The attractive tax system of Cyprus, together with its EU accession has helped Cyprus establish itself as an ideal holding company location in the EU. There are over 17,000 foreign companies (named International Business Companies IBC’s) that currently use Cyprus.
Main advantages of taxation system:
- Cyprus’ current tax system is in full compliance with the EU and OECD.
- Taxable profits of all Cypriot companies are taxed at the rate of 12.5% (however, effective corporate tax rate is NIL for most international transactions through Cyprus).
- Extensive double tax treaty network (Cyprus has double taxation treaties with Austria, Bulgaria, Canada, the People’s Republic of China, the Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Norway, Poland, Romania, Russia, (Armenia, Belarus, Kurdistan, Moldova, Tajikistan, Turkmenistan and Ukraine) Slovakia, South Africa, Sweden, Syria, the United Kingdom, the United States of America, the former Yugoslavia (Serbia and Montenegro) and other countries.
- Gains from the disposal of securities are tax exempt.
- Profits earned from a permanent establishment abroad are fully exempt from corporation tax (under certain conditions).
- Dividend income received in Cyprus from a foreign corporation is wholly exempt from taxes in Cyprus (under certain conditions).
- Interest income earned from trading activities, including interest which is closely related with trading activities, is subject to income tax at 12.5%.
- No withholding tax on dividends and interest paid to non-residents of Cyprus. Also no withholding tax on royalties arising from sources outside Cyprus.
- Group relief provisions for companies resident in Cyprus.
- Capital gains are not subject to tax, except on sale of immovable property situated in Cyprus.
- No Import Tax: European citizens who become permanent residents in Cyprus and who owned and used a car in their country for at least six months can bring it into Cyprus and they will not pay any Import Tax. Furniture can be imported free of any taxes by Europeans or non-Europeans who become permanent residents, provided that it is for personal use and is not brand new.
INCOME TAX RATES
|Tax %||Tax Base (EUR)|
|0%||Up to 19,500|
|35%||60,001 and over|
Retirees who become residents in Cyprus are taxed on their pensions from abroad at the rate of 5% per annum, while an annual exception for the first €3,420 is granted.
IMMOVABLE PROPERTY TAX
The annual immovable property tax is calculated on the market value of the property as at 1st January 1980 .
|Property Value 01.01.1980||Property Tax Rates|
|Excess over €3 million||1.9%|
*Property owners whose property has a total value of €12,500 or less (using values from 1st January 1980) are exempt from Immovable Property Tax.
Taxpayers who settle their 2016 immovable property tax liability by 31 October 2016 are entitled to a 75% discount. If the liability is settled between 1 November and 31 December 2016 the taxpayer is entitled to a discount of 72.5%. If the liability is settled after 31 December 2016 it will be discounted by 69.75%. If the total liability after any discount is less than €10, it will be waived.
Immovable property tax will be abolished with effect from the beginning of 2017.
CAPITAL GAINS TAX
Capital Gains Tax is levied at the rate of 20% on gains arising from the disposal of immovable property or the disposal of shares of companies, the assets of which consist mainly immovable property.
Subject to certain conditions, individuals may claim the following deductions:
- Up to €85,430 if the disposal relates to a private residence.
- Up to €25,629 if the disposal is made by a farmer and it relates to agricultural land.
- Up to €17,086 on any other disposal.
These deductions are granted once in the lifetime of the individual, until fully exhausted and if an individual claims a combination of them, the maximum deduction granted cannot exceed €85,430.
Inheritance Tax was abolished as from 1/01/2000.
Council Taxes are payable to the Council at which your property is listed at the end of each year. The said taxes are due to be paid by you once you get the delivery of the property and not prior to that.
Council Taxes are of the approximate amount of EUROS 400= per year depending always at which Council your property is listed.
STAMP DUTY FEES
The Purchaser is liable for the payment of Stamp Duty on the purchase price of the property at the following rates:
|€5,001 to €170,000||0.15%|
The documents should be stamped within 30 days after their signing in order to avoid the payment of a fine, which could be a substantial amount of money.
Real Estate Transfer Fees are imposed by the Land Registry Office in order to transfer FREEHOLD ownership to the name of the Purchaser. The transfer fees are due for payment when the transfer of the Title Deed in the name of the Purchaser takes place. The Purchaser is solely responsible for the payment of the Transfer Fees. The rates are on a graduated scale.
The transfer fees are calculated as follows:
|Property value (Euros) Transfer fees||Accumulated Transfer Fee (Euros)|
|up to € 85.430,07||3%|
|from € 170.860,15 and over||8%|
If the property is in joint names e.g. a couple – husband and wife or two individuals, then the purchase value is divided into two parts which results in reduced Transfer Fees.
An amendment regarding the reduction of Immovable Property Transfer Fees has been approved by the Cyprus House of Representatives. This new measure which is currently in effect will remain in force until the end of 2016. It applies only to the first sale of a property and it abolishes or reduces Transfer Fees provided that the Contract of Sale has been deposited with the Land Registry within the month period set by the law. More specifically:
• No Transfer Fees will be payable for properties which are subject to VAT.
• Transfer Fees are reduced by 50% for those who do not pay VAT on their purchase.
The basic utilities, electricity, water and telephone charges are payable individually in accordance with the consumption and based on a meter reading- Usually each bill costs around 100 euros.
The legal fees are of the approximate percentage of 2% to 2.5% of the purchase price all inclusive.
This includes the legal fees of the approximate percentage of 1.25% plus the VAT 15% plus the real expenses of the amount of 0.75% which includes stamp duty on contracts and power of attorneys, postage and administration and 0.5% for a mortgage arrangement fee.
Tax Planning & Advising – Concluding Remarks
With Cyprus accession into the European Union, its tax legislation has changed in order to come in line with the European Union law and the European Union code of conduct. The new regime abides by Cyprus’ commitment to the OECD to eliminate harmful tax competition initiatives against harmful tax practices. Thus as from the 1st of January 2003 the tax system in Cyprus underwent some major reforms, nevertheless making Cyprus more attractive rather than less attractive for establishing a base for international business.
Cyprus has an advanced tax planning culture as it combines the low or, in certain cases, zero tax rates and the extensive double taxation treaties network. The continued efforts of the government of Cyprus to expand and enhance its network of double taxation agreements by way of negotiations with new countries and update of existing tax treaties has turned Cypriot companies into an essential part in large international structures.
One of the lowest fixed corporate tax rate in the European Union and a very competitive V.A.T. rate together with all the additional benefits provided by the Cyprus tax law in relation to Dividends, Interest and Royalties make Cyprus companies more attractive in the following tax planning structures:
- Holding Company
- Trust Company
- Finance Vehicle Company in order to finance other corporate entities
- Trading Company
- Royalty Company
- International investment schemes
Our team of tax experts stand ready to advise clients on complex issues in the area of taxation, focusing on the optimal tax structures, while serving the clients operating needs.