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Comparing Taxes in Cyprus, Portugal, and Spain: Where is it More Profitable to Do Business?
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When choosing a country for business operations, especially if you’re planning to engage in international activities, the tax system becomes a key consideration. Tax rates, types of taxes, and available incentives can significantly impact your business’s profitability. Each country offers unique conditions that can either foster business growth or present additional challenges.
In this article, we’ll compare the tax systems of three popular European countries: Cyprus, Portugal, and Spain. We’ll look at the main types of taxes relevant to businesses and provide a comparative table to help you determine where it is most advantageous to conduct business.
Cyprus Tax System
Each year, approximately 10,000 new companies are registered in the Republic of Cyprus, underscoring its strong appeal for business and investment. This makes Cyprus rightfully known as “the most convenient jurisdiction for European business.”
Why is Cyprus so popular among entrepreneurs? The first major draw is its advantageous tax system.
The corporate tax rate is 12.5%, one of the lowest in the European Union. There is no tax on dividends or interest income, which allows for maximizing profits.
Cyprus is particularly beneficial for companies in the fields of intellectual property and innovation due to the special IP BOX regime. Under this regime, 80% of profits are exempt from tax, making the effective tax rate on profits as low as 2.5%.
Additionally, an extensive network of 65 double taxation treaties significantly reduces the tax burden, creating optimal conditions for international business.
Portugal Tax System
Portugal’s tax system includes both state and local (municipal) taxes. As a result, tax rates can vary between mainland Portugal and the island of Madeira, which is an important consideration when planning financial operations.
For example, corporate tax rates differ: for companies based on the mainland, the tax on the first €50,000 of income is 17%, while income above this amount is taxed at 21%. In contrast, companies registered in Madeira benefit from a lower rate of 11.9% on income up to €50,000, and 14.7% on income above that amount.
Madeira’s International Business Center is also renowned for its significant tax benefits for international businesses. The corporate tax rate in Madeira is only 5% for companies participating in the Madeira International Business Center (MIBC) program.
Additionally, Portugal offers tax incentives for startups, with startups taxed at a corporate rate of 12.5% on the first €50,000 of taxable income. The dividend tax in Portugal is 28% (or 35% for non-residents in certain cases), but it can be reduced to 0% depending on specific conditions.
Spain Tax System
Spain is known for its strict tax requirements, but it also offers certain benefits for businesses, particularly for small and medium-sized enterprises.
For instance, the standard corporate tax rate is 25%. However, for taxpayers with a net turnover of less than €1 million in the previous tax year, the tax rate is reduced to 23%. This does not apply to organizations within a commercial group or passive holding companies.
Moreover, newly created companies enjoy a special tax advantage: during the first and subsequent tax periods in which they generate profit, a reduced corporate tax rate of 15% is applied.
Spain’s tax system also provides specific benefits for innovative startups. Startups can receive tax credits for expenses related to research and development, with these credits potentially reaching up to 25% of research expenses and up to 42% of innovation project expenses.
The dividend tax in Spain ranges from 19% to 23%, but can be reduced to 0% under certain conditions.
Comparison of Corporate Taxes in Cyprus, Spain, and Portugal
Taxes
Cyprus
Spain
Portugal
Corporate Tax
12.5%
25%
11.9% to 21%
Corporate Tax Benefits
2.5% for IP companies (IP BOX regime)
15% for newly established companies (first 2 years)
5% for companies in Madeira (MIBC regime)
VAT (Standard Rate)
19%
21%
23%
Employer Social Security Contributions
15.4%
30%
23.75%
Employee Social Security Contributions
11.45%
6.45%
11%
Dividends
0% on dividend income regardless of source
19% standard rate
0% under certain conditions
28% standard rate
0% if shareholder owns at least 10% of capital for at least 1 year
Interest
0%
25%
28%
Choosing the right jurisdiction for your business depends on various factors, including business structure, industry, and long-term company goals.
Cyprus, with its lowest tax rates among the countries considered, stands out as an attractive jurisdiction for entrepreneurs looking to minimize tax obligations. The low corporate tax, zero tax on dividends and interest income, and favorable conditions for companies in the intellectual property sector (IP BOX regime) make Cyprus especially advantageous for international companies and startups.
Portugal, on the other hand, attracts foreign entrepreneurs through tax incentive programs for innovative and tech companies. The autonomous region of Madeira is particularly appealing, with corporate tax rates as low as 5% under certain conditions. However, VAT rates, social contributions, and dividend taxes in Portugal are higher than in Cyprus, which could significantly impact a company’s overall expenses.
Spain, while having higher tax rates, offers various incentives for new businesses and investments in research projects. However, even with these benefits, the overall tax burden in Spain remains higher than in Cyprus and Portugal, making it potentially less advantageous for international companies focused on cost minimization.
For a more detailed analysis and to choose the optimal jurisdiction, it is recommended to consult with the tax advisors at Feod Group. Our experts will help you consider all aspects of your business and propose the best tax strategies aligned with your long-term goals.
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:
Cyprus Tax System
Portugal Tax System
Spain Tax System
