All companies which are Cyprus tax resident are subject to tax in Cyprus based on their worldwide income. Non-tax resident companies are subject to tax only on income derived in Cyprus. A company is not considered as Cyprus tax resident just through incorporation. It is subject to Cyprus corporation tax if it is effectively managed and controlled in Cyprus.
The Corporation Tax in Cyprus is at the rate of 12.5%.
The Cyprus Corporation Tax system provides various exceptions for many types of income which makes Cyprus a very attractive jurisdiction for foreign investors.
- Profits from sales of securities;
- FV gains from investments;
- Dividends received;
- Interest Income (not actively related to the business activities of the company);
- Foreign exchange gains or losses.
Special Defense Contribution (SDC) is imposed on dividends, passive interest and rental income earned by Cyprus Tax Residents. Non-Cyprus Tax residents are exempt from SDC.
- Dividends at the rate of 17%;
- Interest Income at the rate of 30%;
- Rental Income at the rate of 3% on the amount of gross rent after its reduction by 25%.
- Dividend payments between Cyprus tax resident companies are not subject to SDC;
- Dividends received by a Cyprus company from a foreign company or foreign permanent establishment are exempt from SDC, subject to the following rules:
- The foreign entity is engaged in more than 50% activities which give rise to trading income and not investment income;
- The tax burden of the foreign entity is not lower than then Cyprus tax burden; not lower than 7.5%.
- Interest received as part of the trading business activities of the company is not subject to SDC; such interest is taxed under corporation tax;
- Interest received from abroad is subject to SDC, but is entitled for tax credit for any tax paid abroad.
A company residing in Cyprus is deemed to have distributed 70% of its taxable profits in the form of dividends, after the completion of 2 years from the end of the tax year for which the taxable profits relate to. The amount of deemed distribution is subject to 17% SDC.
This rule is only applicable where the shareholders of the company are Cyprus tax residents (individuals or companies).
Payment of dividends or interest to non-Cyprus tax residents are not subject to Cyprus withholding tax, irrespective of the existence of Double Tax treaty. Royalties payments for use of rights outside the Republic of Cyprus are also exempt of withholding tax. Royalties payment for the use of rights in Cyprus are subject to 10% withholding tax and 5% on TV rights.
Capital Gains Tax
Capital Gain tax is imposed on gains from the sale of immovable properties situated in Cyprus or from gain from the sale of shares of companies who own immovable property situated in Cyprus. Gains from the disposal of securities (including shares, bonds, options with underlying securities, futures, forwards etc) are exempt from Capital Gains.
The Capital Gain Tax is at the rate of 20%.
Deadlines and Compliance
|End of each month
||SDC withheld on dividends, interest, rent paid in the previous month
||Submission of the Deemed Dividend Distribution declaration (IR623)
||Electronic submission of Income Tax Return (IR4) for companies
||Submission of provisional tax return (IR6) and payment of the first instalment
||Payment of tax balance (of previous year) through self-assessment, for companies preparing audited accounts
||Payment of second instalment of provisional tax
||Payment of SDC for dividends, interest and rent received from outside Cyprus during the last 6 months
- Administrative penalty of €100 is imposed for late submissions;
- Additional penalty of 5% on unpaid tax;
- Interest at the rate of 4% p.a. on unpaid tax balance.
Royal Pine & Associates can provide expert advice on income tax and tax planning.
- Our tax advisors will assess your personal and business interests and assist you in selecting the best legal structure and formulate an international tax planning strategy;
- Our tax experts can obtain a tax ruling on certain specific facts from the Tax authorities to minimize several tax risks;
- Our accounting team will take away the tax administration burden and ensure that your company will be in compliance with the tax regulations and tax deadlines.
1. Special Defence Contribution is applicable (see further down)
The author of the article is Maria Vira
Maria is the of Head of Accounting at Royal Pine & Associates. She is a qualified accountant with eight years solid experience in the corporate industry. Maria is an extremely dedicated, innovative and talented accounting professional.