Cyprus is a full EU member and has a strategic location as it is situated around three continents. The country has a well-educated work force and a very competitive corporation tax rate which is fixed at 12.5%, one of the lowest in the European Union.
A company is deemed to be resident in the Republic when management and control is exercised in the Republic. In other words, for a company to be deemed as a Cyprus Tax Resident the following 3 criterion must coexist:
- The majority of the directors must reside in Cyprus.
- The board meetings of the company must be held in Cyprus.
- The company’s general policy must be formulated in Cyprus.
Cyprus has the following taxes:
- Personal Income Tax
- Corporation Tax
- Capital Gains Tax on disposal of Cypriot real estate
- Special Defense Contribution on:
-Dividends @ 17%
-Interest @ 30%
-Rental Income @ 2.25%
In addition, an individual that works in Cyprus is subject to social insurance contributions.
An individual is subject to income tax and/or special defense contribution depending on his/her tax residency and domicile status, a concept introduced in Cyprus tax law in July 2015.
An individual is tax resident in Cyprus if he/she is present in the Republic for a period exceeding in aggregate 183 days in a tax year.
As from 1 January 2017 however, an individual can be a tax resident of the Republic even if he/she spends less than or equal to 183 days in the Republic provided that he/she satisfies all of the following conditions within the same tax year (1 January – 31 December):
- does not spend more than 183 days in any other country;
- is not a tax resident of any other country;
- spends at least 60 days in the Republic;
- maintains a permanent home in the Republic that is either owned or rented;
- carries on a business in the Republic and is employed in the Republic
An individual’s domicile is that of his/her father’s domicile (at birth) or that of his/her choice. Therefore, an individual born to a non-Cypriot domiciled father is considered to be non-domiciled in Cyprus. However, a non-domiciled individual may be deemed as domiciled in Cyprus if he/she has been a Cypriot tax resident for at least 17 out of the last 20 years prior to the relevant tax year. An individual born to a Cypriot domiciled father may also qualify as non-domiciled in Cyprus subject to certain conditions.
Personal Income Tax
A Cypriot tax resident individual, irrespective of his/her domicile status, is subject to income tax on his/her worldwide income, subject to exemptions.
A tax resident individual who is non-domiciled in Cyprus is exempt from tax on dividend and interest income.
A non-Cypriot tax resident individual is subject to income tax on income accruing or arising only from sources within Cyprus and is exempt from tax on dividend and interest income.
Taxable income up to €19,500 is effectively exempt from income tax. Taxable income exceeding this amount is subject to progressive income tax rates ranging from 20% to 35% (for income exceeding €60,000)
Personal Income Tax-High Net Worth Individuals
50% exemption of the remuneration from any employment exercised in the Republic by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus. The exemption applies for a period of ten years starting from the first year of employment provided that the employment income of the employee exceeds €100,000 per annum.
20% exemption of the remuneration or €8,550 (whichever is lower) from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus. The exemption applies for a period of five years from 1 January following the year of commencement of employment and applies for tax years up to 2020.
Personal Income Tax-Other Incentives
Any gains arising from the disposal of shares, bonds and other similar financial instruments (including options and rights thereon) are exempt from tax.
Nil/reduced withholding tax on income received from abroad Cyprus is a party to more than 55 tax treaties that provide for nil or reduced withholding tax rates on dividends, interest, royalties and pensions received from abroad.
Any lump sum received as a retirement gratuity is exempt from tax. Furthermore, a Cypriot tax resident individual receiving pension income from services rendered abroad may choose to be taxed at a flat rate of 5%, on amounts exceeding €3,420 per annum
There is no estate duty, wealth tax, gift tax or inheritance tax in Cyprus
The corporation tax is at a fixed rate @ 12.5%
The Tax Office requires that at least the 70% of the company’s annual accounting profits to be given as dividends after two years. Defense Tax Contribution is paid at 17% only by Cyprus Tax Residents who are domiciled in Cyprus
Therefore investors (non-domiciled), even if they are Cyprus tax residents, they do not have to pay additional tax on dividends.
If the company buys and sells shares it is fully exempt and 0% tax is paid
It is important to highlight that Cyprus is not an offshore tax haven. The Cypriot tax regime and tax legislation is in full conformity with both European Union laws and directives and with the Organization for Economic Cooperation and Development (OECD).
Capital Gains Tax
It is payable when Cypriot real estate is sold at a fixed rate of 20%.
There is a first disposal allowance of €17,086.
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