Taxation in Cyprus
The continuing interest of modern entrepreneurs in this economic zone is largely due to its favorable tax regime, approved by the European Union and the Organization for Economic Cooperation and Development. Cyprus
Corporate tax (company income tax)
The corporate tax rate is 12.5%. Income of a resident company in Cyprus is taxed, regardless of the place and sources of its formation. Non-resident companies are subject to corporate tax only on income received in the Republic.
Resident companies are companies which are managed and controlled in Cyprus. The tax is paid in two advance installments, based on a preliminary assessment, which must be at least 75% of the final tax amount. Taxes paid abroad may be deducted from corporate tax payable.
From July 1, 2016, the taxpayer has the right to include the income of a permanent establishment abroad (PEP) in the calculation of the taxable base of a company in Cyprus and to offset taxes paid by a permanent establishment abroad in another jurisdiction. Income exempt from corporation tax:
- income from the sale of securities;
- dividends (other than those dividends that are deductible by the company paying dividends from the income tax base);
- interest income that does not arise from the ordinary (or closely related to the ordinary) activities of the company;
- income received from the activities of a permanent establishment abroad (subject to certain conditions);
- income in the form of exchange differences (forex), except for exchange differences relating to trading in foreign currencies or foreign currency derivatives.
The tax year in Cyprus is the calendar year.
Contribution to the needs of defense
The Defense Contribution is subject to dividend income, “passive” interest income and rental income received by legal entities and individuals who are tax residents of Cyprus (except for individuals not domiciled in Cyprus). When calculating the amount of the contribution, the rates indicated in the table below are applied:
|Type of income||Individuals, %||Companies, %|
|Dividends received from a Cyprus tax resident company||17||0|
|Dividends received from a non-Cyprus tax resident company||17||0*|
|Interest on savings certificates and government bonds||3||30|
|Interest accrued by the personnel support fund, social insurance fund||0||3|
|Interest from core (or closely related) activities||0||0|
|Rental income (taxed at 75% of income)||3||3|
This exemption does not apply if:
- more than 50% of the gross income of the company paying dividends is directly or indirectly received from investment activities;
- the effective tax rate of the company distributing the dividend is significantly less than the tax rate of the company receiving the dividend.
In cases where the exemption does not apply, the income is subject to a contribution at the rate of 17%.
Capital Gains Tax
The tax rate is 20%. Tax is assessed after adjustment for indexation on income from the sale of immovable property located in Cyprus or shares in companies that directly or indirectly own property in Cyprus, provided that at least 50% of the market value of the shares sold comes from property located in Cyprus , or a contract for the sale of immovable property located in Cyprus. The property, the disposal of which relates to the following, is not subject to CIT:
- land plots acquired in the period from July 16, 2015 to December 31, 2016 with their subsequent sale;
- property transferred in connection with death;
- property donated to relatives up to the third degree of kinship;
- Some text
- property donated to charitable or government organizations;
- property transferred as a result of reorganization;
- property transferred as a result of the exchange, provided that all the profit from the exchange was used to acquire other property;
- income of an individual from the sale of an apartment or a private house - up to 85,430 euros, from the sale of agricultural land by a farmer - 25,629 euros.
The supply of goods and services in Cyprus is taxed, as well as the purchase of goods from the EU and the import of goods into Cyprus. Export of goods or services is taxed at a rate of 0%. The standard rate is 19%.
Reduced rates are 5% or 9%. Individual goods, services or works are taxed at these rates. For example, at a rate of 5%, the acquisition and/or construction/renovation of a dwelling that will be used as the main place of residence is taxed. The following categories of goods and services are exempt from VAT:
- leasing of immovable property (at the same time, leasing with the right to purchase is not subject to exemption);
- most banking, financial and insurance services;
- most medical and dental services;
- certain cultural educational and sporting events;
- transfer of immovable property (other than the transfer of buildings prior to their first use), including the transfer of land and second-hand buildings;
- postal services provided by the national postal authority;
- lottery tickets and coupons for betting on football and horse racing;
- management services provided by investment funds.
The annual VAT registration threshold is EUR 15,600. Taxpayers charge VAT on their taxable supplies (output tax) and pay VAT on goods or services they purchase (input tax). If the output tax in a VAT period exceeds the total input tax, a payment must be made to the state. If the input tax exceeds the output tax, the difference is transferred as a credit and offset against future output VAT.VAT in Cyprus
Withholding tax at source
Dividends, interest and royalties paid to non-Cyprus residents are not subject to withholding tax. The exception is royalties received on the rights used in Cyprus. They are subject to a 10% tax (in the case of cinematographic films, 5%).
Services of a technical nature provided by non-residents in Cyprus are subject to a 10% tax. However, if such services are provided through a permanent establishment in Cyprus of a non-resident or between related companies, they are not subject to taxation.
Income derived by non-residents from the exercise in Cyprus of any professional activity or remuneration of non-resident public artists is taxed at a rate of 10%.
Income received in Cyprus by non-residents (if they do not have a permanent establishment) for the provision of services in the field of exploration, production or exploitation of the continental shelf, as well as the creation and use of pipelines and other installations on land, on the seabed and on the surface of the sea, is taxed at rate of 5%.
Commission charged by the Lands Administration for the transfer of ownership of real estate
- When selling real estate, the commission is charged in the following amounts:
- 3% of the market value up to EUR 85,000;
- 5% of the market value for an amount within the range of 85,001 - 170,000 euros;
- 8% of the market value for amounts over EUR 170,000.
- In case of gratuitous transfer of real estate, the commission is calculated depending on the subjects of transfer:
- from parents to children - 0%;
- between spouses or relatives up to the third generation - 0.1% of the market value of the property as of 01/01/2013;
- upon transfer to a trust (trust) manager - € 50.
If VAT is applied to the purchase of real estate, no commission will be charged. If VAT is not applied to the purchase of real estate, the commission is reduced by 50%.
- When registering a company in Cyprus:
- authorized share capital is taxed at 0.6% + EUR 105;
- issued share capital is not taxable if the shares are issued at their par value. If the shares are issued at a premium, the tax is 20 euros.
- With a subsequent increase in capital:
- authorized share capital is taxed at a rate of 0.6%;
- for each additional issue of shares (at par value or at a premium) a tax of 20 euros is levied.
The social insurance contribution is charged up to the maximum amount of remuneration (in 2017 it is 4,533 euros per month) at a rate of 7.8% for both the employer and the employee. Applies until December 31, 2018. The employer also makes the following contributions, calculated on the basis of the employee's remuneration:
- to the social consent fund - 2.0%
- to the reserve fund - 1.2%
- to the industrial training fund - 0.5%
- to the vacation fund (if there is no exemption) - 8.0%
The amount of the contribution to the social consent fund is calculated on the entire amount of remuneration, to other funds - it is limited to the maximum amount of remuneration (as when calculating the social insurance contribution).
The following types of taxes are not levied in Cyprus:
- real estate tax (abolished from January 1, 2017);
- inheritance tax (abolished on January 1, 2000).