Cyprus

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Tax Policy

TAX POLICY

Income Tax Rate 30%

Corporate Tax Rate 10%

Sales Tax / VAT Rate 15%

Income Tax for an Individual

Cyprus personal tax rates are progressive, up to 30%. The following income tax rates apply to individuals in Cyprus:

Taxable Income €

Tax Rate %

Tax €

Accumulated Tax €

€0 - 19,500

Nil

Nil

 

€19,501 - 28,000

20%

€1,700

€1,700

€28,001 - 36,300

25%

€2,075

€3,775

Over €36,300

30%

 

 

Pensions receivable from abroad by a resident in respect of services rendered outside Cyprus are still taxed at 5%, after deduction of the first EUR 3,417 if the individual elects to do so.

There is a basic exemption for an individual. The exemption is conditional on the class of the real estate.

The amount of the lifetime exemption on the sale of a residential apartment is up to a maximum of EUR 85,430. (when living at least 5 years before sale).

Corporate Tax

The basic tax rate in 2011 is 10%, and 25% for Semi-government organizations.

Shipping companies sailing under Cyprus flag pay zero tax on profits and dividend paid.

A Cyprus resident company is subject to corporation tax on its worldwide income. Non-resident companies are subject to corporation tax only on profits derived in the Republic. Resident companies are those companies whose management and control is exercised from Cyprus.

A fiscal year is the calendar year.

Capital gains tax

Gains in respect of the sale of immovable property situated in Cyprus (including shares of a company whose assets include such immovable property) are subject to Capital Gains Tax. Both residents and non residents are subject to capital gains tax if they own immovable property in Cyprus. The applicable rate on the taxable income is 20%. No tax is levied in respect of immovable property situated abroad. No tax is levied on capital gains in respect of profits on disposal of shares of companies (other the ones which own immovable property).

Branch profits tax

Branches managed and controlled from Cyprus are taxed as a resident company.

Fringe benefits tax (fbt)

Certain benefits such as use of cars for private purposes, rent, school fees etc are considered as benefits in kind and taxed accordingly.

Local taxes

Local taxes include transfer fees on sale and purchase of property, stamp duty (only in respect of assets situated in Cyprus), and property tax.

Other taxes

Contributions to the social insurance fund are paid on the salaries of resident employees. The total amount paid by an employer can vary from 10.5% to 18.5% of the gross salary. The employee pays a further 6.8%. The maximum salary on which contributions are paid is currently EUR 4,004 per month.

Tax incentives

Some of the main incentives are as follows:

(a) low corporation tax of rates at 10%

(b) non-resident entities are only taxed on their Cyprus-sourced income

(c) no withholding tax on payments to non-residents

(d) profits and dividends from abroad are tax-free free subject to CFC rules

(e) restructuring legislation in line with the EU Merger Directive extending to companies in non-EU countries.

(f) low VAT rate

(g) a Cyprus holding company can pay virtually no tax on its profits.

Foreign tax relief

Foreign tax paid on income of a Cyprus resident company is credited against the corporation tax, subject to Double Tax treaty conditions. In the absence of a tax treaty, the tax paid in a non-treaty country is normally allowed as a deductible expense. Tax paid is credited only if a similar concession is given to Cyprus companies in that particular country. The foreign tax relief cannot exceed the Cyprus corporation tax on these profits.

Corporate groups

Group loss relief is available to a group of Cyprus resident companies in relation to current year losses. Two companies will be considered as part of a group if one company holds 75% of the voting share capital or distributable profits of the other, or both companies are 75% subsidiaries of a third company. The group must be in existence within the whole fiscal year.

Withholding tax

Resident companies must withhold taxes on certain royalty payments depending on the rates provided in any tax treaty. Cyprus has entered into double tax treaties with over 40 countries. Non-resident companies have no obligation to withhold taxes on any payments they make.

Resident companies withhold contributions to the defence fund of the Republic on dividends paid to resident individuals at the rate of 15%. Dividends paid to nonresident shareholders are not subject to withholding tax.

Interest income is subject to a withholding contribution to the defence fund of 10%. If interest is received from abroad, such income is assessed as above at 10%.

Where interest is considered as profit close to the ordinary activities of the company, then such type of income is considered as trading profit and not interest. Hence it is not subject to defence contribution. Examples include financing and insurance companies etc.

VAT Rates (Value Added Tax)

VAT is generally imposed on taxable supplies of goods and services at the standard rate of 15%. Certain supplies of goods and services are charged at the reduced rate of 8%; others are zero-rated, notably ship management services. Some supplies of goods and services are exempt from VAT: specifically, financial services, health and welfare, insurance, and education. The annual VAT registration threshold is EUR 15,600. Cyprus has adopted the provisions of the EU Directive 2008/8/EC effective from 1 January 2010.