Choosing the right place to set up a business can cause a lot of stress and anxiety. So, meet Cyprus, a compliant member of the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD)! Moreover, Cyprus is also one of the most alluring countries in the world for business set up and development.
Now, this beautiful island country has a straightforward business registration process. Besides, it is also famous for its favorable residency programs and tax incentives. In this Immigration Explorer guide, learn more about Cyprus business tax policies. Plus, discover the benefits these have for both companies and individuals pursuing advantages for their business activities.
Cyprus Tax Authorities
To begin with, 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. As such, it oversees and maintains Double Tax Agreements between Cyprus and other counties. Besides, it interchanges information on tax-related data under EU and international partnerships.
A. Income Tax for Individual Tax Residents of Cyprus
First, tax residents of Cyprus are taxed on all income from Cyprus and international sources. Income under 19,500 Euros is tax-exempt. Income ranging from 19,501 Euros or higher is subject to 20% to 35% tax. In fact, you can qualify in as little as 60 days.
Next, individuals who are not tax residents of Cyprus are only taxed on income 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 are due 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 don’t have to provide audited accounts. December 31 is the filing date for self-employed individuals who have to provide audited accounts.
Finally, Cyprus has Double Taxation treaties with more than 60 other counties. This provides many individuals with significant tax benefits as tax residents in Cyprus.
Special Defence Contribution (SDC)
Special Defence Contribution (SDC) tax applies to all dividend, interest and rental 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. Besides, they must contribute 30% on bank interests, and 3% on rental income.
Value Added Tax
Most goods and services in Cyprus are subject to 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 for your tax optimization in Cyprus:
- 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 subject to the standard VAT rate of 19%.
Immovable Property Tax
There is no immovable property tax in Cyprus as of January 1, 2017.
Exemptions
Of course, 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 count as tax residents and must follow tax regulations as such. A company is a tax resident if you manage and control it 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.
Special Defense Contribution
First, Special Defense Contribution (SDC) tax applies to 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 subject to 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 subject to an SDC rate of 30%. Passive interest income is exempt from the CIT tax.
- Gross rental income is reduced by 25% and then subject to an SDC rate of 3%. It is also taxed at the CIT rate of 12.5%.
Capital Gains Tax
Cyprus has a Capital Gains Tax when you sell a property with profit, resulting in a taxable gain. Since this amount is exempt from the CIT rate, it is subject to a tax rate between 0 and 8%.
However, all other capital gains are exempt from taxation, besides those mentioned above.
Exemptions
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.
Deductions
Of course, you can also deduct expenditures. For example, expenditures deemed exclusively for income production are tax-deductible. Also, special contributions to charities and organizations can also be deducted. Finally, 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 became fully functional in March 2020.
It is funded from contributions from employees, employers, states, pensioners, and individuals responsible for the payment of remunerations to government officials at contribution rates ranging from 2.65 to 4.7%.
So, individuals who are not tax residents of Cyprus will only pay on income and earnings.
Tax Benefits for Digital Nomads, Online Entrepreneurs, and E-Commerce Companies
First, under the “60 Day Rule” many digital nomads and online entrepreneurs are choosing Cyprus as a prime location. They set up their businesses and gain tax residency.
Finally, Cyprus offers a low tax rate of 12.5%. Plus, the benefits of registering a fully-formed EU company in as little as a few weeks. As such, Cyprus is drawing many foreign investors eager to take advantage of the country’s immigration and taxation laws.
Is Cyprus a Tax Haven?
Since 2015, Cyprus is officially compliant with the Global Forum on Transparency & Exchange of Information for Tax Purposes. In fact, this designation moved Cyprus away from its tax haven status.
To gain compliance status, Cyprus increased its corporate tax rate from 10% to 12.5%. And this rate is the same since its introduction in 2013.
Besides, the country has also become a participating member in the Automatic Exchange of Financial Information in Tax Matters. Thus, the tax-information of non-citizens is shared with the home countries to supervise reports of offshore income.
Although Cyprus is no longer a tax haven, it still has one of the lowest corporate taxes in the EU. However, Cyprus’ business tax policies have revitalized the banking industry by nine times its 2009 economy.
The Takeaway about Cyprus Business Tax
To sum it up, Cyprus continues to draw interest from all over the world. Individuals and companies find the immigration and taxation laws favorable for business activities and an improved lifestyle. So, Cyprus’ low tax rates put companies in the heart of the European business community.
So, get in touch with Immigration Explorer TODAY for your FREE consultation. Also, find out more about Cyprus business tax benefits for your specific business. Let Cyprus, a true Mediterranean island jewel, reward your business with tax benefits!