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A Guide To Cyprus Corporate Tax For Aspiring IBCs And Financial Investors

Cyprus offers a very low corporate tax, but aside from this particular tax advantages there are more benefits waiting for owners that will decide to put their investment under its jurisdiction. See a glimpse on how it will provide you more profit and be prepared to begin your road to success with a reliable Cyprus corporate and legal counsel by your side.

Cyprus Corporate Tax

There are quite a handful of tax exemptions for IBCs in Cyprus, but you have to know that companies with permanent establishment in the country will need to pay a uniform 10% corporate tax and an additional 2% levy on the wage bills. These rules are the general tax rules in the region, but the complexity of the written tax legislation allows a chance to have these reduced based on the transaction you will pursue as an IBC.

Specifics of Cyprus Corporate Tax over the Past Years

  • Additional 5% on top of the corporate tax will be charged to a company that has exceeded profit of CYP1 Million between the year 2003 and 2004.
  • Residency based on company management and control was imposed beginning the year 2003. This allows the classification of IBC from resident to non-resident companies, which results to different calculations of their tax rate. Tax exemptions can be gained from this classification particularly that in relation to foreign establishments, unless the profits gained outside of Cyprus has been actively engaged with more than 50% profit transactions in Cyprus or if the foreign tax burden applied by the other country is relatively lower than the one charge by Cyprus.

Dividend Tax

Most dividends can also be exempted from tax, but you have to be sure you are not under the Special Contribution for the Defence of the Republic Law, 2002 jurisdiction that may require you to pay a small amount of percentage from your dividend earning.

The Rule on Collective Investment Schemes

  • It has been stated in the Cyprus Income Tax Law for the year 2002 that interest income earned by Collective Investment Scheme (CIS) is to be exempted from the Special Defence Contribution.
  • No tax obligations are to be calculated to any redemption because it is not to be seen as a reduction in capital for the company.
  • The minimum participation of 1% has also been abolished to attract more investors to participate in this type of investment schemes.
  • In summation, a Cypriot company making earnings through CIS would also enjoy the low tax rate of 10%.

The Rule on EU Savings Tax Directive

As a member of the European Union, Cyprus adheres to policies approved and implemented by the Union. It has adopted the Savings Tax Directive in July 1, 2005, which refers to the exchange of information regime in relation to returns on savings.

The Rule on Special Levy on Banks

Special Levy on Banks was also implemented by Cyprus for the benefits of financial institutions that operate in the country. They are to pay 0.095% of the total deposited amount made on their bank every calendar year; however, interbank deposits and amount deposited by foreign financial institutions will be exempted from this ruling. Nevertheless, their branches and subsidiaries will have to follow this rule. The amount raised is transferred to the special stability fund and the other half is to be classified as general government revenue. If you decide to register under this type of company, then be prepared to submit your annual taxable deposits every 31st of March, while the levy has to be paid on a quarterly basis during the months of March, June, September, and December. Irresponsible banks that will not adhere to this will be liable to pay a fine of EUR 100,000.
Christina Garcia works at Parparinos Milonas Corporate & Legal Consultants (www.pmcorporatelaw.com) and she is specialized on international tax planning. She is assisting clients in the registration and formation of Cyprus companies.

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