Cyprus Tax Advantages
Cyprus since 2004, when became a state member of the European Union, abolished the “offshore regime” and introduced a simplified, effective and transparent tax system which offers significant tax incentives and exciting tax planning potential for the attraction of International Business Companies and foreign investments.
The corporate tax rate of 12,5% (0% for shipping companies, 4.25% for maritime management companies) is one of the lowest in the European Union. However, Cyprus’ biggest asset is its investor-friendly Tax Authorities.
Cyprus jurisdiction is especially suitable for setting up intermediary holding companies due to the island's combination of tax treaties and low-tax regime. Dividends can flow through the Cyprus company totally tax free and the company can be used to take advantage of the extensive network of double tax treaties.
A company registered in Cyprus can either be resident in Cyprus, if its management and control is in Cyprus or non-resident if its management and control is outside Cyprus, which practically means the majority of its Board of Directors should be tax resident in the country. This is the reason why International Business companies registered in Cyprus use director nominee services. In addition shareholder nominee services may be used to safeguard confidentiality of beneficial owners.
The most important tax advantages of the Cyprus jurisdiction are the following:
• One of the lowest corporate tax rate in the European Union – 12,5%
Zero withholding tax on dividends when the shareholder (or beneficial shareholder) is not tax resident in Cyprus
• Dividends received from Cyprus companies are exempt from tax
Dividends received by a Cyprus company from abroad are also exempt from tax provided that: a) At least 50% of the direct or indirect activities of the company paying the dividend are attributable to non-investment income orb) The tax burden on the dividend paying company’s income is not lower than 5% )
• Zero Capital Gains Tax on the Sale of Shares
• Invoices from offshore companies are acceptable in Cyprus Companies’ books
• Payments to offshore companies bear no withholding tax.
• Possibility to obtain Advance Tax Rulings.
• There is added commercial value and monetary benefits due to the ability to register for EU VAT in Cyprus.
• Trading in securities is essentially a tax-exempt activity as any profit from the disposal of any type of security, irrespective of whether this profit forms part of a company’s trading activity or is of a capital nature.
• The foreign beneficial owners of Cyprus Companies, Branches and Partnerships are not liable to additional tax on dividends or profits over and above the amount paid or payable by the respective legal entities.
• The “out-of-Cyprus profits” of Cyprus Non-Resident Companies are not taxable
• Maritime Management Companies are taxed at 4.25% and shipping income is tax-exempt.
• Low social insurance contributions (6.8% of gross salary) - total employer contributions to various funds amount to 10% of gross salary and total employee contributions to 6.8%.
• No capital gains tax or net worth taxes except with respect to Real Estate situated in Cyprus.
• Beneficial use of EU Directives that have been transposed into the Cyprus Tax Legislation.
• Wide and exceptionally beneficial Double Tax Treaty Network.
• Mergers, Takeovers and other Re-Organizations can take place within groups without tax consequence.
• Unilateral tax-relief is granted to all Cyprus Companies for foreign tax suffered irrespective of the absence of a double tax treaty.
• Tax losses are carried forward indefinitely and can also be surrendered as group relief.
• Interest deduction for borrowing costs provided.
• Low duties - taxes on the establishment of companies.