Taxation of Foreign Companies in CyprusUpdated on Tuesday 22nd September 2015
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Foreign companies in Cyprus
In 2003 Cyprus modified its legislation regarding the taxation of companies by abolishing the distinction between domestic companies and foreign ones. Tax residency of companies in Cyprus depends on where the management is established and control of the company is located. Even if there is no specific definition regarding the management and control of a company in the Cypriot Commercial Code, the two terms refer to where the board meetings take place. Permanent establishments of foreign companies include the registration of an office or a branch in Cyprus for periods longer than three months.
The corporate tax applied to foreign companies in Cyprus
Foreign companies are taxed on the profits earned by their permanent establishments in Cyprus. The corporate tax rate in Cyprus is 12.5%, which is also among the lowest corporate taxes in Europe at the moment. Unlike local companies, foreign companies cannot benefit from the double taxation agreements Cyprus has with other countries. Companies are also subject to a Special Contribution for Defense (SCD), also called the Defense Tax that applies to dividends, interests and rental of properties in Cyprus. The rates of the Defense Tax are as it follows:
- - dividends are taxed with 17%,
- - interests are taxed with 30%,
- - rentals are taxed with 3%.
For information about opening a branch or a virtual office you can ask our lawyers in Cyprus.
Tax exemptions and deductions for foreign companies in Cyprus
Foreign companies, like Cypriot companies will benefit from the following exemptions from the corporate tax:
- - the income earned from interests,
- - incomes earned from dividends,
- - incomes earned from the disposal of securities.
Interests earned from open-ended or closed-ended collective investment schemes in Cyprus are not exempt from taxation.
Expenses incurred for the production of income are deducted in Cyprus. Part of them such as interests from the acquisition of fixed assets employed in the business, donations and contributions of the foreign company to the funds on Cypriot employees’ salaries are wholly deducted. Expenditure for maintenance and profits from the exploitation of intellectual property rights are partially deducted in Cyprus.
You can contact our Cypriot lawyers for details about investment schemes available for foreign enterprisers.