Taxation

Cyprus has established itself as a leading provider of corporate structuring, international tax planning and other professional and financial services, and serves as a key services hub in the Eastern Mediterranean – acting as a business bridge between Europe, Russia, the Middle East, Africa and Asia.

Cyprus offers one of the most competitive tax regimes in Europe and has an extensive network of double taxation treaties (DTTs) with 65 countries. A member state of the European Union since 2004 and of the Eurozone since 2008, the country’s regulatory regime is in full compliance with EU tax directives.

Cyprus was also an early adopter of the OECD Common Reporting Standard (CRS), which calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis, as well as being FATCA-compliant. This coupled with one of the lowest corporate tax rates in the EU at 12.5%, places Cyprus high on the list of preferred jurisdictions for international tax planners.

The island is also increasingly becoming a destination of choice within the EU for Fund Managers and Management Companies thanks to the following advantages:

  • 35% cap on personal income tax, and new option to be taxed at a flat rate of 8% on carried interest for certain employees
  • exemptions for up to 50% of taxable income derived from emoluments exceeding €100,000 for up to 10 years will apply to previously non-tax resident individuals that take on Cyprus-based employment
  • exemptions apply for dividend, interest or rent income for tax resident individuals who are not domiciled in Cyprus
  • 12.5% cap on corporate tax, amongst the lowest in the European Union
  • gains from trading in a wide range of securities including shares and units of investment funds are tax exempt
  • substantially lower operating costs than comparable EU fund centres

Cyprus is continuously upgrading its tax laws in a bid to support the development of its already established international financial and business centre and to attract more international investment. Cyprus’ tax regime was further amended in 2018 to provide more tax incentives for the set up and operation of funds. These provisions include:

  • interest received by open and closed end collective investment schemes is considered ‘active’ interest income and taxed only at 12.5% corporate tax (no defence tax)
  • no minimum participation on inbound dividends to qualify for tax exemption
  • the liquidation of open and closed end collective schemes is not taxable if the unit holders are not tax residents of Cyprus
  • according to the amendment introduced in the Special Defence Contribution (SDC) Law, dividends deemed to be received by domiciled Cyprus tax resident are subject to Special Defence Contribution at the rate of 17%. This amendment will not affect any non-domiciled Cyprus tax residents or foreign tax residents who are exempted from tax on dividends received
  • no permanent establishment would be created in Cyprus where a non-Cyprus resident investor invests in a Cyprus tax-transparent investment fund; and a non-Cyprus investment fund is managed from Cyprus
  • each compartment of an AIF or UCITS, although legally is not treated as a separate entity, for tax purposes, would be treated as a separate person (i.e. separate taxpayer)
  • new amendment introduced in the Income Tax Law provides certain employees who were non-Cyprus tax resident prior to their employment in Cyprus with an investment fund management company or an internally managed investment fund the option to be taxed at a flat rate of 8% instead of the normal personal income tax rates ranging from nil to 35%. The variable remuneration of these employees, which is effectively connected to the carried interest of the fund managing entity, may be taxed at the at rate of 8%, with a minimum tax liability of €10,000 per annum, subject to certain conditions. Such employees have the option to be taxed at 8% for a 10-year period, commencing from the year of employment. For individuals that are eligible and elect to be taxed under this option, the personal income tax rates of up to 35% and the other exemptions applying to personal income will not apply

Investor Taxation 

Foreign investors 

  • no withholding tax on dividends
  • no taxation on redemption of units
  • no deemed distribution restrictions

Resident investors – Domiciled

  • Option of 8% flat rate taxation on performance based variable remuneration for certain employees
  • a withholding tax on dividends of 17% if the investor is an individual who is both tax resident and domiciled in Cyprus
  • no taxation on redemption of units
  • no withholding tax if investor is a company

Resident investors – Non-Domiciled

  • Option of 8% flat rate taxation on performance based variable remuneration for certain employees
  • exemption from withholding tax on dividends of 17%
  • no taxation on redemption of units
  • no withholding tax if investor is a company

Double Taxation Treaties 

Cyprus has concluded double taxation treaties with over 60 countries which provide important tax advantages.

Cyprus Double Tax Treaties:
AndorraArmenia
AustriaAzerbaijan
BarbadosBelarus
BelgiumBosnia
BulgariaCanada
ChinaCzech Republic
DenmarkEgypt
EstoniaEthiopia
FinlandFrance
GeorgiaGermany
GreeceHungary
IcelandIndia
IranIreland
ΙtalyJersey
KazakhstanKingdom of Bahrain
ΚuwaitKyrgyzstan
LatviaLebanon
LithuaniaLuxembourg
MaltaMauritius
MoldovaMontenegro
NorwayPoland
PortugalQatar
RomaniaRussia
San MarinoSaudi Arabia
SerbiaSeychelles
SingaporeSlovakia
SloveniaSouth Africa
SpainSweden
Swiss ConfederationSyria
ThailandThe States of Guernsey
UkraineUnited Arab Emirates
United KingdomUSA
Uzbekistan


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January 2021

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