Tax System
Cyprus is an attractive destination for business and entrepreneurship due to its favourable tax system. Many large international corporations, as well as small and medium-sized enterprises, have established their bases in Cyprus to benefit from its advantageous tax rates on income and expenses.
Corporate Tax
The corporate tax rate in Cyprus is 12.5%. For companies that are tax residents of Cyprus, this tax applies to income from both domestic and international sources. Non-resident companies are taxed only on income received within Cyprus.
Corporate tax is paid in two advance payments based on an estimated profit assessment, with the advance payment required to be at least 75% of the final tax amount. Cypriot companies can include income from permanent missions abroad in their taxable base.
Exemptions from Corporate Tax:
- Income from the sale of securities
- Dividends and interest income
- Foreign exchange gains (forex)
- Income from the activities of the company’s permanent representative offices abroad
Defence Tax
Defence tax is levied on dividend income, “passive” interest income, and rental income earned by Cyprus tax residents. The amount is calculated based on approved tax rates, with some exemptions applicable to individuals and companies.
Capital Gains Tax
The capital gains tax rate is 20%. This tax applies to income from the sale of real estate in Cyprus or shares in companies that own Cyprus real estate, with at least 50% of the value derived from Cypriot property.
Exemptions from Capital Gains Tax:
- Sale of land acquired between July 16, 2015, and December 31, 2016
- Property transfers due to the owner’s death
- Donations to relatives up to the third degree
- Donations to companies where shareholders are family members
- Donations from companies to their shareholders
- Donations to charities or government organizations
- Property exchanges (provided profits are used to purchase other property)
Income from selling an apartment or private house (up to €85,430) and agricultural land (up to €25,629) is not taxed.
VAT
Value Added Tax (VAT) is levied on goods and services supplied within Cyprus. The standard rate is 19%, with an export tax rate of 0%. Reduced rates of 5% and 9% apply to specific goods and services, such as housing purchases, construction, or renovations used as primary residences.
Exemptions from VAT:
- Real estate rentals
- Transfer of real estate (except new buildings)
- Banking, financial, and insurance services
- Medical and dental services
- Postal services by the national postal organization
- Cultural, educational, and sports events
- Management services of investment funds
The VAT registration threshold is €15,600 annually.
Withholding Tax
Interest, dividends, and royalties paid to non-residents are generally not subject to withholding tax, except for royalties on Cyprus rights, taxed at 10%. Technical services provided by non-residents are also taxed at 10%. Non-residents offering services through permanent representative offices in Cyprus are exempt from taxation. A preferential 5% rate applies to certain activities like exploiting the continental shelf and using pipelines.
Property Transfer Fees
Rates for real estate sales:
- Up to €85,000: 3%
- €85,001 to €170,000: 5%
- Over €170,000: 8%
Transfers between parents and children are exempt from fees, while transfers between spouses and relatives incur a 0.1% fee. Transfers to a trust manager cost €50. No transfer fee is charged if the property is subject to VAT.
Capital Tax
When registering a company:
- Authorized share capital: 0.6% + €105
- Shares issued at nominal value: 0%
- Shares issued at a premium: €20
Each additional share issue incurs a €20 tax.
Employer Contributions
Employers contribute 7.8% to social insurance, matching employee contributions. Additional employer fees include:
- 2% to the social cohesion fund
- 1.2% to the redundancy fund
- 0.5% to the industrial training fund
- 8% to the holiday fund
Benefits of the Cyprus Tax System
Cyprus offers low tax rates with particular advantages in the real estate sector, such as minimal or no tax on real estate sales.
Advantages in Real Estate Taxation:
- Real estate (property) tax: 0%
- 5% VAT for the first property purchase
- No tax on foreign pension incomes up to €3,420
- No tax on dividend income
- No tax on widow’s pensions
- No municipal tax
- Lowest corporate tax rate in Europe: 12.5%
These favourable conditions make Cyprus an appealing destination for business and real estate investments.
