Today, Cyprus has the lowest tax regime in Europe and its role as an international financial and business centre is growing day by day. There is no longer a difference in the tax treatment of local companies or International Business Companies (IBC), since a single corporation tax is applicable in all cases.
The main tax and fiscal incentives may be outlined as follows:
- International Business Companies pay a corporate tax of 10% on their net profits if they are a Cyprus resident. A resident IBC is a company with management and control in Cyprus. In order to determine the management and control of the company, look at the residence of the majority of directors and where board meetings normally take place. Resident IBCs may obtain full access and take advantage of the Cyprus double-tax treaty network (more on this below).
- An IBC that is not considered to be resident in Cyprus, will pay zero tax in Cyprus.
- A non-resident IBC does not have access to the double-tax treaty network.
- Cyprus has no withholding tax on payment of dividends, interest and royalties by an IBC to non-resident individuals or companies.
- Dividend income received by a Cypriot IBC is 100% exempt from tax in Cyprus (under certain conditions).
- Profits earned from branches/daughter companies abroad are 100% exempt from corporation tax. Profits from the sale of shares are not taxable for all Cyprus tax residents.
- 50% of interest bearing investments received is exempted from tax. The interest that arises in the ordinary course of business (e.g. interest on overdue debtor balances) is not exempted from tax.
- There is no restriction on how many years you can carry-forward tax losses. You can bring them forward indefinitely to be set off against possible future profits.
- Group relief is available whereby losses from a company can be set off against taxable profits accumulated by another company in the same group.
- There are no tax implications on reorganizations, amalgamations, mergers and acquisitions of companies.
- Exemption from capital gains tax (except on sale of real-estate in Cyprus).
- No exchange control restrictions - an IBC can open a bank account in any currency in any country.
- Cyprus has 34 Double Tax Treaty agreements, which apply to 40 countries. They can be used to minimize tax. The main purpose of these treaties is the avoidance of double taxation on income earned in any of these countries. Under these agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country and as a result the tax payer pays no more than the higher of the two rates.
Further, some treaties provide for tax sparing credits whereby the tax credit allowed is not only with respect to tax actually paid in the other treaty country but also from tax which would have been otherwise payable had it not been for incentive measures in that other country which result in exemption or reduction of tax.
To give a simplified example:
- A company is taxable in both treaty countries, say 40% at country A and 20% at country B. If the 20% tax at country B is paid, then a tax credit of 20% would be given in country A. The result is 20% tax in country A and 20% in country B
- If now, in country B the normal tax of 20% is reduced to 5% (for incentive purposes), if a tax sparing credit is provided in the respective treaty, the tax to be deducted in country A would still be 20%, as if full tax of 20% was actually paid in country B. The result would be 5% tax in country B and, in spite of that, a tax of only 20% in country A (the remaining 15% being the tax sparing credit).
All Cyprus resident companies qualify for Double Tax Treaty protection.
- Confidentiality and anonymity of beneficial owners is safeguarded (true identity is only disclosed to local banks, if a local account is opened and information is not disclosed to any third party or to other countries, except in the case of properly authorized criminal investigation (drugs, terrorism, etc.).
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