Cyprus is considered an attractive destination to register a company due to the various benefits the island’s company and tax systems offer.
CORPORATE TAX RATE
The corporate income tax in Cyprus is 12.5%, a tax rate that is considered one of the lowest within the European Union.
IMPOSITION OF CORPORATE TAX
All Cyprus tax resident companies are taxed on their net profits received from all sources in Cyprus and abroad. Non-Cyprus tax resident companies are taxed only on their net profits received from sources in Cyprus.
COMPANY TAX RESIDENCY
A company is considered as a tax resident of Cyprus and is subject of the corporate income tax if it is ‘’managed and controlled’’ within Cyprus. The legislation does not clarify the definition of ‘’managed and controlled’’ and the general notion is as to where the directors reside and where the board of directors meetings take place. So for a company to be considered that it is ‘’managed and controlled’’ in Cyprus and consequently be a Cyprus tax resident, its directors must reside in Cyprus and/or the board of directors meetings must be held in Cyprus on a regular basis.
EXEMPTION OF CORPORATE INCOME TAX
Cyprus tax system provides some exemptions and the corporate income tax is exempted on dividends, profits from sales of securities, interest arising from non-ordinary activities of the company and profits of a permanent foreign establishment.
SPECIAL DEFENCE CONTRIBUTION ON DIVIDENDS
This is a contribution imposed to Cyprus tax resident companies and individuals on income they received by specific sources such as dividends. Dividends represent part of the company’s net profits that are distributed to its corporate or individual shareholders according to the nominal value of their shares within the company. When distributed, dividends are subject to taxation at a rate of 17% and the dividends payments are usually subject to withholding taxes.
IMPOSITION OF SPECIAL DEFENCE CONTRIBUTION
Dividends distributed to a Cyprus tax company or an individual are liable to the Special Defence Contribution. A company ‘’managed and controlled’’ within Cyprus is considered as tax resident and an individual is a tax resident if he has spent in Cyprus more than 183 days within one tax year or 60 days (under the 60 days rule conditions). Dividends payments made to non-resident tax companies or individuals are not subject to taxation.
NON-DOMICILED TAX STATUS EXEMPTION ON DIVIDENDS TAXATION
If a company or an individual have Cyprus tax residency but have not been a tax resident for a period of at least 17 years out of the last 20 years prior to the tax year in question, the Cyprus Non-Domiciled Tax Status applies. This status provides a number of tax advantages such as an exemption of the Special Defence Contribution for income received by dividends payments. So non-domicile shareholders are exempt from taxation on their worldwide dividends income.
OTHER EXEMPTIONS ON DIVIDENDS TAXATION
Under certain circumstances, dividends payments made from a foreign company to Cyprus tax resident shareholders are exempt from the Special Defence Contribution. Our accountants associates can provide you a more detailed analysis of these exemptions.
DOUBLE TAXATION TREATIES AND DIVIDENDS
The dividends payments taxation is not exclusively governed by the Cypriot tax system but also under the double taxation treaties signed between Cyprus and other countries. Accordingly, the dividends taxation will depend on the signed agreement with the related country and certain deductions or exemptions will be imposed.
For detailed information as to company registration and the relevant taxations that apply to a company and its shareholders, feel free to contact our corporate department.