Cyprus
Cyprus has developed into a dynamic and competitive international business center with focus on providing professional services including accounting, auditing, tax, business administration, legal, investment and funds management, in addition to being considered one of the top global hubs for ship owning and shipmanagement services – Cyprus is the largest third-party shipmanagement center in Europe and the largest crew management center in the world, while the island’s international ship register is the 3rd largest merchant in Europe and the 11th largest worldwide. With a liberalized Foreign Direct Investment Policy as the biggest advantage, enabling foreign companies to invest and establish business in Cyprus on equal terms with local investors and gain access to the EU market, international investors are welcomed with a pro-business stance and legal system based on the UK Common Law, as well as accounting and legal transparency.
Cyprus has joined the European Union in 2004 and the Eurozone on 1st January 2008. When compared with similar international business centers, Cyprus has to offer the following advantages and opportunities:
- Cyprus is one of the most attractive investment destinations. High profile companies and high net worth individuals have presence in Cyprus.
- Excellent geographical position, well developed infrastructure and one of the countries with the lowest crime rates (0.9218 per 100 persons) within the European Union.
- Friendly, highly qualified, experienced and commercially oriented workforce.
- Excellent international educational system and internationally recognized academic institutions.
- Overall, safe and welcoming environment with excellent quality of life.
Corporate Tax: 12.5%
Personal Income Tax: €0 - €19,500 0% €19,501 – €28,000 20% €28,001 – €36,300 25% €36.301 – €60,000 30% €60,001 and over 35%
Value Added Tax: 19% Capital Gain Tax: 20%
General Health System (GHS) Contributions:
Contributions relating to the implementation of the General Health System (GHS) started from 1 March 2019, and will increase from 1 March 2020 as per the table below:
Ref | Category | Applied on | Phase A | Phase B |
01/03/2019 | 01/03/2020 | |||
| (i) | Employees | Own emoluments | 1,70% | 2,65% |
| (ii) | Employers | Employees’ emoluments | 1,85% | 2,90% |
| (iii) | Self-employed | Own income | 2,55% | 4,00% |
| (iv) | Pensioners | Pension | 1,70% | 2,65% |
| (v) | Persons holding office | Officers’ Remuneration | 1,70% | 2,65% |
| (vi) | Persons earning rental, interest, dividend and other income | Rental, Interest, Dividend Income etc | 1,70% | 2,65% |
Legal entities in Cyprus
Apart from the ideal geographical position and established trade routes throughout the island, Cyprus also has to offer one of the most beneficial and versatile holding company tax regimes in the world. The favorable withholding tax provisions of the Double Tax Treaties (DTT) network and the EU Parent-Subsidiary Directive, among other directives, have been designed and implemented to ensure successful business growth. Various global companies have chosen Cyprus for the maximization and optimum use of capital and financial resources.
In most cases, income from dividends is exempt from tax. This makes Cyprus holding companies a very attractive proposition for international groups or individuals investing abroad, aiming at dividend income streams. This is also very favorable as a repatriation vehicle where the investor's jurisdiction does not have a favorable treaty with the country in which they wish to invest. Because capital gains on investments are not taxable, Cyprus is the perfect location for holding companies with subsidiaries that have potential for high capital appreciation that may be spun off or sold in the future.
The only exceptions that are eligible for Special Contribution for Defense Tax to be applied on dividends received from non-Cypriot companies at the rate of 17% will be in the following cases:
- The income of the subsidiary is subject to an effective tax burden of 5% or lower; and
- The subsidiary engages, directly or indirectly, more than 50% in activities leading to investment income (e.g. holding of bank deposits to earn interest).
In Cyprus, profits from the sales of securities (defined as "shares, bonds, debentures, founders' shares and other securities of companies or other legal person, incorporated under a law In Cyprus or abroad, including options thereon") are generally exempt from tax, even if this is the only trading activity of the company.
There is one exception of 20% capital gain tax, for the profit earned from the sales of shares in certain non-listed companies, owning real estate in Cyprus.
Cyprus tax facts brief
- Cyprus is a country that can help in avoiding high taxation, but not a country for tax evasion purposes. As Cyprus is not an Offshore Zone, it is therefore not included in any of the ‘blacklists’. On the contrary, since Cyprus is an EU member since 2004, Cypriot companies are European companies and are enjoying all the rights and benefits of the EU, simply under considerably lower level of taxation of Cyprus.
- The corporate tax rate of 12.5% is one of the lowest in the European Union. Thanks to investor-friendly tax system as well as special tax deductions and rebates, effective tax rate may be much lower than this already low tax rate.
- The gross amount of any royalty, premium, compensation or other income derived from sources within Cyprus by any person not being a tax resident is subject to a withholding tax of 10%. Because of Cyprus' DTTs and the EU Directives, this percentage can be reduced, which makes establishing a royalty company in Cyprus very fiscally attractive.
- Attractive Permanent Establishment (PE) rules and generous PE provisions are available in DTTs network.
- There is no withholding tax on interest, dividends nor on royalties paid abroad, if intellectual property is not used in Cyprus.
- 80% exemption of the net royalty income from owned intangible assets apply, as well as 80% of the net profit earned from the disposal of intangible assets, if certain criteria are met.
- The Notional Interest Deduction is granted annually on new capital issued from 1st January 2015. This deduction can apply for up to 80% of the taxable income of the Cyprus company.
- Invoices from offshore companies are acceptable in Cyprus company’s books and payments to offshore companies bear no withholding tax.
- There is a Group Relief availability (75% holding).
- There are tax-free reorganizations (cross-border permitted).
- Tax-free corporate redomiciliation is permitted.
- There is a possibility for establishing an SE (European company).
- Possibility to obtain Advance Tax Ruling.
- The Capital Duty on the issue of share capital is 0.6% (this can easily be mitigated).
- A simplified system for obtaining a working visa for middle and senior level employees.
- Shipping Companies are subject to tax at 4.25%. However, a shipping company may be fully exempt from all direct taxes by selecting to pay taxes under the Tonnage Tax regime.
- Low Employment Tax Obligations:
- No taxes are applicable on yearly personal income up to €19,500.
- Tax credits are granted to employees who were not tax residents in Cyprus before commencement of their employment in Cyprus.
- Relatively low contributions apply for the pension fund and other social fund contributions.
All of the above three points combined can help in reducing labor costs for the companies that choose to transfer their domicile to Cyprus.
- Passive income (dividends, interest and partially rental income) of the individuals who become tax residents in Cyprus is exempt from taxation for 17 years.
- Income Tax exemptions on employment income apply for expatriate individuals relocating to Cyprus, at a rate of either 50% of the yearly employment income generated in Cyprus exceeding €100,000 for the period of ten years; or, at a rate of 20% (or €8,550 – whichever is lower) of the yearly income generated in Cyprus for the period of five years (up to 2020).
- There are added commercial value and monetary benefits due to the ability to register for EU VAT in Cyprus.
- An opportunity to acquire Cypriot Nationality for investors and directors of Cypriot companies, subject to specific conditions.
