Cyprus Corporate Tax



The basic corporate tax rate is 10%.
The tax rate for semi-government bodies is 25%.
Shipping companies sailing under Cyprus flag pay zero tax on profits and dividend paid.


-------------------

Cyprus Corporate Tax Types: 
Dividends Received 
(Cyprus Holding/Private Limited Company):
Tax treatments of incoming dividends

Summary: Like most European countries, Cypriot tax rules, subject to certain conditions, provide full exemption from local taxation in respect of dividends received by a holding company from its local and foreign subsidiaries.

Dividends received by a Cyprus resident company are exempt from corporate tax.
• Dividends are however, subject to a defence tax of 15%. The tax is totally waived if dividends are
received from a foreign company in which the Cyprus holding owns more than 1% of the share capital, unless: 1) the foreign company receives more than 50% of its income from investment activities, and 2) the tax burden of the foreign company is significantly less than in Cyprus
Credit is provided against defence tax for any taxes withheld at source irrespective of whether a double
tax treaty exists with the paying country.

Withholding tax rates for dividends paid to Cyprus companies from treaty countries follow: 0%:
Ireland, Malta, Mauritius, Norway, Singapore, South Africa, Syria, USSR 5%: Belarus, Bulgaria,
Hungary, Russia, Sweden, USA 10%: Austria, Belgium, China, Czech Republic, Denmark, France,
Germany, India, Kuwait, Poland, Romania, Slovakia, Thailand, Yugoslavia 15%: Canada, Egypt, Italy,
UK 25%: Greece (for more detail view „dividends received table” in cyprus double tax treaties page).

Cyprus Corporate Tax EXAMPLE:
Cyprus Company Receiving Dividend Income

EXAMPLE:
Cyprus holding company, owns 25% of Hungarian company and receives dividend income of 100.000,00EUR

Gross dividend income
100.000
Less withholding tax (5%) in Hungary (5.000EUR)
______

Net dividend income to Cyprus 95.000EUR
Withholding tax in Cyprus – Nil.
Corporation tax in Cyprus – Nil.
Net dividend income available for distribution
_______

95.000EUR




Dividends, royalties and interests payed out without withholding tax


(Cyprus Holding/Private Limited Company):

Withholding Tax on Outgoing Dividends 

Summary: Outgoing dividends remitted by a Cypriot holding or Private Limited  company to the ultimate parent company do not suffer any withholding taxes in Cyprus.

• The ultimate parent must not be a cyprus resident to ensure conformity with the exemption from the withholding tax.
• This exemption is available to all non-resident shareholders irrespective of the country of the
shareholder

Cyprus Corporate Tax EXAMPLE:
„Cyprus holding pays dividends and interest to Parent Company”

EXAMPLE:
A Cyprus company is making interest payment of
20.000EUR and dividend payment of  180.000 EUR to its
parent in the UK.
No withholding taxes suffered in Cyprus on amounts
leaving Cyprus 20.000 and 180.000EUR, respectively


Capital gains on selling subsiduaries or related companies 
(Cyprus Holding/Private Limited Company)
Tax treatment of capital gains on the sale of shares
Note: The exemption from tax of trading and capital gains made by a Cypriot holding company from the sale of shares in foreign subsidiaries creates a level playing field with the traditional European holding company regimes such as the Netherlands, Denmark, Luxembourg and Switzerland.

• Capital gains realized on the sale of shares and investments in subsidiaries and related companies
are exempt from taxation. There is no requirement for any minimum holding period or minimum
investment
• The tax exemption applies to both resident and nonresident
entities and individuals

Cyprus Corporate Tax EXAMPLE:
„Capital gains made on the sale of subsiduaries”

EXAMPLE:

Cyprus holding company disposes of its wholly owned Austrian subsidiary at the price of
100.000.000EUR. The cost of acquiring the subsidiary ten years ago was Euro 10.000.000EUR

Profit from the disposal of Austrian subsidiary 90.000.000EUR
Withholding taxes in Cyprus- Nil.
Corporation tax in Cyprus – Nil.
Net amount available for distribution
_________
90.000.000EUR


Receiving Interests from its Companies/Subsiduaries 
(Cyprus Holding/Private Limited Company)
Interest deduction for borrowing costs
Summary: It is important for an investor to obtain a tax deduction in respect of borrowing costs incurred in relation to investments in subsidiaries. In general, interest expenses payable by a Cypriot company are fully deductible.
• A Cyprus holding company may receive interest income from loans it extends to group companies as
part of general group financing. At the same time, the Cyprus holding company may borrow funds for
its group financing purposes
• No defence tax is payable on interest receivable as it is in the ordinary activities to finance the group.
Corporation tax is applicable at 10 per cent, nevertheless, the effective tax is significantly less
than the 10 per cent as long as the Cyprus holding company borrows funds as the interest payable is setoff
against interest receivable

Withholding rates for interest paid to Cyprus companies from treaty countries follow: 0%:
Austria, Ireland, Mauritius, Norway, Russia, South Africa, USSR 5%: Belarus 7%: Bulgaria 10%:
Belgium, China, Czech Republic, Denmark, France, Germany, Greece, Hungary, India, Italy, Kuwait,
Malta, Poland, Romania, Singapore, Slovakia, Sweden, Syria, UK, USA, Yugoslavia 15%: Canada,
Egypt, Thailand (for more detail view „dividend received table” in cyprus double tax treaties page).

Cyprus Corporate Tax EXAMPLE:
„Cyprus Holding Company Receiving Interests from it Group”

EXAMPLE
Cyprus holding company finances the operations of its Russian subsidiary company through an interest bearing loan (7%) of 1.000.000EUR.
At the same time the Cyprus holding company borrows the funds for the purpose of financing the subsidiary from a bank at an interest rate of 5%

Interest received 70.000EUR
Less withholding taxes in Russia - 70.000EUR
Withholding taxes in Cyprus - 70.000EUR
Less interest paid to the bank (50.000EUR)
Net interest income 20.000EUR
Corporation tax in Cyprus at 10% (2.000)
Net amount available for distribution: 18.000EUR


Receiving Interest income 
(Cyprus Holding/Private Limited Company)
Withholding tax on interest
Summary: The EU Interest/Royalty Directive has been transposed into Cypriot domestic legislation and therefore the tax laws provide for exemption at source of interest where the beneficial owner is a non-resident.

Interest income is taxed at 5%. An additional 10% corporate tax is levied on 50% of the gross interest
income. Interest income is also subject to a 10% contribution for defence tax.
The overall tax for interest income is finally a total of 15% as the existence of double tax treaties means that any withholding tax suffered at source in treaty countries is set off against the 10% defence tax in Cyprus when received.
Further, if the Cyprus holding company finances its investment abroad through borrowing, the interest paid is deductible for corporation tax purposes. As a consequence, the overall taxation can be reduced substantially, as long as the investment is in a country having a treaty with Cyprus and the investment is done by the Cyprus holding company by means of an interest bearing loan.


Withholding rates for interest paid to Cyprus companies from treaty countriesfollow:  0%: Austria, Ireland, Mauritius, Norway, Russia, South Africa, USSR 5%: Belarus 7%: Bulgaria 10%: Belgium, China, Czech Republic, Denmark, France, Germany, Greece, Hungary, India, Italy, Kuwait, Malta, Poland, Romania, Singapore, Slovakia, Sweden, Syria, UK, USA, Yugoslavia 15%: Canada, Egypt, Thailand (for more detail view „dividends received table” in cyprus double tax treaties page).

Cyprus Corporate Tax EXAMPLE:
„Cyprus Holding Receives general interest income”

EXAMPLE:
Cyprus holding company holds promissory notes in an Italian private bank and receives interest income
of 200.000EUR.

Gross interest income 200.000EUR
Less tax withheld in Italy at 10% - (20.000EUR)
_______
180.000EUR

Withholding tax in Cyprus at 10% - 20.000EUR
Tax credit for the overseas tax withheld - (20.000EUR)
_______
Nil

Corporation tax in Cyprus
(50% at 200.000EUR at 10%)
(10.000EUR)
______
Net amount available for
distribution
170.000EUR


Capital gains from sale of  securities and shares 
(Cyprus Private Limited Company/Investment Company)
Selling Securities and Shares

Capital gains arising on the sale of shares and securities are exempt from tax. The only case where tax is
levied, is for profits on shares owning immovable property in Cyprus (for more information on this subject view our capital gains tax page dealing with tax on gains arising from transfer of immovable property).
• There are no requirements for minimum holding period or minimum investment.
• The tax exemption applies to both resident and nonresident entities and individuals

Cyprus Corporate Tax EXAMPLE:
Cyprus investment company trading in shares and securuties”

EXAMPLE:

Cyprus investment company is trading in shares and other securities in the Russian stock market and realizes a profit of 30.000.000EUR
Profit realized 30.000.000EUR
Withholding taxes in Cyprus – 0EUR
Corporation tax in Cyprus – 0EUR
__________
Net amount available for distribution 30.000.000EUR


Royalty Income 
(Cyprus Holding/Private Limited Company)
Receiving Royalty Income

Royalty income is subject to corporation tax as it constitutes part of the entity’s taxable profits. The rate is therefore the general corporate tax rate of 10%. Any withholding tax suffered abroad is set off against the tax liability of corporation tax

• Withholding rates for royalties paid to Cyprus companies from treaty countries follow: 0%: Austria,
Belgium, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Mauritius, Norway, Russia,
South Africa, Sweden, UK, USA, USSR 5%: Belarus, Czech Republic, Kuwait, Poland, Romania, Slovakia,
Thailand 10%: Bulgaria, Canada, China, Egypt, Malta, Singapore, Syria, Yugoslavia 15%: India (for more detail view „dividends received table” in cyprus double tax treaties page).

Cyprus Corporate Tax EXAMPLE:
„Cyprus Holding Company with Royalty Income”

EXAMPLE:
Cyprus holding company receives 100.000EUR royalty income from its licensee, a Hungarian company. Tax of 5.000EUR has been withheld in Hungary

Gross royalty income
100.000EUR
Gross withholding taxes in Hungary (5.000EUR)
_______
95.000EUR

Withholding taxes in Cyprus – 0EUR
Corporation tax in Cyprus 10.000EUR
Tax credit for the overseas tax withheld (5.000)
_______
Net amount available
______
90.000EUR


Non-Resident Companies 
(Cyprus Holding/ Private Limited Company)

A non-resident Cyprus company pays no tax in Cyprus. Non-resident Cyprus companies are, however, not entitled to benefits arising from the Cyprus double tax treaties with the 32 treaty countries.

• Entities with trading and activities for which no double tax treaty benefits are required (or needed) can set-up non-resident companies. This provides a good alternative to tax heavens, as heavens may be viewed negatively.

Cyprus Corporate Tax EXAMPLE:
„Non resident cyprus Company”

EXAMPLE:
A Cyprus non-resident company makes a profit of 4.000.000EUR on its diverse activities.
Profit before tax 4.000.000EUR
Corporation tax (0%) – 0EUR
_______
Net profit available
_______
4.000.000EUR


Collective Investment Schemes:

Benefits of a Cyprus Collective Investment Structure

Cyprus variable International Collective Investment Schemes (ICIS) are regulated by the Central Bank of Cyprus.  ICIS’s constitute uncomplicated and flexible structures with minimum supervision and formalities

• The minimum subscription is of  37.000EUR or equivalent and the share capital can be varied according to the investment capital (the fund). The capital can be resident or nonresident in Cyprus for tax purposes
• Benefits include exemption from taxes of sale of shares and securities, the possibility to apply to all Cyprus double tax treaties, high level of flexibility and minimal formalities.

Cyprus Corporate Tax EXAMPLE:
„Collective Investment schemes in Cyprus

EXAMPLE:
A Cyprus non-resident company makes a profit of 3.000.000EUR on its diverse activities

Profit before tax 3.000.000EUR
Corporation tax (0%) -0EUR
_______
Net profit available
_______
3.000.000EUR


Permanent Ovearseas Establishment

(Cyprus Holding/Private Limited Company)
Structuring overseas through Cyprus 

Profits received by a Cyprus company having one or more permanent establishments abroad such as a branch, production facility or office are exempt from taxation in Cyprus

• The exemption does not apply if: 1) the permanent establishment directly or indirectly has more than 50 per cent of its income from investments and 2) the tax burden in the overseas country is reasonably lower than in Cyprus

Cyprus Corporate Tax EXAMPLE:
„Cyprus company having a permanent establishment overseas”

EXAMPLE:
A Cyprus firm of lawyers maintains an office in Hungary which has produced profits after tax of 600.000EUR for 2009.

The profits of 600.000EUR do not attract any further tax in Cyprus in 2009 and can be paid to partners in full.


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Webpage content sources: BDO Phillipides Brochure & Lowtax.et Website.