Cyprus Business Tax Insight – Benefit Today!
Choosing the right place to set up a business can cause a lot of stress and anxiety. As a compliant member of the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD), Cyprus is one of the most alluring countries in the world for business set up and development, including a rewarding business tax system.
This beautiful island country has a straightforward business registration process. It is also acclaimed for its favorable residency programs and tax incentives.
In this My Kypros Home guide, learn more about Cyprus business tax policies and the benefits these have for both companies and individuals pursuing advantages for their business activities.
The official tax authority in Cyprus is the Cyprus Tax Department, which was established in July 2014. The new department integrated the Department of Inland Revenue and the Value Added Tax (VAT) Service. The unification of the tax authorities provided improved efficiency.
As the official tax authority, the Cyprus Tax Department is responsible for implementing tax laws; a collection of taxes arising from sources under the tax laws; overseeing and maintaining Double Tax Agreements between Cyprus and other counties, and interchanging information on tax-related data under EU and international partnerships.
A. Income Tax for Individual Tax Residents of Cyprus
Tax residents of Cyprus are taxed on all income accrued from Cyprus and international sources. Income under 19,500 Euros is not taxed. Income ranging from 19,501 Euros or higher is taxed between 20% to 35%. Read this My Kypros Home article about becoming a tax resident to see how to qualify in as little as 60 days as well as the tax incentives for new Cyprus tax residents under the “60 Day Rule”.
Individuals who are not tax residents of Cyprus are only taxed on income accrued or arising from sources in Cyprus. The tax year follows the calendar year. Employment income tax is withheld by the employer using the pay-as-you-earn (PAYE) system. Individuals who are self-employed use self-assessment systems.
Tax returns for employees must be filed by April 30 following the tax year. Self-employed tax returns have two filing dates. June 30 is the filing date for self-employed individuals who are not required to provide audited accounts. December 31 is the filing date for self-employed individuals who are required to provide audited accounts.
Cyprus has Double Taxation treaties with more than 60 other counties. This provides many individuals with significant tax benefits as tax residents in Cyprus.
1. Special Defence Contribution (SDC)
Special Defence Contribution (SDC) tax is charged on all income earned by Cyprus tax residents. Non-domiciled tax residents are exempt from this tax.
Under the SDC tax, domiciled residents must contribute 17% on worldwide income on dividends, 30% on bank interests, and 3% on rental income.
2. Value Added Tax (VAT)
Most goods and services in Cyprus are taxed under the Value Added Tax (VAT) system. Cyprus VAT separates goods and services into five categories for taxation rate purposes. Below is a general breakdown of the categories:
- Services connected to imports and exports have a 0% VAT rate.
- Media such as books, magazines, newspapers, and movie tickets, as well as sporting facilities usage, have a 5% VAT rate.
- Hotel accommodation, restaurants, and catering services have a 9% VAT rate.
- Public interest supplies such as medical and postal services are exempt from VAT policies.
- All other goods and services are taxed at the standard VAT rate of 19%.
There are exemptions for individual income taxation. These include dividend income, interest income not arising in the normal course of business, gains arising from the disposal of securities, or gains arising from restructuring.
B. Cyprus Business Tax Overview
Businesses operating in Cyprus are considered tax residents and must follow tax regulations as such. A company is deemed a tax resident if it is managed and controlled in Cyprus. Luckily, Cyprus is one of the most attractive tax systems in the world for business.
The corporate income tax (CIT) rate in Cyprus is 12.5%. This tax is applicable to all income accrued in Cyprus or abroad. This rate is one of the lowest in the EU and comes with many other taxation incentives.
Income on dividends, profits from the sale of securities, and interest not accrued from a normal business activity are not taxable.
1. Special Defense Contribution
Special Defence Contribution (SDC) tax is charged on all income earned by Cyprus company tax residents:
- The tax rate is 0% on dividend income from Cyprus and non-Cyprus companies.
- Interest income from normal business activities is also taxed at an SDC rate of 0%. This income is taxed at the CIT rate of 12.5%.
- Passive interest income for Cyprus company tax residents is taxed at an SDC rate of 30%. Passive interest income is exempt from the CIT tax.
- Gross rental income is reduced by 25% and then taxed at an SDC rate of 3%. It is also taxed at the CIT rate of 12.5%.
2. Capital Gains Tax
Cyprus does have a Capital Gains Tax (CGT) for profits earned in situations in which immovable property is sold at a different cost than the original, amounting in a taxable gain. Since this amount is exempt from the CIT rate, it is taxed separately at rates between 0 and 8%.
All other capital gains are exempt from taxation, besides those mentioned above that relate to the disposal of real estate in Cyprus.
3. Local Income Taxes
No local government taxes are imposed on income in Cyprus.
4. Immovable Property Tax
5. Value Added Tax (VAT)
Cyprus company tax residents should complete VAT registration. Depending on the nature of the business activities of the company and the goods and services it handles, VAT tax may be between 0 and 19%. Many industries are taxed at a reduced rate of 5 or 9%.
Dividend income, profits arising from sources of sales of securities, passive interest, and profits of a permanent establishment not in Cyprus all qualify for tax exemptions under the directives of the Cyprus tax authorities.
Expenditures deemed exclusively for income production are tax-deductible. Also, special contributions to approved charities and organizations can also be deducted. Business entertainment is deductible at a rate of 1% gross income and up to 17,086 Euros.
GeSY, National Healthcare System
GeSY is the new national healthcare system of Cyprus. It began Phase 1 in 2019 and will become fully functional in March 2020.
It will be funded from contributions from employees, employers, states, self-employed individuals, pensioners, income earners, government officials, and individuals responsible for the payment of remunerations to government officials at contribution rates ranging from 2.65 to 4.7%.
Individuals who are not tax residents of Cyprus will only pay on income, earnings, and pensions that were accrued in Cyprus, excluding dividends and interest.
Tax Benefits for Digital Nomads, Online Entrepreneurs, and E-Commerce Companies
Under the “60 Day Rule”, many digital nomads and online entrepreneurs are choosing Cyprus as a prime location to set up their businesses and gain tax residency.
With a low tax rate of 12.5% and the benefits of registering a fully-formed EU company in as little as a few weeks, Cyprus is drawing many foreign investors eager to take advantage of the country’s immigration and taxation laws. Find out more in this My Kypros Home article on the opportunities to gain tax residency for digital nomads
Is Cyprus a Tax Haven?
As of 2015, the OECD officially deemed Cyprus compliant with the standards outlined by the Global Forum on Transparency and Exchange of Information for Tax Purposes. This designation moved Cyprus away from tax haven status to one on par with countries such as Germany, the United States, and the United Kingdom.
In an effort to gain compliance status, Cyprus increased its corporate tax rate from 10% to 12.5%. This rate has remained unchanged since it was introduced in 2013.
The country has also become a participating member in the Automatic Exchange of Financial Information in Tax Matters. Through the program, tax-related banking information of non-citizens is sent to the home countries in order to supervise reports of offshore income.
Even though Cyprus is no longer considered a tax haven, it still boasts one of the lowest corporate tax rates in the EU, with Ireland sharing the same business tax rate. However, Cyprus business tax policies have revitalized the banking industry by nine times its 2009 economy and caused a boom of favorable business activities.
Cyprus continues to draw interest from all over the world as individuals and companies find the immigration and taxation laws favorable for business activities and an improved lifestyle. With some of the lowest rates of taxation in the EU, Cyprus is able to put companies in the heart of the European business community while also encouraging business growth for its industries.
Get in touch with My Kypros Home today to find out more about Cyprus business tax benefits for your specific business or browse our list of beautiful properties. Let Cyprus, a true Mediterranean island jewel, reward your business with tax benefits!