Overview of Cyprus corporate income taxation system
The Cyprus tax system offers the following tax benefits:
- Corporate tax rate of 12,5%
- No tax on capital gains from disposal of qualifying titles
- No tax in cases of dividend income (in most cases)
- No tax in most cases of profits from permanent establishment outside Cyprus.
- No withholding taxes on dividends and interest paid to non-residents of Cyprus.
- No tax on royalties (in most cases) paid to non-residents of Cyprus
- Favourable taxation on qualifying financing transactions
- Favourable taxation on qualifying intellectual properties transactions
- Extensive double tax treaty network
- Access to the EU directives
- No stamp duty on contracts relating to things and matters outside Cyprus
- No thin capitalisation rules
- No Controlled Foreign Corporation rules
- Most international transactions are not subject to VAT
- Tax free trust structures for international investors
- No exit costs
It should be also noted that the Cyprus tax system has been approved by EU and it is in compliance with the OECD requirements against harmful tax practices.
Cyprus holding regime
In our days, investors are looking for a suitable jurisdiction to use as holding location for their investments. Cyprus offers a competitive tax system for international investors and can be used successfully as an intermediate holding company jurisdiction.
More specifically, the Cyprus tax system offers the following exemptions for pure holding companies:
1. Gains from disposal of qualifying titles are unconditionally exempt from any form of taxation in Cyprus.
2. Dividends received from foreign corporations are exempt from tax provided that:
- not more than 50% of paying company's activities result directly or indirectly in ''investment income'' and
- foreign tax on income of the company paying the dividend is subject to tax at a rate substantially lower than the Cypriot tax rate
If the above both conditions do not apply, then the dividend income in subject to special defence tax at the rate of 17%
3. Dividends received from Cyprus corporations are unconditionally exempt from tax.
4. Dividends paid to foreign corporations or individuals are not subject to withholding tax in Cyprus, as per the Cypriot domestic tax legislation.
5. Cyprus is an EU member state; hence the EU parent-subsidiary directive applies for dividends received and paid by (and to) a company located in an EU member state.
6. There are no exit costs, upon liquidation of a Cypriot holding company.
7. Tax free group reorganizations are available under the Cypriot domestic tax legislation and EU directives.
8. Cypriot pure holding companies fall outside the scope of VAT legislation and will not be entitled or obligated to register for VAT purposes.
Our comments above apply for non-Cyprus investors with an interest to invest outside Cyprus using a Cyprus holding company.