The advantageous features of the tax regime include:
- Standard corporate income tax rate of only 12.5%, one of the lowest in the European Union.
- Complete corporate income tax exemption for capital gains, with the only exception for gains derived from the sale of Cyprus real estate or the sale of shares in certain companies owning such real estate.
- A very broad corporate income tax exemption for dividends from (1% or more) overseas subsidiaries with, in general, the only exception applying to dividends from low taxed (i.e. subject to a less than 5% rate) financing subsidiaries.
- Cyprus does not impose any withholding tax on dividends paid by a Cyprus company to a non-resident shareholder.
- Cyprus does not impose any withholding tax on interest paid by a Cyprus company to a non-resident creditor.
- Cyprus does not levy capital tax over capital contributions into Cyprus resident companies.
- The availability of the Parent/Subsidiary Directive, which can provide for a complete withholding tax exemption for dividends distributed by non-Cyprus based EU-subsidiaries to Cyprus based parent companies.
- The availability of other EU-Directives, such as the Interest and Royalty Directive, which can provide for complete withholding tax exemption for interest payments (and royalty payments) by affiliated (25% or more shareholding connection) EU-companies to Cyprus based creditor (and licensor) companies.
- The absence of any so-called “thin capitalization” provisions, which would only allow deduction of interest to the extent that the debt of a Cyprus company would not exceed a certain level.
- Cyprus does not levy corporate income tax or income tax over dividends and/or capital gains from shares in Cyprus based companies derived by foreign corporate or private shareholders.
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