dividends, interest or other income received by a Trust
from a Cyprus International Business Company are not subject
to tax nor are they are subject to withholding tax.
No capital gains tax is charged on the disposal of assets
of an international Trust.
Exemption from taxation in the case of an alien who creates
an International Trust in Cyprus and retires in Cyprus,
on condition that all the property settled and the income
earned is abroad, even if the individual is beneficiary.
No estate duty is applicable on international trusts
Holding Companies’ Jurisdiction
A Cyprus holding company can be effectively utilized for international
tax planning purposes, and at the same time it may enjoy the status
of being located at a reputable business centre within the European
In summary, a Cyprus Holding company offers the following advantages
in relation to the major tax considerations:
No withholding tax on dividend income received from subsidiary
companies abroad, provided the direct holding is at least 1% of
the share capital of the overseas company; the exemption does
not apply if the subsidiary company engages in more 50% of its
activities in producing investment income and the foreign tax
burden on its income is substantially lower than that in Cyprus.
Double tax treaties with over 40 countries, enabling lower withholding
tax rates on dividend or other income received from the subsidiaries
Being an EU member State, holding companies registered in Cyprus
may also enjoy no withholding tax on dividends received from EU
subsidiaries as a result of the utilization of the EU Parent Subsidiary
No withholding tax on capital gains or income on the liquidation
of the Cyprus holding company.
No withholding tax on distribution of profits.
Outwards dividends by the Cyprus Holding company to its non-resident
shareholders are exempt from any withholding taxes.
Profits earned from a permanent establishment abroad are fully
exempt from Cypriot tax, subject to certain conditions
A diversified group of Cyprus companies belonging to a Cyprus
holding company can set Group relief for the utilization of tax