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Cyprus Tax System - Summary of Benefits

The tax reform that took effect on 1 January 2003 introduced major changes to the Cyprus Taxation system. There is a uniform Corporation Tax Rate at 12.5%, which is one of the lowest in European Union and there is no distinction anymore between local and international companies. The maximum tax rate for resident individuals is 35%. The old, complex tax regime was replaced by a new system that eliminates discrimination and differential treatment between different categories of business and is simple and transparent. In addition, the increase in the rate of VAT made possible a reduction of certain taxes and the abolition of others. From 13 January 2014 the standard VAT rate is increased to 19% (still one of the lowest in Europe).

The main tax advantages of Cyprus Tax Resident Companies are as follows: 

  • Dividend income received from abroad is exempt (subject to conditions);
  • No thin capitalisation rules;
  • No Capital Gains Tax (except from the sale of immovable property situated in Cyprus);
  • Taxable losses carried forward for up to 5 years;
  • Capital gains on sale of qualified Securities: 100% exemption;
  • Gains relating to foreign exchange differences (forex), is exempt (subject to conditions)
  • No withholding tax on outward payments (Dividends-Interest-Royalties) to non Cyprus tax residents (companies or individuals);
  • Foreign Permanent Establishment profits exempt (subject to conditions);
  • Tax free corporate re-domiciliation permitted;
  • Possibility for establishing an SE (European Company);
  • Applicability of all EU directives;
  • Advance ruling practice exists;
  • Extensive Double Tax Treaty network;
  • Other Tax Credits and Incentives include: 
  • Notional interest deductionNew equity introduced to a company as of 1 January 2015 in the form of paid-up share capital or share premium may be eligible for an annual deduction for tax purposes.)
  • Intellectual property (IP) regime (The income tax law provides for generous exemptions from tax of income related to IP.)
  • Exemption from capital gains tax  Cyprus immovable property acquired in the period 16 July 2015 to 31 December 2016 will be exempt from capital gains tax upon a future disposal.

Advantageous tax system for pensioners and expatriates

  • Individuals who are not tax residents of Cyprus are taxed only on certain types of income accrued or derived from sources in Cyprus.
  • Individuals who are Cyprus tax residents but are considered of non-Cyprus domicile for tax purposes are not subject to any Cyprus tax on dividend and interest incomes

Last updated October 2016