Amendments to Cyprus tax laws are relatively infrequent, particularly when compared to other jurisdictions. As a result, taxpayers can generally undertake transactions with a high degree of predictability and legal certainty regarding the applicable tax treatment.

While Cyprus does update its tax laws to reflect changes in EU Directives, OECD guidelines (e.g. BEPS, Pillar Two), and domestic policy priorities, these changes are typically implemented through structured legislative processes. This includes consultation with relevant stakeholders, such as industry groups, professional bodies, and tax advisors, often over a period of several months before legislation is enacted. That said, the international tax landscape is evolving rapidly, and Cyprus has shown a clear commitment to keeping pace with global developments.

Notably, in the past year, the Cyprus government has announced the first comprehensive tax reform in over two decades. This initiative aims to:

• Modernize the tax system,
• Enhance simplicity and transparency,
• Align with international best practices, and
• Ensure ongoing competitiveness within the EU and globally.

For income tax purposes, books and records and supporting documentation must be retained for six years after the end of the tax year to which they relate. One of the proposals under public consultation is the extension of retention of records period from 6 years to 8 years. This is related to the supporting documentation accompanying tax returns. Taxpayers are required to submit returns of income for income tax purposes once a year. If the taxpayer is a company or a self-employed individual with gross income above a certain threshold (currently at EUR 70,000), then it should keep books and records in accordance with generally accepted accounting principles that will be audited in accordance with auditing standards. With regards to the payment of income tax there is a self-assessment system, under which taxpayers must declare an estimated income and profit with the estimated tax charge for the year part-way through the tax year. The declaration must be accompanied by payment of half the estimated liability. The balance of the estimated liability is payable by the end of the tax year. This amount can always be revised should this be deemed necessary. The final tax return is submitted after the end of the tax year, together with a payment of any final balance which may be due.

See the answer to question 5 for details of due dates.

Employers are also required to submit returns of employees’ pay. Following the introduction of the Tax For All (TFA) system, both the submission of the TF7 Declaration and the payment of withholding tax and contributions must be completed exclusively through the TFA platform.

Special Defence Contribution, commonly known as SDC tax, should be paid only by companies that are Cyprus tax residents and individuals who are domiciled in the Republic. SDC tax is payable on rents, passive interest income, and dividends. Subject to certain exemptions, companies making such payments must deduct SDC tax at source and account for it to the Tax Department. In the case where a taxpayer receives rents, interest, or dividends from which SDC tax has not been deducted, they must submit semi-annual returns together with a payment of the amount due. All returns and payments in respect of income tax, SDC tax and PAYE must be made online. Recent legislative proposals in Cyprus are expected to bring significant changes to the SDC regime. One of the key reforms under consideration is the reduction of the SDC on actual dividend income for Cyprus tax residents from 17% to 5% as well as the complete abolition of SDC on rental income. In addition, the long-standing deemed dividend distribution rules, which currently treat 70% of a company’s undistributed profits as distributed and subject to SDC, are proposed to be repealed. If enacted, this change would take effect from 1 January 2026 and would apply to profits arising after the tax year 2025.

See the answer to question 16 for details of SDC.

Taxpayers must submit and pay any capital gains as they arise. However, Capital Gains Tax (“CGT”) only applies to gains from disposals of properties that are situated in the Republic subject to applicable life time exemptions and deductions.

There is a separate tax regime for qualifying businesses engaged in international shipping, which is outlined in the answer to question 20.

The key tax authority in Cyprus is the Tax Department of the Ministry of Finance, which is responsible for the administration and enforcement of all major tax laws, including income tax, corporate tax, SDC, VAT, and capital gains tax. In recent years, the Department has taken steps to modernize and digitalize its operations, primarily through the rollout of the TFA platform, which is gradually replacing the older TAXISnet system. Taxpayers interact with the Tax Department through this portal for registrations, filings, and payments, while guidance is also provided through circulars and public notices. Direct communication either electronically or in person remains available, though increasingly limited as digital infrastructure improves.

Tax disputes are typically handled through a structured process beginning with the submission of an administrative objection to the Tax Department, usually within 60 days of receiving an assessment. These objections are reviewed internally by officers not involved in the original case. If the taxpayer disagrees with the outcome, they may appeal to the Administrative Court or the District Court, depending on the nature of the issue. As part of ongoing tax reform efforts, the Cyprus government is considering the establishment of an independent tax appeals body or tribunal, with the aim of enhancing impartiality, transparency, and the overall efficiency of tax dispute resolution in line with international standards.. More specifically, there are ongoing discussions regarding the establishment of an independent appeals committee comprising individuals not previously involved in the assessment of cases to ensure a fair and transparent review of tax disputes. Additionally, the introduction of a formal right of appeal before Tax Tribunals is under consideration.

Decisions of the tax authorities can be challenged by submitting an appeal to the Tax Tribunal, which is an independent body, or to the Administrative Court.  The duration of tax proceedings in Cyprus can vary significantly. Simple administrative appeals may be resolved within several months, but cases that proceed to court can take 1 to 3 years or more, depending on complexity, the workload of the courts, and whether further appeals are lodged with the Supreme Court. The proposed reform aims to streamline the process and reduce delays by introducing specialized mechanisms for dispute resolution, potentially including fast-track options or alternative review bodies.

The tax year in Cyprus for individuals and companies is the calendar year. Both individuals and companies must submit a provisional estimate of income, profits and tax payable for the year by 31 July of the tax year, together with a remittance of half the estimated tax payable. The estimates may be revised at any time before 31 December of the tax year and the balance of the estimated tax payable must be paid by then.

This differs for companies and individuals who are obliged to provide audited financial statements. They are required to pay the balance to tax due by 01 August following the end of the tax year. Currently a penalty of 10% is imposed if the tax paid under the provisional assessment is less than 75% of the finalized tax charge of the year. Their final tax return must be submitted by March 31 of the next year (i.e., within 15 months after the end of the year in question).

Self-employed individuals, who are exempt from the requirement to provide audited financial statements, are required to submit their final tax return for the year with a remittance for any tax payable by 31 July following the end of the tax year. Tax returns must be submitted electronically via the official TFA system.

It is important that employers submit an employer’s return each year. For the tax year 2024, employers are required to submit the annual TF7 declaration by 31 December 2025, and the use of a Tax Identification Number (TIN) for employees is not mandatory.

From the tax year 2025 onwards, the submission of monthly TF7 declarations becomes compulsory, beginning with the month of January, irrespective of whether any payments for earlier months have already been made through the Tax Portal. For the 2025 tax year a TIN is required for each employee. The deadline for the submission of the monthly declarations covering the months of January to November 2025 is 31 December 2025, while the declaration for December 2025 must be submitted by 31 January 2026. With respect to the payment of withholding taxes and contributions, the deadlines for the months of June to November 2025 are also set at 31 December 2025, with the balance relating to December 2025 payable by 31 January 2026.

While complying fully with all information exchange standards, Cyprus takes taxpayer confidentiality very seriously. The Assessment and Collection of Taxes Law contains strong safeguards against inappropriate disclosure of taxpayer information and requires requests for disclosure to conform with strict requirements, ruling out so-called fishing expeditions.

As an EU member, Cyprus is bound by the Directive 2014/107/EU on mandatory automatic exchange of information in the field of taxation. It is also a signatory to the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information. As per Article 29 of the OECD Model Tax Treaty, information can be exchanged in three different ways: (i) via request, (ii) automatically, and/or (iii) spontaneously. Cyprus implemented the Common Reporting Standard (“CRS”) from the beginning of 2016 and as of 2017 it has started exchanging information. It exchanges information both automatically, thus systematically and periodically transmitting tax information, and spontaneously, thus transmitting information presumed to be of interest.

It is broadly known that Directive 2018/822/EU amending Directive 2011/16/EU aims at increasing transparency to tackle aggressive tax planning by strengthening the rules on mandatory automatic exchange of information. The Cyprus Tax Department has published guidance regarding automatic exchange of financial account information and other information relating to the CRS. The “Guidance Notes on Automatic Exchange of Financial Account Information” published on the department’s website provides detailed and comprehensive guidance on the application of international agreements as well as Cyprus’ legislation on the automatic exchange of financial account information between the Republic and other tax jurisdictions. Following the implementation of EU Council Directive 2021/514, which amended Directive 2011/16 on administrative cooperation in the field of taxation (DAC), into Cyprus legislation through Law N.105(I)/2023, platform operators have the obligation to register with the Cyprus Tax Department, collect and verify data on the sellers using their platforms, and submit it to the Cyprus Tax Department. The Cyprus Tax Department has published the “DAC7– Registration & Data Submission User Guide” providing guidance on platform registration and submission of data. Additionally, for general information and updates related to Directive 2021/514, the Cyprus Tax Department has a specifically dedicated portal.

The eighth amendment of the Directive on Administrative Cooperation in Direct Taxation (DAC 8) aims to monitor crypto-asset transactions and the resulting gains, thereby mitigating the potential for tax evasion and fraud. It incorporates the provisions of the OECD’s Crypto-Asset Reporting Framework (CARF) into the EU framework by introducing due diligence requirements and reporting obligations for operators involved in crypto-asset transactions, thereby establishing rules and procedures for the exchange of information on crypto-asset users. Under DAC8, Reporting Crypto-Asset Service Providers (RCASPs) fall within the directive’s regulatory scope. These entities are required to report information on all crypto-assets classified as reportable. The directive mandates that EU Member States transpose its provisions into national law by 31 December 2025. The reporting obligations under DAC8 take effect from 1 January 2026, with the first reporting year being 2026.In respect of combating money laundering, the financing of terrorist activity, and tax evasion, the 4th AML Directive obliged all EU member states to introduce a central register of the beneficial or true owners of companies, trusts, and other legal arrangements. Additionally, on 19 June 2018, the European Council issued the 5th AML Directive, revising the provisions of the 4th AML Directive to allow for public access to the said registers.

The 5th AML Directive was transposed into Cyprus legislation through an amendment to the Prevention and Suppression of Money Laundering Activities Law of 2007 (N.188 (i)/2007) on 23 February 2021 through law N.13(I)/2021.

On 12 March 2021, the Registrar of Companies and the Official Receiver (“RoC”) issued a directive (Κ.Δ.Π. 112/2021) providing guidance on the provisions of the abovementioned law in regard to the companies and other legal entities register (the “Guidance Manual”), and on 18 June 2021, the Cyprus Securities and Exchange Commission (“CySec”) also issued a directive (Κ.Δ.Π. 257/2021) providing guidance on the trusts and similar legal arrangements register (the “CYTRUST Directive”).

It is important to note that following the Judgement of the Court of Justice of the European Union (CJEE) in joined cases C-37/20 and C-601/20, of November 22, 2022, access to the ROC’s register of beneficial owners for the general public was suspended as of the 23^rd November 2022.

Cyprus follows the incorporation doctrine along with the management and control test for corporate tax residency purposes in line with the OECD principles of effective management and control. As a general rule, having a majority of Cyprus tax-resident directors, holding board meetings in Cyprus, and ensuring that all strategic decisions are made in Cyprus are among the minimum requirements for a company to be considered as effectively managed and controlled in Cyprus for tax residency purposes.

In Cyprus, transparent entities are not taxed at the entity level, but their shareholders are taxed on their respective shares of income, depending on their own residence status and applicable laws.

Yes, the Cyprus Tax Department does closely monitor cross-border transactions within multinational or international groups, particularly to ensure compliance with transfer pricing rules, anti-avoidance measures, and OECD and EU standards.

• Under the Cyprus CFC rules, a company not tax resident in Cyprus, the profits of which are not taxed or are exempt from tax in Cyprus, is considered to be a CFC if the following conditions are met: in the case of a non-Cypriot tax resident entity, a Cypriot tax resident company alone, or together with its associated enterprises, holds a direct or indirect participation of more than 50% in such an entity; and
• the company or PE is low-taxed (i.e. the income tax it pays is lower than 50% of the Cypriot corporate income tax that it would have paid by applying the provisions of the Cyprus Income Tax Law.

Cyprus has opted for Model B since it gives states the ability to ‘carve out’ CFCs via the thresholds provided by ATAD. ‘Carving out’ would apply to entities that (i) have accounting profits of less than EUR 750,000 and non-trading income of less than EUR 75,000, or (ii) have accounting profits of more than 10% of operating costs.

In terms of transfer pricing, on 24 January 2022 the Cyprus Tax Department published a new “Frequently Asked Questions (FAQs)” section relating to Interpretative Circular 3 of 30 June 2017 (the Back-to-Back Circular). This Circular applies to Cyprus tax resident companies and permanent establishments of foreign companies engaged in intra-group back-to-back financing transactions and sets out the transfer pricing analysis required for such transactions. The FAQs clarify that their guidance applies to all loan agreements within the scope of the Circular which were either concluded as of 24 January 2022 or pre-existing agreements that had not yet been examined by the Tax Department at that date.

In addition, Article 33 of the Income Tax Law empowers the tax authorities to adjust taxable profits if they consider that related party transactions have not been undertaken on an arm’s length basis. On 7 July 2023, the Tax Department issued a circular with retrospective effect from 1 January 2023, which confirmed that the Comparable Uncontrolled Price (CUP) method should be regarded as the most appropriate method for back-to-back financing transactions. Other OECD methods may be used only in exceptional cases and only if pre-approved through the issuance of a tax ruling.

Formal transfer pricing rules were introduced on 30 June 2022 through amendments to the Income Tax Law and the Assessment and Collection of Taxes Law. These align Cyprus with the OECD Transfer Pricing Guidelines and establish a structured documentation framework. Associated parties are now defined as cases where the same person or group holds at least twenty-five per cent of the voting rights or share capital in both companies. Taxpayers are required to maintain both a Master File and a Cyprus Local File, which must be submitted to the Tax Department within sixty days of request. A Master File is required only where a Cyprus tax resident entity is the ultimate or surrogate parent of a multinational group subject to country-by-country reporting. A Local File must be prepared by Cyprus taxpayers engaging in controlled transactions unless the cumulative annual value of such transactions is less than five million euros in the case of financing or less than one million euros for other categories such as the sale or purchase of goods, the provision of services, or the licensing of intellectual property. In cases where a Local File is required, it must also undergo a quality review by a licensed auditor in Cyprus.

Even where transactions fall below these thresholds, taxpayers are obliged to maintain minimum transfer pricing documentation to demonstrate compliance with the arm’s length principle. The Tax Department has provided guidance on the minimum content required, including a functional analysis, entity characterisation, selection of the most appropriate transfer pricing method, and a benchmark study. In addition, all taxpayers engaging in controlled transactions must submit an annual electronic summary table alongside their tax returns, disclosing the relevant details of such transactions. The legislation also provides for penalties for non-compliance with these obligations.

The Tax Department has also introduced simplification measures that operate in practice as safe harbour provisions for certain categories of related party dealings, namely back-to-back financing, intra-group financing arrangements, and low value-adding services. These measures establish predetermined minimum returns or mark-ups and are intended to reduce compliance burdens, although they cannot be applied where reliable internal comparables exist.

With respect to thin capitalisation, Cyprus has implemented the interest limitation rules required under the EU Anti-Tax Avoidance Directive (ATAD) with effect from 1 January 2019. Under these rules, net borrowing costs are deductible only up to thirty per cent of taxable EBITDA, defined as net taxable income adjusted for excess borrowing costs. An exemption applies for borrowing costs up to three million euros per taxpayer, and the rules do not apply to standalone entities outside of a group structure or to financial undertakings such as credit institutions, investment firms, AIF managers, and UCITS management companies.

Finally, a new Article 33C of the Income Tax Law introduced the ability for taxpayers to apply for advance pricing agreements in relation to specific controlled transactions, whether ongoing or prospective. The procedure and requirements for APAs may be further specified by ministerial regulations or notifications, but in principle this mechanism offers taxpayers the opportunity to secure certainty on the transfer pricing treatment of their arrangements.

Taken together, these measures have established in Cyprus a robust and modern transfer pricing framework. The regime requires taxpayers to document and support the arm’s length nature of their related party transactions in line with OECD and EU standards, while the interest limitation rules ensure compliance with the thin capitalisation requirements of the ATAD. The availability of simplification measures and advance pricing agreements provides both flexibility and certainty, reducing the risk of future disputes with the tax authorities.

In relation to GAARs, Cyprus has already incorporated the anti-avoidance provisions of the PSD GAAR into domestic law (effective as from 1 January 2016). It gave the tax authorities the power to disregard artificial or fictitious transactions and to withhold the corporate tax exemption on dividends received by companies in Cyprus from elsewhere in the EU if the dividend is treated as a tax-deductible expense in the accounts of the company paying it (so-called “hybrid mismatches”); such dividends will instead be taxed as normal business income at 12.5%.

On 05 April 2019, the House of Representatives approved legislation implementing the EU Anti-tax Avoidance Directive (2016/1164/EC) in Cyprus with the aim of improving the resilience of the internal market against cross-border tax avoidance practices.

The provisions relating to interest deductibility, controlled foreign company (CFC) rules and the general anti-abuse rules (GAARs) came into effect on 1 January 2019, with exit taxation and hybrid mismatch rules being phased in subsequently.

Transactions that are not carried out for valid commercial reasons will give rise to tax liability, which will be calculated in accordance with the Income Tax Law. Cyprus already incorporates within its tax legislation numerous anti-abuse rules. It is expected that relevant articles within the legislation will be amended and enhanced to provide greater and specific powers to the Tax Department to disregard non-genuine arrangements, which have no valid commercial reason that reflect economic reality. Notably, the GAAR will apply only to corporate transactions.

On the 22 January 2020, the MLI along with the positions of Cyprus and an explanatory statement, were published in the Official Gazette of the Republic. Cyprus approved the minimum actions as prescribed by the MLI to include Article 7 (Treaty Abuse).

Article 7 contains a general anti-abuse rule based on the principal purpose of transactions or arrangements (PPT). It also contains an option to supplement the PPT with a simplified limitation on benefits (LOB) provision. Most signatories to the MLI, including Cyprus, have opted for the PPT clause only. Cyprus has not made any notification as regards the adoption of the LOB provision.

The PPT effectively acts to deny treaty benefits if it is determined that the main reason of an arrangement or transaction was to obtain the treaty benefit. Persons to whom a treaty benefit is denied under the PPT may still be able to claim a treaty benefit, if, they can establish that obtaining the benefit would be in line with the object and purpose of a specific treaty provision (objective test).

Cyprus has chosen to apply Article 7(4) of the MLI in cases where the competent authority determines that such benefits would have been granted in the absence of the transaction or arrangement.

It should be noted that, as of yet, there are no relevant court decisions in Cyprus in the context of the PSD GAAR.

Cyprus has introduced a two-phase withholding tax regime on outbound payments to protect its tax base targeting dividend, interest and royalty payments made to associated entities in jurisdictions classified as either EU non-cooperative or low tax jurisdictions. Please refer to question 23 below for details as per the amended withholding tax regime.

An anti-avoidance provision has been inserted in the Cyprus Income Tax law whereby if a scheme or series of arrangements has been put in place for the principal purpose of obtaining a tax advantage and the arrangement is not put into effect for valid commercial reasons which reflect economic reality then the arrangement will be disregarded when considering royalty payments made to associated enterprises in low tax or non-cooperative jurisdictions as defined in the Cyprus Income Tax law. The GAAR provision relating to non-cooperative jurisdictions is governed by Ministerial Decree KDP 110/2025. Similarly, a further GAAR provision was inserted in the SDC Law whereby arrangements put in place for the principal purpose of obtaining a tax advantage can be disregarded for the purpose of payment of dividends to a non-cooperative or low tax jurisdiction and interest payments to non-cooperative jurisdictions. With respect to non-cooperative jurisdictions, the GAAR provision is regulated under Ministerial Decree KDP 109/2025.

Law 49(I)/2025 (amending The Tax Assessment and Collection Law of 1978 (Law 4/1978)) (TAC Law) introduces an obligation to retain appropriate supporting documentation for such payments and imposes penalties for non-compliance, while reinforcing anti-avoidance provisions. Furthermore, Cyprus must renegotiate tax treaties with these jurisdictions within three years of their classification as low-tax or EU non-cooperative. Both phases apply to permanent establishments.

Cyprus aligns its domestic GAAR framework with international standards, applying the “substance over form” and “business purpose” doctrines to both local and cross-border transactions. Through amendments to the TAC Law, in line with the EU Mutual Assistance Directive 77/799/EEC, Cyprus ensures that artificial or abusive arrangements can be disregarded. The jurisdiction actively participates in international information exchange frameworks and has restructured preferential regimes, including its IP Box, to meet substance and anti-abuse criteria in line with the EU’s Intergovernmental Code of Conduct Group on Business Taxation (CoCG). These measures reinforce Cyprus’s commitment to granting treaty benefits only to genuine economic activities and strengthen its position as a fully cooperative and transparent tax jurisdiction.

As of now, Cyprus does not have a domestic digital services tax (DST) in force. However, Cyprus, as an EU Member State, is obliged to implement any relevant EU Directives that may be adopted in relation to the taxation of the digital economy.

While no specific legislation has been introduced locally, Cyprus is expected to align with any future EU-wide or OECD-agreed multilateral solution, and appropriate measures would be taken to implement such frameworks into national law.

For many years Cyprus tax policy has been based on offering an internationally competitive tax environment that is fully compliant with international best practice and the highest standards of transparency and fairness. In line with this commitment, Cyprus revised its intellectual box regime in 2016 to comply with the modified nexus approach put forward by the OECD. The OECD BEPS Action Plan focuses on 15 key areas to ensure that profits are taxed where value is created, dealing with issues relating to the coherence of tax rules, substance of business arrangements and transactions as well as the transparency of information disclosed to the tax authorities by the taxpayers.

Cyprus is also one of the initial 68 signatories to the MLI. New and updated double tax agreements are aligned with the latest OECD standards. In 2017 new transfer pricing rules were introduced for financing transactions involving connected parties in line with the relevant BEPS actions.

On 5 April 2019, the House of Representatives approved legislation implementing ATAD in Cyprus with the aim of improving the internal market’s ability to deal with cross-border tax avoidance practices.

ATAD contains five legally binding anti-abuse measures, which all Member States must apply. The measures are the following:

• introduction of controlled foreign company (CFC) rules (Action 3);
• the switch-over rule (Action 2);
• introduction of exit taxes;
• interest limitation (Action 4); and
• introduction of the general anti-abuse rule (GAAR) (Action 6).

The provisions relating to interest deductibility rules, CFCs and GAAR, as included in ATAD, entered into force on 1 January 2019. On 3 July 2020, the remaining two amendments for full implementation of ATAD were published in the Official Gazette of the Republic: the first concerns the introduction of an exit tax regime (ATAD I), which applies retroactively from 1 January 2020; and the second is related to hybrid mismatches (ATAD II), which focuses on Action 2, and also applies retroactively from 1 January 2021. The so-called reverse hybrid mismatches rules have been applicable since 1 January 2022.

At a company level, the Cyprus Parliament enacted Law 151(I)/2024, implementing the EU Pillar Two Directive and establishing a minimum effective tax rate of 15% for multinational enterprises (MNEs) and large domestic groups with annual revenues exceeding €750 million.

The legislation incorporates core elements of the OECD/G20 BEPS Administrative Guidance and the EU Directive 2022/2523, including the introduction of the income inclusion rule ( IIR), Undertaxed Profits Rule (UTPR) and the Domestic Minimum Top-up Tax (DMTT).

The law closely follows the EU Directive, operating alongside Cyprus’ existing corporate income tax system without altering existing tax rules.

The policy of successive Cyprus governments over the years has been to provide a competitive tax environment that is fully compliant with international best practice. Cyprus has always been an early complier with OECD and other international initiatives. We expect that policy to continue.

The Cyprus tax system is fully compliant with OECD and EU norms. As regards the various categories of income:

Business profits. Business profits of companies, adjusted for various disallowances and exemptions, are subject to tax at 12.5%. Notional interest deduction can reduce the tax to 2,5% if certain criteria apply. The intellectual property box regime gives greatly reduced rates of tax on income and gains from qualifying assets. A bill currently before the Cyprus Parliament, entitled A Law Amending the Income Taxation Laws of 2002 (No. 2) of 2025, proposes to increase the corporate tax rate to 15%. If enacted, the legislation will raise the tax rate on business profits to 15% and will take effect from 1 January 2026

Employment income and pensions. For individuals, the first EUR 19,500 of annual taxable income (which includes business profits, income from employment and pensions) net of allowable deductions is free of tax; the next EUR 8,500 is subject to tax at 20%; the next EUR 8,300 at 25%; the next EUR 23,700 at 30% and any amount above EUR 60,000 at 35%. Exemptions are available on earnings from employment in the initial years of residence. For each tax year, there is a 50% deduction available to expatriates who earn employment income more than EUR 55,000 annually or a 20% deduction available to expatriates earning below EUR 55,000. Additionally, the first EUR 19,500 per year of Cyprus-source widow’s or widower’s pension is free of tax and tax is payable on the balance at 20%. The first EUR 3,420 per year of foreign source pension income is free of tax and tax is payable on the balance at 5%. The taxpayer may opt from year to year to be taxed on the standard basis if this would be beneficial for them. The income thresholds are also currently under review as part of the ongoing tax reform discussions.

VAT. The standard rate of VAT is 19%. Reduced rates of 0%, 5% and 9% apply to certain suppliers.

Savings interest and royalties. Passive interest and dividends received by individuals who are both resident and domiciled in Cyprus are subject to SDC tax at rates of 17% respectively. Individuals who are resident but not domiciled in Cyprus are exempt from SDC tax on interest, rental income (only subject to income tax) and dividends. Passive interest received by Cyprus-resident companies is subject to SDC tax at 17%. Dividends received by Cyprus-resident companies from another Cyprus-resident company (and those received from overseas – see 23 below) are not subject to income tax or SDC tax. Royalties are treated as trading income. Under a bill currently before the Cyprus Parliament, which seeks to amend The Extraordinary Contribution for the Defence of the Republic Laws of 2002, the imposition of SDC on rental income and deemed dividend income for both domiciled and non-domiciled individuals would be eliminated. If enacted, these changes will take effect from 1 January 2026.

Income from land. Rent is treated as trading income for income tax purposes after deducting capital allowances and any other attributable expenses to the income such as interest expense for the acquisition of the asset. A further 20% allowance is given on the gross rent received by individuals. Rent received by companies, and by individuals who are both resident and domiciled in Cyprus, are subject to SDC tax at an effective rate of 2.25%.

Capital Gains. The only gains subject to CGT are gains on disposal of immovable property that is located in Cyprus and on disposal of shares in companies not listed on a recognised stock exchange, to the extent that those shares directly or indirectly derive their value from immovable property located in Cyprus. All other gains are exempt.

Stamp duty is payable on contracts relating to property or business in Cyprus. For transactions with a consideration up to EUR 5,000, no stamp duty is payable; for transactions with a consideration between EUR 5,000 and EUR 170,000, stamp duty is EUR 1.50 for every EUR 1,000, and for transactions with a consideration in excess of EUR 170,000, stamp duty is EUR 2 for every EUR 1,000. The maximum stamp duty payable on a contract is capped at EUR 20,000. As of 18 December 2018 the obligation to pay capital duty of 0.6% of the authorized capital or on any subsequent increase on in the share capital, has been abolished. Instead, a notional interest deduction against profits for corporate income tax purposes is available for new capital introduced into Cyprus companies and PEs. This can reduce the tax liability of the Cyprus company by up to 80%. Stamp Duty may be revised to apply only to a limited scope of transactions and documents, as part of the ongoing tax reform process.

Inheritance tax is not applicable

GHS contribution. The healthcare system in Cyprus changed with the introduction of the publicly funded General Health Service (“GHS”) in 2019. GHS is a full-coverage healthcare program for all citizens of Cyprus. This new system promises to give people a choice between the services of any doctor or other healthcare professional in the private or public sector in return for a compulsory contribution to the GHS. The contribution rates vary according to the contributor and are currently set as follows:

The charge to tax is based on profits computed according to International Financial Reporting Standards, adjusted to reflect exempt income and disallowable expenditure according to the Income Tax Law.

While Cyprus recognises a wide range of business structures, including all of the above, only natural and legal persons (individuals, companies and their branches and PEs as well as foundations) are treated as taxable entities. Partnerships and trusts are treated as transparent for tax purposes and the income is assessed on the partners and the beneficiaries, respectively.

See the answer to question 8.

Tonnage Tax

The Merchant Shipping (Fees and Taxing Provisions) Law of 2010, commonly known as the Tonnage Tax Law, provides shipowners, ship managers and charters that qualify under the said law in relation to qualifying ships (as defined in the law) engaged in qualifying shipping activities (as defined in the law) the possibility to be taxed on the basis of the tonnage of the vessel (not all gains nor all activities can fall within the tonnage tax system). It should be noted that following the Government’s negotiations with the EU, the tonnage tax system of Cyprus has been prolonged until 31 December 2029, giving effect to the Decision of the European Commission dated 16 December 2019 to prolong the Cyprus tonnage tax system and to approve it as being in line with the relevant EU policy and community guidelines on state aid to maritime transport.

Film and audio-visual production industry

In September 2017, the Cyprus government approved an initiative to encourage the development of the film and audio-visual production industry in Cyprus by means of grants, tax incentives, and other assistance.

Law 139(I) of 2018, which took effect on 11 December 2018, amends the Income Tax Law to provide tax exemption of income from production of films and audio-visual media in accordance with the government’s programme.

The amending law adds a new sub-paragraph to Article 8 of the Income Tax Law providing up to 50% exemption from tax of income derived from production of films, series and other relevant audio-visual programmes as described in the government programme. The deduction is limited to 35% of the eligible costs approved by the competent authority implementing the programme. Any restriction on the exemption resulting from the limitation to 35% of costs can be recovered over the next five years. No exemption is available if the taxpayer has received a grant under the programme.

In addition, small enterprises as defined in Article 17 of Regulation (EU) 651/2014 may claim an annual deduction of 20% of the cost of cinematographic infrastructure and technological equipment providing it is used in Cyprus for at least five years. Medium-sized enterprises may claim an annual deduction of 10% of such costs.

In May 2012, Cyprus introduced a package of incentives and tax exemptions relating to investment in intellectual property rights, commonly known as an IP box. This combines the lowest rate of tax (effectively less than 2.5%) with the widest range of qualifying assets and the fewest restrictions compared to other countries’ IP boxes.

Following the adoption of the modified nexus approach under Action 5 of the G20/OECD BEPS project the IP box regime applies to a more limited range of assets than previously. New arrangements for intellectual property assets have been developed as from 01 July 2016.

As a result, qualifying assets are restricted to patents, software and other IP assets that are legally protected. Intellectual property rights used to market products and services, such as business names, brands, trademarks and image rights, do not fall within the definition of qualifying assets.

Relief is geared to the cost incurred by the taxpayer in developing the intellectual property through its research and development activities. Costs of purchase of intangible assets, interest, costs relating to the acquisition or construction of immovable property and amounts paid, or payable directly or indirectly, to a related person are excluded from the definition of qualifying expenditure.

Unlike under the original scheme, 80% of the “qualifying profit” rather than a general 80% on “accounting profit” is granted as an additional deduction.

Nevertheless, the IP Box Regime continues to provide considerable tax savings, and companies that joined the scheme before June 2016 can look forward to benefiting from substantial savings until mid-2021.

Trading losses incurred by one member of a group of companies may be offset against trading profits of another group company by way of group relief, provided that the losses and profits accrued in the same year of assessment and both companies were members of the same group for the whole of the tax year concerned.

A subsidiary that is formed during a tax year (as opposed to an existing company that is acquired) is treated as being a member of the group for the whole tax year. Two companies are deemed to be members of a group if one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company. A ‘75% subsidiary’ means holding at least 75% of the voting shares with beneficial entitlement to at least 75% of the income and 75% of the assets on liquidation.

Until 2015, group loss relief was available only for losses incurred by Cyprus tax resident companies. In order to align the loss relief provisions with the decision of the European Court of Justice in the Marks & Spencer case, the law was amended in 2015 so that a subsidiary company, which is tax resident in another EU member state, can surrender its taxable losses to another group member company that is tax resident in Cyprus, provided the subsidiary has exhausted all means of surrendering or carrying forward the losses in its member state of residence, or, to any intermediate holding company.

The amount of taxable losses that may be surrendered is calculated on the basis of the Cyprus tax laws. Similarly, subsidiaries residing in countries with which Cyprus has a double tax agreement or, an agreement to exchange tax information with, may also surrender losses in the same way.

1 – Judgement: C-446/03, Marks & Spencer

There are generally no withholding taxes on dividends or interest paid to non-residents. Royalties, or similar payments, to a non-resident for intellectual or industrial property rights are liable to withholding tax only if they are for the use of the rights within Cyprus: no tax need be withheld if the rights are used exclusively outside Cyprus. The rate of withholding tax for use of general intellectual or industrial property rights within Cyprus is 10%; royalty payments made to non-residents in respect of films shown in Cyprus are subject to withholding tax at 5% of the gross amount. In either case, the payment is subject to relief under any applicable double taxation treaty.

Cyprus has recently introduced a two-phase withholding tax regime on payments made to certain associated foreign entities as part of its broader strategy to combat base erosion and profit shifting (BEPS). During phase one of the tax reforms on withholding tax, which came into force on 31 December 2022, a 17% withholding tax was introduced on certain outbound payments. This includes a 17% withholding tax, under the SDC Law, on dividends paid to certain non-resident corporations that are either (i) resident in jurisdictions included in the EU list of non-cooperative jurisdictions or (ii) incorporated or registered in such jurisdictions and are not tax resident in jurisdictions excluded from that list. The withholding tax applies only if such a non-resident corporation, either solely or jointly with related corporations that themselves meet either the residence condition or the incorporation condition holds more than 50% of the voting rights, the capital or the profits of the Cyprus resident corporation (the “ownership and control conditions”). Additionally, as part of phase one, and subject to the ownership and control conditions, a 17% WHT on passive interest payments has been introduced as well as a 10% WHT on royalty payments, including those for rights used outside Cyprus.

Additional amendments have been implemented to the SDC Law with effect from the 1st of January 2026 as part of the second phase of the defensive tax regime in Cyprus. According to the amended SDC Law, a withholding tax of 17% is imposed on dividends paid by a Cyprus tax-resident company to a non-resident company if the recipient company is i) resident in a low tax jurisdiction or ii) incorporated or registered in a low-tax jurisdiction and not resident in a jurisdiction with a non-low tax rate. The same ownership and control conditions apply as with non-cooperative jurisdictions. A low-tax jurisdiction under the SDC law is defined as a third-country jurisdiction in which the corporate tax rate is lower than fifty percent (50%) of the corporate tax rate provided for under Article 25 of the Cyprus Income Tax Law. This effectively means that jurisdictions with a corporate tax rate lower than 6.25% amount to low-tax jurisdictions regarding which a 17% withholding tax applies on dividends.

A further amendment incorporated in phase two is the non-deductibility on outbound payments of interest and royalties to companies resident in a low-tax jurisdiction.

It must be noted that payment of dividends to a permanent establishment in a low tax jurisdiction or a non-cooperative jurisdiction would be also subject to a 17% withholding tax.

In the context of a capital reduction by a Cyprus resident company, where assets are distributed to its shareholders, the following applies:

1. If one of the shareholders is a company that is not resident in Cyprus, and
2. the value of the assets distributed to that non-resident shareholder exceeds the amount of capital that the shareholder originally contributed to the Cyprus-resident company,
3. then, the excess amount is treated as a deemed dividend, and
4. this may give rise to an obligation to withhold and pay 17% SDC tax.

There are no explicit environmental taxes applicable for businesses at present, however, plans for a carbon and green taxation among other are being discussed.

Test 1: Corporation tax at 12.5% if the foreign dividend is of a hybrid nature

Dividends earned by a Cyprus tax resident company are indeed generally exempt from Cyprus corporate tax with the exception of hybrids as summarized below.

With the introduction of anti-hybrid rules, dividends earned by Cyprus tax resident companies from foreign sources are subject to corporation tax at 12.5% if the dividend earned carries hybrid characteristics – i.e., a mismatch between the definition of income earned (dividend) and the item paid (interest). Assuming that all foreign dividends are non-hybrids then they are exempt from Cyprus corporate tax.

Test 2:  SDC at 17%

Assuming the dividend is of a non-hybrid nature, then one must examine whether such dividends are taxable under SDC at 17%. Such taxability would apply if BOTH of the below applied:

the foreign paying out entity pays tax at a rate lower than 6.25%; AND

the foreign entity (directly and indirectly) carried out passive (non-business) activities.

Cyprus provides an ideal base for businesses from all over the world wishing to establish a base in the EU. It is strategically located at the crossroads of three continents, it has a well-developed business infrastructure as well as a business-friendly low-tax regime with a wide network of double taxation agreements. It also offers a high quality of life, low operating costs, and substantial tax exemptions (including a 50 per cent income tax exemption for the first 17 years of residence for expatriates earning above EUR 55,000 per year).

There are further advantages for businesses relocating from the UK, which stem from the fact that Cyprus used to be a British colony. A significant part of the whole legal, financial, and administrative infrastructure is very similar to that in the UK. Cyprus law is based on UK Common Law and many existing laws have their origins in English Law as amended by EU Law. Furthermore, this is coupled with the fact that English is very widely spoken and is the lingua franca of business.

Business Facilitation Unit (BFU) in Cyprus

The Business Facilitation Unit (BFU) in Cyprus was established by the Cypriot government as part of its broader efforts to attract foreign investment and improve the ease of doing business in the country. Launched in October 2021, the BFU is designed to support and streamline the process for foreign companies and investors looking to establish or expand their operations in Cyprus. The BFU acts as a one-stop shop for businesses, providing a centralized service to handle various administrative and regulatory requirements.

Key Functions of the BFU:

1. Company Registration: Assists with the quick and efficient registration of new companies in Cyprus, including guidance on legal and regulatory compliance.
2. Work and Residence Permits: Facilitates the issuance of work and residence permits for foreign employees, including the fast-tracking of applications for highly skilled workers.
3. Tax and Legal Guidance: Offers advice on Cyprus’s tax regime and legal framework, helping businesses navigate the local business environment.
4. Connection to Government Agencies: Serves as a liaison between businesses and various government departments, streamlining interactions and reducing bureaucratic hurdles.
5. Sector-Specific Support: Provides specialized assistance to companies in priority sectors such as technology, financial services, shipping, and energy.

Advantages of the BFU:

1. Streamlined Processes: The BFU simplifies and accelerates the process of setting up and expanding businesses in Cyprus, reducing administrative burdens and delays.
2. Centralized Services: By serving as a one-stop shop, the BFU offers businesses a single point of contact for multiple services, making it easier to navigate the requirements of different government agencies.
3. Attraction of Foreign Investment: The BFU’s support and facilitation services are designed to make Cyprus more attractive to foreign investors, helping to boost economic growth and job creation.
4. Enhanced Access to Resources: Businesses have better access to government resources, support, and information, allowing them to make informed decisions and take advantage of incentives and opportunities.
5. Support for Skilled Migration: The fast-tracking of work and residence permits helps companies attract and retain top international talent, essential for sectors that rely on skilled professionals.

Overall, the BFU enhances Cyprus’s reputation as a business-friendly destination, promoting it as an ideal location for international companies looking to establish a presence in the European Union.