Overview of the Tax Regime in Cyprus

Cyprus is becoming an increasingly attractive destination for businesses and individuals looking to relocate due to its favorable tax regime. This article outlines several key aspects of the tax system in Cyprus, including personal income tax, corporate tax, inheritance tax, and taxation related to dividends and shares. Let’s take a closer look at how Cyprus creates such a tax-friendly environment - and what it could mean for you.

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1. Corporate Tax

Cyprus has one of the lowest corporate tax rates in Europe, currently set at 12.5%. This rate applies to the profits of companies incorporated in Cyprus and those deemed tax residents. Some key benefits include:

• ⁠No tax on profits earned outside Cyprus
  
• ⁠Certain types of income, such as dividends and capital gains, may have favorable treatment or exemptions
• Extensive network of double tax treaties with over 60 countries, helping to avoid double taxation

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Special Defense Contribution (SDC)

While effectively a tax on residents, SDC applies to specific types of income, such as dividends, interest, and rents. The rates are:

• Dividends: 17%
• Interest: 30% (for non-residents, it’s 0%)
• Rents: 3%

However, companies can benefit from withholding tax exemptions under specific conditions.

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2. Personal Income Tax

Cyprus operates a progressive tax system for individuals, with rates ranging from 0% to 35% depending on annual income. Here’s the breakdown:

• 0% on income up to €19,500
• 20% on income between €19,501 and €28,000
• 25% on income between €28,001 and €36,300
• 30% on income between €36,301 and €60,000
• 35% on income above €60,001

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Income Tax Requirements

Any company registered in the Republic of Cyprus is required to register for income tax purposes. VAT registration is mandatory for each company as long as one of the following conditions is met:

• the value of taxable supplies exceeds a total of €15,600 in the preceding 12 months
• at any time, for a period of thirty days, the anticipated turnover exceeds  €15,600
• the entity provides services to a natural person registered as a VAT payer in the EU with a zero registration threshold

Companies in Cyprus with an annual turnover of less than €15,600 are not required to register for VAT, however, they can register voluntarily.

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"With one of the EU’s lowest corporate tax rates and zero inheritance tax, Cyprus stands out as a strategic hub for business and wealth planning."

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3. Inheritance Tax

Cyprus abolished inheritance tax in 2000, making it an attractive option for individuals concerned about wealth transfer. This means that gifts, bequests, and estates are free from tax burdens, providing greater peace of mind for families planning their legacies.

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4. Taxation of Dividends and Shareholders

When it comes to dividends, shareholders in Cyprus can enjoy certain tax advantages:

1. No withholding tax on outbound dividends for non-residents.
2. Dividends received by Cyprus tax residents are subject to SDC at a rate of 17%

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5. Shares and Capital Gains

One of the standout advantages of the Cypriot tax system is the exemption of capital gains tax on profits derived from the sale of shares listed on the Cyprus Stock Exchange, making it a favorable environment for investors. However, capital gains from the sale of real estate located in Cyprus are subject to a 20% tax.

When it comes to share options, taxation is applied at the point of exercise, and the resulting gains are treated as regular income, falling under the standard personal income tax rates.

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Final Thoughts

The tax regime in Cyprus offers a blend of low corporate taxes, exemption from inheritance taxes, and strategic advantages for shareholders regarding dividends. It’s an excellent choice for businesses and individuals looking to relocate or establish a presence in the EU. If you’re considering making Cyprus your business base, our team is here to assist you throughout the relocation process, ensuring you fully understand the complexities of this favorable tax environment.

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For more information, feel free to contact us!

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