Tax system

Cyprus is considered a very attractive destination in terms of taxation and is attracting the interest of businessmen and entrepreneurs. Large international companies and small and medium-sized enterprises have established headquarters in Cyprus to generate revenue and expenditure benefits.

Corporate income tax

The corporate tax or income tax rate is 12.5%. For companies that are tax residents of Cyprus, the tax is levied on sources of income from both domestic and foreign sources. For non residents, only income received in the Republic of Cyprus is taxed.

The company tax is prepaid in two installments based on the preliminary approved profits. The advance payment must be at least 75% of the final tax amount. At present, companies in Cyprus are able to include their taxable basic income received by their permanent missions abroad in the calculation.

Exemption from corporate tax income:

• Income from selling securities;
• Dividend and interest income;
• Foreign exchange earnings;
• The activities of the company's overseas representative office.

National Defense Tax

The national defense tax is levied on the dividend income, passive interest income, and rental income of Cyprus residents. The amount of donation is calculated based on the approved tax rate. In some cases, tax exemption applies to individuals and companies.

Capital gains tax

The tax rate is 20%. This tax is levied based on the income index of companies that sell or own real estate in Cyprus. Meanwhile, at least 50% of the share value must come from real estate located in Cyprus.

This law provides several exemptions for capital gains tax. Real estate is not subject to taxation in the following situations:

• Sale of land acquired between July 16, 2015 and December 31, 2016;
• Transfer of property related to the death of the owner;
• Donate property to relatives of third degree relationships;
• Donate property to a company whose shareholders are family members of the donor;
• Transfer of assets to shareholders on behalf of the company;
• Donating property to charitable or government agencies;
• Property transferred through exchange (provided that all profits from the exchange are used to purchase other property).

Personal income from selling apartments or private residences (up to 85430 euros) and agricultural land (up to 25629 euros) is not subject to taxation.

value added tax

Value added tax (VAT) depends on the provision of goods and services to Cyprus. The import tax rate is 19%. The export tax rate is 0%. The tax rates for another type of goods and services are 5% and 9%, respectively. For example, a 5% interest rate applies to the purchase, construction, or renovation of housing, which will be used as the primary place of residence.

Goods and services exempt from value-added tax:

• Leased real estate;
• The transfer of real estate, including the transfer of land and used buildings (excluding the transfer of buildings before the first use);
• Banking, finance, and insurance businesses;
• Medical and dental services;
• Postal services provided by national postal institutions;
• Organize cultural, educational, and sports activities;
• Investment fund management services.
• The annual registration threshold for value-added tax is 15600 euros.

Income tax levied from payment sources

Interest, dividends, and royalties paid by non Cyprus residents are not subject to income tax at the time of payment. The exception is the collection of royalties on Cyprus rights, with a tax rate of 10%. Technical services provided by non residents shall be taxed at the same tax rate. Services provided by non residents through the Office of the Permanent Representative in Cyprus are not subject to taxation. For non residents, a 5% preferential tax rate is provided (for developing the continental shelf, using pipelines and other facilities).

Transfer of ownership

Real estate sales commission rate:

• Up to 85000 euros, accounting for 3% of the total value;
• The amount range is 85001-170000 euros -5% of the total value;
• The amount exceeds 170000 euros - accounting for 8% of the total value

When parents donate their property to their children, the tax rate is 0%; When transferring between spouses and relatives, the tax rate is 0.1%; When transferred to the trust manager, the tax rate is 50 euros.

If the property is subject to value-added tax upon purchase, no transfer fee will be charged.

Capital tax

The conditions for calculating capital tax when registering a company in Cyprus:

• Statutory share capital tax rate -0.6%+105 euros;
• Stocks issued at face value with a share capital ratio of 0%;
• for promotions issued at a premium rate of 20 euros.

Every additional stock issue incurs a tax of 20 euros.

Employer donations

The social insurance contribution rate is 7.8%. This fee is charged within the highest compensation range and is applicable to both employers and employees. In addition, employers are required to pay the following fees:

• 2% social consent fund;
• 1.2% reserve fund;
• 0.5% industrial training fund;
• 8% holiday fund

The benefits of the tax system in Cyprus

Cyprus has lower tax rates, but the government has given special attention to the real estate industry. For example, there is little or no income from selling real estate taxes

The advantages of the real estate tax system:

• Real estate tax -0%;
• The value-added tax rate for first-time purchase of property in Cyprus is -5%;
• Foreign pension income can reach up to 3420 euros -0%;
• Dividend income tax -0%;
• Widow pension exemption;
• Urban tax exemption;
• The lowest business tax in Europe -12.5%