Corporate Tax Incentives for Businesses in Cyprus
Enjoying Corporate Tax Reliefs Under EU Regulations
Cyprus has become a leading business hub for taxpayers due to the corporate tax reliefs and trade incentives being offered. In 2015, a new legislative bill was passed to lower the tax exposure for people residing in Cyprus. The decision attracted major foreign investments and urged the ex-pats to come and settle down for business.
Besides the low dividend interest, and personal and rental income tax provisions, corporate tax reliefs were enacted for capital investment as well. For converted capital seeded to the venture companies and for business migrants in Cyprus, tax deductions became applicable.
Following are the key tax incentives offered to individual business migrants and corporations on seed funding and venture capital.
Non-Domicile Residence Status
Non-domicile residents are those living in Cyprus but consider their permanent home to be elsewhere. They are not domiciled legally to live in Cyprus.
Following are the domicile conditions a person may fulfill:
- At any given time, an individual may have received a domicile of origin upon birth.
- An individual may have changed his “domicile of origin” to “domicile of choice” on will.
In the case of the first condition, the domicile of origin of a person will be the same as his father’s. If the child is illegitimate, it will reflect the mother’s domicile area. However, in the case of the second condition for the domicile of choice, a person should establish permanent residence in Cyprus.
If the residence changes later a new domicile of choice can be acquired. The basic domicile of origin will be resumed automatically if no other domicile of choice is present. Therefore, in case a person doesn’t acquire another domicile of choice if the permanent residence changes, the previous domicile of origin will retain.
If a person is a non-permanent resident and has a domicile outside Cyprus, he may be eligible for certain income tax exemptions according to the tax laws introduced in 2015.
The tax payment criteria for nondomiciled individuals is 3% out of 75% income, 30% interest rate, and 17% dividend ratio.
According to the nature of tax residency, your tax identification number can be exempted from income tax exposure from your capital investments. The exemption applies to fiscal residents in Cyprus having lived abroad for the last 17 out of 20 years. The exemption will be valid until they decide to show domiciled tax residency in Cyprus.
50% Deductible Income Tax
For an individual employee with over €55.000 yearly income 50% tax deduction is applicable following the year 2022 on remunerations sourced from Cyprus-based employment. The tax exemption in Cyprus can be availed for 17 taxable years following the employment date.
Example Table: Annual Income Of €100.000
Table 1 demonstrates the tax that would be applied to the income of €100.000 without any deduction. Table 2 demonstrates the same amount with the deduction applied.
|Salaried Tax Scale||Tax Rate||Tax Scale on €100.000 excluding deduction|
|Up to 19.500||Zero||Zero|
|From 19.501- 28.000||20||1.700|
|From 28.001 – 36.300||25||2.075|
|From 36.301 – 60.000||30||7.110|
|From 60.001 – 100.000||35||14.000|
|Salaried Tax Scale||Tax Rate||The tax rate of €100.000 with a 50% deduction|
|Up to 19.500||Zero||Zero|
|From 19.501 – 28.000||20||1.700|
|From 28.001 – 36.300||25||2.075|
|From 36.301 – 50.000||30||4.110|
To conclude, a person with an income of €100.000 would be taxed with €7.885 or 7,88%.
We have an expert team of tax advisors at Efstathios C. Efstathiou LLC. These top legal tax lawyers will not only let you evaluate your tax payments but also provide a better strategy for low tax exposure. Whether it is a certain legal procedure or the submission of annual tax returns, you can get a detailed consultation to address your concerns.
20% Deductible Income Tax
For a non-Cyprus resident upon starting employment 20% tax deductible will be applied to the employee’s salary or €8.550 (whichever is less). This tax rate can be availed for 5 years during the 17 years max period after the employment commencement after 2012.
A person may not be eligible for the 20% tax deduction and the above-mentioned 50% employment income tax exemption simultaneously.
Notional Interest Deduction
Any Cyprus companies making capital injections after January 2015 are eligible for a notional interest deduction in tax payments annually. This strategy has been introduced to attract additional capital funding for existing businesses in Cyprus.
NID or notional interest deduction is applied when capital equity is presented as a paid-up share or premium share. The NID rate annually cannot exceed 80% of the payable taxes from the profit and would be evaluated as an interesting ratio of the newly added capital equity.
This ratio of interest is the yield on government bonds for a decade calculated at the year-end date for the prior year. The said government would be in the country where business seed finding is applied in addition to the 3% premium (conditional to the minimum yield amount in the past decade at the same date).
The NID amount should be within the 80% limit according to identification by Cyprus law. If the notional interest is under 80% of the income tax amount, then the interest will be deducted fully.
This condition applies to companies with tax residency in Cyprus along with nonresidents having shifted their permanent base toward Cyprus.
Other Tax Incentives
Cyprus is considered a tax haven, especially for nonresident companies offering minimal or no tax exposure. Having the lowest corporate tax rate among the EU states, Cyprus provides a secure tax structure for companies to invest in and benefit from.
The following tax incentives can be availed as a Cyprus tax resident:
- 5% corporate tax ratio
- European Union state membership
- Patent box regime by the IP office
- Tonnage tax strategy for shipment companies
- Dividend income is exempted from tax as per the conditional restrictions.
- Tax withholding protection against dividend, interest, and royalty payments for tax recipients
- Tax-free profits from security sales without holding period and percentage limitations
- Tax-free foreign remittances from permanent businesses abroad
- Tax-free Cyprus-based company liquidation
- Extensive tax treaty system
- One-sided credit-free tax with or without a tax treaty
- No fixed substance, capital funding, or debt-equity rules
- Full compliance with the European Union legislature and its tax directives
Contact Us Today and Discuss Your Concerns
Efstathios C. Efstathiou LLC provides the best tax advice to get the most out of the tax incentives available in Cyprus corporate market. Book a consultation call now with one of our tax advisors for free. Call us at (+357) 22 755 177 and get all the information that you may need for minimum tax exposure.