About Cyprus

Since its accession as a full member of the European Union (EU) in 2004, Cyprus has witnessed a rapid expansion of its financial and international business services and is now considered one of the most favorable tax planning jurisdictions in the EU.

Cyprus has the following advantages to offer to international business companies in deciding where to set up their businesses:

A low corporation tax rate compared to other EU states and other countries (as from 01 January 2013, 12.5% flat on business profits),
Tax-free gains from the sale of securities,
No withholding tax on dividend payments,
Tax-free dividend income (under normal circumstances)
A comprehensive set of double-tax avoidance treaties,
Full member of the EU and in compliance with all the EU directives
In compliance with the OECD regulations and in the white list of the organisation published in 2009.

In addition it has the following social and geopolitical facts:

Strategic geographical position in the centre of three continents, Europe,
Asia and Africa.
Very high literacy rate and the highest proportion of university graduates in the EU
Highly skilled labour force
Wide use of the English language
Legal system based on the British pattern
Excellent infrastructure and communications network.
Very low crime rate and attractive tourist destination.

TAX FACTS AND FIGURES

Below you can find some general data and information about personal and business taxation rules which apply in Cyprus.

A. PERSONAL TAXATION

Individuals who are Cyprus tax residents are subject to tax on their worldwide income, whether remitted to Cyprus or not. Individual who are non- Cyprus tax residents are subject to tax only on their Cyprus-source income.

A "Cyprus tax resident" is an individual who, in the year of assessment (the calendar year) stays in Cyprus for a period, or periods exceeding the total of 183 days.

The personal income tax rates for 2012 onwards, are as follows:

The following types of income are exempt from income tax:

Profits on disposal of titles ( as per the list published by the Inland Revenue)
Remuneration from salaried services rendered outside Cyprus ( the employer must be a non Cyprus tax resident)
Dividend income
Interest income ( depending on the nature of interest income- passive interest income is taxed under certain conditions)
Remuneration of individual before commencement of employment in Cyprus - subject to specific conditions and rates of deduction.
Lump sum on retirement or compensation for death or injury.

There are also a number of allowable deductions from the taxable income of individuals, which in general are:

Annual subscriptions to trade unions and professional associations
Donations to approved charitable institutions
20% of the rental income if the rented property is a building
Life insurance premiums
Social insurance contributions
Pension fund contributions.

B. BUSINESS TAXATION

A company is subject to tax in Cyprus if its management and control is exercised in Cyprus.
All Cyprus registered companies and other legal entities which are considered as tax residents of Cyprus, are taxed in their worldwide income at the applicable tax rates of Cyprus.
The corporation tax rate in Cyprus is 12.5% from 01 January 2013, on taxable income. For previous years is 10% flat.

The following types if business income, are exempt from taxation in Cyprus:

Profits from disposal of securities - as per the list of securities published by the Inland Revenue.
Dividend Income
Interest Income. The exemption does not apply if the interest arises or is closely related to the business activities of the entity ( i.e. finance companies). Passive interest income is subject to Special Defense Contribution at 30% from April 2013.
Profits from operations through a permanent establishment abroad. The exemption does not apply if the permanent establishment engages directly or indirectly more than 50% in activities which result in investment income and the foreign tax burden is significantly lower than the Cyprus tax burden.

The following is a list of commonly accepted allowable deductions in arriving at the taxable income of a company:

Wages and salaries and all contributions of employees, including directors of the company, provided they work wholly for the activities of the company.
Business entertainment expenses, subject to certain limitations.
Donations to approved charitable institutions
All expenses incurred wholly and exclusively for the production of income provided they are supported by appropriate documentation.
Annual wear and tear allowances on the cost of acquisition of fixed assets provided they are used for business purposes.

Business losses from previous years can be carried forward and offset against future profits for an indefinite period of time.

Group relief on trading losses is allowed between Cyprus resident companies which are members of the same group (with at least 75% control) for the whole year. Only current year group trading losses can be surrendered from one group company to the other.

The above are a general guideline on the main rules and regulations applying in Cyprus.
They should not be considered as the only source for decision making and planning but a professional advice should always be obtained.

MOST ATTRACTIVE TYPES OF CYPRUS COMPANIES

Most commonly used types of International Business Companies:

The Cyprus Holding Company

This is the most attractive and tax beneficial structure used by International companies who invest in other jurisdictions.
Its advantages are:

Dividend income derived from subsidiaries and other investments, in most cases, is tax exempt in Cyprus

Profit arising from the sale of shares in other companies is tax exempt in Cyprus.
From the country's double tax treaty network, Cyprus holding companies can benefit from low or zero withholding tax provisions.
There is no controlled foreign company legislation applying in Cyprus.
Payment of dividends to non- Cyprus tax resident shareholders is tax free.

Financial Services Companies

This type of companies is widely used taking advantage of the tax benefits arising from the profits from financial instrument trading. The advantages are:

Zero tax on profit arising from the trading in financial instruments, including shares, bonds, repo deals and other listed or private instruments.
No tax on dividend income under normal circumstances

These companies can trade in any country in the world either for their own account or on behalf of their clients. In case of the latter a license will be required by the Cyprus Securities and Exchange Commission as an approved Investment Firm.

Trading Companies

International trading companies can use Cyprus for their activities within and outside the EU with the following benefits:

Low tax rate which is 12.5%, from 1st January 2013on business profits. For the previous years the tax is at 10% flat.
Applying EU regulations and guidelines on VAT and simplifications for VAT registration and recording.
Extensive network of double tax treaties
Expenses relating to the business activities or closely related with the business activities are allowed for tax purposes.

Intellectual Property Income Companies

Following a recent amendment of the Income Tax Law, these type of companies are very attractive since they offer great advantages for businesses who use them.

These companies can be used for:

Patents on new inventions as long as they are properly registered.
Trademarks
Copyrights

The new tax benefits for the income derived from the above named intellectual property sources is summarised as follows:

The wear and tear expense of the costs of development and purchase is 20% on the capital amount.
From the profit arising from the business use of the IP rights and intangible assets, the company can deduct 80% and only pay income tax on the 20% of this profit.
Effective tax rate can be reduced as low as 2.5%.

Shipping companies

The new Cyprus Merchant Shipping legislation has created a very tax efficient structure for shipping groups and is ideal for holding company locations.

As from 01 January 2010, Cyprus has become the only EU country with an EU approved Tonnage Tax (TT) system that basically:

Provides for TT on the net tonnage of the vessels rather than Corporation Tax on the actual profits, regulated by the Department of Merchant Shipping rather than the Tax Authorities.
Gives total tax exemption of profits tax and distribution tax at all levels
Allows mixed activities within a company
Supports an open registry
Allows split management activities ( ship crews or technical)

The law provides full exemption to ship owners, charterers and ship managers from all profit taxes and imposes tonnage tax on the net tonnage of each vessel at approved rates.