Cyprus: Domestic Corporate Taxation
Corporation Tax Rates
In July, 2002, as part of the Income Tax Act No. 118(I) of 2002, Parliament approved a uniform 10% corporate tax rate, to apply to both onshore and offshore companies, plus a 2% levy on wage bills (meant to subsidise pensioners), and a 'Special Contribution' related to defence which in effect applies the 10% corporate tax rate to inter-company dividend and interest payments. However, the rules are complex. The tax rules were improved for collective investment schemes in 2009 (see here).
The 10% corporate tax gives Cyprus one of the the lowest rates in the EU, alongside Ireland (12.5%), with the exception of the Isle of Man, Jersey and Guernsey, which have all introduced a nil rate for non-financial services firms (and 10% for financial services firms) - but these islands are not in the EU anyway for most purposes.
An additional tax of 5% was imposed on company profits exceeding CY£1m for the years 2003 and 2004.
In June 2010, a proposal was considered by the Cypriot parliament for a temporary 1% increase in the rate of corporate tax for the tax years 2010 and 2011, but was rejected in the following month.
As from 2003, Cyprus applied a residence-based taxation regime: "Resident in the Republic", when applied to a company, means a company whose management and control is exercised in the Republic; and "non-resident or resident outside the Republic" will be construed accordingly.
However, profits from activities of a permanent establishment situated outside Cyprus are completely exempt. This exemption will not apply to a Cyprus company if: (i) its foreign permanent establishment directly or indirectly engages in more than fifty per cent (50%) of its activities in producing investment income, and (ii) the foreign tax burden is substantially lower than that in Cyprus.
Dividends are exempted from tax; however, provisions have been introduced under the Special Contribution for the Defence of the Republic Law, 2002 ("Special Contribution").