The Cyprus taxation system
The Cyprus tax legislation and its regulation is simple and easy to understand its principles. Relations between the business community and the tax authorities are excellent and ensure the efficient taxation of the commercial and financial sector.
An advantageous tax system
By providing a transparent and efficient environment, the tax system enhances Cyprus’ competitiveness and contributes to making Cyprus an attractive jurisdiction in which to structure international operations.
Exemption from tax on dividend income
Dividend income is exempt from tax irrespective of its source provided that a minimum 1% holding in the company paying the dividend is maintained and either the paying company engages directly or indirectly in more than 50% of activities that give rise to non-investment income or the non-Cypriot tax burden on the dividend paying company’s income is not lower than 5%.
Dividends are not considered to be sourced from investment income if they are derived directly or indirectly from trading subsidiaries.
Capital gains and income tax exemption for real estate
Cypriot companies can be used to hold real estate or other assets outside Cyprus with no Cypriot capital gains tax implications on disposal of the assets as capital gains tax only applies to gains on the disposal of immovable property which is situated in Cyprus or unlisted shares in a company which owns immovable property situated in Cyprus.
Permanent establishment abroad
Profits from a permanent establishment maintained abroad are generally exempt from tax in Cyprus.
Capitalization
Cyprus does not have any thin capitalisation rules or minimum capitalisation requirements.
A wide network of double tax treaties
Cyprus boasts an extensive network of double tax treaties, currently with more than 40 countries, including countries in North America, Western and Eastern Europe as well as emerging markets such as China, India and Russia.
Flexibility of Cyprus Tax Authorities
The Cyprus tax authorities are always willing to provide advance interpretations of the law under a ruling system.
VAT
The headline Cypriot VAT rate is 15%, the lowest in the European Union. Depending on its activity, a Cypriot company may be able to register for VAT in Cyprus and recover VAT suffered.
Capital & stamp duties
Cyprus does not have any annual capital taxes and net worth taxes and there are no significant capital and stamp duties.
Company Reorganisation
Cyprus has fully adopted the EC Merger Directive and therefore where a transaction is a “reorganization”, it is exempted from corporate income tax, capital gains tax and transfer fees.
A reorganisation generally includes a merger, division, transfer of assets and exchange of shares involving companies which are resident in Cyprus and / or companies which are not resident in Cyprus.
Cross border mergers and re-domiciliation of companies
Cyprus legislation allows for the merger of two or more companies, whether a merger of Cypriot or Cypriot and non-Cypriot companies and whether the Cypriot company is the surviving company or not.
Non-Cypriot companies which are allowed by their jurisdiction of incorporation to deregister in that jurisdiction and register elsewhere are able to become domiciled in Cyprus. Cypriot companies are also permitted to deregister from the Cypriot Register of Companies and become domiciled in another jurisdiction.
Cross-border and domestic mergers, as well as the re-domiciliation and change in jurisdiction of tax residency are generally tax neutral - there being no Cypriot “exit.
No capital gains or income tax on the liquidation of participations or of a Cypriot company
The liquidation of participations held by a Cypriot company does not give rise to any taxes in Cyprus.
Further, no capital gains tax, income tax or any other taxes arise on the liquidation of a Cypriot company owned by nonresident shareholders, irrespective of the method of liquidation.
