Taxes for companies in Cyprus

Since 1992, Feod Group has been providing a wide range of immigration, corporate and legal services in Cyprus and other EU countries

Offices:

Cyprus

Ukraine

• Providing tax advice in Cyprus
• Tax optimization and development of tax strategies
• Legal support for company registration
• Relocation of employees to Cyprus
• Assistance in obtaining Cyprus resident status

According to information provided by the Cyprus Statistical Service, more than 6,000 new companies were registered on the island in the first half of 2023 alone. And half of them are enterprises with the participation of foreign investors. Registering a company in Cyprus to optimize taxes provides a wide range of advantages.

The main motives for relocating a business to Cyprus are:

• low tax rates, which are considered one of the most favorable in Europe;
• attractive and sustainable prospects for business development;
• economic stability and geographical location.

The tax system in Cyprus represents one of the key advantages of this country, providing the opportunity to legally optimize taxes for both beneficiaries and companies.

For example, a low level of corporate tax. The corporate tax rate is only 12.5%, and there are no certain taxes, such as tax on dividends and income from the sale of shares.

In addition, there are beneficial programs that provide IT companies and other enterprises engaged in innovative developments with the opportunity to pay tax on only 20% of the profits from inventions. The terms of the program are described below.

An additional advantage is the application of British law and the presence of one of the most developed and reliable banking systems in the country.

Cyprus has been a member of the EU since 2004, and has long lost its offshore jurisdiction status and is recognized as a low-tax country that meets all standards of the European Union and the Organization for Economic Co-operation and Development (OECD). This ensures the legality and reliability of the Cyprus tax system.

These factors help attract investors and entrepreneurs, highlighting the attractiveness of Cyprus for international business transactions and financial investments.

There are several types of taxes for legal entities in Cyprus. The main types of taxes include:

• Corporate tax
• Value added tax (VAT)
• Tax on income from dividends
• Capital gains tax
• Employer contributions in Cyprus
• Stamp duty in Cyprus
• Annual fee for Cypriot companies

Corporation tax in Cyprus for business

The corporate tax rate in Cyprus is fixed at 12.5%.

Cyprus corporation tax is one of the lowest and most favorable in Europe, making Cyprus an attractive location for business and investment, supporting the country’s economic competitiveness. If we compare corporate tax rates in the EU, we can note a noticeable competitive advantage of Cyprus. For example, corporate tax on mainland Portugal ranges from 17 to 21%, in Spain from 15%, in Italy from 24%.

The deadline for filing corporate tax returns is March 31 of the second year after the year to which the return relates (for example, a 2023 corporate tax return must be filed by March 31, 2025). Information about the tax calendar can be found on the official website of the Cyprus Tax Department.

Reducing corporate tax in Cyprus through IP-BOX regime

The IP-BOX, or Intellectual Property Box, regime is a tax instrument that aims to stimulate innovation and attract high-tech companies to Cyprus. By using IP-BOX, companies can significantly reduce corporate tax to just 2.5%.

Under the terms of IP-BOX – 80% of profits are deducted for tax purposes. Thus, only 20% of the income from intellectual property assets is taken into account.

Read more: Rules for preferential tax treatment of IP Box in Cyprus

Value added tax (VAT)

VAT is charged on the supply of goods and services in Cyprus, as well as on the purchase of goods from the European Union and the import of goods into Cyprus.

The standard VAT rate in Cyprus is 19%. However, the effective rate could be:

• 9% or 5% – depending on the type of activity and turnover of the company;
• The zero rate applies to a number of goods and services specified by law, for example, the supply of some medical goods, most banking and insurance services.

Application of VAT in international transactions

The application of Value Added Tax (VAT) on international transactions in Cyprus depends on the direction of movement of goods and services. When exporting goods and services from Cyprus, businesses can count on preferential VAT exemption. This means that when selling goods or providing services to other countries, companies may be exempt from the obligation to charge VAT to customers.

However, when importing goods and services into Cyprus, you may be required to pay VAT in accordance with local legislation. In this case, companies are required to take into account the standard VAT rates applicable in Cyprus and include them in the price of goods or services.

Tax on dividends

In Cyprus, the tax on dividend income has special privileges – 0%. This applies to income from dividends, interest and other passive income.

For tax residents of Cyprus, Cyprus tax privileges on dividends, interest and other types of passive income apply both within and outside Cyprus, providing businesses and beneficiaries with maximum flexibility in managing their finances.

Capital gains tax

The capital gains tax rate in Cyprus is 20%. Applies only to profits attributable to immovable property located in Cyprus.

A rate of 20% capital gains tax is levied:

1. from income from the sale of real estate located in Cyprus
2. or from the sale of shares in companies owning real estate located in Cyprus. This rule applies if at least 50% of the market value of the shares sold is related to property located in Cyprus or to a transaction involving the purchase and sale of real estate located in Cyprus.

Capital gains tax is not payable in Cyprus in the following cases:

• Transfer of property/shares as a gift to relatives (up to the third degree) or to a family firm, provided that the shareholders remain family members of the previous owner for at least five years after the gift.
• Transfer of ownership as a result of the death of the owner or his disappearance.
• Property donated to charitable or government organizations.
• Property transferred as a result of reorganization.
• Exchange of property/shares between two owners, provided that the property exchanged is of equal value.

Employer contributions in Cyprus

In Cyprus, the employer is required to pay various contributions amounting to approximately 14.9% of the salary of his employees. The breakdown of these contributions is as follows:

• 3% – from the employer to the Social Insurance Fund
• 2% – employer contribution to the mutual social assistance fund
• 5% – employer contribution to the personnel development fund
• 2% – to the unemployment fund (benefits for dismissed employees)
• 9% – GESY (contributions to the general health system)

Stamp duty in Cyprus

Cyprus stamp duty is levied exclusively on written documents such as agreements and contracts relating to assets located in Cyprus. The applicable rates depend on the value specified in each agreement or contract and are:

• 0% – for agreements worth up to 5,000 euros;
• 15% for contract value from 5,001 to 170,000 euros;
• 2% for contract value over €170,000, subject to a total maximum stamp duty charge of €20,000.

There is the possibility of exemption from stamp duty in the event of reorganization or reconstruction of a company, including mergers or acquisitions, provided that these processes comply with the requirements of Cyprus law.

Annual fee from Cypriot companies

All companies in Cyprus pay an annual fee of €350.

Tax payment must be made before June 30 of the current reporting year. In case of delay in payment of the fee, a strict system of fines is provided, up to and including exclusion of the company from the State Register.

Stipulated fines:

• For a delay of up to 2 months, a fine of 10% of the collection amount is established.
• For a delay of 2 to 5 months – 30% of the fee.

If the fee is not paid for 5 months, the company may be excluded from the State Register.

Read also:

• How to register a company in Cyprus
• Relocation of employees to Cyprus and status of a company with foreign interest
• Non-Domicile status in Cyprus and tax optimization for individuals

TAX CONSULTATION IN CYPRUS

Article author

Anastasia Taran Head of Corporate Services
Ukraine

In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes i...

In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes in immigration and corporate law of European countries, particularly:

• family and corporate immigration solutions.
• establishing a business in Europe.
• personal and corporate taxation in Europe.
• opening accounts in European banks.
• obtaining a tax resident status.

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