Cyprus

Basic taxes (briefly)

Personal tax 20-35%
Corporate tax (in detail)
Capital gains tax. Details Cyprus companies are considered tax resident in Cyprus and are subject to Cyprus tax on their worldwide income if they are managed and controlled in Cyprus. It is also planned to introduce a rule according to which companies incorporated in Cyprus must be recognized as tax residents of the country. Cyprus companies are taxed at a rate of 12.5%.
VAT. Details VAT is paid on the sale of goods and services, as well as the purchase of goods and services from the EU countries, and the import of goods into Cyprus from non-EU countries. The legislation provides for 3 rates of VAT: the basic rate is 19%, in some cases, reduced rates of 9% and 5% are provided.
Other taxes Special defence contribution tax, , Social insurance contributions, Immovable property transfer fees
Government fee Yes, but exemptions apply
Stamp duty Yes

International tax agreement

Tax treaties entered Armenia, Austria, Bahrain, Barbados, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Guernsey, Greece, Hungary, Iceland, India, Iran, Ireland, Italy, Jersey, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Malta, Mauritius, Moldova, Montenegro, Norway, Poland, Portugal, Qatar, Romania, Russia, San Marino, Serbia, Seychelles, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, USA
   
Tax Exchange Information Agreement (TEIA)


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TAXATION

Personal Taxes

Non-residents of Cyprus are taxed in Cyprus on employment income (including benefits), in relation to services rendered in Cyprus, profits from a business activity which is carried out through a permanent establishment in Cyprus, rentals from immoveable property situated in Cyprus, and pensions in respect of employment exercised in Cyprus, with the exception of pension paid from a fund established by the Government or local authority. Chargeable income (after all allowances) is taxed as follows:
up to EUR 19,500 0
EUR 19,501-28,000 20%
EUR 28,001-36,300 25%
EUR 36,301-60,000 30%
above EUR 60,000 35%

A Special Defence Contribution applies to certain types of income as follows:
  • 3% on interest received by provident funds; the profits of semi-governmental bodies; on rental income received by a Cyprus individual or corporate resident from immovable property (after deducting 25%); on interest received by an individual with a yearly income below EUR 11,960 (at the time of writing) and interest received by individuals from government bonds and government savings certificates
  • 30% on interest received by individuals with an annual income of over EUR 11,960
  • 20% on dividends received by individuals in Cyprus

Various deductions apply, including those on the holding of shares. Each individual is assessed on a separate basis, so joint assessment of spouses is not possible. Certain other special regimes operate for non-resident entertainers, sportspeople and experts.

Individuals exercising an office or employment in Cyprus, whose residence was outside Cyprus before the commencement of the employment, are granted an income tax exemption for 20% of their remuneration, or EUR 8,550 (whichever is the lower). This exemption applies for a period of three years starting at the beginning of the year following the year of commencement of their employment. With effect from 1 January 2012, if such employees taking up residence in Cyprus earn more than EUR 100,000 per year, they will be able to claim an exemption of 50% of their employment income. This exemption will be available for a five-year period starting from the first year of employment.

Corporation Tax

The tax regime that came into force on the 1 January 2003 abolished the differentiation between local and international business companies. All companies are now taxed at the rate of 12,5% (these provisions are applicable as from 1st of January 2013).
Pursuant to this legislation the following profits are exempt from corporation tax:
• dividends from Cyprus or abroad;
• profits arising from the disposal of shares and securities;
• profits arising from an overseas permanent establishment;
• 50% of the interest income earned by a company resident of Cyprus.

Companies are considered resident in Cyprus and taxed in Cyprus if they are managed and controlled in Cyprus. If the company is not managed and controlled in Cyprus or in case it ceases to be managed and controlled in Cyprus then no Cyprus tax will be imposed on the company’s income from sources outside Cyprus and the company shall be regarded as non-resident in Cyprus for tax purposes.

It is important to note that only resident companies will be entitled to tax credit under any relevant double tax treaties as well as to unilateral tax credit in respect of any tax paid in any foreign country with which Cyprus does not have a double tax treaty. The proof of the fact that the company is tax resident in Cyprus can be a tax residence certificate issued by the Cyprus tax authorities which states that ‘the company is resident in Cyprus and pays taxes in Cyprus on its worldwide income’.

Capital Gains Tax

Profits from buying and selling shares are exempt from tax. Furthermore, there is no capital gains tax, except for the 20% capital gains tax applying on gains accruing from disposal of immovable property held in Cyprus and shares in non-listed companies, which own immovable property in Cyprus.

VAT

VAT is imposed on the sale of goods and provision of services, as well as on the importation of goods into Cyprus from outside EU. Cyprus VAT legislation provides for three rates: the standard rate 19% (effective as of 13 January 2014) and the reduced rates of 9% and 5%. VAT registration is compulsory where total sales of goods and/or services in Cyprus exceed EUR 15,600 in any period of 12 months.

Withholding Tax

Dividends paid to non-resident companies or individuals, as well as resident companies, are not subject to withholding tax. Dividends paid to resident individuals are subject to a special defence contribution at the rate of 20% (the rate is 20% for the years 2012 and 2013 and 17% for the year 2014).

Cyprus does not impose any withholding tax on interest paid to non-resident creditors. Interest paid to residents is subject to a 30% special defence contribution deducted at source (effective as of 28 March 2013).

Royalties paid for non-residents for the use of rights in Cyprus are subject to a final withholding tax of 5% on film royalties and 10% on all other royalties. These rates may be reduced under a tax treaty or eliminated under the EC interest and royalties directive. Royalties paid for non-residents for the use of rights outside Cyprus are exempt from withholding tax. There is no withholding tax on payment of royalties by a resident company to another resident company.

Special Defence Contribution

Special Defence Contribution is imposed only on income earned by Cypriot tax residents. Non-residents are exempt from it. The following rules apply to resident companies:
  • There is no Special Defence Contribution on dividends received by a Cyprus resident company as explained above and dividends paid to non-residents.
  • There is a Special Defence Contribution on certain type of interest income subject to double taxation treaties and unilateral tax credit; from 28 March 2013 the rate is 30%.
  • There is a Special Defence Contribution on dividend income received by resident individuals; the rate rose from 17% to 20% as from 1 January 2012 and was effective until 31 December 2013, from 1 January 2014 the rate will be 17%;
  • There is a Special Defence Contribution on rents; the rate is 3% and is imposed on the gross rents reduced by 25%.

Stamp Duty

Stamp duty is payable on a document if it relates to property situated in Cyprus or to an act to be performed or done in Cyprus. Stamp duties on commercial contracts are charged at rates that vary according to the contract amount. A ceiling of EUR 17,086 per document applies.

Capital Tax

Capital duty is payable on authorized share capital and the issuance of shares at a rate of 0.6%.

Payroll Tax

Employers are required to withhold personal tax on the salaries of employees under the PAYE system.

Real Property Tax

Real property tax is imposed annually on the market value of immovable property at rates ranging from 0 to 0.8%.

Social Security Contributions

Employers must make social insurance contributions amounting to 8% of gross salary. The maximum amount of annual earnings on which contributions are payable is EUR 46,032. Additionally, employers are required to make a contribution of 2% to the social cohesion fund on all earnings of employees. With effect as of tax year 2012, employer contributions that relate to Social Security Fund, Redundancy Fund, Industrial Training Fund, Social Cohesion Fund and other related funds, are deductible for tax purposes only if they were paid in the year they were due in.

Transfer Tax

Transfers of immovable property are subject to transfer tax fees ranging from 3% to 8% calculated on the market value of the property as estimated by the Land Registry department.

Annual Fee

On 26 August 2011, Cyprus Parliament approved the introduction of an annual fee of EUR 350 for all companies registered in Cyprus. For group of companies the total amount should not exceed EUR 20,000. The fee for 2011 must be paid until 31 December 2011, for years from 2012 onwards – until 30 June. No fee is paid in the year of registration of the company. Exemption applies to dormant companies, companies which do not hold any assets or companies that own assets located in the occupied area, at the discretion of the Registrar of Companies. In case of failure to pay the fee within the prescribed time limit the companies are subject to a penalty: 10% if payment is made within two months of the deadline, 30% if payment is made within five months. If the fee is not paid within five months, the Registrar proceeds with removal of the company from the registry. The restoration of the company in the registry can be made within two years with the payment of EUR 500 fees per year, while after the period of two years the fee will be increased to EUR 750 per year.

Foreign Exchange Control

There is no foreign exchange control in Cyprus.

ACCOUNTS

Annual Return

Each year the company registered in Cyprus must prepare and submit to the Registrar of Companies an Annual Return of the company containing the details of all shareholders, directors, registered office and share capital and any changes thereof. This information is available to public. In case of non-compliance, the Registrar of Companies may strike the company off the register.
The Annual Return must be completed within 42 days after the annual general meeting for the year, and the company must immediately forward to the Registrar of Companies a copy signed by a director or a secretary of the company. Attached to the Annual Return must be copies of all documents produced to the annual general meeting, and namely all accounts, director’s report and auditor’s report (all this information will be publicly available).

Financial Statements

In addition every Cyprus company must annually prepare and submit its audited accounts to the tax authorities. This requirement is obligatory irrespective of whether the company had any dealings or not. In the latter case, dormant audited accounts must be prepared.
The company must file the audited accounts with the Income Tax office within one year of the financial year-end. Failure to submit accounts, apart from government authorities’ sanctions against the company itself, entails severe sanctions against its directors. In particular, for failure to submit director’s report and accounts directors are liable to a fine of up to EUR 17,100 and/or one-year imprisonment.

Tax Returns

In addition to annual reports, each company is obligated to file by 31 July of each fiscal year a provisional tax return on the estimated profit for that year. On this estimated profit (if there is one declared) a provisional tax is payable before the end of the year in three equal instalments – by 1 August, 30 September and 31 December. If any of the instalments is not paid by the relevant deadline, there is a penalty of 5% annually on the outstanding amount of tax. If no provisional tax return is submitted, a penalty of 10% of the final tax in the year applies. If the amount of tax declared on the provisional tax return is lower than 75% of the actual tax at the year-end, a penalty of 10% applies on the difference between these two amounts. It is permitted to make corrections to the provisional tax return before 31 December.

    Taxes of Cyprus

    Min. rate for corporate tax 12.5%
    Capital gains tax Regular rate
    VAT 19%
    Withholding tax 0%/0%/10%
    Exchange control No
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