As an EU Member State, Cyprus fully implements EU directives.

The country is also in complete alignment with OECD standards on transparency.

Overview of the Cyprus Tax System:

• Corporate tax rate of 12.5% on business profits
• Foreign dividend income is exempt from tax, subject to conditions that are easy to meet
• Profits from foreign permanent establishments (PE) are also tax-exempt under similarly straightforward conditions
• Profits from transactions in titles (shares, bonds, debentures, and other financial instruments) are unconditionally exempt from tax
• Royalty income profits qualify for a notional expense deduction equal to 80% of the profit generated
• Profits from the disposal of intellectual property rights receive a notional expense deduction equal to 80% of the profit generated
• No withholding tax on repatriation of income anywhere in the world in the form of dividends and interest
• Exemption applies to royalty payments in most cases; however, if the intellectual property is used in Cyprus, a withholding tax of 10% applies (5% for cinematographic films). This can be reduced under double tax treaties or the EU Interest and Royalty Directive
• Broad network of double tax treaties (vital for inbound income; outbound income is usually exempt under local law)
• Access to EU directives
• Group loss relief available

Cyprus Tax Residency:

Under Cyprus corporate tax law, any company—regardless of its place of incorporation—is taxable if it is considered a Cyprus tax resident. Residency is determined by where effective management and control are exercised. Although “management and control” is not legally defined, it is generally taken to mean the location where key strategic and day-to-day decisions are made. Companies involved in cross-border activities must ensure their tax residency is clear by maintaining appropriate substance in the claimed jurisdiction.

There is no one-size-fits-all approach to achieving secure tax residency. Each case must be assessed individually, considering the company’s specific business activities. A key requirement is that competent personnel must be physically present in the country of claimed residence, conducting the income-generating activities of the company.

Trading Companies:

Businesses that operate trading activities from Cyprus benefit from an EU jurisdiction with the reputational advantages that come with it. Trading profits are taxed at 12.5%, and all income-generating expenses are tax-deductible. Profit repatriation is fully exempt from tax under Cyprus law, making Double Tax Treaty protection unnecessary when non-resident shareholders receive dividends from a Cyprus company.

Holding Companies:

All shareholding companies—regardless of ownership percentage—are treated equally for tax purposes.

• Dividends received from another Cyprus company are unconditionally exempt from tax
• Dividends received from abroad are fully exempt if they come from a company engaged in active trading or taxed at a rate of at least 6.25%
• Profits from the sale of shares are entirely tax-exempt
• The same tax treatment applies to pure holding, portfolio holdings, and investment fund activities
• Dividends received from abroad typically benefit from Double Tax Treaties or EU directives, reducing or eliminating withholding tax in most cases
• Share transactions are generally protected under Double Tax Treaties

Profit repatriation is completely tax-free under Cyprus law, removing the need for Double Tax Treaty protection for non-resident shareholders receiving dividends from a Cyprus company.

Intellectual Property Companies:

As of 1 July 2016, Cyprus amended its IP Box regime to meet the standards set by the OECD Base Erosion and Profit Shifting (BEPS) initiative. The EU Code of Conduct has confirmed that Cyprus’ IP regime is fully compliant with EU standards.

IP income is now calculated using the internationally agreed formula. Once eligible income is determined, Cyprus grants an 80% deduction on profits, resulting in an effective tax rate of 2.5%, one of the lowest available among OECD-compliant jurisdictions. Profit repatriation is completely tax-free, so Double Tax Treaty protection is unnecessary for non-resident shareholders receiving dividends from a Cyprus company.

Notional Interest Deduction (NID):

Since 1 January 2015, new equity introduced at par or via share premium qualifies for a notional interest deduction based on the 10-year government bond yield plus 3%, using the rate as of 31 December of the preceding year in the country where the equity is invested. The minimum allowable NID is based on the 10-year Cyprus government bond yield. This deduction can substantially lower the effective corporate tax rate below 12.5%.

Non-Domicile Regime:

Cyprus tax residents are subject to tax on their worldwide income, including dividends, interest, and rent. Dividends are taxed under the Special Defense Contribution (SDC), and interest is taxed either under the Income Tax Law (ITL) or SDC (usually SDC). Rent is taxed under both ITL and SDC.

However, from 16 July 2015, individuals who are Cyprus tax residents (under the 183-day or 60-day rule) but are non-domiciled in Cyprus are exempt from SDC on dividends, interest, and rental income. The non-domicile status lasts 17 years. Generally, an individual is considered non-domiciled if they were not born in Cyprus and do not hold a Cyprus passport. Individuals already tax residents on 16 July 2016 also qualify, though their 17-year eligibility is reduced by the years they were already resident in Cyprus.

This regime allows foreign company owners and employees to become Cyprus tax residents without being taxed on their worldwide dividend, interest, and rental income, provided they do not establish a permanent home in Cyprus with the intention to remain there.

It also applies to Cypriot nationals with a different domicile of choice, provided they were not tax residents in Cyprus for at least 20 years before returning, or were not tax residents for 20 consecutive years before the law came into effect on 16 July 2015.

The table below provides a representative, though not exhaustive, overview of how various activities carried out by Cyprus companies are taxed under the country’s corporate tax legislation