The New Cyprus Tax Legislation that came into effect on 1 January 2003 has been fully ratified by the European Union and provides for:
- Uniform tax rate – No discrimination is made between local Cyprus and overseas companies as all distinctions between local and international business companies have been removed.
- Lifting of all exchange controls
- Complete and unrestricted freedom for all EU enterprises to do business in Cyprus
The main benefits and advantages of the reformed Cyprus tax system include:
- Income tax rate of 10% for all corporations – The lowest income tax rate in the EU;The uniform 10% corporate tax rate is applicable to the worldwide income of all Cyprus tax-resident companies.
- No withholding taxes on payments of dividends, interest and in most cases on royalties paid to non-residents;
- No tax on disposal of titles, whereby titles are defined as Shares, Bonds, Debentures, Founder and other titles of companies or legal persons and rights thereon;
- Participation exemption system on dividends / profits from abroad;
- No thin capitalisation rules;
- No exit costs;
- No holding period requirements for the participation exemption on dividends or for the exemption of tax on the disposal of titles.
- Freedom for all EU enterprises to do business in Cyprus
Dividends received from participation in companies are exempt from taxation in Cyprus provided that the shareholding is at least 1%. These dividends are also exempt from Special Contribution for Defence (at 15%). This exemption does not apply if:
- The paying company is directly or indirectly engaged, more than 50%, in activities which result in investment income; and
- The paying company is subject to tax at a rate of tax substantially lower than the Cyprus rate (in practice this is likely to be a rate less than 5%).
Income received by a Cyprus company from abroad may have been liable to a withholding tax on payment in the country of origin. If this income is liable to tax in Cyprus, the tax paid abroad can be credited against the tax payable in Cyprus.
Individual and companies resident in Cyprus are liable to income tax in accordance with the Income Tax Law ( Law No. 118(I) of 2002 , as amended).
Below you will find more detailed information on the Cyprus Tax System, designed to increase
the reader’s general awareness of the Cyprus Tax System.
We hope you find the information both comprehensive and helpful. For any further clarifications, please do not hesitate to contact us.
