Cyprus: Offshore Legal and Tax Regimes
The offshore regime in Cyprus changed as a condition of the island's accession to the EU and due to agreements with the Organisation for Economic Cooperation and Development (OECD). Cyprus was excluded from the OECD's June 2000 'harmful' tax haven blacklist in return for committing to amend its tax practices. In April 2009, Cyprus was placed on the OECD 'white list' of territories which have 'substantially implemented' the internationally agreed standard in tax transparency.
In 2013, the Cypriot Parliament approved an increase in the uniform corporation tax rate from 10% to 12.5%. In addition, there is a 2% levy on wage bills (meant to subsidise pensioners) and a 'Special Contribution' related to defence which in effect applies the 12.5% corporate tax rate to inter-company dividend and interest payments. However, the rules are complex and cannot be easily summarised here.
This 12.5% corporation tax rate is, with Ireland, the third lowest in the EU. The only other territories with lower rates are the Isle of Man, Jersey and Guernsey, which have all a nil rate for companies not providing financial services. However, these regimes are under attack from the EU and furthermore are not considered part of the Union for most purposes.
Further proposals included the exchange of tax and finance information, as well as the signing of double tax treaties between Cyprus and additional OECD member countries. Cyprus proposed to maintain its company and trust management regime, although the identity of beneficiaries has to be disclosed to the tax authorities when a company is registered or when a change of ownership takes place.
A new tonnage tax system was approved by the European Commission on March 24, 2010 under state aid rules for maritime transport. The simplified tonnage tax system extends the favourable benefits available to owners of Cyprus flag vessels and ship managers to owners of foreign flag vessels and charterers. It also extends the tax benefits that previously only covered profits from the operation of vessels in shipping activities, to cover profits on the sale of vessels, interest earned on funds used other than for investment purposes and dividends paid directly or indirectly from shipping-related profits.
For further information about the taxation of companies in Cyprus, see Domestic Corporate Taxation.