Companies whose management and control is exercised in Cyprus are considered Cyprus resident companies and are taxed on their World Wide Income which includes all business profits, rents, royalty rights plus the profit from the sale of goodwill.
Tax exempt income
The following income is exempted
- Profits from the sale of securities (among others includes shares, bonds, debentures, options on securities)
- Dividends from other companies (based in Cyprus or abroad under certain conditions)
- Profits from a permanent establishment that the company maintains abroad
- 50% of interest from all sources (100% for individuals)
Companies, non-resident in Cyprus, are taxed only on income generated from a permanent establishment in Cyprus.
The Cyprus corporation tax is 10% for newly established companies.
There is no withholding tax on the payments made by Cypriot companies abroad for dividends, interest and royalty rights.
There is no defence tax on dividends paid to non residents of Cyprus.
Cypriot resident shareholders pay defence tax of 15% on deemed distribution of profits of 70% of the net accounting profits for the year.
The enclosed notes are general in nature and their intention is to provide readers with an outline of the regulations. Readers are advised to contact us, should they wish to take any action.
For what reasons is Cyprus chosen as an international business centre? Historically the increase in the number of offshore companies was associated with the influx of Lebanese and later Yugoslavs who wanted to transfer their operations to a safer base while at the same time securing residence and work permits. The first offshore companies usually consisted of business persons in international trade or ship management who had experience in their fields and who found Cyprus an attractive place of residence.
With the development of international tax planning it also transpired that by establishing a permanent establishment in Cyprus profits could be diverted to Cyprus and taxed at a reduced rate. Dividends interest and royalties could be extracted from a high tax country which had signed a double tax treaty with Cyprus providing for low or nil withholding taxes. Where a withholding tax is paid this can be set against the Cyprus corporation tax payable. Dividend income paid to non resident shareholders or company profits from the sale of shares is tax free thus making Cyprus companies ideal to act as Holding Companies, as both the entry and exit tax are nil.
With the many double tax treaties that Cyprus had signed with Eastern Europe and the former Soviet Union Cyprus became the ideal medium through which investments could be made from Canada or the USA to Russia and elsewhere.
Other considerations which are taken in to account are:
- The proximity of Cyprus to the Middle East and Russia who use Cyprus as a safe base especially non profit making organisations.Cyprus still remains a place where you can walk the streets in safety both day and night and where you can leave your car unlocked
- Expatriates and Cypriots have the same protection under the law and human rights are protected.
- Telecommunications are excellent and inexpensive to most known parts of the world.
- There is an abundance of University graduates
- Good education and health care is available
- The cost of running an office fluctuates but at present office rents are low and staff costs are relatively low.