Taxes levied on companies registered or operating in Cyprus include:
1.Corporate taxes on income:
- 1.1. Corporate Income Tax.
- 1.2. Shipping companies’ tonnage tax.
- 1.3. Special Defence Contribution.
- 1.4. Municipal taxes on corporate income.
2. Value Added Tax.
3. Company Annual Levy.
4. Municipal professional tax.
5. Contributions to Social Insurance Funds and the General Health Insurance Fund.
7. Stamp duty.
8. Capital Duty.
9. Capital Gains Tax.
10. Immovable Property Transfer Fees.
11. Exit Taxes.
Let's take a closer look at each of the above taxes.
1. CORPORATE TAXES ON INCOME
1.1. Corporate Income Tax
The way the Corporate Income Tax is imposed is dependent on the tax base of the company.
A company is considered a resident of Cyprus if it is managed and controlled from Cyprus.
If the company is considered a tax resident of Cyprus, it is taxed on all its income accrued or derived from all sources in Cyprus and abroad.
A non-Cyprus tax resident company is taxed on income accrued or derived from a business activity that is carried out through a PE in Cyprus and on certain income arising from Cyprus sources.
The tax rate for all companies regardless of their tax base is set at 12.5%.
The following table shows the Corporate Income Tax rates in selected countries.
|COUNTRY||TAX RATE, %|
- Possibility of tax return up to 6.25%
- In the case of the UK, the tax rate is 20% with businesses with a profit under £300,000. Anything over that amount has a tax rate of 21%.
- This tax is separated into two parts. 2% goes into the federal budget while the other 18% is given to regional authorities. Regional legislative councils can reduce their part of the contribution to 13.5%, which means that total corporation tax could be set up to 15.5%.
The following are exempted from corporate tax:
- 80% of the net income from royalty rights, patents, and trademarks.
- Donations to approved charities.
- Social insurance contributions.
- Entertainment expenses (e.g. meals with clients). This amount should be lower than €17,086 or 1% of the gross income of the business.
The tax loss incurred during a tax year can be carried forward and set off against the profits of the next five years.
In some cases, corporate groups can set off the current year's loss against the profit of another. For this to happen, the companies involved need to be Cyprus tax residents holding at least 75% of their equity. The same scenario is valid in the case of branches abroad.
1.2. SHIPPING COMPANIES’ TONNAGE TAX
For shipowners, profits earned by the owner of a vessel registered in the European Union or the European Economic Area (as well as in other foreign jurisdictions, under certain conditions) from its operation/charter are completely exempt from all direct taxes.
The term "owner" includes the bareboat charterer of non-Cyprus flagged ships, which is also registered in Cyprus.
A similar exception applies to charterers and ship managers.
Bareboat charter agreements are still subject to tonnage tax, with restrictions imposed on bareboat charter agreements to third parties. The grandfather clauses apply to existing contracts subject to these restrictions.
Instead of Corporate Income Tax, shipowners, charterers, and managers pay tonnage tax on the net tonnage of the ships.
This regime applies until December 31, 2029, and is mandatory for Cyprus flagship owners, but not necessarily for other ship owners, charterers, ship managers.
1.3. SPECIAL DEFENCE CONTRIBUTION
Special Defence Contribution is different to other taxes in that it is imposed on passive forms of income. The table below briefly describes these kinds of income (tax rates are differentiated according to the legal form of the person receiving them).
Table. Special Contribution for Defence
|Passive Income||Legal Entities Tax Rate, %|
|Dividend Income from Cyprus companies||0%|
|Dividend Income from companies abroad||0%|
|Interest on Deposits||30%|
|Rental Income (75%)||3%|
It is worth mentioning that the tax on deposits went up from 15% to 30% after Cyprus signed a Memorandum of Understanding.
Clarifications concerning the Special Defence Contribution:
- For dividends among legal persons, the rate increases to 17% if they are declared with a delay of four years from the date accounting profit was generated.
- If a Cyprus tax resident corporation receives dividends from a non-Cyprus resident company, the dividends are exempted from SDC tax. This does not happen in the case where the paying company’s majority of activities are related to producing investment income and in the case where the foreign dividend tax is lower than 6.25%.
- Cypriot companies are obliged to distribute 70% of their net profit as dividends every 2 years. The remaining 30% is subject to a 17% SDC tax.
1.4. LOCAL (MUNICIPAL) COMPANY INCOME TAX
There are currently no municipal taxes on corporate income in Cyprus.
2. VALUE ADDED TAX
The Maximum rate of Value Added Tax in Cyprus is set at 19%.
The following categories of services and goods are exempted from this tax:
- Banking, financial, and insurance services
- Hospital services
- Management services provided to mutual funds
For all property for which a planning permit was issued after 2004, the year when Cyprus joined the EU, VAT needs to be paid. For the construction or purchase of a first permanent residence in Cyprus, the value-added tax is 5% (the law applies to all contracts concluded after 2011). The law also covers citizens of countries outside the EU, under the condition that the residence they will purchase or build will be their main and permanent residence for the next 10 years. In case the recipient of the grant ceases to use the residence as a permanent one, s/he is obliged to notify the VAT commissioner and pay the difference between the rate of 5% and 19%.
Registration for VAT is compulsory for natural and legal persons with an annual turnover of over €15,600. If the amount is lower than that, registering for VAT takes place on a voluntary basis.
In the table below are the VAT rates in different countries (maximum).
|COUNTRY||VAT RATE, %|
3. COMPANY ANNUAL LEVY
Every company registered in Cyprus should pay an annual fee of €350 by the 30th of June of each year of its operation.
There is a strict system of penalties in case of late payment of the fee, up to the deletion of the company from the State Register, namely:
If payment of the fee is delayed:
- for a period of up to 2 months - the fine is 10% of the amount of the fee;
- for a period from 2 to 5 months - the fine is 30% of the amount of the fee.
If the fee has not been paid after 5 months:
A company may be struck off the State Register of Companies and will need to be re-registered. The penalty for re-registration of the company, if it occurs within 2 years from the date of deletion, will be €500. If this period is exceeded, the amount will be €750 (fines are in addition to the fee which will also need to be paid).
4. MUNICIPAL PROFESSIONAL TAX
Municipal professional tax is established by local authorities and, depending on the nature of the company, ranging from €50 to €200.
The tax is paid annually, until December 31st.
5. SOCIAL INSURANCE & GENERAL HEALTH SYSTEM CONTRIBUTIONS
The contributions for social insurance and GeSY are presented in the following table:
Social Insurance Employer’s contribution
Social Insurance Employee’s contribution
|Social cohesion fund||
|Industrial training fund||0.5%|
|Holiday fund||8.0% or 9.0%|
|General Health Insurance fund||2.90% (Employee) & 2.65% (Employer)|
The number of vacation days for employees depends on the length of the working week (5 or 6 days, 36 or more hours) and is at least 20 calendar days per year. The greater the number of vacation days, the higher the percentage of contributions to the fund.
Excise taxes are levied on certain goods, including vehicles, oil, tobacco products, and alcoholic beverages.
7. STAMP DUTIES
As a rule, Cyprus stamp duty is only levied on written documents relating to assets located in Cyprus or matters that will take place in Cyprus. The applicable rates are based on the value stated in each agreement/contract and are equal to:
- 0.0% for agreements worth up to € 5,000.
- 0.15% for the contract value from € 5,001 to € 170,000.
- 0.2% for contract value over € 170,000, provided that the total maximum amount is a stamp duty of € 20,000.
Exemption from stamp duty is possible in the event of a reorganization or reconstruction of a company (including a merger or acquisition), provided that such reconstruction or reorganization meets the requirements (schemes) imposed on them by the legislation of Cyprus.
8. CAPITAL DUTY
Since 18 December 2018, the duty on capital in the amount of 0.6% of the declared share capital or any of its increase has been canceled.
As a result, from that date onwards, no capital duty is charged on:
- The initial authorized share capital of the registration of the new company.
- Any subsequent increase in authorized share capital.
However, fees of €105 for the registration of a new company and €20 for the issuance of a share certificate still apply to:
(i) The issued share capital upon incorporation if the shares are issued at a premium.
(ii) Any subsequent increase in the issued share capital, whether the shares are issued at par or a premium.
9. CAPITAL GAINS TAX
This tax is imposed on the gains from the disposal of shares and immovable property. The tax rate is 20%.
The following categories are exempted from that rate:
- Transfers arising on death
- Gifts made between up to third-degree relatives
- Gifts by a family company, under conditions
- Exchange of property (e.g. the sale of an apartment to buy a more expensive one)
To determine Capital Gains Tax (CGT) in the case of immovable property, the formula below is used (for example we will consider the property was bought in 1995 and sold in 2015):
CGT = 20% * (Current Sale Price Year 2015 – Purchase Cost in 1995 – Cumulative Inflation between 1995 and 2015)
There is no inheritance tax in Cyprus.
10. IMMOVABLE PROPERTY TRANSFER FEE
The property transfer fee is collected from the buyer of immovable property by the Department of Land Resources and Surveys and amounts to:
|Property market value, €||Rate, %||Fee, €||Accumulated Fee, €|
Up to €85,000
|From €85,001 to €170,000||5%||€4,250.00||€6,800.00|
It is important to note the following:
- The fee is not charged if VAT is applied upon purchasing the property.
- The fee is reduced by 50% when the purchase of the property is not subject to VAT.
- Certain debt-for-assets swap agreements may, under certain conditions, be exempt from the collection of transfer fees.
- The mortgage registration fees are 1% of the current market value of the property.
- In the event of a company reorganization or restructuring, the transfer of immovable property is not subject to a transfer fee or a mortgage registration fee.
- No transfer fee is paid for the properties in case of bankruptcy, liquidation, sale of the pledged object by a lender, where the income does not exceed 350,000 euros per owner.
11. EXIT TAXES
A Cyprus corporation taxpaying company is subject to the taxation provisions for the withdrawal of assets from Cyprus in cases where assets are withdrawn from the taxable base for income tax levied in Cyprus (outbound transfers) in any of the following circumstances:
- Assets are transferred from the taxpayer's head office in Cyprus to its representative office outside Cyprus, and Cyprus is no longer eligible to tax the income from the transferred assets due to this transfer.
- Assets are transferred from the taxpayer's permanent establishment in Cyprus to its head office or other permanent establishments outside Cyprus, and Cyprus is no longer entitled to tax the income of the transferred assets due to the transfer.
- The taxpayer transfers its tax residency outside Cyprus and acquires tax residency in another jurisdiction (in this case, assets that remain effectively associated with the Cyprus Permanent Establishment after the transfer are excluded from the exit taxation provisions).
- The taxpayer's business carried on by its Cyprus Permanent Establishment is transferred to another jurisdiction and the taxpayer ceases to have a taxable presence in Cyprus, acquiring a taxable presence in another jurisdiction, without becoming a tax resident in that other jurisdiction, and Cyprus is no longer entitled to tax the transferred assets due to the transfer.
It should be noted that, under certain conditions, the temporary transfer of assets falling under categories (1) - (4) is excluded from the scope of the exit taxation provisions.
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