Setting up a company in Cyprus!

Yes - it is that favorable

Company setup

We are often asked how you start your business here in Cyprus. What's the corporation tax rate? What's the personal tax rate? Do I need to be VAT registered? And all of that stuff.

But we are definitely not number crunchers so we have hooked up with the awesome number geeks at AKH accounting. And besides the following useful information it is free for all Cyhub members to contact AKH for advice. 

AKH - Accounting in Cyprus

Personal income tax

A Cyprus tax resident must

  • Remain in Cyprus for at least 60 days in the year of assessment.
  • Carry out any business in Cyprus; and/or works in Cyprus and/or holds an office in a company which is tax resident in Cyprus during the tax year.
  • Maintain a permanent residence in Cyprus (owned or rented).

Applicable tax rates

Taxable Income in EUR

First 19.500

19.501 – 28.000

28.001 – 36.300

36.301-60.000

Over 60.000

Tax rate

0 %

20 %

25 %

30 %

35 %

Accumulated tax in EUR

0

1.700

3.775

10.885

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Corporation tax

A Cyprus company, if structured correctly, can provide a tax-efficient way to conduct international business. A company is considered to be a tax resident of Cyprus if it is "managed and controlled" in Cyprus. Cyprus tax resident companies are subject to tax on their worldwide income:

- Corporate Income tax (CIT) is rated @ 12,50%
- The effective CIT rate is reduced even further considering the exemptions on:

  • Gains on disposal of securities
  • Dividend income
  • Interest income (not in the ordinary course of business)

- Dividends from company to company are tax free.
- No withholding-tax on dividends to non-tax residents in Cyprus.
- Deductibility of expenses if incurred wholly and exclusively for the production of income­.

Special Contribution for Defence

The persons that are subject to special contribution for defence are:
  • Cyprus tax resident companies
  • Individuals who are tax resident and domiciled in Cyprus
Special contribution for defence is imposed on the following sources of income at the rates indicated below:
  • Dividends:
    17%
  • Interest:
    30%
  • Rental income:
    3% (of 75% of the rent)
Exemptions:
  • Dividends received by a company resident in the Republic from another company resident in the Republic
  • Dividends received directly or indirectly from dividends on which defence contribution has already been paid.
  • Dividends received by a company resident in the Republic or a company not resident in the Republic which maintains a permanent establishment in the Republic from a company which is not resident in the Republic. This exemption does not apply if: (a) more than 50% of the activities of the non-resident dividend paying company lead to investment income; and (b) the foreign tax burden on the income of the dividend paying company is substantially lower than the tax burden of the Cyprus tax resident company or the non-resident company which has a permanent establishment in the Republic.
  • Non-domiciled tax residents in Cyprus are also exempted from special defence contribution(please see below)

Non-domiciled tax law

The introduction of the non-domiciled (non-dom) tax resident status in the Cyprus tax system in 2015 paved the way for tremendous opportunities to businessmen that want to achieve optimum tax planning and savings. The change affects physical persons that consider to use Cyprus as their tax seat and gain from the favorable tax regime both in a corporate and personal level.

Cyprus resident non-dom individuals will no longer be subject to SDC, they will avoid paying Tax on Dividends 17% and Interest 30%.

However an individual who is a tax resident of Cyprus for a period of at least 17 out of the last 20 years prior to the tax year of assessment cannot benefit from the above exception.

Effectively this means that if a non tax resident non-dom individual becomes tax resident in Cyprus this year he will not be liable to pay SDC tax for the next 17 years.

VALUE ADDED TAX (VAT)

Value Added Tax is imposed on the supply of all goods and services in Cyprus, on the acquisition of goods from other Member States and on the importation of goods from third countries.

Who is obliged to register?
Every individual or company is obliged to register:

  • at the end of any month, if the value of taxable supplies recorded in the last 12 months exceeds €15.600 or
  • at any point in time the value of taxable supplies are expected to exceed €15.600 in the next 30 days.
  • offers zero rated supplies of goods or services
  • businesses carrying out economic activities, which receive services from abroad for which an obligation to account for Cyprus VAT under the reverse charge provision exists subject to the registration threshold of € 15.600 per any consecutive 12 month period.

Exemptions
Exempt supplies include: 

  • Rental of immovable property
  • Hospital and medical caring services
  • Postal services
  • Insurance services
  • Disposal of immovable property where the application for building permission has been submitted prior to 1 May 2004
  • Educational services at all levels of education under certain conditions.

Rates

  • Standard Rate:
    19%
  • Reduced Rate:
    9%
  • Reduced Rate:
    5%
  • Zero Rate:
    0%

Social Insurance contributions

Type

Social Insurance

Redundancy fund

Industrial training

Social Cohesion Fund

Employer

7,8 %

1,2 %

0,5 %

2,0 %

Employee

7,8 %

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Self-employed

14,6 %

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Intellectual Property (IP) and Royalties

Cyprus offers competitive incentives and tax exceptions on income generated from any type of qualifying IP rights, patents and trademarks.

Qualifying IP Right
The Cyprus IP tax regime covers a wide range of intangibles including:
  • Copyrights, such as scientific works, literary and dramatic works, musical works, artistic works, films, sound recording, broadcasts, databases, publications
  • Patents and innovations
  • Trademarks
The above is a non-exhaustive list.

Ownership of the Qualifying IP Right
The IP must be owned by a Cyprus Tax Resident company and it can be officially registered in Cyprus or abroad. The Cyprus IP Holding Company should use the Qualifying IP Right for the production of taxable income.

Benefits of Cypriot Intellectual Property (IP) - Royalties
 
The new provisions provide exemptions from tax of income related to IP. More specifically:
  • 80 percent of worldwide royalty income generated from IP  owned by Cypriot resident companies (net of any direct expenses) is exempt from income tax
  • 80 percent of profit generated from the disposal of IP owned by Cypriot resident companies (net of any direct expenses) is  exempt from income tax
  • effective tax rate of 2,5 percent or less
  • any expenditure of a capital nature for the acquisition or development of IP is claimed a tax deduction in the year in which it was incurred and the immediate four following years on a straight-line
All the above exemptions are also available for Intellectual property acquired or developed before January 2012.
Accountants in CyprusAccountants in Cyprus

Please contact AKH for a free personal consultation

All information will be kept strictly confidential.

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