Cyprus Limited: Taxes You Can Expect

Setting up a Cyprus Limited can offer many tax advantages. However, it also harbors some obligations under the Cyprus Income Tax Law, which outlines the legal principles of tax obligations. This guide provides an overview of the taxes you can expect as the owner of a Cyprus Limited in the EU state. Cyprus tax legislation, which aligns with EU directives, also plays a crucial role in the regulatory framework governing corporate taxation in Cyprus. Find out how high the corporation tax, turnover tax, and dividend tax are and what advantages the Cyprus non-dom status offers.

Tax Advantages of a Cyprus Limited for Persons With Non-Dom Status

Forming a Cyprus Limited in conjunction with non-dom status offers several tax advantages after a move abroad. The main ones include:

Dividends: Individuals with non-dom status in Cyprus are exempt from taxation on dividends from a domestic or foreign company. This means they can have their dividends paid out tax-free to their private account.
No withholding tax: In Cyprus, there is no withholding tax on dividends, interest, and licence fees paid to persons with non-dom status.
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 as in Malta and Ireland: Cyprus does not apply remittance base taxation for people with non-dom status. This means no tax is payable on income from abroad that is remitted to the country. Tax is payable on income. 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 resident 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 sale of company shares is also tax-free.
There are no trade taxes: Compared to Germany, you also save on trade taxes for your companies. This way, you reduce your tax burden and build up assets faster.

What General Taxes Are Incurred for Cyprus Companies?

A Cypriot limited company offers numerous tax advantages for your company. This is due to favorable legislation, which is particularly advantageous for founders of a Cypriot limited company with non-dom status. However, we should emphasize that Cyprus does offer certain tax advantages. However, the country cannot be considered a tax haven. The island’s tax laws are fully compatible with the EU and the OECD. However, if you are looking for an EU location for a business such as an offshore company that suits your company’s needs, it is worth considering Cyprus for emigration.

Taxes on Corporate Income in Cyprus

The standard corporate tax rate in the Republic of Cyprus is 12.5%. It applies to both a domestic and a foreign company operating in Cyprus. There are numerous exemptions and tax credits for different types of income, profits and gains. Returns from the sale of securities and certain dividend income are exempt from this tax rate under specific conditions. There are therefore many ways in which you can reduce the tax payable by the limited company in Cyprus. We will be happy to provide you with further information. However, income tax of up to 35% is also payable on your salary. Certain income and expenses are deductible only if they are incurred wholly and exclusively for tax purposes.

Capital Gains

Gains from the sale of securities are exempt from corporation tax under certain conditions and are not relevant to the Cypriot tax authorities. These include shares, bonds, debentures, founder’s shares and other securities of companies or other legal entities domiciled in Cyprus or abroad, as well as options thereon. In addition, cryptocurrencies are treated as a security. Various trading options are offered within the regulated framework. These include:

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

Dividend Income as a Non-Dom Person

If you receive dividends from your foreign investments in Cyprus, you may enjoy tax exemption as a non-dom. Certain dividends can be deductible for tax purposes by the paying company, which affects the applicability of various tax exemptions and liabilities, particularly Corporation Tax and Special Defense Contribution.

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

With a non-dom status, you do not have to pay tax on this if you fulfil one condition:

The dividend must not arise from a business activity. In this case, this 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 therefore exempt from SDC.

However, you must ensure that you fulfil the requirements for the 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 pitfalls and special regulations that are possible due to the double taxation agreement.

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

Currency Conversion Differences (Forex)

Foreign exchange gains do not have to be taxed, while foreign exchange losses are not deductible. Foreign tax credits can be applied against Cyprus tax liabilities, particularly for foreign-owned local affiliates. 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 such cases, it is also worthwhile seeking advice from a tax consultant or accountant in advance. In this way, you will avoid 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 the following two conditions are met:

The audiovisual exemption must not exceed 35% of the eligible production expenditure incurred in Cyprus.
Additionally, if the production company derives more than 50% of its activities from investment income, it impacts the tax treatment of profits from audiovisual productions.
The amount of the audiovisual exemption must not exceed 50% of your taxable income from production, subject to certain criteria and conditions.

The Special Defense Contribution in the Republic of Cyprus - 17 Years of Tax Savings

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. The existence of a double tax treaty can significantly influence tax liabilities and benefits for both individuals and companies, providing tax relief mechanisms and conditions in Cyprus. This is a tax that is levied on certain types of annual income. Under certain conditions, you are therefore only liable to pay a limited amount of tax. This is what the scheme 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 joint investment organisations. This is not taxed by the SDC but is subject to corporate income tax (CIT) at a 12.5% rate. Passive income, on the other hand, arises when none of the above applies. The SDC taxes this type of income at a rate of 30%.

Special Defence Contribution on Rental Income: The Double Taxation Aspect

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

Corporate Tax Deductions for Expenses in Cyprus

In general, most of your business expenses are tax-deductible as long as they are supported by appropriate receipts and fall within the allowable limits based on your gross income. This type of deduction reduces your taxable profit and thus ensures lower corporation tax. This also means you are not committing tax evasion. Simply keep careful records and, as an entrepreneur, have your tax return done by professionals like us. This way, you will enjoy many advantages in the Republic of Cyprus.

Depreciation and Amortisation of the Cyprus Limited

The tax authorities in Cyprus use a straight-line depreciation method for tangible assets by calculating fixed rates depending on the type of asset. However, if you as a shareholder sell your depreciated property, you can reclaim the tax depreciation amount and pay tax on it as income. Note, however, that tax depreciation does not apply to land. Since 1 July 2016, tax depreciation has also been introduced for all expenditures on the acquisition or development of intellectual property. The tax law stipulates that amortization is allocated over the life of the intellectual property under recognized accounting principles.

The maximum period for a limited company in Cyprus is 20 years. This 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. As a rule, interest expenses incurred by the company to generate taxable income should be deductible in the company’s tax calculation. However, there are exceptional cases that are regulated by Cypriot policy. For example, interest expenses incurred to finance assets that generate tax-exempt income are not deductible for the first seven years of ownership.

Corporate Tax Deductions for Expenses

In Cyprus, companies can claim various expenses to reduce their corporate tax burden. These include deductions for income from qualifying intellectual property through the IP box scheme, charitable contributions, employer social security contributions and losses carried forward. This reduces a company’s overall tax burden.

The New Cypriot IP Box for a Cyprus Tax Resident Company

If you are active in intellectual property and rent out licenses or rights, you can count on further tax advantages in Cyprus. The regulations for IP Box companies have undergone several changes in recent years. The new regime in Cyprus allows for a deductible notional expense arising from 80% of qualifying profits from your qualifying intellectual property. This is a great way for companies to save tax and increase their profits with intellectual property.

What Is a Qualified IP?

To qualify for the 80% deduction, qualifying intellectual property can be both legal and business in nature. It includes the following:

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

If you own a company, your annual income from intellectual property does not exceed the 7.5 million euro threshold and your total income does not exceed 50 million euros, then you can make use of the IP box. However, there is one exception to note: marketing-related intellectual property such as trademarks do not qualify.

I fulfil the requirements for the IP Box. What about my profits?

Qualifying profits under the Cyprus IP Box include:

Royalties or other amounts due to the use of qualifying intellectual property
Amounts for the grant of a license for the use of qualifying intellectual property
Amounts from insurance/compensation attributable to the qualifying intellectual property
Trading income from the sale of qualifying and intellectual property (note that capital gains from intellectual property are excluded; capital gains are therefore not subject to taxation in Cyprus) and
Intellectual property income embedded in the sale of products, services or the utilization of processes directly related to qualifying intellectual property rights.

Charitable Contributions: Donate in Cyprus

Donating to charity is a great way to make a positive impact on the world while benefiting from tax advantages. If you donate to the Republic of Cyprus as an expatriate, 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 claim the tax benefits.

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

In addition to income tax, social security contributions are currently an important component in Cyprus. Both employees and employers (as non-doms) in Cyprus contribute 6.8% of gross salary, while the state pays the remaining 4% for taxpayers. As a self-employed entrepreneur, the contribution is 12.6 % and the state also pays 4 %. But you don’t pay these contributions „just because“: as a contributor, you and your family receive free or partially subsidized access to general, specialist and dental care. The tax you pay is therefore also lower than in Germany.

In addition, EU citizens who have regularly paid social security contributions in this EU country and immigrate to Cyprus can enjoy the same benefits as Cypriot citizens or residents born here after two years. However, you must live on the island for more than 183 days – the non-domiciled status with the 60-day rule is not sufficient in this case. You therefore need permanent residence in Cyprus. You can obtain this if you live on the Mediterranean island for more than half a year – i.e. at least 183 days. In this way, you pay income tax and enjoy a life under the sun.

Loss Carryforward: 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. Additionally, individuals and corporations can receive unilateral tax credit relief for taxes incurred abroad, which can offset the equivalent Cyprus tax liability on foreign income. However, it is also possible to offset the loss of the current year against the profit of another company – provided that both companies are

Paying Other Taxes in Cyprus

In Cyprus, companies are subject to various types of taxes and duties. These include a payment to the Cypriot Commercial Register and VAT. The annual levy is mandatory for all registered companies, while VAT is levied on supplies of goods and services. However, there are also exemptions for certain services and products.

Annual Levy

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, tax authorities will levy a 10% fee and you will have to pay it within one month. After five months, an additional 30 % will be due.

Expert in Relocation to Cyprus

Meinhard Bundschuh

Value-Added Tax: A Friend From Germany and Other Countries in the European Union

Value-added tax (VAT) in Cyprus is levied on any supply of goods or services within the island. It must be a taxable supply made by a taxable person in the course or furtherance of his business. In addition, VAT is levied on the intra-Community acquisition of goods in these cases:

To another EU Member State by a legal person
On services received by a Cypriot taxable person from outside Cyprus and
On the importation of goods from outside the European Union, regardless of the importer (thresholds apply).

The standard VAT rate in Cyprus is 19%. In addition, two reduced rates of 5% and 9% apply in Cyprus. There are some cases in which you are exempt from VAT. These are very diverse. These include, for example, the letting of property, provided certain conditions are met. The sale of land can also be tax-free under certain circumstances – except the sale of ‘new buildings’ or undeveloped building land intended for business use.

Furthermore, insurance and financial services as well as medical and related services are exempt from tax. Educational and related services are also included. When you register your company, you will also be allocated a VAT identification number or VAT number for your Cyprus company. If you have any further questions about Cyprus non-dom status and the 60-day rule or need help setting up a Cyprus limited company structure, please feel free to get in touch. Please contact us via our e-mail address or using the contact form.

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