Cyprus Limited: Taxes You Can Expect

Forming a Cyprus Limited can offer tax advantages. However, it also comes with some obligations. Cyprus tax resident companies are subject to taxation on their worldwide taxable income, benefiting from a low 12.5% corporate tax rate. This guide provides an overview of the taxes you can expect as a Cyprus Limited owner in the EU state. Find out how much corporate, sales, and dividend tax you will have to pay and what advantages the Cyprus non-dom status offers.

Cyprus Tax Resident Companies and Income Tax

Understanding Cyprus Tax Residency and the Advantages and Disadvantages of Being a Non-Cyprus Tax Resident

In Cyprus, determining tax residency is crucial for understanding your tax obligations. A company is considered a tax resident in Cyprus if incorporated or registered under any Cyprus law and has its management and control in Cyprus. This means that the company’s board of directors or other governing body must be located in Cyprus and make decisions regarding the company’s operations and management.

A company may also be considered a tax resident in Cyprus if it has a permanent establishment in the country. A permanent establishment is a fixed place of business through which the company carries on its business activities. This can include a branch, office, factory, or other fixed place of business. Being a tax resident in Cyprus can offer various tax benefits, but it also comes with specific obligations that must be met to maintain this status.

Income Tax Obligations for Cyprus Limited Companies

Cyprus Limited companies are subject to tax on their worldwide income, regardless of where it is earned. This means the company must pay tax on its income from all sources, including dividends, interest, royalties, and income from its business operations. The tax rate for Cyprus Limited companies is 12.5%, which is one of the lowest corporate tax rates in the European Union. This competitive rate makes Cyprus an attractive destination for businesses looking to minimize their tax burden.

However, it’s important to note that Cyprus Limited companies may also be subject to other taxes, such as value-added tax (VAT) and special defense contribution (SDC). VAT is a consumption tax levied on the supply of goods and services within Cyprus, while SDC is a tax on certain types of income, including dividends, interest, and rents. Understanding these additional tax obligations is essential for ensuring full compliance with Cyprus tax laws.

Tax Advantages of a Cyprus Limited for Persons with Non-Dom Status: Foreign Taxes and More

Establishing a Cyprus Limited as someone with non-dom status offers several tax advantages after moving abroad. The most important of these are:

Dividends: Individuals with Non-Dom status in Cyprus are exempt from tax on dividends from a domestic or foreign company. This means that they can have their dividends paid into their private account tax-free. Non-dom individuals are also exempt from tax on employment income earned from foreign sources, provided they meet certain conditions.
No withholding tax: Cyprus does not have a withholding tax on dividends, interest, and royalties paid to Non-Dom individuals.
Favorable corporate tax rates: Cyprus has one of the lowest corporate tax rates in the European Union. It is currently only 12.5%.
No remittance base taxation like in Malta and Ireland: Cyprus does not use remittance base taxation for people with non-dom status, so there are no taxes due on income from abroad that is transferred into the country. Taxes are due on income generated in Cyprus. Profits in the form of dividends from foreign companies are tax-free.
No taxation of capital gains: Capital gains from the sale of securities are tax-free for Cyprus non-doms and foreigners residing in Cyprus under certain conditions. This applies to the sale of shares, bonds, and other securities. (Exception: you are a full-time trader, trade in short periods, and do not have a full-time job). The disposal of company shares is also tax-free.
No trade tax exists: Compared to Germany, you also save trade tax for your companies. This way, you reduce your tax burden and build up your assets faster.

What General Taxes apply to Cyprus Companies?

A Cyprus Limited offers numerous tax advantages for your company. This is due to favorable legislation, which is particularly advantageous for founders of a Cyprus Limited with Non-Dom status. However, we should emphasize that while Cyprus does offer certain tax advantages, the country cannot be considered a tax haven. The island’s tax laws are fully compliant with the EU and the OECD. Additionally, Cyprus has established double tax treaties with over 50 countries, enhancing its attractiveness for international tax planning by providing favorable tax treatment and compliance with OECD standards. Nevertheless, if you are looking for an EU location for a company such as an offshore company that meets your company’s needs, it is still worth considering Cyprus for emigration.

Taxes on Corporate Income in Cyprus

In the Republic of Cyprus, the standard corporate tax rate is 12.5%. It applies to both domestic and foreign companies operating in Cyprus. There are numerous exceptions and tax credits for various types of income, profits, and revenues. Exempt from this tax rate, under specific conditions, are returns from the sale of securities and certain dividend income. Profits from a foreign permanent establishment may also be exempt from corporate tax, depending on the conditions, including the treatment of losses and eligibility for tax credits related to foreign taxes incurred. There are therefore many ways in which you can reduce the taxes payable by your limited company in Cyprus. We will be happy to provide you with further information. However, your salary is also subject to income tax of up to 35%.

Capital Gains

Gains from the sale of securities are under certain conditions exempt from corporate income tax and are not relevant to the Cyprus tax office. These include shares, bonds, debentures, founders‘ shares, and other securities of companies or other legal entities based in Cyprus or abroad, as well as options on them. In addition, cryptocurrencies are treated as a security. There are various trading options offered within the regulated framework. These include:

Remember though, capital gains on property in the Republic of Cyprus and unlisted shares that directly or indirectly hold property in Cyprus are separately taxed.

Non-Dom dividend income for Cyprus tax residents

If you receive dividends in Cyprus from your foreign investments, you may be eligible for a tax exemption as a non-domicile.

To do so, you must spend at least 61 days a year in Cyprus (the 60-day rule).

You will then not have to pay any tax with Non-Dom status if you meet one requirement: the dividend must not arise from a business activity.

In this case, such income is subject to corporate income tax but remains exempt from the special defense contribution (SDC). Other foreign dividends that are not deductible also fall under the participation exemption and are thus exempt from the SDC. However, you must ensure that you meet the conditions for exemption. As an entrepreneur with a Cyprus Ltd., we advise you to contact experts such as BS Holding for tax optimization in other EU countries. This way, you will also be aware of the pitfalls and special regulations possible through the double taxation agreement.

With our services, immigrating to Cyprus is no longer an issue. We can advise you on the tax system on-site or online.

Currency conversion differences (Forex)

Foreign exchange profits are not taxable, while foreign exchange losses are not deductible. However, this does not mean that all transactions are automatically non-taxable. There are many cases in which they arise from trading in foreign currencies or derivatives in Cyprus. In this case, it is also advisable to seek advice from a tax advisor in advance. This way, you will not make any unnecessary tax payments.

Tax exemption for audiovisual media

Profits from the production of films, series, and other related audiovisual programs in Cyprus are exempt from CIT if they are following two conditions are met:

Corporate Tax Rates and Exemptions

Current Corporate Tax Rates

The current corporate tax rate in Cyprus is 12.5%. This rate applies to all companies that are tax residents in Cyprus, including limited companies, partnerships, and sole proprietorship. This low corporate tax rate is one of the key reasons why many businesses choose to establish themselves in Cyprus. In addition to the corporate tax rate, companies may be subject to other taxes, such as VAT and SDC. VAT is a consumption tax charged on the supply of goods and services in Cyprus, while SDC is a tax on dividends, interest, and rents. These additional taxes must be factored into the overall tax planning strategy for any Cyprus tax resident company.

The Special Defense Contribution in the Republic of Cyprus – Save on Taxes for 17 Years

Cyprus is considered investor-friendly with its (limited) tax exemption in the EU. One of the aspects that makes it unique is the special defense contribution. This is a tax that is levied on certain types of annual income. Under certain conditions, you are therefore only subject to limited taxation. For instance, the corporation tax payable on the taxable profit of a life insurance business may be less than 1.5% of the gross premiums, and any difference is required to be paid as additional corporation tax, highlighting the unique tax considerations for life insurance operations. This is what the regulation means for your finances:

The Special Tax Regime for Interest Income: Active vs. Passive Interest

In Cyprus, there is a difference between active and passive interest income. Active interest income arises from day-to-day business or closed or open investment funds. These are not taxed by the SDC but are subject to corporate income tax (CIT) at 12.5%. Passive income, on the other hand, arises when none of the above cases applies. The SDC taxes this type of income at a rate of 30%.

Special Defence Contribution on Rental Income: The Double Taxation Aspect

Among other types of income, rental income is also subject to the SDC. A flat rate of 25% is deducted, against which no costs can be offset. The remaining 75% is then taxed at a rate of 3%. After deducting the allowable expenses, the rental income must also be subject to corporate income tax at 12.5%. This constitutes double taxation but at different levels and rates. Nevertheless, it is usually worth being a landlord in the somewhat different tax haven of Cyprus and generating rental income.

Additionally, Cyprus offers a tonnage tax regime under the Cyprus Merchant Shipping Legislation, which provides tax exemptions for qualifying shipowners and managers. This regime is compulsory for Cyprus flag shipowners and optional for non-Cyprus flag shipowners, charterers, and ship managers, impacting their corporate tax obligations.

Corporation Tax Deductions for Expenses in Cyprus

Generally speaking, most of your business expenses are tax-deductible as long as they are supported by appropriate receipts. This type of deduction reduces your taxable profit and thus ensures a lower corporate tax rate. You are not committing tax evasion. Just keep careful records and have your tax return prepared by professionals like us. This way, you can enjoy many advantages in the Republic of Cyprus.

Depreciation and Amortization in Cyprus

The tax authorities in Cyprus use a straight-line depreciation method for tangible fixed assets, calculating fixed rates depending on the type of asset. However, if you sell your depreciated property as a shareholder, you can recover the tax depreciation amount and tax it as income. However, please note that no tax depreciation applies to land. In addition, since 1 July 2016, tax depreciation has been introduced for all expenses incurred in acquiring or developing intellectual property. The tax law stipulates that the depreciation is to be allocated over the lifetime of the intellectual property under the recognized accounting principles.

The maximum period is 20 years for a limited company in Cyprus, which is a generous period compared to other countries.

Interest Expenses After Company Formation

The tax deductibility of interest expenses is an important financial option for companies. In general, those incurred by the company to generate taxable income should be deductible when calculating the company’s tax. However, there are exceptions, which are set out in Cyprus policy. For example, interest expenses incurred to finance assets that generate tax-exempt income are not deductible in the first seven years of ownership.

Corporate Income Tax Deductions for Expenses

In Cyprus, companies can claim various expenses to reduce their corporate tax bill. These include deductions for income from qualified intellectual property through the IP box regime, charitable contributions, employer social insurance contributions, and loss carry forwards. This is how you reduce a company’s overall tax bill.

The New Cyprus IP Box

If you operate in intellectual property and lease licenses or rights, you can count on further tax benefits in Cyprus. The regulations for IP box companies have undergone several changes over the past few years. The new regime in Cyprus allows for a deductible notional expense arising from 80% qualifying profits from your qualifying intellectual property. This is a great way for IP companies to save on taxes and increase their profits.

What is a qualifying IP?

Qualifying intellectual property can be either legal or economic to receive the 80% deduction. It includes the following:

Patents
Copyrighted software
Utility models, intellectual property that protects plants and genetic material, orphan drug designations, extensions of patent protection and
Other intellectual property determined by a designated authority to be non-obvious, useful, and novel.

You can take advantage of the IP box If you own a business with an annual revenue from intellectual property of less than €7.5 million threshold, and your total income does not exceed €50 million. There is one exception to keep in mind, however: marketing-related intellectual property, such as trademarks, does not qualify.

I meet the requirements for the IP box. What about my profits?

The qualifying profits of the Cyprus IP Box include:

Royalty or other amounts due for the use of qualifying intellectual property
Amounts due for the grant of a license for the use of qualifying intellectual property
Amounts received under insurance contracts in respect of qualifying intellectual property
Commercial income from the sale of qualified and intellectual property (note that capital gains from intellectual property are excluded; capital gains are therefore not subject to taxation in Cyprus) and
Income from intellectual property embedded in the sale of products, services, or the use of processes directly related to qualified intellectual property rights.

Charitable Contributions: Donate in Cyprus

Charitable donations are a great way to make a positive impact on the world while also taking advantage of tax benefits. If you donate in the Republic of Cyprus as an expat, you can deduct 100% of these expenses from your Cyprus Ltd taxes. However, don’t forget to keep your receipts for these expenses. This is the only way you can take advantage of the tax benefits.

Employer Contributions (To You with Non-Dom Status and to Employees)

For expats in the Republic of Cyprus, you can deduct 100% of these expenses from your Cyprus Ltd taxes. It’s important to consider any income arising in the context of these deductions, as it may influence your overall tax situation. Additionally, don’t forget to keep your receipts for these expenses, as this is the only way you can fully leverage the tax benefits available.

Furthermore, EU citizens who have regularly paid social security contributions in their country and immigrate to Cyprus can, after two years, enjoy the same benefits as Cypriot citizens or people born here (residents). For this, you’ll need a permanent residence in Cyprus. You will receive this if you live on the Mediterranean island for over half a year – at least 183 days. This way you pay income tax and enjoy life under the sun.

Loss Carryforward: A Solution for Taxation

Have you suffered losses in a tax year? In Cyprus, these can be carried forward for a further five years and offset against profits. However, there is also the option of offsetting the loss of the current year against the profit of another company, provided that both companies are based in Cyprus and belong to the same group. However, it is best to talk to a professional tax advisor to discuss further details and options as a foreigner. We will answer your questions online from Paphos in an initial consultation free of charge. We are also happy to help you with your tax return after you move.

Paying Other Taxes in Cyprus

In Cyprus, companies are subject to various types of taxes and levies. These include a payment to the Cyprus commercial register and value-added tax. The annual fee is mandatory for all registered companies, while VAT is levied on the supply of goods and services. However, there are also exemptions for certain services and products.

Annual Fee

All companies registered in the Cyprus commercial register must pay a fee of 350 euros per year. If you do not pay this annual fee by 30 June each year, the tax authorities will charge a fee of 10%, and you will have to pay it within one month. After five months, an additional 30% will be due.

Value Added Tax: A Friend from Germany

In Cyprus, value-added tax (VAT) is levied on the supply of goods or services on the island. The supply must be taxable and made by a taxable person in the course of or in furtherance of his business. VAT is also levied on the intra-community acquisition of goods in the following cases:

By a legal person to another EU member state
On services supplied to a Cyprus taxable person from outside Cyprus and
On the import of goods from outside the European Union, irrespective of the importer (thresholds apply).

The standard VAT rate in Cyprus is 19%. Cyprus also has two reduced rates of 5% and 9%. There are some cases where you are exempt from VAT. These are very diverse. For example, the rental of property is exempt provided certain conditions are met. Property sale may also be exempt under certain circumstances – however, the sale of ‘new buildings’ or undeveloped building land intended for commercial use is excluded.

Furthermore, insurance and financial services, as well as medical and related services, are exempt from tax. Education and related services are also included. When you register your company, you will also be assigned a VAT registration number or VAT number for your Cyprus company. If you have any further questions about the Cyprus non-dom status and the 60-day rule or need help setting up a Cyprus Limited structure, please feel free to contact us. Contact us via our email address or using a contact form.

Emigrate to Cyprus with BS Holding and Join 1,000 Tax Residents of Cyprus

We are happy to support you in making your dream of living in Cyprus come true. As English-speaking tax advisors, we can help you establish your Cyprus Limited and advise you on all tax-related matters. We have been based in Cyprus for many years and support private individuals and companies. Contact us and benefit from many years of experience and our knowledge of the Cyprus tax system. We will guide you every step of the way and ensure you can take advantage of the many benefits of Cyprus tax legislation. Let us start your new life in Cyprus together!