Cyprus, an EU member state, has long been a popular choice for businesses seeking a tax-efficient environment. Fully compliant with both EU regulations and OECD standards, Cyprus combines attractive corporate tax rates with a transparent regulatory framework, offering significant benefits for companies looking to establish operations
Cyprus Company Tax Rates Explained The 12.5% Standard Cyprus Company Tax Rate The standard corporate tax rate in Cyprus is 12.5%, one of the lowest in the European Union. This rate applies to most Cyprus tax companies, including local businesses, holding companies, and those involved in a range of activities like trading, consulting, and professional services. The 12.5% tax is levied on the company’s taxable profits, providing a competitive edge for businesses seeking to reduce their tax burden.
The 15% Cyprus Company Tax Rate for Large Enterprises (Introduced in December 2024) In response to the OECD’s global minimum tax framework, Cyprus introduced a new 15% corporate tax rate applicable to Multinational Enterprise (MNE) groups and large-scale domestic groups with consolidated annual revenues exceeding €750 million. This measure ensures compliance with international tax practices while maintaining the country’s appeal to smaller and medium-sized enterprises that continue to benefit from the lower 12.5% rate.
Income That Is Subject to Company Tax Tax on Revenues from Goods and Services All income derived from the sale of goods or the provision of services by a company in Cyprus is subject to the applicable Cyprus company tax rate. This includes revenues generated domestically and from international operations, provided they fall under the Cyprus tax resident company jurisdiction.
Tax on Rental Income for Companies Corporate rental income, or earnings from leasing out property, is subject to the standard Cyprus company tax rate of 12.5%. Additionally, the Special Defence Contribution (SDC) applies to rental income, with a rate of 3% on 75% of the gross rental income, resulting in an effective SDC rate of 2.25%. For short-term rentals, companies are also required to charge and pay 9% VAT on the rental income. These layers of taxation must be carefully calculated to ensure compliance with Cyprus tax regulations.
Tax on Profits from Cryptocurrency Trading Cypriot companies engaged in cryptocurrency-related business are subject to general corporate tax rules, but taxation varies depending on whether the company actively manages cryptocurrencies or holds them for investment purposes:
Long-Term Holding: If a company holds cryptocurrencies as investment assets, profits from the sale of these are considered capital gains and are exempt from corporateFrequent Trading Activity : Companies engaged in frequent transactions of cryptocurrencies, are considered trading, and are therefore subject to a 12.5% tax on their net profits.Tax Rulings : Cyprus lacks specialised legislation for cryptocurrency taxation, making tax rulings critical for clarity. Companies can request a tax ruling Tax on Royalty Income Income received from royalties are taxed at the standard corporate income tax rate of 12,5%.
Tax on Interest Income Interest income in Cyprus is subject to taxation based on its nature:
Active Interest Income : Interest earned as part of a company’s ordinary business activities is taxed under the 12.5% corporate income tax (CIT) rate after allowable expenses are deducted.Passive Interest Income : Interest not closely tied to business activities is exempt from CIT but is subject to a 17% Special Defence Contribution (SDC) without deductions for expenses.Reduced SDC for Bonds : Passive interest earned from Cyprus government bonds, listed corporate bonds, or bonds issued by state organisations is subject to a reduced SDC rate of 3%.Exemption for Collective Investment Schemes (CISs) : Interest earned by CISs is considered active income and taxed solely under CIT, exempting it from SDC.Company Income That Is Tax-Free Dividend Income One of the key advantages of operating a Cyprus tax-resident company is the exemption on dividend income. Dividends received by a Cyprus company from other entities, both local and foreign, are generally tax-free, provided specific criteria are met.
Capital Gains from the Sale of Securities Profits from the sale of securities, including shares, bonds, and other financial instruments, are completely exempt from taxation in Cyprus.
Other Exemptions Income from a foreign permanent establishment may be exempt from taxation in Cyprus, provided certain conditions are met.
Related Reading: Learn more about the tax advantages of a Cyprus holding company.
Other Company Taxes 2.5% Company Tax under the IP Box Regime Cyprus offers a favourable tax regime for income derived from intellectual property (IP). Under the IP Box Regime
VAT Rates The standard VAT rate in Cyprus is 19%, with reduced rates of 9% and 5% applicable to specific goods and services. Companies must register for VAT if their annual turnover exceeds the mandatory threshold or if they conduct intra-community trade.
Taxes on Employees Employers in Cyprus are required to contribute to their employees’ health and social insurance. Contributions include:
Social Insurance: 8.3% of employees’ gross salaries. General Healthcare System (GESY): 2.9% of employees’ gross salaries. These contributions are essential for maintaining compliance with Cyprus labour laws and supporting employees’ well-being. Requirements to Maintain Cyprus Tax Resident Company Status Directors’ Residency To qualify as a Cyprus tax-resident company, the majority of the company’s directors must be Cyprus tax residents. This ensures that the company’s management and control are effectively located within Cyprus.
Decision-Making in Cyprus Strategic and financial decisions must be made within Cyprus to maintain the company’s tax-resident status. Regular board meetings should be held in the country, with detailed minutes documenting decisions made.
Nominee Directors for Compliance For companies with non-Cypriot directors or business partners abroad, appointing nominee directors who are Cyprus tax residents can help ensure compliance. This is especially important for businesses that wish to safeguard their tax-resident status without relocating their entire board.
Shareholder Tax Residency The residency of the shareholders does not impact the tax residency of the company. As long as the majority of directors are Cyprus tax residents, the company is deemed to operate in Cyprus and qualifies as a tax-resident entity.
Conclusion Cyprus’s corporate tax regime offers businesses a strategic advantage with its low tax rates, extensive exemptions, and compliance with international standards. Understanding these nuances is essential for companies looking to maximise their tax efficiency while remaining fully compliant. If you’re considering establishing or relocating your business to Cyprus, Clover’s expert team can guide you through every step
