Tax is imposed on all Cyprus resident persons (individuals & corporations) on their world wide income.
A corporation is Tax resident in Cyprus when its management and control is exercised in Cyprus. Corporate tax as from 1 January 2005 is 10% on the total net profit.
An individual is tax resident in Cyprus when he/she spends more than 183 days in Cyprus in a calendar year.
Corporations do not pay any Tax on dividends received from other Cyprus resident companies (Local or International).
Dividends received by Cyprus resident corporations from foreign corporations are exempt from Tax when the requirements outlined below are met:
- Directly or indirectly more than 50% of the activities of the paying company result in investment income, and
- the paying company is subject to Tax at a rate substantially lower (5%) than the Cyprus rate.
The exemption from Tax also applies to profits of a permanent establishment the Cyprus Company has in another jurisdiction. The conditions to be satisfied are the same as the conditions for dividends.
When dividend income is not exempt there is a 15% defense tax contribution. Additionally, tax credits for taxes paid abroad are available.
When interest income is the result of the ordinary activities of the company or is closely connected to the ordinary activities of the company, it is subject to tax like any other “active” trading income. If the interest income fails the test of “active” trading income, then it is subject to tax both for corporation tax and defense tax contribution purposes. The special provisions governing “passive” interest income result in a combined tax burden at a rate of 15%.
Cyprus does not impose any withholding Tax on dividend, interest and royalty payments made to non-Cyprus resident recipients.
In the case of royalties, the exemption applies for royalty payments when the right/asset is used outside of Cyprus. When the royalties are connected with the use of the right/asset within Cyprus there is a 10% withholding Tax subject to treaty provisions.
