Cyprus is a reputable international (offshore) jurisdiction, not only due to the favourable tax regime (Cyprus based companies enjoy the lowest tax rates in Europe) and its wide network of double tax treaties, but also due to the island's privileged position (at the crossroads of Africa, Asia, Europe, and the Middle East), the low operating costs, and the high standard of professional services.

 

Double tax treaties have been ratified with (among others) the following jurisdictions:

 

- Poland;

- Norway;

- Sweden;

- Denmark; 

- the Commonwealth of Independent States (CIS), consisting of
  11 former Soviet Republics: Armenia, Azerbaijan, Belarus,
  Georgia, Kazakhstan, Kyrgyzstan, Moldavia, Russia, Tajikistan,
  Ukraine, and Uzbekistan (Turkmenistan discontinued permanent
  membership and is now an associated member).

 

As regards the procedures involved in administrating and incorporating a Cyprus company, it must be noted that the aim in Cyprus has always been to create not a tax haven but a tax incentive jurisdiction.

 

Cyprus is not included in the threatened “black-list” of errant offshore jurisdictions of the Organization for Economic Co-operation and Development (OECD).

 

Tax is generally imposed on all Cyprus resident persons (individuals and corporate entities), on their worldwide income. A corporation is fiscal resident in Cyprus when its management and control is exercised in Cyprus. Corporation tax is 10% on the total profit.

 

Corporations do not pay tax on dividends received from other Cyprus-based companies (onshore or offshore).

Dividends received by Cyprus-based corporations from foreign entities are exempt from tax, provided that the dividend receiving entity owns at least 1% of the share capital of the paying entity.

 

The exemption will not be granted if (directly or indirectly) more than 50% of the activities of the paying entity result in investment income and the paying entity is subject to tax at a rate substantially lower than the Cyprus rate.

 

The exemption from tax also applies to profits of a permanent establishment the Cyprus company has in other jurisdictions.

 

When dividend income is not exempt, there is a 15% “defense tax contribution”. Additionally, tax credits for taxes paid abroad are available.

 

When interest income is the result of ordinary business activities, or is closely connected therewith, it is subject to tax like any other “active” income. If the interest income fails the test of “active” income, then it is subject to tax both for corporate income tax and “defense tax contribution” purposes.

 

The special provisions governing “passive” interest income result in a combined tax burden at a rate of 15%.

 

Cyprus does not impose any withholding tax on dividends, interests, and royalty payments, made to non-Cyprus-based recipients.

 

In the case of royalties, the exemption applies for royalty payments when the asset or right is used outside Cyprus. When the royalties are connected with the use of the asset or right within Cyprus, there is a 10% withholding tax subject to treaty provisions.

 

Capital gain tax is charged at the rate of 20% on gains, arising from the disposal of immovable property in Cyprus (or the disposal of shares of entities that own immovable property in Cyprus).

 

Gains from the sale of shares listed on the stock exchange are excluded from capital gain tax.

Capital gain tax does not apply to profits derived from the sale of overseas real estate by non-residents, by corporate entities, or by residents who were not resident when they purchased the asset.