The major advantage of a Cyprus holding company is that there is no withholding tax on dividends received from subsidiaries overseas. This does not apply if:

1.       The subsidiary paying the dividend engages in more than 50% of its activities in producing investment income

2.       The foreign tax burden on the subsidiary is substantially lower than that in Cyprus.

 

There is also no withholding tax on the dividends paid by a Cyprus company to its non Cyprus resident shareholders (20% defence tax applies to Cyprus residents).

 

No withholding tax applies on dividends received from EU subsidiaries.

 

Companies are considered tax residents of Cyprus if they are managed and controlled from Cyprus. Profits from activities of a permanent establishment outside Cyprus are exempt unless:

1.       The permanent establishment engages in more than 50% of its activities in producing investment income

2.       The foreign tax burden is substantially lower than that in Cyprus. (Substantially lower is considered to mean less than 50% of the corporation tax rate of Cyprus).

 

 Corporation tax rate is currently 10% the lowest in the EU.

 

Tax losses can be carried forward indefinitely and also Group loss relief applies for Cyprus companies.

 

Cyprus has signed treaties for the avoidance of double taxation with over 40 countries

 

Passive interest income is not subject to corporation tax.

 

There is no corporation tax on income from the sale of shares or securities.

 

Expenses incurred wholly and exclusively for earning taxable income (in some cases conditions apply) are deductible from the taxable income, provided they are supported by invoices or other documentation.

 

Tax credit is given for foreign tax on income which is taxable in Cyprus, irrespective of the existence of double tax treaty.

 

An individual is considered Cyprus tax resident if he/she spend more than 183 days in the Republic of Cyprus during a tax (i.e. calendar) year where the day of arrival is considered to be a day in the Republic and the day of departure a day out of the republic.

 

Cyprus tax residents are taxed on their worldwide income whereas non residents  are taxed only on their income earned in Cyprus.

 

Current income tax rates for individuals are as follows:

 

 

 

 

 

 

 

(For tax rates of previous years click here).

 

Expatriates are allowed a discount period of 3 years following the year they become tax residents of Cyprus, during which 20% of their income or €8.543 whichever is the smaller is exempt from income tax.

 

New tax residents earning income from employment in excess of €100.000 per annum are entitled to 50% deduction of their income for tax purposes for the first 5 years of employment. This incentive is given to both Cypriots and not Cypriots on the condition that prior to their employment they were not considered as Cyprus tax residents.

 

Loans given by companies to their directors or shareholders of companies or their relatives up to second degree, give rise to taxable income for the individuals involved equal to 9% p.a. of the amount of the loan. The Company has the obligation of withholding the relevant tax under the PAYE system and paying it to the Inland Revenue.

 

Dividends and interest income are exempt for income tax purposes (however Cyprus tax residents pay defence tax on these at 20% and 15% respectively).

 

CGT applies only in the case of profits from the sale of immovable property located in Cyprus, or profits from the sale of shares of companies not listed in a recognised Stock Exchange which own immovable property in Cyprus.

 

CGT rate is currently 20%. 

 

Taxable profit for CGT purposes is the difference between selling price and indexed acquisition cost (or indexed price as at 1 January 1980 if acquisition has taken place earlier) less any expenses incurred for the production of the gain also indexed for inflation.

 

It has to be noted that:

·         immovable property taxes and fees are not deductible expenses.

·          Interest paid on loans for acquisition of immovable property is deductible but is not indexed for inflation.

 

Individuals are entitled to the following lifetime deductions from capital gains:

 

 

 

 

 

 

 

 

CGT applies only in the case where the company whose shares have been sold owns immovable property.

Cyprus tax residents are liable to defence tax as follows: