A company is considered to be tax resident in Cyprus if its management and control is exercised in Cyprus.
CORPORATE TAX RATE
Trading profits are taxed at the rate of ten percent (12,5%) after the deduction of any expenses suffered towards the generation of this income.
Dividends received from another Cyprus company
Dividends received by one Cyprus tax resident company from another are exempt from any tax in Cyprus.
Dividends received from abroad
Dividends received from abroad are exempt from corporate income tax in Cyprus. They are also exempt from Special Contribution for Defence (SCD) tax if one of the following two conditions are satisfied:
If the above conditions are not satisfied, then dividends received from abroad are taxed to Special Contribution for Defence (SCD) at twenty percent (20%).
WITHHOLDING TAXES ON PAYMENTS MADE FROM CYPRUS
There are no withholding taxes on payments to non tax resident persons (companies or individuals) in respect of dividends, interest and royalties.
PROFITS ARISING FROM THE SALE OF SECURITIES
Any profits realised from the sale of ‘Securities’ are exempt from corporation tax in Cyprus. The term ‘Securities’ includes ordinary and preference shares, founder’s shares, options on titles, debentures, bonds, short positions on titles, futures/forwards on titles, swaps on titles, depositary receipts on titles, rights of claims on bonds and debentures, index participations (only if they result in titles), repurchase agreements or Repos on titles, participations in companies, units in open-end or closed-end collective investment schemes such as Mutual Funds, International Collective Investment Schemes (ICIS) and Undertakings for Collective Investments in Transferable Securities (UCITS).
Active interest income (effectively connected with the carrying on of trade or business of the company) is subject to corporate income tax rate of 12,5% after the deduction of any expenses.
Passive interest income, (income not connected to a trade or business), is subject to SCD tax at fifteen percent (15%) on a gross basis.
Gross amounts of royalties from sources within Cyprus by a company which is not a tax resident of Cyprus are liable to 10% withholding tax at source. If the intangible property right however is granted to a Cyprus company for use outside Cyprus, then there is no withholding tax and the corporate rate is applied only on the profit margin left in the Cyprus company.
PROFITS REALISED BY A CYPRUS COMPANY FROM A FOREIGN PERMANENT ESTABLISHMENT (PE)
The profits realized by a Cyprus company from a foreign PE are completely exempt from any taxation in Cyprus if one of the following two conditions is satisfied:
Tax losses may be carried forward indefinitely in order to be utilized against future taxable profits.
CAPITAL GAINS TAX (CGT)
Capital gains are not included in the ordinary trading profits of a business but instead are taxed separately under the Capital Gains Tax Law (CGT).
Capital gains from the sale of immovable property situated in Cyprus as well as from the sale of shares in companies (other than quoted shares) in which the underlying asset is immovable property situated in Cyprus, are taxed at a flat rate of twenty percent (20%) after allowing for indexation.
Capital Gains that arise from the disposal of immovable property held outside Cyprus or shares in companies which may have as an underlying asset immovable property held outside Cyprus, are completely exempt from capital gains tax.
INHERITANCE OR WEALTH TAXES
There are no inheritance or wealth taxes in Cyprus.
THIN CAPITALISATION RULES
There are no thin capitalisation rules in the Cyprus tax legislation.
ARM’S LENGTH CONSIDERATIONS
There is no specific transfer pricing legislation in Cyprus. Under Section 33 of the Cyprus income tax legislation which state that all transaction concluded between related parties should be in accordance with the arm’s length principles.
Cyprus offers an ideal exit route through a tax free sale of its own shares or the liquidation of the company and distribution of the proceeds completely tax free to the non-resident shareholders.
DOUBLE TAX TREATIES (DTT)
Cyprus has currently concluded DTTs with more than 45 countries including the majority of the European countries, the United States of America, Canada, India, China, Russia and the C.I.S countries.
Cyprus fully adopted all EU Directives including the Parent-Subsidiary, the Interest and Royalties and the Merger Directive.
The VAT rate in Cyprus is 19%.
Where the exclusive purpose of a holding company is the acquisition and holding of interest in shares in other companies, with the intention of deriving dividend income, such a company is not considered to be performing an economic activity for VAT purposes and consequently it does not have the status of a taxable person.
Companies which are not performing economic activities have neither the liability nor the right to register for VAT purposes and consequently they cannot claim input VAT.
Where a holding company is registered for VAT purposes, it may claim input VAT on goods and services acquired in Cyprus and other EU Member States. The right to claim input VAT depends on which type of the holding company’s activities the acquired goods or services, directly or indirectly relate.
Capital duty in Cyprus is estimated at a flat rate of EUR105 payable upon incorporation plus the amount of 0.6% on the initial authorized capital. Shares issued out of the initial authorized capital shall not carry additional capital duty.
If a company needs to increase its authorized share capital, the 0.6% will be imposed on the amount of the increase. Capital duty can be minimized by issuing shares at a premium since share premium is not subject to capital duty tax.
Stamp duty is enforced on written documents which deal with Cyprus situated property or matters that will be performed in Cyprus, irrespective of where the agreement is signed. Stamp duty on agreements ranges between 0,15%-0,25% with a maximum duty of €17.086. The duty is payable within 30 days from the signing of the agreement.
Advance rulings can be obtained from the Income Tax office upon request to secure the Cyprus tax implications arising from a specific transaction.