Cyprus Tax
Cyprus Resident Companies
Basis of taxation
A company incorporated in Cyprus is considered to be a tax resident of Cyprus if it is managed and controlled in Cyprus. A company to be managed and controlled in Cyprus is expected to have the majority of directors to reside in Cyprus and to hold Board Meetings in Cyprus. (It is for this reason that many companies appoint Cypriot nominee directors and shareholders even though the operations take place in other countries in order to enjoy the Cyprus tax advantages.
Corporation Tax
Resident companies are subject to corporation tax at the rate of 10% which is the lowest corporate tax rate in the entire European Union.
Dividends distributed
No withholding tax on dividends distributed to non-resident shareholders of Cyprus Companies.
Interest paid
No withholding tax on interest paid by a Cyprus Company to non-resident Creditors.
Double Taxation Treaties
Cyprus has concluded tax treaties with more than 40 countries worldwide. Apart from that, a Cyprus company, being an EU-based entity, is entitled to the benefits of the EU Parent-Subsidiary directive an the EU Interest and Royalty directive, under circumstances providing for withholding tax exemption for interest, dividends and royalty payments made by companies in other EU-member states to a Cyprus company.
Cyprus Non Resident Companies
A company incorporated in Cyprus is not considered to be a tax resident of Cyprus if it is not managed and controlled in Cyprus. A Cyprus company not managed and controlled in Cyprus is expected to have the majority of the directors to reside outside Cyprus and to hold Board Meetings outside Cyprus.
Companies incorporated in Cyprus but not tax residents of Cyprus are not subject to taxation in Cyprus unless they have a permanent establishment in Cyprus or they receive rental income from property in Cyprus or they make profits from the sale of Cyprus based real estate.
The advantages of a Cyprus non-resident Company are the following:
Trading Profits
The Cyprus non-resident company can buy and sell worldwide and the profits will be exempt from taxation in Cyprus i.e. zero tax in Cyprus.
Interest income
Interest income from deposits with Cyprus banks will be received without any deductions and with zero tax in Cyprus.
VAT registration
VAT registration in Cyprus, a European Union member country.
Dividends distributed
No withholding tax on dividends distributed to non-resident shareholders of Cyprus Companies.
Interest paid
No withholding tax in interest paid by a Cyprus Company to non-resident creditors. A Cyprus non-resident company can not take advantage of the Double Tax Treaties concluded by Cyprus.
Consultancy Services Companies
Professionals and consultants with international business activities can use a Cyprus IBC as a tax planning tool for the management of their operations in Europe or to third countries.
The Cyprus IBC will enter into contracts with other parties for the performance of the relevant work and will invoice and receive payments accordingly. Therefore, the profits will be transferred to a low tax jurisdiction.
Cyprus is a suitable jurisdiction with extensive double tax treaty agreements.
The advantages of a Cyprus IBC offering consultancy services are the following:
Consultancy income
The income from consultancy services will be subject to corporation tax at the rate of 10% after deducting all allowable expenses such as salaries and consultancy fees.
Salaries
The salaries paid by a Cyprus IBC to employees who are not resident in Cyprus, are not subject to any taxation or social insurance contribution in Cyprus.
Consultancy fees
The fees paid by a Cyprus IBC to consultants who are not resident in Cyprus, are not subject to any taxation in Cyprus.
Dividends distributed
No withholding tax on dividends distributed to non-resident shareholders of Cyprus Companies.
Holding Companies
Cyprus IBC’s are very popular to hold shares in subsidiaries and associate companies operating internationally. The advantages of a Cyprus Holding IBC are the following:
Dividend income
Dividends received by a Cyprus Holding Company are totally exempt from taxation provided that the Cyprus Holding Company owns at least 1% of the overseas company.
This exemption does not apply if more than 50% of the overseas company’s activities result directly or indirectly in investment income and the foreign tax is significantly lower than the tax rate payable in Cyprus.
Profitfrom the sale of securities
Profits realised by a Cyprus Holding Company from the sale of shares and other securities are exempt from tax.
The only exemption applies, and taxation at 20% will take place, if and to the extent that a profit is realised upon the sales of shares in certain companies owning Cyprus real estate.
Dividends distributed
No withholding tax on dividends distributed to non-resident shareholders of Cyprus Companies.
Interest paid
No withholding tax on interest paid by a Cyprus Company to non-resident creditors.
Dividends received
Cyprus has concluded tax treaties with more than 40 countries worldwide. Dividend Income received in Cyprus benefits from the low withholding taxes imposed by countries which signed Tax Treaties with Cyprus.
Investment Companies
A Cyprus IBC can be used as an investment company financing various projects internationally belonging to the same group. The advantages of a Cyprus Investment IBC are the following:
Interest income
Interest income of investment companies is considered to arise from the ordinary activities of the company and is subject to 10% corporation tax.
Dividends distributed
No withholding tax in dividends distributed to non-resident shareholders of Cyprus Companies.
Interest paid
No withholding tax on interest paid by a Cyprus Company to non-resident creditors.
Interest received
Cyprus has concluded tax treaties with more than 40 countries worldwide. Interest Income paid to Cyprus benefits from the low withholding taxes from countries with which Cyprus signed Tax Treaties.
For example interest is paid to Cyprus from Russia, Ukraine, Austria, Ireland, Norway and South Africa with zero withholding taxes.