Cyprus, an island of 9,251 square kilometres in the Eastern Mediterranean at the crossroads of Europe, Asia, the Middle East, and Africa, is ideally located as an international business and financial centre.

In addition to its strategic geographical location and a most attractive climate, Cyprus offers an excellent commercial infrastructure, numerous tax incentives, and a high standard of living. Its time zone is seven hours ahead of New York, two hours ahead of London, and seven hours behind Tokyo.

Cyprus is an independent, sovereign republic with a presidential system of government and a written constitution which safeguards the rule of law, human rights, and the ownership of private property. It is a member of the European Union and the Eurozone, and also a member of the United Nations, the British Commonwealth, and the Council of Europe.

The legal system has been largely modelled on the English common law system since independence in 1960, and legislation is harmonised with the acquis communautaire of the EU. Cyprus is a signatory to a large number of international conventions and treaties, including an extensive network of double taxation treaties.

Tax Regime and Classification as No-Tax or Low-Tax Jurisdiction

Tax Regime

Tax System and Reform

The Cyprus Tax Department administers both direct taxation and Value Added Tax. The system of direct taxation, particularly income tax, corporate income tax, and Special Contribution for Defence, commonly known as SDC tax, underwent substantial reform in 2002.

The distinction between local companies and 'international business companies' which had previously existed was abolished and there is now:

  • A single corporation tax rate of 12.5 per cent, among the lowest in the EU, for all companies managed and controlled in Cyprus;
  • No geographical limitation on the exercise of a company's activities; its income may be derived from any source including a Cyprus-based source; and
  • No restriction on the ownership of a company's shares. There is a highly beneficial tonnage tax regime for individuals and companies engaged in international shipping activities and an intellectual property box, giving an effective rate of 2.5 per cent on income from qualifying intellectual property assets and tax exemption of gains. These are described later in this chapter.

Forms of Business Enterprise

The main forms of business enterprise are partnerships, companies, and branches, all of which are easily available to Cypriots, European Union (EU) nationals, and third-country nationals. Except in strategic and regulated sectors such as real estate, tertiary education, public utilities, media, airlines, and banks, there are no restrictions on foreign ownership.

Low-Tax Status

Cyprus is a low-tax jurisdiction, not a tax haven. Cyprus is on the Organisation forEconomic Co-operation and Development (OECD) 'white list' of jurisdictions complying with the global standard for tax co-operation and exchange of information.

Itsfiscalandregulatoryregimesarefullyalignedwiththeacquis communautaire and the Code of Conduct for Business Taxation of the EU and the requirements of the OECD, and the Financial Action Task Force (FATF).

Types of Taxes

In General. The main tax laws in force in Cyprus are those relating to:

  • Income tax;
  • Special Contribution for Defence ('SDC tax');
  • Capital gains tax;
  • Value-added tax;
  • Social insurance;
  • Fees on transfer of immovable property;
  • Capital duty; and
  • Stamp duty.

There are no succession taxes in Cyprus.

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