Cyprus, strategically positioned at the crossroads of Europe, Asia, and Africa, has established itself as a leading jurisdiction for businesses aiming to optimize their corporate taxation strategies within the European Union.
Additionally, Cyprus is an excellent choice for intellectual property (IP) management, offering a favorable tax system, a strong business environment, and compliance with international standards.
This article explores corporate taxation and withholding tax, including the IP Box regime, provides comparative analyses of offshore and holding company structures, and outlines effective strategies for managing withholding tax obligations.
In the end, we provide the due process and benefits of registering a company in Cyprus with the guidance of TaxMove experts.
Tax Rates in Cyprus
Here is a brief table summarizing the key taxes in Cyprus:
| Tax Type | Tax Rate | Notes |
|---|---|---|
|
Personal Income Tax |
0% - 35% |
Progressive rates; 0% up to €19,500 income. |
|
Corporate Income Tax |
12.5% |
This applies to resident companies. |
|
Value Added Tax (VAT) |
19% (standard), 9%, 5% |
Reduced rates for specific goods/services.
|
|
Capital Gains Tax |
20% |
Only on immovable property sales. |
|
Property Transfer Tax |
3% - 8% |
Based on property value tiers. |
|
Stamp Duty |
0% - 0.2%
|
Based on transaction value.
|
Cyprus Corporate Taxation
Cyprus offers a highly favorable corporate tax environment characterized by its competitive tax rates and strategic geographic location.
With one of the lowest corporate tax rates in the European Union, Cyprus imposes a uniform 12.5% tax on all taxable profits generated by companies registered in the country.
Cyprus Withholding Tax
Cyprus does not impose withholding tax on dividends, royalties, or interest paid to non-residents of Cyprus.
However, withholding taxes do apply to payments made to residents included in the EU’s blacklist of non-cooperative jurisdictions.
Withholding tax on payments to residents in the EU blacklist:
- Dividends: 17%
- Interest: 17%
- Royalties: 10%
Furthermore, Cyprus imposes various withholding taxes on payments to non-residents for certain services and activities, such as remuneration for technical services.
However, numerous double tax treaties (DTTs) can significantly reduce these withholding tax rates. Therefore, it is crucial to seek expert international tax advice.
Controlled Foreign Companies (CFC) Rules in Cyprus
Cyprus introduced CFC rules to comply with the EU Anti-Tax Avoidance Directive (ATAD), aiming to combat tax avoidance and base erosion.
A CFC is a non-Cyprus tax resident company in which a Cyprus tax resident holds more than 50% interest, either directly or indirectly. It is considered low-taxed if its foreign tax is less than 50% of the tax it would pay if it were a Cyprus resident.
However, CFC Companies and Permanent Establishments are exempt from these rules if: (i) their accounting profit does not exceed EUR 750,000 and their non-trading income is under EUR 75,000; or (ii) their accounting profits are no more than 10% of their operating costs for the tax period.
Additionally, CFC rules do not apply if the CFC entity is resident within the European Economic Area.
Exit Tax in Cyprus
Cyprus exit tax applies when assets are transferred out of Cyprus’s tax jurisdiction, including:
- Transfer of assets from a Cyprus head office to a foreign PE.
- Transfer of assets from a Cyprus PE to a foreign head office or PE.
- Change of tax residence from Cyprus to another country.
- Transfer of business from a Cyprus PE to another jurisdiction, resulting in loss of taxable presence in Cyprus.
Temporary transfers under specific conditions are excluded from exit tax provisions.
Double Tax Treaties in Cyprus
Cyprus has signed Double Tax Treaties (DTTs) with many countries to prevent double taxation and encourage international trade and investment.
These treaties allow for tax credits on foreign taxes paid, which can be used to reduce Cypriot tax liabilities.
Key countries in Cyprus’s DTT network include the US, the UK, Germany, Russia, and India.
Cyprus IP Box Regime
The Cyprus IP Box regime is a central component of Cyprus’s tax strategy, aimed at promoting innovation and the development of intellectual property (IP) within the jurisdiction.
Under this regime, qualifying IP assets such as patents, trademarks, copyrights, and software benefit from a significantly reduced tax rate of 2.5% on their net profits derived from IP-related activities.
Features of Cyprus IP Box:
The following are the main features of the Cyprus IP Box:
- 80% of profits from the disposal of intellectual property assets are exempt from taxation.
- Only 20% of income from intellectual property (IP) is taxed at a 12.5% corporate rate. For this reason, the effective tax on profits is 2.5%.
- Since January 2020, no tax has been applied to capital transactions involving intellectual property assets.
- Companies can amortize expenses related to the acquisition or development of intellectual property for up to 20 years.
Cyprus Offshore Vs Cyprus Holding Companies
Cyprus offers flexible corporate structures, including offshore companies and holding companies, each offering distinct advantages and tax implications for businesses.
Cyprus Offshore Companies
Offshore companies registered in Cyprus benefit from exemptions on foreign-sourced income, making them ideal for international trade, investment activities, and asset protection strategies.
These companies utilize Cyprus’s strategic geographic location and favorable tax regime to facilitate cross-border transactions and enhance global business operations.
Cyprus Holding Companies
Cyprus holding companies are established primarily for holding and managing investments, enjoying tax exemptions on dividends and capital gains from subsidiaries.
Key benefits include:
- No Withholding Taxes: No withholding tax on dividends paid to non-resident shareholders, nor on interest or royalties paid from Cyprus.
- Tax Exemptions: Exemptions on dividends and income from foreign permanent establishments if certain conditions are met.
- Capital Gains Tax: Absence of capital gains tax on the disposal of securities.
Both structures offer opportunities to enhance tax efficiency, mitigate risks, and maximize returns on investments within a stable and supportive regulatory environment.
The choice between offshore and holding company structures depends on factors such as asset protection needs, tax planning objectives, and operational requirements.
How to Register a Company in Cyprus
The cost of opening an LTD in Cyprus typically ranges between €2,500 and €4,500, though it can vary depending on each case. The incorporation process involves these five main steps:
Step 1: Hire a Registered Lawyer
The first step is hiring a lawyer registered with the Cyprus Bar Association.
Only these lawyers can prepare the necessary documents, such as the HE1 Form, Memorandum, and Articles of Association.
Our Experts at TaxMove provide assistance to entrepreneurs in the first step.
Step 2: Apply for a Business Name
In the second step, the approval of the company name must be obtained from the Registrar of Companies and Official Receiver (RCOR).
Step 3: Submit Required Documents
Your service provider, such as experts at TaxMove, will gather the necessary information, open a local bank account, and submit all required documents to the RCOR.
Step 4: Receive Certificate of Incorporation
Upon submitting the application and paying the fees, you will receive your Certificate of Incorporation and a certified copy of the Memorandum and Articles of Association.
Step 5: Register with Tax and Social Insurance
Finally, register your company with the Tax Department to get a tax identification number and VAT registration. Also, register with Social Insurance Services
How Can We Help You?
Without a doubt, Cyprus is one of the best options in Europe for company incorporation, whether it be for an operational purpose, under the IP BOX, as an offshore company, or as an asset holding company.
If you want to maximize tax efficiency from Cyprus’ corporate taxation and the IP Box regime, TaxMove helps you at every step.
Submit the form to get tailored advice from our experts
What are the main taxes applicable in Cyprus?
Key taxes in Cyprus include a 12.5% corporate income tax, 19% standard VAT (with reduced rates of 9% and 5%), 20% capital gains tax on immovable property sales, 3%-8% property transfer tax, and a 0% – 35% progressive personal income tax.
Why should I consider Cyprus for corporate taxation?
What are the key benefits of Cyprus's IP Box regime?
The Cyprus IP Box regime allows qualifying IP assets to benefit from a significantly reduced tax rate of 2.5% on net profits derived from IP-related activities. This includes 80% tax exemption on profits from IP disposal and amortization of IP acquisition/development expenses over 20 years.
What is the difference between Cyprus offshore and holding companies?
Offshore companies in Cyprus benefit from exemptions on foreign-sourced income, ideal for international trade and investment.
Holding companies focus on managing investments and enjoy tax exemptions on dividends and capital gains from subsidiaries, with no withholding taxes on dividends, interest, or royalties paid to non-residents.
What is the cost of opening a company in Cyprus?
The cost of opening an LTD in Cyprus typically ranges between €2,500 and €4,500, though it can vary depending on each case.
Are there any withholding taxes in Cyprus?
Cyprus does not impose withholding taxes on dividends, royalties, or interest paid to non-residents, except for payments to residents of jurisdictions on the EU’s blacklist, where rates are 17% for dividends and interest, and 10% for royalties.
