Cyprus Tax System: A Friendly Overview for Businesses
Cyprus is known for its business-friendly tax system, which has made the island an attractive base for companies and entrepreneurs. In this overview, we break down the key aspects of the Cyprus tax system in simple terms. Whether you run a local startup or an international company, understanding the Cyprus tax system can help you take advantage of its benefits.
Corporate Tax in Cyprus
One of the biggest draws for businesses is Cyprus’s low corporate tax rate. The standard Cyprus corporate tax rate is 12.5% on business profits, which is among the lowest in the European Union. This means companies in Cyprus often pay significantly less tax on their profits compared to other EU jurisdictions. Notably, this low rate applies to worldwide income for Cyprus-resident companies. (Large multinational groups may face a 15% minimum effective tax due to global tax rules, but typical companies enjoy the 12.5% rate.)
In addition to the low rate, Cyprus offers various tax benefits in Cyprus for companies. For example, certain types of income can be tax-exempt or subject to reduced taxation. Cyprus has a full participation exemption for many cases of foreign dividends: if a Cyprus company receives dividend income from abroad, that income can be fully exempt from corporate tax under specific conditions. Similarly, profits earned by a Cyprus company from a permanent establishment (branch) in another country can often be exempt from Cyprus tax. These rules make Cyprus an ideal location for holding companies and international business structures.
Personal Income Tax and Non-Domicile Benefits
Cyprus also offers attractive personal tax rules for individuals, especially those moving to Cyprus for work or business. The personal income tax system is progressive, with rates ranging from 20% up to 35% on income (35% being the top bracket for high earners). Importantly, there is a generous tax-free band – the first €19,500 of annual income is tax-free
for everyone. This means many everyday earners in Cyprus pay no income tax on a good portion of their income, and only amounts above that are taxed at the gradual rates.
Beyond the normal rates, Cyprus has a special status for expatriates and newcomers called the non-domicile tax Cyprus regime (often shortened to non-dom). If you become a Cyprus tax resident but are not considered domiciled in Cyprus (which is usually the case for foreign nationals moving here), you can enjoy huge tax advantages for up to 17 years. Under the non-domicile rules, dividend and interest income is completely tax-free for Cyprus tax residents who are non-domiciled. In other words, if you’re a non-dom, any dividends you receive (from Cyprus or overseas companies) and any interest from bank deposits or bonds are exempt from Cyprus tax. This is a massive benefit for investors, business owners, or retirees living off investments. Additionally, most capital gains are also free from tax for individuals – there is no capital gains tax in Cyprus on profits from selling shares, crypto, or other assets, except if the gain comes from real estate located in Cyprus. Cyprus also does not impose inheritance, estate, or gift taxes, which can be a relief for those planning their estate or succession. Overall, the tax benefits in Cyprus for new residents and non-domiciled individuals make it a highly attractive location to live and do business, allowing you to legally minimize personal taxes while enjoying life in the sun.
(Note: Even salary income for expats can get special treatment – for instance, there are 50% income tax exemptions for high-earning professionals moving to Cyprus, and a 20% exemption (up to €8,550) for lower incomes, as incentives to attract foreign talent.)
VAT (Value Added Tax) in Cyprus
Like all EU countries, Cyprus charges Value Added Tax (VAT) on goods and services. The standard VAT rate in Cyprus is 19%. This standard rate applies to most products and services. However, Cyprus also has reduced VAT rates on certain categories of goods and services to keep costs low for essential items or tourism-related services. The two main reduced rates are 9% and 5%. For example, a 9% VAT often applies to things like hotel accommodations and restaurant bills, while a 5% rate may apply to some basic foodstuffs, medicines, and books. There are even some items that are zero-rated or exempt (such as exports or hospital services), meaning no VAT is charged at all.
For businesses, registering for Cyprus VAT is required once your sales exceed a certain threshold (or if you provide services to the EU). The good news is that as an EU member, Cyprus follows the common VAT framework, so doing business across EU borders (like selling goods from Cyprus to other EU countries) is relatively straightforward under the EU VAT system. Businesses can typically reclaim the VAT on their business purchases, which helps keep costs down. Overall, the VAT system in Cyprus is standard and business-friendly, with the 19% rate being moderate and the reduced rates helping specific sectors remain competitive.
Tax on Dividends and Capital Gains
Cyprus is particularly attractive when it comes to dividend income and capital gains, both for companies and individuals. We touched on some of this under the non-dom section, but here are the highlights:
Dividends: Cyprus does not levy any withholding tax on dividends paid to shareholders abroad (except in very limited cases involving certain blacklisted jurisdictions). This means if your Cyprus company distributes profits to a foreign shareholder, Cyprus won’t tax that dividend on the way out. From the recipient’s side, if the recipient is a Cyprus tax resident individual who is a non-dom, they don’t get taxed either – effectively tax-free dividends in Cyprus. Even for Cyprus companies receiving dividends, there is generally a participation exemption that makes dividend income tax-free for the company
(as long as a few conditions are met, such as the paying company not engaging mainly in passive investments). In summary, Cyprus is a dividend-friendly jurisdiction, which is great for international business structures and holding companies.
Capital Gains: Cyprus has a very limited scope for capital gains tax. There is no general capital gains tax on the sale of stocks, bonds, cryptocurrencies, or other intangible assets. Selling shares in a company (even a Cypriot company) is tax-neutral in Cyprus, no capital gains tax is applied. The only significant exception is gains from real estate located in Cyprus. If you sell Cyprus real property (or shares in a company that owns Cyprus real property), then a 20% capital gains tax applies on the profit. This exception aside, any other capital gains – whether made by a company or an individual – are typically tax-exempt. This policy is why many investors and holding companies choose Cyprus as a base: you can dispose of investments without worrying about Cyprus taxation on the gain.
In practice, these rules mean Cyprus holding companies can buy and sell subsidiaries, or investors can trade securities, without incurring Cyprus taxes on the profits. It’s a very tax-efficient environment for investment income.
Double Tax Treaties and International Agreements
Cyprus has an extensive network of double tax treaties with other countries, which provide additional assurance and tax optimization opportunities for international business. These double tax agreements are treaties between Cyprus and other nations that prevent the same income from being taxed twice. Cyprus has over 65 double taxation treaties in place, including with major economies in Europe, Asia, the Middle East, and North America. For example, Cyprus has tax treaties with countries like the United States, UK, Germany, Russia, India, China, and many more. This network is continuously expanding – recent treaties have been signed with countries like Oman, France, and Saudi Arabia (among others), reflecting Cyprus’s commitment to global business cooperation.
For businesses and investors, these treaties provide clarity on which country gets to tax certain types of income (such as dividends, interest, royalties, business profits, etc.), and often they reduce or eliminate withholding taxes. For instance, if a Cyprus company receives dividends from a treaty-partner country, the treaty might reduce the foreign withholding tax on that dividend. And if a Cyprus company pays interest or royalties to a resident of another treaty country, the treaty can cap the tax rate or exempt it. The result is often a very tax-efficient flow of income across borders, using Cyprus as a hub. Even if no treaty applies, Cyprus grants unilateral tax relief for foreign taxes paid, to avoid double taxation
Being part of the European Union also means Cyprus honors EU directives that provide tax benefits, such as the EU Parent-Subsidiary Directive and Interest and Royalties Directive. These can eliminate withholding taxes on certain payments between EU-resident companies. In essence, Cyprus’s treaty network and EU membership give businesses tools to avoid double taxation and streamline their international operations.
Final Thoughts
In summary, Cyprus offers a transparent and attractive tax system for both companies and individuals. A low corporate tax rate, generous personal tax exemptions (especially the non-domicile tax Cyprus advantages), no tax on most dividends and capital gains, and a wide treaty network all contribute to making Cyprus a tax-friendly jurisdiction. On top of that, the compliance and administration of taxes in Cyprus are relatively straightforward, with English widely used in business and a modern electronic tax filing system.
For any business owner or investor considering Cyprus, these tax features mean you can enjoy more of your profits and reinvest in growth. Always consult with a Cyprus tax advisor or accountant to understand how the rules apply to your specific situation, but rest assured that the Cypriot tax framework is designed to encourage entrepreneurship and international investment. With the combination of a favorable tax regime and Cyprus’s strategic location in the EU, it’s no surprise that many businesses view Cyprus as an ideal place to operate.
