CORPORATION TAX – CYPRUS
Establish. Operate. Grow — Tax-Efficiently
Cyprus offers one of the lowest and most stable corporate tax regimes in the European Union, supported by over 65 Double Tax Treaties and an attractive framework for both resident and international businesses.
At a Glance
| Corporate Tax Type | Rate | Applies To | Remarks |
|---|---|---|---|
| Standard Corporation Tax | 12.5% | Cyprus Tax-Resident Companies | One of the lowest in the EU |
| Foreign Permanent Establishment Income | 0% (Exempt) | Cyprus Companies | Subject to conditions |
| IP Income (IP Box Regime) | Effective 2.5% | Qualifying IP Holders | 80% profit exemption |
| Shipping / Tonnage Tax | Variable | Shipping Companies | Tonnage Tax System regime |
Cyprus combines low tax rates with full EU compliance — ideal for holding, trading, finance, and IP structures.
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1. Overview
Cyprus operates a residence-based corporate taxation system, meaning companies that are tax residents of Cyprus are taxed on their worldwide income, while non-residents are taxed only on income arising in Cyprus.
With a 12.5% corporate tax rate, Cyprus remains a preferred jurisdiction for EU and global investors.
2. Tax Residency Criteria
A company is considered Cyprus tax-resident if it is managed and controlled in Cyprus. This typically means:
- The majority of directors are Cyprus residents;
- Board meetings are held in Cyprus;
- Accounting, banking, and decision-making functions occur locally.
From 2023, Cyprus introduced the “corporate residency by incorporation” rule — companies incorporated in Cyprus are deemed tax resident unless proven resident elsewhere under a treaty.
3. Taxable Income
Corporation tax applies to net accounting profits, adjusted for tax-allowable and non-deductible expenses.
| Category | Taxable / Exempt | Notes |
|---|---|---|
| Trading Income | Taxable | Standard 12.5% |
| Dividends from Subsidiaries | Exempt (subject to participation exemption) | >50% non-passive income & fair tax burden |
| Interest Income (Trading) | Taxable | 12.5% |
| Interest Income (Non-Trading) | Exempt from CT, subject to SDC | — |
| Rental Income | Taxable | Subject to CT and SDC |
| Gains from Securities (Shares, Bonds, Debentures) | Exempt | 0% under Income Tax Law |
4. Deductible Expenses
Tax deductions are allowed for expenses incurred wholly and exclusively for business purposes, including:
- Wages and staff benefits
- Rent and utilities
- Marketing and travel expenses
- Depreciation (per tax rates)
- Professional and audit fees
- Contributions to approved funds
- Interest expenses (subject to restrictions on non-business loans)
Non-deductible Items:
- Private expenses, penalties, and taxes
- Entertainment exceeding 1% of turnover (max €17,086)
- Non-deductible depreciation of land and goodwill
5. Tax Losses
- Loss Carry-Forward: Allowed for 5 years.
- Group Relief: Losses of one group company may be set off against profits of another, provided a 75% ownership link exists.
- Intragroup Cross-Border Relief: Allowed within the EU for final losses of subsidiaries.
6. Special Incentives and Regimes
a) Intellectual Property (IP) Box Regime
- 80% exemption of qualifying IP profits.
- Effective tax rate ≈2.5%.
- Aligned with OECD Nexus approach.
b) Shipping / Tonnage Tax Regime
- Approved by the EU; based on tonnage rather than profit.
- Applies to shipowners, charterers, and ship managers.
c) Film Production Incentive Scheme
- Refundable tax credits or cash rebates up to 35% of eligible expenditure.
d) Notional Interest Deduction (NID)
- Deduction on new equity introduced to a company (as if it were loan interest).
- Aims to reduce equity financing bias.
7. Withholding Taxes
| Payment Type | To Cyprus Residents | To Non-Residents |
|---|---|---|
| Dividends | 0% | 0% |
| Interest | 0% | 0% |
| Royalties (Use outside Cyprus) | 0% | 0% |
| Royalties (Use in Cyprus) | 10% | May be reduced by treaty |
Cyprus imposes no withholding tax on dividends, interest, or royalties paid to non-residents, making it a leading jurisdiction for holding structures.
8. Capital Gains and Other Taxes
- Capital Gains Tax (20%) applies only to gains from immovable property situated in Cyprus.
- No wealth, inheritance, or net worth tax.
- No exit tax on liquidation or profit repatriation (subject to substance and anti-avoidance rules).
9. Filing and Compliance
| Obligation | Form | Deadline |
|---|---|---|
| Corporate Income Tax Return | Form T.D.4 | 31 March (next year) |
| Audited Financial Statements | IFRS basis | Submitted annually |
| Provisional Tax Payment | Twice yearly (31 July & 31 December) | — |
| Final Settlement | — | 1 August (next year) |
Electronic filing via TAXISnet is mandatory. Late submission leads to 5% penalty + 2.25% annual interest.
10. Effective Tax Planning in Cyprus
- Holding and financing structures
- IP and royalty income management
- Intragroup loans and equity reorganization
- Profit repatriation without withholding tax
11. Why Clients Choose Our Firm
- Corporate tax structuring for local and multinational clients
- Full compliance with Cyprus Income Tax Law and EU directives
- IFRS-based accounting and statutory audit integration
- IP, group, and holding company tax planning
- Representation before Tax Department and TAXISnet submissions
We help you establish substance, safeguard compliance, and achieve long-term tax efficiency under Cyprus’s trusted regime.