Cyprus is considered a very attractive destination in terms of taxation and is attracting the interest of businessmen and entrepreneurs. Already, large international companies, small and medium sized businesses are based in Cyprus to reap the benefits on income and expenses.
The corporate tax or income tax rate is 12.5%. For companies that are tax residents of Cyprus, the subject of taxation is income from sources located both within and outside the state. For non-residents, only income received in the Republic is taxed.
Corporate tax is paid in two advance payments on the basis of the preliminary assessment of profits. The advance must be at least 75% of the final tax amount. Recently, Cypriot companies have been able to include in the calculation of the taxable base income received in their permanent missions abroad.
Income exempted 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 is imposed on dividend income, «passive» interest income and rental income earned by Cyprus tax residents. The amount of contributions is calculated on the basis of approved tax rates. In some cases, tax exemption from paying contributions is applied to individuals and companies.
CAPITAL GAINS TAX
The tax rate is 20%. The tax is charged after adjustment for the indexation of income from the sale of real estate in Cyprus or a share in companies that own Cyprus real estate. At the same time at least 50% of the value of the shares sold must be derived from real estate located in Cyprus.
The law provides a number of exemptions for capital gains taxation. Real estate is not taxed in the following cases when:
- selling land acquired in the period from July 16, 2015 to December 31, 2016;
- transferring property in connection with the death of the owner;
- donating property to relatives up to the third degree of relationship;
- donating property to companies whose shareholders are members of the donor’s family;
- donating property on behalf of the company to its shareholders;
- donating property to charities or government organizations;
- transferring property as a result of an exchange (provided that all the profits from the exchange are used to purchase other property).
The income of individuals received from the sale of an apartment or a private house (up to 85,430 euros) and agricultural land (up to 25,629 euros) is not subject to taxation.
Value Added Tax (VAT) is subject to the supply of goods and services to Cyprus. The import rate is 19%. The export tax rate is 0%. A separate group of goods and services are subject to reduced rates of 5% and 9%. For example, a 5% interest rate applies to the purchase, construction or renovation of housing, which will be used as the main place of residence.
Goods and services exempted from VAT:
- renting real estate;
- the transfer of real estate, including the transfer of land and used buildings (except for the transfer of a building before its first use);
- banking, financial and insurance services;
- medical and dental services;
- postal services provided by the national postal organization;
- holding cultural, educational and sports events;
- management services of investment funds.
- The threshold for registration of annual VAT is 15,600 euros.
TAX ON INCOME AT SOURCE OF PAYMENT
Interest, dividends and royalties paid by non-residents of Cyprus are not subject to income tax at the source of payment. Exceptions are royalties received on Cyprus rights, and the rate for them is 10%. At the same rate, tax is levied on services provided by non-residents of a technical nature. The services provided by non-residents through permanent representative offices in Cyprus are not subject to taxation. For non-residents, a preferential rate of 5% is provided (exploitation of the continental shelf, use of pipelines and other installations).
Commission rates for the sale of real estate:
- with an amount of up to 85,000 euros — 3% of the total value;
- with an amount in the range of 85,001 — 170,000 euros — 5%;
- with an amount of over 170,000 euros — 8%.
When donating property from parents to children, the rate is 0%, when transferring between spouses and relatives — 0.1%, when transferring to a trust manager — € 50.
If the property is subject to VAT upon purchase, no transfer fee is charged.
Conditions for calculating capital tax when registering a company in Cyprus:
- tax rate on authorized share capital — 0.6% + 105 euros;
- for shares issued at their nominal value, the rate on the share capital is 0%;
- for promotions issued at a premium rate of 20 euros.
For each additional issue of shares is charged a tax of 20 euros.
The social insurance contribution rate is 7.8%. The fee is charged within the maximum remuneration, the rate applies to both the employer and the employee. In addition, the employer pays the following fees:
- 2% to the social consent fund;
- 2% to reserve fund;
- 5% to the industrial training fund;
- 8% in holiday fund.
BENEFITS OF THE CYPRUS TAX SYSTEM
Cyprus has low tax rates, but the government is paying special attention to the real estate sector. For example, the income from the sale of real estate tax is minimal or absent altogether.
The advantages of the tax system in real estate:
- real estate (property) tax — 0%;
- 5% VAT rate for the first purchase of Cyprus property;
- tax on foreign pension incomes up to 3,420 euros — 0%;
- tax on dividend income — 0%;
- zero tax on pension widowhood;
- zero city tax;
- the lowest corporate tax rate in Europe — 12.5%.