Over the past years, Cyprus has developed into one of the most favourable destinations for international business.

Cyprus has been a member state of the EU since 2004 and a member of the Eurozone since 2008

The accession of Cyprus to the European Union triggered a bold tax reform that aimed towards the alignment of the legislation with EU’s Acquis Communautaire and Code of Conduct of Business Taxation as well as the compliance with the requirements of the Organisation for Economic Co-operation and Development (OECD).

The result of this reform was a sophisticated low tax jurisdiction that rapidly became the jurisdiction of choice for international investors and the premier financial center for the set-up and operation of Cyprus companies.

Main Tax advantages

for companies

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Exemption from tax on dividend income

Income from dividends is exempt from tax regardless of its source. Exemption to the general rule is when:

  • The company paying the dividend engages in more than 50% of its activities in producing investment income, and
  • The foreign tax burden on the company paying the dividend is substantially lower than that in Cyprus (Substantially lower meaning less than 50% of the applicable corporation tax rates in Cyprus).
Full exemption from Cyprus tax on gains from the disposal of securities (shares, debentures, founders’ shares, units of Cyprus funds – open-ended and close-ended collective investment schemes etc) regardless of whether the gain is considered to be of capital or revenue nature.

Exemption from capital gains tax and income tax on the disposal of securities

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No capital gains tax or income tax on the disposal of the shares of a Cyprus Company

The disposal of the shares of the Cypriot Company will not result in any Cyprus taxes irrespective of the provisions of a double tax treaty.
Non – resident and non-domicile shareholders’ dividends are exempt from withholding taxes. Royalties in respect of intellectual property rights used outside of Cyprus are exempt from withholding taxes.

No withholding taxes on payment of dividends and interest

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Full adoption of the EU Directives beneficial to Cyprus companies

For example the EU parent – subsidiary Directive. According to the provisions of the Directive, any payment of dividend from one member state to another is free of withholding tax provided the required conditions are satisfied under the local legislation of the member state.
80% exemption is granted on Cyprus company’s profits from intellectual property if intellectual property is owned by Cypriot resident company (net of any direct costs). Direct costs will exclude Intellectual Property acquisition costs, interest, immovable property and payables to third parties.

Cyprus intellectual property regime

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Reduced withholding tax on dividends received from countries which Cyprus has concluded a double tax treaty

Cyprus double tax treaty network is extensive and expanding with over 50 countries. Cyprus double tax treaty network can be used by the investor to minimize tax burden.
Real estate or other assets can be held in a Cypriot company and are exempt from capital gains tax provided that the above are outside the territory of the Republic of Cyprus.

Capital gains and income tax exemption for real estate

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Permanent establishment abroad

Profits earned in Cyprus from a permanent establishment abroad are exempt from tax.
If the respective income is subject to Cyprus tax, relief for taxes paid abroad is offered in the form of a tax credit. The relief is given unilaterally irrespective of the existence of a double tax treaty. Where a double tax treaty exists, the treaty provisions apply if more beneficial.

Unilateral foreign tax credit relief

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Main Tax advantages

for individuals

Cyprus offers considerable incentives for personal tax residency. Complementing the tax legislation are the island’s ideal geographical location, its EU membership, its robust legal system and reliable political environment.

With regard to personal taxes, Cyprus has one of the lowest top statutory personal income tax rates of 35% for net income exceeding €60.000 annually and no tax on net income of up to €19.500. At the same time, it also offers a number of very attractive personal tax incentives, through tax exemptions and deductions, in order to attract high net worth individuals of all ages.

Below is an analysis of the main provisions of Cyprus’ personal income tax regime as well as the key tax incentives provided to individuals who wish to relocate to Cyprus.

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Non-Domicile Status

As from 16 July 2015, Cyprus has introduced a special tax regime for new tax residents. In brief, if you:
  • are not of Cypriot origin, and
  • have not resided in Cyprus for at least 17 out of the last 20 years, then, after becoming a Cyprus tax resident, you shall be exempt from taxes on interest and dividend income, received both in Cyprus and/or abroad, for the next 17 years.
Any gains arising from the disposal of shares, bonds and other similar equity financial instruments are exempt from income tax.

Exemptions on gains arising from the disposal of securities

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No tax on wealth, gift, inheritance and endowment

Wealth Tax

There is no net wealth tax in Cyprus.

Gift Tax

There is no gift tax in Cyprus. The following gifts or donation of real estate property are exempt from Capital Gains Tax:
  • i. Transfer by reason of death.
  • ii. Gifts to relatives within the third degree of kindred.
  • iii. Gift to a company of which the shareholders are and continue to be members of the disposer’s family for five years after such gift.
  • iv. Gift by a company, of which all the shareholders are members of the same family, to any of its shareholders when the property gifted had been acquired by the company as a gift. The property must remain in the hands of the donee for a period of at least three years.

Inheritance Tax

There is no inheritance tax in Cyprus. Income received from individuals by way of an inheritance is not subject to any taxation in Cyprus.

Endowment Tax

There is no endowment tax in Cyprus. The income arising from a scholarship, exhibition or any other educational endowment held by an individual receiving full-time instruction at a university, college, school or other recognized establishment is exempt from tax.
Profit arising from the disposal of immovable property situated outside Cyprus is exempt from any taxation (including capital gains tax) in Cyprus, although the foreign property may be subject to tax in the jurisdiction where it is located.

Exemption from capital gains tax on sale of real estate

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Income tax exemption for overseas employment

Where an employee is Cyprus tax resident, then salaries from rendering services outside Cyprus to a non-resident employer or to an overseas permanent establishment of a resident employer for more than 90 days in a tax year are exempt from income tax. In order for the 90 day rule to apply there must be an employee/employer relationship.
  • The lower of: 20% of income or €8.550 annually, on remuneration from any office or employment exercised in Cyprus by an individual who was not a Cyprus tax resident before the commencement of his/her employment, for a period of 5 years commencing from 1st January following the year of commencement of the employment. This exemption applies for employment started during or after 2012 and will be available until the year 2020.
  • Deduction 50% on remuneration from any office or employment exercised in Cyprus by an individual who was not a Cyprus tax resident before the commencement of his/her employment, for a period of 10 years if the annual remuneration exceeds €100.000.

Substantial Tax Relief for non-residents taking up employment in Cyprus, during the first years of their employment:

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Advantages available on pension income

A Cyprus tax resident receiving a pension from abroad can choose one of the following two options to be taxed on the pension income, the choice being available every year:
  • the pension can be taxed under the progressive income tax rates with the first €19.500 of net taxable income being tax-free; or
  • the first €3.420 of the foreign pension being tax free, with the remaining balance being taxed at a flat rate of 5%.

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