In July 2002, the Republic of Cyprus enacted new tax legislation which came into force on the 1st of January 2003. This tax reform has eliminated the “offshore” status of Cyprus international companies and has raised the corporate tax rate on profits from 4.25% to 12.5%. There is no longer distinction between local and offshore companies.
The new taxation system is based on the condition that the company or the individual to be taxed, are residents of Cyprus. A non-resident company or non-resident individual are subject to taxation in Cyprus only if they derive income from within Cyprus and they are taxable only on this “Cyprus” income from specific sources only.
PERSONAL INCOME TAX
Where an individual is a resident in the Republic, tax is imposed on income accruing or arising from sources both within and outside the Republic.
Where an individual is not a resident in the Republic, tax is imposed on income accruing or arising only from sources within the Republic.
An individual is considered to be resident if he is present in the Republic for a period exceeding 183 days in a tax year.
IMPOSITION OF TAX
Under the new tax regime that came into force on the 1 January 2003 all companies will be considered resident in Cyprus and taxed in Cyprus if their management and control is exercised from Cyprus. The taxation on companies is now based on tax residency unlike before when International Business Companies were considered residents of the Republic and taxed in Cyprus irrespective of the place of their management and control.
Tax is assessed on net income on a current year basis. The income tax year in Cyprus is the calendar year. An estimate of the tax due must be made by 1 August in the year of assessment and the estimated tax must be paid in three equal installments on the 1 August, 30 September and 31 December.
CORPORATE TAX RATE - 12.5%
SHIPPING COMPANIES
No tax is payable on the profits from the operation of a vessel registered in Cyprus or on the dividends received from a ship owning company flying the Cyprus flag and operating in international waters.
No tax is payable on the emoluments of the captain, the officer and the crew of a Cyprus ship.
Local companies/individuals or International Business Companies that carry out ship management and crew management from an office in Cyprus have the choice for the financial year ended 31 December 2000 onwards to be taxed at the rate of 4.25% or rates equal to 25% of the rates applicable to the tonnage tax for foreign vessels under their management that are registered outside Cyprus. This special tax regime for ship owning and ship management companies applies until the year 2020.
COMPANY RE-ORGANISATIONS
The transfer of assets and liabilities between companies can be effected without any tax consequences within the framework of a re-organisation which includes:
Mergers / Demergers / Transfer of activities / Exchange of shares
Insurance companies of general and life business are taxable in the same way as all other companies. In the case where there is no tax payable or where the tax payable on the taxable income of the life business is less than 1.5% of the gross amount of the insurance premiums then the insurance company pays the difference as additional tax.
FOREIGN PENSIONS
The pension income of any individual resident in the Republic, which arises from services rendered abroad, is taxed at:
• a rate of 5% for amounts exceeding €3,420 per annum
OR
• normal rates
and once the election is made is irrevocable.
INTELLECTUAL PROPERTY RIGHTS etc
The gross income arising from intellectual property rights, other exploitation rights, compensations or other similar income arising from sources within the Republic, of a person who is not resident in the Republic, is subject to withholding tax at a rate of 10%.
Rights granted for use outside the Republic are not subject to any withholding tax.
FILM ROYALTIES etc
The gross income derived by a non-resident person in respect of royalties arising from film projection in the Republic is subject to withholding tax at a rate of 5% (unless a tax treaty provides for a lower tax rate).
Royalties received by a connected company registered in a European Union Member State are exempt from withholding tax (subject to conditions).
PROFITS OF PROFESSIONALS, ENTERTAINERS etc
The gross income derived by a non resident individual from the exercise in the Republic of any profession, vocation or public entertainment services including football teams and other athletic missions, is subject to a 10% withholding tax.
INCOME FROM OIL & GAS RELATED ACTIVITIES
The gross amount or other income derived by a non resident individual from sources within the Republic, which does not arise from a permanent establishment in the Republic, as consideration for services carried out in the Republic with respect to the extraction, exploration or exploitation of the continental shelf, subsoil or natural resources, as well as the installation and exploitation of pipelines and other installations on the ground, the seabed or above the surface of the sea, is subject to tax at the rate of 5%.
TECHNICAL ASSISTANCE
The gross income arising from sources within the Republic, as consideration for technical assistance provided by any person who is not resident in the Republic, is subject to a 10% withholding tax. Such income is exempt from withholding tax if the services are provided by a permanent establishment in Cyprus.
SPECIAL CONTRIBUTION FOR DEFENCE
Special contribution for defence is imposed on certain types of income.
Non residents are exempt from special contribution for defence.
Exemptions:
Dividends received from non resident companies are exempt from this tax if the holding in the paying company is at least 1%.
This exemption does not apply if the company paying the dividend engages:
(a) more than 50% in activities which lead to investment income
(b) the foreign tax burden is substantially lower than the tax burden of the company in Cyprus
Dividends received from resident or non resident companies are subject to special defence contribution at 15% but only on resident persons. Non resident persons are not liable to special defence contribution.
Any foreign tax paid on income which is subject to special contribution for defence will be given as an allowance against the Cyprus tax irrespective of whether there is a double tax agreement with the foreign country.
Deemed dividend distribution
If a Cyprus tax resident company does not distribute by way of a dividend at least 70% of its accounting profits within two years from the end of the tax year then the company is deemed to have distributed such profits and is liable to pay 15% special contribution for defence on the deemed dividend distribution applicable to its shareholders who are Cyprus tax residents.
A non Cyprus tax resident receiving a dividend from profits subject to a deemed distribution, is eligible to a tax refund
CAPITAL GAINS TAX
Capital Gains Tax is imposed on gains from disposal of immovable property situated in Cyprus, including shares of companies not listed on a recognized Stock Exchange which own immovable property situated in Cyprus at the rate of 20%.
Certain exemptions apply.
ESTATE DUTY
Estate Duty is not levied in relation to individuals who have died on or after 1 January 2000.
The Deceased Persons Estate (Taxation Regulations) Law of 2000 provides for a compulsory submission of an ‘assets and liabilities’ statement of the deceased person to the Commissioner of Taxation within six months from the date of death.
IMMOVABLE PROPERTY TAX
Immovable property tax is abolished as from 1 January 2017 for the tax year 2017 and for each subsequent year.
TRANSFER FEES
Transfer fees are paid by the acquirer to the Department of Land and Surveys on transfers of immovable property and registration of any lease/sublease. The transfer fees are based on the value of the property or lease/sublease as assessed by the Department of Land and Surveys, as follows:
In the case of free transfers of property between the following parties, the transfer fees are calculated on the value of the property as at 1 January 2013 at the following rates:
Value Added Tax was introduced in Cyprus on 1 July 1992 and is imposed on the provision of all goods and services in Cyprus, on the acquisition of goods from other EU Member States and on the importation of goods from thirds countries.
VAT RATES
Standard rate - 19%
Reduced rate - 9%
Reduced rate - 5%
Zero rate - 0%
VAT Registration:
Every individual or company is obliged to register if:
Intra-community trading and intra-community services:
Businesses that undertake intra-community trading ie purchases and sales of goods and provision of services from/to EU Member States need to complete the following:
0+
