Areas of Practice

Corporate Tax

A company is tax resident in Cyprus when its management and control is exercised in the Republic. Their taxable income includes both income earned in Cyprus and abroad. A non-Cyprus tax resident is taxed only on income earned through a permanent establishment in Cyprus.

(a) Corporation Tax
All companies are subject to a uniform tax rate of 10% except for semi-government organisations, which are taxed at 25%. The 10% tax is the lowest corporate tax rate in the European Union.

(b) Tax on Dividends
Cyprus tax-resident companies are exempt in respect of dividends received from other Cyprus resident companies. The exemption is extended, subject to conditions to dividends from non-resident companies. Resident companies are obligated to have distributed 70% of their after-tax profits in the form of dividends at the end of the two-year period since the end of the respective tax year.

Thereon, the dividends account for defence contribution in the case that less than 70% has been distributed. In this way, tax avoidance, through the accumulation of profits and the creation of companies by individuals as a means of lowering their tax burden, is prevented.

These mandatory distribution provisions do not apply to profits accruing to non-resident shareholders.

(c) Tax on Interest
Interest income is taxed at the corporate tax rate of 10% arising from, or closely connected to, the ordinary activities of the company.

Moreover, 50% of all other interest income is exempt from income tax and is subject to special defence contribution at 10%.

(d) Tax Treatment of Losses
Subject to certain conditions, tax losses can be carried forward and set off against future profits indefinitely; applicable for losses incurred in 1997 and thereafter. In addition, the loss of a Cyprus tax resident company can be set off against the profit of another Cyprus tax resident company in case they belong to the same group of companies. Subject to certain conditions, companies belong to a group when one company holds at least 75% of the ordinary share capital and the voting rights of another company. Losses from a permanent establishment abroad can be set off against profits earned by a company in Cyprus.

(e) Profits of Permanent Establishments Abroad
The profits of permanent establishments abroad are not subject to income tax in Cyprus, given that less than 50% of their activities result in investment income, and that the foreign tax suffered is not significantly lower than the tax payable in Cyprus.

(f) Disposal of Securities
Profits gained from the sale of securities listed on a recognised Stock Exchange are exempt from tax for all companies.

(g) Reorganisations
Transfers of assets and liabilities between companies in the course of reorganisations, such as mergers, demergers, transfer of activities or exchange of shares, are not subject to tax.

(h) Foreign Tax Credit
Tax relief of foreign tax paid is granted in Cyprus even in the absence of a double-taxation treaty, provided sufficient evidence is submitted that foreign tax was indeed paid. Hence, Cyprus turns into a lucrative hub for establishing holding companies.