In this dynamic environment where everything changing CYPRUS as full member of European Union and despite the financial crisis remains a safe and attractive destination for investments where investors can take advantage of the significant tax benefits that Cyprus offering to meet their global needs in an efficient and operating environment under the status of European Flag, this may include corporate structures, holding of investments , shipping companies , forex companies, local investments in properties, financial services , tax residency, tax for individuals etc.
“Cyprus has one of the lowest tax rates in Europe with Corporation tax 12.5% and 0% dividend tax for foreigners”
Tax exceptions
- Dividends received. The entire amount.
- Profits from disposal of securities. The entire amount.
- Profits from permanent establishments abroad under certain conditions. The entire amount.
- Interest derived not from the ordinary activities of the company.
- Gains relating to foreign exchange differences (forex) with the exception of forex arising from trading in foreign currencies and related derivatives.
Tax Deductions
- Donations to approved charities. The entire amount.
- Capital allowances
- Interest expenses incurred for the acquisition of 100% subsidiary (direct or indirect)
- Notional Interest Deduction based on the equity introduced to a company as from 01.01.2015 in the form of paid up share capital or share premium. (Companies based on this they are eligible to have a deduction up to 80% of taxable income)
- Employer’s contributions to social insurance and approved funds. The entire amount.
- Expenses incurred wholly and exclusively in earning the taxable income of the company. The entire amount.
- Royalty Income, embedded income and other qualifying income derived from qualifying intangible assets in the “new “or “old” Cyprus IP box. 80% of the Net Profit “old “and for “new” 80% of the Net Profit using modifies nexus fraction.
- Expenditure incurred for the maintenance of a building for which there has to be either a Preservations order or certificate by the Minister of Interior that the expenses are in respect of preservation work for restoring the building. The amount that can be deducted depends from the size of the building and can be €700 or €1.100 or €1.200 per square meter.
- Entertainment expenses for business purposes. The amount can be no more than 1% of the total turnover (sales) and moreover maximum amount for deduction is €17.086 .
- Employers contribution to:
Medical Fund for employees (1% on employee’s remuneration and
Provident /Pension Fund for employees (10% on employee’s remuneration) - Bad debts incurred. The entire amount.
- Expenditures for the acquisition of shares in an innovated business up to 31/12/2016
Group relief-Advantage for taxable losses
If two or more companies are members of the same group for the whole year of assessment and also are both Cyprus Tax Residents (and European under conditions), subsequently the taxable losses of one company can be set off against the taxable profits of the other company. A company is considered to be in a group of companies when
- Is holding direct or indirect the 75% of the voting rights of the other company.
- Both companies are direct or indirect 75% owned by a third company.
Cyprus Tax Residency at 60 days
Cyprus has introduced new legislation that offers the possibility of zero tax environment for non domicile tax residents who live in Cyprus only 60 days per calendar year, as analysed below.
An amendment to the definition of “Cyprus tax resident individual” as included in the Income Tax Law 118 (I)/2002, was recently voted by the Cyprus Parliament. The amendment is effective from 1 January 2017 and provides for an individual to be considered as a Cyprus tax resident under the 60 days scheme under specific conditions.
More specifically, the details of the amendment are as follows:
An individual will be considered as a Cyprus tax resident if he/she:
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- does not spend more than a total of 183 days in any country within a tax year; and
- is not a tax resident of another country within the same tax year
and satisfies the following three conditions:
- Remains in Cyprus for at least 60 days (not necessary continually) during the tax year;
- Carries on a business in Cyprus (as director itself, not nominee director can be appointed) or is employed in Cyprus or holds an office in a Cyprus tax resident company at any time during the tax year; and
- Maintains a permanent residence in Cyprus (owned or rented).
All of the above conditions need to be satisfied in order for the individual to be considered as a Cyprus tax resident.
It is noted that in case an individual is a tax resident in the Republic, tax is imposed on income accruing or arising from sources all over the world (both within and outside the Republic).
Non-Domiciled Rules in Cyprus
A “non-domicile” (non-dom) individual, with tax exemptions over dividends and interest earned by qualifying as “non-doms”. With this amendment, individuals who have non-dom status are no longer subject to Special Defence contribution (SDC) noting, as well, that the new law creates an attractive tax environment for non-doms residing in Cyprus. The non-dom individual may receive Dividends, Passive Interest, Royalties and Rental income without paying SDC tax. Note that for Rental Income the non-dom individual qualifies for Income Tax as all Cyprus tax payers
Foreigners where the are leaving in other countries (not in Cyprus under non domicile) the have similar exemption resulting to:
Dividends Tax: 0%
Interest received from passive income: 0%
Special Defence Contribution :0 % ( applicable only to residents and domicile)
Value Added Tax (VAT)
Cyprus as full member of European Union is adopting similar principals under the European Directives in B2B transactions and B2C
A business has obligation to be registered to VAT if:
- Has a taxable supplies in the last 12 months exceeds €15.600
- Has acquisitions in Cyprus more than €10.250
- Provide services to a VAT registered person within the EU (nil registration threshold)
- Offers zero rated supplies of goods or services
- Acquires company on a going concern basis
- A foreign taxable person makes distance sales with registration threshold €35,000
Businesses that do not exceed the above thresholds don’t have the obligation to be registered.
According to the trade activity of each business, VAT Department determine the periods that VAT returns must be submitted. Each period is quarterly, and the taxpayers have 40 days from the day that the quarter ends to submit the VAT returns and also proceed with the payment if there is a tax due.
According to the Cyprus Law there are three VAT rates that are applied.
- Zero rate (0%)
- Reduced rate (5% and 9%)
- Standard rate (19%)
Under the zero rate (0%) are liable the below services and goods
- Supplies to other member of the European Union (B2B)
- Supply of services to meet the direct needs of sea going vessels and aircrafts
- Supply, modification, repair, maintenance, chartering and hiring of aircrafts, used by airlines operating for reward mainly on international routes
- Supply, modification, repair, maintenance, chartering and hiring of sea-going vessels, which are used for reward or used for the purpose of commercial, industrial or other activities.
- Exports
- Construction services between companies/individuals that are both registered on VAT
- International air and sea transport
- Commission received from abroad for exportation goods
Under the reduce rate (5%) are liable the below services and goods
- For purchase of permanent residence despite the nationality of the owner.
- Renovation and repair of private households after three years of first residence
- Acquisition or construction of residence (subject conditions)
- Funeral Services and supply of coffins
- Road sweeping, garbage collection and recycling
- Services of outdoors, composers’ artist, and critics of works of art
- Supply of fertilizers
- Supply of animal feeding stuffs
- Supply of seeds
- Supply of live animals used for the preparation of foods
- Non -bottled water
- Newspaper and magazines
- Books
- Various equipment used by handicapped persons
- Ice-cream, yogurt and similar products
- Salted or spicy products made from cereals or potato or potato substitute
- Dry nuts salted, roasted or spicy
- Gas
- Foods
- Medicines
Under the reduced rate (9%) are liable the below services and goods
- Transfers of persons and luggage inland by urban area taxis or by tourism, excursion or intercity buses.
- Local transport of passengers by sea
- Hotel accommodation fees
- Restaurant and catering services
- Provision for services and supply of goods by nursing homes, which are not exempt transactions.
Exemption of VAT for goods and services
Certain goods and services are exempt from VAT:
- Hospital and medical caring services
- Financial services
- Postal services
- Insurance services
- Rental of immovable property for residential purposes.
For sales of buildings for which an application was filed at the Town of Planning and Housing Department after the 1st of May 2004 for the issue of building license are subject to standard rated VAT. For the acquisition of buildings that is to be used as first residence and for which an application was filed for the issue of building license after 1st of May 2004, a government grant is available.
Also the sales of buildings for which an application was filled for the issue of planning Permition after the 1st of May 2004 are subject to standard rated VAT
