As trustees, we are able to assist you with structuring your business or
holdings in or through Cyprus. The Mediterranean island of Cyprus presents
significant opportunities for international business and financial activity in
the context of Cyprus's benign corporate tax system. Profits of Cyprus
companies are taxed at 10%.
ClarisGlobal's subsidiary Claris
Trustees & Fiduciaries Ltd, we are able to provide
and legal assistance to EU and non-EU clients seeking
to take advantage of Cyprus as a tax-efficient European business base offering a
sophisticated financial and legal
system and advanced telecoms and e-commerce
New Tax System
Cyprus implemented a new tax reform
in 2003 as a step towards its entry into the European Union in 2004. The new
domestic tax regulations combined with the implementation of European directives
have made Cyprus a highly attractive location for holding/intermediary
Cypriot legislation does not offer a
specific regime or provisions for holding companies, but tax legislation
contains features that make the jurisdiction a favourable holding jurisdiction.
Cyprus is commonly used as an
intermediate holding jurisdiction in the following circumstances:
By international or local groups,
companies or private investors who are investing outside of Cyprus, aiming
to stream dividends cheaply and easily.
For holding subsidiaries, which
hold significant values and may be sold off in the future.
To benefit from the favourable
tax provisions of the Double Taxation Treaty network, as well as from EU
Where it may be important to
achieve a tax-exempt winding-up of the holding company in the future.
Share Capital and Capital Duty
There are no legal requirements
regarding the minimum or maximum share capital of a Cypriot company.
Capital duty is payable upon
registration as a fixed amount of CYP 60 plus 0.6% on the nominal value of the
authorised share capital. There is no capital duty on the share premium.
Therefore the capital duty may be minimised by having a small authorised share
capital and a high share premium.
Corporate Tax Rate
The corporate income tax rate for a
Cypriot resident company is 10%. The taxable income under the income tax law is
calculated based on the accounting profits as defined by the International
Financial Reporting Standards (with some adjustments)
Cyprus applies a participation
exemption regime on received dividends. It applies to dividends received from a
resident subsidiary as well as dividends received from a non-resident subsidiary
(subject to conditions outlined below).
Dividends received from a Cypriot
Dividends received by a Cypriot
resident company from its Cypriot resident subsidiary are tax exempt.
Dividends received from a
Dividends received by the Cypriot
company from a foreign subsidiary are exempt from corporate income tax, but
subject to the so-called Special Defence Contribution (“SDC”) with a rate of
However, dividend income is exempt
from SDC, if the company receiving the dividend is resident in Cyprus or a
company which is not resident in Cyprus but maintains a permanent establishment
in Cyprus, and owns at least 1% of the company paying the dividend. This
exemption does not apply if (a) more than 50% of the activity of the paying
company results directly or indirectly in investment income and (b) the foreign
tax burden is significantly lower than the tax rate payable in Cyprus.
In addition, the above criteria imply
that both conditions have to be met for the exemption not to be applicable. For
example: if a foreign trading company is held more than 1% by a Cypriot holding
company and the foreign company pays a dividend to the Cypriot company, the
dividend will be exempt from any tax even if its tax burden is substantially
lower than the Cypriot tax burden (the corporate income tax rate in Cyprus is
10%), as less than 50% of the foreign company results in investment income (the
foreign company being a trading company). Since both (a) and (b) of the criteria
have to be met for the exemption not to apply, the exemption is almost always
satisfied. This results in the non-taxation of the foreign-source dividend.
The above exemption mechanism is
applicable to dividends received from EU resident subsidiaries as well as from
subsidiaries resident outside of the EU.
A dividend received by a Cypriot
company from a non-resident subsidiary where a foreign withholding tax has been
levied, and if such dividend is liable to taxation in Cyprus, the tax paid
abroad may be credited against the tax payable in Cyprus.
Outgoing dividends distributed by a
Cypriot resident company are tax exempt. This applies to payments to resident
shareholders as well as to non-resident shareholders regardless of their country
of residence or the existence of a Double Taxation Treaty with that country. (An
individual resident shareholder is subject to SDC at 15% on the dividend
Cypriot corporate legislation
contains regulations regarding deemed distribution of dividends.
Interest received as a result of the
ordinary activities of the company, or activities closely related thereto, is
not considered to be interest for SDC purposes. Such interest is considered to
be trading income and is subject to corporate income tax.
Interest received by a Cypriot
resident company is subject to income tax at 10% on 50% of the interest
received, and to SDC at 10% of the whole amount of interest received. This
results in an effective and combined tax rate of 15%.
If foreign withholding tax has been
levied, the tax paid abroad may be credited against the tax payable in Cyprus.
Cyprus does not impose withholding
tax on interest payments made by a resident debtor to a resident creditor or to
a non-resident creditor, regardless of the jurisdiction the interest is paid to.
Thin capitalisation regulations
Cypriot tax legislation does not
contain any thin capitalisation rules.
Depending on the jurisdiction of
source, no withholding tax or reduced withholding tax is often available either
under a Double Taxation Treaty or the EU Interest and Royalty Directive. The
Cypriot network of Double Taxation Treaties offers low or zero rates of
withholding tax on royalties in most cases.
Cyprus does not impose withholding
tax on royalties paid by a Cypriot company, if the rights are exercised outside
of Cyprus by the Cypriot company. This applies irrespective of the location of
the non-resident beneficiary of the royalty payments.
When the royalties are connected with
use in Cyprus, a 10% withholding tax is levied, subject to the provisions of any
treaty or directive.
Tax Treatment of the Participation
Costs relating to
the acquisition of participation
The cost of investment relating to
the acquisition of participation is not tax deductible. This is in line with the
tax exemption on gains from sale of shares in Cyprus.
The value of the shares in the
The value of the shares held in a
subsidiary or any shares held should be written down for financial reporting
purposes. Financial statements for Cypriot companies are subject to
International Financial Reporting Standards, which allow the written value not
to reflect the actual market value but the initial cost price.
Capital gains and losses
Capital gains are tax exempt, except
for gains arising from the sale of immovable property located in Cyprus, or from
sale of shares in non-listed companies that own immovable property in Cyprus.
The tax rate is 20%.
Capital losses relating to immovable
property can be offset against capital gains relating to immovable property, and
therefore reduce the taxable amount subject to capital gains tax.
Controlled Foreign Companies
Cyprus does not have any controlled
foreign company legislation (CFC).
A ruling may be obtained from the
Cypriot tax authorities. The timeframe is usually one month from submitting the
request. The ruling is binding on the tax authorities as to the facts presented
but can be overturned by a court.
Disposal of shares
Gains on the sale of shares are tax
exempt provided that the disposed shares comply with the definition of
“securities” under the Cypriot income tax law. “Securities” are defined as
“shares, bonds, debentures, founders’ shares and other securities of companies
or other legal persons, incorporated under a law in the Republic or abroad and
options thereon”. The only exemption is if, and to the extent that, the company
holds real estate located in Cyprus, as mentioned in the above section on
capital gains and losses.
A Cypriot holding company may cease
operations and distribute the assets to its shareholders as proceeds on
liquidation are tax exempt (subject to the company not having any undistributed
dividends from any year, in accordance with the deemed distribution
Consolidated Tax Treatment
A holding company may not opt for the
consolidated tax treatment of its subsidiary. However, Cypriot tax legislation
provides for losses to be offset against profits within the same group of
companies during the same year of assessment.
Companies are considered to be in the
same group if they are resident in Cyprus and have a 75% direct or indirect
holding relationship: one company is owned 75% (of the ordinary share capital
with voting rights) by the other, or if both companies are owned 75% by a third
company throughout the whole year of assessment, and if that shareholder is
beneficially entitled to not less than 75% of the profits available for
distribution and any assets that would be available for the shareholder upon
Company A would not be considered to
be the owner of 75% of Company B if any of the profit upon a sale of the share
holding that Company A holds directly or indirectly in Company B would be
considered as a trading receipt for Company A.
Company losses may be carried forward
indefinitely and offset against future profits.
Cypriot income tax law introduces
regulations regarding company reorganisations, which strictly comply with the
regulations of the Merger Directive, but with a wider application. The
regulations apply to domestic reorganisations, cross-border reorganisations with
both EU and non-EU member states as well as to reorganisations abroad with tax
implications in Cyprus. There are no tax consequences on income or capital from
a Cypriot holding company involved in a reorganisation.
The reorganisation has to qualify as a reorganisation under Cypriot law.
Due to the fact the VAT is a tax on
consumption, the Cypriot holding company will not be subject to VAT legislation,
or entitled or obliged to register for VAT purposes, if the activity of the
Cypriot holding company is restricted to merely holding assets.
If the company has business
activities or provides management services which fall under the scope of VAT, it
may be required to register for VAT purposes if the value of the taxable
supplies in the last 12 months exceeds CYP 9,000. If the value is lower than CYP
9,000 the holding company may register voluntarily.
The standard rate of VAT is 15%.
Stamp duty is a tax on contracts
documenting transactions in Cyprus. The tax becomes payable upon execution of
some corporate documents and most contracts.
The stamp duty on corporate documents
is various fixed amounts of minor value. The stamp duty payable on execution of
contracts is levied on the value (consideration), and the rates are CYP 1.50 for
every CYP 1,000 for contracts of the value of up to CYP 100,000, and CYP 2 for
every CYP 1,000 for contracts of the value of over CYP 100,000 up to CYP
5,000,000 where stamp duty is capped to a maximum of CYP10,000.
Individuals resident in Cyprus are
taxed on their worldwide income. Non-Cypriot residents are taxed on their
Cypriot-source income only.
Rates of the individual income tax:
From CYŁ0 to CYŁ10,000 is 0%, from
CYŁ10,001 to CYŁ15,000 is 20%. from CYŁ15,001 to CYŁ20,000 is 25% and for
CYŁ20,001 and over 30%.
Income tax for expatriates:
Non-resident individuals, who take up residency and employment in Cyprus, are
liable to income tax as shown in the above table, but they are entitled to tax
relief of 20% on their total income, up to a limit of CYP 5,000 per year, for
the first three years following the year the employment commenced.
Company formation & registrations
Virtual office services
Confidential shareholding services through licensed Nominee Company
Bank account opening & admin services, credit facilities & project finance
Company secretarial service
Book-keeping, Accounting & (external)
Location of commercial property/office space on sale or for rental in Cyprus
detailed information, please contact our Corporate Services Unit [contact