Corporate taxation in Cyprus

Advantages to register in Cyprus

Cyprus offers one of the most attractive tax regimes in Europe. A member of the European Union since 2004, Cyprus’ regulatory regime is in full compliance with the requirements of the EU and OECD. Cyprus has one of the lowest corporate tax rates in the European Union at 12.5%. The island’s advantageous tax rate coupled with an extensive list of double tax treaties places it high on the list of preferred jurisdictions for international tax planners.

All Cyprus tax resident companies are taxed on their income accrued or derived from all chargeable sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on its income accrued or derived from business activity carried out through permanent establishment in Cyprus and on certain income arising from sources within Cyprus.

A company is considered as resident in Cyprus if it management and control is based in Cyprus.
Foreign taxes paid can be credited against the corporation tax liability.
Corporate tax rate for all companies is 12,5%.

Type of income: Exemption limit.

Profit from the sale of securities: The whole amount.
Dividends: The whole amount 1.
Interest not arising from the ordinary activities or closely related to the ordinary activities of the company: The whole amount 2.
Profits of a permanent establishment abroad, under certain conditions: The whole amount.

1 Dividend income may be subject to Special Contribution for Defence.
2 Interest income is subject to Special Defence Contribution.

Fixed annual levy

On 26th August 2011 The House of Representatives of Cyprus announced a fixed Annual Levy of €350 per annum on all companies which is payable by the 31st December each year. Non-payment of the levy may result in deregistration by the Cyprus Register of Companies.

Cyprus double taxation prevention treaties

Cyprus has entered into almost 50 double-tax treaties (unusually for a low-tax jurisdiction). The general effect of these treaties is that Cyprus-registered entities that have tax exemptions in Cyprus will have the same exemptions in the treaty countries.

Most of Cyprus’s treaties follow the OECD Model Convention, although the US Treaty follows the most recent model of United States Agreements. Normally speaking, therefore, the country of residence will give a credit for taxes paid in the other treaty country. The Cyprus offshore entity qualifies for treaty protection under all the extant treaties except those with Canada, France, the UK and the USA, and even in those cases the limitations apply only to flows of income to Cyprus, and not to income flows from Cyprus to the countries concerned.

Revisions to Cyprus’s corporate tax regime consequent upon its accession to the EU, and the abolition of the ‘offshore’ sector as such, have made Cyprus more rather than less attractive as a tax treaty partner, and the island has found itself needing to revise many of its treaties as a result, as well as entering new treaties with additional countries.

To check those countries which have double-tax treaties with Cyprus, although not all have been ratified at the time of writing, please click HERE.

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