Incorporating in Cyprus offers several attractive tax benefits, making it a popular jurisdiction for businesses looking to optimize their tax obligations while enjoying a stable and business-friendly environment. As an EU Country with cross border trading rights across the EU and being an EU Country, there are no issues with acceptance of the bona fides of the business. Here are the key tax benefits for incorporating in Cyprus:
Low Corporate Tax Rate
- Corporate Tax Rate: Cyprus has one of the lowest corporate tax rates in the European Union at 12.5%. This low rate applies to the worldwide income of Cyprus-resident companies, making it highly advantageous for international business operations.
No Withholding Taxes
- Dividends, Interest, and Royalties: Cyprus does not impose withholding taxes on dividends, interest, and royalties paid to non-residents. This makes it an attractive location for holding companies and intellectual property holding companies.
Exemption from Capital Gains Tax
- Capital Gains Tax: Generally, capital gains tax in Cyprus is only applicable to gains from the disposal of immovable property located in Cyprus or shares in companies holding such property. Gains from the disposal of securities, including shares, bonds, and other financial instruments, are exempt from capital gains tax.
Double Tax Treaties
- Extensive Network: Cyprus has an extensive network of double tax treaties with over 60 countries, including major economies such as the UK, Germany, China, and the United States. These treaties can reduce or eliminate double taxation on income earned in multiple jurisdictions.
Intellectual Property (IP) Box Regime
- IP Box Benefits: Cyprus offers an attractive IP Box regime, which allows for an effective tax rate of 2.5% on income derived from qualifying intellectual property. This regime provides significant tax savings for companies engaged in research and development and the exploitation of intellectual property.
Tax Exemptions for Dividends
- Dividend Income: Dividend income received by a Cyprus holding company from its foreign subsidiaries can be exempt from tax in Cyprus, provided certain conditions are met. This includes the condition that the subsidiary should not engage in more than 50% investment income and be subject to tax at a rate not significantly lower than the Cyprus corporate tax rate.
Group Relief
- Group Loss Relief: Cyprus allows group relief for companies within the same group, meaning that tax losses of one group company can be set off against the taxable profits of another group company. This is beneficial for optimizing the tax position of a group of companies.
Repatriation of Profits
- Repatriation Flexibility: The lack of withholding taxes on dividends, interest, and royalties paid to non-residents makes Cyprus an ideal jurisdiction for repatriating profits to parent companies or shareholders located in other countries without additional tax burdens.
No CFC Rules
- Controlled Foreign Company (CFC) Rules: Cyprus does not have CFC rules, which are typically used to prevent profit shifting to low-tax jurisdictions. This provides more flexibility for multinational companies in structuring their international operations.
VAT Benefits
- VAT Registration: Cyprus offers a standard VAT rate of 19%, with reduced rates for certain goods and services. VAT registration is mandatory for businesses exceeding the turnover threshold, providing opportunities for reclaiming VAT on business expenses.
Favourable Holding Company Regime
- Holding Companies: Cyprus is a preferred jurisdiction for holding companies due to its favourable tax regime, including tax exemptions on dividend income, capital gains from the disposal of shares, and no withholding taxes on outbound dividends.
In Summary
Incorporating in Cyprus provides numerous tax benefits, including a low corporate tax rate, exemptions from capital gains and dividend taxes, and favourable IP Box regime, and an extensive network of double tax treaties. These advantages make Cyprus an attractive destination for businesses looking to optimize their tax strategies, manage international operations efficiently, and benefit from a stable and business-friendly environment.
References: PwC Cyprus – Tax Facts & Figures 2023, KPMG Cyprus – Taxation of Companies, Deloitte Cyprus – Doing Business in Cyprus, Grant Thornton Cyprus – Tax Guide, Invest Cyprus – Corporate Tax Incentives