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Tax

Cyprus offers interesting tax benefits for its residents who are not necessarily domiciled in Cyprus. In fact, Cyprus is an attractive destination for a retired investor or anyone who receives substantial royalty income, as foreigners who become residents are not allowed to carry on any local business on Cyprus unless granted specific permission. An individual is resident in Cyprus, if he/she resides therein for a period or more which in aggregate exceed 183 days. A company is resident in Cyprus, if its management and control are exercised in Cyprus.
Since its EU Accession on 1 May 2004, Cyprus now has a significantly advantageous tax regime. With the enactment of its New Tax Legislation on 1 January 2003 and the abolition of the “offshore regime”, Cyprus has put in place a simplified, effective and transparent tax system and thus becoming one of the lowest-tax EU Jurisdiction that is not offshore: corporate tax rate of 12.5% .

The Cyprus tax system allows for thin spreads of profit to be acceptable and therefore various legal tax-planning strategies can easily be employed and effectively lower Cyprus tax. Invoices from offshore companies are acceptable in Cyprus Companies’ books and payments to offshore companies bear no withholding tax. The possibility to obtain Advance Tax Rulings, the absence of strict transfer pricing rules and of specific substance requirements are some of Cyprus’ tax regime advantages. Not to mention that the foreign beneficial owners of Cyprus Companies are not liable to additional tax on dividends or profits over and above the amount paid or payable by the company. 

Cyprus applies a personal income tax with a progressive rate structure. There are currently four brackets with rates set at 20%, 25% and 30% and, since 2011, an additional tax bracket with a top rate of 35% for income over Eur 60,000. Capital gains, and in particular dividends, interest income and income from the sale of securities are exempt from income taxation. Capital gains are, in general, not taxable. Gains on the disposal of immovable property located in Cyprus are taxed at 20%. 

There are no net wealth taxes or inheritance or gift taxes. Immovable property is subject to a real estate tax levied on the estimated market value of the property in 1980. For natural persons, rates range from 0% to 0.8%, depending on the property value. A real estate transfer tax is levied in a progressive manner at 3%, 5% and 8% of the property value. The worldwide moveable property of a person domiciled in Cyprus is free of inheritance tax for persons who died after 1 January 2000.

All residents are subject to the Defence Contribution, which has been a final levy on unearned income and not deductible for income tax purposes since 2003. It is applied with different rates to dividends, interest, rental payments and the taxable income of public corporate bodies. The Law stipulates for various exemptions, provided certain conditions are satisfied.

The advantage of Cyprus as a jurisdiction over our direct competitors – Malta, Luxemburg, and Ireland – have to do with the low corporate tax rate, the excellent network of double tax treaties, as well as a number of other benefits related to an efficient tax system (corporate income tax exemption for capital gains and dividends, and no withholding tax on interest payments and dividends). Another important advantage of Cyprus though is the excellent human capital that we possess, with highly-educated professionals working in the field of law, accounting (audit and taxation), as well as other corporate services.