Business Tax Services
Petros Liassides
Global Compliance and Reporting
Petros Liassides
People Advisory Services — Tax
Petros Liassides
Indirect Tax
George Liasis
A. At a glance
+357 22-209-797
Email: petros.liassides@cy.ey.com
+357 22-209-797
Email: petros.liassides@cy.ey.com
+357 22-209-797
Email: petros.liassides@cy.ey.com
+357 22-209-759
Email: george.liasis@cy.ey.com
Dividends 0/17 (a)(b)
Interest 0/17 (b)(c)
Royalties from Patents, Know-how, etc. 0/5/10 (b)(d)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 5
(a) A Special Contribution to the Defence Fund (Defence Tax) at a rate of 17% is withheld from dividends paid (or deemed to be paid) to resident and domiciled individuals.
(b) Cyprus introduced withholding tax on dividends, and interest payments made to companies that are resident in jurisdictions included on the European Union (EU) list of non-cooperative jurisdictions on tax matters (Annex I) or are registered in a jurisdiction listed by the EU as non-cooperative for tax matters and not considered to be tax resident in another jurisdiction that is not included on the EU list. Such withholding taxes are applicable as of 31 December 2022. Also, see Dividends and Interest in Section B.
(c) A Special Contribution to the Defence Fund (Defence Tax) at a rate of 17% is withheld from interest paid to resident companies and resident and domiciled individuals, if the interest is either not considered to arise in the ordinary course of the business of the recipient or is not closely connected to the ordinary course of business of the recipient.
(d) See Section B for more detailed comments.
B. Taxes on corporate income and gains
Corporate income tax. Companies resident in Cyprus are subject to income tax on their worldwide income. A company is resident in Cyprus if its control and management are exercised in Cyprus.
As of 31 December 2022, a company incorporated or registered in Cyprus whose management and control is exercised outside Cyprus is considered resident for tax purposes of Cyprus unless such company is a tax resident in another country.
Nonresident companies are taxed only on income derived from a permanent establishment in Cyprus and on rental income from property located in Cyprus.
Rate of corporate tax. The standard rate of corporate income tax is 12.5%.
Capital gains. A capital gains tax of 20% is levied on gains derived from the disposal of the following:
• Immovable property located in Cyprus
• Shares in companies whose assets include, among others, immovable property located in Cyprus
• Shares in companies that participate (either directly or indirectly) in a company or companies that own immovable property located in Cyprus and at least 50% of the market value of such shares is derived from the relevant property
• A sale agreement of immovable property located in Cyprus.
The disposal of shares of companies listed on a recognized stock exchange is exempt from capital gains tax. In addition, no capital gains tax is imposed if the transfer is made in the course of a qualifying company reorganization.
The gain subject to tax in Cyprus equals the disposal proceeds less the greater of the cost or market value on 1 January 1980, adjusted for inflation. Inflation is calculated using the official Retail Price Index. In the case of disposal of shares of companies that directly or indirectly hold property in Cyprus, the disposal proceeds subject to capital gains are restricted to the market value of the immovable property held directly or indirectly by the company whose shares are sold.
Gains from the disposal of immovable property that consists of land or land and buildings is exempt from capital gains tax if the property is acquired between 16 July 2015 and 31 December 2016 from an independent third party and not through an exchange of property or through a donation or gift.
Contribution to the Central Agency for Equal Distribution of Burdens. The Contribution to the Central Agency for Equal Distribution of Burdens applies to disposals of immovable property situated in Cyprus and disposals of shares (not listed on a recognized stock exchange) of a company that directly and/or indirectly holds immovable property for which a general valuation has been undertaken by the Department of Lands and Surveys. For disposals of immovable property, a 0.4% rate applies on sale proceeds. For disposals of a company that directly and/or indirectly holds immovable property, the 0.4% rate applies on the valuation undertaken by the Department of Lands and Surveys. Transactions entered into as part of a loan restructuring, company reorganizations or donation may be exempted from such contribution.
Administration. The tax year in Cyprus is the same as the calendar year. Income tax is payable by 31 August following the end of the relevant tax year. However, an estimate of tax due is made by 31 July during the tax year and provisional tax is payable in two equal installments by 31 July and 31 December. The two provisional payments can be made by 31 August and 31 January without the imposition of interest or penalties.
As of 1 January 2024, overdue tax is subject to interest at a rate of 5% per year on the basis of complete months. In addition, a flat 5% penalty is imposed on the tax due in the event of a failure to pay the tax by the due date. An additional penalty of 5% is
Industrial and hotel buildings. A straight-line allowance of 4% a year is available for industrial and hotel buildings. For industrial and hotel buildings acquired during the period of 2012 through 2018, a deduction for wear and tear at 7% is allowed.
Commercial buildings. A straight-line allowance of 3% a year is allowed for commercial buildings.
Office equipment. A straight-line allowance of 20% a year is allowed for computers. Other office equipment is depreciated under the straight-line method at an annual rate of 10%. For other office equipment acquired during the period of 2012 through 2018, a deduction for wear and tear at a rate of 20% per year is allowed.
Motor vehicles. In general, a straight-line allowance of 20% a year is allowed for motor vehicles (except for private saloon cars for which no tax depreciation is available).
Sales of depreciable assets. On the disposal of an asset, a socalled balancing statement must be prepared. If the sale proceeds are less than the remaining depreciable base, a further allowance (balancing deduction) equal to the amount of the difference is granted. If the sale proceeds exceed the depreciable base, the excess (up to the amount of allowances claimed) is included in taxable income (balancing addition). As of 1 January 2020, the obligation to prepare a balancing statement does not apply to intangible assets.
Taxation of intangible assets. The provisions of the Intellectual Property (IP) Box regime have been aligned with the recommendations of the Organisation for Economic Co-operation and Development (OECD) Action 5 of the Base Erosion and Profit Shifting (BEPS) Plan on Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance.
The IP Box regime is based on the OECD-recommended nexus approach. This approach limits application of the IP Box regime if research and development (R&D) is being outsourced to related parties. The approach links the benefits of the regime with the R&D expenses incurred by the taxpayer. Under the new IP Box regime, qualifying taxpayers can claim a tax deduction equal to 80% of qualifying profits resulting from the business use of the qualifying assets. A taxpayer may elect not to claim the deduction or only claim a part of it. The following is the calculation for qualifying profits:
Qualifying expenditure + Uplift expenditure x Overall IP income
Overall expenditure
The cost of the acquisition or development of intangible assets of a capital nature is amortized in a reasonable manner over its useful economic life, which is determined based on accounting standards, with a maximum period of 20 years. Taxpayers may claim all or part of the amortization for tax purposes. Any unused amortization can be carried forward and used in future tax years.
New 120% research and development expenses deduction. All expenses for scientific research and development (R&D) recognized under internationally acceptable accounting standards are
Transfer pricing. The arm’s-length principle is codified in the Cyprus tax law with language similar to that of Article 9 of the OECD Model Tax Convention. Consequently, all transactions entered into with related and/or connected parties must be concluded on an arm’s-length basis; otherwise, the tax authorities have the statutory right to make adjustments to taxable income. Therefore, the arm’s-length price must be applied on transactions between related parties in their commercial or financial relations.
Effective 1 January 2022, Cyprus introduced transfer pricing rules in accordance with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The transfer-pricing rules provide for the content of the Transfer Pricing Documentation Files (Local and Master Files) and the Summary Information Table as well as introduce the concept of Advance Pricing Agreements.
EU Anti-Tax Avoidance Directive. The Cypriot tax laws have been amended to incorporate the relevant provisions of the EU AntiTax Avoidance Directive (ATAD). The amendments made in 2019 and 2020 are summarized below. The Cypriot tax authorities have issued guidance with respect to the interest limitation rules. In addition, it is expected that guidance will be issued during 2024 with respect to the controlled foreign company (CFC) rules.
General anti-abuse rule. The amendments include a broadly worded general anti-abuse rule in line with the wording used in the ATAD.
Interest limitation rules. The interest limitation rules restrict the tax deductibility of exceeding borrowing costs (as defined) to 30% of the tax-adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). The most important aspects of the interest limitation rules are the following:
• The interest limitation rules apply at a Cypriot group level (75% criterion).
• A de minimis exception applies for exceeding borrowing costs up to EUR3 million.
• An exemption applies to stand-alone entities and to financial institutions.
• Grandfathering rules apply to loans concluded before 17 June 2016.
• Long-term public infrastructure loans are excluded.
• Equity-escape clause measures are provided.
• Carryforward measures for unused interest capacity and for exceeding borrowing costs whose deductibility is restricted are provided.
Controlled foreign corporations. Controlled foreign corporation (CFC) rules are applicable in Cyprus as of 1 January 2019. If certain conditions are met, a Cypriot controlling taxpayer must include in its tax base the non-distributed income of a CFC company to the extent such profits arise from non-genuine arrangements that have been put in place for the essential purpose of obtaining a tax advantage under the Cypriot Income Tax Law. An arrangement or series thereof is regarded as non-genuine to the extent that the significant people functions that have contributed
• Hybrid permanent establishment mismatches: Situations in which the business activities in a jurisdiction are treated as being carried on through a permanent establishment by one jurisdiction while those activities are not treated as being carried on through a permanent establishment in the other jurisdiction.
• Imported mismatches: Situations in which the effect of a hybrid mismatch between parties in third countries is shifted into the jurisdiction of an EU Member State through the use of a nonhybrid instrument thereby undermining the effectiveness of the rules that neutralize hybrid mismatches. This includes a deductible payment in an EU Member State under a non-hybrid instrument that is used to fund expenditure involving a hybrid mismatch.
• Tax residency mismatches: Situations in which a taxpayer is resident for tax purposes in two or more jurisdictions.
Company reorganization rules. Exemptions are available for profits or gains arising as part of a qualifying company reorganization, such as a merger, partial division or transfer of assets. However, the law includes general anti-abuse provisions that aim to make sure that the exemptions are available to bona fide company reorganizations. The exemptions also extend to stamp duty, contributions to the Central Agency for Equal Distribution of Burdens and land transfer fees.
Global Minimum Tax (Pillar Two). The Pillar Two rules introduce a minimum effective tax rate (ETR) of 15% to multinational enterprise (MNEs) or large-scale domestic groups with consolidated annual revenues of EUR750 million in at least two of the four fiscal years immediately preceding the tested fiscal year. The following two interlocked rules exist:
• The Income Inclusion Rule (IRR)
• The Undertaxed Profit Rule (UTPR) through which an additional amount of tax called a “top-up tax” should be collected each time that the ETR due on the income of an MNE or domestic large-scale group in a given jurisdiction is below 15%.
Cyprus is expected to introduce the IRR for financial years beginning on or after 31 December 2023 and the UTPR for financial years beginning on or after 31 December 2024. A Domestic Top-up tax Rule is likely to be introduced for financial years beginning on or after 31 December 2024. For the latest information, please refer to the BEPS 2.0 – Pillar Two Developments Tracker (ey-beps-2-0-pillar-two-developmentstracker.pdf).
F. Treaty withholding tax rates
As noted in Section A, Cyprus does not impose outbound withholding taxes on dividend and interest payments made to non-Cypriot tax resident persons with the exception of certain payments made to companies that are registered in a jurisdiction included on the EU list of non-cooperative jurisdictions on tax matters (Annex I) and not considered to be tax resident in another
jurisdiction that is not included on the EU list. Also, see Dividends and Interest in Section B.
(u)
(b)
(a)
(d) 0/10 (hh) 0 Bosnia and
(h) 0/7 (ii) 10
0/15 (b) 0/10 (r)
(ww)
(y)
(s)
(ss)
Finland 5/15 (l)
0/5 (b)
France 10/15 (f) 0/10 (e) 0/5 (g)
(m)
5/15 (h) 0/10 (b)
(jj)
(ff)
(jj)
(z)
(b) 10
(gg)
(g)
(g)
(v)
(tt) 0/10 (b)
Latvia 0/10 (kk) 0/10 (ll) 0/5 (mm) Lebanon 5 0/5 (b) 0 Lithuania 0/5 0 5 Luxembourg 0/5 (j)
(nn) 0/10 (b) 10 Mauritius
(h)
(xx)
Norway 0/15 (oo)
(cc)
(b)
0/10 (b) 0/5 (c)
Russian Federation 5/15 (k) 0/5/15 (uu) 0 San Marino
(ll) The rate is 0% for the gross amount of interest paid by a company that is a resident of a contracting state to a company (other than a partnership) that is a resident of the other contracting state and is the beneficial owner of the interest. The 10% rate applies to the gross amount of the interest in all other cases.
(mm) The rate is 0% for the gross amount of the royalties paid by a company that is a resident of a contracting state to a company (other than a partnership) that is a resident of the other contracting state and is the beneficial owner of the royalties. The 5% rate applies to the gross amount of the royalties in all other cases.
(nn) If dividends are paid by a company that is a resident of Cyprus to a resident of Malta that is the beneficial owner of the dividends, the Cyprus tax may not exceed 15% of the gross amount of the dividends. If the dividends are paid by a company resident of Malta to a resident of Cyprus that is the beneficial owner of the dividends, the Maltese tax shall not exceed the tax chargeable on the profits out of which the dividends are paid.
(oo) The 0% rate applies to the gross amount of the dividends if the beneficial owner is a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends. The 15% rate applies to the gross amount of the dividends in all other cases.
(pp) The 15% rate applies to the gross amount of the dividends. The 5% rate applies if certain conditions are met.
(qq) The 0% rate on dividends applies if the beneficial owner is a company (other than a partnership) that holds, directly or indirectly, at least 25% of the capital of the company paying the dividends. The 5% rate applies in all other cases.
(rr) The 5% rate applies to royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment. The 8% rate applies in all other cases.
(ss) The rate is 5% for dividends paid to a company holding directly at least 20% of the share capital of the payer for at least 365 days. The 10% rate applies in all other cases.
(tt) The rate is 5% for dividends paid to a company holding directly at least 10% of the share capital of the payer. The 15% rate applies in all other cases.
(uu) The standard withholding tax rate is 15%. A 5% withholding tax rate applies if the beneficial owner of the interest is a company whose shares are listed on a registered stock exchange, provided that no less than 15% of the voting shares of that company are in free float and that these voting shares hold directly at least 15% of the capital of the company paying the interest throughout a 365-day period. A 0% withholding tax rate applies to, among others, the following categories (provided that the beneficial ownership test is met):
• Interest paid to insurance undertakings or pension funds
• Interest paid to banks
• Interest on government bonds, corporate bonds and Eurobonds listed on a registered stock exchange
(vv) Cyprus and the United Kingdom entered into a new treaty during 2018. Under the new treaty, the 0% rate applies to dividends paid by a company that is a resident of a contracting state to the beneficial owner who is a resident of the other contracting state. The 15% rate applies to dividends paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle that distributes most of this income annually and whose income from such immovable property is exempt from tax.
(ww) The rate is 0% if interest is paid in any of the following circumstances:
• In connection with the sale on credit of any industrial, commercial or scientific equipment
• In connection with the sale on credit of any merchandise by one enterprise to another enterprise
• On any loan granted by a bank
(xx) The 15% rate applies to the gross amount of the dividends. The 0% rate applies if certain conditions are met.