The Republic of Cyprus, which is a member of the European Union, gained global recognition by its attractive corporate tax rate of 12,5% for international business companies. Alongside this low corporate taxation, non-resident corporate ownership is granted with no withholding tax on dividends, interest, and royalties, as well as the exemption of taxation on gains derived from the sale of shares and other securities. Yet, individual circumstances and specific industries, such as Cyprus immovable property, can deviate from these exemptions.
Tax residency of a Cyprus company is based on the concept of management and control triggering the principles of substance and presence. This means that there should be sufficient activities in Cyprus to comply with both laws in the home state of the corporate activities and the beneficial owner, and the host state of the company registration.
To avoid double taxation in both home state and host state, the Republic of Cyprus engaged in a large number of Double Tax Treaties. Additionally, when company law and codes of conduct are honoured, and the principles of substance and presence are followed, the substantive and institutional dimensions of the European single market allow persons in different member states to benefit from the borderless society to avoid double taxation.
Cyprus participates in information sharing protocols such as the Common Reporting Standard (CRS) and FATCA. The result is that financial institutions, as gatekeepers and protectors of the financial system, are required to share financial information of its customers with the domestic tax authorities. The Cyprus tax authorities follow the OECD guidelines on the Automatic Exchange of Information and share financial information on offshore financial holdings and passive financial entities with its foreign counterparts.
Following Cap. 113 of the Cyprus Company Law and international financial reporting standards, it is mandatory for a company incorporated in Cyprus to prepare audited financial statements and file these with the Registrar. The tax authorities need the audited financial statements to determine the companies tax liability. Value added tax is levied on products and services. Cyprus companies are required to maintain a VAT administration and periodically submit their records to the tax authorities to settle the levied balance.
Beneficial owners of a Cyprus company can request personal tax residency in Cyprus by following the 60 days rule for the 183 days rule. Both rules allow travellers without another tax residency to participate in the Cypriot tax resident program. Taxation of a Cyprus tax resident follows ‘world wide income’, where the first 19.500 Euro is exempt from personal income tax.