Dividends paid by Cyprus companies are subject to withholding tax at 15% for residents of Cyprus only. This applies for individuals. If the shareholder is a company then no withholding tax is levied. No withholding tax is paid on dividends which are paid to non-residents.

Income tax on branches

Branches are taxed under the provisions of the Income tax Law as Permanent Establishment.

 
Personal income tax

Residents of Cyprus

The resident individuals in Cyprus are taxed by progressive tax rates, which are as follows from 1.1.2008:

Income (in EURO)	Tax rate
0 – 19,500	0%
19,501 – 28,000	20%
28,001 – 36,300	25%
Above 36,301	30%

Taxation of retired persons

Pensions, received from abroad are taxed at 5% on income exceeding €3,420 per annum.

 
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, other than public, which own immovable property situated in Cyprus. In the case of disposal of company shares, the gain is calculated exclusively on the basis of the gain from the immovable property. The value of the immovable property will be its marked value at the time the shares were sold. There is no taxation on the profits from the disposal of listed securities for all companies and individuals.

Immovable Property Tax

Immovable property tax is levied on the market value of the property as at 1 January 1980. The rates of tax are ranging from 0% – 3.5% up to €854,300 and for over €854,300 4%.

Value Added Tax

VAT is a tax on general consumption. In line with the practice in EU countries it coexists with certain taxes imposed on the consumption of specific products such as petroleum, tobacco, alcoholic beverages etc. The VAT standard rate is 15%.

All supplies which take place in Cyprus are subject to VAT at the standard rate but there are also supplies which can be included under one of the following categories:

 §           subject to VAT at the rate of 8%
 §           subject to VAT at the rate of 5%
 §           subject to VAT at the rate of 0%
 §           exempt

All businesses with an annual turnover of €15,600 must register for VAT.

VAT registered businesses must complete and submit a quarterly VAT return. The return is used to calculate the difference between VAT input and VAT output. The difference is either a credit or a payment to be made. Should a payment be required this must accompany the VAT return. Failure to submit returns or pay VAT due will result to penalties and interest will be charged on the payable amount.

Provisions also exist in the law for when a company receives certain services from abroad and these services are considered to be provided by the company itself and output tax must be accounted for (reverse charge).

Group VAT registration is available in Cyprus for companies which form a group by having a 50% direct or indirect holding relationship.

 
Sales tax

There is no sales tax imposed under Cyprus legislation.

Local taxes

Defence contribution (a specific tax levied on tax residents)

-           As from 1 January 2003 onwards companies, which do not distribute 70% of their profits after tax, as defined by the relevant tax law, within two years after the end of the relevant tax year, will be deemed to have distributed as dividends 70% of these profits. Special contribution for defence at 15% will be payable on such deemed dividends to the extent that the shareholders (companies and individuals) are Cyprus tax residents. The amount of deemed distribution is reduced by any actual dividends paid out of the profits of the relevant year during the following two years. This special contribution for defence is payable on behalf of the shareholders. Companies were their shares are kept by Nominee Company and the beneficial shareholders are non-residents should sign and submit a special letter confirming that.

-           Under certain conditions interest income may be subject to defence contribution at the rate of 10%. In such cases 50% of the same interest will be exempt from corporation tax thus having an effective tax burden of approximately 15%.

-             Dividends received from an overseas company are:

          Subject to Special Defence Contribution at 15% where the participation in the overseas company is less than 1%.

          Subject to Special Defence Contribution at 15% if the participation in the share capital of the paying company is at least 1% and the following apply: The company paying the dividend engages directly or indirectly more than 50% in investing activities AND the foreign tax burden is lower than 5%.

          Exempt from Special Defence Contribution if the participation in the share capital is at least 1% and the following apply: The company paying the dividend engages directly or indirectly more than 50% to business activities OR the foreign tax burden is not substantially lower than the Cyprus tax burden.

 
Tax treaties

The Cyprus Government signed an extensive number of Double Tax Treaties with other countries.

To view the list of countries who have double taxation agreements with Cyprus in relation to withholding tax please click here .

 
Taxation of Trusts

An International Trust will enjoy the benefit of total exemption from income, capital gains and estate taxation. The only tax burden that will be imposed on International Trusts is a fixed stamp duty rate of €427 which will be payable on the creation of the Trust.