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Cyprus Tax Planning

In 2003, in anticipation of EU accession, Cyprus revamped its taxation law in order to become EU-compliant. The aim of the changes can be described as follows:

  • Harmonise the taxation law with EU taxation law and Code of Conduct of business (EU acquis communautaire);
  • Simplify and modernise the taxation system; and
  • Maintain and improve the competitive advantage of Cyprus in the field of "international taxation".

All financial centers that strive to be successful must have clear, transparent tax laws. Cyprus can be described as having a very simple and stable taxation system. The few changes enacted since 2003 have all been favourable to the taxpayer, namely International Business Companies (IBCs).

As a tax planning jurisdiction, its main competitors include Luxembourg, Netherlands, Malta, Belgium, Ireland, and Hungary.

Main Features of Cyprus Tax System

  1. Taxation based on residency status; 
  2. The Cyprus Offshore Company regime was replaced with a 12,5% flat corporate tax rate (among the lowest in the EU);
  3. No Controlled Foreign Corporation (CFC) rules;
  4. No thin capitalization rules;
  5. Capital gains tax (CGT) from the sale of immovable property situated outside Cyprus is tax exempt;
  6. Taxable losses are carried forward indefinitely;
  7. Capital gains on sale of securities are 100% exempt;
  8. No withholding tax on outward payments (Dividends-Interests);
  9. Group relief is available (75% holding);
  10. Tax free re-organisations (cross border) are permitted;
  11. Foreign Permanent Establishment (PE) profits exempt;
  12. Tax free corporate re-domiciliation is permitted;
  13. Possibility for establishing a 'societas europaea' (SE) (European Company);
  14. Applicability of all EU directives; 
  15. Advance ruling practice exists;
  16. Capital duty on issue of share capital 0.6% (no capital duty is applicable on share premium);
  17. Extensive Double Tax Treaty network.

Thus, Cyprus is ideal and commonly used for:

  1. Cyprus Branch (Management and Control);
  2. Cyprus Holding Company with a Foreign PE;
  3. Collective Investment Schemes / Investment Funds;
  4. International Holding Structures; 
  5. Financing Companies;
  6. Royalty Companies;
  7. Real Estate Holding Companies;
  8. EU Warehouse structures;
  9. International Trust Structures;
  10. Employment Companies.