Guide to Business Income tax in Cyprus – Corporate income tax

Despite being a former British colony, the Republic of Cyprus is now a European Union independent island member state in the Eastern Mediterranean Sea. It has an open market economy featuring promising growth mainly in the service sector dominated by financial services, tourism, and real estate. Let’s have a brief review of the different business taxes in Cyprus.

Corporate income tax

If a company is managed and controlled from Cyprus, it is then regarded as tax resident in the Republic.

All companies that are tax residents of Cyprus are taxed on their income accruing or arising from sources both within and outside the Republic, with the standard corporate income tax rate being 12.5%. A non-Cyprus tax resident company is taxable on income accrued or derived from business activity that is carried out through a permanent establishment in Cyprus and on certain other income arising from sources in Cyprus.

Besides, there are no local government taxes on income in Cyprus.

Special Defence Contribution (SDC)

SDC is imposed only on non-exempt dividend income, “passive” interest income, and rental income earned by Cyprus tax resident companies and Cyprus permanent establishments of non-Cyprus tax resident companies.

Dividends generally are exempt from SDC, subject to certain rarely applicable limitations. Interest received by close-ended or open-ended collective investment schemes is never subject to SDC and is only taxed under corporate income tax (after deducting allowable expenses) at the standard rate of 12.5%, while interest received by companies in the ordinary course of their business is only taxed at the standard rate of 12.5%.

When companies receive interest that does not satisfy the conditions prescribed immediately above, the interest is considered to be ‘passive’ interest income, which is subject to SDC (without expense deduction) at the rate of 30%. Gross rental income reduced by 25% is also subject to SDC at the rate of 3% in addition to corporate income tax of 12.5%.

Value-added tax (VAT)

VAT is imposed on the provision of goods and services in Cyprus as well as on the acquisition of goods from the European Union and the importation of goods into Cyprus. Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services that they receive (input tax).

The standard VAT rate in Cyprus is 19%. Additionally, two reduced VAT rates of 9% rate and 5% apply in Cyprus. This is a specialised area, so please do consult first.

There are many other specific tax regulations in Cyprus. Please do contact specialized advisers at 5B Five Bravo to help you make sure you take advantage of all the tax benefits Cyprus to offer.