The Cyprus Tax System
Efficient Tax Planning streamlined with the overall business strategy is a prerequisite in optimising returns to shareholders and laying down the necessary conditions for future company growth and sustainability.
Cyprus, with a simple transparent tax regime fully compliant with EU and OECD standards, complemented and enhanced by an extensive network of favourable Double Tax Treaties with 50 key jurisdictions, offers an ideal and sound platform for businesses, looking to initiate or expand their international activities. On the other hand high net-worth individuals considering the management of their wealth can also take advantage of the same platform in implementing structures for tax optimisation and asset protection.
Individuals
An individual resident in Cyprus is liable to tax on all of his worldwide income, irrespective of whether it is remitted in Cyprus. Non resident individuals are liable to income tax in Cyprus on income sourced in Cyprus.
An individual is considered to be resident for taxation purposes if he is present in Cyprus for more than 183 days in the year under consideration.
The tax rates for individuals are progressive starting from 20% and ending at 35% as detailed in the following table:
| ANNUAL INCOME | RATE | TAX | CUMULATIVE TAX |
|---|---|---|---|
| € | % | € | € |
| 0 – 19.500 | 0 | Nil | Nil |
| 19.501 – 28.000 | 0.2 | 1.7 | 1.7 |
| 28.001 – 36.300 | 0.25 | 2.075 | 3.775 |
| 36.301 – 60.000 | 0.3 | 7.11 | 10.885 |
| 60.001 – above | 0.35 |
A non-resident who takes up employment and becomes resident is permitted a 20% tax free allowance, with a maximum of €8.550, on his employment income for a period of three years, following the year of becoming resident.
A non-resident, who takes up employment in Cyprus, earning an annual employment income exceeding €100.000, is allowed a 50% tax exemption on this income for a period of five years.
Companies
A company resident in Cyprus is liable to tax on all worldwide income.
A company is regarded as resident in Cyprus if it is managed and controlled in Cyprus. Non-resident companies are liable to tax on Cyprus – source income.
In both cases, there is a single tax rate of 12,5% , which is one of the lowest in the European Union.
Branches of foreign companies in Cyprus are liable to tax on worldwide income if their management and control is in Cyprus. Otherwise all the branch income is not taxable in Cyprus.
Tax exemptions
The following exemptions are provided under the Cyprus Corporate Tax System.
- Dividend income received from Cyprus or from abroad, is exempt subject to certain restrictions;
- Profits from the disposal of shares, bonds, debentures or other securities;
- Capital gains from sale of property outside Cyprus;
- Profits earned from a permanent establishment abroad, subject to certain restrictions.
No Withholding Tax
No withholding taxes apply with respect to:
- Dividends paid to non-resident shareholders, corporate or individuals;
- Interest paid from Cyprus to non-resident companies or individuals;
- Royalties paid from Cyprus to non-resident companies or individuals except in cases where the relevant intellectual property is used in Cyprus, the withholding tax rate being at 10%;
- Capital gains or income on the liquidation of a Cypriot holding Company.
Group Loss Relief and Losses Carried Forward
Group loss relief. Loss of one group company may be set off against the profits of another group company. Two companies will qualify for group loss relief, if both are residents of Cyprus and have been members of the group for the whole tax year and the group ownership exceeds 75%. Losses of a tax year can only be set off against profits of the same year.
Losses carried forward. Losses incurred in any tax year on any trade or business, irrespective of whether it is carried on in Cyprus or abroad, and not set off against income from other sources, can be carried forward and set off against profits of the next five years.
The New Tonnage Tax System (TTS)
As from 2010 a new attractive tonnage tax system (TTS) is in place which can be utilised, subject to certain conditions, by the shipping sector and covering the three main international maritime activities, namely ship-owning, ship management and chartering. Under the new TTS:
- No tax is imposed on profits from shipping activities, other than tonnage tax;
- No tax is imposed on profits from the sale of ships;
- No tax is imposed on dividend paid from shipping profits;
- No estate duty or capital gains tax is imposed.
