Taxation in Cyprus
The taxation structure in Cyprus is a complex system that forms a fundamental part of the country’s economic strategy, striking a balance between generating revenue and promoting growth and investment. This structure includes various taxes, each subject to intricate regulations and rates. For businesses, investors, and individuals, a comprehensive understanding of this environment is crucial for effective financial management and adherence to regulations.
Taxation system
Cyprus has a taxation system that aims to be in harmony with its internal fiscal policies as well as its international responsibilities, providing a well-organized yet flexible method of taxation. This system may include a mix of flat rates, progressive scales, and specific exemptions, mirroring the nation’s economic goals and social aims. Grasping the complexities of these tax mechanisms is essential for maximizing financial results, maintaining compliance, and taking advantage of the opportunities that exist within the legal structure.
Capital gains tax
In Cyprus, the capital gains tax primarily applies to profits gained from selling immovable property situated in Cyprus or shares in companies that own such property. The standard tax rate is 20%. This tax is determined based on the net profit from the transaction, which is calculated as the difference between the sale price and the initial purchase price, modified for inflation and specific deductible expenses. This rate is consistently applied to both residents and non-residents who sell property in Cyprus.
Corporate taxation
In Cyprus, corporate tax is levied on companies that are considered tax residents based on their global income, as well as on non-tax resident companies for income generated from business operations conducted via a permanent establishment in Cyprus. These companies are subject to a uniform corporate income tax rate of 12.5%. Businesses may make tax adjustments on their profits, which encompass allowable expenses and exemptions. Shipping companies are subject to specific tax regulations under the tonnage tax regime. Additionally, the framework includes stipulations for controlled foreign companies, rules regarding interest limitations, and requirements for transfer pricing documentation.
Personal income taxation
Cyprus Personal Income Tax (PIT) is imposed on the global income of individuals who are tax residents of Cyprus. Non-tax residents, however, are taxed only on income generated from sources within Cyprus. Individuals may qualify as tax residents through either the 183 days rule or the 60 days rule. To prevent double taxation, double tax treaties and relief measures are in place. Non-residents do not have to pay the Special Defence Contribution (SDC), which is applicable to dividends, interest, and rental income for tax residents who are also domiciled in Cyprus. There are tax credits available for foreign taxes that have been paid.
Dividend taxation
Cyprus offers a tax-friendly environment for dividends. Typically, dividends that a Cyprus holding company receives from subsidiaries in the EU and outside the EU are exempt from taxes, provided certain criteria are fulfilled, such as the parent company owning at least 1% of the subsidiary’s share capital. Non-resident shareholders, whether they are individuals or companies, do not face withholding tax on dividends disbursed by Cyprus firms. Additionally, dividends may qualify for exemption from the SDC if the distributing company derives more than 50% of its income from business activities or if the foreign tax obligation is not significantly less than the rate in Cyprus (below 6.25%). Tax credits for foreign taxes paid can be accessed through double taxation agreements.
Property tax
Property taxes in Cyprus vary depending on the type of transaction. When acquiring property, a VAT of 19% is applicable, while a reduced rate of 5% is available for specific primary residences. Stamp duty is based on the property’s value, with rates between 0.15% and 0.2%. For purchases in the secondary market, property transfer fees are required, which range from 3% to 8%. A progressive tax system is in place for rental income, with rates from 0% to 35%. The capital gains tax for property sales is set at 20%. Additionally, there is a municipal tax for property upkeep, which can go up to €500 per year depending on the size and location of the property.
Inheritance taxation
Cyprus has eliminated inheritance tax, which means that no estate duty is charged on properties left by deceased individuals. Nonetheless, beneficiaries might still be required to pay a transfer fee when receiving real estate. This fee varies between 4% and 8%, influenced by the beneficiary’s relationship to the deceased and the property’s value. For instance, a 4% transfer fee is applied for inheritances from parents to children, while an 8% fee is imposed on inheritances between spouses or third-degree relatives. Additionally, the property’s value affects the transfer fee, which ranges from 3% to 8% based on that value.
International taxation
Cyprus provides an attractive tax environment for international business operations. A corporate tax rate of 12.5% is levied on net profits, while income from dividends and capital gains from selling securities is usually not subject to income tax. The country adheres to the EU Parent-Subsidiary Directive and the Interest and Royalties Directive, which enable tax-exempt dividends, interest, and royalties among EU member countries. Furthermore, Cyprus benefits from a broad array of double taxation agreements that can lower or eliminate withholding taxes on different types of income. Transactions between related entities are required to take place at market rates, and Cyprus has minimal regulations regarding transfer pricing.
Cryptocurrency taxation
Cyprus handles cryptocurrency transactions similarly to other financial activities by applying the usual tax rates. Profits from crypto trading are liable to a corporate income tax of 12.5% for businesses, while individuals face personal income tax based on their total income. Under certain conditions, dividends from crypto firms are exempt, and there are specific exemptions for capital gains, including those from selling securities. The exchange of cryptocurrencies is not subject to VAT, as they are viewed as alternative payment methods. The taxation regulations align with international standards such as BEPS.
VAT system
In Cyprus, VAT is charged on the supply of goods and services at various rates: a standard rate of 19%, a 9% rate for sectors such as hospitality, transport, and accommodation, a 5% rate for items like food products and pharmaceuticals, and a 3% rate for categories including books, newspapers, and cultural services. Exports and international transport services are classified as zero-rated supplies. Certain sectors, such as financial services, medical care, and education, are exempt from VAT. The tax is payable when goods are delivered or services are concluded, with payment due 10 days after the end of the reporting period.
Our taxation solutions
In a tax landscape that is continuously changing, professional advice is essential. Our firm provides a range of customized tax solutions aimed at addressing the various requirements of individuals, businesses, and investors in Cyprus. Our offerings are structured to manage the intricacies of the tax system, reduce liabilities, and guarantee comprehensive adherence to regulations.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
Navigating the intricate realm of taxation can be greatly improved with expert guidance. Reach out to us today to arrange a consultation with our team of tax specialists. We will collaborate with you to create a customized tax strategy that meets your goals and guarantees adherence to the regulatory framework in Cyprus.
Disclaimer
Tax laws and regulations are continually evolving and can differ depending on personal situations. The information presented here serves as general guidance and might not represent the latest updates. It is strongly advised to seek the help of a qualified tax professional for specific and current advice tailored to your circumstances.