Cyprus’ taxation system is one of the most attractive in Europe. Member state of the European Union and the Organization for Economic Co-operation and Development (OECD) the country’s regulatory framework provides one of the lowest corporation taxes in the EU. The taxation of corporations paired with the extensive network of double tax treaties Cyprus has signed with other countries provide an appealing environment for foreign investors.
A company will be taxed on its worldwide income if it was incorporated in Cyprus or has a management board in Cyprus. Cypriot companies making profits from their activities outside the country are taxed the same as on the incomes they make in the country. The corporate tax applied to foreign companies will be levied only on the income they make in Cyprus. The corporate tax in Cyprus consists of:
The tax rate applied to corporations is set at 12.5% and the capital gains tax is 20% for earnings made from the sale of a real estate property located in Cyprus. Corporations are also subject to a Special Contribution for Defense (SCD) applied to dividends, interests and rents. The SCD tax on dividends is 20%, interests are taxed with 30%, while rents are taxed with 3%. Dividends, if they are not exempt from taxation are subject to a 20% rate, while royalties are subject to a corporate tax of 5% on film royalties and 10% on other royalties.
Cyprus offers exemptions from the corporate tax when it comes to dividends, interests and royalties provided some conditions are met. Dividends benefit from tax exemptions if they are distributed by a Cypriot company to a non-resident shareholder or if they are received by a company in Cyprus from a foreign company. Interests benefit from tax exemptions if they are distributed to a non-resident shareholder, while royalties are exempt from taxation if they are paid by a foreign shareholder and if they are used outside the country.
Cypriot companies are also required to pay other taxes such as a capital duty tax that is set at 0.6% when the start-up capital for company registration is issued, the real estate property tax that varies between 0.6% and 1.9%, a transfer tax on property that varies between 3% and 8%. Employers must also contribute to the social security fund with 8.5% of an employee’s gross salary.
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