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February, 14 2019
February, 7 2019
Tax Haven CyprusCyprus imposes corporation tax on 'companies': this term includes all companies incorporated or registered
under any Cyprus law, and any foreign company which carries on business or has an office or place of business
(permanent establishment) in Cyprus.
In July, 2002, as part of the Income Tax Act No. 118(I) of 2002, Parliament approved a uniform 10% corporate
tax rate, to apply to both onshore and offshore companies, plus a 2% levy on wage bills (meant to subsidise
pensioners), and a 'Special Contribution' related to defence which in effect applies the 10% corporate tax rate
to inter-company dividend and interest payments. However, the rules are complex.
An additional tax of 5% was imposed on company profits exceeding CYP1,000,000 for the years 2003 and 2004.
As from 2003, Cyprus applies a residence-based taxation regime: "Resident in the Republic", when applied to a
company, means a company whose management and control is exercised in the Republic; and "non-resident or
resident outside the Republic" will be construed accordingly.
However, profits from activities of a permanent establishment situated outside Cyprus are completely exempt.
This exemption will not apply to a Cyprus company if: (i) its foreign permanent establishment directly or
indirectly engages in more than fifty per cent (50%) of its activities in producing investment income, and (ii)
the foreign tax burden is substantially lower than that in Cyprus.
Dividends are exempted from tax; however, new provisions have been introduced under the Special Contribution
for the Defence of the Republic Law, 2002 ("Special Contribution").
"Permanent establishment" has the same meaning as defined in the OECD Model Tax Convention on Income and on
Capital with the exemption of "a building site or construction or installation project", which constitutes a
permanent establishment only if it lasts more than three (3) months.
The 10% corporate tax gives Cyprus the lowest rate in the EU, after Ireland (12.5%), with the exception of the
Isle of Man, Jersery and Guernsey, which have all announced a nil rate - but these islands are not in the EU
anyway for most purposes.
After the EU finally agreed its Tax Directive in June, 2003, the Commission said it intended to give the ten
acceding states, of which Cyprus is one, until 2007 to implement the Directive, which includes a 'Code of
Conduct' on 'harmful tax practices' and rules to avoid the double taxation of royalty and interest payments.
However, a statement released by the Cypriot Ministry of Finance said that Cyprus would adopt the new code in
full from 2005. The royalties and company interest directive was in place from January 2004, according to the
ministry, which pointed out that it was already compliant with the Code of Conduct rules as a result of its
recent tax reforms.
Along with other member states of the EU, Cyprus introduced an exchange of information regime applying to the
returns on savings under the Savings Tax Directive as from 1st July 2005.
Published by Lowtax.net