About Cyprus

Cyprus is an island situated in the eastern Mediterranean, at the crossroads of Europe, Asia and Africa. Cyprus is part of the EU since 1 May 2004 and part of the EMU (Eurozone) since 1 January 2008. It has a solid and reliable banking sector as well as business oriented highly skilled professionals. The commercial banks of Cyprus have strong international connections and provide global banking services.

Cyprus has excellent climatic conditions. There is also political and economic stability. There is a high standard of telecommunication services as well as frequent air connections to and from the island. The legal system in Cyprus is based on English Law and English is widely spoken and used in official business and commerce.


Cyprus has established itself as a primary international business centre, with a growing number of international businesses choosing it for setting up branches, subsidiaries and holding companies. The existence of an increasing number of Double Tax Treaties with other countries, the favourable corporate tax system, the skilled, highly educated, experienced and flexible labour force, make Cyprus an attractive international base for a wide range of businesses.
Cyprus has a stable tax system regime. Cyprus companies are required to submit audited financial statements to income tax authorities and the Registrar of Companies using the International Financial Reporting Standards (IFRS) and International Standards on Auditing.

Advantages for doing business in Cyprus
• Lowest corporate tax rate (12.5%) in the European Union
• Extensive network of double taxation treaties
• Tax losses can be carried forward and also Group loss relief applies for Cyprus companies subject to certain provisions
• Non resident companies are taxed only on the income derived in Cyprus
• Dividends received from abroad are wholly exempt from income tax
• Withholding tax in respect of dividends, interest or royalties paid into Cyprus from other countries, can be minimized due to the wider applicability of treaties for the avoidance of double taxation
• There is no capital gain tax on profits made on the disposal of assets of a capital nature (except for immovable property situated in Cyprus)
• Capital gains tax is payable on the sale of immovable property in Cyprus, and on the sale of shares in a company that owns immovable property in Cyprus
• Dividends paid to non-resident shareholders are not subject to any withholding taxes. The same applies to payments of interest or royalties (provided that the royalties do not relate to use of intellectual property locally in Cyprus)
• There is no corporation tax on the income from buying and selling shares and other securities
• Advantageous tax system for pensioners and expatriates
• Probably the most favourable holding company jurisdiction in Europe
• Re-organizations, amalgamations, mergers and acquisitions of companies can be effected without any tax implications


The most commonly used business entity is the limited liability company (Ltd) in which the liability of its members is limited to the amount of share capital subscribed the company. The share capital of the company is divided to a number of shares and each share has a nominal value.
A Cyprus International Business Company (IBC) will pay a tax of 12.5% on its net profits if it is a Cyprus resident. An IBC is resident if its management and control is in Cyprus. Management and control is usually determined by the place of residence of the majority of the directors and the place where board meetings take place. An individual is considered Cyprus tax resident if he/she stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment. Cyprus tax residents are taxed on their worldwide income whereas non residents only on their income earned in Cyprus.
International business companies or branches, which are managed and controlled from abroad and profits earned from a permanent establishment abroad are totally exempt from Cyprus tax laws.

The following are well known types of International Business Companies:
Holding Companies
The major advantage of a Cyprus holding company is that there is no withholding tax on dividends received from an overseas company (not resident in the Cyprus), provided the participation in the share capital of the paying company is at least 1%. This exemption does not apply if the overseas company paying the dividend engages directly or indirectly more than 50% in activities which lead to investment income and the foreign tax burden is significantly lower than the Cyprus tax burden (lower than 5%) .
There is also no withholding tax on the dividends paid by a Cyprus company to its non Cyprus residents shareholders irrespective of whether the recipient is a body corporate or individual, its country of residence or the existence of a double tax treaty. Dividends paid by a Cyprus company to Cyprus residents are subject to 17% defence tax.
Profits from a permanent establishment outside Cyprus are exempt from Cyprus tax laws and there is no withholding tax on interest paid by a Cyprus company to non-resident creditors.
Profits realized by a Cyprus holding company from the sale of shares and other securities are exempt from income tax except of gains from disposal shares in companies owning Cyprus real estate. Therefore, there is no tax on the disposal / liquidation of participations held by the Cyprus holding company or the disposal of the shares of the Cyprus holding company or the liquidation of the Cyprus holding company owned by non-residents.
Where the main business activity of a Cyprus holding company is the acquisition and holding of shares in other companies without taking part directly or indirectly in the management of these companies, Cyprus holding company has no obligation to register for VAT and may have the advantage of not applying the VAT reverse charge provisions.
For the above tax reasons, companies may wish to operate a holding company in Cyprus and exercise management and control of their group in Cyprus.
Trading Companies
A Cyprus trading IBC is placed between a buyer and a seller. Goods are delivered directly to their destination and is not necessary to be physically delivered to Cyprus. Purchases/sales invoices will be raised to/from the Cyprus trading IBC. Transactions with Cyprus trading IBC must be on terms and conditions which could be obtained on an arm’s length basis from independent third parties.
In this way, taxable profits will be transferred in Cyprus and take advantage of the Cyprus tax incentives. Trading profits of Cyprus trading IBC will be subject to corporation tax 12.5% after deducting all relevant expenses.
Also, there is no withholding tax on dividends distributed to non-resident shareholders and on interest paid by a Cyprus company to non-resident creditors.
Investment Companies
A Cyprus IBC can be incorporated to finance various projects internationally belonging to the same group.
Interest income of Cyprus investment IBC is considered to arise from the ordinary activities of the company and is subject to corporation tax 12.5%.
There is no withholding tax on dividends distributed to non-resident shareholders and on interest paid by a Cyprus company to non-resident creditors.
Royalty Companies
Royalties are the payment of license fees or commissions by one individual or entity to another for the use of intellectual property. Common types of intellectual property include:
• Patents
• Trademarks
• Copyright
Any expenditure on royalties incurred by a person carrying on a business with regard to which the Commissioner is satisfatied that it has been incurred for the benefit of the business is an allowable deduction. So, royalty income of a Cyprus IBC will be subject to corporation tax at the rate of 12.5% after deducting all relevant expenses. Also, Cyprus IBC can deduct from corporate income tax payable in Cyprus withholding taxes over the royalties received.
There is no withholding tax on dividends distributed to non-resident shareholders and on interest paid by a Cyprus company to non-resident creditors.
There are no withholding taxes on royalties paid by the Cyprus company where Cyprus IBC is granted the royalty rights to use a patent, trademark or innovation outside Cyprus.
Finance Companies
The Cyprus finance IBC usually borrows money from the parent company in a no tax jurisdiction and lend money to subsidiary companies operating in countries which signed Tax Treaties with Cyprus.
Interest income of Cyprus finance IBC is considered to arise from the ordinary activities of the company and net interest income will be subject to corporation tax in Cyprus at 12.5%.
Also, there is no withholding tax on dividends distributed to non-resident shareholders and on interest paid by a Cyprus company to non-resident creditors.
Employment and Consultancy Services Companies
Individuals who are not tax residents in Cyprus and who receive substantial amounts of income and benefits in kind in respect of employment exercised outside Cyprus may use advantageously a Cyprus IBC. The individual will be and employee of the Cyprus IBC and Cyprus IBC would contract with the employer for the performance of a relevant work and would invoice and receive payment accordingly.
Cyprus IBC will be subject to 12.5% corporation tax after deducting all relevant expenses including salaries, bonuses and other benefits paid to the individual.
Dividends distributed by Cyprus IBC to not resident individual will have no withholding taxes in Cyprus. The salary of individual from employment exercised outside Cyprus with the Cyprus IBC will not be taxed in Cyprus.
Professionals and consultants can use a Cyprus IBC for the management of their operations to third countries. The Cyprus IBC will enter into contracts with third parties for the performance of the relevant work and will issue invoices and receive payments accordingly.
Consultancy income will be subject to corporation tax at the rate of 12.5% after deducting all allowable expenses. Fees and salaries paid by a Cyprus IBC to consultants and employees who are not resident in Cyprus are not subject to any taxation in Cyprus.
Also, there is no withholding tax on dividends distributed to non-resident shareholders.
Shipping Companies
Profits earned by a Cyprus shipping company that owns ships under the Cyprus flag and operate in international waters are exempt from income tax in Cyprus.
International Business Companies/individuals that carry out ship management and crew management from an office in Cyprus have the choice to be taxed at the rate of 4.25% on their taxable profits or rates equal to 25% of the rates applicable to the tonnage tax for foreign vessels under their management that are registered outside Cyprus.
There is no tax on salaries and other benefits paid to the master, the officers and the crew of a Cyprus ship.
Also, dividends paid out of profits earned from the operation of a Cyprus ship in shipping activities or from provision of ship management services, paid to the shareholders of a company are exempt from Cyprus tax.
The International Trusts Law of Cyprus governs international trusts. International trust is the trust whose property is located and income is derived from outside Cyprus.
International trusts are not taxed in Cyprus and as a result they provide significant tax planning opportunities to interested parties.
The following advantages of a Cyprus International Trust are perhaps worth mentioning:
• All income whether trading or otherwise of an International Trust, is not taxable in Cyprus
• Gains on the disposal of the assets of an International Trust are not subject to capital gain tax in Cyprus
• Dividends, interest or other income received by an International Trust from a Cyprus company are neither taxable nor subject to withholding tax
• The assets of an International trust are not subject to estate duty in Cyprus

Because of its favourable tax regime and its wide network of double treaties, Cyprus holds an important position in international tax planning.
Our firm is prepared to explain advantages enjoyed by Cyprus International Business Companies (IBCs) and to describe how such entities may be incorporated and operate in Cyprus.

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