Cyprus: The Role Of Cyprus On International Tax Planning

Last Updated: 10 September 1999
Most Read Contributor in Cyprus, December 2017

Cyprus' strategic geographic location, excellent commercial infrastructure political stability, favourable tax incentives and high European life-style are among the factors which have contributed to the development of the island as an important financial and business centre in the Middle East.

Foreign participation in the Island's economy has always been encouraged and endorsed by all official bodies and authorities as well as by the Cypriot people themselves. This generous and liberal approach is already paying dividends and has successfully generated a growing awareness amongst foreign corporations and individuals of the unique advantages of using Cyprus as a business base.

Today the authorities are demonstrating more clearly than ever before that they are seriously committed to refining and expanding the legislation and regulations in terms of which foreign involvement in the island's economy is secured. Therefore, an extremely favourable environment for all forms of offshore business activities and onshore foreign investment has been specifically structured to ensure that they enjoy an infrastructure which has the maximum potential for success and growth. Cyprus is considered to be a low tax jurisdiction and not a zero tax jurisdiction or a tax haven.

In contrast to many countries commonly used for offshore structures, Cyprus has concluded a number of double tax treaties with many developed countries as well as with Russia, the CIS and all the other Eastern European countries.


The impressive number of the double tax treaties of Cyprus, combined with the very low taxation of offshore entities, and the nil withholding tax rates on dividends, interest and royalties paid by such entities make the Republic a tax incentive country, offering real possibilities for international tax planning. The primary purpose of these treaties is the avoidance of double taxation of income earned in any of the treaty countries. This is usually achieved, either through the allowance of a tax credit against the tax levied on the taxpayer by his country of residence or through tax exemption in one contracting state of the income taxed in the other contracting state. Normally, the result is that the taxpayer pays no more than the higher of the two rates.

Cyprus has double tax treaties with the following countries:

- Austria               - Ireland
- Bulgaria              - Italy
- Canada                - Kuwait 
- China                 - Malta 
- Czech Republic        - Norway 
- Slovak Republic       - Poland
- Denmark               - Romania 
- Egypt                 - Russia and CIS Republics
- France                - Syria (as from 1/1/1996)
- Germany               - Sweden
- Greece                - UK
- Hungary               - USA
- India                 - former Yugoslavia.
The tax treaties with Belgium and South Africa are signed and await ratification while the treaty with Finland awaits signature. New treaties with Thailand and Singapore are currently being negotiated.

All the double tax treaties of Cyprus are drafted on the basis of the OECD treaty model. As with all double tax treaties, their primary objectives are firstly, to clarify and determine the taxing rights of each contracting state, secondly, to reduce or avoid the impact of international juridical double taxation, and thirdly, to introduce anti-avoidance provisions and mechanisms to prevent tax evasion.

Cyprus is perhaps the best example of a "low tax jurisdiction" country or as it is better defined a "treaty haven" since it combines a low tax regime with an extensive network of double tax treaties and only a few anti-treaty shopping provisions. Out of all the treaties now in force, only the treaties with Canada, Denmark, Germany, France, UK and USA have some anti-avoidance provisions. Even so, these countries, with the exception of Canada and the USA provide tax sparing credits to Cypriot offshore entities.

Cyprus has a clear advantage when compared with other low or no-tax jurisdictions because of the extensive double tax treaty network. Cyprus is relatively unusual in the extent of its treaty network in that, although there are limitation provisions in some of its treaties its double tax treaties in combination with the low tax concessions given by Cyprus to offshore entities offer many possibilities for international tax planning. Moreover, the high esteem and reputation enjoyed by Cyprus with foreign tax jurisdictions means that tax screening requirements normally relevant to tax havens and low tax countries may not be relevant to payments to Cyprus legal entities, whilst the anti-avoidance legislation of high tax countries aimed at clawing back benefits derived through tax havens and low tax countries may be less significant with regard to Cyprus. At this point it should be noted, by way of illustration, that the most recent and perhaps the most appropriate example of the use of the "limitation of benefits" article is the new USA/Netherlands double tax treaty whose 27 pages long limitation of benefits article literally reduces to the minimum the tax potentials of Dutch companies as investment vehicles in and out of the USA.

In conclusion it can be stated that the wide network of Cyprus double tax treaties, combined with the tax and other incentives afforded to Cyprus offshore companies, renders Cyprus a particularly attractive place for the establishment and operation of an offshore entity. For a foreign corporation, whose activities and investments are situated on an international level, Cyprus is amongst the very few locations that combine benefits in the country where the investment is made, by eliminating or substantially reducing withholding taxes, in Cyprus itself, by avoiding or paying tax at a low rate of 4.25% and in the home country of the organisation by avoiding or reducing tax and in some cases even enjoying tax sparing credits.


The tax system of Cyprus is administered by the Director of Inland Revenue, who is also the Commissioner of Income Tax and who is also responsible for tax policy and tax collection.

Since 1 January 1991, Cyprus has used the "classical" system of taxation under which corporate income is subject to corporation tax and also to withholding tax on distribution by way of dividends. The corporation tax is based on "taxable trading" profit which is the accounting profit, as disclosed by the company's income statement, as adjusted for tax purposes. The corporate tax rate is 20% in respect of profits up to the first CYP40,000 and 25% on profits in excess of this amount.

Cyprus incorporated offshore companies (i.e. companies totally owned by non-residents and conducting their business activities outside Cyprus) are subject to tax on their taxable profits at the reduced rate of 4.25%, and are not subject to any withholding tax on distributions by way of dividends.

The income of individuals is subject to tax as follows:

- up to CYP 5000 :NIL
- from CYP 5001 - CYP 8000 :20%
- from CYP 8001 - CYP 11000 :30%
- more than CYP 11001 :40%

The personal income tax provides for certain allowances or deductions such as the deduction on rent, the deduction for interest paid on housing loans, the deduction on insurance premia etc., and tax credits such as credits for spouse, children etc.

The emoluments of foreign employees of offshore entities are either taxed at reduced rates or are exempt from tax, depending on where the employment is exercised and how such emoluments are paid. The term "emoluments" includes salary and other allowances such as housing, cost of living, school fees etc.

  • the emoluments out of services rendered inside Cyprus are taxed at half of the normal personal tax rates.
  • the emoluments out of services rendered outside Cyprus are taxed at one-tenth of the personal tax rates.
  • the emoluments out of services rendered outside Cyprus but received in Cyprus or through Cyprus are exempt from tax.
Where the expatriate employee renders services both in Cyprus and abroad, his salary is apportioned between the time spent in Cyprus and abroad and then taxed accordingly.


The easiest way of comprehending some of the principles outlined above, is through practical examples and considerations. The following examples should be noted:

Tax Planning Opportunities With Russia

As a result of the excellent double tax treaty which Cyprus concluded with the USSR in 1982 and which is still in force, not only with Russia but also with most of the CIS countries, Cyprus is the jurisdiction which is probably most associated with Russian investments. The Cyprus/Russia double tax treaty provides for complete exemption from Russian withholding tax on dividends paid from a Russian entity to its Cypriot parent. This nil rate also applies to interest payments.

The most beneficial feature is however that Cyprus offshore companies, which are taxed at the favourable rate of 4.25%, are not excluded from enjoying the benefits of the treaty. Furthermore, Cyprus offshore companies do not pay capital gains tax on the sale of shares in underlying subsidiaries. Unlike many other jurisdictions Cyprus does not impose capital duty on the share capital of Cypriot companies. Also under unilateral Cyprus law, dividends paid to a Cypriot holding company may be remitted to the ultimate shareholders free from Cypriot withholding tax.

Tax Planning Opportunities With China

Although Hong Kong is probably considered to be the most favourable jurisdiction for routing investments in China, other jurisdictions may be of particular use especially where royalty or interest payments extract income before the local profits are subject if relevant to Chinese taxation. It should be noted that there is no need for double tax treaty protection to route investments in China in the case where the expected profits are to be remitted overseas in the form of dividends, since no Chinese withholding tax is imposed on dividends earned by foreign companies investing in China.

In order to channel the flow of interest and royalty payments with the minimum of foreign taxation, it may be necessary to seek protection under one of the so far 30 double taxation agreements concluded by China. One of the most useful treaties for such purposes is the treaty with Cyprus. Under the Cyprus/China double tax treaty, the maximum withholding tax rate on royalties and interest is 10%. Of particular importance is the fact that the treaty contains no limitation of benefits provisions so that a Cyprus offshore company paying tax at just 4.25% on its income will nevertheless be able to benefit from the treaty provisions. Such Cyprus companies may therefore not only be useful as intermediary companies but indeed as the ultimate financing or licensing entities used for investment in China.

Tax Planning Opportunities With India

The best way of comprehending the tax planning potentials of Cyprus with India is through a comparison with the Mauritius/India double tax treaty. Mauritius although a newcomer in the offshore financial world, has achieved considerable success to date, mainly due to the absence of competition in the Indian Ocean and also due to the cultural links between Mauritius and India.

Under the Mauritius/India treaty, withholding tax rates on dividends, interest and royalties derived under the treaty by a Mauritius company from India are:

dividends: 15% (on a shareholding of less than 10%) 5% (in all other cases)
interest: (in the case of interest derived by a bank in Mauritius) 20% (in all other cases)
royalties: 15%

The equivalent rates of Indian withholding taxes under the newly ratified India/Cyprus treaty:

dividends: 15% (on a shareholding of less than 10%) 10% (in all other cases)
interest: 10%
royalties: 15%

There is no doubt that Mauritius is a very tax effective jurisdiction for companies holding substantial participation (a shareholding of more than 10%) in Indian companies. However, Cyprus has equal treatment on portfolio dividends and, given that it enjoys a lower rate of Indian withholding tax on interest, could be, under these circumstances, a better location for portfolio investment companies. Moreover, Cyprus might be considered to be a more convenient jurisdiction from a geographical aspect and as having a much more developed commercial infrastructure.

Routing Through Austria/Cyprus

Austria's domestic tax legislation provides for a tax free receipt of dividends and other income by Austrian holding companies. Cyprus offshore companies may be the parents of Austrian holding companies and therefore could in certain circumstances provide a suitable alternative to the present popular Netherlands/Netherlands Antilles holding structure. Under the Austrian/Cyprus double tax treaty the Austrian dividend withholding tax is reduced to 10% and there is no further taxation in Cyprus for offshore companies holding the Austrian company's shares.

Alternatively, Cyprus offshore companies may be used as intermediaries for converting certain types of income such as royalties and interest into dividends which can be received by Austrian holding companies tax free. So, for example, royalty and interest payments may be received by the Cyprus offshore companies from other countries under reduced treaty withholding tax rates and they may then be paid in the form of dividends to the Austrian holding companies. No tax would be due in Cyprus since the 4.25% corporate tax rate on offshore companies will be reduced to zero through the foreign tax credit scheme provided under the terms of the Austrian/Cyprus double tax treaty.

Routing Through Ireland/Cyprus

Ireland is another favourable jurisdiction for international tax planning, so that the combination of Irish tax concessions with the favourable Cyprus/Ireland double tax treaty may provide an excellent means of structuring investments or business opportunities in high tax jurisdictions. This is especially so where Cyprus' treaties with such countries contain limitations on benefits provisions, such as the UK and US. For example, financing UK activities through an Irish company may enable interest to be received gross under the UK/Ireland double tax treaty with limited Irish taxation and paid to the ultimate Cyprus parent company without any further Irish taxation under the Cyprus/Ireland double tax treaty.


The Cypriot authorities are only too well aware of the need to maintain a high reputation if Cypriot entities are to be used in international tax planning. Thus Cyprus is one of the few low tax countries that require disclosure of beneficial interests before such entities are formed, although this information is treated with utmost confidentiality. The authorities are determined to impose whatever regulations are required to prove that the political and economic stability enjoyed by the island for the past 23 years provides a secure environment for companies and individuals with international business.

This information was correct in June 1997.

You may also be interested in the following sites:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions