The tax system of Cyprus is universally accepted as the most beneficial tax system in the EU. Furthermore, Cyprus has not amended its tax rates and these have remained unchanged since Cyprus entered into the EU in 2004. This gives the opportunity to someone who wishes to invest in Cyprus the ability to plan in advance, with absolute precision, his tax liabilities.
From an international perspective Cyprus has developed an extensive network of double tax treaties which in their majority follow closely the model treaty created by the OECD.
The structure of Cyprus companies is very similar to that of UK companies. All Cypriot companies are subject to taxation in Cyprus and are all considered as resident for income tax purposes.
The income tax rate is 10% for global trading income. Furthermore, within 10 – 15 days from their incorporation, Cyprus companies receive their tax residency certificate as they are registered with the Cyprus tax authority. This certificate clearly states that the company is subject to tax in Cyprus for its worldwide income.
Holding companies are not subject to any withholding tax on dividends. Therefore, on a tax level for holding structures, Cyprus companies are equally beneficial to any offshore jurisdiction.
In relation to income tax, the rate for Cyprus companies is 10% for their global trading income but a number of beneficial exemptions exist. There is no tax imposed for the transfer of shares of a Cyprus company and there is no capital gain tax levied in Cyprus for foreign assets. For a majority of cases, investment income is also exempt from taxation. There is no capital gains tax liability, save for when the company transferred holds directly real estate property in the Republic of Cyprus.
However, the most important advantage of the Cyprus tax system is not its competitiveness, but its stability. The tax rates in Cyprus have been stable for years and have not increased at all since 2004 when the country became a full member of the EU.
Further to the extensive network of double tax treaties, Cyprus companies benefit from the provisions of the EU parent-subsidiary directive which provides that the Cyprus company can benefit from passing outgoing dividends to its EU parent company without any withholding tax being payable in either country.