Cyprus tax system: audit, reporting and optimization of taxation of Cyprus companies and individuals: VAT, income tax and capital gains
Basic taxes (briefly)
|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|
International tax agreement
|Andorra, Armenia, Austria, Bahrain, Barbados, Belarus, Belgium, Bosnia, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Guernsey, Hungary, Iceland, India, Iran, Ireland, Italy, Jersey, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Malta, Mauritius, Moldova, Montenegro, Norway, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Thailand, Ukraine, United Arab Emirates, United Kingdom, United States|
Personal Taxes: Income tax
Chargeable income (after all allowances) is taxed as follows:
Proceeds from the sale of securities (stocks, bonds, etc.) are not subject to income tax. Capital gains are not subject to income tax.
50% of income from employment in Cyprus may be exempt from income tax for 10 years if the remuneration exceeds EUR 100,000 per year, and the individual was not a tax resident of Cyprus before the start of employment (from 2015, this exemption does not apply if the individual has been tax resident in Cyprus for at least three years out of five).
Personal Taxes: Special Defence Contribution (SDC)
A Special Defence Contribution is only levied on persons who are both tax resident and domiciled in Cyprus.
SDC is charged at the following rates:
- 17% on dividends;
- 30% on interest, except interest from corporate and Cypriot government bonds, for which the tax rate is 3%;
- 2.25% on rental income.
There is no personal income tax on the income taxed by SDC, the exception is rental income.
Capital Gains Tax (CGT)
This tax is levied at a rate of 20% on transactions with immovable property situated in Cyprus, as well as with shares in non-listed companies that own immovable property in Cyprus.
Cyprus companies are considered tax resident in Cyprus and are subject to Cyprus tax on their worldwide income if they are managed and controlled from Cyprus. It is also planned to introduce a rule to treat companies incorporated in Cyprus as tax residents of the country. Cyprus companies are taxed at the rate of 12.5%.
The following types of income are exempt from corporation tax:
- Dividends, unless they are deductible for corporation tax purposes by the foreign company that is distributing them.
- Profit arising from the disposal of securities, including stocks, shares, stock indices on securities, bonds and options on them.
- Profits arising from an overseas permanent establishment are not subject to corporation tax unless (a) more than 50% of the permanent establishment’s income is investment income and (b) the overseas income is significantly lower than that in Cyprus (less than 6.25%).
Capital Gains Tax
This tax is levied on gains accruing from disposal of immovable property situated in Cyprus and of shares in non-listed companies that own such immovable property if the value of the shares is at least 50% related to it. The tax rate is 20%.
Special Defence Contribution (SDC)
SDC is paid on the following types of income:
- 30% on "passive" interest. Such interest does not include interest earned by collective investment funds, interest earned on loans issued by companies, interest earned in the ordinary course of business of the company. That interest is only subject to corporation tax.
- 17% on dividends only if (a) more than 50% of the income of the foreign company paying the dividends is investment income and (b) the foreign corporation tax is significantly lower than the Cyprus tax (i.e. below 6.25%).
- Rental income is taxed at the effective rate of 2.25% (this tax is payable in addition to corporation tax).
VAT is imposed on the sale of goods and services to, and purchase of goods and services from, EU countries, as well as on the import of goods into Cyprus from outside EU. Cyprus VAT legislation provides for three rates: the standard rate of 19% and the reduced rates of 9% and 5% applicable in certain cases. VAT registration is compulsory where total sales of goods and/or services in Cyprus exceed EUR 15,600 in any period of 12 months, as well as in some other cases when the VAT registration threshold may not exist or when it may be lower.
Cyprus does not levy withholding tax on dividends, interest and royalties paid to non-residents, except where royalties are paid in respect of rights used in Cyprus. These royalties are taxed at a rate of 10% (5% for film rights) and may be reduced under Double Tax Treaties (DTTs) or the relevant EU directive.
Cyprus may levy withholding tax at the rate:
- 10% when paying for "technical services" performed in Cyprus by non-residents;
- 10% in respect of remuneration for non-resident individuals performing professional activities in Cyprus;
- 5% in respect of remuneration for the development of the continental shelf.
The draft budget law 2021 plans to introduce a withholding tax on dividends, interest and royalties payable to EU backlisted countries.
It 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, but are capped at EUR 20,000 per document.
EUR 105 is payable upon the formation of a new company and EUR 20 is payable upon the issue of shares.
Social Security Contributions
Employers must make contributions to:
- Social Insurance Fund – 8.3%,
- Redundancy Fund – 1.2%,
- Professional Training Fund – 0.5%,
- Social Cohesion Fund – 2%,
- Health Insurance Fund – 2.9%,
- Holiday Fund – 8% (unless exemption applies).
Employees also pay contributions to the Social Insurance Fund – 8.3% and the Health Insurance Fund – 2.65%. There are limits on the sums of contributions. Rates and limits are updated periodically.
Transfers of immovable property are subject to transfer tax ranging from 3% to 8% of the market value of the property as estimated by the Land Registry department.
Double Taxation Agreements
Cyprus has entered into a number of double taxation avoidance and exchange of tax information arrangements:
59 DTTs: Andorra, Armenia, Austria, Bahrain, Barbados, Belarus, Belgium, Bosnia, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Guernsey, Hungary, Iceland, India, Iran, Ireland, Italy, Jersey, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Malta, Mauritius, Moldova, Montenegro, Norway, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Thailand, Ukraine, United Arab Emirates, United Kingdom, United States
Foreign Exchange Control
There is no foreign exchange control in Cyprus.
Taxes of Cyprus
|Min. rate for corporate tax||12.5%|
|Capital gains tax||Regular rate|