Cyprus has signed over 30 treaties (see table) which provide for the beneficial treatment of withholding tax compared to non-treaty countries. Further any withholding tax paid in treaty countries is set against Cyprus taxation.
The benefit of double tax treaties is that profits can be withdrawn from overseas investments in the form of dividends, interest, royalties or management fees and transferred to a Cyprus holding company with low or nil withholding tax compared to 25% in many cases where no treaty exists. As seen earlier dividends received from Cyprus or abroad are tax exempt in Cyprus, as are the profits of overseas permanent establishments.
Even when the withholding tax is 10% the effective tax rate in Cyprus on the overseas income (such as management fees) is nil due to the credit given against Cyprus tax for the withholding tax paid. In this way overseas profits, which are highly taxed can be withdrawn and subjected to tax at lower rates (i.e. 10%).