Cyprus: Business Environment

Company Tax

12.5%

Tax Rate For Foreign Companies

Profits from activities of a permanent establishment situated outside Cyprus are completely exempt from taxes. In other cases, tax is paid only on income coming from activities done in Cyprus.
Tax resident companies are taxed on their worldwide income.
A company is resident in Cyprus if its management and control is exercised in the country.

Capital Gains Taxation

Capital gains from the sale of listed shares are fully tax-exempt. Capital gains from the disposal of immovable property situated in Cyprus and from the disposal of shares in an unlisted company that owns, directly or indirectly, immovable property situated in Cyprus are taxed at 20%. Gains from the disposal of shares in a company that indirectly owns immovable property in Cyprus and obtains at least 50% of its revenue from such property are also taxed at 20%.

Main Allowable Deductions and Tax Credits

Depreciation of tangible and intangible assets is tax-deductible at rates ranging from 3% to 100% (real estate, equipment, industrial buildings and hotels acquired between 2012 and 2018 are eligible for accelerated depreciation rates). Goodwill can be amortised for tax purposes.
Start-up fees are generally not deductible. Interest charges and bad debts are deductible. Donations to charitable organisations are fully deductible. Donations to political parties can give rise to a deduction of up to EUR 50,000.
Profits from the exploitation of intellectual property rights are deductible up to 80% whereas profits deriving from the disposal of such rights are fully deductible.
Employer contributions to approved funds on employees' salaries are fully deductible.
The expenditure related to scientific research and development (R&D) that is undertaken by a business entity and is economically owned by the entity, including any resulting intangible assets, is eligible for tax deduction under IT Law. If the expenditure is of a capital nature, it can be amortized over its useful economic life for a maximum period of 20 years. Additionally, for expenditures incurred in the years 2022, 2023, and 2024, an additional allowance of 20% of the incurred expenditure is granted. However, this allowance cannot be claimed simultaneously with the 80% allowance on net profit under the Cyprus nexus IP regime (i.e., it cannot be claimed alongside the New Cyprus IP Box). Furthermore, the entity has the option to waive the claim for this additional allowance, either partially or in its entirety, for each tax year.
Fines and penalties are not deductible whereas unrecovered VAT is tax-deductible.
Business entertainment expenses are deductible up to 1% of the gross income or EUR 17,086 (whichever is lower).
Tax losses can be carried forward up to five years. The carryback of losses is not permitted.

Other Corporate Taxes

Social security contributions payable by the employer amount to 10% of salary (with rates expected to go up gradually until it reaches 10.7% by 2039 - the maximum amount of remuneration on which contributions are payable is 60,060 for 2023). Employers also pay a contribution equivalent to 2% of the salary to the Social Cohesion Fund. In some cases, employers are required to pay an 8% contribution to the Holiday Fund, 0.5% contribution to the Industrial Training Fund and 1.2% to the Redundancy Fund. Self-employed individuals contribute at 15.6%, calculated on notional income (varies according to the profession).

The property tax was abolished on 1 January 2017, but property transfer taxes are payable according to the value of the property. They amount to EUR 2,550 (or 3% of the value) for any property valued at EUR 85,000 or less. The rate increases to 5% for real estate worth between EUR 85,001 and EUR 170,000, and to 8% for any value above EUR 170,000. These fees are reduced by 50% if the property is exempt from VAT. No rights apply if the property is subject to VAT. Mortgage registration fees are 1% of the market value of the property.

A 0.4% levy is imposed on the sale proceeds from all disposals of immovable property which is within the current control of the Republic. The levy also applies to disposals of shares of a company which is the owner of such immovable property, to the extent that the buyer of the shares assumes control of such company.

The capital contribution when setting up a company is EUR 105 and 0.6% of the nominal value of the authorised capital.
Stamp duties are capped at EUR 20,000 per document and apply to any transaction involving property situated in Cyprus or a deed signed in Cyprus.
Resident companies are subject to a special defensive contribution of 17% on dividends, 3% or 30% on interest income and 3% on rental income.

Credit institutions established in Cyprus and their foreign branches are subject to a 0.15% tax on certain deposits of money. Companies also pay a lump-sum fee of EUR 350 per year, capped at EUR 20,000 per group.

Other Domestic Resources

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

The first EUR 19,500 is tax-free.
Subject to an overall maximum deduction of one-fifth of the chargeable income, deductible expenses include life insurance premiums (capped at 7% of the insured amount), employee contributions to the social insurance fund, individual pension, provident fund contributions (capped at 10% of remuneration), medical fund contributions (capped at 1.5% of remuneration), and contributions to the General Health System.
Documented charitable contributions to approved charities are deductible.
Employment-related expenses of an employee are deductible unless reimbursed by the employer; whereas commuting expenses are not.
Investments in approved innovative small/medium-sized enterprises may be deducted (up to 50% of the taxable income or EUR 150,000 per year). Investments in audiovisual infrastructure and technological equipment related to the audiovisual industry are entitled to a 20% deduction (subject to conditions).
Employer contributions to approved funds on employees' salaries are fully deductible.
The expenditure related to scientific research and development (R&D) that is undertaken by an individual, including any resulting intangible assets, is eligible for tax deduction under IT Law. If the expenditure is of a capital nature, it can be amortized over its useful economic life for a maximum period of 20 years. Additionally, for expenditures incurred in the years 2022, 2023, and 2024, an additional allowance of 20% of the incurred expenditure is granted. However, this allowance cannot be claimed simultaneously with the 80% allowance on net profit under the Cyprus nexus IP regime (i.e., it cannot be claimed alongside the New Cyprus IP Box). Furthermore, the entity has the option to waive the claim for this additional allowance, either partially or in its entirety, for each tax year.

Special Expatriate Tax Regime

Residents are taxed on their worldwide income whereas non-residents are only taxed on their Cyprus-source income.
For the purpose of income tax, individuals are considered residents of Cyprus if their total presence in the country exceeds 183 days within a tax year. However, individuals can also be deemed tax residents of Cyprus even if they spend less than 183 days there, under certain conditions. These conditions include not spending more than 183 days in any other country within the same tax year, not being a tax resident of any other country during that tax year, staying in Cyprus for at least 60 days within the tax year, maintaining a permanent home in Cyprus that is either owned or rented, and engaging in business activities, employment, or holding an office in a Cyprus tax resident entity at any point during the tax year.