Tax Planning

Trust and Professionalism Since 1988

Tax Planning

Tax optimisation strategies are an essential part of every business, and through the establishment of a wide network of double tax treaties and implementation of incentives through its legal framework, Cyprus as a jurisdiction is an integral part of tax structures the world over.

Cyprus limited liability companies are exemplary vehicles for the set-up of cross border investment and trading activities and further, the membership of Cyprus in the European Union ensures that all EU inbound and outbound investments are carried out in an efficient and streamlined way.

The local tax regime is particularly advantageous in areas such as the structuring of intellectual property holding, maritime, shipping and ship management, holding of property.

Our team may provide tailor-made professional advice and assist with tax related advisory services for all aspects of a business.

 

An introduction to income tax:

 

  1. Tax residency for individuals:

An individual is considered to be a Cyprus tax resident if they spend more than 183 days on aggregate in a tax year in Cyprus.

Following the amendment of the Income Tax Laws in 2017, individuals who spend more than 60 days in Cyprus and are not tax residents in any other jurisdiction and/or do not spend more than 183 days on aggregate in another jurisdiction, shall be considered to be Cyprus tax residents provided that the below criteria are fulfilled cumulatively:

a) the individual conducts any business in Cyprus and/or is employed in Cyprus and/or holds an office to a person resident in Cyprus at any time during the year of assessment, and

b) the individual maintains a permanent residence in Cyprus through ownership or rental.

Taxable Income:

An individual who is a Cyprus tax resident, is taxed on income arising both from sources within and from outside Cyprus.

An individual who is not a Cyprus tax resident, is taxed on income arising only from sources within Cyprus, in certain cases.

Tax rates:

Taxable Income (€) Tax Rate Tax payable (€) Cumulative Tax (€)
< 19.500 0% 0 0
19.501 – 28.000 20% 1.700 1.700
28.001 – 36.300 25% 2.075 3.775
36.301 – 60.000 30% 7.110 10.885
> 60.001 35%

The non-domicile status:

Under the non-domicile status, income regularly subject to Special Defence Contribution such as dividends and interest is exempt from Special Defence Contribution for 17 years.

To be considered a non-domiciled tax resident, an individual must originate (this being place of birth and nationality and place of residence of their father) from outside Cyprus.

 

  1. Tax residency for legal entities:

A company is considered to be a Cyprus tax resident if its control and management is exercised in Cyprus.

Taxable income:

For a company which is considered to be a Cyprus tax resident, tax is imposed on income arising both from sources within and from outside Cyprus.

For a company who is not considered to be a Cyprus tax resident, tax is imposed on income arising only from sources within Cyprus, in certain cases.

Tax rates:

Corporate tax is levied at a flat rate of 12,5%.

 

Exemptions:

  • Dividend income – in its entirety (may be subject to Special Defence Contribution)
  • Interest income unless arising in the ordinary course of the business – in its entirety (may be subject to Special Defence Contribution)
  • Remuneration from any employment exercised in Cyprus by an individual who was not Cyprus tax resident prior to the commencement of the employment, with the exemption in place for a period of 10 years for employment commencing as from 01.01.2012 and for annual remuneration exceeding €100.000. The exemption does not apply in case the employee was tax resident in Cyprus for three or more out of the five years prior to the tax year of commencement of the employment. – 50%
  • Remuneration from any employment exercised in Cyprus by an individual who was not Cyprus tax resident prior to the commencement of the employment, with the exemption in place for a period of 5 years commencing as from 01.01.2012 – 20% with annual maximum €8.550
  • Remuneration for salaried services exercised outside Cyprus for a total of more than 90 days in a tax year to an employer that is not tax resident in Cyprus or to a permanent establishment of a Cyprus tax resident employer abroad – in its entirety
  • Foreign exchange gains whether realised or unrealised, except in the case of gains arising from trading in currencies and currency derivatives – in their entirety
  • Gains from the sale of securities – in their entirety
  • Lump sums received as gratuity on retirement, commutation of pension or death or injury compensation – in their entirety
  • Lump sums received from approved insurance schemes or provident funds – in their entirety
  • Profits arising from a foreign permanent establishment under certain conditions – in their entirety

Other considerations:

  • Rental income – taxable
  • Pension income arising from abroad – taxable at a flat rate of 5% on amount over €3.420 or at the above-mentioned income tax rates
  • For widower’s pensions arising in Cyprus – taxable at a flat rate of 20% on amounts over €19.500 or at the above-mentioned tax rates
  • No inheritance tax for individuals who have passed away on or after 01.01.2000
  • No immovable property taxes as from 01.01.2017
  • Capital gains tax on profits arising from the disposal of immovable property situated in Cyprus at a flat rate of 20%
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