What are the tax incentives in Cyprus and why it’s such a popular destination?
First of all Cyprus is not a paradise only for tax purposes but it’s also a paradise for so many other reasons. Some of them are the cheap real estate, cheap cost of life (food, rent, electricity etc), friendly European environment, sandy beaches, 8 months of summer, low criminality etc…
In this article I will briefly discuss incentives for tax purposes that foreigners can take advantage of if they decide to set up a corporation in Cyprus or even move to Cyprus and become Cyprus tax residents.
So tax incentives for companies in Cyprus:
First of all we have the lowest Corporate tax in Europe which is 12.5%.
- Also we exempt dividend income so it is not taxed, even If you receive that dividend income from a Company abroad.
- Profits from disposal of shares in subsidiaries are not subject to taxation in Cyprus.
- We have the NID (Notional Interest Deduction), so 80% of the income can be deducted notionally that means that you can achieve 2,5% taxation instead of 12.5%. Our NID regime Is also approved by ECOFIN and EU Code of Conduct Group.
- You also gain access to a wide network of Double Tax Treaties (DTT) providing zero or low withholding tax (WHT) on interest, dividend and royalty payments sent from abroad to your Cyprus company.
- We also have the famous IP BOX providing for 80% tax exemption on profits derived from a qualifying asset developed after 30th of June 2016, so again you can achieve 2.5% tax rate from royalty income.
- No general transfer pricing rules, no transfer pricing rules on Intellectual Property. That means that you can charge your affiliate company as much as you want for licensing your IP.
- When you have losses on a company they can be offset against other sources of income are carried forward for five years and can be also set off against profits of another company of the same group.
- We do not tax capital gains in Cyprus with the exception of the gains derived from disposal of immovable property located in Cyprus but still tax rate is low, only 20%. We do not tax gains from disposal of immovable property abroad.
These are some main advantages that you can gain if you incorporate your business in Cyprus, or set up a subsidiary or even a Permanent Establishment (PE).
Let’s have a look on the advantages you can gain as an individual.
- First of all you are taxed at 0% on your income tax for the first €19.500. After that amount you are being taxed as follows:
€19,501 – €28,000 20 %
€28,001 – €36,300 25 %
€36,301 – €60,000 30 %
€60,001 and over 35 %
- We exempt 20% or €8543 (whichever is lower) of the remuneration from employment exercised in Cyprus by an individual who was residing outside Cyprus before the commencement of their employment. This exemption applies for a period of 5 years.
- We also exempt 50% of the earnings of a non-resident individual that is employed in Cyprus and earnings over €100 000 will be exempt from tax for 10 years.
- We have a special tax in Cyprus that is called Special Defense Contribution (SDC) and itis imposed on dividend income, ‘passive’ interest income and rental income earned by companies tax resident in Cyprus and by individuals who are both Cyprus tax resident and Cyprus domiciled.
- For the non-domiciled individuals, no SDC taxes apply (only minimal GeSY health care system contributions rate 2.65%).
- For the domiciled residents we apply SDC at 17% on dividend income and 30% on investment interest. Good news is that no income tax applies if SDC is applied.
- If another country applies withholding tax on a payment sent to you then Cyprus will give you credit on this tax paid abroad so you will not be taxed twice.
- If you are employed you have to pay social insurance contributions at 8.3% of your gross salary which is pretty low compared to other EU countries.
- Also for individuals gains from disposal of shared or titles are not subject to tax.
- About overseas pensions if you have an income from Pension for services outside Cyprus you have to 5% tax rate only if it exceeds €3417.
If you are interested in registering a company in Cyprus o becoming a resident in Cyprus then send us a message for a Free discussion.
Written by Grigoris Aivazidis – Financial Advisor LA Law Firm