Cyprus became an independent sovereign republic in 1960 after 82 years of British Rule on the island and under its Constitution it has a presidential system of government. The economy of Cyprus is based on the free market system with the private sector forming the backbone.

Cyprus offers a high standard of living, it has a well developed and highly organized banking system and a well trained and highly skilled workforce as it has a large number of university graduates and persons with professional qualifications.

In the last 30 years Cyprus has developed into a reputable international business and financial centre due to the very favourable tax regime that the island offers. The admission of Cyprus to the European Union (EU) as full member in May 2004, established Cyprus as a prestigious, stable, and attractive jurisdiction. The EURO replaced the Cyprus Pound, thus becoming the island's currency, on January 1, 2008, further integrating the island's economy to that of the EU's core economies.

Though the offshore company status was abolished as from January 1, 2003, the favourable tax regime for the international investor has been maintained. In addition, the liberalization of investments coming from non-EU countries and the abolition of maximum and minimum participation percentages in investments in all the sectors of the economy in October, 2004 (with some exceptions), has transformed Cyprus into a major destination for the location of international holding companies and worldwide investments.

The tax advantages Cyprus offers may be enhanced when, under certain circumstances, are combined with those of other jurisdictions' in appropriate legal structures. Contact us to provide you with a free consultation regarding your individual circumstances.

Advantages of International (Offshore) Legal Entities:

In simple terms, an International Business Company ('IBC', also known as Offshore company) is a Standard Limited Liability company which is used as a tool, by corporations and individuals through out the world to direct profits out of high tax countries and into specific jurisdictions or international financial centres, thus taking advantage of their low or zero tax regimes and their double tax treaties. The beneficial ownership and business activities of the international (Offshore) enterprise are usually outside the country of its registration.

Usefulness of International Business Companies:

There are many business activities which are best suited to be operated through an international entity. Below are some examples of such activities. In this case, a Cyprus registered IBC is assumed:

(a) Exports: If you export products to a third country, you may issue invoices via Cyprus. Therefore, you can pay less tax to your home country because the Cyprus Company buys at a lower cost and sells at a higher price. In Cyprus, you only have to pay 10% tax on your profits. You do not have to send the products via Cyprus – instead, you can deliver them directly;

(b) Imports: If you import products from third countries, you may issue invoices via Cyprus: In doing so, you pay less tax to your home country because the Cypriot company sells at a high price. Thus the profit which must be taxed in your home country is reduced. The profit in Cyprus is only taxed at 10%. You do not even have to send goods via Cyprus – your supplier can deliver directly to you;

(c) International trading (an international company can be used as intermediary to re-invoice exports and imports such as consulting to be provided by the Cyprus entity to a company in another country for a fee thus reducing the taxable profit of the paying company;

(d) International services companies (re-invoice services through an international company);

(e) International construction and/engineering companies;

(f) International transport/distribution companies;

(g) Royalty companies;

(h) Real estate companies;

(i) Shipping and ship management companies;

(j) Commission agents;

(k) E-business;

(l) Holding companies (receiving dividends from foreign subsidiaries);

And many other uses. Please go to Question 1 of our FAQ section for additional information.

CORPORATION TAX

Basis

Corporation tax is imposed on every legal entity which is a tax resident of Cyprus on its worldwide income. A company is considered to be a tax resident of Cyprus if it is managed and controlled in Cyprus.

Non- tax residents of Cyprus are only taxed on their income that is accrued or derived from a business activity which is carried out from a permanent establishment in Cyprus.

Tax rate: 12.5% on NET income.

Some types of income exempt from taxation:

SPECIAL CONTRIBUTION FOR DEFENCE FUND

Special contribution for defence fund is only imposed on income earned in Cyprus by tax-residents of Cyprus. Non-tax residents are exempt of the special contribution for defence fund.

Tax Rates:

l *Note: - Dividend income from abroad is exempt from the special contribution for defence fund provided that the company receiving the dividend owns at least 1% of the company paying the dividend. This exemption does not apply if more than 50% of the paying company’s activities result directly or indirectly in investment income and the foreign tax burden on the income of the non-resident company paying the dividend is substantially lower than the tax burden of the company which is tax-resident in Cyprus.

Credit against foreign tax withheld

Any foreign tax paid on income that is subject to the defence tax can be credited against the defence tax liability irrespective of the existence or not of double taxation treaty.

Deemed dividend distribution

Tax-resident companies not distributing a dividend within 2 years from the end of the tax year are liable to 15% defence tax on 70% of their accounting profits.

Profits attributable to non-tax residents are not subject to the deemed distribution.

Capital Gains TAX

Capital gains tax is imposed at the rate of 20% on gains from the disposal of immovable property situated in Cyprus including gains from the disposal of shares in companies which own immovable property in Cyprus and not listed in any recognized stock exchange.

Estate Duty

No estate duty.

Please click here to download  Doubletaxtable

Cyprus has signed tax treaties with the following countries:

Note: Management and control in Cyprus is a prerequisite  for obtaining advantages under Cyprus  double tax treaties as only in such cases is the company treated as resident of Cyprus for Treaty purposes.