1. Transfer Pricing
Cyprus is a well-regarded jurisdiction for holding companies, offering tax-free treatment for dividends received from foreign subsidiaries and exemption from withholding taxes on dividend distributions to non-resident shareholders. Similarly, interest payments to nonresidents are typically exempt from withholding taxes, provided transactions comply with transfer pricing (TP) regulations.
Although TP regulations in Cyprus have historically been limited, they have expanded in recent years. From 1 July 2017, TP rules were introduced for back-to-back loan arrangements. Additionally, a December 2015 tax law amendment, retroactive from 1 January 2015, reinforced the arm's length principle, allowing both upward and downward TP adjustments to ensure fairness in related-party transactions.
For acquisitions, double taxation agreements (if applicable) between Cyprus and the subsidiary or parent company's jurisdiction play a vital role in mitigating tax impacts. Industry-specific and jurisdictional factors should also be evaluated on a case-by-case basis.
On 30 June 2022, detailed TP legislation became effective for tax years starting from 1 January 2022. These rules apply to Cyprus tax residents and permanent establishments of non-resident entities engaged in related-party transactions. The law mandates the submission of a summary information table detailing annual intercompany transactions and the preparation of a TP documentation file, comprising a local file and a master file, subject to certain exemptions.
2. Personal Income Tax
2.1. Personal Tax Rates
| Chargeable Income | Tax Rates | Cumulative Tax € |
| 0 – 19,500 | 0% | - |
| 19,501 – 28,000 | 20% | 1,700 |
| 28,001 – 36,300 | 25% | 3,775 |
| 36,301 – 60,000 | 30% | 10,885 |
| Over 60,000 | 35% |
2.2 Tax Deductions
| Type of expenditure | Deduction |
| Contributions and donations to approved charities (with receipts | The whole amount |
| Expenditure incurred for the maintenance of buildings for which there is a Preservation Order in force |
Up to 300 Sq m - €1,400 301 – 1,000 Sq m - €1,300 Over 1,001 Sq m - €1.000 |
| Annual life insurance premiums (up to 7% of the insured amount), Social Insurance contributions, Provident and Pension Fund contributions, Medical Fund contributions (capped at 2% of remuneration), contributions to equivalent foreign funds (subject to conditions), and contributions to the General Healthcare System are allowable deductions. | Restricted to 1/5 of the taxable income before deduction of these allowances |
| Rental income | 20% of gross rental income before interest and wear and tear allowance |
| Contributions to trade unions and professional bodies | The whole amount |
| Expenditure incurred for the acquisition of shares in an innovative business | The whole amount |
| Loss of current year and previous years (for individuals required to prepare audited financial statements, current year's losses and losses of the previous five years only may | The whole amount |
| All expenses incurred “wholly & exclusively” for the production of income. | The whole amount |
| Sums paid to an Approved Scholarship Fund | The whole amount |
| Bad debts (specific provision, not general provision) | The whole amount |
| Scientific research expenditure | The whole amount |
| Expenditure for the acquisition of patent or intellectual property rights | Over useful economic life |
| Any amount of interest related to the acquisition of business assets such as machinery, equipment, land for business use. | The whole amount |
| Notional interest deduction | Limited to 80% of taxable income arising from new equity |
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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.
